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

The bank reported an 11 percent year on year jump in net profit of Rs 233 crore for the October-December quarter of the financial year 2023-24, falling short of market estimates.

RBL Bank has made a contingent provision of Rs 115 crore on its AIF investments to comply with RBI's recent regulations on alternative investment funds exposure, R Subramaniakumar, chief executive officer (CEO) and managing director (MD), said on January 19 after the private sector lender's post-results press conference.

"The bank took a provision of Rs 115 crore on AIFs as per the recent RBI circular. These investments are primarily in venture debt funds which have been made over years for building inroads into new-age digital businesses," said Subramaniakumar.

The Reserve Bank of India on December 19, said that regulated entities, such as banks, non-bank lenders, and home financiers, cannot invest in alternative investment funds (AIFs) that have directly or indirectly invested in companies that have borrowed money from the lenders.

In a press release, the RBI highlighted regulatory concerns regarding certain transactions involving AIFs by regulated entities that have come to its notice and released guidelines for investments in AIFs by the lenders regulated by it.

ALSO READ: RBI AIF deadline ends today: Most lenders are making provisions on investments, say experts

“These transactions entail substitution of direct loan exposure of REs to borrowers, with indirect exposure through investments in units of AIFs,” the RBI said.

The guidelines, RBI said, have been introduced to address concerns about potential evergreening through this route.

Regulated entities (REs) shall not make investments in any scheme of AIFs that has downstream investments either directly or indirectly in a debtor company of the RE.

The RBI said lenders need to liquidate their investment in the scheme within 30 days if the AIF scheme, in which lenders are already investors, makes a downstream investment in any such debtor company.

Further, if lenders have already invested into schemes having downstream investment in their debtor companies as on date, the 30-day period for liquidation shall be counted from the date of issuance of this circular, the RBI added.

If lenders fail to liquidate their investments within 30 days, they need to make 100 percent provision on such investments, the RBI noted.

The central bank also said that investment by REs in the subordinated units of any AIF scheme with a "priority distribution model" shall be subject to full deduction from RE’s capital funds.

Also read: RBI bars lenders from investing in AIFs linked to borrowing companies

Q3 performance

Meanwhile, RBL Bank reported an 11 percent year on year jump in net profit of Rs 233 crore for the October-December quarter of the financial year 2023-24, falling short of market estimates.

Gross non-performing asset (NPA) stood at 3.12 percent, down from 3.61 percent recorded in the same quarter last year. On the other hand, net NPA for the quarter stood at 0.8 percent compared to 1.18 percent last year.

The net interest income (NII) of Rs 1,546 crore, which increased by 21 percent as compared to Rs 1,277 crore reported in the corresponding quarter of the previous fiscal. The NII, at Rs 1,546 crore, is slightly lower as against the estimates by brokerage company Emkay of Rs 1,559.1 crore.

Net interest margin (NIM) of the bank stood at 5.52 percent versus 5.27 percent in the corresponding quarter last year. Sequentially, NIM marginally fell from 5.54 percent.