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We met RBL Bank’s new MD and CEO, Mr. Subramaniakumar, to understand his initial thoughts on the bank’s transformation and sustainability plan. Following are the KTAs:

* Growth to be more calibrated, diversified and sustainable: RBL Bank is expected to adopt a more calibrated-growth approach in FY23 and beyond, unlike in the past. The bank expects ~15% (+/-10%) growth in FY23 on a low base, but estimates sustainable growth of 20-25% thereafter. The focus, hereon, will be on delivering diversified & granular growth with higher share of secured assets. That said, the bank remains determined to re-accelerate growth in the cards business, while MFI book deceleration is largely behind. To de-risk the card portfolio being highly dependent on BAF (76% of CIF), the bank is entering into multiple co-branding/sourcing partnerships. On the secured retail front, focus will be more on mortgages/vehicle loans, while the bank would also build a healthy SME portfolio to improve the asset-portfolio tenure and support CASA mobilization.

* Stalling attrition risk to be a key priority, initially: Although the bank lost Harjeet Toor (before the new MD came on board), the new MD’s focus post joining has been on interacting with employees at all levels and communicating his vision for the bank which is weaved around the current management structure. As the new MD has no lineage in private banks, he is keen on working with the existing team and would look at internal elevation or external hiring mainly to plug any gaps on need basis. The bank may explore options to introduce retention bonus, increase ESOPs, and revamp performance-linked incentives for arresting any risk of attrition. That said, we believe some attrition is inevitable and hiring, to an extent, will be warranted to plug the operational risk and compliance gaps, which have been the cause of the bank’s earlier fallacies (corporate/retail NPAs) and regulatory ire.

* Asset-quality risk could be limited, given the previous rounds of clean-up: The new MD continues to allay any kitchen-sinking risk, based on the initial glance on the books and given the earlier rounds of corporate cum retail clean-up. That said, we believe some intermittent assetquality hiccups cannot be completely ruled out, particularly when the external environment is fragile and internal stress recognition standards are being strengthened. Mr. Subramaniakumar has effectively dealt with corporate stress at IOB and DHFL (being an administrator). This experience should come handy, for strengthening the risk management architecture and possibly accelerating the resolution of some lumpy corporate NPAs. Migration to secured retail assets & enhanced risk monitoring should help the bank avoid future asset-quality shocks as well.

* At current valuations, risk reward looks favorable from a long-term perspective: We believe the current dismal valuations (0.4x FY24 ABV) largely ignore the new management’s strategy (which is appropriate in our view) that focuses on sustainable growth/returns now and be more regulatory-compliant v/s the previous high-risk/high-return strategy that partly led to regulatory intervention. We also take comfort from bank’s higher capital level (Tier I -16%). Thus, we recommend Buy on RBL Bank, for investors who are ready to see through the near-term transitional pain for reaping gains in the long term. Key risks: High level of management attrition disrupting the growth/asset-quality improvement story; break-up of card tie-up with BAF.

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