RBL Bank share plunges 13%, hits 52-week low on weak Q2 results

Asset quality ratios deteriorated during the quarter as slippages were high in the credit cards and microfinance segments.

RBL Bank Q2 results impact: Shares of private sector bank RBL Bank hit a 52-week low of Rs 179.45, plunging 13 per cent on the BSE in Monday’s intra-day trade after reporting a 24 per cent year-on-year (YoY) decline in its net profit at Rs 223 crore in the quarter-ended September 2024 (Q2FY25), owing to higher growth in expenses. 

RBL Bank stock has fallen below its previous low of Rs 189.65 touched on October 8, 2024. It has corrected 40 per cent from its 52-week high level of Rs 300.50 hit on January 11. The stock had hit a record high of Rs 716.55 on May 28, 2019.

The net interest income (NII) of the bank rose 9 per cent Y-o-Y to Rs 1,615 crore from Rs 1,475 crore a year ago. NII impacted by interest reversals from slippages and lower disbursals in microfinance.

Net interest margin (NIM) slipped to 5.04 per cent for Q2FY25 from 5.54 per cent a year ago and from 5.67 per cent in June 2024. Fresh slippages increased to Rs 1,030 crore, mainly due to the microfinance and credit card (CC) segments. GNPA/NNPA ratios rose 19bp/5bp quarter-on-quarter (QoQ) to 2.88 per cent/0.79 per cent. PCR moderated 15bp QoQ to 73 per cent.

RBL Bank reported a miss in Q2 earnings due to higher provisions and a 32bp QoQ moderation in margins. Asset quality ratios deteriorated during the quarter as slippages were high in the CC and microfinance segments. However, deposits saw a robust growth, with the CASA ratio improving sequentially and leading to a C/D ratio of 86.6 per cent. 

Loan growth remains modest, but the management anticipates the momentum to gain traction and deposits growth to sustain at the current level. The credit cost was also high during the quarter and the management expects Q3 slippages and credit cost to be higher than the Q2 level, Motilal Oswal Financial Services said in the Q2 result update. The brokerage firm cut EPS estimates by 20 per cent/4 per cent for FY25/FY26 and estimated FY26 RoA/RoE at 1.0 per cent/10.7 per cent. It reiterates ‘Neutral’ rating on the stock with a target price of Rs 220 (premised on 0.8x FY26E ABV).

RBL Bank’s profitability continues to be relatively moderate mainly on account of high cost to income ratio and increased credit cost driven by stress in the unsecured segment. The bank’s ability to improve the profitability by controlling its cost to income ratio and credit cost with increase in secured book which will have an impact on the total income remains a key monitorable, according to CARE Ratings.

The bank has a large unsecured portfolio constituting 55 per cent of the retail book and 41 per cent of the overall loan book. The unsecured book consists of credit cards and MFI which during COVID-19 was impacted significantly eroding RBL’s profitability. Although the asset quality has been improving year-on-year since the peak of COVID-19, the unsecured segment remains vulnerable. CARE Ratings observes, since these loans are susceptible to economic downturns, the bank’s ability to keep slippages low will be key for its overall asset quality parameters and profitability.