RBL Bank Limited (RBLBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good evening, and welcome to RBL Bank Limited Q1 FY '27 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. R. Subramaniakumar, Managing Director and CEO of RBL Bank. Thank you, and over to you, sir.

Thank you, ma'am. Good evening, ladies and gentlemen, and thank you for joining us for a discussion on our bank's financial results for the first quarter ended financial year 2027. We have uploaded the results along with the presentation on our website, and I hope you have heard a chance to go through it in detail at end of this call. As always, I'm joined by Mr. Jaideep Iyer and Mr. Bhavin Lakhpatwala and other members of our management team to address any questions you may have. Firstly, I would like to brief you about the additions to our management team. Mr. Bhavin has joined as the Chief Financial Officer; Mr. [ Ashwin Chowdry ] has joined as [ CRO ] designate; Ms. [ Navin Sharma ] has joined us as the Head of Internal Audit. Before we get into the details on Q4 operational performance, I would like to briefly touch upon the transaction update. Emirates NBD Bank infused approximately USD 2.75 billion, INR 206 million, by way of preferential issue on a private placement basis to acquire 60% of the expanded share capital of RBL Bank at a price of INR 280 on 18th of June 2026. NBD is now classified as a promoter of the bank. As you are aware, Emirates NBD Bank is a leading banking group in MENAT region with a presence in 13 countries, serving 10-plus million active customers. While deployment of above capital, in the very short term, we have taken the opportunity to not renew some of the cast wholesale deposits and the repay borrowings this being the most efficient use of liquidity. Our -- over the next few quarters, we expect the normalized credit growth will consume this and therefore, giving further flip to our net interest income. As you would be aware, I'm happy to inform you that our long-term credit rating has been upgraded to AAA stable by ICRA and care, ICRA is also assigned a long-term rating of AAA stable. Before we get into the details on Q4 operational performance, I would like to briefly touch upon the macro trends. The demand conditions across our key customer segments remain broadly stable, with retail consumption and the small business activity continuing in line with recent trends. We have not seen any material impact on our portfolio arising from the conflict in the Middle East so far. However, we continue to remain watchful given early signs of inflationary pressure. In retail, the collection momentum, including the rural businesses. This quarter has been stable with no disruption so far. On the wholesale side as well we have not seen any impact at this stage. We have anyway been conservative in our approach over the last few years. While the banking system saw the positive growth of approximately 13% year-on-year, in this quarter, our bank tactically chose not to renew certain wholesale deposits in this quarter, given the liquidity with the bank post the completion of preferential allotment to E&P Credit growth in the banking system was around 19%, and our growth has been better than the average. Banking systems so far seen INR 1.5 lakh crores disbursal under [ ECLGS ] fight scheme. Our own disbursals under the scheme has been approximately INR 200 crores. Now on to business trends of the quarter. Our deposits grew 11% year-on-year to INR 14,829 crores as of June 30. Average deposits grew 24% year-on-year. Within deposits, the granular deposit. That is the deposits less than INR 3 crores accounts for 52.4% of total deposits as of 30 June. CASA ratio stands at 9.2% as of June 30. As mentioned in our exchange intimation releasing provisional financial numbers earlier this month, our bank tactically chose not to renew certain wholesale deposits in this quarter. Given the liquidity with the bank post the completion of preferential assortment to ENBD, our advances grew 23% to 1 lakh INR 15,223 crores as of June. And average advances grew 25% year-on-year. Within the overall advances, the secured retail assets grew 18% year-on-year and unsecured retail advances grew 8% year-on-year. The wholesale advances grew 38% year-on-year. In the Wholesale segment, our large corporate business grew 38% year-on-year, and Commercial Banking business grew 36% year-on-year. The JLG advances grew 50% year-on-year. Within secured retail, the business loans grew 48% year-on-year. The CD ratio stands at 93.1%. Our CD ratio, including long-term borrowings and the capital stands at 66.4%. In credit card, bank issued 3.4 lakh cards during quarter 1 of this year, with cards in force increasing to 4.65 million cards as of June. We have built traction in direct sourcing with this contributing 80% of the acquisition. This includes co-brand cards are sourcing is done by RBL team. The disbursal from branches was INR 1,178 crores for the quarter, is INR 731 crores last year, same quarter, as we continue to cross-sell assets products to our liability customers. In summary, as we look ahead, our growth priorities are clearly defined and focused on building scalable, resilient and profitable franchise. Continuing to build a granular and stable liabilities with the objective of progressively narrowing the cost of deposit cap visit large peers, build momentum on [ SCA ] over next few quarters through nonresident deposit flows that we expect to target in the Middle East and over the time in all geographies where ENBD has presence. To support this, we are also strengthening our branch presence in the relevant deepening relationships with large corporates, which were not accessible earlier due to constraint of credit rating or our cost of funds. We also see a significant opportunity to target the trade flows in the corridors where [ EMV ] is present, where we should have some competitive advantage, driving a more balanced and diversified it asset mix with a faster growth in secured products, alongside targeted market share gains in secured business loans, housing loans, gold loans, enhancing profitability across secured retail asset segments through better pricing discipline, operating leverage and product optimization, deepening customer relationships by increasing product penetration across our existing liability customer base and credit card franchise. Now I will invite Mr. Jaideep to take you through the financials in greater detail.

