The Reserve Bank of India has approved the re-appointment of Prakash Chandra as Non-Executive (Part Time) Chairman of RBL Bank with effect from August three for a three-year period.
“Chandra’s reappointment and revision in his remuneration had also been approved by the Board of Directors pursuant to the recommendation of the Nomination and Remuneration Committee of the Board, which shall be placed for the approval of the Members of the Bank at the ensuing Annual General Meeting,” RBL Bank said in a stock exchange filing on Wednesday.
Mumbai:RBL Bank slumped to a loss in the quarter ended June 2021 as the bank jacked up provisions to deal with current and future stress as it prepared to clean up its balance sheet to prepare for opportunities in the next four years.
The bank reported a net loss of Rs 459 crore largely due to almost a threefold rise in provisions to Rs 1,426 crore from Rs 500 crore a year earlier on a sharp surge in slippages from the bank’s microfinance and credit card portfolios.
Total slippages at Rs 1,342 crore included about Rs 450 crore each from microfinance and credit card loans where collections were hit due to the second wave of the pandemic.
Provisions also included Rs 604 crore of extra provisions as the bank decided to increase cover for bad loans and improve the coverage ratio to 61% from 52% in March. Gross NPAs increased to 4.99% up from 3.45% a year ago.
CEO Vishwavir Ahuja said the bank has consciously decided to bite the bullet as it wants to double down on the opportunities in the near future.
“We have pressed the reset button. As economic activity and growth revives, vaccinations gather pace and health infrastructure improves we wanted to have a clean slate to launch a 2.0 transformation based on vectors like branch banking, credit cards and micro banking which we are already ahead,” Ahuja said.
RBL expects the market to resume normal operations by the third quarter. It has set itself a target of increasing its customers base threefold from the current 4 million in the next four years.
Ahuja said the immediate target is to increase its return on assets to 1% by the end of March 2022 from negative 1.8% at the end of June.
“Our retail loan growth will be more in line with the GDP growth at 7% to 10%. Our corporate book is solid after the cleanups in the last couple of years so corporate growth will also be led by high-quality clients. There has been a significant opening up in the markets, especially in the urban areas as shown by the high-frequency data. But of course, it all depends on the Covid third wave,” Ahuja said.
A strong increase in other income helped revenue to double to Rs 695 crore led by a 137% growth in retail fee income.
The growth in other income masked a 7% fall in net interest income year on year to Rs 970 crore.
The bank has appointed four new directors —Vimal Bhandari as a non-independent director and Somnath Ghosh, Chandan Sinha and Manjeev Singh Puri as independent directors subject to shareholder approval.
The capital adequacy ratio improved 80 basis points y-o-y to 17.2% during the June quarter, compared to 16.4% as on June 30, 2020.
RBL Bank on Monday reported a net loss of Rs 459 crore in the quarter ended June 2021 due to a threefold rise in provisioning. The bank had reported a net profit of Rs 141 crore in the corresponding quarter last year.
Provisions increased 186% year-on-year (y-o-y) and 86% sequentially to Rs 1,426 crore. Operating profit of the lender increased 17% y-o-y to Rs 807 crore, but declined 8% sequentially. Although the bank’s net interest income (NII) fell 7% y-o-y to Rs 970 crore, the lender had support from rise in other income. Non-interest income surged 109% y-o-y to Rs 695 crore, which included Rs 562 crore of fee income. Net interest margins (NIM) declined 49 basis points (bps) y-o-y to 4.36%, but improved 19 bps sequentially.
Vishwavir Ahuja, MD & CEO, RBL Bank, said, “While our revenues and operating profits have held up well and continue to grow year on year, the effect of the second wave of the Covid-19 pandemic on our asset quality was rather severe and different from the first wave given the nature of our businesses, despite the planned counter-cyclicality in our business mix.”
The lender saw a rise in bad loans during the June quarter. Its gross non-performing assets (NPA) ratio increased 65 basis points to 4.99%, compared to 4.34% in the previous quarter. However, the net NPA ratio improved 11 basis points to 2.01% from 2.12% in the March quarter. The lender has strengthened its balance sheet by increasing provision coverage ratio by 580 basis points to 76.3% in June 2021.
“We have decided to take a firm view and clear the decks for the future, by taking accelerated or more than adequate provisions, preparing the bank to return to normalised levels of business, provisioning, growth and profitability. We expect return on assets of 1%, when we exit Q4 of FY22,” Ahuja said.
The cost-to-income ratio of the bank increased by 70 basis points y-o-y to 51.5% during Q1FY22. Advances remained flat at Rs 56,527 crore. While the retail loans grew 7% y-o-y to Rs 32,071 crore, wholesale advances declined 9% y-o-y to Rs 24,456 crore.
