Ladies and gentlemen, good day and welcome to RBL Bank Ltd Q2 FY 2026 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. R. Subramaniakumar, Managing Director and CEO of RBL Bank. Thank you and over to you, Mr. Kumar.
Thank you, ma'am. Good afternoon, ladies and gentlemen. Thank you for joining us here on a Sunday afternoon, especially during the festive season. We truly appreciate your time and presence. Yesterday was a landmark day for RBL Bank. We announced a historic strategic transaction, which I will speak about shortly. Before that, let me briefly touch upon our second quarter results also announced yesterday. Over the last several quarters, we have stayed focused on strengthening our balance sheet through granularization of both advances and deposits and by optimizing our retail mix. I am pleased to say that this journey continues steadily and with discipline. During the quarter, our advances crossed the INR 1 lakh crore mark. The secured business loans are now above INR 10,000 crore, and secured working capital and tractor finance portfolio crossed INR 2,000 crore and INR 3,000 crore respectively.
Our secured retail and commercial SME businesses continue to grow healthily. Wholesale banking remains a key growth driver, contributing meaningfully to advances, low-cost deposits, and profits. Our branch-led retail asset business is scaling up well, with over 60% of the leads now sourced from the branches. In fact, our entire organic gold business originates through branches, helping us to keep the acquisition cost low. On the liability side, the granular deposits have grown consistently, from around 43% a few years ago to about 51% today. Term deposits below INR 3 crore have grown at a CAGR of 21% over the past three years. We have consciously de-risked the portfolio. The secured retail loans now form 34% of advances, while unsecured retail has reduced from 34% to around 26% over the past six quarters.
The strong underwriting has kept net slippages near zero in wholesale and secured retail segments, which together account for nearly three-fourths of total advances. The MFI portfolio is normalizing well, and we expect it to return to pre-COVID levels of stability soon. The credit cards, however, remain an area of focus as we address stress in the older vintages. Our retail secured products, which have been in the investment phase for the last two years, have now turned PBT positive as a cohort, and we expect all the segments barring prime housing to contribute to profitability by year-end. In short, the bank is well-positioned for consistent, profitable growth with a stronger and more diversified balance sheet. The foundations we have built, the granular liabilities, the balanced retail portfolio, the branch-led origination, and improving cross-sell intensity will continue to anchor our strategy.
Now, turning to the important announcement on the transaction that we announced yesterday, Emirates NBD, the second largest bank in the UAE and a leading financial group in the MENAT region, will invest approximately $3 billion through a preferential issue, subject to shareholder and regulatory approvals, to acquire a 60% stake in RBL Bank. This will also trigger an open offer as per SEBI guidelines. Post completion, the Indian business of Emirates NBD will merge with RBL Bank. This infusion will take our net worth to around INR 42,000 crore and position us among the best capitalized banks in the country. It enables us to accelerate growth across our existing businesses, invest meaningfully in technology, brand, and distribution, and create a stronger and more diversified income streams.
Emirates NBD brings not only the capital but also the deep global banking expertise, digital innovation capabilities, and access to the vibrant trade corridor between India and the Middle East. This partnership marks the beginning of a new chapter for RBL Bank. We have transitioned from stability to sustained growth, from selective participation to the leadership in chosen segments, and from being a mid-sized Indian bank to a future-ready institution backed by one of the most respected financial groups in the region. We believe this transaction will create a long-term value for our customers, employees, and shareholders, and reinforce our position in India's fast-evolving banking landscape. Thank you, and thanks once again to all of you for coming on a Sunday afternoon.
Yeah, we can open up the questions.
Thank you very much, sir. Ladies and gentlemen, we will now begin with the question-and-answer session. Anyone who wishes to ask questions may press star and one on their touch-tone phone. If you wish to withdraw yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking our questions. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Rikin Shah from IIFL Capital. Please go ahead.
Good afternoon, sir. Am I audible?
Yes, yes, Rikin.
Okay. Congratulations, team, for the landmark deal. Really fantastic. I had a couple of questions to begin with. First one, just wanted to understand how the net worth would look like after the press open offer and the amalgamation is done. Is it broadly around INR 44,500 crore? INR 42,000 crore? Okay, INR 44,500 crore on day one. Maybe whenever the deal gets consummated, the new net worth would be around INR 44,500 crore. That's the correct understanding, right?
Yeah, around 42 - 44 in that range.
Including the branch merger, INR 44,500 roughly, yes.
Okay, got it. Secondly, sir, this is abundant capital, which probably means that you wouldn't need capital for the next five to seven years. Curious to understand, early days, but what is the capital allocation plan? When, with this capital coming in, would you be thinking about retiring some costlier cost of funds or make some inorganic acquisitions? How should we think about this allocation of capital? The eventual deployment to the loans will happen only over a period of time. Over the next couple of years, what could be the allocation plan for the bank?
I'll give a broad sense. The details of it, we can work and then discuss subsequently after the transaction is consumed. Broadly, we first scale all the existing businesses because all these businesses which we have already implemented have the clear growth path. We will be in a position to scale that. That is one. The second, there are some new opportunities which will open up because of this particular transaction. These new opportunities are likely to be in terms of NR business and cross-border payment, cross-border transaction, and trade business. It will also open up our ability to do competing or competitive land space of the corporate business. We will be able to do more business for those corporates who are from these geographies doing business with us.
