RBL Bank Q2 Results Review - Credit Costs Rise; Sharp Reduction In FY25E RoA: Dolat Capital

Dolat Capital Report

RBL Bank Ltd. reported large miss on profit after tax led by a rise in credit costs from higher delinquencies in micro finance/credit card portfolios, elevated interest reversals, and sequential de-growth in higher yielding books.

Ex of one-offs in Q1, net interest margin moderated by 35 basis points QoQ to 5% while credit costs stood at 3% in Q2 with slippage ratio at 4.7%. Additionally, Rs 2.5 billion of contingent provisions remain unutilized and will mostly be utilized once the bank is closer to the end of stress.

Management guides for credit costs of 2.6-3% in FY25E versus 2.1-2.2% earlier. While the pain in the cards portfolio, partly led by collection transition, is behind; delinquencies in the MFI book are yet to peak.

We downward revise FY25/26E earnings by 44%/5% post factoring in higher credit costs and lower growth assumptions.

Maintain ‘Accumulate’ rating valuing the bank at 0.8 Sep-26E price to book value with revised target price of Rs 235 against return on assets/return on equity of 1.1%/11% for FY26E.

Trading at 0.9 times FY25E ABV, valuations are undemanding. But bottoming of asset quality pain remains key to higher multiples

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