Rating: HOLD; RBL Bank: Aggressive retail growth plans We recently met with RBL Bank’s MD and CEO, Subramania Kumar, and Executive director, Rajeev Ahuja, to discuss the bank’s newly unveiled strategy for the FY23-FY26. Since the appointment of the new MD&CEO, RBL has made significant changes in its senior management team, hiring six talented individuals externally and promoting 21 internally over the past year. The bank has also enhanced its compliance measures and sharpened its focus. RBL Bank reconfirmed its guidance of achieving a CAGR of over 20% in loans from FY23-FY26, primarily driven by the retail segment. While continuing to prioritise card services, microfinance (MFI), and commercial banking, RBL Bank aims to aggressively expand its recently launched retail products, including housing loans, vehicle loans, gold loans, and small business loans. The bank intends to target tier-2 and tier-3 locations, where there is substantial untapped demand for these secured loan products. These businesses offer higher yields and require relatively less capital. To support its growth objectives, RBL Bank plans to increase its branch network from the current count of approximately 517 branches to 800 branches within the next three years. Additionally, the bank aims to leverage its business correspondent (BC) points for lead generation, further facilitating its expansion efforts. RBL has already invested significantly into its asset platform, systems, processes, technology and feet-on-street. It thus believes a large part of fixed costs have already been incurred and that incremental costs would be volume-led. Management sounded confident of improving the sourcing of incremental business from branches vs DSAs/connectors from a ratio of 20:80 currently to 50:50 by FY24 led by improving productivity and technology stack. RBL reiterated its guidance of revenue growth exceeding opex growth and thus improving RoA by 10-20bps every year through FY23-FY26. RBL has tier-1 capital at 15.3% and believes the current levels are sufficient for the next 18-24 months. We believe RBL’s strategy to grow exponentially in secured retail products (housing, wheels, SBL, gold) is reasonably scalable, NIM-accretive and less risky though it is more cost-intensive. We build-in a loan CAGR of 15% during FY23-FY25E, which is lower than the management guidance (of 20%), due to our view of moderation in systemic credit growth and higher competitive intensity. Leadership gaps being almost filled by promoting internal talent: Under the leadership of new MD&CEO since Jun’22, RBL has filled almost every senior management role (hired 6 talents laterally and elevated 21 internally) in the past 12 months. Notable changes are Chief information officer (Ravi Pichan), Head of Corporate centre (Alok Rastogi) and has elevated Vijay Anandh as head of Retail Assets and Collections. The bank has finalised the person for CFO and Wheels head. Also read: SEBI bans IIFL Securities from signing new broking clients for 2 years RBL reiterated its FY23-FY26 strategy with >20% CAGR in loans and deposits with sharp focus on granularity. It plans to build on the existing core businesses (credit card, MFI, Commercial) and expects exponential rise in the share of new businesses (housing, gold, small business and wheels). Overall, the bank targets 10-20bps per annum rise in RoA and 100-150bps rise in RoE for the FY24-FY26 period. Retail segment is likely to be the key driver for growth. The bank expects the share of Retail business to rise to 60-65% by FY26 vs 54% now. While retaining focus on cards, MFI and commercial banking, RBL intends to aggressively grow its newly launched retail products (housing, wheels, gold, and small business loans), predominantly in tier-2 and tier-3 locations.
Last Friday, WTI and Brent slid 3% after strong U.S. jobs data raised concerns that the Federal Reserve would keep raising interest rates, which in turn boosted the dollar. While recession fears dominated the market last week, on Sunday International Energy Agency (IEA) Executive Director Fatih Birol highlighted that China’s recovery remains a key driver for oil prices.
“If demand goes up very strongly, if the Chinese economy rebounds, then there will be a need, in my view, for the OPEC+ countries to look at their (output) policies,” Birol told Reuters on the sidelines of a conference in India.Price caps on Russian products took effect on Sunday, with the Group of Seven (G7), the European Union and Australia agreeing on caps of $100 per barrel on diesel and other products that trade at a premium to crude, and $45 per barrel for products that trade at a discount, such as fuel oil.
“For the moment, the market expects non-EU countries will increase imports of refined Russian crude, thus creating little disruption to overall supplies,” ANZ analysts said in a client note. “Nevertheless, OPEC’s continued constraint on supply should keep the market tight,” they said.
Also read: Petrol and Diesel Rate Today, 11 February: Fuel prices steady; Check rates in Delhi, Mumbai, other cities
In its consultation paper, Sebi has suggested that trustees of mutual funds should focus on market abuse by AMC, its employees and mis-selling by the AMC to increase the asset base.
Also, trustees should be responsible for fairness of fees and expenses charged by the AMC, compare its performance with peers and ensure that AMC’s sponsor is not getting any undue advantage.
In addition to the core areas, the trustees should be responsible for periodically reviewing the steps taken by AMCs for the folios which do not contain all KYC attributes with bank details.
Further, Sebi has suggested that trustees and their resource persons should independently evaluate the extent of compliance by AMC and not merely rely on AMC’s assurances.
To facilitate trustees’ supervision, AMCs should provide them with analytical information.
Presently, the trustees primarily rely on the AMCs for ensuring compliance with the applicable rules.
Under the rules, trustees hold the property of the mutual fund in trust for the benefit of the unitholders. The trustees appoint an AMC to float schemes for the mutual fund and manage the funds mobilised under various schemes, in accordance with the investment objectives.
“In view of the increasing scale and reach of the mutual fund industry, trustees’ role in respect of unitholders’ protection assumes even greater significance,” Sebi said on Friday.
Also read: Adani shares continue fall amid MSCI review
Over the past decade there has been a five-fold increase in the size of the mutual fund industry. The assets under management (AUM) has surged from Rs 7.93 lakh crore in November 2012 to Rs 39.89 lakh crore in December 2022.
To ensure that trustees devote time and attention to their core responsibilities, Sebi has suggested that for fulfilling other responsibilities, trustees may rely on professional firms such as audit firms, legal firms, merchant bankers for carrying out due diligence on their behalf.
The Sebi also listed some duties trustees can delegate to AMCs. This include ensuring that all systems are in place prior to the launch of any scheme by the AMC, and calculating any income in the mutual fund due to the fund and any income received in the mutual fund for unitholders.
The regulator has proposed to provide a one year time to existing trustees with board of trustee structure to convert into a trustee company, from governance point of view.
Presently, two structures for trustees are permitted — corporate and board of trustees structure. Moreover, there are a few mutual funds which have the board of trustees structure while the trustees of all other mutual funds have adopted the structure of a trustee company.
Considering the enhanced role of trustees over the period of time, Sebi has suggested to increase the minimum number of trustees to adequately perform their functions. Presently, the minimum number of trustees prescribed is four.
Also, it has been proposed that the chairperson of the trustee company should be an independent director.
Sebi has suggested that apart from the meeting of the audit committee of AMCs and trustees (which mostly comprises of independent directors), the board of AMCs and the board of trustees may be mandated to meet at least once a year to discuss the issues concerning the mutual funds.
The regulator proposed that the existing MF Regulations on AMC and its obligations may be amended to include additional clauses with respect to the obligations of the board of AMC.
The proposed amendment may include a clause which casts an obligation on the board of AMC to ensure that all the activities of the asset management company are in accordance with the provisions of these regulations.
The Securities and Exchange Board of India (Sebi) has sought comments from public till February 24 on these proposals.