We will be in a position to do more corporates who are doing corporates of India who are doing business in those regions. These are new opportunities which are growing up. Those will be the additional allocations which will happen. However, the details of it, we can work out. Jaideep, you want to add something?
Yeah, Rikin, I think, you know, on the liability side, clearly, we will not stop the retail engine growth on deposits, especially low-cost deposits. What might happen is, of course, the need to look at any long-term foreign currency borrowing, etc., will dramatically come down. There might be some retirement of liabilities. The core banking business is not something that we will, you know, want to compromise on.
Got it. A few more follow-ups on this. Given Emirates NBD's own credit rating, the rating of its wholly owned subsidiary in India, which I think is also AAA, would you expect credit rating agencies upgrading the rating for the bank from AA minus? If that were to happen in two scenarios, let's say if it gets upgraded to AA plus and/or AAA, what is the incremental delta on cost of funds that one can potentially see if that were to happen? That's number one. The second one, if you could talk a bit more about the current business of its wholly owned subsidiary, how big is it, how complementary in terms of the loan book portfolio vis-à-vis RBL Bank currently, if that were to be integrated, what could be the IT or employee integration challenges, if any? That would be the second one. I have a couple of others.
If you allow me to, I'll ask them, or else maybe I'll come back later on the call.
The second question I'll answer. The first one, I'll ask Jaideep to give the details about it. They are working on a technology platform similar to us. The question of merging the branches into RBL Bank may not be a big challenge, number one. Number two, they are mostly into the corporate banking, and very few accounts or some few accounts are common between us. This will be consuming that, and then taking it forward may not be a big challenge for us to work with. With regard to that other point.
Yeah, on cost of funds, cost of borrowings, Rikin, I think, yes, we would definitely expect the rating upgrades to happen. Today, if you look at our cost of deposits, I would say, give or take, we are maybe a percent or so higher than, let's say, the large private sector banks. I would expect that gap to materially narrow over time.
Okay, Jaideep. If I can just maybe squeeze one more question, then perhaps I'll come back again. How should we think about the pro forma financials for the next couple of years, given there are multiple moving parts here? Of course, given significant capital coming in, the leverage goes down and ROE gets down. The ROEs will also materially move up. Any guidance on how to think about the potential financials in FY 2027-2028 would be helpful.
No, Rikin, it's a little too early to comment on the specifics that you're asking. Directionally, of course, as you rightly said, ROA will materially expand given the large inflow of equity. ROE will be a function of getting a reasonable leverage onto the books over the next couple of years after that. Given the very strong expansion in ROA that happens, we would expect to claw back to a reasonable level of ROE, respectable levels of ROE within a couple of years.
Got it. Perfect. Just one last data-keeping question on the quarterly result. I think I saw that there was INR 44 crore of some adverse M2M impact. If you could elaborate on that, what was that? It will be helpful.
Yeah, Rikin, we are holding Utkarsh, a small finance bank through the holding company, which subsequently will get merged. They declared, because of ECL considerations, the Holdco declared a reduction in net worth. That resulted in a mark-to-market, which happens once a year based on the audited financials of the investing company of the Holdco. That is what resulted in a reduction of about INR 40 crore.
Is there any potential further implications from this particular investment, or was this one time?
We don't expect anything more. Yeah.
Got it. Perfect. Thank you, Jaideep, and thank you, Kumar Sir.
Yeah, thanks.
Thank you.
Thank you, Rikin.
The next question is from the line of Kunal Shah from Citi Group. Please go ahead.
Yeah, thanks for taking the question. Again, related to the deal in terms of the consumption of the capital, how frequent would that be? Maybe in terms of the growth acceleration from here on, obviously, the capital would rise like almost two and a half, threefold. In terms of the growth acceleration, how should we look at it? Maybe we will look more at inorganic opportunity because the entire machinery, I think we need to invest a lot into the machinery to get to those kinds of growth levels. Ideally, how much time would it take for capital to be adequately consumed and any inorganic plans?
See, right now, when you look at the opportunities, we don't say that the opportunities for inorganic cannot be ruled out. Yes, it is also the one one. First, we are working out very deeply with regard to organically how we can consume and grow multifold. Today, our capacity, which we have built in respect of all the businesses and as well as the delivery machinery, will facilitate us to achieve a fairly higher growth level than what you have been seeing for the last couple of quarters. This is one. The second is that as we grow to our capacity, the capacity buildup will take place. Since we were able to establish all the product line, it is a question of only location and expanding it. That should not be a big challenge given our streamlined processes of capacity building.
During the two quarters, after the consummation of the capital and other things, the growth will be accelerated. Thereafter, with the additional capacity, which is thoroughly done with, we'll be able to give a little more accelerated one. Meanwhile, we don't rule out the opportunity for the inorganic, which we'll keep looking at. That is too early to comment exactly how this is going to pan out.
Anything else?
Yeah, I think Kunal should appreciate the fact that this is an announcement. I think the transaction consummation itself is a several months affair, which gives us enough time to plan over the next few months. This is just the announcement of the transaction.
Sure. So got that. In terms of the capacity buildup which we have, what is the kind of growth? Like today, maybe this quarter we saw some acceleration out there, now getting towards like the 14% odd. Does the existing network and distribution franchise suggest that we have the potential to even grow at 20% or so without immediate investments?
