The selection of a former public sector bank (PSB) executive, also known for steering the resolution of a bankrupt housing finance company, sent alarm bells ringing about the state of RBL Bank’s financials.
A day after RBL Bank appointed R Subramaniakumar as its chief executive, analysts watching the sector expressed disappointment at the choice. The selection of a former public sector bank (PSB) executive, also known for steering the resolution of a bankrupt housing finance company, sent alarm bells ringing about the state of RBL Bank’s financials. RBL Bank’s share price hit a lifetime low of Rs 86.25 on Monday amid a heavy selloff in Indian equities.
Analysts at CLSA said in a report that the new CEO appointment raises several questions which could come to weigh on the stock’s performance. “Mr. Subramaniakumar is an ex-PSU banker, and historically such appointments at financial institutions have been associated with weak asset quality and/or governance structures. Hence, the CEO appointment raises more questions including the continuity of the existing top leadership at the bank,” the broking firm said.
Although CLSA believes asset quality will not be a problem for RBL Bank, the situation could have a potential weakening impact on liabilities and hence affect the bank’s performance and growth trajectory adversely. Therefore, the broking firm has downgraded its recommendation on the bank to ‘outperform’ from ‘buy’ on an unchanged price target of Rs 130.
Other sector watchers echoed CLSA’s confidence in RBL Bank’s asset quality, but made a case for greater clarity on some other aspects. Kotak Institutional Equities (KIE) said that it would watch out for the lender’s strategy, given its reliance on high-yielding product segments like credit cards and microfinance, as well as its ability to retain employees.
“We also need to understand the medium-term relationship of Bajaj Finance, given that they would need a strong partner to achieve their growth objectives as well,” KIE said. RBL Bank has a co-branded credit card partnership with Bajaj Finance for a five-year period up to December 2026.
Questions also prevailed about the likely cultural problems that could crop up with a PSU banker taking charge at a private bank. Analysts at Emkay Global Financial Services said, “We believe that his selection by RBL and relatively swift approval by the RBI indicate possible RBI blessing throughout the process to bring stability and credibility to the bank.”
While the new CEO’s priority would likely be to improve portfolio quality, strengthen compliance and risk management architecture and stabilise the bank, there could be a potential risk of some asset-quality clean-up and mid-level management attrition, Emkay said.