IPO windfall for RBL Bank staff

Employees likely to net around Rs 1,400 cr from ESOPs

Not only private equity investors, but also about 2,500 employees of RBL Bank (formerly Ratnakar Bank) are expected to laugh their way to the bank once the private sector lender makes its stock market debut at the end of this month. As a talent-attraction-and-retention tool, RBL Bank had allotted ESOPs (employee stock ownership plans) to around two-thirds of its employees, including many in the lower rung.

The lender’s Rs 1,150-crore initial public offering (IPO), priced in a range of Rs 224 to Rs 225 per share, opens next week.

The bank has issued ESOPs through three different plans at exercise prices ranging between Rs 52 and Rs 120. Around 29 million ESOPs have already been exercised and vested, and the average price works out to Rs 59.40 a share. At the higher end of the price band of Rs 225 per share, this amounts to Rs 658 crore.

Another 34 million ESOPs are currently outstanding, which will be exercised in the same price band.

At the upper end of the price band, the value of the ESOPs (exercised and pending) works out to Rs 1,400 crore, and each employee’s gain will depend on the exercise price.

Around 40 per cent of the exercised options and 36 per cent of the outstanding ESOPs were granted to 20 of the company’s key management personnel and directors. With around 60 per cent of the options going to mid and junior-level staff, they, too, could rake in huge sums.

Eighteen directors and key officials of the bank have made a profit of Rs 198 crore on their 12 million shares they bought under the ESOP schemes, assuming their exercise price was the bank-wide average of Rs 59.40. The officers have 12.2 million outstanding ESOPs which can be converted in future.

Chief executive officer Vishwavir Ahuja would have made a profit of Rs 50 crore on exercising three million options into shares under the existing ESOP plans. He has a total of nine million shares in the bank valued at Rs 202.5 crore at Rs 225 a share.   Rajeev Ahuja, head of strategy, has made a profit of Rs 32 crore from exercising 1.9 million options and he has a total of 4.5 million shares in the bank valued at around Rs 100 crore.

These calculations are based on averages and the actual gains will depend on the individual’s exercise price.  The next four officers have made gains between Rs 12 crore and Rs 18 crore from exercising their stock options, and the next six have gained between Rs 6 crore and Rs 10 crore.  Vishwavir has 2.33 million outstanding ESOPs, while Rajeev has 1.58 million.

The Kolhapur-based lender’s transformation started when the new management took over in 2010. Most of these bankers, who joined chief executive officer Vishwavir Ahuja’s team were from other foreign and private banks and some had joined at lower salaries. To compensate them, the management had decided to give the employees ESOPs. Six years later, Rajeev Ahuja, head of strategy at RBL, terms it a “masterstroke”.

“We wanted to ensure that all our employees, even the junior ones, in fact everyone apart from those who have been held for misconduct are covered under this scheme, and everyone who has stayed will benefit,” said Ahuja.

At the end of March, the totally employee strength of the bank stood at 3,871 and about 67 per cent of these are covered under the ESOP scheme. The Red Herring Prospectus of the bank stated that at the end of March, about 34 million stock options were outstanding under the ESOP Schemes.

“We use ESOP to attract and retain talent. We have also introduced a performance employee stock option programme (PESOP) to recognise the contribution of employees and a retention employee stock option programme (RESOP and, together with the ESOP and the PESOP, the ESOP schemes) to retain critical employees,” added the prospectus.

The bank has increased the ESOP allotment limit from 10 per cent of its paid-up capital to 12 per cent. According to industry players, this is among the highest for domestic lenders. Typically, stock market-bound technology companies globally are high issuers of ESOPs. “ESOPs are increasingly being used in the banking sector as a tool to attract new talent as well as retain existing employees,” said Ajay Shah, assistant vice-president, Teamlease.

In fact, some public sector lenders too have also been mulling including ESOPs as a part of the remuneration.