Buy RBL Bank Ltd For Target Rs.235 - Motilal Oswal
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CASA mix improves, while advances growth remains weak
RBL Bank (RBK) has released its quarterly update emphasizing its 2QFY22 business numbers.
Here are the key highlights:
* RBK reported broadly flat sequential trends (around -0.4% QoQ) in gross advances to ~INR580.5b. However, most other banks reported strong sequential recovery in business momentum. This was largely led by the bank’s cautious stance on growing the unsecured portfolio. The Retail to Wholesale mix stood at 55:45 (v/s 57:43 in 1QFY22), indicating improving trends in wholesale asset growth.
* The deposit base increased to INR756b, implying growth of 1.5% QoQ (~17% YoY). CASA reported healthy growth of ~33% YoY (~7% QoQ); TD rose ~10% YoY (~1% QoQ decline). Thus, the CASA ratio improved ~170bp QoQ to 35.4%. Overall, retail deposits (as per LCR) are showing healthy trends and grew at ~6% QoQ (up ~42% YoY). RBK is continuing with its strategy to improve the share of retail deposits in the total liabilities.
* LCR for the bank stood at 155% (v/s 134% in 1QFY22).
Valuation and view:
RBK posted weaker loan growth trends, led by a cautious stance on growing the unsecured portfolio. Most of the other banks reported strong sequential recovery in business trends (barring CSB) in loan growth in the range of 3–6% QoQ. Moreover, the deposit franchise is improving steadily, led by robust growth in retail deposits. We maintain a Buy rating, with TP of INR235 (1.1x FY23E ABV).
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