Kunal, this is Rajeev. I'll tackle that. If you see, barring the microfinance and card business, which because of the environment and our own risk adjustment, we have actually pared them down over the last few quarters, the rest of the business actually has been growing quite well. Retail security itself has grown between 25% and 35%, and there is more and more opportunity to do that. The wholesale business, where the machinery is the most well-developed, can actually grow a lot more. That does not need a significant addition. Perhaps this is also where the cross-sell, the ability to do more business, will actually become easier for us, not just in the long run, but in the short run too. I would say these are the natural ones to grow faster as we continue building the capacity on the more granular business in retail. Look, microfinance will come back.
I think by the end of this quarter, cards will also start showing organic growth. We should see a natural growth of the current structure of the business come back in addition to what we can do in at least three out of the five businesses, plus what we can do by a buildup of capacity.
Sure. On open offer, is there any limit? Today, the open offer price seems to be almost similar to that of the deal price at INR 280. Is there maybe, if we don't get too much of an open offer, they would even be okay with just holding 60%? Is there any limit? I think any which way there is an upper cap of 74% in terms of FII holding, which might not be crossed. Maybe on the minimum side, is there any benchmark? Or maybe it can be even, like, say, in low single digit if it's near to the deal price. Yeah.
Kunal, I think the open offer is a consequence of the preferential. I think the intent here is to look at a 60% pref. As you rightly said, one would normally not expect anything material in the open offer. The construct is that there is a minimum 51% that will be taken up by Emirates NBD, depending on the foreign shareholding in the open offer. The idea is to be at somewhere in the 60% range, plus the branch merger, which will add another maybe 2% to the transaction.
Got it. The last question is on the rights of incorporate particular as well as the MFI. The accelerated one this quarter, is it more to do maybe getting closer to this transaction wherein there was an acceleration? Or was there anything specific?
No, no, no, no, no. This is an absolute business as usual. That is not going to change even in the next couple of quarters. As I'm repeating, this is an announcement. I think the closing consummation of the transaction is going to take its own time. We will be on our natural normal growth trajectory.
Even right off in the corporate, almost like INR 140 crore.
No, no, that was a very old NPA, Kunal, which had become old enough for us to kind of do a routine write-off. It's a technical write-off. There's nothing really to do with it.
100% provided already.
Yeah, it's just 100% provided NPA.
Got it. Okay. Yeah, thanks. Thanks.
Thank you. The next question is from the line of Anand Dama from Emkay Global. Please go ahead.
Sir, thank you for the opportunity and really congratulations for this deal. My first question was that, this deal obviously came as a very positive surprise. What is the rationale behind this acquisition by Emirates NBD? We could have actually grown. We were already on a recovery path. Possibly, we could have grown on our own with some kind of capital infusion. That is number one. Number two, in the release, you have said that there are regulatory approvals that you will require. What is going to be the sequence of those regulatory approvals and whether you will also need an approval of NCLT because there is going to be a merger of the Indian subsidiary of Emirates NBD? Third, the broader construct of Emirates NBD, given that basically, how do you see the portfolio reshaping for us?
For example, we are more of a retail and MSM bank at this point of time, less of corporate. Do you believe that the portfolio shape of RBL Bank in the future years to come under Emirates NBD would undergo a change and we will actually be more of corporate than more of retail as such? Any early discussions which have happened on that? If you can share something on that, that would be great.
See, one of the biggest attractions of RBL Bank is the retail franchise and the retail growth story which has been seen and its execution capacity. At the same time, not giving up its ability to grow in the corporate. This is the first basic principle and the vision, which is strategy, will be built thereafter. It will be by scale for the existing business and addition of the new business. Coming to your other point of saying that, why the capital infusion? Why not local growth? Everybody has a greater aspiration than they're doing it. Given an opportunity, nobody would like to be a small mid-sized bank forever. You know that small mid-sized bank has its own challenges.
The most obvious reason or most obvious step would be that we wanted to get onto that larger league or on the top of that mid-sized bank and not to call as a small bank, for which the one important ingredient is the capital. When the capital is either you go in a tranche in small, small steps or upfront everything and then try to build the building based on that. We thought that getting it in upfront and then building because all the building blocks are available. It is a question of only scaling. With this, we will be able to do much faster than what otherwise we would have achieved our desired dream of moving up in the ladder. That's one important factor. What was the second question?
Those are in place, the preferential issue and open offer can proceed as planned.
Anand, Anand.
Sorry, Anand. Sorry. From the approval perspective, it will be RBI approval, Government of India approvals, and CCI approvals. The merger specifically is under the BR Act of 44A. Therefore, there will be no NCLT process at all. That is what is typically with respect to banking companies and branches. Everything gets done under the RBI guidelines.
The first approval will be the shareholders' approval, which will be on the 12th of November. We have called the AGM. Thereafter, all other approvals, what is said, will be applicable.
Okay. Sir, the open offer will trigger only after the preferential placement is done? I think in the presser, there was one question where it got confused that the open offer actually, or they might acquire the stake first from the market and then actually look at pref. If you can just clarify on that.
