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Burning Desires
SARKAR BHAVAN, PATEL VILLA, AHMEDABAD

Yogesh Vallabhbhai Gabani

Chief Administrator- Burning
Desires

Burning Desires IPO Outlook- RBL Bank

Burning Desires IPO Outlook- RBL Bank

Pg. 02

Understanding
Banking
companies have
to maintain two
types of broad
category of
capital.

The issue comprised of fresh issue of equity shares by the bank aggregating up
to Rs 832.5 crore; and an offer for sale up to 1,69,09,628 equity shares,
including 38,79,070 shares by 48 shareholders like Elephant India Finance,
Capvent India Private Equity Fund, Gaja Trustee Company (on behalf of Gaja
Capital India Fund I) etc.
Other shareholders in offer for sale are Beacon India PE Fund (95, 05,558
shares) and GPE India (35, 25,000 equity shares).

Critical Aspect
The bank will not receive any proceeds from the offer for sale.

Tier-I and Tier-II

The objects of the fresh issue are to augment banks Tier-I capital base to meet

The intent of

future capital requirements which are expected to arise out of growth in

this IPO is to

assets, primarily loans/advances and investment portfolio, and to ensure

meet future

compliance with Basel III and other RBI guidelines. In addition, the bank

capital

believes that the listing of equity shares will enhance visibility and brand name

requirement for

among existing and potential customers.

Tier-I Capital

Qualitative Aspects
The company changed its name to RBL Bank from Ratnakar Bank in 2014 as
part of a brand-building exercise that saw it spread its network from western
Maharashtra and northern Karnataka, to other parts of the country.
As of FY16, it has 197 interconnected branches (88 branches in Tier 1 centers
andT 109 branches in Tier 2 to Tier 6 centers) and 362 interconnected ATMs
a
spread
across 16 Indian states and union territories serving approximately 1.90
b

million
clients.
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As per Burning
Desires, the
bottom line here
is not how many

Burning Desires IPO Outlook- RBL Bank

As part of growth strategy, the bank acquired certain Indian businesses of the
Royal Bank of Scotland (RBS), including RBSs business banking, credit card and
mortgage portfolio businesses, in FY14.

branches and

It also recently acquired a minority stake in Swadhaar FinServe Private Limited,

ATMs that RBL is

a company acting as a business correspondent, facilitator, agent and distributor

having as of

for financial services providers for Rs 20.5 crore.

now. Rather it
would be the
capital
expenditure
(CapEx) that it
could incur in
times to come,
because that
could hurt the
return numbers.
But CapEx
spending has got
power of
sentiments. So,
need not to fear
about Tier-I
capital spending
-- Yogesh V. Gabani

Burning Desires IPO Outlook- RBL Bank

Pg. 04

Earnings
For banking,

Profit in the year ended March 2016 increased 41.2 percent, net interest

make no

income 47.2 percent, operating profit 50.6 percent and other income 21.6

mistakes, Profit

percent compared to FY15.

margin is the
next criteria

Net interest margin remained stable at 3 percent in FY16 and FY15 each
against 2.7 percent in FY14 and 3.2 percent in FY13.

after NIM- Net

Interest Margin.
Since RBI is in
mood to further
lower down the
interest rates
and guidelines
to improvise
interest rate
transmission is
lined up down
the line, the
numbers could
pick up in
quarters to
come.
-- Yogesh V. Gabani

Burning Desires IPO Outlook- RBL Bank

Pg. 05

ASSET QUALITY

As mentioned

Asset quality deteriorated in the year ended March 2016 as net non-

earlier also,

performing assets (NPA) more than doubled to 0.59 percent compared to

Burning Desires

FY15. Asset quality concerns were also seen across the banking sector

has a lot to

especially in the second half of FY16.

explain as long
as NPAs are
concerned. Here,
NPA has
escalated as
compared to
previous year to
0.59%, But is not
a great concern
as its one of the
lowest of them
all.
-- Yogesh V. Gabani

Why NPA is Critical?

As per Burning Desires, Its a Bad Debt for any bank. Here, bank has to forget
about Interest income, but it wont even get the money lent. Along with that it
has got direct impact to bottom line and thus it can change the investors opinion
and sentiments for particular bank in the market.
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Burning Desires IPO Outlook- RBL Bank

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Wasim Shaikh, Editor-In-Charge at Burning Desires explains how the NPA

As per Wasim
Shaikh, Editor-InCharge at Burning

behavior is found in Public and Private sector bank. As per his analysis private
sector banks are having better asset quality and lower NPAs as compared to
public sector banks.

