RBL Bank has a strong long-term funding profile and is stable to withstand good quality growth in the current crisis in the finance sector, said Managing Director and Chief Executive Officer, Vishwavir Ahuja.
The comments come after global brokerage Morgan Stanley downgraded, among other lenders, RBL Bank’s investment rating to underweight citing expensive valuations.
Quelling concerns over the downgrade, Ahuja said, “My cost of funds is lower than my cost of deposits, which means my mix of funding is judicious, using special windows of resource generation, longterm, and stable and so our funding profile is pretty damn solid.”
Morgan Stanley cut the target price by nearly 33 percent within 11 days of its previous price. On October 10, it had increased its target price from Rs 500 to Rs 675 when the stock was trading at Rs 599.
On October 22, RBL Bank's rating was revised to underweight from equal weight.
After the downgrade, RBL shares plunged 7 percent on October 23, its biggest single-day fall since its listing more than two years ago. It ended at Rs 464.90 apiece.
Ahuja hit back at the downgrade report saying the same brokerage had revised RBL Bank’s ratings three times in a span of four months. “And now just in few days, they changed it again. Cost of funds of our bank has gone up only by a few basis points (bps) for the quarter and our NIMs (net interest margins) have, in fact, grown,” he said speaking after the second quarter (Q2) results' announcement.
RBL Bank profit soars
RBL Bank’s net profit grew 36 percent to Rs 204.5 crore. Its cost of funds increased to 6.4 percent in Q2 FY19 from 6.2 percent each in Q1 FY19 and Q2 FY18. Its cost of deposits was at 6.7 percent from 6.6 percent in the preceding and corresponding quarter. The NIMs rose to 4.08 percent in Q2 FY19 from 3.74 percent a year ago.
Ahuja said the basic variables such as current and savings account (CASA) ratio, liquidity, cost of funds which recite that (downgrade) have all improved.
“In the near term, we expect an increase in funding cost to be much higher than expected – this will weigh on margins and even growth outlook and as a result, we lower earnings estimates materially,” Morgan Stanley said in a note.
IL&FS and NBFC exposure
Talking about the concerns around Infrastructure Leasing and Financial Services (IL&FS), Ahuja said, “Our total exposure to IL&FS is in low double digits and we have security backed by FD (fixed deposits). So, we have more cash security than the exposure and we also have small derivatives contract as backup.”
The bank’s exposure to the non-banking financial companies (NBFCs), excluding housing finance firms, stands at Rs 2,607 crore, which is 4.3 percent of its total book.
“We see no concerns on our NBFC exposure and all of it is investment grade and above,” he said adding that the bank is at a much better position to deal with aberrations.
He added, “We are growing well organically and do not want to increase our NBFC portfolio but will continue to lend.”
He further pointed out that in such a crisis across the finance sector, corporate governance is a big issue.
"I think it is important for us as a religion to make sure our governance is of the highest standards and the compliance requirements are met with," he said.
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