Yeah. Anand, basically, normally, as you know, the pref happens first and then the open offer. In this case, since the preferential issue is 60%, and on paper, we have to look at the 26% open offer of the expanded share capital. On paper, therefore, the stake can go up to 86%, which will, of course, cross the minimum public shareholding requirement of 25% to be with the public. We are going to continue to be a listed Indian bank. Therefore, the SEBI guidelines allow under a certain section to actually first consummate the open offer. Depending on the open offer, the preferential and the open offer get proportionately scaled down. Now, it's a different issue that one doesn't expect anything material in the open offer. Obviously, from a process standpoint, one has to have the ability to do a 26% open offer.
Therefore, this is happening in this form, which allows us to scale down proportionately both the open offer and the preferential issue, such that the minimum public shareholding is at 25%. Therefore, the investor goes up to 75% on paper. Then, of course, from 75%, the investor has to come down to total foreign shareholding of 74%, which will happen through the scale down of only the preferential issue. That is the structure.
Okay. In that case, first, your approval actually will come for open offer, or there could be an open offer in the next one odd month, and thereafter, we can go for a preferential.
The open offer is after all regulatory approvals, RBI, Government of India.
Regulatory approvals.
Yes, yes.
Okay. You have first all approvals in place, and then first, the open offer will be launched, and then the preferential placement.
Correct. The preferential issue will happen within 15 days of the closure of the open offer.
Okay, that's very helpful. Thanks, thanks a lot.
Thank you.
Thank you. We'll take the next question from the line of Jayant Kharote from Access Capital. Axis Capital, please go ahead.
Thank you for the opportunity. First question is regarding the ROA question. I see that secured assets is clearly the focus area incrementally. If you can call out a couple of products there where you can see, let's say, in the next three years, the size of such products can become, let's say, 2X, 3X, or anything that you can guide us in terms of the size. Basically, what we're trying to understand is which will be the drivers for incremental growth. If you are sitting with such large networks, you can build size of books over there. If you can call out that as first. Second, just follow up on that. You can also tell us the ROA profile of your secured retail book and which products have a slightly better ROA profile there, if you can call that out. Thank you.
Yeah. With regard to the growth, I'll just ROA, I'll ask Jaideep to answer you. See, there are the products which we have launched. You just look at the things which have grown. For example, the DBG, which is nothing but.
Working capital.
Working capital and term loan for the various business groups. It just propelled beyond doubling of the business. That is one. It will continue to grow at that rate when the new network is coming because the opportunity we feel is pretty huge in MSME sector. Second important thing where there will be a multiplicity will be in respect of a liability mobilization with the distribution points getting doubled and tripled. That is one. When the distribution points grow up, it suddenly opens up a big business for all our mortgage business, wheels business, and our BBG business. All these businesses go alone, which is a branch-based. That is also getting propelled. That is something which will be in terms of 3X, 4X. Because the goal is somewhere the current trend, we will be able to get into the space of some of these NBFCs which are doing it.
Today, we are not able to get into the space because of the lack of distribution available to us. Another very important point, what you can think about is in respect of the distribution point is going to create our visibility, and it will provide us a big opportunity for the SME and commercial banking. That is something which will also be in a position to grow 2X, 3X. This synergy between the investor and the bank will also provide you a big opportunity in corporate. The corporate will no longer be growing at what is the rate we are doing. If you would have seen the last quarter, we grew around 14%. 20% is what the corporate has grown. Commercial has grown around 23%, 22%. There, you can see a large opportunity to grow at much faster than what we have been growing it.
The composition may remind all the engines which we have already fired in the last two things have an ability to grow multiple. Now we will be looking at some of the missing parts of our retail portfolio, which we have not launched like commercial vehicles. We can explore those possibilities. Apart from that, the important thing which will multiply is our ability to grow the retail deposit. Retail deposit has its own constraint by having the footprints. Today, the footprint is at 561 locations. We can have it when the footprint increases to multifold, our ability to have the retail deposit less than INR 3 crore will also get spiraled up. With this, we are not looking away from corporate, from the credit cards. The credit card is another big business. We have reimagined the entire business. We have been doing with the partners with more branches available.
Suddenly, our ability to mobilize from the new market will go up, which we have totally reimagined. In the next one or two quarters, that will become absolutely normal with a high business growth opportunity that will enable us. When the business grows high, our ability to grow in the card also proportionately goes up. Our microfinance, which is coming out of the roof now, may not be spiraling very high, but it will be fully utilizing the capacity. It will no longer be the only vertical which is contributing revenue. With its CGFMU and other coverage we have taken, it will be able to sustain any down cycle. The model we are looking at is with more capital, there will be a spiraling of the business in the normal secured and other things, which are going to give us a higher.
In fact, I just made a statement that our entire secured has become a profitable PBT level. I will ask Jaideep to tell you about all the ROE and related activities.
Yeah, Jayant, just to add to Mr. Kumar, basically, conceptually, think about improving degrees of freedom, right? I mean, I think we are constrained today on cost of funds. Therefore, we have certain choices on the assets. Those constraints begin to fall away, giving, obviously, even with the same product segment, the opportunity to grow becomes that much faster. That was one. On the question on retail assets, I think tractors is very profitable for us, followed by, you know, the other small AHL and small business loans. Prime mortgages is where the spreads are narrow, which will take some more time for profitability. As I said, that opportunity improves because over time, we will expect to become far more competitive on cost of funds as compared to, let's say, larger peers over time.
