There is no leadership crisis at RBL Bank and incoming chief R. Subramaniakumar will use his expertise to build RBL Bank 2.0, the bank management told Moneycontrol in an exclusive interview on June 15.
In a candid conversation with Moneycontrol, RBL Bank’s new Managing Director and CEO (MD & CEO) R. Subramaniakumar and outgoing interim CEO Rajeev Ahuja open up on challenges related to the bank’s leadership transition and fall in share prices.
The RBL Bank management also gave guidance on the bank’s asset quality, its microfinance and card portfolio, and business outlook for FY23.
Edited excerpts:
Q- The announcement naming you as the next CEO came Saturday. Were you tensed?
Kumar- I caught up with my six and a half hours of sleep. Normally I sleep for up to seven hours a night. I could catch up on my sleep because both Rajeev and I and the team are very clear on the path forward. So, there was no need for me to get under much pressure.
Q- Mr. Ahuja, what were your first thoughts?
Ahuja- Let me say he and I spoke around 6.30 PM or 7 PM on Saturday and we had a long chat. I think I slept much better after that.
Q- What role would you play Mr. Ahuja post-MD appointment gets shareholder approval?
Ahuja- I am very much on the Board. I have been an integral part of the development of RBL 1.0 12 years ago to this day. I intend to remain here, I intend to leverage Kumar’s wider experience in the areas we are trying to grow.
Kumar and I have had extensive discussions on the areas of strengths that he brings and frankly what he sees in RBL. Are the fundamentals and the building blocks already in place. Financially we are strong, and growth is back, so I intend to leverage his expertise and experience in order to get the bank to the rightful place it deserves to be after two-plus years of Covid-19-related challenges.
The RBL Bank robe I adorned 12 years ago, I don’t intend to take it off.
Q- So what role will Mr. Ahuja play in terms of strategy?
Kumar- He will continue to be a senior Board member of RBL Bank. He will be assuming wider responsibilities and a much bigger role than what he was holding prior to the pandemic.
He will be an important anchor person. Instead of looking at a smaller area, he will be looking at the entire balance sheet. You will see Rajeev in a bigger role in days to come.
Q- Will RBI-appointed director Mr. Yogesh Dayal continue to be on Board?
Kumar- That decision is to be taken by the Reserve Bank of India. As of now, he is a Board member.
Q- What are the key leadership challenges associated with this transition?
Ahuja- I think we had initial challenges, but we stabilised very quickly. If you see our financial results for December and March quarters, you can see the trajectory has improved, as laid out last year.
I think we are on a very good footing from a business perspective.
Business momentum has come back in the markets, and I do not see any challenges. Yes, a couple of days of a flutter on stock prices, I think we will absorb that and move on because the underlying day-to-day customer and employee behaviour is intact. We stabilized it very quickly even after December 25. Thus, I do not anticipate challenges…
Q- After Mr. Vishwavir Ahuja’s exit, the bank stock fell over 20%. Post Mr. Kumar’s appointment shares cracked again by over 20%. For a bank that listed in 2016 with over 70 times of oversubscription, what is going wrong in terms of communication with markets?
Ahuja- First of all, we can tell you very very absolutely frankly that there is no leadership crisis. There is no problem in leadership, I am here, and I have given you my unequivocal feeling on what I suspect the bank to do. I also want to tell you that this year would be our best year from a profitability perspective.
We will end this year with 1 percent return on assets (RoA). Obviously, it will ramp up over next four quarters, but I am very confident that we will have our best profit year. Partly it is because of the hard work during Covid-19 and our balance sheet has absorbed all of the Covid-19-related issues.
We are sitting on a very modest net NPA number of 1.34 percent as on March end and a very modest restructured book of 2.6 percent of overall advances, which if you compare with other mid-sized banks, it is very well positioned…
Kumar- To add to Rajeev’s comments, the perception issues are more generic in nature. The perception issues are linked to just one event that happened, rather than to reality.
I have been in the banking industry with both private and PSU entities. Primarily, if you just look at it very clearly, the aspect of banking is universal. Indian banking is Indian banking, be it being managed by XYZ or ABC.
At the end of the day what matters is the ability of the person leading it and the capability of team to work along.
Q- Mr Kumar, you are seen as a turnaround expert and as per sources, Standard Chartered Bank chief Zareen Daruwala was a candidate for the RBL Bank top job too. Do you think markets should worry over your appointment?
Kumar- Me being a turnaround expert does not mean the bank is making NPAs. It is the role you play in an organisation that matters, depending on the position you take.
When I was with Indian Bank, we established RAM products (retail, agriculture and MSME loans) in short period of time. That kind of platform I created in a short stint at Indian Bank.
Then I moved to Indian Overseas Bank which was difficult to stabilise...when I left the bank, its operating profit zoomed to Rs 5,300 crore, for the first time in its history. You just have seen how tumultuous position was when I walked in there and how comfortable we walked out.
…That particular company which I was handling earlier (Dewan Housing resolution) had collection efficiency as low as up to 70 percent. I brought it back, despite the pandemic, to 96 percent.
Thus, it is not about that one particular small event, in the last 42 years of my banking experience, that defines my expertise. It is a perception issue, allow me to place it in this manner:
I held the stone close to my eyes, it blocked my vision. I held the same stone one feet away from my eye and look I can now continue to see both the stone and the world.
