RBL Bank stock slumps 12% on insider trading concerns

RBL Bank crashed to a 34-month low on Wednesday amid speculation about stock sales by employees in the wake of Cafe Coffee Day founder VG Siddartha’s disappearance, possibly based on undisclosed knowledge of the group’s exposure to the lender. The stock ended 12 per cent down at Rs 313.65, the lowest since October 19, 2016, the worst performer among BSE MidCap constituents. The bank denied any wrongdoing by employees.

“The biggest issue is of insider trading as soon as the CCD issue broke out. The NPL (nonperforming loan) scenario is also an issue,” said Suresh Ganapathy, head of financial services research at Macquarie. “The stock will remain weak till the overhang on asset quality issue is there.”

The bank described the share transactions as routine.


“ESOPs exercised & sale of equity shares by employees for month of July, 2019 is in line with past (transactions). Further, no management committee member including KMP (key management personnel) have sold any shares on July 30, 2019, and thereafter till date,” RBL Bank told exchanges on Wednesday.

“Bank is committed to provide full transparency to all its stakeholders in line with best practices on governance,” it said.

RBL has exposure to some of the companies controlled and linked to the coffee chain’s founder. Analysts expect the stock to languish at current levels until there is clarity on the trading and asset-quality concerns abate.

Hours after a note purported to have been written by Siddhartha hit social media on July 30, several RBL Bank employees sold about 350,000 shares. The stock fell 12 per cent that day. Having gone missing on the evening of July 29, Siddartha’s body was found on the banks of the Netravati river near Mangaluru on July 31. Till the evening of July 30, information about RBL Bank’s exposure to Siddhartha’s companies was not publicly known.

The lender recently warned of risks to its corporate loan book for the next two quarters as it reported a 14 per cent rise in profit to Rs 267.10 crore for the quarter ended June 30 from the year earlier. The bank had said bad loans could rise to 2.25-2.5 per cent over the next three quarters from 1.38 per cent in the first quarter of FY20.

“RBL Bank had been a highgrowth/high-margin bank with strong fee support from its cards business tie-up with Bajaj Finance,” said Emkay Global in a note on Tuesday. “However, the corporate asset quality slip-up and lower growth in the interim are likely to push RoA (return on assets) improvement story to FY21.”

The brokerage, which has a hold rating on RBL Bank with a target price of Rs 425, said the stock will remain under pressure until the bank recognises its stressed corporate pool and resumes its otherwise high return on assets trajectory.

RBL Bank has fallen 45.5 per cent so far this year, making it the fourth worst performing private bank this year after Yes Bank, IDBI Bank and Lakshmi Vilas Bank, which have fallen 53-68 per cent year-todate. RBL Bank trades at a price to book value of 1.8 times.

“There is a question on asset quality and there is also the issue of insider trading as far as the CCD issue goes,” said independent market expert Ambareesh Baliga. “The stock may languish at these levels because when things like this crop up for the first time in a lender which has been touted as the next big thing in the private banking space, it takes time for serious investors to become positive again soon.”