RBL Bank IPO explained

RBL Bank (formerly Ratnakar Bank) is opening its upcoming IPO on 19 August in what will be the 16th public offer this year in India. Shares of the private sector bank are proposed to be listed on NSE and BSE on 31 August. RBL Bank IPO has been priced in the range of INR224-225 per share and investors can make applications in multiples of 65 shares. Here are 10 important aspects of this IPO:

History – RBL Bank was set up in 1943 as Ratnakar Bank – a regional banking firm with focus on Maharashtra. The bank persisted with its regional focus strategy till 2009. Renamed in December 2013 to RBL Bank.

Transformation – In 2010, the bank embarked on a major transformation with new owners and management at helm. RBL Bank acquired the business banking, credit card and mortgage portfolio businesses of Royal Bank of Scotland (RBS) in India during in FY2014. The bank is extending its reach in rural and semi-urban India and unbanked parts of urban and metro India.

Bank but micro financing mindset – Agri business is a focus area for the bank and thus, it is considering buying 10% in Utkarsh Micro Finance which has received RBI’s in-principle approval to turn itself into a small finance bank (SFB). The application is currently under consideration with RBI. RBL Bank has also acquired over 20% stake in business correspondent Swadhaar FinServe which offers products and services to inadequately served sections of businesses, households and enterprises.

First bank IPO in a long time – It is first bank IPO in India after state-run Punjab & Sind Bank listed in 2010. Among private sector banks, the last IPO was of Yes Bank in July 2005.

IPO size – Through a mix of fresh shares and offer for sale (OFS) by existing shareholders, RBL Bank IPO will mobilize nearly INR1,213 crore. The IPO values the bank at INR12,000 crore.

Existing Investors – In recent years, RBL Bank has roped in major financial institutions and private equity leaders as investors through four rounds of funding. CDC Group, Asian Development Bank (ADB), World Bank arm International Finance Corporation (IFC), Norwest Venture Partners (NVP), Faering Capital India are among the biggest investors in the bank. CEO Vishwavir Ahuja owns 9,021,670 shares or 2.71% equity stake in the bank.

Profitable growth – In the last four years, RBL Bank’s top line grew from INR532.2 crore in FY2012 to INR3,234.8 crore in FY2016, marking a CAGR of 57%. Profits in the same period jumped from INR65.1 crore to INR292.4 crore at a CAGR of 45.5%.

NPAs – Despite the rapid growth in recent years, the bank has one of the lowest NPA levels in the industry. For FY2016, RBL Bank’s gross and net NPAs stood at 0.98% and 0.59%, respectively.

Capital Adequacy Ratio (CAR) – As of 31 March 2016, RBL Bank’s Capital Adequacy Ratio (CAR) stood at 12.94% (comprising of 11.1% Tier 1 capital), comfortably meeting the Basel III capital requirements.

Valuation – For FY2016, RBL Bank’s diluted EPS was INR9.43. At INR225 per share, RBL Bank IPO is priced at a P/E ratio of 23.9 while the P/B (Price to book value) ratio is at 2.44.

Sandip Ginodia , Director

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