Thank you, Mr. Kumar, and good afternoon, everyone. Basically touching on some of the specific aspects of the financial performance. We grew net advances by 23% year-on-year and 2% sequentially to INR 1 lakh INR 15,222 crores. Retail advances grew by 13% year-on-year to INR 64,125 crores, the retail wholesale mix was about 55-45. Secured retail advances grew 18% year-on-year. Within secured business loans grew 48% year-on-year. The businesses for secured retail was INR 4,000 crores for the quarter, versus INR 2,900 crores at the same time last year. Microfinance advances grew -- disbursements grew 50% year-on-year, and the book grew by about 30%. Wholesale advances grew 38% year-on-year. Commercial Banking grew 36% year-on-year and large corporates grew 38% year. We issued 3.4 lakh cards during the quarter, reaching total cards in force million cards as of 30 June 2026. Coming to deposits. Total deposits grew 11% year-on-year to INR 12,829 crores as mentioned earlier, some of the deposits were run down because of the equity infusion that came in the last few days of June. Average deposits grew 24% year-on-year. Deposits less than INR 3 crores, which continues to be our focus area for growth, grew 13% year-on-year, and now accounts for 52% -- 52.4% of the total deposits as of 30th June 2026. Average NCPI for the quarter was 13%. In terms of operating performance, our NII was up 12% year-on-year to INR 1,634 crores. Other income was down 10% year-on-year to INR 959 crores, mainly due to reduction in the large treasury income, which we had seen in Q1 of FY '26 given the falling yields that had happened during that time. Core income grew 16% year-on-year to INR 923 crores. Our total net income grew 2% year to INR 2,640 crores. Our OpEx grew 8% year-on-year to INR 1,691 crores. Cost to income, as a consequence, was down to 64.7% versus 65.1% last quarter. Our pre-operating profit before in this quarter grew 31% year-on-year to INR 93 crores. Net profit for the year, as a consequence was up 27% year-on-year to INR 254 crores versus INR 200 crores for Q1 FY '26. In terms of asset quality, GNPA was down 15 basis points Q-o-Q to 1.3%, and net NPA was around 2 basis points Q-o-Q to 0.37%. Coverage -- provisional coverage ratio stood which technical write-off, this would be in the 90s. Net provision on balances was INR 597 crores. Of this net provision in credit cards accounted for INR 575 crores, microfinance was INR 17 crores, secured retail was INR 9 crores and wholesale had a release of about INR 6 crores. As a consequence, the credit costs for the quarter was 54 basis points. The slippages and therefore, credit costs in cards have been elevated in the last few quarters, base is early indicators on the delinquency trends, as mentioned earlier as well, there are significant signs of improvement, which makes us believe that slippages should materially decrease from Q3 of FY '27. On capital post infusion of INR 26, 016 crores by Emirates NBD, our total capital adequacy was at 33.3% and CET1 ratio of 13.2%. With this, we will now open for Q&A.

