RBL does not need more capital for now; don’t see issues for stakeholders: Interim CEO

Rumours about the bank’s financial health have been doing the rounds following Vishwawir Ahuja’s sudden exit. Rajeev Ahuja tried to downplay the concerns saying that a transition of leadership was underway, and that all risk disclosures have been made at regular intervals.

He also said that he had no “independent knowledge” about any investor having shown interest to buy a stake in the company.

Ahuja said the banks net profits would be higher for the December quarter and that net net performing assets (NPAs) would be less than 2 percent by the end of the March quarter.

Q: The first obvious question is that Vishwavir Ahuja has proceeded on leave the same day at the Reserve Bank of India (RBI) took the step to nominate the directors. Sounds like too much of coincidence, because if he was not keeping well, that would have been for some time. So the two coming together is something which is worrying investors a lot. And there's been no clarification on that even in the conference call, it didn't become clear.

A: I will just say I don't want to speculate on what that Vishwavir Ahuja’s objectives were. I'm clearly of the view that – and I want to really draw a line in the sand between that event and where the bank is fundamentally and where we are headed to, which is really a continuation of the last commentary we had.

We have the financial strength, we have the capital, a profitability is coming back and growth is coming back. Now obviously, the turn of events, we cannot keep them away. But I have a job. I'm really looking forward to continue the work we had started doing. And I think RBI has given me the assurance that this is something which is they are very comfortable with the bank, the performance of the bank and the trajectory of the bank. So I don't think I want to go and equate the two. Clearly, the job for me is very distinct, very specific and all us are really geared to doing that.

Q: If RBI has had not appointed an additional director, would Vishwavir Ahuja have taken such a step yesterday itself?

A: The transition of leadership was well underway. Let's understand that there was a one year extension given in June of this year, the transition was expected and I was one of the appointed ones to take over as things materialized. Now, sometimes, these things happen with a frequency and determination, which is a little bit more predictable. However, at this instance, it has happened and I just want to move on. Because at the end of the day, the board, including the nominee of the RBI, unanimously appointed me as the MD and CEO interim, and has basically tasked me to continue the work, continue focusing on our day to day operations. And frankly, where we sit today, we see a much better Q3 And frankly, a Q4, which will get us back to our normalized trajectory after two years of COVID impacted performance.

Q: Permit me one more question on this issue. When I spoke to a whole host of brokerages and investors, there were two interpretations. One is, was the board not obeying what RBI wanted - a transition - and therefore, they needed to come and accelerate the process. That was one interpretation. The other interpretation is that probably the risk management systems were not good enough. And so there was a need for a constant presence of Reserve Bank of India, to prod the management and the board to improve risk management systems.

A: On your first point, again, I don't want to step into the shoes of either the board or the regulator and divine any motives and objectives. I don't have that much of a mandate to do and at the end of the day, we have a continuing business, our entire risk disclosures were being made very openly for the last several quarters, especially impacted by COVID-19 second wave.

We took a much higher provision anticipating problems, and that has borne out in terms of our reduced credit costs in Q2, and frankly, in second half of this financial year we will be almost 50 to 60 percent of our credit costs. So on the risk management side, on the metrics side, on performance side, I don't think there is anything which is different from what we have been saying as a team, and as a disclosure both to the regulator and to you all.

So I can only focus on that. In my view, that is the most important thing that we have the scale, the financial strength, the liquidity and the capital, and a day to day performance, which is actually improving as we speak. Q3 will end up with modestly higher profits, our net NPA is 2.1 odd percent. We do intend to get it below 2 percent by Q4. We do intend to become a 1 percent ROA bank in Q4. And I think all of this is being done with the full guidance of the board way back and we have guided the market and in my view the over overall risk management. Obviously I am in a situation like this where things are moving very dynamically COVID-I, COVID-II risk management is a day to day exercise, and I don't think that can ever stop. But where we are today, I'm very confident that we have crossed that place where we had turned around, and I'm very determined to take it forward on the path we have highlighted.

Q: The risk management was an issue that RBI raised?

A: No, look, I don't think there's anything - risk management in a bank is a continuous process. It's a continuous exercise. Obviously, we've been through challenging times as an industry COVID-I and COVID-II especially. You all know that we came out of COVID-I pretty nice in Q4.

