ICRA places RBL Bank ratings under watch with developing implications

Rating agency ICRA has placed RBL Bank’s long-term rating (bonds “AA-”) and medium-term ratings (fixed deposits “AA”) on watch with developing implications.

This follows events like to its Managing Director & Chief Executive Officer (MD& CEO) Vishwavir Ahuja going on medical leave, RBI appointing its nominee director on board of a private lender. Rajeev Ahuja was also appointed as the interim MD & CEO, who was serving as the executive director of the bank.

ICRA will continue to monitor the developments related to the deposit levels as this could have a material impact on the liquidity position of the bank. It will take appropriate rating action as may be required, the rating agency said in a statement.

It has taken note of the adequate liquidity surplus available with the bank, which has been expanding over the last 18-20 months, supported by the de-growth in advances during FY2021-H1FY2022. The deposit accretion continued at a steady pace (net advances were lower by 3% while deposits were higher by ~31% during the period). The bank has maintained excess statutory liquidity ratio (SLR) of Rs 12,000-17,000 crore during April-September 2021.

The high share of unsecured high-yielding retail loans drives asset quality pain. The overall share of the high yielding unsecured retail segments (mainly comprising credit cards and microfinance) remains relatively high at ~31-32% of advances. This has been a source of the bank’s asset quality challenges following the onset of the Covid-19 pandemic, ICRA added.

Its internal capital generation has remained weak.  RBL’s profitability was impacted in FY2019 and FY2020 because of the asset quality pressure in the corporate loan segment. The profitability remained weak in FY2021, because of the pandemic-induced stress in the retail segment (especially the unsecured retail), and is likely to remain so in FY2022.

The threat of a third wave of Covid-19 infections, resulting in continued stress on the asset quality could potentially delay the recovery in the profitability levels.

The capital position is comfortable, though supported by capital raise. RBL raised equity capital of Rs 1,566 crore in Q3 FY2021 and Rs 2,701 crore in Q3 FY2020. Hence, despite the weak internal capital generation, it has been able to maintain a comfortable capital position with the Tier I of 15.54 per cent and total capital adequacy ratio of 16.33 per cent as on September 30, 2021.