The normal impression would be that RBL Bank’s margins would be deeply impacted with the Reserve Bank of India (RBI) increasing the risk weight on unsecured lending.

RBL Bank, after all, has the highest credit card portfolio in terms of retail assets at over 42%. The private lender’s credit cost would rise and, hence, its lending margins would be hurt. 

The RBL Bank senior management, however, does not see its margins being much impacted. 

"Our capital (CET 1 ratio) cost will go by 60 bps because of the RBI action, but the impact on our margin will be negligible at 1-2 basis points only," RBL Bank managing director and chief executive R Subramaniakumar told reporters on the sidelines of the IBA-Ficci-organised national banking summit on Wednesday.

The bank's capital adequacy ratio stood at 15.15% as of September 2023, excluding Q2 FY24 profit, while net interest margin (NIM) stood at 5.54%. The lender’s credit cost stood at 47 bps, which, going by Subramaniakumar's own admission, will be at least 107 bps with the higher risk weighting.

Subramaniakumar’s comments on the margin impact are surprising, given the massive 60 bps spike in its credit as the nation's largest lender SBI sees its credit cost going up by 10-12 bps while the impact on the margin will be 3-4 bps despite having a much lower exposure in percentage terms to its total assets of over Rs 33 lakh crore, PTI reported.

RBL Bank has Rs 18,572 crore in credit card outstanding as of Q2 and provided for more than the regulatory mandate, so there is no hit on this, Subramaniakumar said, adding the credit card book is profitable but did not share the absolute amount.

At Rs 18,506 crore, its credit card AUM is the highest in the industry as its total retail portfolio was only Rs 44,092 crore, which grew 35% in Q2 when the bank had reported Rs 331 crore in net income. This means its credit card book is more than 42% of the total retail exposure, PTI reported.

Earlier this month, the RBI tightened the norms for unsecured consumer credit, asking banks and NBFCs to assign a higher risk weight. The risk weight on unsecured consumer loans was raised by 25 percentage points to 125% and to 150% for credit cards. 

The new regulations will include personal loans but not be applicable to housing loans, education loans, vehicle loans and loans secured by gold and gold jewellery.

The bank credit outstanding to the personal loans segment was Rs 48,26,833 crore as of September 2023, up nearly 30% over the year-ago period.