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REGISTER NOW OR LOGINRBL Bank Ltd. (NSE:RBLBANK) is one of India’s fastest growing private sector banks. Incorporated in 1943, RBL Bank was formerly known as Ratnakar Bank and is one of the oldest private sector banks in India. The bank currently services over 3.54 million customers and is leveraging technology to acquire and service clients. RBL Bank is focusing on enhancing business across its branches and coverage network while widening its product and service offerings. The bank has been awarded as the fastest growing small bank for the fifth consecutive year by the Business Today - KPMG survey - 2017.
India is on the cusp of a historic growth reaching important milestones like Digital India, Aadhaar payment bridge system (APBS) and Unified Payment Infrastructure (UPI) platform and passage of GST Bill. RBL Bank, with its growing footprint and increasing product portfolio, should be a good way to play this growth story in India.
RBL Bank Positives
i) Pan India presence - RBL Bank has a pan India presence and an expanding footprint across metros, urban, semi-urban and rural areas. The bank has a network of 246 branches and 393 ATMs spread across 20 Indian states and Union Territories. The bank has been expanding aggressively all over India. This will not only enlarge RBL Bank’s deposit base but also build a strong customer connect and provide tactical location advantages. The bank also has a well-diversified industry exposure with Construction/ EPC, Trading and Power being the top three industries.
Its branch-light strategy and business strategy focusing on agriculture, micro finance, and secured small business loans, helps it avoid direct competition from the other large private sector banks.
ii) Differentiated Products and Services - The Bank offers specialized services under six business verticals - Corporate & Institutional Banking, Commercial Banking, Branch & Business Banking, Agribusiness Banking, Development Banking and Financial Inclusion, Treasury and Financial Markets Operations. This enhances cross-selling across all businesses. The bank also offers digital age solutions including mobile banking, internet banking, phone banking/IVR and micro-ATMs. RBL Bank in association with Fintech start-up MoneyTap, launched India’s first app-based credit line that allows retail consumers to avail credit instantly over their smartphones.
RBL Bank launched 'Banking As a Service' (BAAS) unit to deliver industry-specific solutions such as payment APIs, prepaid cards, merchant acquiring, nodal accounts AEPS etc.
iii) A strong and experienced management team – The management has played an instrumental role in the strong growth of the bank over the past seven years, registering a growth over almost all financial parameters. The bank has been successfully shifting its focus from corporate to retail, agriculture and micro-finance. In fact, the bank provided micro-loans to over 13 lakh women clients from 18,000 villages in 13 states in the last year itself. RBL has created a niche for itself in the agri-lending space, catering to the segment’s entire supply chain.
The bank’s faster turnaround times and ability to deliver on its commitments has led to RBL becoming a preferred choice for retail as well as institutional players. The bank has built a strong partnership model with successful names in the industry like Bajaj Finserv, Bookmyshow, PayU, DSP Black Rock Mutual Fund and many more.
iv) Consistent Performance – RBL Bank had a good financial year in FY 17, with net total income registering an increase of 51%. The bank also performed consistently on all parameters in its recent second quarter, registering a growth of 35% in advances and deposit growth of 31% y/y. Nearly 70% of these advances are secured. RBL Bank has exhibited a strong loan and earnings growth momentum and a strong capital position with ratios above regulatory threshold. The bank has also set out to achieve aggressive growth targets by 2020 with CASA growth by 1-2% and improvement in ROA by 10-15 bps every year. The bank also aims to maintain NPA to not cross 1.25%.
RBL Bank witnessed 185% increase in POS spending and 173% increase in active customers, y/y.
RBL Bank Challenges
Though RBL bank aims to achieve stronger numbers by 2020, it is currently suffering on few parameters. The bank has the lowest CASA ratio (~22%) in the industry, which tends to increase its borrowing cost. In fact, RBL has one of the highest borrowing costs in the industry. There has also been a steady increase in the gross NPA in the commercial business segment in FY17. The bank’s exposure to construction and real estate sectors could pose a problem. RBL bank also suffers competition from small finance banks in India.
Valuation
RBL Bank was listed in 2016 and the bank has returned close to 70% since its IPO, and amidst demonetisation and balance sheet clean-ups. RBL was the first Indian private sector bank to launch an IPO in a decade and the IPO drew bids close to 70 times the shares on sale. The IPO also boosted the bank’s branding and overall visibility.
Valuations too look reasonable when compared to other listed players. The bank has a market capitalization value of INR 21,234 crores with a P/B of 4.8x. Kotak Mahindra Bank Ltd. (NSE:KOTAKBANK) has a P/B of 4.9x, while HDFC Bank (NSE:HDFCBANK) has a higher P/B at over 5x. The stock performance has also been far better than peers.
Source: Money Control
The bank even recommended a dividend of 18%, in its first year as a listed entity.
The part of the reason the markets are giving us high marks is that we stated our vision statement in numbers and in concrete terms and we outlined our strategy and we are executing well. So investors have clarity – says Vishwavir Ahuja, Managing Director & CEO of RBL Bank.
Source: The Hindu
Conclusion
RBL Bank has a robust corporate governance framework as well as an experienced management team. It has successfully transitioned into a new-age private bank over the last few years, under the new management since 2010. RBL is a good bet when compared to the other private banks trading at hefty premiums and debt-ridden public sector banks. Many of the industry analysts think that RBL Bank offers a unique ‘early-stage’ opportunity and given its strong momentum, management, and a differentiated growth strategy, RBL is a buy in my books.
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