By Suhani Adilabadkar
It took 70 years of business and 6 years of transformation for RBL Bank (which is in 8 stock screeners) to become what is now perhaps one of the most profitable banks of Indian Banking Industry. The IPO in 2016 set the tone for future growth with over-subscription to its shares of about 70X.
RBL is still considered to be one of the most expensive private sector banks in share price, with no specific promoter group and completely professionally managed.
Quick Takes
- Over the past seven years, the bank has grown 40 times in size and 50 times in profitability.
- RBL bank gave its investors a mild scare with its GNPA ratio rising to 1.56% in December quarter and consequently, the stock dipped 4%. Since then there has been recovery and asset quality concerns have decreased.
- RBL Bank’s card business contributes around 40% of total core fee and is among the top 5 in the industry in terms of retail spends per card as well as new card additions.
- Loan Book is robust moving at 36% YoY, Deposits reported healthy growth at 27% YoY with CASA deposits growing 40%.
- Analysts foresee some speed breakers ahead, with rising provisions and non performing assets. The retail side of the loan book is more tilted towards unsecured cards and micro finance business.
- The bank unveiled its 2020 vision in 2016 and is almost halfway through its formulated plan.
Rapid Gains in the Stock Market
To keep up with the growth in the Indian Banking Industry, Ratnakar Bank overhauled its top management in 2010 and changed to its name to “RBL Bank” obtaining a fresh certificate of incorporation issued by the Registrar Of Companies on 24 th November 2014.
RBL Bank went for its Initial Public Offering in 2016. Since its issue price of Rs.225, the stock price has more than doubled and is trading at a 100% premium. As a result, over the past seven years, the bank has grown 40 times in size and 50 times in profitability. Currently, RBL with a network of 266 branches, 369 ATMs, more than 199 banking outlets across 20 Indian states and Union Territories serves around 4.9 million customers.
Quarterly Performance
RBL bank gave its investors a mild scare with its GNPA ratio rising to 1.56% in December quarter and consequently, the stock dipped 4%. Since then there has been recovery and asset quality concerns have decreased as evident from the March and June quarterly results. Both GNPA and Net NPA ratios have improved 16 and 22 basis points respectively since Q3 FY18 and almost constant sequentially.
Though provisions have jumped 48% YoY, the bank’s PCR stood at 60.4%, improving 240 basis points YoY. Coming to the core profitability, every parameter is growing in double digits, Net Interest Income (NII) was at Rs. 553 cr rising 46% YoY and 10%
sequentially.
Net Profit stood at Rs. 190 cr rising 35% YoY and 6% on quarterly basis. Core fee also has grown at a phenomenal rate of 58% YoY at Rs. 289 cr and Net Interest Margin (NIM) well maintained at 4% with a 50 basis points jump YoY.
The Bank's loan book is robust, moving at a 36% YoY growth rate and tilted towards wholesale loans comprising 59% of the total loan book, and the balance with retail. Deposits also reported healthy growth at 27% YoY with CASA deposits growing 40% and CASA ratio improved from 22.09% in Q1 FY18 to 24.42% in June quarter FY19.
CAGR Goals of 30% by 2020
Even with skepticism about its growth sustainability, RBL Bank is marching on its well charted growth path. The bank had unveiled its 2020 vision in 2016 and is almost halfway its formulated plan.
RBL Bank aims to achieve Advances CAGR of 30-35% by 2020 and is absolutely on target with June growth rate reported at even higher rate of 36%. CASA is expected to be improved by 0.75-1% every fiscal, RBL has improved its CASA ratio on an average by 200 basis points every year.
Next parameter the bank hopes to achieve in the next two years is with respect to operational efficiency as cost to income ratio which is as high as 58% in 2016 needs to be brought down to 51-52% levels.
RBL bank has over achieved as cost to income ratio in June quarter stood at 50.80%. The Bank also aims to improve its ROA ratio which was as low as 0.98% in 2016 to 1.50% by 2020. The current ROA stands at 1.26% in June quarter.
Analysts foresee some speed breakers ahead, with rising provisions and non performing assets. In addition to that, retail side of the loan book is more tilted towards unsecured cards and micro finance business, while wholesale advances are more skewed towards short term or less than one year tenure loans. Term Deposits constitute 76% of the total deposits with a lower base of current and savings deposits.
But there are also growth opportunities. RBL Bank’s card business contributes around 40% of total core fee and is among the top 5 in the industry in terms of retail spends per card as well as new card additions. With respect to MFI, RBL bank has reduced its GNPA ratio to 2.54% in Q1 FY19 compared to 5.17% as in December quarter FY18.
In addition to this, Agri business exposure with high stress levels has been restructured and bifurcated between retail and corporate, curtailed to 3.7% from 5% over the past few quarters.
Coming to the deposits part, as the bank is more focused on granularity and stability of deposits which results in higher proportion of term deposits, CASA deposits have grown 40% YOY exhibiting strong movement. Last but not the least, the whole sale book though
highly tilted towards short term working capital-oriented loans is according to the bank, secured with strong customer relationships.
RBL Bank’s market share is still in basis points, but the bank seems to have found its north star. Touted as the next IndusInd Bank in the making, the Bank has a long way to go, but the pointers in the financial statements are positive ones.