RBL Bank slips 10% in two days, hits 31-month low on asset quality concerns

Since July 19, post April-June quarter results, RBL Bank has underperformed the market by falling 42 per cent as compared to 3 per cent decline in the Nifty 50 index.

RBL Bank shares were trading lower for the second straight day, down 5 per cent on Wednesday, to hit a 31-month low level of Rs 336 per share. The private sector lender's stock has fallen 10 per cent in the past two days on concerns of asset quality.

The stock was quoting at its lowest level since January 2017.

Post the April-June quarter (Q1FY20) results, RBL Bank has underperformed the market by falling 42 per cent from the level of Rs 580 per share on July 19, 2019. In comparison, the benchmark Nifty 50 index was down 3 per cent during the same period. While announcing results, the management said the bank expects to face some challenges on some of its exposures in the near term.

RBL Bank guided for elevated stress in a few corporate accounts (exposure: Rs 900 crore-Rs 1,000 crore), Incremental credit cost of around 35-40 basis point towards these exposures, and, gross non-performing assets (GNPA) ratio to increase to 2.3-2.5 per cent by end of FY20 from 1.38 per cent in Q1FY20.

“RBL has demonstrated strong momentum in business growth and earnings. However the exposure to a few stressed corporate accounts is likely to drive an increase in provisioning expenses and dent the earnings trajectory,” Motilal Oswal Securities said in Q1FY20 result update.

Analysts at HDFC Securities cut earnings estimates for FY20/21E by 25/19 per cent to factor higher slippages and consequent provisions. A fund raise is still possible, and will be crucial for RBL to provide for the upcoming stress and maintain growth rates. Guidance on stress, and concentration commentary are red flags that underpin our DOWNGRADE to NEUTRAL, the brokerage firm said in results review.

There will now be elevated concerns on the bank’s ability to curtail its stressed corporate exposure at current levels & a weaker stock price could potentially push out an equity raise, analysts at JP Morgan said with ‘neutral’ rating on the stock.

At 12:26 pm, the stock was trading 5 per cent lower at Rs 339 on the NSE, against 0.38 per cent decline in the Nifty 50 index. The counter has seen huge trading volumes with a combined 8 million shares changing hands on the NSE and BSE so far.