Burning Desires is a community organization (Non-Profit Making Platform) to promote investors' awareness and eradicating herding behavior while investing. Uploaded is the IPO Outlook on RBL Bank Limited with Burning Desires Committee Recommendation.

1. Pg. 01 Burning Desires IPO Outlook- RBL Bank
Burning Desires©
SARKAR BHAVAN, PATEL VILLA, AHMEDABAD
Yogesh Vallabhbhai Gabani
Chief Administrator- Burning
Desires

2. Pg. 02 Burning Desires IPO Outlook- RBL Bank
The issue comprised of fresh issue of equity shares by the bank aggregating up
to Rs 832.5 crore; and an offer for sale up to 1,69,09,628 equity shares,
including 38,79,070 shares by 48 shareholders like Elephant India Finance,
Capvent India Private Equity Fund, Gaja Trustee Company (on behalf of Gaja
Capital India Fund I) etc.
Other shareholders in offer for sale are Beacon India PE Fund (95, 05,558
shares) and GPE India (35, 25,000 equity shares).
Critical Aspect
The bank will not receive any proceeds from the offer for sale.
The objects of the fresh issue are to augment bank’s Tier-I capital base to meet
future capital requirements which are expected to arise out of growth in
assets, primarily loans/advances and investment portfolio, and to ensure
compliance with Basel III and other RBI guidelines. In addition, the bank
believes that the listing of equity shares will enhance visibility and brand name
among existing and potential customers.
Qualitative Aspects
The company changed its name to RBL Bank from Ratnakar Bank in 2014 as
part of a brand-building exercise that saw it spread its network from western
Maharashtra and northern Karnataka, to other parts of the country.
As of FY16, it has 197 interconnected branches (88 branches in Tier 1 centers
and 109 branches in Tier 2 to Tier 6 centers) and 362 interconnected ATMs
spread across 16 Indian states and union territories serving approximately 1.90
million clients.
Understanding
Banking
companies have
to maintain two
types of broad
category of
capital.
Tier-I and Tier-II
The intent of
this IPO is to
meet future
capital
requirement for
Tier-I Capital
T
a
b
l
e
2
:
L
i
n
e

3. Pg. 03 Burning Desires IPO Outlook- RBL Bank
As part of growth strategy, the bank acquired certain Indian businesses of the
Royal Bank of Scotland (RBS), including RBS’s business banking, credit card and
mortgage portfolio businesses, in FY14.
It also recently acquired a minority stake in Swadhaar FinServe Private Limited,
a company acting as a business correspondent, facilitator, agent and distributor
for financial services providers for Rs 20.5 crore.
As per Burning
Desires, the
bottom line here
is not how many
branches and
ATMs that RBL is
having as of
now. Rather it
would be the
capital
expenditure
(CapEx) that it
could incur in
times to come,
because that
could hurt the
return numbers.
But CapEx
spending has got
power of
sentiments. So,
need not to fear
about Tier-I
capital spending
-- Yogesh V. Gabani

4. Pg. 04 Burning Desires IPO Outlook- RBL Bank
Earnings
Profit in the year ended March 2016 increased 41.2 percent, net interest
income 47.2 percent, operating profit 50.6 percent and other income 21.6
percent compared to FY15.
Net interest margin remained stable at 3 percent in FY16 and FY15 each
against 2.7 percent in FY14 and 3.2 percent in FY13.
For banking,
make no
mistakes, Profit
margin is the
next criteria
after NIM- Net
Interest Margin.
Since RBI is in
mood to further
lower down the
interest rates
and guidelines
to improvise
interest rate
transmission is
lined up down
the line, the
numbers could
pick up in
quarters to
come.
-- Yogesh V. Gabani
T

5. Pg. 05 Burning Desires IPO Outlook- RBL Bank
ASSET QUALITY
Asset quality deteriorated in the year ended March 2016 as net non-
performing assets (NPA) more than doubled to 0.59 percent compared to
FY15. Asset quality concerns were also seen across the banking sector
especially in the second half of FY16.
Why NPA is Critical?
As per Burning Desires, It’s a Bad Debt for any bank. Here, bank has to forget
about Interest income, but it won’t even get the money lent. Along with that it
has got direct impact to bottom line and thus it can change the investors’ opinion
and sentiments for particular bank in the market.
As mentioned
earlier also,
Burning Desires
has a lot to
explain as long
as NPAs are
concerned. Here,
NPA has
escalated as
compared to
previous year to
0.59%, But is not
a great concern
as its one of the
lowest of them
all.
-- Yogesh V. Gabani
T
a
b
l
e
2
:

