Since the fund infusion, how do you think the bank has performed?
Last year, we received one of the largest primary capital investments in the bank’s history. In the short term, it allows us to replace high-cost deposits and borrowings. Over the medium to long term, we will deploy the capital profitably in secured mid-corporate and large corporate lending.
The improvement in the bank’s rating allows us to borrow on terms comparable to those available to large banks. It also gives us access to large organisations and multinational corporations (MNCs) that were previously out of reach. This means more salary accounts, more current and savings accounts, and more non-fund-based income, which will boost fee income. With net interest income (NII) rising and operating costs remaining steady, pre-provision operating profit will grow faster than loan growth.
We have already addressed our credit costs. The legacy issues in our credit card business have also been resolved. Performance began improving in September and should normalise from this quarter.
How did the bank mobilise $3.4 billion in FCNR(B) deposits, a figure higher than its share of the deposit market?
We had a very clear target: to capture the United Arab Emirates-India corridor business. When there is an investment from Emirates NBD, we naturally seek to attract investments in India from its customers as well. We eventually succeeded, with about 50 per cent of the $3.4 billion mobilised through this channel.
Our rating has improved by a notch, which has also attracted a good number of new clients. Our Gujarat International Finance Tec-City (GIFT City) branch offers dollar accounts and can provide leverage to clients who have come through that channel. This requires us to mobilise dollar funds and undertake dollar borrowings, which we can do through GIFT City because of our international rating.
The rating upgrade gave us the confidence that we could mobilise our fair share of the market, or even more. This was a well-thought-out strategy. By design, a 0.5 per cent market share would have given us around 0.5 per cent of the total amount, but we secured around 5-6x that amount. This was because we leveraged our connections in the Gulf Cooperation Council region, our GIFT City presence, and our ratings.
From the outset, we knew we could mobilise considerably more than we normally would, and the strategy worked as planned.
How will the Emirates NBD investment and higher FCNR(B) mobilisation shape your balance sheet?
We want to pursue a universal banking strategy, capturing a fair share of every business segment that offers opportunities in India. We will maintain a balanced balance sheet, with a proportionate presence across large corporate, mid-corporate, small and medium enterprises, and business banking.
India offers big opportunities in retail banking. We will not overlook this segment and will make it one of our focus areas. Retail relationships used to be built one-on-one. Now, we want to extend a single relationship to the entire family. The family account, rather than the individual account, will therefore be our focus.
Our retail strategy is asset-led liability growth: lending is the hook that allows us to enter the banking relationships of wealthy families and other customers. We are also shifting our asset focus from the mass-affluent segment towards high-networth individuals, building on the products and services launched over the past two quarters. Two quarters ago, we announced our entry into wealth management, and we have since started the programme.
On the asset side, we are strongly focused on secured retail lending and will not give up our niche position in credit cards. Within cards, we are moving away from a strategy centred on affordable cards at the lower end and affluent cards at the upper end towards a greater focus on affluent customers. On the liability side, affluent banking is our priority.
In corporate banking, our stronger rating is helping us penetrate the corporate liability business, particularly among MNCs and information technology (IT) and IT-enabled services companies. These companies typically do not borrow in India but have cash surpluses and maintain a large number of collection accounts. We could not enter this segment earlier because of our rating. That constraint has now been addressed. This liability business will be driven more by services than by interest rates.
In large corporate banking, we do not want to limit ourselves to a single relationship or transaction. We want to capture the entire ecosystem: dealers and suppliers on one side, and distributors on the other. All our relationship managers are working towards this broader approach rather than focusing only on an individual corporate entity.
This extends to the promoter’s account, the family office account, accounts of key managerial personnel, employee salary accounts and the promoter’s retail business. A single corporate relationship can therefore open up opportunities across the corporate lending book, the non-fund-based business, retail liabilities and retail assets.
We can do better in mid-corporate banking. We have also added non-resident and trade to our strategy, and we intend to expand the trade business manifold. Inward remittances will help, and trade flows should gain traction. We will also deepen our engagement with capital markets and capture a larger share of remittances.
With the RBI approving the amalgamation of Emirates NBD’s branches with RBL Bank, how much additional business could this bring in, and what will be the impact on the bank?
Emirates NBD has a fair amount of business in India, all of which will be merged with us. The addition will be worth more than $1 billion, with ₹10,000-11,000 crore added to our balance sheet through the merger of the three branches. The bank will also gain some good relationships.
Are you planning to enter segments such as asset management companies or manufacture insurance products through an insurance subsidiary?
For now, our focus is on distribution. We will continue to build our distribution business and decide whether to set up a subsidiary as we move forward.
You have mentioned that the proposed Insurance Regulatory and Development Authority of India distribution norms could have some impact on the bank. How do you plan to mitigate it?
We are waiting for the final version of the draft that has been circulated. First, the expansion of our branch network will generate more business, partly compensating for the reduction we may see. While fee income in value terms may take a slight hit initially, it will recover as volumes increase.
What will be the trajectory of NIM going forward?
The full impact of FCNR(B) deposits on NIM is yet to come. That is the extent of the impact we expect, because we have seen the NIM effect of FCNR(B) deposits for only about half a quarter. The full impact will be felt next quarter, and it will be small.
FCNR(B) deposits are not NIM-accretive but are NII-accretive. They will remain on the books for three to five years, so the impact will continue beyond the interest they earn. This will be offset by our advances.
With the capital infusion and FCNR(B) flows, do you plan to double your balance sheet over the next couple of years?
I have said very clearly that we have consistently grown our book at 25 per cent over the past three quarters, and that is our baseline. We will certainly grow by at least that much. With the new capital, the expansion of our branch network and our entry into new areas, that growth could only accelerate.
Our balance sheet has doubled between March 2022 and now. We have managed to double it in four years, and this capital gives us the ability to grow much faster. We are targeting a CAGR of at least 20 per cent.
