Small Is Beautiful

Vishwavir Ahuja, the Managing Director and CEO of Kolhapur-based RBL Bank, has big plans for the next few months. The 55-year-old would roll out Vision 2020 for accelerating growth. He is also getting the bank ready for its initial public offering, or IPO, this year.

The bank is looking to grow 10 per cent above the industry average. "Our investors expect it," says the former head of Bank of America in India who has managed to transform the erstwhile Ratnakar Bank into the country's fastest-growing small bank.

Ahuja, with his core team - most of whom are from global banks - has stumped other banks with the pace of growth he has managed in a short span of five years. During this period, deposits have risen 20 times to Rs 17,099 crore, loan book eight times to Rs 14,450 crore, and operating profit almost 19 times from Rs 19 crore to Rs 360 crore. When Ahuja joined, the customer base was 150,000. It is now 1.7-1.8 million. The bank is aiming for 10 million by 2020.

City Union Bank, the South India-based old private sector bank, has taken a number of initiatives to digitise operations. These are now paying rich dividends. As part of the plan, it has installed about 300 bulk note acceptors, expanded the ATM network, upgraded internet banking and introduced mobile banking.

"Our first agenda is to increase the use of alternative banking channels. Our initiatives are already yielding good results," says N. Kamakodi, Managing Director and CEO, City Union Bank. In the BT-KPMG study, this small bank has emerged as the winner in productivity and efficiency category. It has the lowest cost-to-income ratio of 0.43 per cent due to improvements in return on assets and operating profits. The bank says that the use of alternative channels may touch 85-86 per cent in the next few quarters.

"This has not only helped us reduce the cost-to-income ratio by 200 basis points but has also brought other benefits such as reduced crowds and lower operational pressure at our branches," says Kamakodi. In manpower, the bank has created surplus capacity in branches that could be utilised for business development initiatives over time. "Quantification of the opportunity is difficult now, but the opportunity is tremendous," says Kamakodi.

On challenges, Ahuja says the new set of banks, that is, payments banks and small finance banks, will cause some disruption in the beginning due to their higher spending on infrastructure and customer acquisition and ability to operate with low margins to begin with, though they, too, will have to sustain themselves in the longer run.

RBL, with 60 per cent branches in rural and semi-urban areas, is well-suited to serve the bottom of the pyramid where these new banks are also expected to operate. In the past, it has hired a lot of talent from microfinance companies for self-help group, joint liability lending and micro-lending businesses. On the rural agriculture side, too, which involves lending for drip irrigation, cultivation, warehousing and transportation, it has put in place an expert team. "The right technology, with low cost and without frills, was necessary," says Ahuja. The bank has also enhanced its reach by opening more branches in semi-urban and rural areas, besides setting up a business correspondent network to provide doorstep services in villages. A suite of new products, including micro loans, remittances and micro insurance, have also been delivered in addition to liabilities products, with help from cost-effective technology. Both financial inclusion/microfinance and agriculture businesses account for about 45 per cent balance sheet and more than one-third income.

Ahuja's ambition is change the pecking order of the country's banking sector. In 2010, it was the second-smallest scheduled commercial bank in the country ranked at 97 in terms of balance sheet size. It is in the 40s now. The bank wants to halve it in the next five years.

Ahuja, who has for most of his life worked for global banks and dealt with multinational clients, says he is enjoying working in semi-urban and rural areas. "This is real banking. The learning factor here is engagement with every segment of the society," he says.