That degrees of freedom is actually what really makes a big difference because your risk-reward choices get influenced based on that.
Thank you. If I may add a follow-up, it's clear that the strategy will be distribution-led over the next couple of years. Fair to say that even if you get an optical bump up in the ROA right now, you would want to use that to invest in creating more long-term value through expanding?
That's correct.
Yes, yes, absolutely.
Hello?
Yes, Jayant?
Jaideep, can you hear us?
Hello?
Yes.
Yes, we can hear you.
Am I audible now?
Yeah. The answer to your question was yes.
Okay. Any time frame, if let's say from 560, we want to go to 1,500, 2,000, any time frame in your mind right now?
I think it's too premature. I'll repeat the statement that we made: this is an announcement. It will take us several months to consummate the transaction. That gives us enough time to plan.
Okay, okay. That's the one. Slightly, one more question, if I could squeeze in about the quarter. I see an inch up in the slippages in the credit card personal loan portfolio. Can we expect this to be the major part of the bulk stretched identified book? Or 3Q should be a sharp improvement, or the tail is still there?
No, Jayant, I think the cards portfolio slippage will take a couple of quarters to normalize. We will be in this range, give or take, for at least one to two quarters before we start seeing things improving.
This is largely cards, not PL, right?
They are fairly integrated in that sense. Typically, PL, of course, will always be on a like-to-like basis, lower than cards, because PL gets cross-sold to the upper end of card customers. When we are talking about slippages, this number is a combination of both.
Thank you, and congratulations once again to the whole team.
Thank you, Jaideep.
Thank you. The next question is from the line of Rakesh Kumar from Valentis Advisors. Please go ahead.
Hello?
Hello?
Yes, sir. Please proceed.
Yeah. Hi. Thanks for the opportunity, sir. Just a couple of questions, possibly to start with. Post this transaction and the open offer, how would the senior management hierarchy, how would the board structure look like?
The board structure, as per that particular transaction agreement which we have signed, is we have 50/50. In a sense, the 50% will be subject, of course, to RBI approval. 50% is in independent directors. 50% will be the non-other-than-independent directors. The other-than-independent directors will have two components. One will be the executive directors and the non-executive directors. They will have the right to nominate the executive directors and NEDs as well. Today, the bank has a board of around 11. The 11 will not work for that. The board can be either 10 or 12. It will be an even number. We have already moved for that to be amended as instead of 15, we wanted to have it a cap at 14.
Okay. Net-net, how many representatives would they have post the transaction?
See, that is where it is a 10, 12, or 14 is going to decide that particular number. If it is a 10, you can easily calculate it. It's other than AD and MD, 55, and you add up C. Then other numbers are only the mathematical formula. This we are to wait and see how it is in the board.
Got it, sir. Senior management and top management, how that structure hierarchy, would there be any change post that?
This is a Senior Management.
Sorry, go ahead.
Sorry, sir. Any discussion we have had so far?
Parking the discussion part out of it, I just wanted to tell that this is a Senior Management and the Senior Management which has been working. The entire group has been working together for the last two to three years to stabilize the bank, consolidate the bank, and grow the bank. I don't find a reason that why some other team should come for scaling the bank. Since it is not going to be the other one, the take is very simple. Every investor will be liking to see that the delivery of the team and going by that way that the team will stay together. You know pretty well that my given statement is always work with the team which we have, which we have been doing it. Last three years, they demonstrated how good they are. They will continue to grow.
True, true, true, true, sir. Agree with you. Sir, the second thing, like, you know, it was I couldn't understand it. You know, having looked at banking for the last around 25 years, you said that you know, you will have capital and the growth will be multifold. Hypothetically, in any large, any largest, like, you know, a large private bank, you know, considering that they have a moderate amount of CET capital, they start growing at, you know, very high pace. Does it look like, you know, like, you know, such an easy possibility?
Instead of making a comparison within the other banks who already reached a certain scale, I just want you to look at this. This is Agile and the bank which is the hunger for the business. Our market share is hardly 0.5%. Whereas the opportunity available is much, much larger.
If I increase my distribution and we are in a position to build the capacity as we have been telling about you, this market share of 0.5% has an ability to go to 1%. When you wanted to move from 0.5% to 1%, there is a huge business growth, which will be, which is possible with this kind of infusion what we are talking about, what we have agreed upon.
Got it. Got it, sir. Got it. Thank you, sir, and all the best.
Thank you.
Thank you. The next question is from the line of Param Subramanian from Investec. Please go ahead.
Yeah, hi. Thanks for the opportunity and congratulations on the deal. Firstly, a lot of my questions have been answered. Again, on management, will there be, as in, will Emirates NBD be bringing in management representatives? How to think about that from a senior management perspective?
Right now, as per the agreement which I have inked, it is the board which they are talking about. The management will continue as it is as per the agreement I'm talking about. We can't predict beyond three years or four years. I'm talking about the current short-term understanding we have and what has been inked in.
Faram, and fortunately, the business is quite small, right? We don't expect any material overlap at all.
Fair enough. Okay. Secondly, I heard a lot about, for example, you mentioned that your cost of deposits has come down. You're also a significant part of your balance sheet will now get equity funded. I'm presuming it allows you to expand into a lot more products now that you couldn't do earlier. From that perspective, would it be fair to assume that over the next year or next couple of years, you can grow at 30% +? I'm just putting a number out there, but on your loan book, would that number be broadly correct?