Desires, private

35

Public and Private Sector Banks Comparison (NPA)

sector banks are

30

having better
asset quality and

25

lower NPAs as
Values in %

compared to
public sector
banks because of
Policy gaps in

20

15

10

terms of
5

Administration,
Formation and

2011- 2012- 2013- 2011- 2012- 2013- 2011- 2012- 201312

13
14
12
13
14
12
13
14
Public Sector
Private Sector
Overall
Banks
Banks
Gross NPA Ratio(%)
2.79 3.26 3.85 2.98 3.59 4.33 1.96 1.86 1.82
Net NPA Ratio(%)
1.04 1.71 2.16 1.18
2
2.53 0.36 0.36 0.62
Net NPA / Net Worth (%) 13.04 16.39 21.19 17.54 22.39 29.21 2.7 2.97 3.78

Interference.

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Burning Desires IPO Outlook- RBL Bank

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One of the best

The bank had provided for an amount of Rs 93.19 crore during the fiscal year

aspects is downward

ended March 2016 towards provision for NPA, non-performing investments,

pick up in

depreciation on investments, write-off and sacrifice for restructured advances.

Provisioning
coverage ratio along
with Cost to Income
ratio, Which declined
to 55.87 percent in
FY16 from 68.28
percent in FY15.

As per committee
headed by Yogesh
V. Gabani, the cost
to income ratio
may increase in
times to come due
to CapEx in terms
of Branch
expansion and
reach. As in
banking sector
employee cost is
one of the major
cost head after
interest expense

-Vikas Jain,
Moderator,
Burning Desires

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Burning Desires IPO Outlook- RBL Bank

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Credit exposure is
nothing but as per

LOAN EXPOSURE

burning desires, its

monetary outflow in
terms of loans to
various categories.
As the chart displays
the credit exposure

The banks exposure to real estate sector stood at Rs 2,248 crore at the end
of March 2016, representing 7.08 percent of gross credit portfolio.
Its exposure to the industries exceeding 5 percent of the total gross credit
exposure (as per Basel III disclosure) are infrastructure, traders, and food
processing, construction, NBFC (MFI) and chemical products. Furthermore, it
has substantial exposure to agriculture and MSMEs, the priority sectors.

to Infrastructure and
real estate is highest.
As thee current

Gross priority sector advances aggregated Rs 6,862.22 crore as per

prospectus data.

government supports
this two sectors, RBL
can leverage on the
same as previous and
upcoming budget will
also be in favor to
this.

-Yogesh V. Gabani

Its aggregate loans advanced to 20 single largest borrowers amounted to Rs

Thats how RBL is

safeguarding its
NPAs.

4,635.29 crore, representing 14 percent of total advances as of March 2016.

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Burning Desires IPO Outlook- RBL Bank

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If we look at the
change in credit
exposure to various
sectors, the portfolio
is best modified. RBL
has reduced exposure
to uncertain and
highly dependent
sectors including
Aviation, Metal,
Rubber and Plastic,
Cement etc.

-Yogesh V. Gabani

T
a
ADVANCES
b

Asl of March 2016, 82.67 percent of net advances were secured by collateral,
e
including
real estate assets, property, gold ornaments, plant, equipment,

inventory, receivables, current assets and pledges or charges on fixed assets,

2

:
bank
deposits, NSC/KVP/insurance policy or financial assets such as

marketable securities and guarantees.

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Burning Desires IPO Outlook- RBL Bank

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A 17.33 percent (or Rs 3,678.87 crore) of net advances were unsecured.

Gross and Net
advances running
parallel due to
negligible NPAs.

DEPOSITS
RBLs total deposits at the end of FY16 stood at Rs 24,348.7 crore against Rs
17,099.3 crore in FY15.

RBL is having highest

amount as term
deposit under total
deposits year on
year, maintaining
liquidity by blocking
money movement at
a given point in time.

-Yogesh V. Gabani

Burning Desires IPO Outlook- RBL Bank

Pg. 11

As on FY16, top 20 depositors constituted 22.88 percent of total deposits as

Capital adequacy

compared to 27.32 percent and 23.82 percent as of FY15 and FY14.

ratio is above both

RBI guidelines and
industry average. So,
not a concern for us
as long as investment
consideration goes..

