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Retail proforma slippages springing up in a hurry

RBK reported an in-line NII performance on the back of sequentially softer NIMs stemming from interest reversals. Operating profit was better-thanexpected, led by stronger fee momentum, albeit with a continued overdependence on credit cards (66% of fees during 3Q). Pro forma GNPAs spiked to ~4.6% in 3Q, despite aggressive write-offs. Over the past 18 months, RBK has seen asset quality slips across its portfolio. Our broader concerns on underwriting stem from a growing concentration risk with the loan mix skewed towards high-risk, high-RoA segments. We trim our FY21E earnings by ~8% and reiterate our REDUCE stance with a target price of Rs 214.

* Slippages spike, led by retail: On a pro forma basis, RBK’s slippages rose to ~Rs 14.7bn (9MFY21: ~3.4% annualised), ~90% contributed by its nonwholesale assets. Pro forma GNPLs rose to ~4.6% despite aggressive writeoffs during the quarter (~39% of opening pro forma GNPLs). Segmental pro forma stress differed with micro-credit (2.6%) significantly lower than credit cards (5.7%), other non-wholesale (4.5%) and wholesale (4.5%) segments. We have cautiously raised our end-FY21E GNPL estimates to 4.9%.

* Provisions jump, to remain elevated: Non-tax provisions remained elevated at Rs 6.1bn (-4.2% annualised), ~20% higher than our estimates. RBK drew down on close to half its contingency buffer (remaining stock of ~Rs 2.8bn, 0.5% of loans), propping up the pro forma PCR to ~70%. The management expects the current provisioning run rate to continue into 4QFY21. We raise our LLP estimates to ~3% over FY21-23E, from 2.7% earlier.

* Granular liability traction continues: RBK’s deposit momentum surprised positively with relatively strong traction in CASA (+23.5/3.8%) and deposits from retail and small business customers (+24/10%, 36.3% of total deposits). The bank’s ability to sustain this granular deposit traction will be key

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