Maintain REDUCE on RBL Bank - Elevated retail slippages continue - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

RBL Bank's (RBK) 4QFY21 pre-provisioning profit (15% YoY) was higher than our expectations on account of higher income from recoveries, partially offset by softening NIMs (4.17%). Asset mobilisation remained muted (1% YoY), while deposits mobilisation (27% YoY) has gained traction. Asset quality woes continue for RBL Bank with slippages at ~10% (annualised), similar to Q3 levels (on pro-forma basis), and restructured pool at 1.7% of loans. With PCR at 52% and provisioning buffer nearly entirely drawn down, along with the second wave of pandemic, credit costs are likely to remain elevated for FY22 as well. Maintain REDUCE with revised TP of INR189.

Slippages remain elevated, driven by unsecured retail: RBK's FY21 slippages were at ~5.2%, driven by disproportionate exposure of balance sheet to unsecured retail - credit cards (21%) and MFI (13%). GNPLs differed across segments with credit cards at 5.5% (slippages at 10.3% for FY21), MFI at 3.5% and wholesale at 4.4%. Retail constituted ~63% of the restructured pool (~1.7% of loans) as well.

Second wave of pandemic, lack of provisioning buffer, likely to keep credit costs elevated: Non-tax provisions remained elevated in Q4 (~5.3% annualised), driven primarily by unsecured retail. The bank took accelerated provisioning for slippages in Credit cards and MFI portfolio. With the contingency buffer nearly run down, credit costs are likely to remain elevated in FY22 as well. We revise our FY22/FY23 earnings estimates downwards by 9.5%/4.4%, primarily due to higher LLPs (average of 2.7% during FY22-FY23E).

Building secured retail growth engines beyond credit cards, MFI: Management has reiterated its strategy of building on its profitable engines - credit cards and MFI - with customer acquisitions and spends at pre-COVID levels for credit cards. However, the bank is also incubating secured retail assets such as affordable housing (INR17bn loan book), tractor finance and gold loans as next growth engines. This is unlikely to moderate the proportion of unsecured loans significantly in near term.

Shares of RBL Bank Ltd was last trading in BSE at Rs.184.2 as compared to the previous close of Rs. 181.75. The total number of shares traded during the day was 1204516 in over 10847 trades.

The stock hit an intraday high of Rs. 186.75 and intraday low of 179.45. The net turnover during the day was Rs. 220797584.

Source : Equity Bulls

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