COVID-II was a big issue. But we went and disclosed everything. We took the provisions in June quarter. And you see our September results, they have been a big change positively. I mean, literally from a Rs 450 crore loss, we made a Rs 40 crore profit - it's not too much. I agree. But the trajectory has been established. And we are still on track to deliver a 1 percent ROA in Q4 because I know that our underlying performance growth is back. We have the advantage of a very diversified base of businesses. Yes, some businesses will take a little while, but all our other businesses are doing extremely well.

Q: RBI doesn't put a nominee on board, just for fun, right? I mean, they must have seen something. And if the asset quality is good, if you are recovering, then why was the need for RBI to put a director on board?

A: I wish I can stand in the shoes of the regulator and say but the regulator does have an overall view. And perhaps their view was also to ensure there was a smooth transition. The transition was already underway. So I don't think the coming of the RBI nominee and the performance of the bank are any manner linked. And that's the message I have from the board and including the RBI nominee. So I don't want to speculate beyond that. Because that's my mandate. And that's the only thing I'm focused on.

Q: This is a story that our colleagues have picked up separately, that there is interest in various market circles and two names have been in specific have come to us, Mr Radhakishan Damani as well as Mr Rakesh Jhunjhunwala. Can you set the record straight on this? Have they expressed any interest to the board directly? What is the timeline? What is the board's view on it, if the board has received this expression of interest?

A: I have no independent knowledge of this, frankly. These are things which have a defined process. And I have no independent knowledge. So I can't even confirm or deny but let me just focus on the fundamentals. And where we are, we have a 16.3 percent capital adequacy ratio, with a tier-I of 15.5 or thereabouts. We expect it to be in the same range for the next three-four months, we are very well capitalized for a normalized growth pickup as well. So we don't need extra capital, for quite some time. We had raised capital last November, with an idea of two-three years of growth and obviously, the last 12 months for the industry and for us growth has been very muted. The growth is coming back, but we still have the capital, and we are going to turn profitable, and that will add to our capital buffers. So I don't think there is anything which I see a need to raise capital, obviously, as a bank over a period of time, all of us have to raise capital as growth is coming back for the banking sector, but nothing which is specific for now.

Q: You were saying that you are not aware of any such proposal but if this proposal, indeed was to come forth formally to the board, you're saying that in terms of raising equity capital, you would be open to it, whether it is these two investor names, or perhaps anybody else?

A: Right now, we don't need capital. At 16.3 percent and likely to remain the same range with a very strong tier-I and we raised some very high equity capital last year from two existing investors and one very large new investor - Baring Asia, so I don't think I need to raise more capital for the normalized growth at least for the next few quarters. We have a lot of capacities to continue our transformation project, which is underway. Profitability is back, growth is back, coming back moderately, not very high. And most importantly, our cost of credit has started normalizing very fast and that is the only focus. At some stage we will always raise capital. Clearly we will have to raise capital when growth comes back for the entire banking system more like 14-15 percent but that I think it's still a quarter or two away in my view, and we have enough to continue working for the next several quarters without a lot of worry on capital.

Q: The problem is that, in the last month when the capital was raised when there was a marquee names, the stock has halved from there - from Rs 350, it is down to Rs 175. The qualified institutional placement (QIP) happened at Rs 350, give or take Rs 10 or Rs 20. So I'm sure that there'll be lack of sort of confidence right now to invest in RBL Bank. And I'm assuming that - of course, today's market verdict, we'll find out, but it's likely that it will be cheaper than it was at the close of the trade yesterday?

A: We raise capital at about 177 last November. Obviously COVID has made a huge impact on banking performances. I'm not speculating on price. That's not our job.

Q: I was referring to the last QIP.

A: QIP done was pre-COVI, December 2019, at Rs 350, roughly. So I think a lot of things have happened. But look at the fundamentals, which have also evolved post-COVID for us. I can only focus and say that what we were dealt with in COVID, we addressed that, obviously, it's not been easy, it's not been without scars, I don't think we can walk away and many banks have had less or more impact during this period. And frankly, we have to deal with what we have.

Where we are today, what we have as a core strengths, our core businesses and the trajectory we have, I'm very confident that we will get back into a regular business with underlying profitability underlying credit quality. Even after all of the challenges, we have a net NPA of just above 2 percent. I mean, that needs a lot of attention that this is something we managed to do in spite of the challenges of last quarters.

