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CASA mix improves, while advances growth declines

RBL Bank (RBL) has released its quarterly update emphasizing its 1QFY22 business numbers. Here are the key highlights:

* RBK reported sequential decline of ~2% QoQ (up +2% YoY) in gross advances to ~INR588b. The sequential decline was primarily on account of lockdowns in various states/territories, resulting in subdued disbursements. The bank has adopted a cautious stance in building the unsecured portfolio amid the COVID-19 pandemic. The mix of retail to wholesale stood at 57:43 (v/s 59:41 in FY21). This indicates wholesale asset growth has started to improve for the bank.

* The deposit base increased to INR745b, implying growth of ~2% QoQ (~21% YoY). CASA reported healthy growth of ~35% YoY (~8% QoQ); TD rose 14.5% YoY (~1% QoQ decline). Thus, the CASA ratio improved ~185bp QoQ to 33.7%. Overall, retail deposits (as per LCR) are showing healthy trends and grew at ~8% QoQ (up +47% YoY). RBK is continuing with its strategy to improve the share of retail deposits in the total liabilities.

* LCR for the bank stood at 135% (v/s 154% in FY21).

* Valuation and view: RBK posted moderation in loan growth, affected by the lockdowns and cautious stance in growing the unsecured portfolio amid the COVID-19 pandemic. Systemic credit growth remained weak (down 1%) in FY22YTD. Most of the banks reported sequential decline of 1–4% QoQ in loan growth. On the other hand, the deposit franchise is improving steadily, led by robust growth in retail deposits. Moreover, the second COVID wave has impacted collection efficiency, particularly in the MFI book, and would be a key monitorable in the near term. Maintain Buy, with TP of INR250 (1.1x FY23E ABV).

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