Sell RBL Bank Ltd for the Target Rs 485 by Motilal Oswal Financial Services Ltd
NII in line; operating performance gaining momentum NIMs improve 48bp QoQ to 4.61%
* RBL Bank (RBK) reported 2QFY27 PAT of INR4.8b (7% miss, up 90% QoQ/ 170% YoY) amid higher-than-expected provisioning.
* NII grew 29% QoQ/37% YoY to INR21.3b (in line). NIMs improved 48bp QoQ, aided by the full benefit of capital infusion by Emirates NBD.
* Opex grew by 3% YoY/7% QoQ (6% lower than our estimates), while other income at INR10.8b was a miss. C/I ratio, thus, came in at 56.5% (vs. 64.7% in 1QFY27).
* Advances grew 42% YoY/22% QoQ, while deposits rose 25% QoQ/34% YoY, aided by surplus FCNR (B) deposit mobilization of USD3.4b. CASA mix declined to 27.2% from 29.2% in 1QFY27.
* Fresh slippages declined to INR8.9b, leading to improvement in GNPA/NNPA ratios by 28bp/8bp QoQ to 1.02%/0.29%. Credit costs came in higher at 2.5% (annualized) owing to 44bp (annualized) of additional std. provision. PCR declined marginally to 71.5%.
* We tweak our FY27/28 earnings estimates, factoring in operating leverage, partially offset by softer fee income. We estimate RoA to expand to ~1.5% by FY28E. Reiterate BUY with a TP of INR485 (1.6x Mar’28E ABV).
Asset quality steady; slippages trajectory set to improve
* RBK reported 2Q PAT of INR4.8b (up 90% QoQ/170% YoY) as in-line NII growth was offset by higher-than-expected provisioning due to additional std. provisions.
* NII grew 29% QoQ/37% YoY to INR21.3b. NIMs improved 48bp QoQ to 4.61%, with full-quarter impact of capital infusion by Emirates NBD partially offset by a drag from FCNR (B) mobilization.
* Other income rose 12% QoQ/16% YoY to INR10.8b, with strong core fee income growth of 12% QoQ to INR10.4b. This quarter witnessed a one-off in fee income owing to currency swaps of FCNR (B) deposits.
* Total revenue thus was up 23% QoQ/29% YoY at INR32.1b. Opex was up 3% YoY/7% QoQ at INR18.1b. C/I ratio declined to 56.5%.
* PPoP grew 92% YoY/51% QoQ to INR18.1b (8% beat), led by lower opex. Provision rose 28% QoQ to INR7.7b, owing to higher std. asset provisioning.
* Advances grew 42% YoY/22% QoQ to INR1.4t. Retail advances grew 32% YoY/23% QoQ, while wholesale advances rose 56% YoY/21% QoQ.
* Deposits grew 34% YoY/25% QoQ to INR1.56t, with surplus mobilization of FCNR (B) deposits. Average CASA ratio declined to 24%. C/D ratio declined to 91.1% from 93.1% in 1QFY27.
* Fresh slippages declined slightly to INR8.9b. GNPA/NNPA ratios improved by 28bp/8bp QoQ to 1.02%/0.29%. PCR declined marginally to 71.5%.
* CRAR rose to 30.1% with CET1 at 29.0% after Emirates NBD capital infusion in 2Q, with net worth increasing to INR433b.
Valuation and view
RBK reported a healthy quarter, with in-line NII partly offset by higher-than-expected provisioning, driving a marginal earnings miss. NIMs improved 48bp QoQ to 4.61%, with the full-quarter impact of capital infusion by Emirates NBD. However, NIM may moderate in the 3QFY27 before improving in 4Q on the back of gradual deployment of surplus liquidity and rate hike. Credit growth was strong, with the bank expected to continue its 22-25% growth momentum, led by wholesale banking and moderate growth in unsecured book. On asset quality, slippages are expected to moderate after 1HFY27, with a reduction in slippages in credit card book and higher secured asset mix, which shall gradually support a reduction in credit costs. We tweak our FY27/28 earnings estimates, factoring in operating leverage, partially offset by softer fee income. We estimate RoA to expand to ~1.5% by FY28E. Reiterate BUY with a TP of INR485 (1.6x Mar’28E ABV).
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