After a strong performance in FY18, investors are pleased by RBL Bank’s move to hike its stake to 100 per cent (from 60.5 per cent) in Swadhaar Finserve (Swadhaar), which offers services in underbanked areas. Since the date of announcement (June 28), RBL’s stock (up over 5 per cent) has outperformed Nifty Bank index (up 0.4 per cent).
Although the deal won’t boost the bank's loan book directly as Swadhaar (the bank’s business correspondence) has been sharing its entire loan book (Rs 20 billion as of March 2018) with RBL, there are other fronts where it would benefit.
“This deal would help RBL expand its geographical reach in the hinterland (RBL’s majority branches are in urban areas) through Swadhaar’s established outlets (331 branches across 16 states and 2 union territories),” says Harjeet Toor, Head, RBL's non-wholesale business. Moreover, RBL can now sell its other retail products and increase cross-selling through this network, pushing up its overall retail book (including, micro-small-medium-enterprises and micro finance) and core income.
Also, RBL’s priority sector lending (PSL), which is about 70 per cent of its non-wholesale book as of March 2018, would also get impetus from this deal. In FY18, Swadhaar contributed over 14 per cent to RBL’s overall PSL.
There are other cost and regulatory benefits for RBL from this acquisition. Cost efficiency is one key element. With Swadhaar’s branches, RBL won’t have to spend additionally to meet Reserve Bank of India’s norms of 25 per cent of all banking outlets in unbanked areas. Besides the retail book, RBL’s wholesale book is also growing satisfactorily says Toor.
Analysts expect RBL to clock 35 per cent growth in advances and a 30-basis point expansion in net interest margin to 3.8 per cent in FY19.
“Backed by good quality of overall loan book and improving recoveries across all segments, RBL’s non-performing assets (gross NPA at 1.4 per cent as of March 2018) are likely to improve going ahead”, says Payal Pandya, an analyst at Centrum Wealth Research, who is positive on the stock.
Given the recent rally in the stock, analysts believe interested investors should expect a correction.