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'There has been a change in the advances mix, with the share of corporate loans decreasing.'
R Subramaniakumar, managing director and CEO of RBL Bank, outlines the bank's approach to safeguarding its net interest margin, mobilising liabilities amid fierce competition for deposits, and reorganising its advances portfolio in a candid conversation with Subrata Panda/Business Standard.
The bank reported a NIM of 5.67 per cent in the first quarter. How do you plan to maintain your NIMs going forward?
We have a good percentage of fixed-rate loans. Additionally, we have maintained our deposit rates for some time and, as a philosophy, the bank has shifted towards the granularisation of deposits and advances.
The availability of products through our 1,800 distribution centres provides us with a foothold in the deeper pockets of the country and gives us an edge over our peers in deposit granularisation, which then funds our granular advances.
Moreover, there has been a change in the advances mix, with the share of corporate loans decreasing.
Essentially, we have replaced low-yielding loans with higher-yielding ones in the retail secured space and commercial banking loans.
All these factors have contributed to our current NIMs.
Going forward, we believe that we will remain in the 5.45 per cent range for a couple of quarters, after which we expect to see an increase.
How will NIM improve?
The new deposits we are acquiring now are at revised rates of 8-8.1 per cent.
Additionally, the differential between the rates at which other banks are acquiring deposits has decreased.
We will continue to increase the cost of deposits, but this will be adequately compensated by the yield increase from our advances mix.
In the event of a rate cut, our NIMs may not be majorly impacted due to the composition of our lending book.
The share of fixed-rate loans in our portfolio is slightly higher than that of our peers.
How much of a hit will the bank take once the draft liquidity coverage ratio (LCR) guidelines are implemented?
We maintain an LCR of 135 per cent, and our internal calculations show that we will experience a hit of 10-12 per cent.
Despite this impact, we will remain above 120 per cent, which is our internal target.
Hence, the upcoming LCR guidelines will have a marginal effect on our margins.
How do you plan to adjust the loan portfolio to ensure sustained growth?
We have already indicated that our corporate book will be in the range of 35-40 per cent; our retail secured book will be in the same range; and the remainder will be retail unsecured.
We will maintain our fixed-income products while reshaping the corporate book and the retail secured book.
In the retail secured space, we aim to have a deeper and wider market.
We have already made investments and will start scaling in the coming quarters.
Additionally, within the corporate sector, we are focusing more on small and medium-sized enterprises, commercial loans, and mid-segment corporate loans, while low-yielding corporate loans will be of lesser priority.
We are targeting entities with annual turnovers of Rs 200-400 crore and working capital requirements of Rs 50-100 crore.
Instead of large-ticket loans, we prefer multiple smaller loans.
This approach also provides an opportunity to cross-sell our other products, boosting our other income.
What is your plan for the retail unsecured segment?
In our vision statement, we have specified that we will not be growing this book beyond a certain point.
However, the extent of risk and the prevailing environment will dictate our strategy in this segment.
What is your strategy to maintain healthy deposit growth?
Our entire workforce is focused on attracting deposits of less than Rs 3 crore.
The number of new customers we are adding each month has increased from 15,000 to around 35,000.
When new customers join the bank, we can mobilise deposits from them because our rates are slightly higher than those of our private sector peers.
We have begun utilising our business correspondent points for liability accretion and expect to add 3-4 per cent to our deposit base through this method.
We have also expanded our salesforce to enhance our deposit accretion efforts.
We offer a range of financial services to our customers.
Once we onboard a customer, we engage with them and encourage them to pay their utilities through our bank, which builds up balances.
Additionally, we open savings accounts for all retail and housing loan customers and current accounts for loans against property.
We encourage these customers to pay their equated monthly instalments through these accounts.
What is your guidance on loan growth and deposit growth?
Our guidance is that growth will be between 18 per cent and 20 per cent.
If there is tremendous pressure on deposits, there will be a reduction in advances.
The focus is on the profitable growth of the bank.
Feature Presentation: Aslam Hunani/Rediff.com
