The September quarter (Q2) results posted by RBL Bank is the worst quarterly show posted by the mid-sized private lender since listing.
Despite its net interest income (difference between income earned and expended) increasing by 47 per cent year-on-year to Rs 868.7 crore in Q2, profit before tax fell 67 per cent year-on-year to Rs 102.5 crore while net profit fell by 73 per cent year-on-year to Rs 54.3 crore. Provisioning cost, which rose by 281 per cent or nearly three times year-on-year to Rs 533.3 crore, did the damage. While gross non-performing assets (NPA) ratio increased from 1.4 per cent a year-ago to 2.6 per cent in Q2, net NPA ratio came at 1.56 per cent versus 0.74 per cent last year. With this, the bank has already breached its full-year gross NPA guidance of 2 – 2.5 per cent provided after June quarter results.
RBL Bank’s stock declined by 2.81 per cent in Tuesday to end at Rs 286.95, ahead of the results (post after market hours).
Provisioning coverage ratio dipped from 61.5 per cent last year to 58.4 per cent in Q2, indicating that there could be more clean up in the coming quarters. The bank has also reported an increase in identified pool of stressed assets from Rs 1,000 crore guided earlier to Rs 1,800 crore in Q2. The bank is foreseeing stress from clients including a certain East-India business group, diversified media house, south-based coffee group and West-India based plastics group.
Of the identified stress pool, the bank has provided Rs 350 crore towards exposures totalling to Rs 800 crore in Q2. RBL Bank, in a call with investors, has guided that asset quality may remain weak in the subsequent quarters as well, though the quantum of provisioning may reduce by March 2020 quarter. Some stress was also seen in RBL Bank’s agri-loans portfolio as well.
However, while the asset quality was weak, loan growth held up well. Net advances at Rs 58,476 crore, increased by 27 per cent year-on-year in Q2. Much of the growth came from non-wholesale or retail and small business loans, which grew by 49 per cent year-on-year. The bank’s wholesale book grew by 12 per cent year-on-year. As on September 30, 2019, the share of non-wholesale loans stood at 48 per cent. Traction was quite strong on deposits, up 31 per cent year-on-year to Rs 62,829 crore. Share of low-cost current account – savings account (CASA) deposits rose to 26.45 per cent in Q2 from 24.51 per cent last year. Net interest margin also increased from 4.1 per cent a year-ago to 4.3 per cent in Q2.
That said, higher provisioning seems to have consumed the bank’s capital. At 11.3 per cent tier-1 capital, it has reduced from 12.5 per cent a year-ago, though well above the statutory requirement. Total capital adequacy ratio stood at 12.3 per cent versus 13.7 per cent last year.
“Given how capital is being consumed, it may be good if the bank goes slow on growing its unsecured loan book,” says Siddharth Purohit of SMC Capital. While Purohit does not have an active coverage on the stock, he believes the bank may have to raise capital sooner than envisaged.