RBL Bank Ltd
Company Overview
RBL Bank (NSE:RBLBAN) is one of India's fastest growing private sector banks with an expanding presence across the country. The Bank offers specialized services under six business verticals namely: Corporate & Institutional Banking, Commercial Banking, Branch & Business Banking, Retail Assets, Development Banking and Financial Inclusion, Treasury and Financial Markets Operations. It currently services over 8.49 million customers through a network 1,631 Offices (386 Branches & 1,245 BC Branches) spread across 28 Indian States and Union Territories.1
Industry Overview
Indian banking sector mirrored the macroeconomic narrative for the year. The sector weighed down by gross non-performing assets (NPAs) worth Rs 9.49 Lakh Crore at the end of FY 2018-19, started showing signs of revival in the early part of FY 2019-20. The public sector banks had collectively posted a net profit in the first quarter of FY 2019-20, against a net loss of over Rs 13,000 Crore in end June FY 2018-19. 2019 also saw a steady flow of foreign direct investment into India, of which the Financial and Banking sector received the highest share amounting to over Rs 458 billion in the first three quarters of FY 2019-20. Regulatory climate was very supportive in providing policy legroom to ease banking services like online customer on-boarding and servicing. The government’s conscious efforts and policy push to move more and more consumers as well as merchants into the formal economy have also led to an increase in the size of the overall banking space which has created ample room for all players to grow their businesses.2
Led by the recovery from the high-profile insolvency cases, 2020 was forecasted to be a year of strong performance. Retail loans were expected to continue to perform well. As RBI put it, banking sector was almost back on a strong footing and the health of the banking sector hinged around a turnaround in macroeconomic conditions in 2020. However, the sector today faces an economic upheaval in wake of the viral outbreak. The banking sector is likely to witness a partial recovery, if the pandemic fades in the second half of the year, thus allowing a gradual lifting of containment measures and reopening of the economy. There is tremendous uncertainty around this outlook till the time the duration and intensity of the pandemic is ascertained and controlled.
In the current crisis, government is taking a host of measures to provide fiscal support, and central bank is opening new liquidity lines. Significant monetary and liquidity measures taken by the Reserve Bank and fiscal measures by the government would mitigate the adverse impact on domestic demand and help spur economic activity once normalcy is restored.
Business Segments
Corporate and Institutional Banking (C&IB)
The Bank’s Corporate and Institutional Banking (C&IB) business segment offers extensive services to enterprises Sub-segments within C&IB have sectoral coverage and include: a) Financial Institutions (FIs) – both domestic and multinational; b) Government Banking (GB) that caters to Public Sector Undertakings (PSUs) (Central as well as state), Government departments and bodies and c) Multinational clients.
Also, the C&IB team has industry specialized ‘product’ verticals i.e. Gems and Jewellery, Real Estate and Infrastructure, that focus on such sectors and offer their expertise on a pan- bank basis.
C&IB aims to be primarily a working capital bank for its clients focused on transactional businesses and uses term exposure wherever the overall relationship requires it. C&IB products and services include various fund-based and nonfund-based products, including liability products such as current accounts, term deposits and salary accounts; loan products such as term loans, structured loans, working capital facilities, letter of credit, stand-by letter of credit and guarantees; cash management, and treasury risk management solutions.
C&IB further cross-sells various other products and services such as corporate salary accounts, credit cards and other retail loans and agri-finance products and also distributes life insurance products, general insurance products and mutual funds to customers, promoters and employees with the support of Branch and Business Banking.
In addition to regular coverage, the Financial Institutions (FI) team engages with counterparties to facilitate inter bank dealings, inter-bank trade support arrangements and inter-bank liquidity generation both onshore and offshore.
The Bank also has a dedicated team for Government Banking which primarily focusses on building liability for the Bank in the form of deposits and CASA balances apart from Transaction Banking & foreign currency transactions. The emphasis is on tapping digital banking channels to tap collections and payments of various government organizations and bodies. The group also caters to the fund based and non-fund based requirements of Public Sector Undertakings.
