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RBL Bank:In the fast lane

(Disclosure:I am market making in the shares of RBL Bank)

RBL Bank, a mid-sized lender, is a potential takeover target for some larger banks. Not surprising, considering that the bank has been turned around in the last four years by its Managing Director and CEO, Vishwavir Ahuja. “Many,” says Ahuja, when asked whether any bank had approached RBL for a friendly merger.

Indeed, several old private-sector banks have been acquired in recent years. Unlike RBL (formerly Ratnakar Bank), the survival of most of them was at stake because of poor operating performance. Ahuja is confident of the future prospects of his bank. “There is no question of any merger,” he says. Clearly, the bank, under a new management since June 2010, which includes foreign bankers, is aiming big.

In the BT-KPMG study, RBL has emerged as a “Growth Winner” among mid-sized banks. It has a balance sheet size of Rs 18,198 crore and grew its deposits by 39 per cent and advances by 54 per cent in 2013/14. The three-year compound annual growth rate (CAGR) in deposits as well as advances is over 70 per cent. The fee income jumped 110 per cent in 2013/14. The number of branches has jumped from 80 in 2010 to close to 200 now. “We are very much in the interim phase in our long journey,” says Ahuja.

RBL, under Ahuja, actually went and bought the credit card business of Royal Bank of Scotland in August 2013. In the last four years, Ahuja has revamped the top management, raised capital from marquee names, rebranded its identity as RBL, and launched Internet banking, among other business initiatives.

RBL focused on small and medium enterprises when Ahuja took over. The total size of the loan book was just Rs 900 crore and the bank also had a negative return on equity (ROE) in 2010. Today, all its businesses have been expanding at a scorching pace, expanding anywhere between four and 10 times in the past four years. Its loan book is now about Rs 9,835 crore and it has an ROCE of 5.12 per cent.

“We want to be a mass-banking institution rather than an urban-centric bank,” says Ahuja. The bank already has a presence in 13 states and will expand to 17 states next year and 20 states in 2016.

The next trigger for the bank’s growth will come from its IPO, according to Ahuja. “We will raise a significant chunk of capital in the near future,” he says. But there are challenges ahead. The big private banks, including HDFC Bank and ICICI Bank, are expanding into rural and semi-urban India, a thrust area for RBL. The Reserve Bank of India’s new differentiated licensing mechanism will create new payment and small banks focused on rural and semi-urban centres. But Ahuja remains unfazed. “The competitive landscape will definitely change in the future, but there is enough space for everyone,” he says-from Business World

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Go where the institutions want to go

Source: MicroCap Club

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A new risk in investing in India

Amongst the myriad risks associated with investing in India,one more risk is added to the list-Mr.Arvind Kejriwal

From a news article in ET:
Aam Aadmi Party convener Arvind Kejriwal pledges to take on the e-commerce players, lending his weight behind brick and mortar business fraternity, calling it an ” online scam“, which benefitted only a select few, while not only depriving the state of a precious revenue, but also putting the latter at a disadvantaged position.

He was addressing a group of traders in the Nehru Place complex. Speaking to ET, Kejriwal said, “Investigation is the only alternative left with us .

Selling an item which costs Rs 20 for Rs 18 is no business logic.”

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ICICI Pru Life valued at Rs.38,000 Crores at ESOP sale

(Disclosure:I am market making in the shares of ICICI Pru Life)

ICICI Prudential Life Insurance, the biggest private sector insurer, is being valued at $6 billion (Rs 38,000 crore) as per internal calculations based on the price at which employee stock options are sold. Though there’s no plan to list the firm anytime soon, the liberal Esop programme makes it a likely candidate in future.

The paid-up capital of the company increased Rs 31.6 lakh (face value) pursuant to exercise of stock options granted under the Employee Stock Option Scheme taking the paid-up capital to Rs 1,429 crore (face value) at March 31, 2014, according to the latest annual report. In 2007-08, the company had given an option to its employees to encash their Esops. At that time, employees who had exercised their stock options, sold their share at Rs 400 apiece, valuing the company at $11 billion.

According to the current valuation, ICICI Prudential is placed higher than other life insurance companies such as HDFC Life, which is valued at around Rs 18,000-20,000 crore. Prudential has the option to raise its stake in the joint venture to 49% as and when the regulations are liberalised. The foreign partner will have the option to increase its stake at a fair value.

If Prudential Plc wants to increase its stake by another 23%, it would have to bring in around Rs 7,250 crore. Around 0.2% of the company’s capital was given as part of Esop. They are allowed to grant share options up to 3% of the issued capital of the company. Many private life insurance companies had introduced the stock option programme. –from ET

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RBL Bank:Fast Growth was part of the plan

(Disclosure:I am market making in the shares of Ratnakar Bank)
Ahuja and his team have hoisted the sails of RBL to favourable winds. Its net advances and demand deposits soared over 50 per cent to Rs 9,835 crore and Rs 2,341 crore, respectively, in the past four years. In terms of size, it logged assets worth Rs 18,198 crore last fiscal and added 51 branches, widening its overall reach to 185 branches and 350 ATMs, with more than five lakh clients.  
 
While intending to grow at a fast pace, RBL has managed to trim instances of credit defaults and a resultant NPA pile-up. Its gross and net NPAs stood at 0.79 per cent and 0.31 per cent, respectively — among the lowest in the industry. RBL has grown in the range of 40-50 per cent across key business parameters, making it the ‘Fastest Growing Small Bank’ in the BW | Businessworld-PwC Best Banks Survey 2014. 
 
“Fast growth was part of the plan,” says Ahuja. “We were a small bank, with a balance sheet size of less than Rs 2,500 crore in 2010. Now, we are above Rs 20,000 crore and growing. We’re operating on a small base, but it’s more difficult to grow a small bank in a market with so many sophisticated players. It becomes even more difficult when there are legacy issues to sort out.” 
The bank is focusing on expanding its customer base and not particularly the balance sheet. Mid- and low-market rural customers are still its focus. The bank has reached out to smaller markets in Gujarat, Karnataka, Maharashtra and Madhya Pradesh. It disburses about one-third of its loans to farmers, small businesses and low-income consumers.
 
“Our model is more credit-led than deposit-led,” says Ahuja. “Our development banking/ financial inclusion vertical is initially credit-led. Once you have sufficient penetration and basic savings accounts, the pipeline is in place. That is when we lay out our other products — starting from a basic account to small remittances, then some balances and some other products.” 
 
RBL plans to hit the equities market with a public offering, which market sources say may be worth Rs 1,250 crore. Besides raising capital, the public issue would provide an exit route to many of RBL’s private equity investors. “The top five-eight investors will stay with us even after the IPO,” predicts Ahuja. –from BusinessWorld