Starting its journey 400 km away from India's financial capital, Kolhapur-based RBL Bank is now giving established banks a run for their money. Its credit card portfolio is among the fastest-growing in the industry, having increased 2.6 times in the last one year with a 1.47 million cards now.
The bank has turned the turmoil in the NBFC space post the IL&FS fiasco to its advantage. RBL Bank now has one of the fastest-growing housing loan portfolios as well - its loan against property (LAP) portfolio was up 49 per cent in the December quarter, beating the industry average of 33 per cent during the period. The bank has a retail book of 29 per cent of its advances and the LAP portfolio comprises 39 per cent within retail. Alongside, its net interest income increased 40 per cent over the year-ago period.
But for RBL's Managing Director and CEO Vishwavir Ahuja, growth is the outcome, not the target. "These are just metrics. We bother about what goes as inputs. It starts with strong governance framework, risk management process, operations, and compliance that finally result in a better outcome for all stakeholders," he says.
While extending credit has been a challenge for many financial institutions in the last five to seven years, Ahuja, former head of Bank of America, says it is all about bringing back learning from failures to strengthen the system further. This reflects in the bank's stock price - its market capitalisation at Rs 23,331 crore is bigger than some of the public sector banks.
Cruising with Cards
Being a late entrant on the retail banking scene has worked to RBL's advantage. It has learnt from others' mistakes. "We were clear that we needed a strong analytical base, technology and data because the cards business, once scaled up, can become great or very poor based on your capabilities. Our strategy was to work with partners who could bring a deeper relationship with their customers," he says. RBL forged partnerships with BookMyShow, Bajaj Finance and MoneyTap besides external partnerships like with credit bureau CIBIL, to gauge a customer's creditworthiness.
RBL's card business turned profitable more than a year back. The bank is now adding over 100,000 cards per month with gross NPA in the segment standing at a negligible 1 per cent. Ahuja believes that an unsecured business like credit cards, if done well and priced well, can deliver superior risk adjusted returns over the long term. "The return on assets is more. We are getting there progressively and over the next 2-3 years, as our base becomes larger, we will be able to absorb that growth without impacting the overall returns."
RBL is among the top five in the industry in new cards acquisitions and cards spends. Cards contributed 41 per cent to the bank's total fee income in the December quarter. "Sustained traction in the cards business and focus on offering an exhaustive basket of products will boost fee income further," says Darpin Shah, AVP at HDFC Securities.
At the other end of the spectrum is the LAP portfolio. For RBL, this too has been stable since over a year, given its underwriting practices, cash flow-based lending and over 75 per cent of collateral being self-occupied. "The bank's purpose behind LAP is to provide a hedge to the overall retail portfolio as LAP is a secured loan. RBL's LAP is unlike the bulk of the LAP market, which may not give lucrative return on asset but would provide stability and a hedge during downturns," says Shivaji Thapliyal, a research analyst at Nirmal Bang.
While the bank is growing rapidly on most counts, it has not lost focus on branch expansion. At December-end, the bank had 288 branches - 112 in metros, 45 in urban, 76 in semi-urban and 55 in rural areas. "We took three to four years to get our business model right. We were clear that while an app can give some comfort and efficiency, branch centricity as trust is supreme," says Ahuja.
RBL plans to close this fiscal with about 320 mainstream branches. It also services rural areas through RBL Finserv, which has over 950 branches. Most of the new branches will come up in metro and urban locations. "By March 2020, we will be close to 400. At that point, the base becomes large enough to afford a more interesting expansion," Ahuja says.
Analysts agree with Ahuja's plans. "Branch expansion and strong growth in cards business led to 11 per cent quarterly growth in operating expenses for RBL. But continued branch expansion and differential pricing will drive CASA growth here on," says Shah of HDFC Securities.
Branch expansion is also crucial for RBL to achieve a national identity. The bank earlier primarily lent to local traders in Maharashtra and then moved to lending to small and medium enterprises, before getting listed in 2016.
RBL faces competition from new banking licences. "It does increase competitive intensity for us. Today, our size is larger than what it was 4-5 years back and we can absorb some of these pressures, which emanate from deposits mostly," says Ahuja. To grow the deposits base one requires expansion of branch network as well as time. "There has been some anxiety in the market as deposit growth has been lower than credit growth, which has been a challenge for all of us. But we could handle it as there were many avenues to manage ALM (asset liability management). We keep a very liquid balance sheet so that we don't have to pay excessive rates on deposits," he says.
New players like payments banks, small finance banks as well as full scale banks are targeting low-cost current and savings accounts (CASA) with higher interest rates. Currently, RBL does pay higher interest on deposits than bigger banks but does not believe in getting into a bidding war.