Even as concerns around the rapid pace of banks’ loan growth in unsecured loan segment continue, RBL Bank is not seeing any buildup of stress in the credit card and microfinance (MFI) space, MD & CEO R Subramaniakumar told Piyush Shukla in an interview. Excerpts:
RBL bank changed its provisioning policy on credit cards and micro loans in Q2. What prompted the decision?
Our underlying assets robust and they will continue to be so. It (policy change) is because of two factors – strong risk based underwriting, repeated review of the same and undiluted focus on collections and recovery.
Any new product that we launch, we try to make higher provisions than the regulator prescribes. We already provide 70% for 90-day past due (DPD) credit card loans, and 100% for 180-DPD. However, in order to bring our own discipline in ensuring faster recoveries, we moved 100% provisioning policy from 180 DPD to 120 DPD – a difference of 60-days. This is a policy decision and internal balance sheet strengthening procedure. It does not reflect on underlying weaknesses or any other guidance (from regulators).
Will recoveries improve from Q3 onwards?
The collections will continue to be there till 180 days. This provision policy will not alter the method of collection. So, it is just for balance sheet strengthening. For example, if you see our entire credit cost was 39 basis points (bps) in Q1 and moved up to 47 bps in Q2 – barely around 8 bps increase. We will continue to maintain this credit cost with our efficient collection mechanism.
Is there any stress visible in MFI or credit card book? What is your guidance on growth in these two segments?
There is always a stress if collections are weak, and it becomes stronger if collections aren’t efficient. We are focusing more on collections and it is fairly efficient today. If you look at it, we are seeing 29 bps-39 bps credit cost in our MFI business, which is lower than both industry and peers.
In terms of growth, our MFI book rose 48% year-on-year (YoY) to Rs 6,785 crore as of September end. We will continue to grow 23%-25% on MFI, as the base increases. In cards, we will look to grow in the range of 25%-27% as we move forward. Growth won’t come just from these two areas, our other retail products grew 30% in Q2 and it will continue to grow between 30%-35%, as guided before.
What is the quantum of loans in SMA-0, 1, and 2 buckets?
It is not really high. Our SMA-2 (special mention account) and SMA-1 for wholesale book is literally nil. In respect of credit cards, they are in same range as before, between Rs 100 crore and Rs 150 crore. We have seen Rs 300 crore of slippages in credit cards for the last two to three quarters. It is in the same range, there is no buildup of stress or SMAs.
What led to the accounting change for paying BC partner income?
Currently, we have business correspondents (BC) mostly for the purpose of MFI business, and have some others for small activities. We have around 9,000 BCs. Out of this, our subsidiary RFL (RBL Finserve) handles around 88%-90% of entire MFI portfolio with 8,000-plus BC points. The rest operating in MFI space have somewhere around 500 points.
The purpose of bringing the accounting change was simple. Earlier, we were paying them out of the interest income which is not the right way of accounting. Since it is an expenditure item, it has to be under operating expense line. If one were to compare MFI business model of RBL Bank and other lenders, they need to know that the bank has used transparent and correct way of accounting. Otherwise, the comparison will not work well.