Banker's Delight

Since the year began, the Nifty Bank Index did touch an all-time high of 27,650 but has since given a good part of that gain away. The uptrend in HDFC Bank largely accounts for its 5%, year-to-date gain but other private banks have also felt the love. One such bank being RBL, which is up 6.75% since January after its strong run in CY17.

In Q4FY18, the bank saw its net interest margin expand 46 basis points (bps) YoY to 3.98% on the back of a changing portfolio mix and lower cost of deposits. The management has stated that net interest margin will cross 4% in the current fiscal. Total restructured assets fell by 10 bps during the quarter to 0.08%. As a result, total stressed assets (including gross NPAs) comprised 1.48% of the loan book.

Cashing in on the rebound in the stock price, the bank’s senior management has offloaded a part of their holding. CEO Vishwavir Ahuja sold 200,000 shares worth Rs.10.93 crore. Ahuja sold the stock in three tranches of 50,000 shares each on June 7 and 11, and 100,000 shares on June 15. The last time he sold shares was in December, 2017, when he offloaded 50,000 shares worth Rs.2.59 crore. Executive director Rajeev Ahuja, too, sold 200,000 shares on June 15 worth Rs.14.56 crore. Post the sale, CEO Ahuja now holds 9.85 million shares valued at Rs.532 crore & CFO Ahuja holds 4.84 millon shares worth Rs.261 crore.

Analysts are bullish as the the retail loan portfolio grew 66% YoY to Rs.8,890 crore and now constitutes 22% of the loan book (18% share in Q4FY17). The bank is now among the top five credit card issuers in India with 200,000 cards being added in Q4FY18, taking the total number of cards to 800,000.

The credit card business, which constitutes 25% of the retail book, can generate RoE between 30% and 40%, and analysts expect the bank to generate that once its card count reaches 3 million. The bank is cautious on infrastructure lending and project term lending, hence, 70% of large corporate loans are short-term working capital loans.Interestingly, even as the bank increases its exposure to credit card lending, the management is gung-ho about the opportunity in refinancing IBC loans.

The bank has grown its loan book by 32x over the past eight years, from Rs.1,170 crore in 2010 to Rs.36,890 crore and deposits have ballooned 24x from Rs.1,580 crore then to Rs.38,620 crore currently, according to Spark Capital. According to a report by Motilal Oswal Securities, RBL will report a industry leading loan CAGR of 35% over FY17-20 due to its management, product mix and low market share.