Deposits grew 21% y-o-y and 2% sequentially to Rs 74,471 crore. Current account savings account deposits grew 35% y-o-y and 8% quarter-on-quarter to Rs 25,071 crore.
The capital adequacy ratio improved 80 basis points y-o-y to 17.2% during the June quarter, compared to 16.4% as on June 30, 2020.
Private sector lender RBL Bank reported a standalone net loss of ₹459.47 crore for the first quarter ended June 30, 2021 as its provisions shot up by 185 per cent and drop in net interest income.
The bank had registered a standalone net profit of ₹141.22 crore in the first quarter last fiscal.
Its total income grew by 4.9 per cent to ₹2,720.5 crore for the April to June 2021 quarter compared to ₹2,592.73 crore a year ago.
Its net interest income fell by 7 per cent to ₹970 crore for the first quarter of the fiscal as against ₹ 1,041 crore a year ago. Net interest margin also dropped to 4.36 per cent as on June 30, 2021 from 4.85 per cent a year ago.
Other income, however, surged by 108 per cent year on year to ₹695 crore in the quarter under review.
However, provisions shot up to ₹1,425.67 crore in the first quarter of the fiscal against ₹500.16 crore in the corresponding period last fiscal.
Asset quality also deteriorated. Gross non-performing assets rose to ₹2,911.28 crore as on June 30, 2021 or 4.99 per cent of gross NPAs compared to 3.45 per cent as on June 30, 2020. Net NPAs also 2.01 per cent of net advances as on June 30, 2021 from 1.65 per cent a year ago. However, on a sequential basis, it was lower than 2.12 per cent as on March 31, 2021.
Transformation 2.0
“The effect of the second wave of the Covid pandemic on our asset quality was rather severe and different from the first wave given the nature of our businesses, despite the planned counter – cyclicality in our business mix. Economic activity and growth revival is now visible, hence we have decided to take a firm view and clear the decks for the future, by taking accelerated and more than adequate provisions, preparing the bank to return to normalised levels of business, provisioning, growth and profitability,” said Vishwavir Ahuja, Managing Director and CEO, RBL Bank.
The lender has also set a clear roadmap for its Transformation 2.0 journey encompassing a larger digital agenda, expansion of branch footprint, and building the secured retail assets business.
The Reserve Bank of India’s (RBI) ban on Mastercard is likely to create a near monopoly in India’s credit card market, with the US-based card network Visa likely cornering a significant chunk of the new business that earlier went to its global rival.
While homegrown platforms are expected to gain modestly, Visa’s superior reward offerings to merchants and the government’s zero Merchant Discount Rate (MDR) rule on National Payments Corporation of India (NPCI) is likely to put Visa in an advantageous position.
Private lender HDFC Bank, which is currently facing its own ban on onboarding new card customers, already has plans to roll out debit cards under Visa and RuPay.
“Mastercard is a significant franchise partner for the bank, but the good part is like in most of our businesses, we patronise on open architecture,” said Sashidhar Jagdishan, MD, HDFC Bank. “Whether it’s for cards, insurance, mutual funds, we distribute a lot of company products. Even in cards, we have a lot of franchisees – Visa, Mastercard or Rupay. So, until the ban on Mastercard is lifted and when our ban is lifted, the new cards could be on either of the platforms.”
According to a source, several leading co-branded partnerships such as those of Flipkart and Axis Bank and Indigo and Kotak Mahindra Bank were on Mastercard as well. These contracts are now expected to go to Visa.
Another area where Visa can prosper is the up and coming commercial credit card space where Mastercard and Visa currently have cornered the entire market. “These are typically cards issued for corporate purchases and spending on these cards go up to Rs 500 crore a month for large sized companies,” said a payments executive. “RuPay doesn’t have any exposure in this space; therefore, almost all new contracts on this piece are expected to be landed by Visa.”
Visa is also likely to have an upper hand in getting new debit card issuance contracts as well. The central government’s zero MDR rule on RuPay debit cards means that private sector banks that were tying up with Mastercard will almost exclusively move to Visa.
“Banks cannot make money through RuPay debit transactions. Unless there is a mandate as with public sector banks, most others won’t be compelled to shift their card issuance network to RuPay as it won’t make them any money. This puts Visa in a seriously advantageous position in the Indian market,” said an industry official.
On the debit card, most leading banks have multiple tie-ups with all three major card networks and internally switching the issuance infrastructure would not be a major challenge. However, for certain banks such as RBL Bank and Yes Bank which had exclusive tie up with Mastercard, RBI’s new diktat could affect their plans.
RBI doesn’t disclose the share of Mastercard and Visa in the overall payments system. Most banks have both Mastercard and Visa and in some cases RuPay as their payment platform for cards.
