I am delighted to present to you our Bank's Annual Report for 2017-18. It has been aremarkable year on many counts and one that has reinforced confidence in our strategy andbelief in our long-term goals and aspirations.
A WATERSHED YEAR FOR THE BANKING AND FINANCIAL SERVICES SECTOR
FY18 will go down in history as an inflection point for the Indian Banking andFinancial Services sector. The highlighting of the asset quality issues in the bankingsystem along with governance and other concerns has led to an unprecedented upheaval. Torestore public trust and confidence in the sector the Government rolled out several boldreforms during the year. We saw the implementation of an empowered Insolvency andBankruptcy Code (IBC) which has accelerated the pace of bad loan recognition andresolution. The results of this process are promising.
During the year the Government also infused additional capital into the Public SectorBanks and the Reserve Bank of India further tightened credit practices and reporting ofdelinquencies all of which will augur well for the future of lending.
While it is encouraging to note that the efforts of demonetisation have now recededpath-breaking policy reforms such as the Goods and Services Tax (GST) are providingfurther impetus. Aimed at enhancing transparency augmenting tax revenues of theGovernment and boosting investments the GST will accelerate the pace of formalisationacross sectors and bolster the share of financial savings in the wallets of Indianhouseholds. With structural measures starting to bear fruit and the Central Bank activelymanaging inflation levels around the target rate growth is set to improve sequentially inthe next couple of years. I am confident favourable growth inflation dynamics will keepour strong macro narrative intact.
With that said the current flux in the environment due to shifting market dynamics andfocus on risk and corporate governance are re-drawing the banking landscape and thechallenges are simultaneously throwing up opportunities. In our own case more than sevenyears into building the franchise we believe we are well placed to take a meaningfulshare of the opportunity.
DELIVERING A STRONG SET OF NUMBERS
2017-18 was another year of solid sensible and prudential growth across all ourbusinesses segments. Our focus on high-quality lending coupled with strong risk practicesand effective management of the balance sheet has been validated through these numbers.
During the year our deposits grew rapidly to '43902 crore up 27% over the precedingyear. In order to remain well capitalised and maintain our strong growth momentum wesuccessfully raised '1680 crore from marquee domestic and international investors.
In terms of advances there was strong traction in both our wholesale and nonwholesalebusinesses and as a result our advances grew 37% to '40268 crore and net interest incomegrew 45% to '1766 crore. Core fee income grew 41% to '887 crore driven by momentum infees from distribution credit card client forex income and general banking. Our CASAratio surged from 21.98% in FY17 to 24.32% in FY18. Lower cost of funds coupled with afavourable business mix led to a 51-basis point's y-o-y improvement in our net interestmargin to 3.8%. Our Profit after Tax grew 42% to '635 crore with Return on Assetsimproving 13 basis points to 1.21%. This performance is an outcome of the trust placed inus by all our stakeholders and I am pleased to share that our Board has recommended adividend of 21% (i.e. '2.10 per equity share) to our valued shareholders.
ON TRACK TO VISION 2020'
FY18 marks the halfway point in our Vision 2020 journey. Despite the challenges in theenvironment we continue to remain on track in terms of growth and operating performanceand are confident of achieving the metrics we had laid out publicly as part of our Vision2020.This speaks to the strength of the team and its ability to navigate through marketupheavals with rigour and discipline.
With increasing aspirations and rising consumer demand retail loans across categorieswill see a huge upsurge in demand. The SME segment will be a major driver for our economyas it increasingly formalises and urbanises. We also believe that credit demand from midand large sized corporates too will be boosted by a ramp-up in existing capacities andaddition of newer ones across sectors. All of these segments are relatively unbanked andunderserved and it is here that we see our biggest opportunity.
STRENGTH. SPEED. SCALE. FOR THE LONG RUN.
When I reflect on our performance and the reasons for our conviction three broadthemes come to mind. We call this the 3S approach - Strength Speed and Scale. Over theyears we have demonstrated an ability to build on each of these three parameters and ourstrategy continues to focus on them. We have invested our business with the strength torespond resiliently to external pressure headwinds and market upheavals and this isreflected in the quality of our balance sheet and consistently improving return ratios.
Speed is essential to grow in a dynamic market such as India and we have consistentlygrown faster than the industry for the past few years backed by a differentiated productfocus our nimble strategy strong distribution and partnership orientation and continuedinvestments in digital and technology. The outcome of strength and speed is scale. Werecognise that to succeed in our ambition of being among the best banks in India we needto achieve a critical mass and balance sheet size. Scale will naturally also result inhigher efficiencies and better profitability.
To stay ahead of the curve in the long run we have been making continued investmentsin our operations in line with our growth plans and ramping up our technology platformsand our physical network and new businesses such as credit cards. These investments havenow attained critical mass and the economies of scale are beginning to flow.