6. Pg. 06 Burning Desires IPO Outlook- RBL Bank
Wasim Shaikh, Editor-In-Charge at Burning Desires explains how the NPA
behavior is found in Public and Private sector bank. As per his analysis private
sector banks are having better asset quality and lower NPAs as compared to
public sector banks.
2011-
12
2012-
13
2013-
14
2011-
12
2012-
13
2013-
14
2011-
12
2012-
13
2013-
14
Overall
Public Sector
Banks
Private Sector
Banks
Gross NPA Ratio(%) 2.79 3.26 3.85 2.98 3.59 4.33 1.96 1.86 1.82
Net NPA Ratio(%) 1.04 1.71 2.16 1.18 2 2.53 0.36 0.36 0.62
Net NPA / Net Worth (%) 13.04 16.39 21.19 17.54 22.39 29.21 2.7 2.97 3.78
0
5
10
15
20
25
30
35
Valuesin%
Public and Private Sector Banks Comparison (NPA)
As per Wasim
Shaikh, Editor-In-
Charge at Burning
Desires, private
sector banks are
having better
asset quality and
lower NPAs as
compared to
public sector
banks because of
Policy gaps in
terms of
Administration,
Formation and
Interference.
T
a
b
l
e
2
:
L
i

7. Pg. 07 Burning Desires IPO Outlook- RBL Bank
The bank had provided for an amount of Rs 93.19 crore during the fiscal year
ended March 2016 towards provision for NPA, non-performing investments,
depreciation on investments, write-off and sacrifice for restructured advances.
One of the best
aspects is downward
pick up in
Provisioning
coverage ratio along
with Cost to Income
ratio, Which declined
to 55.87 percent in
FY16 from 68.28
percent in FY15.
As per committee
headed by Yogesh
V. Gabani, the cost
to income ratio
may increase in
times to come due
to CapEx in terms
of Branch
expansion and
reach. As in
banking sector
employee cost is
one of the major
cost head after
interest expense
-Vikas Jain,
Moderator,
Burning Desires
T
a

8. Pg. 08 Burning Desires IPO Outlook- RBL Bank
LOAN EXPOSURE
The bank’s exposure to real estate sector stood at Rs 2,248 crore at the end
of March 2016, representing 7.08 percent of gross credit portfolio.
Its exposure to the industries exceeding 5 percent of the total gross credit
exposure (as per Basel III disclosure) are infrastructure, traders, and food
processing, construction, NBFC (MFI) and chemical products. Furthermore, it
has substantial exposure to agriculture and MSMEs, the priority sectors.
Gross priority sector advances aggregated Rs 6,862.22 crore as per
prospectus data.
Its aggregate loans advanced to 20 single largest borrowers amounted to Rs
4,635.29 crore, representing 14 percent of total advances as of March 2016.
Credit exposure is
nothing but as per
burning desires, it’s
monetary outflow in
terms of loans to
various categories.
As the chart displays
the credit exposure
to Infrastructure and
real estate is highest.
As thee current
government supports
this two sectors, RBL
can leverage on the
same as previous and
upcoming budget will
also be in favor to
this.
-Yogesh V. Gabani
That’s how RBL is
safeguarding its
NPAs.
T
a
b
l
e

9. Pg. 09 Burning Desires IPO Outlook- RBL Bank
ADVANCES
As of March 2016, 82.67 percent of net advances were secured by collateral,
including real estate assets, property, gold ornaments, plant, equipment,
inventory, receivables, current assets and pledges or charges on fixed assets,
bank deposits, NSC/KVP/insurance policy or financial assets such as
marketable securities and guarantees.
If we look at the
change in credit
exposure to various
sectors, the portfolio
is best modified. RBL
has reduced exposure
to uncertain and
highly dependent
sectors including
Aviation, Metal,
Rubber and Plastic,
Cement etc.
-Yogesh V. Gabani
T
a
b
l
e
2
:
L
i
n
e
C
a
p

10. Pg. 10 Burning Desires IPO Outlook- RBL Bank
A 17.33 percent (or Rs 3,678.87 crore) of net advances were unsecured.
DEPOSITS
RBL’s total deposits at the end of FY16 stood at Rs 24,348.7 crore against Rs
17,099.3 crore in FY15.
Gross and Net
advances running
parallel due to
negligible NPAs.
RBL is having highest
amount as term
deposit under total
deposits year on
year, maintaining
liquidity by blocking
money movement at
a given point in time.
-Yogesh V. Gabani

