Private sector lender RBL Bank witnessed higher credit card bad loans sequentially in Q1FY25. This was mainly on account of stress in the lower-ticket size card business — on which the RBI had hiked risk weights last year — and due to the bank completely moving its collection operations in-house from an external business partner says, R Subramaniakumar, MD & CEO, RBL Bank. Edited excerpts from an interview with businessline:
Credit card NPAs rose in Q1. Is lower-ticket segment showing stress?
The credit card stress for our bank is mainly on account of the transition which has happened on the collections side. A part of our cards book was being collected by one of the co-partner group entities and we decided to move those operations to the bank’s side. We undertook this exercise in March-April and have now completed the transition. This caused some disruption as people had to be recruited, get realigned on field level, etc. This is, however, a one-off event. In the last quarter we had said that low-ticket segment in credit cards is not showing good signs of performance, and that continued to be the trend. If I remove the one-off transition event and absorb low ticket size stress, the credit card business is on track. If we compare our cards portfolio with peer credit card issuer banks, we have lower NPAs.
Earlier, we also had major reliance on one co-brand partner for sourcing, which we are lowering it since last couple of quarters. We will now source cards in-house and reduce reliance on co-branded cards.
Currently, non co-branded cards make up to 52 per cent of overall issuances as against 25-30 per cent at the beginning of the year. And we are in talks with five more players to further diversify our co-branded cards book. Quality sourcing will be the focus.
What is your guidance on credit cost?
Our credit cost will be in the range of 1.75-2.2 per cent in FY25. This range is mainly on account of microfinance (MFI) and credit cards businesses. This estimate also takes into account contingent provision of 1 per cent on total incremental growth of credit card and MFI business. We currently hold ₹250 crore plus contingent provisions for MFI and cards in case of any adverse impact.
The RBI’s draft guidelines will have what impact on the bank’s LCR position?
Our LCR (Liquidity Coverage Ratio) is around 137 per cent, and if the impact’s around 10-12 per cent, we will still be well above the range that is prescribed by our internal limit for LCR.
What is your deposit mobilisation strategy?
We are focusing on granular deposits which is less than ₹3 crore. Our growth in less than ₹3 crore term deposit is constantly over 20 per cent, which enables us to meet increment credit growth of 18 per cent. In current environment, we haven’t raised deposit rates for quite some time and gap between us and large banks is around 60 basis points (bps), and deposits can be raised at current rate. The ALCO (asset liability management committee) will decide the deposit rates depending upon need of deposits and market dynamics.
What’s your guidance on net interest margin?
We were always in the range of 5.4-5.5 per cent range. This time we had an extraordinary benefit(tax refunds)and the net interest margin inched up slightly to 5.67 per cent, but excluding that we are in the same historical range. We will continue to be flattish for another quarter and then inch up margin by 2-3 bps each quarter as and when retail products start scaling up and make profit.
While banks are in the pink of health right now, do you see any early warning signs of stress in the long term?
Banks have matured their risk management abilities now. Their underwriting skills have improved, early warning signals are being monitored. These abilities enable corrections to happen quickly in case of a crisis. Therefore, I don’t think commercial or corporate loans could create a problem. On the retail side, while its growing, the industry needs to be careful.
People pool loans to get better standard of living, and their repayment ability is directly linked to their employment or earning capacity. Generations ago people saved and then spent, but now when they get income they spend and save the residual money. Problem occurs if a person gets highly indebted. Easy availability of loans should not result in higher indebtedness. Banks must have the ability to monitor high self-indebtedness. If a certain threshold is breached the account will become a problem.