OUR BANK IS ACHIEVING CRITICAL MASS THROUGH:
1. Partnership Mindset
One of the cornerstones of our journey so far has been our unrelenting belief inpartnerships. As the business becomes more complex and hyper-specialisation takes overwe as a Bank must be responsive and receptive to emerging technologies and models whilebeing cognisant of the fact that we cannot achieve everything alone. Fintech is one of thegreatest transformation drivers for the banking industry and we have been early movers informing strategic partnerships with various industry participants. Today the fraternityrefers to us as a 'Partners Ka Bank' because we have deeply integrated with our partnersfrom the design to the execution to ensure we both succeed and it's a win-win relationshipfor all.
Financial Inclusion Customers: Recently we increased our stake in SwadhaarFinserv to 100% making it a wholly owned subsidiary of the Bank. As a captive bankingcorrespondent for RBL Bank Swadhaar Finserve will act as a major catalyst in enabling usto grow further in the micro-banking segment.
Retail Customers: We partnered with Shriram Transport Finance Company (STFC) toserve their 17 lakh+ customers last mile banking needs through integrations of digital andcashless banking services.
We also partnered with ET Money for its CreditLine and co-created a uniqueoffering that simplifies borrowing and offers flexibility to their base of more than 40lakh app users.
Credit Card Customers: We partnered with Bajaj Finance to offer a range ofco-branded credit cards with attractive features such as no-cost EMI options easyborrowing rates and digital payment solutions.
As a result of our collaborations and partnerships our customers can now bank with usat their convenience through a network of over 265 branches 807 business correspondentbranches 388 ATMs nearly 2 lakh Customer Service Points (CSPs) and a host of onlinetechnology-enabled platforms. This partnership-led tech-enabled ecosystem empowers us toservice retain and serve our 4.5 million strong customer family with promptness andefficiency.
2. Inclusive Banking
India forms about a fifth of the global population that does not have bank accounts.Most lower-income households still do not have meaningful access to affordable credit. Ofthe 6 lakh crore microfinance industry organised lenders account for just about 28% i.e.'1.7 lakh crore of which banks contribute roughly two-thirds share. This is reflective ofthe huge untapped potential of this segment and the opportunities therein. Lending at thebottom of the pyramid is crucial to achieving inclusive and all-encompassing growth and Ibelieve that a few players who bring scale agility and a mindset of partnership will leadthis space. Technology will be the biggest enabler by ensuring efficiency and betterservice delivery and bringing down the cost of customer acquisition.
RBL Bank has differentiated itself by following a credit-led model and growing rapidlyin the Financial Inclusion space. Today our Development Banking & Financial Inclusion(DB&FI) segment offers a full suite of liability and asset products to individualswith lower incomes in semi-urban and rural markets. The business has witnessed encouragingmomentum with loans to this segment growing 38% to '5684 crore in FY18. Our partnershipswith business correspondents fintech and remittance players have played an important rolein driving our growth in this segment.
3. Corporate Banking Business
We have spent the last seven years building and enhancing our capabilities in ourcorporate banking business.
Today our corporate banking business has come of age in terms of sizescalerelationship depth range of products and services and we are now counted among theleading private sector banks across corporate lending transaction banking and digitalproducts and services. We believe that we are well positioned to take advantage of theresurgence in the credit environment.
4. Nurturing talent
To consistently achieve strength speed and scale it is imperative that we grow theskills of our team. Therefore we have created an employee-friendly organisation andembraced the philosophy of 'One Bank' throughout the organisation through trainingdevelopment career progression and empowerment. We have been regularly conductingspecialised leadership development programmes to successfully build a pipeline of futureleaders. These initiatives have resulted in a high retention rate and are instrumental inhelping attract top-tier talent to our Bank.
People are the beating heart of our business and it is the passion of our 5300-memberstrong team that drives us forward and upward. Today we are one of the few institutionsin India that have 67% of employees covered under the Employee Stock Ownership Plan(ESOP). These measures have brought in more 'skin in the game' and has helped brew a'passion for growth' culture within the organisation.
5. Strong Risk Management and Governance
The importance of effective risk management cannot be overstated in today's scenario.While asset quality remains the top differentiator across banks today transactionpractices governance and credit quality monitoring mechanisms are also becoming morerelevant. In the last seven years our Bank has grown by almost 40 times in size and over50 times in profits.
We have put together a best-in-class institution to deliver best-in-class bankingservices grounded on the principles of strong governance best professional standards andan ethical value system.
At RBL Bank we do not look at risk as a standalone function but have integrated itsmitigation into our entire operations through constant training across levels and being ontop of emerging trends technologies and best practices.
Our Bank is future-ready with multiple growth enablers firmly in place. As we live upto the promise of being an 'Apno ka Bank' for all our stakeholders we keep our sights onthe horizon our ears and feet shall be firmly planted on the ground. Ournimble-footedness and agility allow us to respond to as well as benefit from emergingtrends and environmental shifts. We will continue on this path and do everything todeliver sustainable balanced growth.
In conclusion I would like to thank every member of the RBL Bank team for theirconsistent commitment to the Bank.
I am also humbled by the consistent support of our investors who have been a constantally throughout our journey. We are confident on progressing successfully towards our goalof building a responsible organisation and enrich the life of all people within ouruniverse.
In this long-term journey I seek your continued encouragement.
Managing Director and CEO