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Mixed bag; upside to unfold gradually

RBL Bank ( RBL IN) reported a mixed Q3FY26 performance . While core PPoP was steady ,
elevated slippages and credit cost were a miss. The key highlights were : 1) stronger NII , up
7% QoQ, with a 12bp QoQ rise in NIM (drawing support from better funding cost ) and steady
loan growth, and 2) softer asset quality outcomes with elevated slippages , driven primarily
by credit cards. RBL is emerging from the prolonged phase of consolidation & balance sheet
reorientation and seems at inflexion point, with early signs of stability across key operating
metrics. While the transition (pending few approvals) would play well, we see several
moving variables at play , and the journey will be more gradual. We retain Accumulate with
a higher TP of INR 345 as we roll forward to December 2027E .

Asset-side transition underway; growth shaping up well: RBL has been reorienting its
balance sheet toward more durable, risk -calibrated growth with a focus on retail and MSME
lending. Q3 saw similar trends with stronger growth in MSME, business banking , and mid -
corporate segment being the key driver s. This along with better NIM , up 12bp QoQ, was led
by uptick of 4 bp CRR release, balance sheet efficiency, improvement in short -term
investments , fed into 7% QoQ NII growth. Deposit growth at 2.6% QoQ and 12% YoY was steady ,
driven by term deposits while traction on CASA base remains softer. On the liability side,
while there is steady reweighting, the road ahead is long as RBL lags sectoral averages (more
progress is needed to close this structural gap).

Cost ratios – a lot needs to be done: Q3 saw 2.3% Q oQ opex gr owth with 3.6% QoQ employee
cost growth as it had one -time impact of Labour Law changes of INR 286mn . Overall core
profitability growth seems to be gaining momentum with Q3 core PPoP growth pegged at 13%
plus , but sustainability is the key. Our analysis on cost ratios for RBK does leave a few open
ends , which warrant to be monitor ed. We see a durable reduction in cost structure to be key
to core PPoP growth , which , in turn , would drive re rating.

Credit cost volatility persists: Slippages stood at ~INR 9bn (~ 3.6% of lagged loans , higher than
estimates) , led by higher credit card slippages and rise in secured book as well while MFI
slippages continue to trend down. The bank expects two quarters of elevated slippage s in
credit cards, which w ould lower the pace of improvement. PCR has trended down to 71%
levels v s >85% in FY25 , which could render variability in credit cost outcome . W hile RBL has
tightened internal controls and reduced concentration, we believe higher exposure to
unsecured segments will continue to be volatil e, with outcomes more contingent on macro
cycles.

Retain Accumulate with a higher TP of INR 345: While strategic repair is underway, we see
current valuation of 1.0x FY28 E P/BV after 21% outperformance in the past six months vs the
index at ~3 %, capture the recent progress and residual risk fairly. We await greater
consistency in earnings and return ratios before turning more constructive. We retain
Accumulate with a higher TP of INR 345 from INR 315 based on 1.0x (unchanged) P/B V as we
roll forward to December 2027E .

Please refer disclaimer at Report
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