Commercial Banking (CB)
This segment of the Bank finances the business requirements of Small & Medium Enterprises (SMEs) (i.e. companies and firms with annual revenue from Rs 30 Crore to Rs 250 Crore) and Mid-Market Enterprises (MMEs) (i.e. companies and firms with annual revenue from Rs 250 Crore to Rs 1500 Crore). It has presence across 11 cities including Mumbai, Delhi & NCR, Kolkata, Bengaluru, Chennai, Hyderabad, Pune, Coimbatore, Ahmedabad, Vadodara and Kolhapur.
The predominant objective of this segment is to become the ‘Bank of Choice’ for the transaction banking needs of customers through cash, trade and forex services. During FY 2019-20, the Commercial Banking team placed importance on building a strong deposit franchise and digital integrations on the corporate side. The unit was focused on maximizing risk adjusted returns and profitability. The Bank aims to develop and maintain promoter level relationships in this segment to cross-sell products and services to promoters and their families and provide timely and comprehensive banking solutions. The group has dedicated relationship managers with deep knowledge of the industry and specialized service channels such as personalized service hotline, document collection and delivery service.
Transaction Banking
The Transaction Banking unit straddles the entire ‘financial value chain’ for customers, with the primary focus to provide clear ‘value-adds’ both in the domestic and international operations. The Bank has invested in a state-of-the-art transaction management framework that complements its expanding branch network, including technologically advanced customer-facing internet and mobile-based applications.
Cash Management Services
This key business specializes in providing structured receivables, payables & liquidity management solutions, leveraging the Bank’s strong product and service delivery capabilities. It has been one of the key drivers for a strong liabilities franchise both in terms of higher wallet share from existing relationships and also acquisition of new client relationships.
A pan India expanded offering enables the division to efficiently support the multiple client segments across services and distribution, manufacturing, financial and capital markets, government banking, across the Bank’s retail and wholesale business segments.
This year saw the Bank substantially enhance its capabilities to offer collections, widening and deepening geographic presence through strategic partnerships and innovative technological solutions. The Bank continues to invest and grow the transaction management framework thus ensuring a market benchmarked offering at all times.
Branch & Business Banking (BBB)
RBL Bank offers a wide array of products and services to its clients through its Branch and Business Banking segment. The group provides banking solutions to individuals and small businesses across rural and urban India. It provides several products and services through traditional branch outlets and multi-channel electronic banking system including Mobile Banking, Internet Banking, Phone Banking and ATMs.
BBB has leveraged available data to segment customers at a more granular level across customer characteristics, life stage and behaviour. Thus the Bank has followed a segmented approach to understand the customer life cycle and predict customer behaviour to define product and service strategies.
Digital Banking
While the Bank is focused on expanding its physical presence, digital initiatives continue to be the drivers of the Bank’s effort in enhancing the banking experience. Digital channels remain the most critical consumer touch-points for the Bank. It has been working consistently to improve the channels across three tracks – Enablement, Experience and Trust.
MoBank 2.0
The Bank has extensively adopted a customer centric approach with greater emphasis on design and usability. It has seen immediate results of this approach with the mobile banking app seeing a user growth of 42% in FY 2019-20 and a consistent rating above 4.5+ on the Google Play Store. Going forward, the Bank plans to launch new products simultaneously through MoBank as they are rolled out through branches. The Bank uses WhatsApp too as a mode of communication with customers across the country.
Internet Banking
Following the revamp of retail internet banking in 2017 and corporate internet banking in March 2018, the Bank has seen a surge of customers migrating to these digital banking channels.
The corporate internet banking users grew 47% with the volume of transactions growing 60%. The Bank has extensively adopted machine learning to understand consumer behaviour on digital channels and uses it to simplify and rationalise customer journeys within the applications. This approach helps to personalize product offering to the customers.
Client Segments
At RBL Bank, customers are at the core of all the offerings. The host of products and services that the Bank offers, defines its commitment to provide best-in-class products and an enhanced experience. The Bank runs three programmes i.e. Insignia, Signature and Aspire. These segments were launched to cater to different groups of customers with similar characteristics, needs, interests and lifestyles.
Insignia Preferred Banking, is RBL Bank’s premium offering that caters to the banking requirements of ultra highnet-worth (HNI) customers. The program has now been extended to almost all key urban cities including some of the tier 2 urban centres like Patna and Bhubaneshwar where the Bank continues to expand presence.
