10 points to consider in RBL Bank's IPO

Vishwavir Ahuja, MD and CEO, RBL Bank at a press conference in Mumbai (Pic: Suryakant Niwate)
Banking IPOs are rare, and when there’s one in the offing, it generally catches everyone’s attention. It is thus very likely that RBL Bank’s IPO, the first in a decade, will also attract investors’ interest. 

In the current market scenario, where even relatively unknown companies managed to get a good response from investors, it is very likely that RBL Bank’s IPO will sail through, provided the pricing is right and the promoters have left something on the table for the new investors.

We take a look at 10 salient points in the RBL IPO issue.

1. RBL Bank, formerly known as Ratnakar Bank, is coming out with issue of new shares as well as an ‘offer for sale’ where some of its earlier investors will get a chance to exit. The bank plans to raise Rs 1,216 crore through this issue, which will be in the price band of Rs 224-225 per share. Out of the amount raised through the people, the bank will be receiving only Rs 832.50 crore, while the rest is for the investors who are exiting.

2. The reason for raising money is to augment the capital base in a bid to support its growth plans and comply with Basel-III norms. The reported Tier-1 ratio of the bank stands at 11.1% at the end of March 2016, which is likely to increase to 14.1% post IPO.

3. RBL Bank has undergone a transformation when the new management took over the reins in 2010 and changed the focus of the bank. The lender has been around since 1943 when it was set up as a regional bank in Maharashtra with two branches.

4. The bank has come a long way since the change in management. It now specializes in five business verticals – large corporations, small and medium enterprises (SME), agriculture, retail customers and development banking and financial inclusion (low income) customers.

5. The change in RBL Bank took place when it took over the business banking, credit card and mortgage portfolio of Royal Bank of Scotland’s India operations in FY14. Not only did this mean a jump in its financials but also brought with it respectability in the market. Along with the business, the bank took over the employees of RBS associated with these businesses. RBL Bank announced its arrival in the market through this business take over.

6. RBL Bank comes to the market as a modern private bank with offerings of digital banking services through various channels — phone, internet and mobile. The bank also has micro-payment and branchless banking solutions. Like a payments bank, it also employs business correspondent network to expand the customer reach beyond its service area.

7. The bank currently has 197 branches and 362 ATMs through which it serves 1.90 million customers. RBL Bank is still largely a Maharashtra based bank with 48% of its total presence coming from the state (11% from Mumbai). Apart from Maharashtra, the bank’s presence is mainly in Karnataka, Gujarat, Madhya Pradesh and Tamil Nadu, though it gets business from 16 states. 29% of its business comes from metros followed by 16% from urban areas, 32% from semi-urban and 23% from rural.

8. Though RBL Bank has expanded its presence, the bank has not been able to garner low cost deposits. Current account at 11% and savings account at 7% taking the total CASA deposits to only 18%. These deposits have come down from 35% in FY11 on account of aggressive growth in term deposits. The higher cost of fund has resulted in the bank showing net interest margin in the range of 2.65%.

9. As for advances, RBL Bank has reduced its exposure of corporate and SME portfolio from 75% in FY13 to 60% in FY16. Its retail business has grown the fastest at 74% CAGR and accounts for 17% of advances as compared to 11% in FY13. The bank intends to focus more on the retail business, just like other private sector players.

10. Despite being an old bank, RBL has not accumulated too much non-performing assets. Growth has come with a proper checks and balances in place. Gross NPA stands at around 1.0% and net NPA at 0.6%, this despite having a high concentration of corporate and SME loans is creditable.

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