Yes, depending on the opportunity, this is something which is global with my capacity, which we have created.
Yes, sir. You also mentioned you're doubling, tripling of branches, expanding new products. Some rough number we can work with from a growth perspective.
Yeah, what you said, the 30 is very much global. That is something global. Anyway, we'll get into the greater details and we'll pick one on one to see that once we are ready with all the things. Let this product be consummated. As Jaideep said before, the next five to six months is a period where we'll get into the much more granular. This is something we just signed the agreement yesterday. That is, but we have a great plan. Yeah.
Fair, fair. Yeah. Fair enough, sir. Thank you. Lastly, sir, a very significant portion of India's remittance flow comes from UAE. You've got a market-leading player as your partner. How to think about the impact of this on your CASA overall, as in where that number can move, as in some rough numbers you could call out? I mean, I don't want a number on CASA ratio as such, but how much, how significant this impact could be?
Param, again, I think it is really too early to talk about specific numbers on business. I think what we are comfortable in saying is that the opportunities open up quite substantially on all the areas that you mentioned and more. I will again repeat, I think we've just signed the agreement. There are several steps to be taken over the next several months for closure. We will have enough time and opportunity to, one, get more precise at our end along with Emirates NBD and to also communicate that strategy going forward to other stakeholders.
Fair enough, sir. Thank you, Jaideep. Thank you, Kumar sir. All the best and happy Diwali to everyone. Yes, thank you, sir.
Thank you. Happy Diwali to you and your team.
Thank you. The next question is from the line of Vansh Solanki from RSPN Ventures. Please go ahead.
Hello, sir. Am I audible?
Yes, please proceed, sir.
Sir, my question is on a name that, as we are cautiously expanding now, KLC book also and our wholesale book also from last minute, we are expanding very well. Can we just see that our yields on advances now bottomed out? From now on, because our books are growing, our yields on advances will grow from now. Maybe Q3 may be stable, but Q4 will be a much improvement there, right?
Yeah, Vansh, I think we will see levers on both sides. You're right in saying that both, I will add actually that your yield on advances has bottomed out and will start moving up primarily because of the mix. I'm keeping any other subsequent repo cuts aside. This is a satirist's perverse answer. On the liability side, there are more levers where rate cuts will continue to flow through. Therefore, in a nutshell, we should see margins expanding from Q3 onwards. We are guided that in Q1 that we would have, we have bottomed out. Therefore, Q2 is flattish, maybe just a basis point above Q1. We are quite confident in saying that we should start improving margins from here.
How much percentage of our deposit is repriced? I don't know because Q2 was a very large, very good number of reduction in the cost of funds. Can we assume the same for Q3 onwards?
I don't think so. I think the improvement will moderate. We still have levers on our savings accounts, which we will try and look at, you know, improving on that front over time. I don't think we will have the delta that you saw between Q2 and Q1 on cost of funds going forward. It will moderate.
Okay. Also, on the write-off side, the previous question, someone asked about the JLG book. From Q1, the write-off in JLG has doubled in Q2. Is there any problem on the ground, or is it just business as usual?
No, Vansh, this is, we have a 365-day write-off policy. If you recall, the stress in the MFI portfolio started from Q2 of last year.
Yes, yes.
This is the write-off that you're seeing in Q2, which slipped in Q3 of last year. It's just a mathematical outcome of the slippages that we saw over the last three or four quarters.
Okay, sir. The last question is on the other income. I just saw that our fees income has increased in the last one year from last Q2 also and the Q1 also. Still, our total other income is almost not, has increased so much. There is a 13% decline in the YOI. Is there any other part of other income which is not increased in that line?
No. There are two aspects to this. The treasury income, which is based on sale of G-Sec and equity investments, etc., is, of course, you know, episodic, anecdotal, can't be smooth. That is one. We answered in the beginning of the call that we have a mark-to-market impact of unlisted shares that we are holding in Utkarsh Holding Company, which was approximately INR 40 crore. That goes as a reduction in other income.
Okay. Is there any other, how can you just give me a number? How much treasury income in the current quarter and the Q1? If you have a number available.
Q1 was a large number. Q1, because of the interest rates having come down, the trading income on G-Sec was INR 270 crore in Q1. This quarter, there was nothing substantial.
Okay, okay. Thank you, sir. That's from my side. Thank you and all the best.
Thank you.
Thank you. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Yeah, hi, team. Congrats on the great deal. Just firstly, a couple of clarifications on the previous question. My line was a bit hazy. On the NIM trajectory, are we still guiding to that 4.8% exit NIM for the year?
Yeah, Piran, we said that we bottomed out in Q1, and therefore, Q2 was flattish. We will expect from here on 10 - 15 basis points improvement every quarter. Yes, we will continue to hold a 475 - 480 exit in March.
Perfect, perfect. Also, just broadly on credit cards, now the industry, including us, has been taking a lot of portfolio actions for the last six or seven quarters. We still sort of continue to see slippages. By we, I mean the entire credit card industry. What do you think really are we missing here? Why aren't the portfolio actions yielding results when it's such a short-term loan?
Yeah, I'll have Bikram answer to that.
Bikram, credit card will.