Q- Interesting perception Mr. Kumar. Could you please now throw some light on the key growth areas for this fiscal. Will credit cards continue to dominate the retail mix of loans?
Ahuja- We should grow loan book as we guided earlier, at about 15 percent year-on-year (YoY) this fiscal. First three months (April-June) we were a little bit careful otherwise our run rate would have been far higher.
15 percent growth means we will be at Rs 68,000 crore to Rs 70,000 crore of advances by end of this fiscal. We slowed down retail loan growth last year, it will grow faster this year. I expect that almost all of the growth you see this fiscal will happen from retail loans.
On the wholesale side, we actually have a lot of assets that were created during Covid-19. These loans were extended to very high-rated corporates where we did not make much money and they will be wound down and replaced with more granular wholesale loans with better returns.
…For the next three years, we will grow between 15 percent to 20 percent on the overall loan front. Retail would be faster and wholesale is critical as well. It is not something we will de-emphasise but as retail starts growing, products become longer duration but that also gives you granularity and more stickiness with your clients.
I would expect my retail advances to rise to two-thirds of overall advances and wholesale advances to account for the remaining one-third of the loan book in a three-year period.
Q- Within retail loans, will credit cards and microfinance continue to dominate other loans?
Ahuja- Credit cards and microfinance will remain important areas and grow with balance sheet size. But we have added housing loans about two years ago, tractor loans about a year and a half ago, agribusiness has stabilised.
This is where I see Mr. Kumar’s contribution. It will be significant in terms of leading our way in granularizing deposits and loans.
Q- Can you give guidance on deposits for this fiscal?
Ahuja- Typically deposits should grow 3 percent or 4 percent higher than advances …On a three-year basis, if our balance sheet advances grow at 15 percent-17 percent, deposits should grow at 17 percent to 20 percent, so that we have adequate liquidity and keep our CD ratio (credit-deposit) well below 85 percent.
Q- Are you facing, or do you foresee any challenges in deposit accretion/maintenance in view of recent news flow?
Ahuja- Not at all. This has been a very peaceful three-day period outside the markets. On deposit and customers, we are quite settled.
Obviously, one has to work hard and the rate cycle has also changed but I do not see any issue on deposits at all.
Q- Will the current account and savings account deposit ratio (CASA) be maintained at 35 percent level this fiscal?
Ahuja- CASA ratio we are about 35 percent plus. I think we should be able to add 1 percent to 2 percent every year meaningfully…
Q- Do you anticipate any stress on the microfinance or credit card segment?
Ahuja- We ended March with GNPA of 4.40 percent and net NPA at 1.34 percent. My sense is that this year we will keep bringing these two ratios down.
There is no stressed which is unaccounted for in microfinance and credit card loans. In fact, we are seeing good recoveries in even the written-off portfolio in microfinance. We have adequately provided for all manner of stress in the cards and microfinance business which grew out of Covid-19, as you can imagine.
We raised provisioning on restructured and standard advances so that we start this fiscal on a sound financial footing... provision coverage ratio (PCR) is 70 percent, it should remain between 65 percent to 70 percent throughout.
Q- How is the restructured pool of assets performing?
Ahuja- We have about Rs 1,600 crores of net restructured advances. Largely these are secured loans extended to businesses against self-occupied homes and offices. It is very granular.
We have modest amounts of cards and microfinance loans which is 50 percent provided for and there are three to four modest size wholesale accounts but those are also performing. We factored in the slippages from the restructured pool into our guidance for cost of credit for this fiscal.
I do not anticipate anything major which will lead us to deviate from our current status. I believe eventually whatever slippages happen, we will be able to recover as businesses come back…
Q- Will the operating expenses (Opex) trajectory continue upward momentum?
Ahuja- Opex ratios for us, since we are high into investments in our branches, technology, cards, microfinance and other retail and agribusinesses, it will always be in excess of 60 percent.
I think you need to look at our Opex ratio on a four to six-quarter basis because some of the lag and lead…in the next fiscal we will settle around 60 percent to 62 percent and then we will come down gradually…
Q- Mr. Kumar, what would be your key goals for RBL Bank in the next three years?
Kumar- We are looking for growth. Growth with continuity is the theme that I just earmarked on. So that indicates two phases.
People who mattered to RBL Bank and led the bank in last one decade, they have built up building blocks and those building blocks will not be disturbed.
The DNA of this particular bank is in certain niche areas. While retaining niche areas, we will strive for diversification and try to balance existing and newer products.
Today we have a huge customer base in credit cards and microfinance and as you know there are multiple options available to leverage that…maybe after a quarter, we will be in a position to share with you exactly the road map which we will be following.
Put simply, we want to reach RBL Bank 2.0 within next three-to-five years period, which indicates doubling the existing asset size. This will happen through additional products, processes, development of technology, the introduction of innovation…
The vision of the bank has always been to add stakeholder value. It should be able to add more value. It is a good bank, we will work together to make it better and best.
Q- All the best Mr. Kumar on your new role. Will you find time today on your special day to be with your loved ones?
Kumar- Yes, I am already in my suit. I am stepping out after this call.
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