ICRA had placed the long-term and medium-term ratings of RBL Bank Limited (RBL) on watch with developing Implications following the appointment of a Nominee Director from the Reserve Bank of India (RBI) under Section 36AB of the Banking Regulation Act, 1949 and the granting of leave to its Managing Director & Chief Executive Officer (MD & CEO) by the board on December 25, 2021. While the deposit outflows spiked following these developments, the relatively high liquidity levels maintained by RBL helped meet the surge in demand from depositors comfortably in the ensuing weeks. Following the initial surge, the overall deposit outflows slowed gradually and deposits now stand higher compared to December 25, 2021, while the liquidity buffers remain adequate. ICRA will continue to monitor the deposit base for its sustained stability and the liquidity position over the near term as well as developments on the identification of a new MD & CEO. Additionally, the ratings will be monitored for the improved trajectory at the asset quality and earnings levels. ICRA notes that RBL's internal capital generation has remained weak mainly due to slippages in the corporate book in FY2020, followed by the onset of the Covid-19 pandemic and the surge in delinquencies in the unsecured loans retail book (chiefly comprising credit cards, microfinance and business loans). Looking ahead, the threat of future waves of Covid-19, the performance of the restructured book and overdue loans in the retail segment will remain the key determinants of the asset quality, credit cost and profitability. ICRA has also reaffirmed the short-term rating, given RBL's comfortable liquidity position and capital cushions. The rating also factors in ICRA's expectations that the bank's operating profitability will continue to absorb credit losses to a large extent without materially impacting its capital position and that it will maintain its solvency position below the negative rating trigger. Further, in the backdrop of recent events, RBL's ability to build a more granular and stable deposit base at competitive rates will be a key driver of its scale of operations. Moreover, its ability to shift towards secured granular retail assets will be key for a sustained improvement in profitability.

Rationale

ICRA had placed the long-term and medium-term ratings of RBL Bank Limited (RBL) on watch with developing Implications following the appointment of a Nominee Director from the Reserve Bank of India (RBI) under Section 36AB of the Banking Regulation Act, 1949 and the granting of leave to its Managing Director & Chief Executive Officer (MD & CEO) by the board on December 25, 2021. While the deposit outflows spiked following these developments, the relatively high liquidity levels maintained by RBL helped meet the surge in demand from depositors comfortably in the ensuing weeks. Following the initial surge, the overall deposit outflows slowed gradually and deposits now stand higher compared to December 25, 2021, while the liquidity buffers remain adequate. ICRA will continue to monitor the deposit base for its sustained stability and the liquidity position over the near term as well as developments on the identification of a new MD & CEO. Additionally, the ratings will be monitored for the improved trajectory at the asset quality and earnings levels. ICRA notes that RBL's internal capital generation has remained weak mainly due to slippages in the corporate book in FY2020, followed by the onset of the Covid-19 pandemic and the surge in delinquencies in the unsecured loans retail book (chiefly comprising credit cards, microfinance and business loans). Looking ahead, the threat of future waves of Covid-19, the performance of the restructured book and overdue loans in the retail segment will remain the key determinants of the asset quality, credit cost and profitability. ICRA has also reaffirmed the short-term rating, given RBL's comfortable liquidity position and capital cushions. The rating also factors in ICRA's expectations that the bank's operating profitability will continue to absorb credit losses to a large extent without materially impacting its capital position and that it will maintain its solvency position below the negative rating trigger. Further, in the backdrop of recent events, RBL's ability to build a more granular and stable deposit base at competitive rates will be a key driver of its scale of operations. Moreover, its ability to shift towards secured granular retail assets will be key for a sustained improvement in profitability.