RBL Bank expands and rebrands as IPO draws closer

Mumbai: Sporting a fresh brand, wider footprint and diversified client base, RBL Bank is shaking off the image of a regional lender as it prepares to approach the public for ₹ 1,000 crore this fiscal year.

Merchant bankers competing to secure the mandate for the initial public offering (IPO) expect the lender to make its choice by the end of this month.

Established in 1943 as Ratnakar Bank Ltd at Kolhapur in South-West Maharashtra, RBL Bank became a scheduled commercial bank in 1959. Once listed, it will be the 41st publicly traded bank in India.

As on 31 March, RBL had a loan book of ₹ 9,835 crore. About 60% of its loans go to large companies and institutions, while small and medium enterprises (SMEs), agriculture and allied activities, and individuals get the rest.

This composition will change.

According to Rajeev Ahuja, head (strategy), RBL Bank, over the next few years, the lender will reduce the share of loans given to large companies and institutions and increase the focus on the SME, agriculture and retail segments.

Which explains the 51 new branches it opened in 2013-14. A similar number will be added this fiscal year, Ahuja said. As of 31 March, RBL Bank had 185 branches with over 500,000 clients and 350 automated teller machines (ATMs).

And the way to growth is via low-cost funds.

“Our strategy is to focus on Casa (current and savings account deposits) as we become more known in the geographies we are currently present (in). Over the last couple of years, we have expanded in Madhya Pradesh, Tamil Nadu and Gujarat,” said Ahuja.

Casa, the cheapest source of money for banks, are deposits on which little or no interest is paid. RBL Bank had a deposit base of ₹ 11,599 crore as on 31 March, of which 20% was Casa. The bank hopes to raise it by 1 percentage point every year starting this fiscal year, Ahuja said.

In August, RBL Bank bought some Indian assets of Royal Bank of Scotland Group Plc (RBS), acquiring more SME and retail clients. The bank acquired the UK bank’s commercial loans, loans against property and credit card businesses, beating five bigger rivals.

The bank booked a one-time charge towards the acquisition in 2013-14, which meant profit for that year at ₹ 93 crore was little changed from ₹ 92.4 crore in 2012-13.

“Only around 5% of our assets have come due to the acquisition of the RBS portfolio,” Ahuja said.

The bank is targeting a growth of 40-50% in advances and deposits in the next two years. In the year ended 31 March, its net loans grew 54% while deposits rose 39%.

Historically, most RBL’s branches were located in Maharashtra and Karnataka, earning it the label of a regional lender. Now, it is working to shed that image, hiring McCann Worldgroup to help with a rebranding.

“McCann has helped us in changing our brand name and logo to RBL Bank to compliment the personality of a modern bank that we have been building over the past four years,” Ahuja said, adding that making the bank’s brand more visible will benefit the business by drawing in more depositors and borrowers.

Analysts expect the RBL Bank IPO—the first primary market offering by a bank since Punjab and Sind Bank raised ₹ 480 crore in 2010—to draw a strong response.

“We expect the Ratnakar Bank IPO to be subscribed by 20-30 times. Also, given the bank’s potential to capture a large market share, the investors are likely to get an annual market return of 20-25%,” said Vikas Khemani, chief executive for wholesale capital markets at Edelweiss Financial Services Ltd. He added that RBL Bank can gain immensely at a time when public sector banks have been losing market share to private banks—a trend that is expected to accelerate with state-owned banks starved of adequate capital for growth.

“This will be a litmus test for the bank because an IPO is always the lead indicator of things to come. How the IPO goes will be critical to subsequent issues and also what perception the bank develops in the minds of both retail and institutional investors,” said Robin Roy, associate director at audit and consultancy firm PricewaterhouseCoopers.

Apart from raising fresh funds, the issue will also help some of its existing investors exit. Over the last three years, global and local private equity and development funds have invested over ₹ 1,400 crore in the bank in three tranches.

As recently as 10 April, RBL raised ₹ 328 crore by selling fresh shares to UK government-owned development institution CDC Group Plc and Asia Capital and Advisors Pte Ltd along with existing shareholders World Bank-backed International Finance Corp. and Gaja Capital.

Housing Development Finance Corp. Ltd, Norwest Venture Partners, Samara Capital, Beacon Capital, Faering Capital, TVS Shriram, Cartica Capital, Ascent Capital, Aditya Birla Private Equity, IDFC’s Spice Fund and ICICI’s Emerging India Fund are also shareholders in the bank.