Small Is Beautiful

Small Is Beautiful

The bank is looking to grow 10 per cent above the industry average. "Our investors expect it," says Managing Director and CEO Vishwavir Ahuja who has managed to transform the erstwhile Ratnakar Bank into the country's fastest-growing small bank.

Vishvawir Ahuja MD & CEO, RBL Bank (Photo: Rachit Goswami) Vishvawir Ahuja MD & CEO, RBL Bank (Photo: Rachit Goswami)

Vishwavir Ahuja, the Managing Director and CEO of Kolhapur-based RBL Bank, has big plans for the next few months. The 55-year-old would roll out Vision 2020 for accelerating growth. He is also getting the bank ready for its initial public offering, or IPO, this year.

"It was clear to us that we were building an institution to leave behind some positive legacy"

The bank is looking to grow 10 per cent above the industry average. "Our investors expect it," says the former head of Bank of America in India who has managed to transform the erstwhile Ratnakar Bank into the country's fastest-growing small bank.

Ahuja, with his core team - most of whom are from global banks - has stumped other banks with the pace of growth he has managed in a short span of five years. During this period, deposits have risen 20 times to Rs 17,099 crore, loan book eight times to Rs 14,450 crore, and operating profit almost 19 times from Rs 19 crore to Rs 360 crore. When Ahuja joined, the customer base was 150,000. It is now 1.7-1.8 million. The bank is aiming for 10 million by 2020.

And, it's not just growth. "They have improved efficiency, too, while achieving size and scale," says Deven Choksey, Managing Director, KR Choksi Securities. The bank, with a balance sheet of Rs 27,104 crore, has a comfortable capital adequacy ratio of 13.13 per cent and one of the lowest net non-performing assets (NPAs) of 0.27 per cent.

While it has enough capital to grow at the present rate for the next 10 months or so, the proposed IPO is for meeting the capital requirements after that. "We need Rs 1,000 crore, which we plan to raise from the IPO in the next nine months. The IPO money will be sufficient for two years," says Ahuja.

The bank, which was earlier primarily into lending to local traders in Maharashtra, is now also giving loans to mid-level companies as well as small and medium enterprises. It has also entered treasury, foreign exchange, and trade and cash management segments. In retail lending, it had taken over RBS India's home loan and credit card businesses. "We market home loans and mortgages on behalf of HDFC. We book it on their balance sheet and collect a fee. We should directly get into a business only when collection and risk management apparatus are in place," says Ahuja.

The team has built everything from scratch. "It's a long journey, which needs a lot of hard work and sweat. It was clear to us that we were building an institution to leave behind some positive legacy," he says.

However, a lot of work still needs to be done. The bank has one of the highest cost-to-income ratios of 0.62 per cent, which it says will come down as alternative delivery channels such as mobile are scaled up. The bank plans to bring it down to less than 50 basis points by 2020. Similarly, the bank lags with return on assets (RoA) of 0.76 per cent and return on capital employed (RoCE) of 9.76 per cent. The best among small private banks is City Union Bank with RoA of 1.42 per cent and RoCE of 16.74 per cent .

City Union Bank: Productivity & Efficiency Winner/Small Banks

Dr. N. Kamakodi MD & CEO, City Union Bank

City Union Bank, the South India-based old private sector bank, has taken a number of initiatives to digitise operations. These are now paying rich dividends. As part of the plan, it has installed about 300 bulk note acceptors, expanded the ATM network, upgraded internet banking and introduced mobile banking.

"Our first agenda is to increase the use of alternative banking channels. Our initiatives are already yielding good results," says N. Kamakodi, Managing Director and CEO, City Union Bank. In the BT-KPMG study, this small bank has emerged as the winner in productivity and efficiency category. It has the lowest cost-to-income ratio of 0.43 per cent due to improvements in return on assets and operating profits. The bank says that the use of alternative channels may touch 85-86 per cent in the next few quarters.

"This has not only helped us reduce the cost-to-income ratio by 200 basis points but has also brought other benefits such as reduced crowds and lower operational pressure at our branches," says Kamakodi. In manpower, the bank has created surplus capacity in branches that could be utilised for business development initiatives over time. "Quantification of the opportunity is difficult now, but the opportunity is tremendous," says Kamakodi.

On challenges, Ahuja says the new set of banks, that is, payments banks and small finance banks, will cause some disruption in the beginning due to their higher spending on infrastructure and customer acquisition and ability to operate with low margins to begin with, though they, too, will have to sustain themselves in the longer run.

RBL, with 60 per cent branches in rural and semi-urban areas, is well-suited to serve the bottom of the pyramid where these new banks are also expected to operate. In the past, it has hired a lot of talent from microfinance companies for self-help group, joint liability lending and micro-lending businesses. On the rural agriculture side, too, which involves lending for drip irrigation, cultivation, warehousing and transportation, it has put in place an expert team. "The right technology, with low cost and without frills, was necessary," says Ahuja. The bank has also enhanced its reach by opening more branches in semi-urban and rural areas, besides setting up a business correspondent network to provide doorstep services in villages. A suite of new products, including micro loans, remittances and micro insurance, have also been delivered in addition to liabilities products, with help from cost-effective technology. Both financial inclusion/microfinance and agriculture businesses account for about 45 per cent balance sheet and more than one-third income.

Ahuja's ambition is change the pecking order of the country's banking sector. In 2010, it was the second-smallest scheduled commercial bank in the country ranked at 97 in terms of balance sheet size. It is in the 40s now. The bank wants to halve it in the next five years.

Ahuja, who has for most of his life worked for global banks and dealt with multinational clients, says he is enjoying working in semi-urban and rural areas. "This is real banking. The learning factor here is engagement with every segment of the society," he says.