Money & Banking
The incumbent MD & CEO of RBL Bank – R Subramaniakumar and Rajeev Ahuja who was the interim MD & CEO believe that there may not be much need for heavy kitchen sinking. In an interview with Hamsini Karthik, Subramaniakumar who has been roped in for the RBL Bank 2.0 transformation process says the bank will stand for controlled growth.
` The perception in investors’ mind is that the RBI has appointed an administrator without calling it so, especially given your recent background with DHFL…
Kumar: I am a career banker with an anchor banker profile. I headed Indian Overseas Bank for three; was also its chairman. In Indian Bank I scripted a turnaround where the stock went from ₹ 78 to ₹ 213 in just about eight months because we got the strategy right. In PNB where I spent 33 years of my career, I spearheaded the bank’s transformation which Ahuja and his team did in RBL Version 1.0. Each role has its own position. I am here to ensure that a good bank becomes a better and eventually the best bank. A universal bank needs somebody who has in depth understanding of all the banking aspects.
RBL has scripted a phenomenal growth story in the last one decade which I call it as RBL 1.0. It has grown and established itself in certain niche areas, and assumes leadership position within the top 5 or 10. I’m going to work with the existing team which has addressed certain niche areas. So why not in other areas using my expertise, so that the bank can scale up from the position of being good to better to the best. My view is that the perception has to be seen from the person’s ability to delivery because the bank required resolution, it would have been done. But this is not the place for the resolution.
What was the reason for RBL’s board to recommend Mr Kumar’s name?
Ahuja: I was not part of the screening committee, but I can tell you it was done in a professional manner. There was an outside adviser expert, who joined in the process. The idea was that with the bank becoming more widespread it makes sense to have somebody who has done it at a large scale and complexity. I’ve gotten to know Kumar over the last 48 hours, and I’m very encouraged with the speed at which he can grasp requirements of the bank and what will it take to take it forward. His coming on board will give us a lot more ability and flexibility to do changes in a manner that stakeholders come along. He addressed the key people and if we just put our head down and continue executing we will come out stronger. Frankly, all the tough things due to Covid is behind the bank. Kumar’s involvement can help us expand that opportunity.
As someone who has seen the bank from Rathnakar to RBL 1.0 and now RBL 2.0 under a new management which might entail some kitchen sink cleaning, how do you expect the employees to react?
Ahuja: We took conservative provisioning in Q4 so that the team has the breathing space to utilize the opportunity. We took extra provisions, on restructured assets, which normally people do not do as they expect these accounts to come back. We’ve shored up the PCR to 70per cent. Our net NPA was 1.4 per cent in Q4, and the net restructured assets stood at 2.6per cent, which is also very respectable considering we have just come off the pandemic. FY23 cost of credit will be well below 50 per cent of last year’s. If you look at it from a financial soundness perspective and balance sheet perspective, we are in a very good shape to tackle the opportunities of FY23. We have already started investing in areas such as housing and tractors and more will happen. Fact is we have nothing to sink.
Growth or quality, what should take precedence here on?
Kumar: I do not have a growth target yet, I am just going with the existing strategy paper which the board has approved. I’m in the process of consolidating that. But growth that does not mean that I just shoot out a rocket in the middle of the road. We have an excellent person and his team who are sitting on the steering wheel and I can be a navigator to have a controlled growth. Opportunities and potential for RBL Bank is very high. While retaining their niche performance in high NIM businesses we will be looking for alternative areas dispersing our risk spread as well as that of the capital lines. We will work on capital-light but marching heavy products.
At a time when RBL is trying to course correct its loan book, rates are going to go high. Do you see that as a problem?
Kumar: The bank is not making any correction to the balance sheet. The niche areas where bank has a command will continue. But the size of the cake is going to increase. That means the reach and the scale for the overall bank is going to increase retaining its niche, while adding new products.
As a banker you are used to seeing 4 per cent plus NIMs for several years, would you be okay to see if the number falls with more products getting added?
Ahuja: We have to look at it from what is that we are doing, product mix and other elements of the ROA. In our wholesale business, for the NIM trajectory is nowhere at 4 per cent; more likely around 2 per cent because we are dealing with midsize and large companies where we make money on the cross-sell of trade. If you look at our foray into housing, which we started 18 months ago and is reasonably growing, its operating expenses are heavy right now, being delivered through the branch model. That’s also going to be a low-NIM business. Some of these things have a little longer gestation. So barring cards and microfinance, which are now performing very well, other businesses like housing, business lending, and tractors (which is somewhat better) may not be high margins. But all this together should should lead us to an overall cost of credit of 2 per cent which is a very respectable number and something we can keep doing. In FY23, we should be having a fairly reasonable profitability if not spectacular. I’ll be very glad if we get to a 1 per cent ROI by the end of this year, which is within our reach.
What are the pockets which need filling in terms of manpower and risk assessment?
Kumar: Portfolio mix has to be a retail based on both the sides of the balance sheet. Liability spread in the retail will provide stability. Having medium to moderate ticket size loans will provide a cushion for the loan book. MSME is a growing area. RBI is coming down on online lender and when that segment vacates, the borrowers will come to conventional bank and RBL can leverage the segment. We would also be looking at revenue generation through alternative business to existing clients. If we can increase the wallet share of existing customers with new products of the bank we can have a growing balance sheet with fair profitability.
June 13, 2022