The Emirates investment, which will be the largest foreign direct investment in an Indian bank, involves a capital infusion of $3 billion for up to a 60% stake in the bank. It is expected to open up new opportunities for growth for the domestic lender, including inorganic buyouts, and help bring down the overall cost of funds. While the bulk of the capital will be deployed towards lending and branch expansion, some will also go towards improving the digital banking infrastructure and customer experience, Subramaniakumar said. Edited excerpts:

From a branding perspective, do you see value in retaining RBL Bank’s identity for retail recall, or would the promoter prefer the merged entity to be associated with the global brand of Emirates NBD?

Globally, Emirates’ brand recall is very high. Domestically, that brand is not known and we have reach. So, possibly, a hybrid brand is something which could happen, but it has not been decided or finalized yet. Optimal would be a hybrid name is my thinking, but we haven't made up our mind.

How do you plan to deploy the capital, given the significant infusion in one go, because you also don’t want idle capital sitting on your balance sheet?

The transition will not happen in one year; it will take one to two years. Suddenly, my ability to do business increases substantially, which I can’t do in a rush because that will just add problems. So, it has to be calibrated. Where there can be a possibility of inorganic growth, I'm not ruling it out. Although the capital is interest-free and will reflect positively in my return on assets (RoA), the return on equity (RoE) will take a hit.

To get my RoE right, I need to have products and services, which we have as of today. The next thing is to build capacity, which should be able to deliver for growth. That's a gap, which we will try to make up in a short period. As we are doing that, we'll also start building extra capacity in extra locations. So, we don’t have to invest and wait, we will keep growing parallelly, and investing in new locations and other verticals. RoE of Emirates NBD is around 18-20% and we would want to reach that, which should be possible in 3-5 years.

Branch expansion is going to be one of the biggest areas of deployment. Right now, we have 568, of which we opened eight branches yesterday. Next month, we’ll open another 12 branches, and this may get doubled or tripled to around 25-30 in every quarter. On the technology side, we have already spent a lot in the last two years; so, there may not be much investment there, but what we will look at is enhancing the customer experience.

How much could the cost of funds go down by due to the branch push and expected rating upgrade following the capital infusion?

My rough estimate is that a 100-200 bps reduction will happen over a period of time. Anyway, in the absence of this capital, we were getting a 40-50 bps benefit due to the repo rate cuts. We have already passed on the cuts to some extent on the savings accounts and term deposits; we may do it a little deeper.

You were brought into the bank when it had issues with regulatory compliance and weak credit quality. After securing this deal, do you feel a sense of personal accomplishment in terms of turning around the bank, and do you believe your work is done?

The transaction has only been inked and hasn’t concluded. There are multiple stages we have to go through, and every stage is a milestone in itself. It’s the first of its kind, so we’re also testing the waters. Personally, I have always dreamed of getting to a place where we don’t have to keep talking about getting capital “in tranches" and try to build a castle. Normally, I'm a player in the existing team. I don't change the players, whether you come in as a captain or a coach. So, I will never consider this a personal milestone; it’s a professional milestone, which depends on the people around you, the organization, society at large, and the macro environment – everything favoured our growth. Second is that the trust factor in the banking industry is very favourable today.

Do you believe RBL Bank has rebuilt the brand reputation that took a hit when RBI had to intervene and appoint its representative of the board in December 2021?

May be you can partly attribute it to my past experience. May be the journey which I had throughout my 40-43 years in the banking sector could have sharpened some of my abilities to run an organization. But it is not sufficient, because ultimately, you may be a very sharpshooter, but the range in which you operate should have all the ingredients. And here the range is RBL Bank. Whatever turmoil the bank went through wasn’t because of the 20,000-plus employees but due to some misplaced activities and because some management decisions did not go the right way. There was never a doubt on the integrity of the bank. The second thing is the consistency. Those two factors made people realize that it is not an issue with the organization.