Hi. The point that you're making is absolutely right that at an industry level, we see some residual stress in the customers which were already delinquent. As we have said in our previous guidance, anytime when there is a rapid issuance, if you were to see from 2022 till 2025, there has been a rapid issuance, and some part of that cohort is still a bit painful. The thing with portfolio action is that whatever portfolio action that we have taken is already giving us a sense of relief on fresh incidents of defaults and resolution of fresh delinquencies. The residual stress is only in delinquent or minimum paying customers in the delinquent base. The fresh incidents of defaults have already started coming in line. We would need, and at an industry level, we would need about two, three quarters to deal with the existing delinquent book.
Okay. If you could just give us a sense, say there are 100 customers who are delinquent, typically, how many flow into NPA and how many flow back into standard?
This would vary from which bucket do they stay in. Typically, what we see is that the customers who reach, you know, four or five DPD, which is about 90% of them, get resolved. The trickle down is about, you know, if we were to say that from a non-delinquent, the first-time delinquent base to NPA, about 0.8% of the customers eventually land up in NPA pool.
Okay, 0.8. Fair enough. Once you land up in NPA pool, let's say after a few months, you recover that money. Do you reinstall the original credit limit, or is it a reduced credit limit, or is it zero?
Customers typically underwritten fresh. If it is looking like a very, I mean, rarely it would be that, you know, it will restore its limit to original. Mostly, either it is a reduced limit or no restart of the relationship.
Understood, understood. Thank you. Just lastly, on the open offer, Jaideep, you were explaining that if it crosses 75%, it will be toned down, the total shareholding. Just hypothetically, let's say 20% is subscribed in the open offer. Your pref issues only 53%, is it?
No, no, no.
The additional 2% goes to the merger?
Merger, first of all, is a subsequent action. Let's park that aside. The open offer gets scaled down proportionately. Both preferential and open offer amount will scale down proportionately such that the MPS goes back to 25%. I also mentioned that because there are foreign investment limits at 74%, any reduction to comply with that will be solely on the account of preferential.
Understood. Okay, okay. It will be a pro-rata reduction of open offer plus pref to get that theoretically 86% down to 75%. It's pro-rata.
That's correct. That's correct.
Okay, understood. Okay, that's it from my end. Thank you and all the best and happy Diwali also.
Thank you, Piran. Same to you.
Thank you. The next question is from the line of Krishnan ASV from HDFC Securities. Please go ahead.
Yeah, hi. Many thanks for taking this question. I wish you all a very happy Diwali.
Thank you.
Congrats on the landmark transaction. I'm just trying to understand a couple of things here. One, as a franchise, RBL Bank has generally been handicapped. We have not delivered even a 14% ROE in our lifetime, right? Yet we have been able to land this transaction. This definitely augurs well for the rest of the banking system, I hope. Purely in terms of which handicaps will get addressed, because despite everything, Emirates NBD in its Indian avatar has not been able to do a lot. It's had a single branch. I just want to understand what capabilities Emirates NBD is likely to bring because it's largely RBL Bank's existing infrastructure which has to be threaded better, which has to improve its capabilities. Where are you likely to invest? That's my first question.
Number two, are there any covenants or restrictions on the existing management team that you can't, because of this golden handshake, you can't do anything?
Let me just take a moment. First one, Emirates NBD has an international presence, which RBL Bank lacks. That is the one biggest positive plus, which will be in a position to be brought on table. Number two, Emirates NBD is operating in a geography where there is a large Indian presence there. The Indian presence, the roots will always come back to India. That is also going to provide a big opportunity for RBL Bank to reap upon. The third, there is a continuous remittance flow which comes from the GCC sector, which is the highest compared to the entire Indian one. That's the highest. Right now, if you ask me, RBL Bank's share of getting that particular payment business is pretty restricted or pretty limited because of our limited geography and other things.
Now, with this particular synergy, which is going to bring up, there is going to be an acceptance of RBL Bank as a bank for opening the NR accounts as well as for sending the remittance back. This is going to be another synergy. The third is that they are working in a geography where the large group of our Indian corporates are dealing with, which we have been not able to deal with earlier. That is opening up a new opportunity for Indian corporates operating in geography, the corporates of UAE and GCC operating in India. It is going to be a two-way channel, which is going to provide us a bigger opportunity. Naturally, the bank distribution will expand because of the, you asked about the gap.
The gap was that our capital ability to raise a big capital, we can do always in tranches, INR 1,000, INR 2,000, INR 3,000 for doing a growth of that particular period. With the upfront, we can have a large distribution which can be created, which will catapult or multiply our ability to grow in all the areas where we have done it. The second part of the question was with regard to what management and other things.
I mean, covenants, in the sense, generally, there have been precedents in the past, not just in India and elsewhere as well. When financial institutions undergo landmark transactions, you want to at least address the behavioral issues. Are there any covenants, are there any restrictions in form that you can't overdo certain things during the interim, that you got to run it as business as usual? How do you address that? Yeah.
No, it is pretty much business as usual. There will be some information requirements, etc., that might be required. There is nothing which is of any significance which will have any constraint on us to live life business as usual in the interim. Of course, once the capital comes in, we know the opportunities that were just described.
Great, great. Thanks a lot. Thanks a lot. I wish you all a very happy Diwali.
Thank you.
