RBL Company Profile
22nd November 2021
Know the company
Founded in 1943, RBL started as a small sized private sector bank in Kolhapur, by Shri Babgonda (an advocate from Sangli) and Shri Gangaram Chaugule (a merchant from Kolhapur). The bank gained its status as a scheduled commercial bank in 1959.
In June 2010, Mr. Vishwavir Ahuja, ex-CEO of Bank of America for the Indian subcontinent, took over as MD and CEO of RBL Bank. In FY 2011, the bank underwent a radical transformation in ownership, management, and organisation structure. The shareholding structure underwent a change with a capital infusion of Rs. 727 crores from a host of private equity funds.
In the last five years, the bank has seen regular capital infusion to fund its growth. It specialises under six verticals: Corporate & Institutional Banking, Commercial Banking, Branch & Business Banking, Retail Assets, Treasury, and Financial Market Operations.
Here are a few reasons to invest in RBL Bank
Healthy capital adequacy led by an ability to raise capital: In August 2016, RBL raised capital of Rs. 832.5 crores through the issue of fresh equity shares in its IPO. In August 2017, the bank raised equity capital of Rs. 1680 crores by issuing equity shares on preferential basis to a set of marquee investors. In December 2019, RBL raised another Rs. 2701 crores of equity capital by way of QIP and preferential allotment to marquee investors.
Capital adequacy ratio (CAR) is a measure of how much capital a bank has compared to its risk-weighted exposures. The objective is to ensure that the bank has enough capital to withstand a certain amount of losses before being at risk of insolvency. The capital used for this ratio is divided into two Tiers: Tier 1 comprising core capital and Tier 2 comprising supplementary capital. RBL Bank reported a CAR ratio of 16.45% (PY: 13.46%) with Tier 1 CAR (comprising entirely of Common Equity Tier 1; CET1) of 15.33% (PY: 12.10%) as of March 2020. This is a healthy CAR ratio.
Additionally, in December 2020, the bank raised an additional capital of Rs. 1566 crores on preferential basis through the issuance of fresh equity shares at a price of Rs. 177 per share.
Expansion of business coupled with increase in franchise: With a new management at the helm, the bank has witnessed stable growth in business and improved franchises over the last few years. There was an addition of 26 branches during the last quarter of FY 2020-21, leading to an increase in its franchise with a network of 429 branches (own) and 1365 business correspondents (BC) branches, out of which 260 are banking outlets.
Deposit growth and improvement in Current Account Savings Account (CASA): Total deposits grew at a strong clip to Rs. 73,121 crores, up by 26% from the previous year.CASA also saw a subsequent increase of 36%. The CASA Ratio (CASA Deposits divided by Total Deposits) grew from 29.6% in FY 2019-20 to 31.8% in FY 2020-21 amidst COVID-19.
RBL is one of India’s fastest growing private sector banks with an increasing presence across the country. With its experienced management team, long track record, focus on scaling up the business, increase in franchise, healthy capital adequacy, steady deposits accrual, and improved liquidity it is well positioned to chalk a path of stellar future growth. From a valuation point of view, we value the company based on 1.1x of its FY23e book value and arrive at a target price of Rs. 255 (26% higher from its current market price) over a 12-month investment horizon.
What are the charts telling us?
The stock made an all time high in May 2019 of Rs. 716. Since June 2019, the stock has not performed well until the pandemic hit. It seems to have bottomed out in April 2020 with a low of Rs. 101. The stock price has been facing contraction since then. It is witnessing range bound movement between Rs. 150 and Rs. 250.