Aim to maintain loan growth above 30% in FY17-18: RBL Bank

Vishwavir Ahuja, MD & CEO, RBL Bank is confident of an overall growth of 30-35 percent over the next couple of years and maintains loan growth of over 30 percent in FY17-18.

Growth in business and market share is aided by our exposure to lower income segments of the society and our focus on growth areas, said Ahuja.

He is also confident of improving net interest margins from the current range of 3.25-3.4 percent despite rate cycle movement. The potential for a further rate cut by RBI is minimal, he said.

Speaking to CNBC-TV18 in an interview from the sidelines of the eighth Motilal Oswal Eureka conference in London, he said the bank would look to raise capital by the year-end. Since we consume anything between 2.25-2.50 percent of capital on a full-year basis, we will need to raise cash. Below is the verbatim transcript of Vishwavir Ahuja’s interview to Latha Venkatesh, and Anuj Singhal on CNBC-TV18. Latha: You are growing at a staggering 40-45 percent, is it possible to maintain this rate, what is the realistic expectation going forward? A: Indeed there is a growth challenge in the economy particularly in the corporate segment. The non-corporate segments were also affected by the demonetisation, but as I said earlier, that is normalising. However, there are two things in our context which work in our favour. One is that we are coming of a small base; we are a small bank which had a small base. So, numbers tend to look a little better on a percentage basis. The second aspect is that the segments in which we operate. We are able to in a sense extract better mileage and market share, if I may put it that way, as some of that space is either getting slightly vacated by some of the other banks who are preoccupied with other challenges that they have and in some of the newer growth areas like mass banking in terms of the financial inclusion and development banking platforms that we have where we lend to the lower income segments of society. There, there is still fundamental high growth happening and I think the bank has a strong position in those fast growing segments and that is propelling some of our growth. So, not necessarily it is across the board, the lack of growth, and we are benefitted because we have a fairly high proportion of capital and business focus in some of these growth areas. Anuj: Given that the capital consumption is also on the higher side, do you have any plans of raising any money in the next three to six months? A: This is a question that most investors are asking. We are frankly consuming about 50-60 basis points of capital every quarter based on our growth rate which means that we are consuming anything between 2.25-2.50 percent of capital on a full year basis, and that naturally will lead to a situation where in maybe towards the end of this calendar year we are once again in-line for the next capital raise. So, I am answering that question pretty directly. Latha: Let me come to interest rates, pretty sharply down over the past 40-50 days, it should have affected your margins, what is the margin outlook for FY18? A: I can answer for ourselves; in our specific case, the operating margins have held up quite well. We operated a net interest margin (NIM) of around 3.25-3.4 percent; that range, and despite the rate cycle movements, we have been able to in fact improve NIMs slightly in the last eight to nine months period and we continue to hope that we will see some more incremental improvement. The reason for that is very simple, that as we acquire more scale, more market share, we are experiencing cost of funds reduction as we go along. So, just as the rates have come off, gradually, our funding costs are also going down, which allows us to at least maintain margins and certainly not erode margins going forward. We certainly expect over the next one year this scenario to continue to prevail. I also believe that in the short to medium term, the potential for further rate reduction is now very minimal. I think we have seen most of that already behind us and even the Reserve Bank of India (RBI) in its last credit policy has signaled a more neutral stance to the monetary policy situation going forward and I kind of totally relate to that, I agree with that. Anuj: What is your loan growth guidance for FY17-18? A: As I mentioned earlier, we are hoping to continue to grow more than 30 percent year-on-year (YoY). In the current year, we are growing faster than that. However, even from next year onwards, our hope is to maintain our initial guidance of growing above 30 percent. Latha: Do you hope that you can maintain the operating efficiency going forward, the one that you have shown so far? A: Our operating efficiency should actually improve going forward. Much of the investments we have made across the platforms of the bank in the initial years are now in a sense paying back. Many of our businesses have reached certain points of scale and escape velocity where we are seeing better and better returns come from those businesses. So, the need for fresh investment is not as high going forward, even as we get the benefits of our investment and what that is doing is reducing the cost income ratio of the bank, the operating leverage is improving. So, that is bringing down the cost pressures. Anuj: Now let us discuss the inorganic moves. Is there anything possible in the near term, any takeover? A: At this moment, we have not gone in that direction at all. So, there is no consideration or discussion around inorganic at this moment in time. Latha: Are you interested in acquiring in Bharat Financial? A: No, as I just said, my immediately previous answer was at this moment there is no consideration or discussion on any inorganic moves.