R Subramaniakumar: 'Bad loan expert' in the hot seat at crisis-hit RBL Bank

His appointment raises questions because ex-PSB bankers have historically taken over as heads of financial institutions with weak asset quality and governance

It is not unusual for a public sector banker to head a private sector bank. There have been several recent examples of such transitions — Prashant Kumar, who was a deputy managing director at State Bank of India, took charge of the troubled YES Bank and CVR Rajendran, former CMD of Andhra Bank, was appointed as the managing director (MD) and chief executive officer (CEO) of CSB Bank (formerly known as Catholic Syrian Bank).

So why are investors jittery about former Indian Overseas Bank CEO R Subramaniakumar’s appointment as the MD and CEO of RBL Bank? The announcement of his appointment came over the weekend, and the RBL stock tanked over 22 per cent on Monday even before he took charge. He is expected to take charge in the next few days.

A CLSA note explains the issue. “Historically, ex-public sector bankers have been appointed as heads of financial institutions with weak asset quality and governance, like YES Bank, Lakshmi Vilas Bank and others. Hence Mr Subramaniakumar’s appointment as the MD & CEO of RBL Bank raises many questions,” it said.

In other words, Subramaniakumar’s appointment is being seen as a signal of some sort of a bigger problem at RBL, which had suffered a ballooning of bad loans, than is publicly known.

That perception has been created because Subramaniakumar, who retired as MD and CEO of Indian Overseas Bank in June 2019, is known as something of a “bad loan” clean-up expert. Prior to this, he was appointed by the Reserve Bank of India as the administrator of Dewan Housing Finance Corporation Ltd after the mortgage lender’s board was superseded. He is widely credited for a speedy resolution of the housing finance company’s bad loan problem before it was taken over by Piramal Enterprises.

Several analysts say asset quality concerns at RBL are overblown. “Given the recent performance of the bank on asset quality, we don’t think there are any fresh concerns on this parameter. The corporate book has held up well in recent quarters and we are seeing an improvement in NPL ratios in all other key portfolios as well,” Kotak Securities said in a note.

In an interview to Business Standard on Monday, both Subramaniakumar and interim MD and CEO Rajeev Ahuja highlighted the bank’s declining trajectory of bad loans and said credit costs will fall further in the current financial year.

“We had no divergence for the past several years. Our net restructured book at 2.6 per cent is one of the lowest in the industry. Moreover, that is substantially secured now. The unsecured bit has been provided for,” Rajeev Ahuja said.

Subramaniakumar emphasised the fact that his appointment is not linked to asset quality. “The market perception of asset quality is inaccurate,” he said emphatically.

A banker with 40 years of experience, Subramaniakumar’s career began with Punjab National Bank in 1980, where he was known for revamping the IT infrastructure.

The background of his appointment at RBL is, however, interesting. In December last year, the RBI nominated one of its chief general managers, Yogesh Dayal, to the RBL board as independent director. Following that, then MD and CEO Vishwavir Ahuja went on indefinite leave. Ahuja, a former Bank of America India CEO, is credited with changing the sleepy Kohlapur-based old-generation private sector lender Ratnakar Bank into the swanky new-age RBL Bank in his 12-year tenure but the write off of a Rs 300 crore bad loan within seven months of being sanctioned blotted his record.

One of the concerns among investors is whether the new management will continue with those of Vishwavir Ahuja’s policies that have yielded rich dividends for the bank. For example, will the focus on the highly profitable credit card and microfinance businesses continue? Or the partnership with Bajaj Finance?

Subramaniakumar and Rajeev Ahuja both indicated that those policies will continue. At the same time, a blueprint is being drawn up to create RBL Bank 2.0 — which aims to build on the foundation of 1.0. As Rajeev Ahuja said, the idea is to develop other retail businesses, such as expanding the rural footprint and vehicle finance, and retaining the edge the bank has created over the past several years in cards, microfinance and the technology.

Subramaniakumar’s task, therefore, is to ensure continuity and change. At least in the near term, the going may not be easy for the veteran banker. But he’s faced tougher challenges in his time.