“We have already taken note of the situation and will soon be moving to the Visa platform for most of our debit and credit card requirements,” said another private lender that had co-branded with Mastercard. “But we believe that the onboarding to a new platform could take about two months.”
New Delhi, After the Reserve Bank of India (RBI) restricted Mastercard from on-boarding new customers, among the credit card issuers, including co-brand partners, RBL Bank, Yes Bank and Bajaj Finserv are the most impacted as their entire card schemes are allied with Mastercard.
Japanese brokerage Nomura said in a note that these three entities are the most impacted by the RBI move.
HDFC Bank has 60 per cent of its card schemes tied to Mastercard, Amex and Diners, while for Axis Bank and ICICI Bank, this is about 35-36 per cent.
“That said, we don’t know the individual card schemes’ contribution to the overall profitability of the issuers to assess the potential impact,” it added.
HDFC Bank is already restricted from issuing new cards, and hence is not incrementally impacted. On the other hand, Kotak’s card portfolio is entirely allied to Visa and hence it won’t face any issues.
The managements of both Axis Bank and ICICI Bank have in the recent past talked about their cobranded cards with Flipkart and Amazon, respectively, to be the fastest-growing card schemes. These card schemes are 14 per cent and 15 per cent of outstanding cards for Axis and ICICI, respectively.
While the Amazon ICICI card is allied to Visa, the Flipkart Axis card is allied to Mastercard, and hence is a potential medium-term risk, should the current status-quo continue, Nomura said.
The RBI on Wednesday restricted Mastercard Asia/Pacific Pte Ltd from onboarding new customers across all its card products (debit, credit and prepaid) from July 22, 2021.
The RBI had earlier put similar restrictions on both American Express Bank (Amex) and Diners Club International (Discover Financial Services).
“This leaves only Visa Inc and homegrown NPCI’s RuPay as payment providers under no restrictions currently. We don’t know if Visa has fulfilled all the requirements of data localisation as envisaged in the Storage of Payment System Data circular of the RBI,” Nomura said.
“In the near term, we don’t foresee any material impact on card issuers (especially credit card issuers), but there could be a medium-term impact if this situation persists,” it added.
RBL Bank on Thursday said its credit card issuance rate will be impacted post the Reserve Bank barring Mastercard Asia Pacific from onboarding new credit, debit and prepaid cards customers with effect from July 22 as it failed to comply with data storage norms.
RBL Bank, which currently issues credit cards on the Mastercard network only, said it has entered into an agreement with Visa Worldwide on Wednesday to issue credit cards enabled on the Visa payment network. “Our bank’s current run rate of approximately 1,00,000 new credit card issuances per month could potentially be impacted till such time that there is clarity from the regulator on issuing new credit cards on the Mastercard network or till the technical integration with Visa is complete,” RBL Bank said in a regulatory filing.
Technology integration
The bank expects to start issuance of credit cards on the Visa payment network post the technology integration which is expected to take 8-10 weeks. It said the company awaits further information from Mastercard on RBI’s supervisory action. “The debit and prepaid cards issued by the bank are already enabled on other payment networks in addition to the Mastercard network,” RBL Bank said.
It said, as of date, it has approximately 3 million credit card customers and is the fifth largest credit card issuer in the country with approximately 5 per cent market share.
Reserve Bank of India (RBI) imposed restrictions on Wednesday on Mastercard Asia/Pacific (Mastercard) from on-boarding new domestic customers (debit, credit or prepaid) onto its card network from July 22, 2021. The supervisory action will not impact existing customers of Mastercard.
The bank informed the exchanges about the agreement with Visa as RBI had barred Mastercard from issuing new cards due to non-compliance of data storage norms.
RBL Bank in the exchange notificiation said, “We await further information from Mastercard on RBI’s supervisory action. RBL Bank currently issues credit cards on the Mastercard network only. The debit and prepaid cards issued by the Bank are already enabled on other payment networks in addition to the Mastercard network.”
The bank said the integration with Visa will take another 8-10 weeks post which they will start issuing credit cards on Visa’s payment network. It’s current run rate of approximately 100,000 new credit card issuances per month could potentially be impacted till the integration with Visa gets over and regulatory clarity on the Mastercard network.
The bank currently has 3 million credit card customers and is the fifth largest credit card issuer in the country with roughly 5% market share.
On July 14, RBI had directed Mastercard to not issue any new cards on its network from July 22 onwards over non-compliance with data storage norms.
Mastercard said in a statement that it was disappointed with the stance taken by the regulator.
The payment giant in the statement said, “Mastercard is fully committed to our legal and regulatory obligations in the markets we operate in. Since the issuance of the RBI directive requiring on-soil storage of domestic payment transaction data in 2018, we have provided consistent updates and reports regarding our activities and compliance with the required stipulations. While we are disappointed with the stance taken by the RBI in their communication dated July 14, we will continue to work with them to provide any additional details required to resolve their concerns. Building on our considerable and continued investments in India, we remain committed to working with our customers and partners in advancing on the Government’s Digital India vision.”
