RBL Bank's MD and CEO sees balance sheet risk reducing, plans to leverage scale across products

RBL Bank is working on a three-year agenda to turn into a digitally-enabled, mid-sized lender, with all segments - microfinance, credit cards, mortgages or other secured loans – contributing to the bottomline. MD and CEO RS Kumar told Moneycontrol during an exclusive conversation that the bank’s balance sheet is a lot stronger than before, with portfolio risks coming down and quality of assets improving.

Edited excerpts:

Before conclusion of your first term, you have received RBI nod for your second term. What are your next three years plan? We will continue to work silently and show growth. We are building a best-in-class digitally enabled, mid-sized bank with customer focus.

Would secured loan products continue to remain your focus segments given how they have contributed to the bank’s earnings in FY25? I firmly believe banks thrive on multiple segments. When I took charge, the aim was to granularize our balance sheet to stand the test of the time, as such a setup would give us scope to cross-sell multiple products. We are an aspirational country with all products and services to meet demand, whether for an emergency loan, consumer loan, personal loan or secured product loan, depending on their investment avenue. We should also provide them wealth management opportunities. In the last year, we have grown by at least 25 percent in that segment, and now we will leverage (on) scale. We will focus on segments for scaling and certain segments to meet our customers’ aspirations; only then the bank will move towards being customer centric. We have prepared ourselves with all those products and services in last 1-1.5 years.

Given how microfinance and credit cards have panned out, will they continue to be your areas of interest? In microfinance, 97 percent of borrowers pay on day 1. If we can address the down-cycle business syndrome, it's a good business to pursue. It will remain part of the book and a revenue-generating pool, though our dependence on it is lower than before. We have strengthened the portfolio, and its revenue contribution will remain stable. This depends on how we de-risk the portfolio through contingency provisions, and we are exploring credit guarantee options. We have availed CGFMU cover over the last two quarters.

What would your strategy on cards particularly be especially after terminating ties with Bajaj Finance? Let me first clarify that Bajaj was largely supporting us in sourcing and collections. Collections is not new to the bank; it's simply a matter of deploying people and scaling the product, and we have no handicap in that area. Whatever exits we saw on cards are being replenished. We have only tweaked our strategy. The strategy on credit cards is to do more with less, meaning deeper customer engagement and cross-selling. Earlier, we couldn't do this due to a lack of platform integration. Now, with our integrated app, MyBank, which combines mobile banking and cards, all retail customers operate on a single app. This provides opportunities for customers to move from a single product to multiple offerings, and we’ve started leveraging this effectively. We’ve made significant investments in cards, and it is now a well-stabilized product.

Is the end of the stressed unsecured retail loans cycle in the near terms? We are seeing that even our old (vintage) book has started repaying and net slippages is negative in this pool. The quality of underwriting and risk which is being underwritten will decide about what sort of pool a bank is going to handle (in future) and will define that whether stress is building or not. However, in unsecured (loans) segment, I can't say we are completely out of stress yet. There was one episode in Karnataka, and a similar ordinance has been passed in another state. This may disturb the pattern of disbursement, but not the pattern of collection.

What would be your commentary on margins given how the bank is rebalancing its asset portfolio? The composition of our book defends the margin. One key advantage is that margin disruption may not be significant in FY26, as nearly 48 percent of the book is on a fixed rate. Stress in the other two sectors is diminishing as efficiency improves. With this, margins are expected to remain range-bound at 4.9 percent in the short to medium term.

Do you have the bandwidth to tinker on pricing of assets or keep a check on costs to maintain margins? It is a combination of both. When interest rates reduce and we wanted to reduce the rate of interest on deposit, we have to give more services to customers. The differentiation today is how we are able to meet the aspiration of the customers quickly in a digital world, and whether my digital platform is fairly good to meet the aspirations of the customer. We are improving on that. For the last 1.5 – 2 years, we have held costs efficiently. With more products and scale, interest income will increase which will provide a little more leverage. We have already reduced our rate of interest on deposits.

The bank’s return on assets took a sharp hit in FY25. What’s your guidance on this in FY26? I don’t want to give you a number and then chase it. Instead, I’ll tell you the steps we are taking towards increasing interest income and reducing operating cost. The first aspect is growth, where we have demonstrated capabilities, and we will get the advantage of it as we scale up. On deposits, while there is a heating in the market, our market share is 0.45 percent and defending this should not be a challenge. We have new talent joining us in the leadership team, which will strengthen our ability to become a multiple franchise for customers.  The risk of the balance sheet is coming down and we are strengthening the balance sheet and its quality. Our interest income growth will be more advances and operating cost at around 7-8 percent. With a double-digit growth in pre-provisioning profit, efficient collection and recovery mechanism, net profit growth in double digit is doable. I suggest you don’t evaluate us quarter to quarter. Give us 365 days.