As of September 30, 2021, RBL Bank’s capital adequacy ratio, which is an indicator of how much percentage loss a bank can incur on its risky assets before it becomes insolvent, was at 16.33% as against the minimum Basel norm of around 10%.
The bank’s liquidity coverage ratio, which is a measure of how much liquid assets a bank has to cover cash demands over a certain number of days in case of a crisis, was at over 150% as against the regulatory requirement of 100%. The bank has also provisioned for over 76% of its gross NPAs, or it has recognized over three-fourths of its gross NPAs as losses, thus reducing the chances of any future negative earnings surprise.
While RBL Bank’s loan book has doubled since 2017, the size of its bad loans has grown by more than seven times during the same period. The bank has also been expanding its loan book through aggressive lending to retail borrowers. It has particularly focused on extending unsecured credit card loans which are highly prone to default and low recovery rates. In fact, credit card and microfinance loans constituted well over half of the bank’s retail loan book. All this has led to more defaults