RBL Bank: RBI Action Intended To Ensure Smoother Transition
The Reserve Bank of India's decision to appoint an additional director on the board of RBL Bank Ltd. was intended to ensure a smoother management transition at the lender, with chief executive officer Vishwavir Ahuja set to step down in June.
The regulator was not in favour of Ahuja staying beyond the one year permitted in last June, according to two people familiar with the matter. While in some cases, the RBI, after permitting a one-year tenure for a bank chief executive, had chosen to extend it, this was unlikely in the case of RBL Bank, the first of the two people quoted above said.
With six months left before Ahuja’s exit a transition plan needed to be put in place. To ensure that compliance and supervision related issues don’t worsen during the transition period, the RBI had chosen to appoint an additional director, the first person quoted above said. The regulator has the power to do so under the Banking Regulation Act.
According to the second person quoted above, tensions had emerged between Ahuja and the RBI. While there were some compliance lapses, these weren’t seen as material and Ahuja wanted the RBI to ease up on the pressure. There was an unfortunate ego battle between Ahuja and the RBI, this person said.
In addition, health issues faced by Ahuja were also a factor behind him seeking leave although some of these issues have persisted for some time now, the people quoted above said.
The bank’s board has approved Vishwavir Ahuja's request for medical leave, said Rajeev Ahuja, interim MD & CEO, RBL Bank at a press conference on Sunday. The bank and current management team have the full support of RBI and recent developments are not a reflection on our performance, he said.
According to Rajeev Ahuja, he is not aware of any governance related investigations against any member of the bank. However, more needs to be done on risk management and compliance, he said.
A message sent to Ahuja seeking clarity was not answered. An email was sent RBI on Sunday. The story will be updated with any responses.
Bank’s Stated Financials
The bank’s stated financials, while volatile, are not unacceptably weak. Gross non performing assets are at 5.4% and the net NPA ratio is at 2.14%. Provision coverage ratio is at 61.7% and capital adequacy ratio is at 16.3%.
The bank is also in talks with a U.S. fund for further infusion of capital, the second person quoted above said.
To be sure, the bank has focused on high risk areas like credit cards and microfinance for growth, which has led to volatility in earnings, said an analyst who spoke on condition of anonymity.
The third quarter is expected to be better than Q2 this year, while Q4 would bring us back on track as we were pre-Covid, Rajeev Ahuja said. “We have absorbed all the challenges on asset quality front.”
The bank does not need any additional capital, Rajeev Ahuja added.
As the transition takes place, Rajeev Ahuja who takes over as interim chief executive and is also likely to be a candidate to replace Vishwavir Ahuja permanently, has the support of the RBI.
The second person quoted above said that certain personality issues, which may have aggravated problems between Vishwavir Ahuja and the RBI, will not be there in the case of Rajeev Ahuja.
Rajeev is the other end of the temper spectrum, this person said, while adding that the RBI appears firmly behind him going by proceedings at the board meeting on Saturday.
As a matter of caution, the regulator is monitoring deposit inflows and outflows at the bank following recent developments, said the first person quoted above. So far, there is no reason for concern, this person added.
The bank has not elevated cash withdrawals over the weekend, Rajeev Ahuja said.
This story has been updated with comments made by the RBL Bank’s interim CEO at a press briefing on Sunday.