I am delighted to present to you our Bank''s Annual Report for 2017-18. It has been a remarkable year on many counts and one that has reinforced confidence in our strategy and belief in our long-term goals and aspirations.
A WATERSHED YEAR FOR THE BANKING AND FINANCIAL SERVICES SECTOR
FY18 will go down in history as an inflection point for the Indian Banking and Financial Services sector. The highlighting of the asset quality issues in the banking system, along with governance and other concerns, has led to an unprecedented upheaval. To restore public trust and confidence in the sector, the Government rolled out several bold reforms during the year. We saw the implementation of an empowered Insolvency and Bankruptcy Code (IBC), which has accelerated the pace of bad loan recognition and resolution. The results of this process are promising.
During the year, the Government also infused additional capital into the Public Sector Banks and the Reserve Bank of India further tightened credit practices and reporting of delinquencies, all of which will augur well for the future of lending.
While it is encouraging to note that the efforts of demonetization have now receded, path-breaking policy reforms such as the Goods and Services Tax (GST) are providing further impetus. Aimed at enhancing transparency, augmenting tax revenues of the Government and boosting investments, the GST will accelerate the pace of formalization across sectors and bolster the share of financial savings in the wallets of Indian households. With structural measures starting to bear fruit and the Central Bank actively managing inflation levels around the target rate, growth is set to improve sequentially in the next couple of years. I am confident, favorable growth inflation dynamics will keep our strong macro narrative intact.
With that said, the current flux in the environment due to shifting market dynamics and focus on risk and corporate governance are re-drawing the banking landscape and the challenges are simultaneously throwing up opportunities. In our own case, more than seven years into building the franchise, we believe we are well placed to take a meaningful share of the opportunity.
DELIVERING A STRONG SET OF NUMBERS
2017-18 was another year of solid, sensible and prudential growth across all our businesses segments. Our focus on high-quality lending, coupled with strong risk practices and effective management of the balance sheet, has been validated through these numbers.
During the year, our deposits grew rapidly to Rs,43,902 crore, up 27% over the preceding year. In order to remain well capitalized and maintain our strong growth momentum, we successfully raised Rs,1,680 crore from marquee domestic and international investors.
In terms of advances, there was strong traction in both our wholesale and no wholesale businesses and as a result, our advances grew 37% to Rs,40,268 crore and net interest income grew 45% to Rs,1,766 crore. Core fee income grew 41 % to Rs,887 crore, driven by momentum in fees from distribution, credit card, client forex income and general banking. Our CASA ratio surged from 21.98% in FY17 to 24.32% in FY18. Lower cost of funds, coupled with a favorable business mix, led to a 51 -basis point''s y-o-y improvement in our net interest margin to 3.8%. Our Profit after Tax grew 42% to Rs,635 crore with Return on Assets improving 13 basis points to 1.21 %. This performance is an outcome of the trust placed in us by all our stakeholders and I am pleased to share that our Board has recommended a dividend of 21 % (i.e. Rs,2.10 per equity share) to our valued shareholders.
ON TRACK TO ''VISION 2020’
FY18 marks the halfway point in our Vision 2020 journey. Despite the challenges in the environment, we continue to remain on track in terms of growth and operating performance and are confident of achieving the metrics we had laid out publicly as part of our Vision 2020.This speaks to the strength of the team and its ability to navigate through market upheavals with rigor and discipline.
With increasing aspirations and rising consumer demand, retail loans across categories will see a huge upsurge in demand. The SME segment will be a major driver for our economy as it increasingly formalizes and urbanizes. We also believe that credit demand from mid and large sized corporate too will be boosted by a ramp-up in existing capacities and addition of newer ones across sectors. All of these segments are relatively unbanked and underserved and it is here that we see our biggest opportunity.
STRENGTH. SPEED. SCALE. FOR THE LONG RUN.
When I reflect on our performance and the reasons for our conviction, three broad themes come to mind. We call this the 3S approach - Strength, Speed and Scale. Over the years, we have demonstrated an ability to build on each of these three parameters and our strategy continues to focus on them. We have invested our business with the strength to respond resiliently to external pressure, headwinds and market upheavals and this is reflected in the quality of our balance sheet and consistently improving return ratios.
Speed is essential to grow in a dynamic market such as India and we have consistently grown faster than the industry for the past few years, backed by a differentiated product focus, our nimble strategy, strong distribution and partnership orientation and continued investments in digital and technology. The outcome of strength and speed is scale. We recognize that to succeed in our ambition of being among the best banks in India, we need to achieve a critical mass and balance sheet size. Scale will, naturally, also result in higher efficiencies and better profitability.
To stay ahead of the curve in the long run, we have been making continued investments in our operations in line with our growth plans and ramping up our technology platforms and our physical network and new businesses such as credit cards. These investments have now attained critical mass and the economies of scale are beginning to flow.
