Swadhaar buyout to support RBL Bank's retail plans, regulatory needs

An established branch network in rural areas will help the bank sell its retail products, and improve priority sector lending in a cost-effective way

After a strong performance in 2017-18, investors have given a thumbs-up to RBL Bank’s move to hike stake to 100 per cent from the current 60.5 per cent in Swadhaar Finserve, which offers services in underbanked areas.

Since the announcement on June 28, RBL’s stock has gained about five per cent, outperforming the 0.4 per cent rise in the Nifty Bank index.

The deal is unlikely to boost RBL’s loan book directly since Swadhaar (the bank’s business correspondent), was sharing its entire loan book (Rs 20 billion as of March) with RBL even before. Even so, there are synergies to benefit from.

“The deal would help RBL expand reach in rural areas (the majority of its branches are in urban areas) through Swadhaar’s 331 branches across 16 states and two Union Territories,” said Harjeet Toor, head of RBL’s non-wholesale business. More, RBL can sell other retail products (those aimed at individuals) and increase cross-selling through this network, including lending to small and medium enterprises (SMEs), and micro finance.

Also, RBL’s priority sector lending, about 70 per cent of its non-wholesale book as of March, is likely to get a leg-up. In 2017-18, Swadhaar contributed about 14 per cent to RBL’s overall priority sector lending.

There are other cost and regulatory benefits. With Swadhaar’s branches, RBL would no longer need to spend extra to meet the Reserve Bank of India’s norm of 25 per cent outlets in unbanked areas.

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 2018-19.

More, its non-performing assets (gross NPA were at 1.4 per cent of advances as of March) are likely to improve on the back of a strong loan book and improving recoveries across segments,” according to Payal Pandya, analyst at Centrum Wealth Research. She is positive on the stock.