Does Your Mutual Fund Scheme Hold Shares of RBL Bank? Here’s What to Do...
Divya Grover
Dec 27, 2021
Listen to Does Your Mutual Fund Scheme Hold Shares of RBL Bank? Here’s What to Do...
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In a regulatory filing, RBL Bank has announced that its Board has accepted the request of MD and CEO Mr Vishwavir Ahuja to proceed on medical leave with immediate effect. Mr Rajeev Ahuja (existing Executive Director of the bank) has been appointed as the interim MD and CEO of the bank.
Meanwhile, the RBI has appointed Mr Yogesh Dayal as an Additional Director on the Board of RBL Bank for a period of two years or till further orders, whichever is earlier.
After these two major developments over the weekend, the shares of private sector lender RBL Bank hit a 52-week low, slipping as much as 20% today, i.e. December 27, 2021. Several equity-oriented mutual funds have exposure to RBL Bank.
Graph 1: RBL Bank price tumbled around 20% today
Data as on December 27, 2021
(Source: NSE)
Notably, Mr Vishwavir Ahuja played a key role in transforming RBL Bank into one of the fastest-growing private sector banks in India. The sudden exit of the long-standing CEO and appointment of Mr Yogesh Dayal, the Chief General Manager of RBI, has raised concerns that everything may not be hunky-dory at the bank.
Though RBI's induction of its members on banks' Board is not uncommon, it usually did so in cases where there were governance issues, troubled finances, or both. Consequently, RBL Bank's share price plunged sharply today.
The stock prices recovered to some extent later in the day after RBI released a statement saying that RBL Bank is well capitalised and the financial position of the bank remains satisfactory. That said, neither RBL Bank nor RBI has given a satisfactory answer for the recent surprise development.
(Image source: www.freepik.com - photo created by senivpetro)
It is important to note that RBL Bank has a healthy liquidity coverage ratio of 154% and capital adequacy ratio of 17.5%, as of September 30, 2021. It reported a net profit of Rs 31 crore in the second quarter of the financial year as compared to a net loss of Rs 459 crore in the first quarter, though lower than the net profit of Rs 144 crore reported during the same quarter a year ago.
However, RBL Bank's net asset quality has deteriorated during the year. Its Net NPA stood at 2.14% compared to 1.38% a year ago. Moreover, RBL Bank's retail loan portfolio has high exposure of about 40.5% to the unsecured credit cards segment.
Graph 2: Break up of retail loan portfolio of RBL Bank
RBL Bank retail loan portfolio as of Q2 FY2022
(Source: RBL Bank presentation)
Mutual Funds could be impacted by the decline in RBL Bank's share price
As mentioned earlier, several equity-oriented funds have a significant allocation to stocks of RBL Bank. Some of the categories that have higher exposure to RBL Bank are Mid-cap Funds, Banking & Financial Services Fund, and Value Funds. In terms of AMC, Nippon India Mutual Fund and Tata Mutual Fund have the most number of schemes that have invested in RBL Bank.
Axis Value Fund, UTI Banking and Financial Services Fund, ITI Midcap Fund, Nippon India Banking & Financial Services Fund, and Taurus Discovery (Midcap) Fund are among the schemes that have an allocation of more than 1% of its assets in stocks of RBL Bank. These schemes could witness a noticeable drop in their daily NAV in the near term.
Table: Several equity mutual funds hold exposure to shares of RBL Bank
Data as of November 30, 2021
(Source: ACE MF)
RBL Bank's share price had witnessed stagnated growth even before the recent development. Unlike many other stocks across the market cap spectrum, RBL Bank has not seen a sharp rise in its price since the lows of March 2020.
If you recall, RBL Bank's shares fell steeply following the Cafe Coffee Day episode in July 2019. At that time the bank had informed about its exposure to certain entities of the Coffee Day Group. However, even before the bank disclosed this information to stocks exchanges, around two dozen senior officials of RBL Bank allegedly sold shares of the bank. From its all-time high level of around Rs 687 in May 2019, the stocks steadily declined to an all-time low of Rs 110 in April 2020.
Graph 3: RBL Bank share prices have plunged sharply from its all-time high
Data as on December 27, 2021
(Source: NSE)
What should investors of mutual funds that hold shares of RBL Bank do?
Some of the aforementioned mutual fund schemes (see table above) have held the stocks of RBL Bank for over a year now. The fact that these funds have added the stock despite poor show in recent years, as well as the alleged insider trading issue, raises concerns about whether the schemes are following prudent practices to pick quality stocks.
The way things are, RBL Bank's share price could be highly volatile in the near term. However, it remains to be seen whether the developments at the RBL Bank will have negative impact on stakeholders, depositors, and investors over the medium to long term. We can only hope that it does not go the Yes Bank way.
At PersonalFN, we have always encouraged investors to invest only in schemes that focus on picking quality stocks and avoid chasing momentum bets. As an investor, always invest in a fund house that follows prudent investment practices with adequate risk management mechanisms.
Additionally, you should avoid investing in Sectoral/Thematic funds because if such incidents occur, the scheme could witness a sharp decline in its NAV due to the concentrated nature of the portfolio.
PS: If you are looking for quality mutual fund schemes (including Equity-linked Saving Schemes) to add to your investment portfolio, I suggest you subscribe to PersonalFN's premium research service, FundSelect. PersonalFN's FundSelect service provides insightful and practical guidance on which mutual fund schemes to Buy, Hold, and Sell.
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If you are serious about investing in a rewarding mutual fund scheme, subscribe now!
Warm Regards,
Divya Grover
Research Analyst
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