[Operator Instructions] We'll take the first question from the line of Rikin Shah from IIFL Capital.

I actually have quite a few questions today. So I want to be precise, so I'll ask them one after another. First one, if you could just talk about out of this INR 26,000 crore of fund raise that has been done, how has it been deployed? How much of that has been used to retire the costlier liabilities? What was the average cost of this retired liabilities? And how do you intend to deploy the remaining funds? So that's the first one.

Yes. As far as the retirement of the borrowings like cost to was around INR 10,000 crores has been done, and the net, [ 7.25% ] is the next rate which has been retired out of it. And we have redeployed some of them in the short term also, which is giving us around 6.78% -- 6.8% is what we came out of the deployment.

Sir, balance INR 16,000 out of INR 26,000, INR 10,000 was used to retire some of these liabilities? And what about the balance INR 16,000?

It was [indiscernible] in the short term.

Invested in investment securities, is it?

Yes. I mean short-term market instruments.

Okay. So I'm guessing that it can be redeployed into the loans as and when you start growing your -- got it. Okay. The second one was what was the [ IBPC ] runoff in this quarter? And how much of that balance is still outstanding? As well as the CASA declined Q-o-Q even after I adjust the INR 5,500 crores of transient IFC flows that we got in the CASA was meaningfully down. I mean a bit surprising that CASA was also so heavy on wholesale. So your comments on that as well, please.

Now for [ IBPC ] is to the tune of around INR 4,000 crores, which is what has gone and the other quarter.

Yes. So Rikin, CASA, honestly, while there was clearly a one-off flow that we had spoken about of around INR 5,000-plus crores in -- across March 31. In general, March is a little bit heavy quarter. And we've been relatively steady to slightly declining over the last 1 year or so on the average. We are now running around about 5%, 6% on daily average CASA. We've also kind of continuously rationalized savings account rates. And I think the idea is to kind of continue to do that gradually. And while that might be resulting in some relatively lower than preferred growth on [ SA ], but I think the intent is to build more low cost over time on the opportunity that we have right now.

Fair point. And sir, what is the outstanding of [ IBPC ] now? Is there anything remaining which can be run down going ahead because that has driven dragging...

About INR 500 crores.

Okay, not much. And to your comment, Jaideep. So while I do understand that we cut our [ SAAR ] rates and which is why the quantum of [ SAAR ] mobilization is weak. But essentially, that's the point, right? As long as the capital is there, you can use that to fund growth. But unless organically, we are able to mobilize SA at the same time offering competitive rates. How do we get confidence that after the free funds are deployed, we have enough ability to keep growing at 23%, 25%.

So that's a question one can debate for the next few days. But Rikin more season. I think we have lots of opportunities also because of the transaction. I think [ NR ] is an important focus area. Coincidently, the [ FCNR ] opportunity is a very nice marketing opportunity as well to kind of reach out to customers with a value proposition, which otherwise would not have been there. We will expand branches. We are also expanding branches. We should be we've opened about 20-odd branches. We will continue to add people. At some stage, we will get into wealth over time. So there are lots of things that will happen over time on trying to mobilize low-cost deposits. Even on current account, there is a huge focus area on retail. We've introduced some new product variants, which are attractive for smaller companies, SMEs, protractor ships, et cetera. So plus the combination of product and reach, I think that is the main effort, right? I think the holy grail is to kind of improve the cost of liabilities as well as have a reasonable growth. And between high levels of equity and a potential [ FCNR ] opportunity, it actually gives us a breather over the next 12, 18 months to get some of this right. There will be less pressure in general, on deposit growth because of the liquidity that we are setting.

