RBL Banks balance sheet has grown 10 times in last 5 years from 2011 to 2016. For banking industry in general, loans made before 2013 are going bad. RBL’s loan book is not yet seasoned (and so is YES bank’s) so it’s NPA number look good. NPA ratio (NPA as a % of total assets) can be kept low by rapidly growing the denominator (i.e loan book) which is what many PSU banks are trying to do and something that worries RBI and is also the case with RBL. Coupled with this, RBL is offering high interest rates on deposits (there is a branch near where I say, and I see the ads every day) to attract deposits and make it’s CASA ratio look good. RBL has managed all the key ratios well by attracting equity capital, deposits and made huge loans. NIM on these loans will be added to the equity and the party can go on until the loans begin to default.
I think it takes a lot of seasoning for a bank to perfect its lending skills, something that banks like HDFC took years and many other banks (ICICI, Axis) haven’t even done after years of (bad) experience in making loans.
Banks in general has two risks, credit risk and interest rate risk. Banks in India has very little interest rate risk because of access to low cost CASA deposits. Even the worst PSU bank earns a good NIM. It’s the management of credit risk that separates the wheat from the chaff. However, it takes a seasoned loan book to determine if a bank is good at managing credit risk.
A bank that is managed well can last a century and grow to the sky. I think I will wait to see how RBL loan book performs over next few quarters relative to other private sector banks and decide. IPOs in general are dressed to sell and markets (I don’t know how) usually arrives at true value in about a year after listing.