OUR BANK IS ACHIEVING CRITICAL MASS THROUGH: 1. Partnership Mindset
One of the cornerstones of our journey so far has been our unrelenting belief in partnerships. As the business becomes more complex and hyper-specialization takes over, we, as a Bank, must be responsive and receptive to emerging technologies and models, while being cognizant of the fact that we cannot achieve everything alone. Fintech is one of the greatest transformation drivers for the banking industry and we have been early movers in forming strategic partnerships with various industry participants. Today, the fraternity refers to us as a ''Partners Ka Bank'' because we have deeply integrated with our partners from the design to the execution to ensure we both succeed and it''s a win-win relationship for all.
- Financial Inclusion Customers: Recently, we increased our stake in Swadhaar Finserv to 100%, making it a wholly owned subsidiary of the Bank. As a captive banking correspondent for RBL Bank, Swadhaar Finserve will act as a major catalyst in enabling us to grow further in the micro-banking segment.
- Retail Customers: We partnered with Shriram Transport Finance Company (STFC) to serve their 17 lakh customers last mile banking needs through integrations of digital and cashless banking services.
- We also partnered with ET Money for its CreditLine and co-created a unique offering that simplifies borrowing and offers flexibility to their base of more than 40 lakh app users.
- Credit Card Customers: We partnered with Bajaj Finance to offer a range of co-branded credit cards with attractive features such as no-cost EMI options, easy borrowing rates and digital payment solutions.
As a result of our collaborations and partnerships, our customers can now bank with us at their convenience through a network of over 265 branches, 807 business correspondent branches, 388 ATMs, nearly 2 lakh Customer Service Points (CSPs) and a host of online, technology-enabled platforms. This partnership-led, tech-enabled ecosystem empowers us to service, retain and serve our 4.5 million strong customer family, with promptness and efficiency.
2. Inclusive Banking
India forms about a fifth of the global population that does not have bank accounts. Most lower-income households still do not have meaningful access to affordable credit. Of the 6 lakh crore microfinance industry, organized lenders account for just about 28%, i.e.
Rs,1.7 lakh crore, of which banks contribute roughly two-thirds share. This is reflective of the huge untapped potential of this segment and the opportunities therein. Lending at the bottom of the pyramid is crucial to achieving inclusive and all-encompassing growth and I believe that a few players who bring scale, agility and a mindset of partnership will lead this space. Technology will be the biggest enabler by ensuring efficiency and better service delivery and bringing down the cost of customer acquisition.
RBL Bank has differentiated itself by following a credit-led model and growing rapidly in the Financial Inclusion space. Today, our Development Banking & Financial Inclusion (DB&FI) segment offers a full suite of liability and asset products to individuals with lower incomes in semi-urban and rural markets. The business has witnessed encouraging momentum, with loans to this segment growing 38% to Rs,5,684 crore in FY18. Our partnerships with business correspondents, fintech and remittance players have played an important role in driving our growth in this segment.
3. Corporate Banking Business
We have spent the last seven years building and enhancing our capabilities in our corporate banking business.
Today, our corporate banking business has come of age in terms of size, scale, relationship depth, range of products and services and we are now counted among the leading private sector banks across corporate lending, transaction banking and digital products and services. We believe that we are well positioned to take advantage of the resurgence in the credit environment.
4. Nurturing talent
To consistently achieve strength, speed and scale, it is imperative that we grow the skills of our team. Therefore, we have created an employee-friendly organization and embraced the philosophy of ''One Bank'' throughout the organization, through training, development, career progression and empowerment. We have been regularly conducting specialized leadership development programmes to successfully build a pipeline of future leaders. These initiatives have resulted in a high retention rate and are instrumental in helping attract top-tier talent to our Bank.
People are the beating heart of our business and it is the passion of our 5,300-member strong team that drives us forward and upward. Today, we are one of the few institutions in India that have 67% of employees covered under the Employee Stock Ownership Plan (ESOP). These measures have brought in more ''skin in the game'' and has helped brew a ''passion for growth'' culture within the organization.
5. Strong Risk Management and Governance
The importance of effective risk management cannot be overstated in today''s scenario. While asset quality remains the top differentiator across banks today, transaction practices, governance and credit quality monitoring mechanisms are also becoming more relevant. In the last seven years, our Bank has grown by almost 40 times in size and over 50 times in profits.
We have put together a best-in-class institution to deliver best-in-class banking services, grounded on the principles of strong governance, best professional standards and an ethical value system.
At RBL Bank, we do not look at risk as a standalone function, but have integrated its mitigation into our entire operations through constant training across levels and being on top of emerging trends, technologies and best practices.
Our Bank is future-ready, with multiple growth enablers firmly in place. As we live up to the promise of being an Apno ka Bank'' for all our stakeholders, we keep our sights on the horizon, our ears and feet shall be firmly planted on the ground. Our nimble-footedness and agility allow us to respond to as well as benefit from emerging trends and environmental shifts. We will continue on this path and do everything to deliver sustainable, balanced growth.
In conclusion, I would like to thank every member of the RBL Bank team for their consistent commitment to the Bank.
I am also humbled by the consistent support of our investors who have been a constant ally throughout our journey. We are confident on progressing successfully towards our goal of building a responsible organization and enrich the life of all people within our universe.
In this long-term journey, I seek your continued encouragement.
Managing Director and CEO