Thank you.
Thank you.
Thank you. The next question is from the line of Shailesh Kanani from Centrum Broking. Please go ahead.
Good afternoon, everyone. Thanks for the opportunity. Sir, congratulations on this deal. Not only is it good for RBL Bank, but even for the country, $3 billion gets added to the kitty. Sir, just one question. Other questions are answered. Sir, what is the return on equity that Emirates NBD is looking at from their investment? Any timeframe by which we would be reaching those levels?
Right now, it is a growth capital which is being talked about. Nothing beyond as of now.
No number as such, if you can share?
Shailesh, obviously, the ability to draw business plans over time is still very premature. As I've said multiple times before, this is just an announcement. We will have many steps before we consummate the transaction. There will be enough time and opportunity for us to fine-tune our thinking and also communicate that to stakeholders over time. Just one data point. However, having said that, Emirates NBD is running at about 19% - 20% ROE. Hopefully, we'll get there.
That would be great. Thanks a lot. Just a small question on the quarter. What would be a write-off pool from MFI and CC? This quarter, the recovery seems to be less from the MFI side. It is only INR 9 crore. If you can throw some light on that.
Okay, I think it goes in interest also.
Yeah. That was nothing unusually different from the last quarter. It is similar. Write-off is also technical write-off; it is really an aging situation. MFI gets technically written off over 365 days and cards over 120 days. There is nothing unusual or different. The numbers reflect, in MFI's case, what would have happened four quarters back. In cards' case, it's just 120 days.
Jaideep, what would be that pool? If you can quantify that pool, the return of pool?
In MFI?
Yeah, both.
MFI should be a couple of thousand crores.
Right?
Still, no.
What?
Return of in this quarter.
Return of in this quarter, you're saying? Only this quarter?
No, in general, return of pool. Just get in some gauge into the recovery if that can be exceeded, you know, because we have done good return of in the last 12 months.
Yeah.
Yeah.
About INR 1,500 crore of pool in MFI, which has been technically written off.
If we can throw some light on the recovery from this pool?
See, normally, the recovery is in the range of around 0.6% to 0.8%. However, the efforts are.
Per month.
Per month, this is something which we are working for, increasing it to somewhere 0.9 to 1 per month.
This is also a function of the rural economy. As the stress weans out and as things turn around, we will also hope to see the improvements in recovery over time. It's not going to be a game changer. It's going to be this 75 basis points to 1% per annum range.
Okay. Fair enough. Understood. Thanks a lot. Best of luck, sir.
Thank you, sir.
Thank you.
Thank you. Ladies and gentlemen, we'll take the last question for today from the line of Jai Muntra from ICICI Securities. Please go ahead.
Yeah, hi. Good afternoon, sir. Congratulations on the transaction. Sir, only one question. If you can share your preliminary thoughts on the ECL transition, we have had, I mean, we have a portfolio which is inherently more risky, has more PD, and almost very high LGD. Based on the draft guidelines, if you would have, you know, how would it impact the running credit cost and maybe the one-time transition?
Jai, broadly, you know, the one-time transition should be in the range of maybe about 6% - 8% of net worth, current net worth. Not a material, material number. That's one. I think the impact on an ongoing basis would be that because in terms of credit cards, for example, we have pretty much full provisioning in 120 days. I don't see that as a material impact on an ongoing basis. I think we will have some increase in wholesale book because trade finance book gets added from a standard asset provisioning perspective. My rough estimate should be that the, you know, the 40 basis points that we have today maybe goes up to about 60 - 65 basis points.
Sure. Sir, the way I look at it is the SMA 1 + 2, right, while you have a large proportion of them slipping in the current setup in credit card and MFI books. Anyway, you are providing, but under ECL, you will have to provide on the fresh formation also, right, which is also 3% - 4%, if not higher. Does that mean that you have slightly more structural credit cost in the current loan mix format?
No, Jai, the point still is that, you know, if that slips into NPA, it anyway gets taken care of in today's math at an accelerated manner. Therefore, if theoretically we were providing, let's say, cards basis the RBI guidelines of unsecured, which is 15%, 25%, and 100% over three years, then yes, that would have been a material impact. When SMA 1, SMA 2 flows into NPA, it anyway gets fully provided. Including that, I don't think there's an estimate. Ramesh, do you want to add?
I think, Jai, the question is we have stage one provisioning which will come through for cards in MFI, which actually you could think about when you look at peers in the NBFC space who are listed. It would be something similar. Most logically, you will see some release in provisioning on the secured side. Even the loss given default is much lower. Like Jaideep said, on the non-fund book in the wholesale segment, you will see some increase because of the nature of the balance. It's not on the balance sheet today for us. That book is pretty much on a, the entities we do business with are very well rated. In most cases, better than the overall corporate portfolio. That impact will be minimal. The big delta will be on stage one, stage two, primarily in the unsecured businesses.
That I think would be similar to what you see for other peers in the industry.
Right. No, no, that helps a lot. Thank you and all the very best.
Thank you.
Thank you. As that was the last question for today, we would now conclude the Q&A session. If you have any further questions, please contact RBL Bank via email at ir@rblbank.com. I repeat, ir@rblbank.com. On behalf of RBL Bank, we thank you for joining us, and you may now disconnect your lines. Thank you.
Thank you.
Thank you very much.