Small But Mighty

RBL Bank, the erstwhile Ratnakar Bank, never ceases to spring a surprise. Its peers have hit an air-pocket or two, but here you have a over 70-year-old entity, helmed by new-age bankers, that has delivered an annual growth rate of 70 per cent over the last four years. It’s no wonder RBL is the Fastest Growing Small Bank in the BW Businessworld Best Banks Survey 2014-15 — it has bagged the honour for a third year straight.

RBL’s total income was up 59 per cent at Rs 960 crore in fiscal 2015; net profit by 124 per cent at Rs 207 crore. Both advances and deposits rose 47 per cent to Rs 14,450 crore and Rs 17,099 crore, respectively. Gross and net non-performing assets stood at 0.77 per cent (down from 0.79 per cent in the preceding fiscal) and 0.27 per cent (from 0.31 per cent) — the dip of 2 basis points (bps) and 4 bps under both heads is not to be scoffed at; it has to be seen in the context of the times we live in. A safe haven to lend to — is an El Dorado.

Led by Vishwavir Ahuja, managing director and chief executive, RBL’s senior crew is drawn largely from foreign or private banks and financial institutions. Few in their past avatars have held a job that even remotely answers to their current calling cards — which in a nutshell is to cater to the small guy whose business could range from wholesale to retail banking.

How It Played The Game
Just in case you thought it’s a myth that an RBL can board the corporate banking bus of India Inc.’s big boys, think again. Its corporate and institutional banking businesses cater to large corporations with annual turnover of over Rs 1,500 crore or gross block (of assets) in excess of Rs 750 crore. But as Ahuja says, “We are not into big-ticket loans, but hook onto the eco-system of large corporates. There’s a lot we do here — products and services to their arms; it can be to an ancillary unit too.” Banking is not just about dishing out loans.

The point here is that it’s important to pick a sweet spot — you can get it wrong as you go about it, but RBL has got it right so far. “It doesn’t matter what we did in our past lives. We are a full-service bank and know how to cater to our clientele,” says Ahuja. It tells you how the bank grew at a fast clip in a sloth of an economy.

The bank’s buildout has been strategic too. It gobbled up the banking, credit card and mortgage businesses of the Royal Bank of Scotland (RBS) in fiscal 2014 — this led to a rise in RBL’s assets by Rs 300 crore, but on the liabilities side, it got Rs 1,100 crore (largely current and savings accounts or Casa as it’s called in trade parlance). It vends plastic and mortgage on a selective basis; in the case of the latter, it “sells home-loans of HDFC,” says Ahuja. That’s very much IndusInd Bank, which sells the home loans of HDFC. The idea that drives this approach is to own the relationship — not the product or service per se — to pocket fee income.

The Next Few Steps
When Ahuja — a Bank of America veteran who headed it for close to a decade in India — and his core-team came on board in July 2010, they mapped out ‘Vision 2015’ to blend traditional values with the competitiveness and acumen of new-age banking. ‘Vision 2015’ seeks to weld a strong capital base, technology and a work culture to empower and enrich staffers.

A key marker of confidence in a bank’s management is its ability to raise capital. RBL raised three rounds: a tad over Rs 700 crore (2011), Rs 376 crore (2013), and Rs 328 crore (2014). Now see this in terms of what’s set to unfold.

In the run up to Basel-III capital norms, which kick in from fiscal 2019 (and beyond), weaker state-run banks will be in a capital squeeze — they would have to tap the bourses in a way they do not dilute their state-run profile. Add on dud loans and it’s a challenge for the banking sector. The topography will alter as payments and small finance banks step in (and who knows when a fresh lot of full-service private banks are licensed). If you are a laggard — be it state-run or private bank — you will be hit badly.

But it provides the likes of RBL Bank to step up to the plate. The bank is likely to tap the bourses with its maiden offering of shares — of Rs 1,000 crore — by end-March 2016. Under Basel-III, it has to maintain a floor capital adequacy ratio (CAR) of 9 per cent (11.5 per cent with a capital conservation buffer or CCB) and a common equity tier-1 (CET-I) CAR of 5.5 per cent (8 per cent with CCB). At end-March 2015, RBL’s CAR stood at 13.13 per cent; tier-1 read 12.74 per cent and CET-I was at 12.74 per cent.

Being more may see RBL spring a few more surprises!

raghu@businessworld.in; @tabonyou

(This story was published in BW | Businessworld Issue Dated 08-02-2016)