As explained earlier
there has been a
decline in CASACurrent account
saving account
because of
continuous increment

DIVIDEND & COMPETITORS

in term deposits.

The bank paid dividend of 9 percent (90 paise) and 12 percent (Rs 1.2) per

As per Burning

equity share to shareholders for FY14 and FY15, respectively. It has also

Desires there are

certain strong

paid an interim dividend of 15 percent (Rs 1.5) per share for FY16.

competitors like Yes

Bank, UCO Bank,

RBL said it did not expect to pay any final divided over and above the

Kotak Mahindra,

interim dividend already paid as per prospectus data.

IndusInd Bank and

Union and DCB.
Because, RBL is
having more
corporate exposure.

-Yogesh V. Gabani

Pg. 12

Burning Desires IPO Outlook- RBL Bank

Comparison with listed industry peers (FY16)

Burning Desires Committee Recommendations- Sector Specific View

The Indian economy is now on the threshold of a major transformation, with

expectations of policy initiatives by the change in guard at the Centre and
Indian government has also came up with numerous initiatives to boost the
economy. Positive business sentiments, improved consumer confidence and
more controlled inflation should help boost the economic growth. With a new
and stable Government in place now, a clear revival in the investment climate
is sure to come because if Economy has to grow, strong banking industry
should be at place. Higher spending on infrastructure, speedy implementation
of projects and continuation of reforms will provide further impetus to growth.
A moderate recovery is likely to be seen in FY15 and the real GDP is expected
to grow by 5.3% - 5.5% after normalizing inflation rate. While the CPI inflation is
expected to remain an important challenge for India, it should witness a
downward trajectory during the major part of FY15.

Pg. 13

Burning Desires IPO Outlook- RBL Bank

Technology Innovation and Technology Impartment

Life has become complex and in the era of competitive business, account holders and
B2B clients are demanding fast service at their time. Specifically for public sector
banks technology innovations are required to fulfill the client needs because customer
choices would change dramatically with technological innovations in upcoming years
to come, as a result of which lenders which still depend on savings deposits to attract
customers, could face oblivion in the next five years. Otherwise specifically in SemiUrban and Urban areas domestic private and public sector banks wont be able to
compete with foreign banks because, with increasing volume and complexity of the
banking business, it will be imperative for the regulator to move gradually towards
more offsite monitoring than onsite. Technology will play a much larger role in the
overall supervision of the banking system. There are likely to be transformational
changes in the entire regulatory system for financial services.
On the other hand, the recent decision of the government to capitalize public sector
banks based on their efficiency could go a long way in ending the muscle power that
the state-run banks enjoy, if the government sticks to the strategy of selective
infusion of capital because the growth of weaker banks are still on the line. Weaker
banks' survival would be in question as their ability to raise capital from the market
would be limited because of mounting non-performing loans and NPAs are also
constituently rising as far as public sector banks are concerned.

Burning Desires IPO Outlook- RBL Bank

Pg. 14

Currently, Public
sector bank is
holding 74% of total

Current scenario of Banking Sector

banking sector
assets. So, immense

We should not deny the fact that if economy has to grow, there should be a

scope for private

strong presence of banking sector in the country. In India, Private sector banks

sector banks to grow.

On top of that
budgetary liquidity,

has been achieving superior performance as compared to PSU banks if we

compare them in terms of various significance indicators such as NAPs, Net

transmission

Interest Earning, Profit per employee and profitability growth. The total asset

measure and lower

of all scheduled commercial banks was nearly 4500000 crore rupees by

inflation rate will

provide incentive to

financial year ending March, 2014 but increasing trend in NPAs remains a big

banks in times to

challenge ahead particularly for PSU banks but it could impact the banking

come.

sector as a whole as far as equity investment is concerned but still Future

-Yogesh V. Gabani

earning potential in Indian banking sector is expected to remain high, may not
be in the current year.
IPO Recommendation:
As this is the first banking sector IPO after 6 years and after the YES Bank IPO,
Conservative and sector specific investors will get activated. One should subscribe
with minimum holding period of 4 Months and positional traders should avoid as due to
price sentiments overnight gains may not attained.
-Yogesh Vallabhbhai Gabani
Chief Administrator, Burning Desires