RBL Bank Fears Rise In SME Bad Loans Due To Covid-19 Disruptions: CEO Vishwavir Ahuja

A 21-day India lockdown to curb the spread of the coronavirus pandemic and the inevitable slowdown in the economy could lead to higher bad loans across small business loans for starters.

The note of caution came from Vishawavir Ahuja, chief executive officer of RBL Bank Ltd., which has seen a steep sell-off in its shares due to nervousness around possibility of higher bad loans and deposit outflows in the aftermath of the Yes Bank moratorium. Earlier this week, the bank released information about the January-March quarter even before finalising its earnings.

In its release April 1, the bank said that slippages, or new loans turning bad, remained in check. However, Ahuja told BloombergQuint in an interview that increased stress for the banking sector and for RBL Bank may be inevitable.

The macroeconomic slowdown and the national lockdown owing to Covid-19 will result in higher slippages in the small and medium enterprises segment for RBL Bank, Ahuja said.

To help businesses and consumers tide over the possibility of a sudden stop in income, the Reserve Bank of India has allowed banks to offer term loan and working capital borrowers a three-month moratorium. Banks will not need to downgrade such loans to the non-performing assets category.

Ahuja said RBL Bank had made the facility available for all microfinance customers automatically. However, if the customer wishes to pay as per the regular schedule, the bank will allow that. Credit card customers and wholesale borrowers would have to approach the bank to get approval for a moratorium, he said.

“As far as microfinance borrowers are concerned, most of our collections for the month of March was completed in the first fortnight, before the lockdown was announced. The moratorium is now available to them for April and May payments. We have seen a number of companies willing to pay their dues on time. Many of our credit card customers too have chosen to pay their monthly payments on time,” Ahuja said.

Outlook On Asset Quality Due To Lockdown

Ratings agencies, from Moody’s Investors Services to ICRA Ltd., have changed their outlook on the banking sector to negative amid concerns of macroeconomic stress.

RBL Bank will be no exception. According to Ahuja, the outlook on asset quality would depend on the severity of Covid-19 and its impact on the Indian economy.

Ahuja expects the April-June quarter to be a tough one for the economy as a whole and for banks. However, RBL Bank is taking comfort in the fact that its exposure to the lower end of the SME sector and to large corporate sectors such as aviation, transportation and logistics is relatively low.

“We are cautiously confident that the sooner the restrictions get lifted and the sooner the economy starts coming back, we are very well placed to address the pent up demand and the potential in the economy,” Ahuja said.

As on Dec. 31, 2019, RBL Bank had outstanding deposits worth Rs 63,000 crore and total advances worth Rs 59,635 crore. The bank’s gross NPA ratio stood at 3.33 percent as of December 31, compared with 2.6 percent sequentially.

Deposit Outflow And Liquidity Position

In its statement to the exchanges, RBL Bank said it had seen an outflow of around 8 percent of its deposits in the January-March quarter, due to state governments and their related entities choosing to move to public sector banks after Yes Bank was placed under a brief moratorium.

According to Ahuja, the outflows were largely due to deposit withdrawals by the state of Maharashtra and its corporations, which had decided to move its deposits from private banks to public sector banks.

The bank is in constant contact with state governments, including Maharashtra, and the recent calls by Reserve Bank of India Governor Shaktikanta Das have helped in easing the nervousness among large depositors.

Also Read: Covid-19 Impact: Lenders Stop Physical Loan Collections Amid Lockdown

To compensate for the loss of large institutional deposits, RBL Bank plans to add to its retail deposit base and “granularise its liabilities franchise”, Ahuja said.

However, the bank is comfortable in its liquidity situation. According to the bank’s statement on Wednesday, its liquidity coverage ratio was at 127 percent for March, indicating surplus liquidity.

The surplus liquidity has helped the bank withstand the outflows and not depend on expensive financial instruments such as certificates of deposits to raise bulk funding, he added.