RBL Bank Limited

South Asia Financial services

Ratnakar Bank (RBL Bank) is one of India’s fastest growing private sector banks. It specialises in financial inclusion, agribusiness financing and lending to small and medium-sized enterprises (SMEs).

  • Active
  • Exited

Our investment

We first invested in RBL Bank in 2014, making a $28 million equity investment, and a subsequent pre-IPO investment of $7 million in 2015. In 2016, we provided a $50 million long-term loan to RBL Bank, to strengthened its capital base and support the bank’s plans to grow its geographic footprint across India's poorer states such as Rajasthan, Madhya Pradesh and West Bengal. This loan was repaid in 2017 and a new equity investment of $99 million was made. We made our latest investment in 2020 to support the bank in its ambitions to grow its lending to microfinance borrowers and SMEs.

Impact

Continue or improve access to finance for underserved segments including SMEs and low-income microfinance customers, particularly in low-income states, to maintain economic opportunities and sustain individual resilience (SDG 8.10, 1.4).

How?

CDC’s investment will strengthen the capacity of the bank to meet its capital adequacy ratio. This will support portfolio quality and create impact in the following ways:

  • Direct: An expected increase in lending to microfinance institution borrowers, i.e. particularly ‘joint liability group’ customers. Continued access to finance will allow individuals to maintain and improve individual resilience, and manage their cashflow constraints.
  • Economic enabler: Potential future lending to corporates and SMEs with the provision of working capital and long-term loans. Continued access to finance will allow SMEs (particularly those affected by the slowdown) to manage risk and liquidity, enabling business resilience, income generating opportunities and supporting employee retention.
Stakeholder Geography Characteristics
Individuals, business owners, employees
  • Microfinance: Pan-India. Rural and semi-urban (833 branches across the country in 319 districts covering 20 states). Majority in Bihar, Tamil Nadu, Maharashtra, and West Bengal (14.7 per cent, 13.4 per cent, 10.7 per cent, and 8.8 per cent of portfolio respectively).
  • MSME lending: Pan-India. Tier 1 suburbs and Tier 2 and 3 cities (150 branches, particularly in tier 2-3 cities).
  • Microfinance: Self-employed and/or lower-income women who are part of joint liability groups. While visibility on individual borrowers is limited, characteristics of ‘joint liability group’ borrowers include low-income, bottom 2 quintile demographics, as indicated by an average ticket size of approximately $450.
  • MSME lending: While visibility on individual borrowers is limited, characteristics include self-employed individuals that are business owners, approximately 90 per cent are not first-time borrowers. A 2017 CDC study included a sample of SME owners with an average borrowing capacity of $16,000.
Scale Depth/Duration

More detailed estimations would be needed to assess total potential customers that will be reached, therefore the size of the loan book and customer base will be used as a proxy. Currently, the bank services 8.5 million customers (vs average 3.95 million in our South Asia portfolio).

  • Depth: Difficult to assess as current level of income and resilience is unknown but expected to be deep because of the low-income populations served specifically by the microfinance book (11 per cent total financial year 2020 loan book).
  • Duration: Increase in the loan book and the associated impact is expected to occur over the five-year period. Continued impact of financial services is long-term and cannot be estimated.
Grid Score Contribution

1.85-2.13

Market context: There is no disaggregated data by state for the full loan book. The range indicates whether calculated by branch footprint or MFI book only (11 per cent of total)

To help us direct our investments, we use a tool called the Development Impact Grid. The Grid scores every investment we plan out of a score of four, based on two factors: the difficulty of investing in the country and whether investment in that sector will lead to jobs.

