RBL Bank to transition from private to listed foreign bank arm, expects regulatory approvals in 5-6 months
RBL Bank Ltd expects to receive regulatory approvals for a $3 billion investment from Emirates NBD in the next five to six months; a deal that will ultimately transform the Indian private bank into a wholly owned subsidiary of a foreign entity.
The Dubai-based lender is expected to make the first tranche of its investment eight months from now, managing director and chief executive officer R. Subramaniakumar told reporters. A day earlier, the two lenders had announced what would be the largest foreign direct investment and equity fund in the Indian banking sector.
However, management has not commented on any potential rebranding or identity changes following the ownership change. When Emirates NBD was asked whether it would value maintaining RBL Bank’s domestic identity or opt to expand the business under the aegis of its own larger global brand, management hinted at the possibility of a joint name once the deal goes through.
Subramaniakumar said the deal value is based on a strong franchise created by RBL Bank and is expected to be positive for all stakeholders, including shareholders and investors.
“We are not a distressed bank,” he said, adding that his aim was to become “bolder” before making any other big strategic decisions.
Subject to approvals, Emirates NBD will be designated as the local bank’s backer once the transaction is completed. Accordingly, it will also have the right to appoint directors to the board of directors of RBL Bank.
The private lender aims to grow significantly over the next three to five years, backed by capital support provided by Emirates NBD. Creating a wholesale loan portfolio is among its plans.
“This opens up significantly new opportunities in many areas. Obviously, it will need execution and time to do this, but the ability to become a much more full-service bank across all areas of banking and potentially financial services is there for us to realize in the next five years,” said Jaideep Iyer, head of strategy at RBL Bank.
Subramaniakumar then said that these opportunities could include new business lines within financial services such as asset management, insurance and wealth management.
“This will evolve,” Iyer said. “But it really gives us the opportunity to step away from the crowd and try to put ourselves in the range or a step below some of the larger banks.”
Capital comfort will now allow the bank to start looking at growth from a long-term perspective rather than focusing on short-term profitability.
“Earlier the situation was: If you grow, your cost increases. If you maintain cost, your growth is sacrificed. You always have to look over your shoulder to see if capital is needed. All of that is gone. We can focus on a five-year plan and just execute. There are no shackles now,” Iyer said. Mint at the edges of the event.
While minimum 51% stake is required for majority ownership and promoter control, foreign bank can hold up to 74% stake in RBL Bank as per RBI regulations. Bank executives said that according to the proposed deal structure, the optimal shareholding should be around 60-62%, taking into account the mandatory open offer.
“We would prefer to have a healthy ring (holding) of more than the required minimum of 25 per cent,” Iyer said. Iyer added that the capital support is also expected to lead to an upgrade in the bank’s rating, which will result in lower cost of funds and lower cost of borrowing, which should support the bank’s ability to sign large cheques, open large corporate risk lines and enable loan syndication opportunities.
