Yesterday’s Market Performance

Nifty: 17086.30 | 82.50 (0.49%)
FII Net Sold: INR -1,038.25 crore

Sensex: 57420.24 | 295.93 (0.52%)
DII Net Bought: INR 955.79 crore

RBI rejigs RBL Bank Top Management; What’s up and What do you need to know? 👀

What happened? 

• In a surprising turn of events (Christmas day et.al), India’s OG Bank & central authority, the RBI appointed its chief general manager as an additional director on the board of RBL Bank for a period of 2 years

• Not okay with just a board seat (:PP), RBI also sent the current MD & CEO on extended medical leave, elevating the incumbent Executive Director to the position of interim MD & CEO

Damn! Why? How’s the bank’s business & financial health? And next steps? 🤔

• The management (in a call) emphasized that the changes in top management/board were not due to any asset quality/divergences, with recovery largely in line; however, RBI’s long-term discomfort around (below points) could be attributed to the change

  • Unsecured heavy asset-side construct (MFIs + Cards account for ~31%) creating asset quality risks

  • Poor compliance with its directives (around risk management/governance / succession)

• The outgoing MD & CEO’s tenure was to end in 6 months, and yet the RBI decided to act prior; such actions have typically been seen in weal banks, including Ujjivan, Dhanlaxmi, LVB and J&K Bank

• RBL carries a liquidity buffer of INR 120-130 Bn (~17% of deposit base), to deal with any potential deposit run-down events, while present Net NPAs stand at ~2.1%, and 0.5% exit RoA (FY21)

• The Nomination & Remuneration Committee (NRC), under the oversight of the board, will recommend a candidate to replace the outgoing MD & CEO, with no announced time-frame

• That being said, appointing an internal candidate as interim MD & CEO will likely maintain some form of business continuity, which can pay off in the long run

• The Bank’s been on a turnaround story, especially since the March-19 Yes Bank saga, with the management rejigging core strategic objectives and building out a healthy retail deposit base

• Likewise, with the RBI stepping in due to heavy concentration of unsecured products (think: MFI + Cards), the Bank is bound to go through another round of business / asset quality dislocation

• Given overall weakness on the counter & general rumours flying, RBI released a clarification letter during market hours indicating that the appointment of a special director on the board was done purely to provide regulatory / supervisory support

• Further, India’s Numero UNO lender indicated that there was no reason for depositors & other stakeholders to panic, with the Bank’s financial health intact in the near term

• The stock was down 20%, hitting lower circuit during trading on 27/12, and will likely remain under pressure with the number of unfulfilled sell orders in the system

Keep a track for next set of announcements on succession & business metrics

• The regulator is looking to introduce a minimum price band in all public issues (don’t know the applicability of this), with the upper one at least 5% more than the floor price (to bring in the process of price discovery)

• Lastly it might consider dividing the non-institutional investors’ category (i.e high networth individuals) into two

• In a bid to promote the preferential share offers route, SEBI might also relax price norms and lock-in periods (from 3 years to 18 months) for promoters

• Post the PNB Housing Finance-Carlyle fiasco, companies will have to undergo a valuation exercise in case of a change in control following a preferential allotment of shares to investors.

Damn! Final thoughts? 

• SEBI has done some extensive feedback collection and issued consultation papers in November seeking responses from the public

• Strong support can be seen for the measures taken to promote the preferential share route, as well as increasing the lock-in period for anchor investors

Keep a track for further announcements

What else caught our eye? 👀

Google wants to tackle the CCI

• The Alliance of Digital India Foundation (ADIF) comprising 422 startups had filed a petition against Google’s Play Store billing policy
• The court had extended the deadline earlier too to give Google more time to respond but the latter has still not put forth their case
• They have now filed a writ seeking relief from the CCI’s probe but have said that they will ‘continue to engage cooperatively and constructively in the interest of a fair investigation’

Air India handover to Tata Group gets delayed 

• Accepting the bid from the Tata Group, handover of India’s premier airline is delayed by a month, owing to completion of procedures taking longer than expected
• As per the conditions stipulated in the Share Purchase Agreement (SPA) formalities of handover is to be completed within a period of 8 weeks, with this deadline up for extension, if mutually agreed upon by all parties
• On October 25, the government had signed a SPA with Tata Sons for sale of Air India for a sum of INR 18,000 crore, with Tata’s shelling out INR 2,700 in cash and taking on 15,300 crore of the airline debt

Trade ban continues

• NSE has put three stocks under ban for trade on Dec 27 under the F&O segment which are Indiabulls Housing Finance, Escorts, and Vodafone Idea
• The stocks have crossed 95% of the market-wide position limit (MWPL); Zee Entertainment Enterprise has managed to lift the ban
• Trade in derivates of these stocks can take place only to decrease holdings; any fresh positions/increase will lead to regulatory action

Government Bonds

A government bond is a debt instrument issued by the Central and State Governments of India. Issuance of such bonds occurs when the issuing body (Central or State governments) faces a liquidity crisis and requires funds for the purpose of infrastructure development.

Types of Government Bonds in India: 

• Fixed-rate bonds
• Floating Rate Bonds (FRBs)
• Sovereign Gold Bonds (SGBs)
• Inflation-Indexed Bonds
• 7.75% GOI Savings Bond
• Bonds with Call or Put Option
• Zero-Coupon Bonds