  • Financial: Commercial capital unlikely to be available in sufficient quantity at this time.
  • Value-add: The support CDC has delivered via inputs to the environmental, social and governance committee are significant and include financial inclusion/literacy, gender and women’s economic empowerment, increased environmental and social impact via RBL lending and support in the preparation of the bank’s sustainability reporting.
Risk
  • External: COVID-19 will have an impact on the growth of the portfolio, and potentially have a greater impact on the MSME and micro-banking segment. This is to be monitored in the coming quarters.
  • Alignment: There is a risk that RBL will not prioritise the micr0-banking and MSME segment, particularly in the COVID-19 context, as it is experiencing growth in other segments that are targeted towards higher-income segments, such as credit cards and property loans. However, this is currently classified as a low risk as the segments have also grown by over 31 per cent and 40 per cent respectively in the last year, at a rate higher than growth in total advances. Mitigant: risk will be monitored over the year.
  • Unintended impact: It is unclear the extent to which customer protection measures will continue to be implemented, particularly post-moratorium. Mitigant: CDC teams shared advice on managing customer protection under COVID-19 with all Indian financial institutions.

Expected impact

Although India's debt market is well developed, the market for Tier II capital is weak. Our support enabled RBL Bank to reach more customers, provide more jobs, and boost the level of financing available to SMEs and agribusiness in the country.

In particular, it opened up lending to small-scale farmers and female micro-entrepreneurs, who have previously been excluded from formal financial services.

Today, RBL Bank employs close to 3,900 people. From 2012 to 2016, the bank created over 400 banking jobs each year and has the potential to generate jobs and provide livelihoods indirectly for an estimated 330,000 people over the next five years by expanding its loan book.

State-of-the-art IT systems and architecture also enabled the bank to scale its operations to support this growth.

Environmental and social aspects

We established the bank's first environment, social and governance (ESG) committee, and worked closely with RBL to develop its environmental and social management system (ESMS).

We also supported the design and delivery of financial inclusion and literacy programmes that RBL delivered in Madhya Pradesh and Bihar.

Key facts

Status:
Active
Region

Since 2012, we’ve only invested in Africa and South Asia. Investments outside these regions are from our pre-2012 portfolio.

:
South Asia
Countries:
India
Sector

We have seven priority sectors. However, we continue to invest outside these sectors, largely in the most challenging regions, as new investment supporting any sector helps to underpin the private sector, and create jobs and livelihoods for people.

:
Financial services
Website:
https://www.rblbank.com/
Investment type

We provide capital in three broad ways: direct equity, debt, and intermediated equity (principally through investment funds).

:
Direct Equity, Direct Debt
Start date

For direct investments, this is the date CDC committed capital to the business or project.

For funds, this is the date that CDC committed capital to the fund.

For underlying fund investments, this is the date that the fund invested capital into the business.e

:
March 2014
Amount

For direct investments, this is the total amount that CDC has committed to the business or project (it may be a combination of equity and debt).

For funds, this is the total amount that CDC has committed to the fund.

:
$198.87m
Domicile

This is the investee company’s place of incorporation; or a fund’s jurisdiction.

:
India

We are invested in RBL Bank Limited through Plenty Private Equity Fund I (Multiples II), which is managed by Multiples Investment Advisers.

We do not hold direct relationships with the companies that investment funds invest in. Instead, we hold relationships directly with the fund. When investing through investment funds, CDC takes an active role as a limited partner to the fund, working with the fund manager to ensure best practices, including in environment, social and governance matters, and investment management oversight.

For further information on the fund, the fund manager, and the expected impact of the fund’s investment, click here.

Key facts

Status:
Active
Region

Since 2012, we’ve only invested in Africa and South Asia. Investments outside these regions are from our pre-2012 portfolio.

:
South Asia
Countries:
India
Sector

We have seven priority sectors. However, we continue to invest outside these sectors, largely in the most challenging regions, as new investment supporting any sector helps to underpin the private sector, and create jobs and livelihoods for people.

:
Financial services
Website:
https://www.rblbank.com/
Investment type

We provide capital in three broad ways: direct equity, debt, and intermediated equity (principally through investment funds).

:
Intermediated investment
Fund:
Plenty Private Equity Fund I (Multiples II)
Fund Manager:
Multiples Investment Advisers
Start date

For direct investments, this is the date CDC committed capital to the business or project.

For funds, this is the date that CDC committed capital to the fund.

For underlying fund investments, this is the date that the fund invested capital into the business.e

:
August 2017
Domicile

This is the investee company’s place of incorporation; or a fund’s jurisdiction.

:
India