In an interview with ET Now, Vishwavir Ahuja, MD & CEO, RBL Bank, says he is hopeful that in fourth quarter 2019, they should be able to exit at a higher ROA than now and at approximately 13.5% ROE, a significant improvement over today.
Congratulations for an excellent quarter. What led to this kind of strong profit growth as well as margin expansion? Could you highlight the key performance drivers?
Growth in the bank has been across the board, all our business segments — whether on the wholesale side or in terms of non-wholesale retail businesses — all have shown very handsome growth across the board. Therefore, the growth momentum is coming from all the areas. At the same time, there are two or three reasons why the NIM expansion is taking place.
In other words, we have witnessed an improvement in margins. The margins have improved 51 bps this year and NIMs have touched an all-time high of 3.98%, just short of that milestone of 4%. The reason for this is the consistent reduction in our cost of funding, that was facilitated by increase in low-cost deposit base. The CASA percentages have also been growing.
At the same time, there has been a slight increase in the proportion of higher yielding assets largely coming from the retail side in the entire asset mix. As the proportion of higher yielding assets increases, that also helps in terms of NIM expansion.
Your NIMs have expanded 9 bps sequentially. What are the margins and the margins at 3.98%? Are they sustainable? How would you see your yields and cost of funds shaping up?
The NIMs are sustainable in the coming year and we are endeavouring to improve them slightly and make them cross the 4% mark. That is the first part. In terms of cost of funds, we are more or less in the range where cost of funds are sustainable and two reasons why that is a case even though there is an uptick in the interest rate environment, driven by both global and domestic factors.
At the same time, that might get also balanced in our case by an expanding base of low cost deposits largely in terms of the growth in the CASA percentages so that might sort of offset each other and on balance that should help us not just maintain our cost of funds but also main the current levels of NIMs.
Asset quality has shown mild signs of improvement with GNPAs easing. What has led to the slight improvement? How have slippages and recovery shaped up, any asset sale undertaken?
Asset quality is strong and solid. We are happy with the levels at which we are operating and again expect to maintain these levels of gross and net NPAs going forward. Basically, our corporate, commercial, retail and the entire sort of pockets of our business are all operating under very tight risk management vigour and therefore we hope that we can maintain those strong standards of risk management going forward.
Therefore, we are quite confident of maintaining these levels of asset quality. That is the first part. As far as the second part is concerned, that proportion is very small. Basically, it is only 0.7% of our total book, perhaps there is just one item in that category which is a small item.
While you have spoken about GNPAs and your overall asset quality picture, how do you see stress in MFI corporate banking, agri, commercial, SME space?
As far as our large corporate book is concerned, we operate at very low levels of NPAs. As far as our commercial banking which is the mid-market and SME book, there also historically we have had higher levels of NPA but they have been consistently coming down and today it is very well managed book which is also growing very well.
So, on the wholesale side, actually the NPA levels are very satisfactory. On the retail side also, if I may break it down into personal loans, into LAP, into card related exposure and so on and so forth, it is operating at well below the so-called industry benchmarks when it comes to credit costs and NPAs.
The only area where we had concerns in the past because of demonetisation was in terms of the provisioning that had to be done on financial inclusion and micro banking portfolio.
Some of that provisioning was done in March 2018, some of that remains to be done in March 2019. Having said that, the new book that we have created post demonetisation in the last 12-15 months, constitutes 90% of the entire loan portfolio. 90% of the total portfolio is now operating at a 90-day DPD of less than 30 bps which means it is operating at 99.7% collection rates.
Therefore, the net proportion of the old stuff which needs to be finally provided for is very small and is already taken into consideration in the kind of overall asset quality and portfolio guidance that we are giving out.
Advance book growth for the quarter gone by is at about 37%. Where do you see the book ending for FY19 and FY20?
We have repeatedly given 2020 guidance which says that we expect to continue to grow in the 30% to 35% range on advances and we are standing by that statement even now. even though we now have a much bigger advance base and therefore despite the base effect having changes, we still believe that we will be able to grow in that range going forward.
How has your capital consumption and the tier I ratio have been? How long do you think it is going to last?
We are adequately capitalised. Our capital adequacy ratio is 15.3% right now. The tier I capital is about 2 percentage points less than that and so we are well capitalised. We are very comfortable in that position and should remain so for the next seven to eight quarters before there is any need to look for the capital raise.
Any change in guidance for vision 2020? You had been betting on advance book growing by about 30% to 35% CAGR and also you have stated return ratio of about 1.5% by 2020. What according to you would be the key drivers for the improvement in ROA?
If you look at our guidance carefully, we have fulfilled our guidance at this midway point from where the guidance started pre-IPO to 2020. We have been growing all our return ratios in accordance with our guidance. Last year, we grew ROA 13 bps and we have been growing that way ever since 2016 as per our guidance.
We are confident that based on the various aspects of our business, where there is growth, there is more profitable growth and growth is coming in a much more efficient manner.
Our cost income ratios are also going down and our NIMs are going up and and our asset quality is very tightly managed. All taken together, both ROA and ROE expansion is also happening at the same time and that will continue. We are hopeful that in fourth quarter 2019, we should be able to exit at a higher ROA than now and at approximately 13.5% ROE, which is a significant improvement over today. Therefore, by March 2020, it should be in line with our 2020 guidance.