RBL Bank conducted a concall on 21 October 2023 to discuss the financial results for the quarter ended September 2023 and prospects of the bank. R Subramaniakumar, MD&CEO of the bank addressed the call:

Highlights:

The bank is focused on building a predictable and stable balance sheet. The bank continues to see good opportunities in its chosen segments.

The bank had talked about creating contingent provisions in the credit card and the microfinance book. These two segments contribute 35% of the loan book and also quarter contributes significantly to the profitability of the bank. These segments were hit by the external events leading to higher stress.

The bank has witnessed the benefit of the income tax reversals of earlier years of Rs 223 crore in Q2FY2024 at net profit level and Rs 298 crore at PBT level. The bank has bank has used this benefit to create contingent provisions of Rs 252 crore for the microfinance and the credit card book.

The bank aims to maintain 1% contingent provision on incremental credit card and the microfinance loan book going forward.

As per the bank, this is a good step to create buffers in the balance sheet. The bank aims to further increase the contingent provisions in the future, which will support transition to the ECL.

The bank is creating contingent provisions on prudential basis and not on account of any perceived stress.

The bank has a revised its provisioning policy for the credit card business and it would create 70% provisions for the 90 days+ overdue and 100% for 120 days + overdue against earlier practice of 100% provision for 180 + days overdue. This had a impact of Rs 48 crore on provisions in Q2FY2024.

The bank has also changed the practice of paying charges to the business correspondents from the interest income line to the operating expenses line, in line with the industry practice.

The largest business correspondent for the bank is 100% subsidy RBL Finserv.

The bank has recorded strong 21% loan growth on yoy basis and 4% on sequential basis driven by strong 35% growth in the retail book. The wholesale loan book grew 7% over year ago.

The bank expects the loan growth at 20-22% with higher growth in retail advances at 33%-35% for FY24.

The retail disbursement excluding cards were robust at Rs 4300 crore compared with Rs 2500 crore in Q2 last year.

The bank has issued 5.9 lakh new cards in Q2FY2023.

The bank is focusing on direct sourcing which is helping to reduce the acquisition cost.

The bank has reduced gross NPA ratio to 3.12% and the net NPA ratio to 0.78% end September 2023. The provision coverage ratio has improved to 75.6%.

The bank witnessed fresh slippages of Rs 541 crore in Q2. The recoveries and upgradations stood at Rs 166 crore. The bank has also recorded recoveries of Rs 144 crore in written off accounts.

About 50% of the slip is came from the wholesale book, Rs 60 crore from microfinance book, Rs 334 crore from credit cards and Rs 131 crore from other retail segment.

The restructured loan book of the bank has declined to 0.89% from 1.05% a quota ago.

The bank has created provisions of Rs 766 crore in Q2FY2024, of which NPA provisions were Rs 464 crore.

The credit cost was at 47 bps compared with 39 bps in the previous quarter. The contingent provision cost was 43 bps in Q2FY2024.

The bank expect to maintain credit cost at 1.5-2% in FY2024.

The margins were bottomed out in Q1FY2024 and improved 5 bps in Q2FY2024. The bank expects improving margin trend to continue in H2FY2024.

The bank aims to have the retail loan mix of 60-65% from existing 58%.

The retail deposits below Rs 2 crore stands at 43% and the bank aims to raise its share to 50%.

The bank is targeting to improve return on asset to 1.4-1.5% in FY2025.

The bank expects to reduce cost to income ratio by 100 bps in the coming quarters.

The bank aims to add 150 branches.