RBL Bank Limited

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.

• 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.

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.

• Financial additionality: Commercial capital unlikely to be available in sufficient quantity at this time.
• Value additionality: The support we have delivered via inputs to the environmental, social and governance committee are significant. It includes 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.

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)

External Risk

• 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 Risk

• There is a risk that RBL will not prioritise the micro-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.

Unexpected Impact Risk

• 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.