In addition to that rate upgrade, in addition to that -- I mean our rating is also providing us a new territory, which we said we are not able to enter at all and it also provides us an opportunity to bring in a lot of collection accounts that we are not able to do. So these are the two things which will also be addition to our [ SAAR ]. And plus a lot of self-related proposition has been done and product proposing a rightly say that areas are going to get us there. And the strategy change has been made in credit card, which is going to be used in the acquisition of the cutover. Now the getting states are asset-light liabilities, what we have been driving it for the last 1 year, which is also providing us a lot of endpoint the new customer base, which we'll be able to accelerate gates. So of course, it is a very execution discipline is required, and you know that in the last 2, 3 years, the machinery has been completely hired and which is in a position to do the execution very disciplined way. So we are very confident, otherwise, we would not have been red good is high cost. So which is a very natural way to do it.

Got it. Fair point, sir. So that fits into my third question. Given that [ ENBD ] is now a promoter and expectations that a large part of [ FCNR ] flows should be coming from Middle East. Is there any particular target that you are intending to achieve [ YFCM ]? Because many other midsized banks may struggle to raise dollar funding or offer those leverages themselves. So any potential targets or any commitments that you've got from ENBD on this?

See, we are working on multiple options, multiple commitments on that. And we can visualize our bank, like we are only 0.5% of the market share and all the deposits so far. You can consider us reaching an [ FCNR ] at least 2 to 3x of that market share is what we are aiming to be in or whatever is going to mobilize the FCNR.

Our share of in will be 3, 4x higher than the market share of deposit what we have enjoying it today.

Got it. Makes sense. The next fourth question is on margins. So we have seen almost 50 basis points of margin contraction in last 2 quarters. Part of that is understandable given that the wholesale mix share has gone up. But even the retail disbursal yields in this quarter across many products are down. So what is driving such kind of sharp margin contraction even this quarter? And also your cost of science have gone up a bit in this quarter, which is a bit surprising. And finally, how do we think on margins from here on? Because after such sharp contraction, where do they start going from current levels. Of course, they would have bottomed, I imagine, but how much can it go up after all of these funds have been received? And where do they settle in a few quarters' time?

Yes. So Rikin, on margins broadly, I think there have been some headwinds. The full impact of refer rate cut, which happened in December early. Part of that was there in Q4, a reasonably large part also reflected in the Q1 numbers. And that's part of the reason why retail asset yields are coming off. Second, I think on savings account, we had a high cost bucket, which was introduced in late March and which we have now taken the opportunity to kind of get rid of. And therefore, for the quarter, that impact is sitting there. Now we should start seeing a decline in [ SAAR ] overall rates as we go into the next quarter -- coming quarter. In the other headwind was that credit card reversals have continued, and I think this will probably be there for 1 more quarter as we had guided earlier. So these were the headwinds. And I think going forward, there are -- yes, and I think we also had a slightly higher car really averages in Q4 versus Q1, which we hope to build over time as we just spoke in the earlier question. Having said that, in terms of going forward situation, making there are quite a few metafactors and things that we will have to face. One is obviously, the heavy equity will result in a step up of margins directly. We will have to see how repo rates behave through RBI. Obviously, a hike in repo rates is good for margins. Our credit rating has improved to AAA. So we will start seeing significant reduction in our bulk deposit costs or borrowing costs as and when we start leveraging again. At the same time, our mix will continue to move towards more secured retail, we will also take the opportunity to go up the risk curve in terms of both wholesale lending to better rated corporates and in terms of mortgages to, again, better business loans as well as individuals. So quite a few factors here. But if I have to kind of take a guess, directionally, obviously, we will go up significantly because of equity, north of 40, 50 basis points improvement or 30, 40 basis points improvement should be expected at least in Q2. And I think until the time we get to some relative stability in terms of mix changes, both on liabilities and assets. We will have some level of difficulty in predicting precisely where the margin goes. But clearly, the intent is that margins will inch up because of equity over the next 3 to 6 months.