RBL Bank has appointed Chandan Sinha and Manjeev Singh Puri to its board of directors.
Sinha is a career central banker and industry veteran with over 40 years of experience and Puri is a former senior Indian diplomat and India’s ambassador to several countries with over 38 years of experience.
“The new board members will provide continued strategic direction and guidance to help RBL Bank achieve its objectives,” it said in a statement on Tuesday, adding that the bank’s board now has 11 members.
Welcoming the two new members, Prakash Chandra, Chairman of the Board, RBL Bank, said, “The collective experience of our diverse board makes us better placed to capitalise on opportunities and deal with any challenges. We have taken several steps to fortify the franchise and their valuable guidance will empower our growth journey.”
As digital adoption picks up across the board, RBL Bank continues to remain aggressive on its branch expansion to improve its presence across the country. RBL Bank’s head for branch banking, Surinder Chawla, talks about the strategy of branch expansion and business, user behaviour evolving across retail and MSMEs and the way forward. Edited Excerpts:
Surinder Chawla, Head – Branch Banking, RBL Bank
Q. How’s the shift in the branch banking business strategy taking into consideration the impact of the pandemic and lockdowns subsequently?
Multiple changes have happened before and after the lockdown.
The last 3-4 months have been very different from how we look and approach things. The first big change is digitisation. Customer adoption of digital technologies has been very high compared to earlier. That is a big change, and it is a good change from customers as well from the bank point of view. The second big change is that earlier you had to meet clients to get work done and all that is done digitally even from a product perspective. The third big factor is some products which were push based, because of the pandemic/ health concerns of the client, those have become very accepted by the clientele. The biggest jump that has happened is in health insurance. As a strategy what all is happening is our investment in digital has become digitally large. If you want to scale up, serve customers digitally, whether it is full Net banking or Whatsapp banking. We have put almost all of our products and services on the digital platform.
From the liabilities and CASA point of view, engagement has become so much more because digitally frequency is here. The strategy is digital, engaging and making sure that the client does most of the things on his own. We roughly have now 20-25,000 digital accounts being added per month and it was around 12,000 in January-February 2021. Last year this number would have been 5-7,000 before lockdown. Q. How is the impact on SME and small business clientele? Is the same shift happening at the same speed or is it slow there?
If someone wants to trade in cash, then you have to connect with them physically. Apart from that, everything is digitally possible. We have a way of processing documents digitally. Most of the clients’ needs can be carried through digital channels. RBI last week allowed video KYC for sole proprietorship. Of course, cash will be an exception. There is also enablement happening for the business guys. That shift, which was slow so far, will become very fast paced now. Q. How’s the user behaviour evolving in MSME clientele and how neo-bank platforms are targeting them?
That is working well. Let us not forget that an MSME business client has never done something digitally, he has done digitally but also done physically. All the neo-banks are providing a layer over the current account and other services like invoicing, billing, tax planning, etc. That demand was there earlier and still there. The changes were primarily on the account opening side. Physical interaction was required but now the video-KYC is available, it is a game-changer. More and more banks are taking trade documents digitally. More and more banks will move services digitally. So, that pace is bound to pick up. The problem will be for those banks who want to deal in cash.Q. What are the plans for RBL bank in the branch expansion model? Would you look at rationalising?
So talking about RBL in specific, we do not have a large network. We only have 429 branches as of March. For us, branch expansion plans continue to be aggressive as we must increase our coverage. Let us not forget that Indian consumers may do a lot of work digitally, having the branch closer will increase their confidence. Branch in my view will still play an important role. The difference will be that the number of branches will decrease compared to before. While engagement is digital, the Indian consumer may want to meet someone for confidence. We are planning to add 75 more branches compared to 40-45 branches last year as we have a small network.
Q. How is the impact of the second Covid wave panning out on customers acquisition, transactions etc?
I will divide the impact on the liabilities and asset sides. For the liabilities apart from the fact that people are not coming to the branches, we were able to do fairly well. We have ramped up our digital capabilities. The number of accounts opened was in the same range as what we were doing earlier. From that angle, there has not been a significant impact. In terms of transactions, only the cash transactions have taken a hit, our customers transacted digitally. The engagement rate was high, and customers did not really face a challenge.
Q. As unlocking of lockdowns has started, what’s the way forward?
On the liabilities side, I expect to be fairly good. We have been spending more time and effort in improving the quality of our liability profile as well. We look to make sure that our book is more granular, our cost of funds has come down, we are able to get more customers. We plan to open branches, we expect that CASA ratio improves.
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