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RBL Bank stock recedes, but regaining the charm would be challenging

Shares of private sector lender RBL Bank Ltd covered some losses in early trade on Thursday after buying at lower levels. At present, the stock is trading at 324.20, up more than 3% on the NSE.

The stock took a beating on Wednesday, following speculation of insider trading. However, the bank later clarified that market transactions of shares by employees was a “routine activity”. In a statement to the exchanges, RBL Bank said market transactions by employees was a routine activity with regular exercise of ESOPs (employee stock ownership plans) and sale of equity shares thereafter.

According to some analysts, while one is seeing investor interest in the stock at these levels, shares of the bank are unlikely to regain their lost charm in a hurry. It should be noted that the RBL Bank stock hit a 52-week high of 716.40 on the NSE in May this year. But its fall from glory was swift with the stock tanking to a 52-week low of 286.10 on 28 August.

The cut got steeper after the bank’s management recently indicated that its asset quality could be under pressure in the coming quarters. In the June quarter, RBL Bank reported a 41% jump in net profit against the year ago, aided by a healthy 48% growth in core income. Although its gross bad loan ratio for the June quarter was steady, slippages increased. What also soured investors’ sentiment towards the stock was the lender’s exposure to Coffee Day Enterprise, whose founder V.G. Siddhartha recently passed away.

Meanwhile, post June-quarter earnings, a slew of brokerages expressed concerns on the bank’s exposure to few stressed corporate accounts. Worried over higher slippages and consequent provisions, some of them reduced their earnings estimates for fiscal years 2020 and 2021.

In a report published on 27 August, brokerage house Emkay Global Financial Services Ltd said that expected the stock to remain under pressure untill the bank recognized its corporate stress pool, and resumed its otherwise high return on assets trajectory.

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