The pace of 30, 40 bps is given, basically on [indiscernible] given, beyond that, yes, nothing will start [indiscernible].

Maybe just another way of checking this is, is there a path or journey to go to 5% NIM from 4.13% over a certain time frame? Because even I'm guessing the interest reversals due to credit card could be significant. So is that possible or that seems very unlikely given where we are right now?

So Rikin, if you look at the big picture, I think there is always a trade-off between NII and provisioning, right? So I think the idea is if I take a 2-, 3-year period, NIMs have to go up primarily from the cost of liability benefits, but it will also have the impact of a mix change on the asset side, on the loan side towards lower and lower yielding assets because -- and we have to extract benefits from operating costs. So I don't think we will target a margin of a certain number. I think ultimately, we will have to work towards the ROA target and then ultimately, an ROE target.

Got it. The next one is on asset quality. I mean the credit cost improvement in this quarter seems largely due to reduction in PCR. Given our current loan mix was just wondering why should PCR decline. In fact, on your Slide 12, I was computing, the MFI provision coverage is only 40%. Credit card coverage is 73%, which is almost same as your secured retail PCR. So any comments on PCR, why did it go down on that? .

No, no. Rikin, PCR is a function of the policies that we have. We haven't changed any policy -- so credit cards continues to be provided 70% on 90 days and a full provisioning on the tenth day, so higher slippage in cards would mean a higher quantum of cards between 90 and 120, that is simple mathematics. Similarly, in MFI, we have a 25% per quarter provisioning. And now we are seeing a very sharp reduction in slippages. So when this is a function of what has slipped 2, 3 quarters back. And as we get into a steady slippage, which has already happened, we will see provisioning on this portfolio. By the way, in any case, a very large proportion, I think 95%, 96% of MFI provisioning is now covered by CGFMU. On the secured retail assets, typically, we will have on mortgages and home loans, et cetera, we have a 15% provisioning. On tractors, we have, I think, about 25% per quarter previously. So I think this is an outcome of slippages in various categories. And I don't think we are quite comfortable with the kind of provision levels we have.

And the second last question is on the credit card. You have been talking about the slippages and credit costs speaking in 2Q. So could you talk about what is the current credit cost on cards? And where can it settle in second half? I'm guessing it's around 7% also right now, but if you could just quantify where it is? And where does it normalize from second half onwards?

No. In the last couple of quarters, we have been closer to 11%, 12% headline on cards in terms of credit costs on that book, credit cards plus personal loans. And I think while we will expect some reduction in Q2, but a material reduction should happen as we've guided in Q3 onwards. And we should clearly come down to the 5% handle by the time we hit Q3.

Fair point. Got it. Got it. And then just the last question is on effective tax rate. It has been consistently low at 22%. What's the reason behind that? And does it normalize to 25% anytime soon?

I think predominantly gift earnings is one reason why I can think of that we can be at 25% by definition, give this tax free. So that will be one influence. I don't see any other reason why we are where we are.

Next question is from the line of Anand Dama from [ Guama ].

So you talked about the [ CNR ] flows and you also talk about the [ NR ] deposit growth. Can you just chart like how you plan like you're going to add some branches like Mumbai you want to open some centers in Dubai. If I can just like -- I'm sure a lot of discussion would have happened with ENBD. If you can just talk about how the liability structure is going to change and how the NIDs going to help you over the next 2 to 3 years?

Given this partnership, I don't think it be relevant to talk about opening a branch in geographies, they are strong and they are working on. And the next obvious question will be how do we leverage the relationship through our within the regulatory framework, how to get the accounts open because people who are dealing with them, you see that half of the population of the buyer against, if we're able to get at least 20% of that itself into it, it is a huge growth. And the remittances, if you look at it, it is I mean, the largest flow which you would have seen there, if we're able to instead of allowing that amount to be a flow instead of stay business, then that is going to be another big opportunity for us to grow. These are the major concentration through which we'll be able to go over and our business in alliance or in partnership with the [indiscernible].

