RBL Bank Q2 Results Review - Changing Advances Mix To Improve Margin: Nirmal Bang

Nirmal Bang Report

RBL Bank Ltd. reported net interest income/pre-provision operating profit/profit after tax came in at a deviation of - 16.5%/5.9%/2.5% versus our estimates. PAT grew by 45.9% YoY (2.1% QoQ) to Rs 2,941 million, mainly due to a reversal of tax provisions relating to earlier years, of Rs 2.2 billion.

RBL Bank utilised these writebacks in creating contingency / accelerated provisions for its unsecured business.

The management is confident of achieving 5% net interest margin in FY24, driven by increasing share of retail advances. Advances and deposits growth is expected to be 20% plus each with a clear focus on retail advances and granular deposits.

Retail advances are expected to grow by ~33-35%. Scale-up of housing loans, loan against property, gold loans and vehicle finance is expected to add to profitability. Credit cost guidance maintained at 1.5- 2% (excluding contingency/accelerated provision made in Q2 FY24).

Overall, we believe that the bank is on an improving earnings growth trajectory, driven by healthy growth, margin expansion and stable asset quality.

We expect the RBL abank to achieve return on assets/return on equity of 1.2%/11.2% by FY25.

We maintain 'Buy' with a target price of Rs 303 (1.1 times September- 2025E adjusted book value).

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