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RBL continued to report stable NIMs at 5.5%, but higher AIF provisions (Rs1.15bn) partly offset by lower tax incidence led to a 23% earnings miss, with PAT at Rs2.3bn/0.7% RoA. However, the management contends that none of the bank’s AIF investments that have been done over the past 10 years are of the nature of ever greening of NPAs. These investments are in-the-money and will have natural redemption at beginning-4Q, apart from sell-off by the bank. Though headline GNPA ratio remained largely flat at 3.1%, the bank reported slightly higher slippages (3.3% of loans) mainly due to stress in Cards/MFI. Thus, Bank has been proactively building contingent provisions (1% on Cards + MFI), which it plans to further shore-up over FY24-26E. Factoring-in the one-off AIF hit and some growth moderation, we cut FY24E earnings by 9%, while retaining estimates for FY25-26E. We expect the bank to deliver 1-1.4% RoA/8-14% RoE over FY24-26E, while the recent retirement of the RBI nominee director from the bank’s Board eases regulatory concerns. We retain BUY on RBL with TP of Rs350, implying 1.2x Dec-25E ABV.

Healthy growth, better portfolio mix lead to stable margins

RBL Bank reported 20% YoY/5% QoQ credit growth during Q3, mainly led by strong growth in retail and SME. Within retail, the bank continues to see growth in Cards, VF and the mortgage book, while MFI growth was slightly slower, as the bank had turned a tad cautious due to elections in a few states. Within Cards, the bank has been focusing on growing the non-BAF book by way of partnerships and mining of ETB customers. Overall deposit growth remained moderate at 13% YoY/3% QoQ, while CASA ratio slipped to 34%. However, better loan yields and portfolio mix helped the bank maintain margins at 5.5%

Bank plans to shore-up contingent buffer

Gross slippages remain elevated at Rs6.7bn/3.3% of loans, but a higher write-off led to GNPA ratio of nearly 3.1%. The bank expects asset quality to steadily improve, with incremental stress flow from the back-book, including MFI/cards moderating. The bank holds healthy specific PCR at 75%, while it carries a contingent provision buffer of Rs2.1bn (0.3% of loans), mainly on its Card/MFI portfolio (~1% of loans). The bank has guided for further shoring-up the contingent buffer to 2.5% of its Cards/MFI portfolio which, we believe, could keep LLP elevated over FY24-26E

We retain BUY

Factoring-in the one-off AIF hit and some moderation in growth, we cut our earnings estimates for FY24E by 9%, while retaining estimates for FY25-26E. We expect the bank to deliver 1-1.4% RoA/8-14% RoE over FY24-26E, while the recent retirement of the RBI nominee director on the bank’s Board eases regulatory concerns. We retain BUY on the stock, with TP of Rs350/share, implying 1.2x Dec-25E ABV. Key risks: The inherent assetquality risk in Cards/business loans and the sub-par liability profile could hurt the growth/margin trajectory.

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