RBL aims to expand NIMs; credit cards, MFIs to outpace loan book growth

RBL Bank is targeting to expand its net interest margin (NIM) to over 5.2 per cent by the end of FY24 by upping the share of higher-yielding assets in its loan book, a top official has said.

The private sector lender will continue to maintain the share of unsecured loans like credit cards and microfinance by growing them at over the 20 per cent overall loan book increase targeted for every year till FY26, R Subramaniakumar told PTI.

The bank had reported an expansion in NIMs to over 5 per cent in the March quarter, in line with the industry trend.

“NIM will be 5.2-5.3 per cent by the end of the year (FY24). The mix of products will deliver the higher yield,” he said.

Subramaniakumar said the bank is targeting to increase the share of secured retail assets like mortgage loans, loans against property, two and four-wheeler loans, which will yield higher.

He admitted that given its relatively smaller size, it has to offer higher deposit rates to get the required liabilities to fund the asset growth of over 20 per cent.

The higher deposit rates alone will have a 0.30 per cent drag on the NIMs, he said, adding that the same will be compensated by replacing the asset profile.

At present, it does not have many contributions from secured assets in the retail loans, which yield less as compared to unsecured ones but are generally safer bets having lower risk weights, he said, adding that the secured retail assets yield higher than wholesale book.

By end-FY26, the bank is targeting to have a third of its book from such secured retail assets, Subramaniakumar said, adding that it will continue to grow the unsecured book as well which it considers as flagship products.

It can be noted that in late 2021, the Reserve Bank had, in a rare intervention, curtailed the duration of the then MD and CEO, and also placed its representative on the bank board. As per some reports, the regulator was concerned with the unsecured assets concentration at the bank.

Subrawmaniakumar said the bank will be growing the credit card book at 23-24 per cent – higher than the overall asset book growth of 20 per cent it is targeting – which will ensure that it occupies a fourth of the overall loanbook pie by end of FY26.

The bank is planning to rely on more partners beyond Bajaj Finance to source its credit cards, and also leveraging on the network strength of over 500 branches to push the product.

He said MFI is a good business as long as you have ears and feet on the ground, and the bank will continue to grow the book at 30 per cent. This higher paced growth can take the share of MFI loans to up to 10 per cent from the present 6-7 per cent.

The bank, which moderated its wholesale lending growth to 13 per cent in FY23 after some setbacks in the past, will continue to be circumspect on this segment, Subramaniakumar said.

It will prefer lending to smaller businesses having turnover of less than Rs 200 crore and credit requirements of up to Rs 40 crore, he said, explaining that a better control over the company’s cash flows and being among the limited number of bankers is a draw.

The share of wholesale book, which stands at 44 per cent at present, will come down to 30 per cent by end of FY26, he said.

The bank wants to decrease cost to income ratio by 4 percentage points in FY24, and aims to exit FY26 at 56 per cent, he said, adding that a bulk of investments are done which will now start yielding returns.

Subrawmaniakumar said the transition to credit loss-based system of provisioning will not have a major impact on the bank.