RBL Bank's new MD & CEO R Subramaniakumar has a host of challenges before him

The Reserve Bank of India (RBI) has given its nod to R Subramaniakumar as the new MD & CEO of the small sized RBL Bank. After the exit of Vishwavir Ahuja, who turned around the old private sector bank and also presided over its fall from grace, the bank was in the hands of second in command Rajeev Ahuja as interim CEO in January this year. The stock market is not very enthused with news of  Subramaniakumar, who was earlier the RBI appointed administrator for failed Dewan Housing Finance Ltd, taking over the reins. He was earlier the MD& CEO of Indian Overseas Bank. Let’s look at the challenges before Subramaniakumar. 

Keeping flock together 

The old private sector bank, which attracted talent from top notch private as well as foreign banks, is now in the hands of a public sector professional. The bank followed a strategy of high risk, high return, which was also reflected in the initial stock price rise and the high profitability. The bank has been struggling in the last 2-3 years. The new CEO’s biggest challenge is to keep the flock together. There are already fears of some of the senior management team members leaving the bank. 

Stress testing and checking the stock slide 

The market always fears hidden NPAs whenever the RBI takes corrective steps against a regulated entity. The very fact that interim CEO Rajeev Ahuja didn't get the top job shows that the regulator is not very keen to continue with the existing set up. The bank's share price is on a downhill journey from a high of Rs 660 per share three years ago to Rs 87. There has been a steep price fall, which will lead to higher equity dilution in future for raising growth capital. Subramaniakumar has to make his assessment of the asset quality and the NPA watch list , if any , to gain the confidence of the market community. 

Increase the share of low-cost CASA 

The bank has a very low share of current and savings account (CASA)  at 35.3 per cent as against 45 per cent plus enjoyed by the well run public and private sector banks. The bank needs a higher share of low-cost deposits to build a secured assets portfolio especially mortgages. The bank is already on the path of increasing granularity in deposits, but it has to set up its efforts for a higher CASA to build a profitable bank. 

Reducing high wholesale banking exposure

The wholesale banking, which dominated the bank’s loan mix with more than half the share for a decade, played a role in its debacle. In the last 2-3 years , the chunky loans pushed up the NPAs and the provisioning. The bank is now focussing on higher rated corporates for working capital loans. The shift to secured assets and higher rated corporates will, however , result in lower yields. In fact, Subramaniakumar has to increase the wallet share from corporate clients by increasing the share of fee-based income. 

Broad-basing retail assets 

The bank has set a goal of building a retail bank with 65 per cent share in the next three years. The focus is on credit cards, microfinance, housing loans, rural and used cars for expanding deeper into retail assets. The bank has renamed its micro banking as Bharat Banking to cover secured loans especially housing , two-wheeler, gold loans etc. The secured assets under retail is one area where Subramaniakumar has to build capabilities. 
 

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