Debit cards
Debit cards In order to facilitate and promote digital transactions, the Bank offers 12 debit card propositions designed towards addressing client requirements. The premium offering is the Insignia Debit Card, which is a life time free card with higher withdrawal limits on ATM and POS. It also offers 2 complimentary domestic lounge access along with complimentary golf features and benefits and vouchers through the Mastercard platform.
Another offering is the Crest Debit Card, through which clients can avail higher air and personal accident insurance of upto Rs 1 Crore combined with full value cash vouchers of Rs 1,500 from well-known brands. In addition, on an annual spend of Rs 1 Lakh the following year’s annual fee of Rs 500 is waived off.
Non Resident Indians (NRI) Segment
The Bank is committed towards providing the best possible banking and investment services to its NRI clients. This segment witnessed deposit growth of over 35% last year.
The services are further enhanced with some bespoke offerings like a dedicated relationship management model along with evolving mobile banking solutions which has resulted in attracting new NRI clients. The Bank has expanded its non-resident base to multiple countries with key focus on GCC, USA, UK, Singapore and Hong Kong.
Diplomatic Missions
RBL Bank is one of the few banks with an end to end differentiated proposition which includes an experienced team, customized systems and processes, bespoke solutions, differentiated products and prioritized transaction delivery to customers in the diplomatic segment. The Bank has a dominant market share of 49% targeted base across the country. With a key presence in Delhi, with more than 78 missions and embassies, the Bank is rapidly expanding pan India with 39 Consulates/ Division accounts in all four metros and top tier cities like Hyderabad and Bengaluru. Overall the bank deals with over 120 embassies and consulates and caters to about 1,000 diplomats.
The focus in FY 2020-21 will be to continue to grow the Diplomatic Missions business in existing locations and penetrate further into new locations in India
Trusts Associations Societies & Clubs (TASC)
TASC remains one of the key segments towards achieving the overall growth under Branch & Business Banking. With a strong product offering through digital banking and CMS topped with a competitive interest rate offering in savings account and fixed deposits, this segment has successfully garnered incremental business from key categories such as educational institutes, religious trusts and local bodies.
Under the TASC segment, CASA deposits grew by 71% in FY 2019-20. The Bank will continue to focus on enhancing the product proposition, sales approach and relationship management to make strongholds in this segment.
Insurance
The Bank has tied up with multiple insurance companies to offer a bouquet of life insurance, general insurance and health insurance products to cater to the different needs of its customers across various channels i.e. Branch & Business Banking, Retail Assets, Financial Inclusion, Agri, Credit Cards etc. It has collaborated with HDFC Standard Life Insurance for life insurance; Bajaj Allianz General Insurance and ICICI Lombard General Insurance for general insurance and Aditya Birla Health Insurance and Religare Health Insurance for health insurance
During FY 2019-20, it further expanded its third-party partnerships and entered into an agreement with Bajaj Allianz Life Insurance for further deepening of life insurance distribution.
Retail Assets
The Retail Assets business witnessed a strong growth momentum. RBL Bank actively partnered with fintechs for technology led sourcing in untapped customer segments, new geographies; analytics driven alternative/ big data risk models for cross selling and up-selling. These collaborations have further enhanced process efficiency through Application Programme Interfaces (APIs) and faster TAT. This approach has helped the Bank to get future ready.
During FY 2019-20, the Bank offered several products and services to customers.
Secured Loan Programmes
Loan Against Property
Loan Against Property (LAP) includes secured loans extended to businesses with property as collateral. The customer segment is primarily small and medium businesses wherein the customer eligibility is derived basis cash flows of the business. The LAP portfolio has continued its growth momentum and reached Rs 7,622.86 Crore.
Affordable Housing Loans
Affordable Housing Loan (AHL) is provided to people categorized under the Economically Weaker Sections (EWS), Lower Income Group (LIG) and Medium Income Group (MIG). These loans are in line with Credit Linked Subsidy Scheme under the Pradhan Mantri Awas Yojna (PMAY).
Unsecured Loan Programmes
Unsecured lending comprises loans given to individuals for their personal financing requirements as well as loans extended to small and medium business for working capital and business expansion. Unsecured business loans operate on the principle of driving inclusion of small and medium enterprises into the financing fold by providing collateral free loans based on multiple methods of assessing cash flow and credit worthiness.
