How does RBL Bank, which saw abrupt exit of MD & CEO Vishwavir Ahuja, fare on key performance parameters?

RBL Bank's interim MD and CEO Rajeev Ahuja on Sunday said that the recent developments in the bank were not on account of any concerns about advances, asset quality, or other issues. He was referring to the sudden exit of long-standing MD and CEO Vishwavir Ahuja, and the induction of RBI-appointed Yogesh Dayal as an additional director on the bank's board. Let's take a look at how the private sector bank performs on key financial parameters:

Comfortable Liquidity Coverage Ratio

The bank had a liquidity coverage ratio (LCR) of 154 per cent as of September 30, 2021, much higher than the RBI's minimum requirement of 100 per cent. LCR is a global benchmark that measures the short-term resilience of banks. It indicates how prepared a bank is for any short-term liquidity stress by way of withdrawal of deposits or funds by external parties. In the last five years, RBL Bank has been increasing its deposit base, with outstanding deposits almost doubling to Rs 71,000 crore.

Adequate Regulatory Capital 

The bank has a capital adequacy ratio of 17.50 per cent, which is very comfortable. In banking business, every lending of Re 1 is backed by capital. A year ago, the bank had raised over Rs 1,500 crore from marquee investors like Baring Private Equity Asia, ICICI Prudential Life Insurance, Gaja Capital, and CDC Group Plc. However, the bank's loan growth has stagnated a bit in the last three years. The provisioning coverage ratio for non-performing assets (NPAs) also needs to go up. 

Also Read: RBL Bank MD and CEO Vishwavir Ahuja goes on leave with immediate effect

Experts say once the bank starts to grow its loan book, its capital requirement will definitely go up. The interim CEO Ahuja, however, said that the bank has enough capital for the next 2-3 years. RBL Bank's share price has also crashed in the last three years from close to Rs 700 to Rs 172 per share. At this stage, any capital raising in the form of core equity will lead to more equity dilution. 

Deteriorating Asset Quality

The bank's asset quality has been deteriorating since 2018-19. About 3.5 years ago, the bank had one of the best asset quality numbers with gross NPAs at 1.38 per cent and net NPAs at 0.69 per cent. However, in 2020-21, RBL Bank's NPAs deteriorated to 4.34 per cent at gross level and 2.12 per cent at net level. The slowdown in the economy impacted its borrowers. The pandemic hit its asset quality numbers further. In the second quarter of 2021-22, its gross NPAs jumped to 5.40 per cent and net NPAs were at 2.14 per cent. Given the pandemic disruption, with third wave around the corner, and loan restructuring availed by borrowers, the real picture of NPAs will emerge once the two-year restructuring period gets over next year. 

Lower Profitability

The bank's profitability also took a hit in the last three years because of higher NPAs and provisioning pressure. Profit fell from Rs 867 crore in 2018-19 to Rs 508 crore in 2020-21. The return on assets also declined from 1.27 per cent to 0.54 per cent in the same period. There is also a flight to safety to higher-rated corporates where the margins are not high. Similarly, the bank's unsecured loan portfolio, where the yields are generally very high, has also slowed down.

Also Read: What led to the sudden exit of RBL chief Vishwavir Ahuja?