Venkatachari Jagannathan Chennai, 27 December : .Urging the Central Government to take action and consider measures to merge RBL Bank Ltd and a public-sector bank, the top leader of All India Bank Employees Association, (AIBEA), said that cats can’t transform into lions or tigers of a juggle in a matter of hours.
RBL Bank, a small private bank of old generation located in Maharashtra was recently featured by the Reserve Bank of India (RBI), who appointed Yogesh Dayal to be an Additional Director for two-years on the bank’s board.The CEO and Managing Director went on medical leave.
Rajeev Ahuja, RBL Bank’s Executive Director was also named Interim Managing director and CEO.
The old generation of private banks operates in niche markets and will have problems trying to copy the expansion plans of newer private banks — both network-wise and in business terms — in the short term.
A cat can’t become a lion, tiger or leopard overnight.Venkatachalam (General Secretary of AIBEA), told IANS that a cat must be a cat, and a horse must be a pony.
According to Dayal, the events that led to Vishwavir Ahuja’s sudden departure and Dayal’s induction from RBI as an additional member of the Board indicate that things are not going well at RBL Bank.
It is evident that total advances by this Bank have increased more than twice in the past few years.
It has risen to Rs 58,000 crore from Rs 29,000 crore in 2017 and is now at Rs 58,000 crore.In recent years, the Bank’s bad loans and Gross NPA (Gross Non-Performing Assets) have increased.
Venkatachalam stated that the Bank’s Gross Non-Performing Assets (GNPA) was Rs 357 crore in 2017, but it now exceeds Rs 2,600 crore.
Continued Venkatachalam stated that the bulk of RBL Bank’s operational profits went towards provisioning over the last couple of years.
“In 2020, the operating profit was Rs 2,752 crore.In 2021 it was Rs 3,091 lakh.Provisions were Rs 2,246 crore.Venkatachalam stated that the net profits for both years was Rs 506 crore, and Rs 508 million respectively.
According to him, the RBL Bank had been indulgent in credit card purchases and micro-finance and retail credit and has consequently burned its hands.This has led to weakening of the Bank’s financials.
Venkatachalam stated that banks such as the former Lakshmi Vilas Bank (later merged into DBS Bank), Karur Vysya Bank(KVB), Tamilnad Mercantile BankTMB), Karnataka Bank and other regional banks are largely regional, rooted in their own traditions.
If these types of banks were to be expanded quickly, they would lead to problems.
Venkatachalam stated that changes in bank names, expansion of branch networks into new areas, and increased loan exposure were all signs of an old generation changing.
Lakshmi Vilas Bank, Dhanlaxmi Bank (originally Dhanalakshmi Bank), were two examples of top managers changing their tracks and landing banks in financial trouble.
Venkatachalam said that RBL Bank, formerly Ratnakar Bank Ltd, is the latest addition to this list.It changed its name and expanded its network.
Venkatachalam also added, “RBL Bank” was recently added.
He said that there are many corporate vultures who are keen to take over banks of old generations.
According to reports, several investors approached RBI asking permission for a 10% stake in RBL Bank.
Emkay Global, in its research report on RBL Bank stated that “Management” (bank management), did not give satisfactory reasons why the RBI appointed an additional director to the board.
“But we believe that the RBI’s long-term discomfort with 1) the unsecured heavy asset-side construct (MFI + Cards at 31 per cent) creating asset quality risks as seen during Covid, and 2) poor compliance with its directives (about risk management/governance/succession) could have possibly led to its swift intervention, apart from ensuring a smooth management transition and comforting the stakeholders,” Emkay Global added.
We believe that, to ease investors’ fears, management will need to provide more information to explain Mr Vishwavir Ahuja’s sudden departure (June 2022), and RBI intervention (typically observed in banks such as Ujjivan or Dhanlaxmi LVB, J&K Bank).
Emkay Global stated that they believe the story will be told in its entirety.
Venkatachalam believes that the RBL Bank should cease issuing credit cards and stop branch expansion.
It also needs to reduce operational costs as well as its funds cost.He recommends that the bank draw up a plan of action for the five-year future.
Venkatachalam said that the bank should consider special recovery options in cases of outstanding loans.
(Venkatachari Jagannathan can be contacted at v.jagannathan@ians.in)
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