Working Capital Finance
To meet working capital and capital expansion requirement across MSME segment, the Bank offers secured facilities upto R10 Crore under sole banking arrangements. The unit assesses working capital requirements in line with operating cycles and cash flows of the applicants and offers customized financing solutions. The major products offered are cash credit, overdraft, term loans, export- import credit, bill discounting, letter of credit and bank guarantee etc. These facilities are secured by property (residential, commercial, industrial) or liquid securities as collateral. The end use of facilities is monitored through annual reviews and stock inspections carried out at different intervals.
MSME
Being an emerging business in the Bank, the MSME business has continued its growth trajectory with a y-o-y growth of 23%. MSME product suite includes secured loans up to Rs 25 Lakh, unsecured loans of upto Rs 10 Lakh and two wheeler loans. These loans are being offered through the Bank’s wholly owned subsidiary RBL Finserve, acting as the Bank’s Business Correspondent (BC) across 17 states/UT and operating through 188 branches. RBL Finserve, reached close to Rs 1,200 Crore AUM in FY 2019-20. The Bank has implemented digital on-boarding of MSME customers in more than 140 RBL Finserve branches which has enabled seamless on boarding and better data management.
Credit Cards
RBL Bank’s credit card franchise is one of the leading businesses and growth engine for the Bank. The business is currently the sixth largest in the country and the Bank is one of the fastest-growing credit card issuers.
The Bank has focused on driving the growth of the credit cards business through partnerships, on the back of a powerful product experience. The business believes in cocreation of value through a partnership led model, leveraging the strengths of both partners to create a compelling value position.
Agri Business Banking
The Bank continued to extend credit in diversified areas of agri credit including irrigation, various allied activities like fisheries, dairies and also credit for large scale vegetable cultivation. Customized products for region specific demands were offered. The Bank also expanded the agri operation in the northern states of India. Small programmes were run with partners for delivering credit to farmers in deep geographies through partner outreach model.
Development Banking & Financial Inclusion (DB&FI)
The Bank’s DB&FI segment provides financial services to developing and rural India, which do not have access to financial products and services. It offers banking products and services like credit facilities, programmed savings; life, health and general insurance products to individuals, groups and small businesses. The unit also provides finance to women borrowers with a view to achieve financial inclusion and progressive social change.
RBL Bank offers a complete suite of financial services such as loan products, savings accounts, deposits, insurance and transactional facility to these underserved customers, contributing 100% to its priority sector lending. During FY 2019-20, the micro-banking business grew by 26% y-o-y to a portfolio of Rs 6,469 Crore.
Distribution Network
The exclusive BC Branch network of the Bank grew to 1,099 branches in FY 2019-20 with a customer base of 49 Lakh. 295 new BC branches were opened, most of them in new geographies, increasing the presence to 20 states and 1 union territory. This covers 372 districts, Pondicherry being the new addition this year.
Banking Outlet
RBL Bank has classified 263 BC branches as banking outlets. Through these banking outlets the Bank is able to reach out to the unbanked population and provide basic banking facilities such as transactions through micro ATMs, savings account, insurance products and other loan products.
Financial Literacy
Over 58,000 women were trained in FY 2019-20 under ‘SAKSHAM’, the Bank’s flagship customer education programme. Over 11,500 women were trained under phase II of ‘UNNATI’, the Bank’s financial literacy programme launched earlier in collaboration with CDC Group in Bihar. The programme has resulted in more than 4,700 women linking themselves to various products like bank accounts, Pradhan Mantri Suraksha Bima Yojna, Pradhan Mantri Jeevan Jyoti Bima Yojna, Sukanya Samruddhi Yojana, Atal Pension Yojana, recurring deposit and fixed deposits.
Technology Initiatives
The Bank is currently serving 46 Lakh saving account customers whose balances have crossed Rs 139 Crore in FY 2019- 20. RBL Bank has enabled transaction facility for both, its own and other bank customers through its 596 Micro ATMs across BC locations. This transaction facility is also available at the banking outlets.
RBL Bank has propelled end to end sourcing of JLG loans through Aadhaar based QR code scanning on a tablet based application for its BC partners. Interventions of these applications help reduce rejection rates because of inbuilt product level checks and balances before on boarding the customer completely.
