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RBL has posted strong 29% PAT growth YoY at Rs3.7bn/1.2% RoA, mainly led by inline healthy NII growth/lower provisions, as it reversed AIF provision to the tune of Rs0.9bn. Credit growth was slightly moderate at 19% YoY, due to the bank’s strategy to prune the low-yielding corporate book and, instead, focus on retail, which should be margin-accretive. This reflected in core margins being largely flat at 5.45%, incl. interest on the IT refund improving by 22bps QoQ to 5.67%. The mgmt guides for nearly-flat margin in 2Q which should improve thereon, due to better portfolio mix. Seasonal + election-related stress is reflected in the higher transient MFI space, but the bank remains resolved to build contingent provision buffer. With industry-wide noise on stress in unsecured loans incl MFI on the rise, we build in some growth moderation and higher LLP, leading to a 2-8% cut in FY25-27E earnings. But we still expect the bank to deliver gradual improvement in RoA to 1.1-1.3%. We retain BUY with TP of Rs350/sh (1.2x Jun-26E ABV), taking comfort on valuations. Given that CET 1 is now at 13.9%, we expect the bank to raise capital sooner than later.

Focus remains on secured retail build-up, better risk adjusted margins

RBL Bank reported slight moderation in credit growth to 19% YoY/3% QoQ, mainly due to contraction in the corporate book and some slow-down in unsecured loans. The bank has seen some slowdown in new card addition, possibly due to rising stress in unsecured loans, and has certainly implemented a prudent strategy. MFI growth too has slowed down a bit, due to seasonal factors and rising stress in the sector. However, the bank is ramping up its SME and secured retail book, including mortgages, with clear focus on delivering healthy risk-adjusted margins. The management guides to nearly-flat margin in 2Q which should improve thereon, due to a better portfolio mix.

Stress in unsecured loans remains elevated

Gross slippages remained elevated at Rs7.2bn/3.3% of loans, given elevated stress from the card book and seasonal + election-induced transient stress in the MFI segment. This led to a break in the declining GNPA-ratio trend – up 5bps QoQ to 2.7%. The bank remains determined to gradually build contingent provision buffer, apart from healthy specific PCR at >70%. Bank’s CET 1 has slipped by 50bps QoQ to 13.9%, partly due to higher operational RWA impact, while potential introduction of ECL guidelines would call for capital raise sooner than later.

We retain BUY on RBL, and TP of Rs350/share

We cut our earnings estimates by 2-8%, factoring-in some growth moderation and the elevated LLP. However, we still expect the bank to report a steady improvement in RoA to 1.1-1.3% over FY25-27E, from 0.9% in FY24. We retain our long-term BUY on RBL, with TP of Rs350/share, taking comfort on valuations implying 1.2x FY26E ABV. Key risks: Potential indirect impact from the farm-loan waiver on the MFI portfolio in the State of Maharashtra, inherent asset quality risk in the card portfolio, and thus higher than expected LLP.

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