The fiasco in RBL

  A.Srinivasan

Ratnakar Bank was started in 1943 in two small cities, Kholapur and Sangli of Maharashtra State. It became a scheduled bank in 1959. This bank, like many other traditional private banks, was serving people from all strata of society and making slow and steady progress in its business parameters. It was in 2010, Shri Vishwavir Ahuja, the former country head of Bank of America became the MD & CEO of this bank. He held about 3.03% of bank’s total share value. During his period, the bank came out with public issue and the bank’s name was changed as RBL in 2014.

On 25^th Dec 2021, Reserve Bank of India (RBI) asked the MD & CEO of this bank to proceed on medical leave. Shri Rajiv Ahuja the then Executive Director of the bank was asked to take up the responsibilities as the MD & CEO of the bank. This sudden decision of the RBI raised many doubts to its customers. Neither the RBI nor the RBL board came out with any specific reason for this sudden change in the head of the Bank.

It may not be out of context to say that this bank had the patronage of the power corridors and also the print and electronic media. This helped the bank shares to shore up to Rs.660/- and the former MD & CEO sold a major portion of his own shares! Also the business parameters had a sudden jump, which the RBI as a regulator and supervisor failed to study and investigate. The loans to big corporates and short mortality of some of these loans made the bank business a whole mess. The bank had to sell off its Non-Performing Assets (NPAs) numbering 25 at a throwaway price, which resulted in sharp decline in its net profit. The following table shows the operating and net profits and provisioning for bad loans of RBL.

(RS IN CRORES)

YEAR	OPERATING PROFIT	POROVISIONS	NET PROFIT	NET PROFIT AS % TO OP. PROFIT
2017	920	474	446	48.47%
2018	1331	696	635	34.68%
2019	1940	1073	867	44.69%
2020	2752	2246	506	18.28%
2021	3091	2583	508	16.43%

These figures speak loudly. The net profit as a % of operating profit has come down drastically. The hard earned operating profits by the employees and officers of the bank had drained towards provisions for NPAs. In 2017 the net profit was 48% of operating profit; whereas in 2021 the net profit got reduced to just 16.43% of operating profit, despite a huge increase of operating profit by 236% in 4 years. It is appalling that the provisioning increased by 445% in 4 years.

In the period of 4 years in monetary terms the operating profit grew by a whopping Rs.2171 crores; whereas the net profit grew only by 62 crores. Various other business parameters of the bank are pale. The customers are in dark about the safety of their deposits.

RBI and the RBL Bank management attempt to hide the weaknesses under the carpet citing that the bank enjoys 16.43 as Capital Adequacy Ratio. But the reality is otherwise as shown by the business parameters.

Reserve Bank nominee has already been there in RBL Board. Even then the lackadaisical approach of the RBI as a regulator has raised the suspicion among the depositors. The recent happenings in Lakshmi Vilas Bank, Yes Bank, Punjab & Maharashtra Co-operative Bank etc. have created anxiety and tension in the minds of the depositors about the health of RBL and the safety of their deposits. There are enough indications that this bank also would face serious crisis sooner or later.