Treasury and Financial Markets Operations
The Bank’s treasury operation includes interfacing with the financial markets and performing broad functions like managing statutory reserves; day-to-day fund management and asset-liability management; investment and trading activities; and interest rate and exchange rate risk management. In addition, this segment also provides coverage through the Bank’s centralised dealing room in Mumbai supported by sales staff in Delhi, Chennai, Hyderabad, Bengaluru and Kolkata branches.
Domestic Markets
The focus of the unit is day-to-day management of funds for the Bank; asset liability management; complying with the cash and statutory reserves requirements; deployment of the Bank’s liquidity in high-quality earning securities; maximising the Bank’s revenue by taking proprietary positions (in rates and currency trading); managing the Bank’s interface with professional inter-bank market and augmentation of counter-party lines.
Securities Trading
The Bank has a proprietary desk dealing in interest rates trading through government bonds, corporate bonds and interest rate futures and swaps. FY 2019-20 was a very volatile year on the back of sharp fluctuations in oil prices and currency depreciation amidst the COVID-19 pandemic situation. Fears of fiscal slippage and spike in inflation index dictated the move in the rates market for majority of the year. The Bank’s trading desk took advantage of the volatility in fixed income markets, managing proprietary positions appropriately, which led to healthy trading profits for the Bank.
Liquidity Management
The Bank continues to maintain high levels of liquidity and contingency buffer in the wake of volatile markets. Through FY 2019-20, various external events dictated domestic liquidity. Although RBI actions ensured sufficient liquidity in system from second quarter onwards leading to gradual softening of rates, events like COVID-19 and the moratorium on a private bank caused a spike in short term rates towards the end of fiscal year. The Bank was able to successfully navigate through these volatile times reducing the overall cost through prudent choice of liabilities.
The Bank continues to maintain healthy Liquidity Coverage Ratio (LCR) and is geared up for rollout of Net Stable Funding Ratio (NSFR) in the coming year. The Bank has achieved this through a prudent mix of foreign currency borrowings, long-term deposit mobilisation and rupee borrowings in the form of re-finance from various financial institutions. The Bank continued the use of derivatives to hedge the interest rate risk associated with assets and liabilities in light of volatility in interest rates.
Foreign Exchange, Derivatives and Bullion Business
Foreign exchange and derivatives offer various hedging products, including interest rate swaps, currency swaps, options and currency derivatives, to facilitate effective risk management for foreign currency and interest rate exposures faced by clients. The team backed by experienced professionals provides advisory services to corporate, institutional, commercial banking and consumer banking customers
The Bank is among the 15 banks licensed by the Reserve Bank of India to import bullion for its clients. It has been undertaking this business on a consignment basis for its bullion clients and is a significant supplier of bullion in the domestic market. The Bank is the largest supplier of silver in the domestic market and has been ranked No.1 among banks for two consecutive years. The bullion business involves importing gold on metal loan for domestic manufacturers as well as exporters of gold jewellery. The Bank has been supporting the supply of gold to exporters by providing metal on loan.
Capital Markets
Capital Markets team focuses on Debt Capital Markets (DCM), loan syndication and Structured Finance (SF) distribution business. The activities include origination, trading and distribution of bonds, ranging from vanilla corporate bonds and commercial papers across tenors and across the rating scale. The desk works closely with asset managers, insurance companies, other banks and investors to understand their requirements and originate transactions, as well as for sell-down of underwritten positions.
Loan syndication unit provides strategic advisory services to aid growth initiatives and offers wide range of bespoke debt products to support a variety of funding structures. The team enables the Bank to partner with growthoriented companies. Primarily, the team’s distribution abilities are focused on cross-selling an array of solutions and introducing budding companies to investors with tremendous growth opportunities. The team has nurtured excellent relationships across the financial markets especially with public sector Banks, NBFCs, IDFs etc. All syndication mandates run by the desk had significant crosssell in terms of foreign exchange flow, current account floats, and trade finance business, among others
Financial Overview
During FY 2019-20, the Bank continued to show healthy growth in advances, income and operating profits, signifying the strength of its business model and strategy. The Bank continued to increase its branch footprint by adding 62 branches, mainly in metro and urban centres, to end the year with 386 branches from 324 as of last financial year.
