RBL Bank Ltd Q4 FY23 Earnings Conference Call Insights

Key highlights from RBL Bank Ltd (RBLBANK) Q4 FY23 Earnings Concall

Management Update:

• [00:04:01] RBLBANK said it clocked its highest-ever quarterly and annual profit in FY23.

Q&A Highlights:

• [00:15:11] Jai Mundhra from ICICI Securities asked if 20% plus growth can be delivered in FY24 despite systemic moderation in credit growth to 12-13%. R. Subramaniakumar MD said retail is expected to grow 25-30% in FY23 due to established practices and processes. Other existing products will continue to grow 15-18%, averaging over 20%.

• [00:16:29] Jai Mundhra of ICICI Securities asked about classification of core businesses and its share. R. Subramaniakumar MD replied that the core businesses are commercial banking, credit card, and microfinance. Microfinance experienced a growth of 20-22% after a negative growth of 36%. Credit card grew 24-25% and is expected to continue at 20-24%. Commercial banking grew 19%, with a base of INR7,000 crores. The addition of housing loans to the core business is possible after achieving 80-88% growth.

• [00:19:38] Shubhranshu Mishra at PhillipCapital asked why the Zomato partnership was nullified and replaced with BankBazaar. Bikram Yadav replied that Zomato has decided to focus on its core business areas and exit ancillary lines of activity due to a strategic change. This decision was not related to commercials or partnership aspects.

• [00:20:00] Shubhranshu Mishra at PhillipCapital enquired how revolve will grow in the credit card book as the revolver proportion has been around 22%, range bound sequentially and annually. Bikram Yadav said revolve rate is a macro that balances out after a tough cycle with lower revolve behavior and new customer acquisition.

• [00:20:07] Shubhranshu Mishra at PhillipCapital also asked about the expected spend growth in ’24 and ’25 with rentals getting capped due to fees attached to rental spends. Bikram Yadav replied card acceptance for unconventional categories like rentals has increased spend between FY22 to FY23. Banks have balanced this with fees. The category is expanding at 20-25% CAGR and growth in spends is likely to continue even with fees and caps on rental spends.

• [00:22:33] Sameer Dalal at Natverlal & Sons asked if the opex cost grow marginally higher at similar levels of 30% growth or will it taper off in the current financial year. Rajeev Ahuja ED said that on the cost front, it will be more than advances, somewhere between advances and the current opex growth.

• [00:22:48] Sameer Dalal with Natverlal & Sons enquired that costs have come down but are still higher than desired, where are they expected to finish in the current financial year. R. Subramaniakumar MD said credit cost will be in the range of 2.6 or 50% less than the previous year. Conservatively, it will be 2%, but likely in the range of 1-1.5% going forward.

• [00:24:07] Sameer Dalal with Natverlal & Sons asked how can credit costs be reduced in the credit card business with constantly higher NPAs and increased slippages. R. Subramaniakumar MD answered that credit card business typically runs at 4% credit cost with slippages. After absorbing credit costs, it is still profitable and cannot be compared to housing loans.

• [00:26:05] Chintan Shah of ICICI asked about the current and past loan mix in terms of floating and fixed proportions with margins up 70-80 bps in the past 3 quarters. Rajeev Ahuja ED said business cards, microfinance, and parts of retail have 45% fixed and 55% floating rates. Margin tailwinds are due to improved product mix, reduced excess liquidity, and higher loan repricing. Headwinds may come from deposit costs but may be compensated by retail and wholesale mix change.

• [00:28:02] Chintan Shah of ICICI asked if the differential between RBLBANK’s term deposit and larger banks increase to 2-2.5% or remain stable at 1.5%. Rajeev Ahuja ED replied the spread expanded in the past for various reasons but is not expected to increase. The goal is to be competitive with the peer group and the gap should further narrow over a 2-3 year period.

• [00:28:50] Chintan Shah of ICICI enquired about the expectations for the revolver rate in FY24 and how does the conversion to EMI trend impact it. Bikram Yadav answered past revolving rates were high, but are slowly increasing and expected to rise by 100-200 bps next year. Movement occurred between revolvers and transacters, while the EMI base has been and will remain stable.

• [00:32:53] Prabal Gandhi of Ambit Capital asked how will the bank manage deposit growth with expected loan growth given the slow annual deposit growth and previous balance sheet liquidity. R. Subramaniakumar MD clarified the bank is shifting its focus from bulk to granular deposits and has successfully grown its granular deposits. A platform for cross-selling liability products has been created, and a digital journey for fixed deposits has been established. The bank is confident in achieving a 20% growth in granular deposits.

• [00:35:10]Anand Dama from Emkay Global enquired about the ROA guidance for the next 2-3 years. R. Subramaniakumar MD said RBLBANK has exited with 1% and will maintain that moving forward. The bank may exit by another 10-20% in FY24 and will increase it by 10-25% YonY henceforth.

• [00:37:48] Smriti Chaudhary from BQ Prime asked about a 41% YonY decrease in provisions and the rationale behind it. Jaideep Iyer said the fall in provisioning is due to the lagged effect of COVID and lower slippages on an incremental basis. Recoveries from past stock also helped reduce provisioning. This has been the trend for most of the current year and is expected to remain stable going forward.

• [00:38:09] Smriti Chaudhary from BQ Prime queried about the reason for increase in core income from the previous year, which was only about 7%. Jaideep Iyer replied core fee income has been affected by loan growth of 17% and a decrease in one-off treasury income due to less opportunity this year. This has resulted in overall income being down.