11. Pg. 11 Burning Desires IPO Outlook- RBL Bank
As on FY16, top 20 depositors constituted 22.88 percent of total deposits as
compared to 27.32 percent and 23.82 percent as of FY15 and FY14.
DIVIDEND & COMPETITORS
The bank paid dividend of 9 percent (90 paise) and 12 percent (Rs 1.2) per
equity share to shareholders for FY14 and FY15, respectively. It has also
paid an interim dividend of 15 percent (Rs 1.5) per share for FY16.
RBL said it did not expect to pay any final divided over and above the
interim dividend already paid as per prospectus data.
Capital adequacy
ratio is above both
RBI guidelines and
industry average. So,
not a concern for us
as long as investment
consideration goes..
As explained earlier
there has been a
decline in CASA-
Current account
saving account
because of
continuous increment
in term deposits.
As per Burning
Desires there are
certain strong
competitors like Yes
Bank, UCO Bank,
Kotak Mahindra,
IndusInd Bank and
Union and DCB.
Because, RBL is
having more
corporate exposure.
-Yogesh V. Gabani

12. Pg. 12 Burning Desires IPO Outlook- RBL Bank
Comparison with listed industry peers (FY16)
Burning Desires Committee Recommendations- Sector Specific View
The Indian economy is now on the threshold of a major transformation, with
expectations of policy initiatives by the change in guard at the Centre and
Indian government has also came up with numerous initiatives to boost the
economy. Positive business sentiments, improved consumer confidence and
more controlled inflation should help boost the economic growth. With a new
and stable Government in place now, a clear revival in the investment climate
is sure to come because if Economy has to grow, strong banking industry
should be at place. Higher spending on infrastructure, speedy implementation
of projects and continuation of reforms will provide further impetus to growth.
A moderate recovery is likely to be seen in FY15 and the real GDP is expected
to grow by 5.3% - 5.5% after normalizing inflation rate. While the CPI inflation is
expected to remain an important challenge for India, it should witness a
downward trajectory during the major part of FY15.

13. Pg. 13 Burning Desires IPO Outlook- RBL Bank
Technology Innovation and Technology Impartment
Life has become complex and in the era of competitive business, account holders and
B2B clients are demanding fast service at their time. Specifically for public sector
banks technology innovations are required to fulfill the client needs because customer
choices would change dramatically with technological innovations in upcoming years
to come, as a result of which lenders which still depend on savings deposits to attract
customers, could face oblivion in the next five years. Otherwise specifically in Semi-
Urban and Urban areas domestic private and public sector banks won’t be able to
compete with foreign banks because, with increasing volume and complexity of the
banking business, it will be imperative for the regulator to move gradually towards
more offsite monitoring than onsite. Technology will play a much larger role in the
overall supervision of the banking system. There are likely to be transformational
changes in the entire regulatory system for financial services.
On the other hand, the recent decision of the government to capitalize public sector
banks based on their efficiency could go a long way in ending the muscle power that
the state-run banks enjoy, if the government sticks to the strategy of selective
infusion of capital because the growth of weaker banks are still on the line. Weaker
banks' survival would be in question as their ability to raise capital from the market
would be limited because of mounting non-performing loans and NPAs are also
constituently rising as far as public sector banks are concerned.

14. Pg. 14 Burning Desires IPO Outlook- RBL Bank
Current scenario of Banking Sector
We should not deny the fact that if economy has to grow, there should be a
strong presence of banking sector in the country. In India, Private sector banks
has been achieving superior performance as compared to PSU banks if we
compare them in terms of various significance indicators such as NAPs, Net
Interest Earning, Profit per employee and profitability growth. The total asset
of all scheduled commercial banks was nearly 4500000 crore rupees by
financial year ending March, 2014 but increasing trend in NPAs remains a big
challenge ahead particularly for PSU banks but it could impact the banking
sector as a whole as far as equity investment is concerned but still Future
earning potential in Indian banking sector is expected to remain high, may not
be in the current year.
IPO Recommendation:
As this is the first banking sector IPO after 6 years and after the YES Bank IPO,
Conservative and sector specific investors will get activated. One should subscribe
with minimum holding period of 4 Months and positional traders should avoid as due to
price sentiments overnight gains may not attained.
-Yogesh Vallabhbhai Gabani
Chief Administrator, Burning Desires
Currently, Public
sector bank is
holding 74% of total
banking sector
assets. So, immense
scope for private
sector banks to grow.
On top of that
budgetary liquidity,
transmission
measure and lower
inflation rate will
provide incentive to
banks in times to
come.
-Yogesh V. Gabani