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Adjusted PAT in-line; AIF-related provisions dent earnings

NIMs to remain stable

* RBL Bank (RBK) reported 3QFY24 PAT of INR2.33b (26% miss) as the bank made a contingent provision of INR1.15b with respect to AIF investments pursuant to the RBI circular. Adjusted for this provision, PAT stood at INR3.19b (vs. our estimate of INR3.16b).

* NII grew 21% YoY to INR15.4b (in line; up 4.8% QoQ). NIMs moderated by 2bp QoQ to 5.52% in 3QFY24.

* Advances growth was healthy at 20% YoY/4.7% QoQ, led by healthy growth in the retail segment. Deposit growth stood at 13.5% YoY/3.3% QoQ. The CASA ratio moderated 195bp QoQ to 33.8%.

* Fresh slippages increased to INR6.7b. Gross NPA/NNPA ratios were largely flat at 3.12%/0.80%, while PCR declined 56bp QoQ to 75.1%.

* We cut our FY24/FY25 earnings estimates by 10%/9% and estimate FY25 RoA/RoE of 1.1%/10.3%. We reiterate our Neutral stance with a revised TP of INR270 (1.0x Sep’25E ABV).

Business growth healthy; Asset quality ratios stable

* RBK reported a PAT of INR2.3b (up 11.5% YoY, 26% miss) due to higher provisions (AIF exposure). Adjusted for the provisions, PAT stood at INR3.19b (vs. our estimate of INR3.16b).

* Other income grew 25.7% YoY (broadly in line), led by a 24.4% YoY increase in fee income and treasury gains of INR467m (vs. INR282m in 2QFY24). Opex rose 17.3% YoY (up 7.6% QoQ). The C/I ratio, thus, increased ~60bp QoQ to 67.1%. PPoP grew ~35% YoY to INR7.7b (in line).

* Advances grew 20% YoY (up 4.7% QoQ) to INR799b, driven by ~32.6% YoY growth in retail loans vs. 6% YoY growth in wholesale book. Rural vehicle finance grew 38.5% QoQ, while housing /retail agri grew 24.4%/20% QoQ. Credit card book grew 6.6% QoQ, with the mix of cards standing at 20% of loans.

* Deposits grew 13.5% YoY, led by 18.5% YoY growth in term deposits (up 6.4% QoQ). CASA deposits grew 4.6% YoY (down 2.3% QoQ). The CASA mix, thus, moderated 195bp QoQ to 33.8%.

* Fresh slippages stood at INR6.7b. Gross NPA/NNPA ratios were largely flat at 3.12%/0.80%, while PCR declined 56bp QoQ to 75.1%. Restructuring book moderated to 0.6% of loans vs. 0.9% in 2QFY24.

Highlights from the management commentary

* Advances growth would remain healthy at 20% YoY, led by retail business.

* Gross slippages stood at INR6.66b, of which Cards at INR3.7b, MFI at INR1b, and Other retail assets at INR1.5b.

* RBL has taken entire provisions on AIF investments at INR1.15b on the total exposure at INR1.20b. Excluding that provisions, the bank’s PAT would have increased 53% YoY and RoA would be 1.03%.

Valuation and view

RBK reported an in-line performance, adjusted for one-off provisions pursuant to the recent RBI circular on AIF exposure, which led to a decline in earnings. The business is seeing healthy growth and the management anticipates the momentum to remain consistent, driven by retail loans. Deposit growth was healthy, though the CASA ratio moderated. The bank has guided for advances growth of ~20% YoY, led by retail business. Deposits are also expected to grow at a similar pace. Asset quality remained stable with a decline in restructured book. We cut our FY24/FY25 earnings estimates by 10%/9% to factor in higher provisions/opex and estimate FY25 RoA/RoE of 1.1%/10.3%. We reiterate our Neutral rating on the stock with a revised TP of INR270 (1.0x Sep’25E ABV).

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