Title – Significance/ Relationship of RBL Bank with Nifty 50
Author – Roshni Prakash Kahate
Introduction – RBL Bank, headquartered in Mumbai, is currently the eighth largest private sector bank in India based on market capitalization. It was established as a regional bank in 1943 and operates in five sectors: corporate and institutional banking, commercial banking, retail banking, agriculture development banking, and financial market access. The bank is known for its fast growth and aims to become a “Bank of Choice” by developing relationships with customers, employees, and partners through trust and respect. In 2019, the bank received several awards, including the Outlook Money Award, Business Today Financial Awards, and BFSI Digital Innovation Awards 2019 by Express Computers. The bank is listed on both the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE).
Objective – Calculation for beta of RBL Bank (Ratnakar Bank Limited) and its significance.
Literature Review – 1. Impact of Profitability on Productivity of RBL Bank
The researchers have highlighted the importance of productivity and profitability in the banking industry for long-term sustainability and gaining customer support. They have specifically focused on RBL Bank, which is the eighth largest private sector bank in India in terms of market capitalization. The research paper emphasized that that sound productivity and profitability are crucial for gaining a larger market share and supporting current and future operations of the bank. They have evaluated RBL Bank’s productivity and profitability using various accounting ratios. It has been noted that RBL Bank has shown impressive growth in terms of interest income, other income, total income, and net profit during the study period. The bank has also demonstrated better efficiency in expenses, with an average spread per branch and burden per branch of Rs. 3.84 crore and Rs. 1.19 crore respectively during the study period. The bank has efficient employees, with an average total business per employee of Rs. 10.90 crore during the study period, and has earned an impressive net profit per employee of Rs. 0.07 crore. Overall, the bank has shown strong productivity and profitability during the study period, with a profitability ratio of 1.21%. (Seth,2019)
2. Volatility in Indian Stock Markets
The research paper focuses on the Indian stock market and its recent erratic movements, which have led to investor optimism at unexpected levels and a potential speculative bubble in “New Economy” stocks. They have analyzed the reasons behind this volatility, including both the fundamentalist view based on the Efficient Market Hypothesis and the view that psychological factors are at play. The study also examines the effectiveness of stock market regulations such as rolling settlement and dematerialization in reducing volatility. The findings of this research had been useful for investors and market regulators in making the Indian stock market more efficient. (Chowhan and Shukla,2000)
Data Collection – The closing price data of Nifty 50 and RBL Bank was taken from Yahoo Finance (https://finance.yahoo.com/?fr=sycsrp_catchall ) for the time period of 1st April 2022 – 31st March 2023.
From the available data the closing rate of all the Fridays in the year was sorted to find out weekly returns for both Nifty as well as Ratnakar Bank Limited (RBL) and the weekly returns were calculated for both, by using formula –
Weekly Return = (C3-C2)/C2*(100), where C3 represents week closing price and C2 represents previous week closing price.
Once the data is calculated, weekly return column of NIFTY 50 is considered as “X” variable whereas the weekly returns column of RBL Bank is considered as “Y” variable.
Data Analysis –
We can write the equation in the form of Y= a+b(X)
Where, Y=RBL Returns
X=Nifty-50 Returns
a=intercept and b=Slope
Hence, the equation become,
Y= (0.2121) + 2.3673*X
RBL Return = (0.2121) +2.3673*(Nifty-50 Return)
(t-stat = 4.672)
N=51,
R2=0.3082 and
F=21.8356
The above equation shows the relationship between X and Y (As b is positive) means there is a direct relationship which implies that is X rises, Y also rises and vice versa. In this equation b = 2.36, that is if X rises by 1 unit, Y will rise by 2.36 unit, t-stat for b is greater than critical value, so b is statistically significant at 5% significance level.
R^2 = 0.3082 which means only 30.8% of Y i.e., RBL Bank (Ratnakar Bank Limited) weekly returns is explained by X i.e., Nifty returns.
Similarly, F = 21.83, which is also greater than table value.
And p-value is greater than 0.05, so the model is statistically significant at 5% level of significance.
Conclusion – As, beta (b) is more than 1, which implies RBL Bank is good for short term investment.
References –
Dr. Manish Seth, “International Journal of Research in Engineering”, Volume 09 Issue 04, April 2019.
Piyush Kumar Chowhan & Vasant Shukla, “Volatility in Indian Stock Markets”, May 2000.