An advantage this bank has is that unlike many banks, we have seven independent directors and four non-independent directors on the board, so, it’s a heterogeneous board with clarity of thought. So, building back the reputational loss was quicker and faster because the reasons were circumstantial and not because the book or people were bad. Unfortunately, we had a large unsecured book; so, we immediately built 7-8 products on the secured side. The bank was able to get back and regain its rhythm because of the commitment of the force. We have strengthened the people with new ideas and new things. We have not replaced the people.

Does the new promoter share your approach of working with the same team, or would they be keen to bring in new people?

Emirates NBD’s current business in India is very small, with three branches and about 30 people. They are specialized in corporate, and because the expansion of the corporate book is our broader mindset, they will get absorbed into the bigger organization. Since they don't have expanded operations like we have, through our conversations, we could clearly infer that they want the management to continue and the team to be there. They’re saying that I'm giving you feeder and fodder, and we want you to generate more revenue for the bank and scale the bank.

Will you initially be solely relying on their expertise to grow the wholesale loan book?

We have a strong corporate book of around ₹40,000 crore. The wholesale portfolio grew 20% on year in Q2, and the commercial banking portfolio grew 33%. That means we don't have a dearth of people. When we expand and widen the ambit of development, we may bring in people for handling different locations, but we don't lack expertise. There are some areas where we may have to look at it, such as loan syndication, because we haven’t done that much. That's a big opportunity we have. We have a strong credit team and business team, so we may have to create some peripheral capacities.

Do you expect a shift in your wholesale strategy from lending to mid to small corporates to now looking at larger corporates, and will that require a different skill set?

Today, 76-80% of my loan book is rated ‘A-’ and above, which means that we have a foothold in the large corporate segment as well. We have exposure to all big groups and conglomerates, the only thing is that we are not able to have a substantial exposure because of our own constraints. That quantum of expansion can now go up, which includes may be overseas, international banking business, export-import business. We may sharpen some of those skills because these books are small right now, and if we want to grow multi-fold, we may bring in some more people. The systems and processes are there, and have been totally reimagined in the past two years to build capacity and move away from segments which don’t make business sense for us in terms of RoI. Our wholesale banking is currently giving me pre-tax RoA of 3.5%, which is comparable to the best of the banks.

Other than the wholesale growth, will the focus on the retail side shift away from MFI and small ticket loans to more secured, higher income and big-ticket lending?

We have around 5-6 verticals today, one of which is microfinance. We have always believed they are bankable and profitable, and it is only the downcycle which is creating a problem. We will not take our eyes out of microfinance. We have created a 100% subsidiary which is almost profitable, and once we cut the costs, profitability will improve. There, we are looking at a business RoI of 4%. It may not grow at the 30-40% rate seen 2-3 years back, but it will definitely have sizable capacity and continue to be around 8% of the loan book. But, it will be stronger and much more guarded, sharper, and a better risk underwritten portfolio than before. Microfinance will always have a 2-3% credit cost, but we will not allow it to go beyond that. Risk is a very big focus, and we have been strengthening it, and there, we have a lot of people coming in as well.

Second, the credit card business had some problems, which is why that is also being reimagined. Again, it may not grow at the earlier rate of 25% but it will continue to grow at 10-15%. The portfolio’s share has come down from 34% to 26% and will come down further over a period of time to around 20%. Our secured retail is already growing at 35-38% and will continue to grow at a minimum 30%. The rate of growth of secured loans is something we will focus on, other than wholesale banking. And new areas will be import-export, international business—which will be a complete basket of financial products, including trade finance and forex business.

What are the plans for growing the international business?

In addition to the NRI business, we have a Gift City branch, which is already expanding through dollar-funded ECBs. Indian borrowers doing business abroad—previously, they had to go to local banks, which we can now do through Gift City, and this is going to be facilitated with our promoter group – who will also be to provide an insight into that kind of business. Today, that kind of insight is lacking because of our lack of presence, so that will add value to the bank.

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