I have no doubt that as things unfold, a business unfolds, we will be back to a much stronger wicket. Now, I am not setting as a verdict on where the share price should be but at the end of the day, our shareholders have been rock-solid, I know it's not been easy for them but it's not been easy for a lot of us and a lot of us in the banking system. So we need to focus on the future. Because where we are I know what the trajectory is, I know we have a lot of strengths to come back to better performance and frankly, when we cross the next three-four months with the execution we have promised, and I've actually relooked at the situation at this turn of events, and I'm extremely confident of achieving what we have. So there's no change in our guidance. Yes. And if FY22 once its done and dusted, FY23 looks a lot lt stronger for us.

Q: I just have one more question. The RBI generally conducts a lot of exercises with respect to different banks as well. And I'm sure they have done the same with RBL Bank. Were there any findings within that exercise that perhaps the regulator was worried about, with respect to asset quality, any concerns that you would want the shareholders to know about?

A: We are extremely transparent. We had challenges way back almost two and a half years ago, we've been doing extreme level of disclosures, and all those challenges are fully reflected in the books. And the regulator conducts ongoing exercises at all banks, as you rightly said, I have nothing, which tells me that what I have been saying, what we have been projecting, what we have shared on repeated communications over the last three-six months, that our trajectory is well established. And I'm saying that the credit costs of this second half will be between 50 percent and 60 percent of first half. The first half was impacted by COVID-II, which is a very challenging period. We took that in stride with continued building, we continued investing in branches people technology, and I think those trends are bearing out now. We have over 10 million customers in the bank in various shapes and forms that that takes a lot of strength to continue. So to me, what the RBI has told us, they keep inspecting us, I don't see that any different from where we are today and what I'm projecting to you today.

Q: What is the split between retail deposits, as in retail accounts, and large accounts?

A: We have a retail LCR, which is really what defines the realization, it's above 40 percent. It was below 30 percent 18 months ago. In fact, Rs 80-90 of every incremental deposit over the last 18 months has been from retail deposits. And I think over and above that we have a lot of branch banking business.

Q: Percentage of bulk deposits?

A: Bulk deposit percentage is, in my view, less than 30 percent no. I know that all our growth, and we've grown almost our deposit book by 35 percent in the last 18 months. I remember March 20 very well, other, it was a very traumatic period for many banks. But from that point to today, our deposit business has grown 35 percent, almost 80-90 percent of that has been retail. So the ratios will tell. But I think that's the strength of the bank. And we carry between Rs 13,000 crore and Rs 15,000 crore surplus liquidity at any time. Now that surplus liquidity is only because a deposit accretion is very strong. In fact, we have been paying off a lot - we have not been taking a lot of corporate deposits, because our retail footprint is doing quite well. So I don't think on that count, there is anything we see a concern. And to me, actually, the distribution expansion, the branch expansion, technology strengths are leading to this kind of granularity and growth in retail deposits.

Q: A final question, when is the final selection of the CEO? I guess there will be a new search committee and stuff like that. When is that?

A: I think these are normal processes which the board has to follow. At the end of the day, there is a formal process and then it goes to the RBI. Typically, all of this should take between four to five months is my guess. That's how the regulator works. The board has to obviously be very objective in their search criteria, they have to do their evaluation and frankly, then it goes to the RBI. So I am not seriously focused on that. My focus remains on the bank, the progress and strategy. And to me, that's the most important thing that the board, the NRC and the RBI will take care of. And I'm sure they will do the right thing.

Let me be frank, the RBI and the nominee decided to get me on as an interim MD and CEO, because I've been with the bank from day one. I know the strengths, and I know the gaps and I know what needs to be fixed. So that is my only purpose for the next six months to get that thing done strongly so that we are a better footing in FY23.

Q: Even last quarters, the banks deposit growth was quite good, it was 17 percent. I think it was Rs 75,000 crore deposit. Are you confident that there's going to be no problem on that because it's all about sentiment. If sentiment gets hit, people want to take out the deposits - that normally is the first thing that people do.

A: We are always prepared. At the end of the day as a bank, you're prepared from the deposit structure, you're prepared from liquidity, your operations, your IT infrastructure, you ATMs, so we are rock-solid there. Let me say we were battle tested last year between March and June, that was a more trying period lockdowns and no news on what was going to happen. So I'm not perturbed, we are obviously going to handle it. The RBI has, as told the board and us that this is all about the performance of the bank going forward. And I don't see any issues for any stakeholder of the bank either today or tomorrow.