REDUCE on RBL Bank - Some positives, but key concerns remain - HDFC Securities

Mr. Darpin Shah, Institutional Research Analyst, HDFC Securities

A strong rebound in fee income and lower-than-expected operating costs resulted in a significant earnings beat. The bank saw improving deposit (particularly retail) traction, which is creditable. The imminent capital raise is an additional positive. We continue to expect a sharp rise in GNPAs in FY21E. Credit costs will remain elevated in the near term, denting return ratios. This drives our REDUCE rating. We have a target price of Rs 179.

Funding: While CRAR stood at 16.5%, it stands to be further boosted by an imminent capital raise (~Rs 15.6bn). The bank's performance on the deposit front was creditable- 4.5% QoQ growth, 20.5/8.8% CASA growth and ~11% YoY/QoQ growth in deposits from retail and small business customers (now 34.4% of total deposits). We will continue to track the progress on this front.

Asset quality: On the retail front- microfinance collection efficiency improved to ~93%- we find this promising. In case of the credit card portfolio, trends were not as promising as collection efficiency hovered at ~90%. On the wholesale side, the portfolio rating mix improved; however, the drivers of this change remain a little ambiguous. As a result of the re-balancing of this portfolio, post asset quality troubles seen in FY20, the management does not expect material slippages from this portfolio- we are not entirely convinced. We continue to expect a sharp rise in GNPAs due to the relatively high proportion of BB and below rated wholesale loans and low credit card collection efficiency

Even as overall loans de-grew 4%/0.9% YoY/QoQ, non-wholesale advances registered strong growth (+23/7%), led by 41/9.7% growth in credit card debt and 29.8/9.3% growth in microfinance. We are surprised by the sharp increase in growth in both these segments, especially since such loans are of relatively short tenures. We model loan growth of 12.5% over FY21-23E.

Margins registered a sharp sequential decline (-55bps) to 4.3% (-5bps YoY) as the bank reversed interest (~Rs 700-800mn) on non-wholesale accounts that are expected to slip in 3QFY21. The bank expects to see reversals of a similar quantum in 3QFY21. We expect NIMs of 4.6% over FY21-23E.

Shares of RBL Bank Ltd was last trading in BSE at Rs.174.7 as compared to the previous close of Rs. 175.65. The total number of shares traded during the day was 1556967 in over 15926 trades.

The stock hit an intraday high of Rs. 181.9 and intraday low of 171.2. The net turnover during the day was Rs. 274220141.

Source : Equity Bulls

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