Deposits and Borrowings
The Bank displayed healthy and robust growth in deposits, a key balance sheet parameter, for the first 3 quarters of FY 2019-20. However, the bank’s deposits decreased in Q4 FY 2019-20 mainly due to reduction in bulk deposits from government entities/ corporations. The total deposits of the Bank marginally declined by 1.00% to Rs 57,812.22 Crore as against Rs 58,394.42 Crore in the previous year. Savings account deposits increased by 16.52% to Rs 9,606.56 Crore
vis-à-vis Rs 8,244.76 Crore in the last financial year. During FY 2019-20, current account deposits rose by 18.39% to Rs 7,509.00 Crore compared to Rs 6,342.72 Crore in the previous year. The proportion of current and savings deposits to total deposits was at 29.61% as on March 31, 2020 vis-à-vis 24.98% as of March 31, 2019, despite the external environment being highly competitive. The Bank’s term deposits decreased by 7.10% to Rs 40,696.67 Crore as on March 31, 2020 as against Rs 43,806.94 Crore on the same date of the previous year.
Advances
Net advances grew by 6.83% from Rs 54,308.24 Crore in FY 2018-19 to Rs 58,019.05 Crore in FY 2019-20. The rise was driven by increase in non-wholesale advances. The nonwholesale advances increased by 35.07% from Rs 24,079.07 Crore in FY 2018-19 to Rs 32,524.57 Crore in FY 2019-20.
Investments
Investments increased by 7.78% from Rs 16,840.36 Crore in FY 2018-19 to Rs 18,149.74 Crore in FY 2019-20. The rise was driven by increase in government securities. The government securities increased by 30.93% from Rs 11,942.70 Crore in FY 2018-19 to Rs 15,637.09 Crore in FY 2019-20.
Revenue and Profit Growth
The Bank’s Net Total Income (defined as the sum of interest income and other income less interest expense) increased by 39.13% from Rs 3,981.85 Crore in FY 2018-19 to Rs 5,539.89 Crore in FY 2019-20. The increase was driven by growth in net interest income and other incomes. The Bank’s other income increased by 32.44% from Rs 1,442.37 Crore in FY 2018-19 to Rs 1,910.25 Crore. In FY 2019-20, the Bank earned a net profit of Rs 505.67 Crore as against Rs 866.95 Crore in FY 2018-19, decrease of 41.67% owing to accelerated provisions on few stressed corporate accounts. Operating expenses increased from Rs 2,042.02 Crore in FY 2018-19 to Rs 2,788.25 Crore in FY 2019-20, primarily due to increase in employee costs, outsourcing costs, new branch establishment, depreciation, technology, branding and communication expenses.
Key Ratio
- The return on assets was 0.59% in FY 2019-20 vs 1.27% in FY 2018-19.
- The return on equity was 5.74% in FY 2019-20 vs 12.15% in FY 2018-19.
- During FY 2019-20, Gross NPA was 3.62% vs 1.38% in FY 2018-19.
- The Bank’s net NPA was 2.05% in FY 2019-20 vs 0.69% in FY 2018-19.
- Earnings/Book value Per Share Ratios Earnings Per Share (EPS) (basic):
- The Bank’s EPS was Rs 11.16 in FY 2019-20 vs Rs 20.47 per share in FY 2018-19.
- Book value per share rose to Rs 202.29 in FY 2019-20 from Rs 171.93 in FY 2018-19. During FY 2019-20, the Bank raised equity capital of Rs 2,701.07 Crore through Qualified Institutional Placement (QIP) & Preferential Issue of Equity shares.
Recent developments
RBL Bank Standalone December 2020 Net Interest Income (NII) at Rs 908.15 crore, down 1.57% Y-o-Y 3
January 29, 2021; Reported Standalone quarterly numbers for RBL Bank are:
- Net Interest Income (NII) at Rs 908.15 crore in December 2020 down 1.57% from Rs. 922.65 crore in December 2019.
- Quarterly Net Profit at Rs. 147.06 crore in December 2020 up 110.24% from Rs. 69.95 crore in December 2019.
- Operating Profit stands at Rs. 804.81 crore in December 2020 up 9.92% from Rs. 732.17 crore in December 2019.
- RBL Bank EPS has increased to Rs. 2.64 in December 2020 from Rs. 1.56 in December 2019.