Even in Q4, RBL's overall income generation higher than in Q3: Vishwavir Ahuja

Assuming that the real economy grows at around 2% and credit growth for the system is around 6%, private banks should be able to grow at least twice that or at around 12%. What are RBL’s growth ambitions and where will the demand really come from?
In our commentary we have said very clearly that there are two aspects to what is going on; one is how we have performed so far and the other is what is the outlook going into the future.

It is very clear that it all depends on the kind of scenarios that unfold and the whole world is talking about a very optimistic scenario, a so-called base case scenario and a worst case scenario.

Let us now talk about the more optimistic scenario which might imply that this lockdown which is there till April 15, will come to an end and we will have this coronavirus situation under control. But it does not seem that we are going in that direction. It does seem that it is going to last a bit longer, perhaps into May and that life may start limping back to normal by the end of June. That is the scenario that we feel is the more likely at this moment. Of course, it is an evolving situation. Things can even get worse from here as we all appreciate and therefore any judgement we make in terms of the future has to be made with a cautious note. So that is the first thing.

In our base case scenario, we have said that the businesses that we are in, can be leveraged in such a way that as consumption demand comes back, there will be a lot of pent up demand out there. The businesses that we are in have the potential to once again bounce back and grow nicely.

Just to clarify, the card business, the micro banking business and some of the other businesses that we have and also broadly on the wholesale side, we are in a phase of continued consolidation. We have been de-bulking our portfolio and growing the rating profile of the portfolio. This exercise started several months ago as we experienced a little corporate stress. That has now been pretty much absorbed and we are moving on from there.

That having been done, the whole idea is that the wholesale business going forward should be very tightly run to much strong financial metrics both in terms of return and in terms of asset quality. We have never doubted our client selection and risk management processes. The very few handful of cases where we were affected were a result of the larger circumstances in the economy which have impacted certain companies and certain groups. It is a decent size business that we have, which can produce decent size returns but certainly that is not a high growth area for the bank at this moment.

Nor would I like to make any growth predictions out there. It is something that will evolve. As far as the other businesses are concerned, you would have noticed that proportionately, our emphasis is on the retail businesses which have been growing very nicely and producing very good returns. It has not only performed very well but also, that is where the growth potential lies even in the future.

That is how I would respond to your question, it all depends on the timing. For the time being, in April, May and getting into June, there is no possibility of growth in any business. Only once things normalise that our card business, our micro banking business and our other retail businesses could improve. There is a significant growth potential there.

Coming to the subject of deposits, we are told that a consortium of private bankers met the Maharashtra government last week. Do you know anything about that and what are the key takeaways from there?
The Maharashtra government has taken a decision. The Reserve Bank of India has also approached them. The governor has commented about it in his two press conferences and it is something that sooner or later, they will take a decision on. But I am not too worried about it, frankly speaking. The issue here is that it is something that I think will correct over time.

We have seen these situations happen several years ago but at the end of the day, you cannot wish away the fact that the private sector banks in the country have a substantial and an increasing role to play in the broader economy and therefore they are active participants and they have a growing share of the market on both sides; on the liabilities as well as assets. That is where the greater growth potential is.

For the sake of the country and the economy, this is something that will resolve and it is restricted to one or two state governments. The others are fine and that is fine as far as we are concerned. I do not think too much should be made out of it for the time being.

It is a very short-term impact situation and fundamentally, we have to see how good the overall liquidity situation in the system and with the respective banks is. From that point of view, we have stated time and again that we are very comfortable.

If I take you back to the quarterly result commentary we made we have said even at that time that we were maintaining significant excess liquidity. That has come very handy even after and at the end of the day, these are slightly higher cost, bulk deposits. In a sense, there is a silver lining that if you can live without them and your dependency on them is negligible, then frankly speaking that makes for a much robust liability position for the bank, much more sustainable, much more reliable.

From that point of view, we are now sitting on an LCR position of 127%. We are sitting on excess liquidity and we are extremely well capitalised and the operating performance fundamentals of the bank, those metrics are extremely strong. When you stack it all together, that by itself becomes a very isolated matter.

Bandhan Bank has already started receiving deposits from its government associates. What is the plan to make up the deposit fight that RBL lost to the government entities? Even if Mumbai Police or MBC switch their accounts, there can be a huge swing for you, right?
I did not say that we do not want those deposits. I was just saying that the dependency on such deposits should not be the driving factor of your business or your sustainability of your overall deposit base. Ultimately, it is your retail deposit base, it is your franchise liability generation capacity which on a sustainable basis, should drive your business. That is the point I was making.

As far as the comment is concerned, three, four other state government organisations continue to give us money. In fact, we have received some today also. It is a significant amount and so honestly, this was a bit of an aberration. It is not that they have shut shop or anything. It is more restricted to Maharashtra where the so-called decision has been taken for the time being.

Talking about interests, will they continue to be levied on accounts during the moratorium period and reflect on the subsequent cost of loans? Going by the estimate, it should shoot up by as much as 8-9% of loan value in longer tenure loans. What is the additional NPA risk that comes out on back of this?
We have EMI based loans. These are not long dated, long tenor loans. The situation is very simple. For three months, the interest moratorium is there and after that in the fourth month, it has to be paid and most of our loans are like that -- short tenor loans. Whether they are in micro banking or in LAP loans that we have or even in some of the credit card related EMIs that we have. It is just pushed back by three months.

What will be the underlying health of borrowers in the system post an event like this?
That is a big billion dollar question. I will be surprised if anybody can answer that question with a degree of conviction and precision. The way to analyse is to break it up into more impacted sectors and the ones less impacted. There are many sectors which are still doing extremely well and when it comes to food, groceries, pharmaceuticals, media and entertainment.

But there are some sectors which are badly impacted, The resultant impact will be determined by what level of exposure a financial institution has to the more affected sectors. That is what it comes down to and that is the exercise, all of us are doing on a real time basis.

We all have some initial estimations and we have put that out in our commentary that nobody is trying to be complacent or over confident at this time.

Fortunately when we put up our portfolio, our exposure to the so-called affected sectors or industries is quite small. That is a heartening fact when you are dealing with a monumental challenge.

Your NIMs are at an all-time high. Are these levels sustainable?
Our NIMs have been going up consistently quarter on quarter for the last seven-eight plus quarters. We have always said that these higher levels of NIMs are sustainable. I am repeating that. In fact, even in this quarter our overall income generation which means net interest revenue plus other income was higher than the previous quarter, which is the third quarter.


In a very challenged economic environment exacerbated by the Covid-19 lockdown, the revenue generating capacity of our franchise has not only held solid, but it is contributing higher levels of revenue in the fourth quarter. That is why you know it is resulting in an operating profit, net of operating expenses which is at least equal to what we had in the previous quarter.