MC Interview: RBL Bank saw 70 bps impact due to RBI’s risk weight norms, says MD & CEO

In an exclusive interaction with Moneycontrol, Subramaniakumar said that the bank plans to increase its credit card sourcing from non Bajaj Finance channels to 50-55 percent from the existing 35 percent.

Private sector lender RBL Bank saw an impact of 70 basis points (bps) on its capital ratio due to the central bank’s risk weight norms on credit cards, said R Subramaniakumar, Managing Director and Chief Executive Officer (MD and CEO), RBL Bank.

The Reserve Bank of India had said that credit card exposure for banks and NBFCs would carry a risk weight of 150 percent versus 125 percent earlier. Analysts at Motilal Oswal said that the impact on capital ratios of banks could be in the range of 60-84 bps, with the highest impact on RBL Bank, HDFC Bank, and ICICI Bank

In an exclusive interaction with Moneycontrol, Subramaniakumar said that the bank plans to increase its credit card sourcing from non-Bajaj Finance channels to 50-55 percent from the existing 35 percent. He added that the bank aims to have a credit-deposit (CD) ratio in the range of 80 to 83 percent against 85 percent now.

Edited excerpts:

What is your overall assessment of the Q3 results?

For the October-December quarter of financial year 2023-24, our net interest margin (NIM) is 5.52 percent and we have been protecting it in the same range for a couple of quarters.

Also read: RBL Bank Q3 Results: Net profit jumps 11% to Rs 233 crore, asset quality stays healthy

Our total advances grew by 20 percent YoY to Rs 79,949 crore and our retail advances grew by 33 percent to Rs 46,371 crore. Out of this, our secured advances grew 53 percent and wholesale advances grew 6 percent. And within wholesale advances, commercial banking and medium, small, and micro enterprises (MSME) grew by 19 percent.

On the deposit front, overall deposits grew by 13 percent and the current account and savings account (CASA) ratio stood at 33.8 percent. That has been less because we’ve been talking about increasing our granular deposits and we’ve achieved good traction quarter on quarter (QoQ). Our deposits of less than Rs 2 crore, which we call retail, grew by 23 percent YoY and remain at 44.5 percent of total deposits.

On asset quality, our GNPA stood at 3.12 percent and NNPA at 0.80 percent and this is more or less holding—we have been able to maintain an improvement in the last two quarters.

What was the impact of the RBI’s norms increasing the risk weight impact?

The circular from the central bank came in November and the impact was seen in December. And we actually increased the risk weight on cards (credit card) by 25 percent points.

Also read: RBL Bank, SBI Card tank up to 10%, hit hardest by RBI's revised personal-loan norms

We had an impact of 70 bps on our capital ratio given that we had the ratings done for unrated clients as we have been able to generate some capital efficiency.

Your corporate book grew only by 3 percent YoY. What is the strategy here?

At the beginning of this financial year, we strategically decided that we would not go aggressively on the corporate side, but within the segment, we would make some adjustments.

And on gold and other loans, you saw 250 percent growth this quarter. Going ahead, how do you plan to work on the segment?

We have recently started gold loans in our branches across the country. And now we did a combination of direct sourcing and also selectively picking portfolios to get an understanding of the market.

Going forward, gold loans are definitely a focus, and in 300+ branches the necessary infrastructure has been created and people are posted there for marketing purposes. We expect to see much traction in FY 2024-25.

The RBI had asked one of your biggest credit card partners, Bajaj Finance, to cease lending on some of its products, which account for a large part of your portfolio. How do you plan to work on this?

We have a very strong relationship with Bajaj Finance and we have a clear understanding of this. However, looking inward, we wanted to have our way of generating this within. Here, we have already deployed around 2,000 people to source directly from the market and we also have other partnerships.

In terms of client sourcing from Bajaj Finance, it has decreased from 80 percent a couple of years back to 60-65 percent. The remaining 35 percent is coming from non-Bajaj sources and we plan to increase this to 50-55 percent. Additionally, we are also in advanced stages with some public sector banks (PSBs) and NBFCs to develop new partnerships.

How well is your CD ratio working?

The CD ratio is around 86 percent. CD ratio just cannot be looked at as deposit and advance ratio. All our finances are not only funded by deposits but funded by refinancing as well, and the purpose is to manage the cost. When we combine deposit and refinance, the ratio would be around 76 percent. And our target CD ratio is between 80 to 83 percent.

Also read: RBL Bank made contingent provision of Rs 115 crore on AIF investments: CEO

Lastly, many banks are looking at expanding their business and opening new branches in Ayodhya. What is your strategy?

We have already opened 23 branches in the last nine months and 16 in the October-December FY24 quarter. Going forward, we will open around 70-80 branches in a year and by 2026 we will have around 650 to 700 branches.

We are planning to open a branch in Ayodhya and Uttar Pradesh is one of the focus areas for our bank.