RBL Bank Ltd’s net interest margin (NIM) is likely to come under pressure in the December quarter, after the lender raised about ₹34,000 crore in foreign currency deposits from non-resident Indians during a temporary Reserve Bank of India (RBI) window, the bank’s management said on Monday.
These deposits, known as foreign currency non-resident (bank) or deposits, cost the bank about 6.75% a year, the management said. Much of the money is currently parked in investments that earn less than the bank’s regular loans, and margins will improve only as it is lent out.
“Over a period of two to three years, you’ll be seeing that much of it absorbed and introduced into the profitable environment,” a senior executive said, adding that there could be no fixed time frame since deploying the funds was a continuous process.”
“Margin, we are in 4.61. One part will be a little less than that because the FCNR will be seen from the next quarter onwards. There will be some effect on the FCNR. So it will definitely come down,” the senior executive said on a post-earnings call with the media, while addressing the potential effects on NIM, the difference between interest earned on loans and investments and interest paid on deposits.
had lifted the interest rate ceiling on three- to five-year FCNR(B) deposits between 17 June and 30 September and offered banks a facility to cover currency hedging costs, in a bid to attract dollar inflows and support the rupee.
FCNR (B) deposit boost
, which became a subsidiary of Dubai-based Emirates NBD in June, used its parent’s network in the Gulf to tap the window. “FCNR again was only for half a quarter. You will see the full impact of FCNR floating up the balance sheet in the next quarter,” an official said, adding that margins would see “a little bit of pullback” before stabilizing and rising again.
The bank also lent about ₹10,300 crore to customers against these deposits, its management said.
For now, the lender is placing the surplus in short-term assets. “Initially, it will be in the short term. Then it is going to be shifted to the medium- and long-term opportunities,” the executive said. He added that the bank “will raise deposits only to the extent that it can be deployed”, with branch-led retail term deposits remaining its main funding source.
The inflows lifted headline numbers sharply in the September quarter. Deposits rose 34% from a year ago to ₹1,56,272 crore, though growth excluding FCNR was just 6%. Advances grew 42% to ₹1,42,314 crore, or about 30% without the FCNR-backed loans. NIM improved to 4.61% from 4.13% in the June quarter.
Net interest income rose 37% to ₹2,131 crore, and net profit jumped 170% to ₹482 crore from ₹179 crore a year ago. Provisions climbed 53% to ₹767 crore, which the management attributed largely to a one-time standard asset provision on the FCNR-linked loans and faster wholesale growth. Gross non-performing assets eased to 1.02% from 2.32% a year ago.
The bank plans to chase non-resident flows, starting with West Asia, and trade corridors where Emirates NBD is present. It also plans to expand its branch network from 628 at present, opening 30 to 40 branches a quarter, “till we reach a threshold of closer to 1,000 branches in two to three years”.
Shares of RBL Bank closed at ₹420.00 on BSE on Monday, up ₹2.65, or 0.63%.