And so what are the pieces that you're going to put in place? You've got to get some people on board as well for that or the existing people and the set up itself should be good enough for you to mobilize and add projects?

I have been telling this again and again. We have a strong in like a few undersetting the bank. And whenever it is required on a need basis, we are hiring it. I'm iterate the three names who have just joined our management team in the last 1, 1.5 quarters. So this team is fairly strong enough. And the need base the business opportunity was bit expansion basis sense taken.

And Jaideep, you said that you would expect about 30 to 40 basis point margin replacement in second quarter. Is that it or like thereafter, also you will see continued margin improvement given that you have so much of capital to consume, and you would also see some benefits coming in from the liability mobilization possibly at a lower cost? And are you expecting any further rate cuts because now that you've got so much of capital, I think you can live with a relatively lower [indiscernible].

On margins, I will hesitate to go beyond Q2. I think there are quite a few factors, which we will have to see. As I said, we will also want to move towards loan mix, which is low risk. We will also end up deploying a certain amount of excess ability in lower-yielding assets, which will continue. We don't want to accelerate anything dramatically on our business as usual lending because there is no intent to take outsized risk here. And therefore, there will be some noise around margins, which we will have to see. But directionally, I think the intent is to get the cost of liabilities down. I think it's already reflected in bulk deposits as well as in borrowings, but we are obviously need for deposits is very low for a bit. On the -- sorry, what was the other question you had? Yes. Sorry, we will -- yes. So [ SAAR ], and I think we will want to gradually reduce this over time because ultimately, we have to also protect the customer franchise. So the attempt is to see how we can deepen the relationship with our high net worth, high value to our customers over time and then gradually reduce. I think it is safe to assume that this will directionally come down over the next 12, 18 months. I don't think we have a strict time frame in mind as to when we have to get to what rate.

And any target in terms of deposit growth for FY '27?

Said no, it is a need based. The capacity will be raised depending on the deployment. Now right now, for the short term, we already have a sufficient amount of employment with advances. Once it goes after 2 quarters, we'll be position to mobilize will bounce back because we have an advantage of getting into the reduced rate of mobilization in the corporate deposits, which will start going up. And retail deposit growth, yes, it is going to be there. Our target is 20-plus and within [ 20, 24 ] [indiscernible]. Yes, it's still on top of it. Now that is also under -- there is over and above additional deposit growth we [indiscernible].

Do you have any target in mind for [ SCR ] deposits?

I think I got a call to Mr. [ Rankin ] that we said that right now, our deposit share is around 0.5% of market share. Within the [ CNR ], we wanted to make it 2 to 3x of that, total and [ Novelis ], we will not restrict ourselves to 0.5% will be 2, 3x more than our market share is what we are intending it to do for the [ Novelis ] utilization.

Okay. So that should be about 4% to 5% of the overall deposits that will be moved [indiscernible].

No, no. He said 3 to 4x our current market share. So you should assume 1.5% to 2%, not 4%. I mean difficult to predict. If it happens to 4%, we'll be happy. But...

Intent is to oblige more back to the even what we're talking about.

Trying to since you're trying to do the math on NIM, please remember that [ FCNR ], whenever that comes in, will come deployed at a lower base because it will come at higher than the cost of fund that we're currently running.

Sure. And one more thing was there are some banks who have filed with this [ DFU ]. There are some banks who already issued the money. We also had a sizable microfinance portfolio. Are there any secure recoveries that we're expecting have you filed? Is there any progress if you can just talk about?

So we are expected to file our first recovery this quarter. And we will expect that as and when that gets approved, we should start seeing the flow.

Okay. Any points that you can talk about?

Not really. I mean, I don't think I have that handy. But I think the same thing we can see is at least over the last 3 to 6 months, the entire book has been largely covered in the few year.

Next question is from the line of [ Jeet Suchak ] from Ambit Capital.