RBL Bank Q2 Review: Shares Drop Over 14% On Asset Quality Woes
Analysts see asset quality pressures weighing down RBL Bank.
Shares of RBL Bank slumped as much as 14% after analysts expect its asset quality pain to continue in the near term. But growth, they said, is likely to come back next year.
The bank reported a 79% year-on-year drop in net profit in the quarter ended September on higher provisions. Its gross non-performing asset ratio worsened to 5.4% as on Sept. 30 compared with 4.99% as of June.
The bank has restructured loans worth Rs 1,352 crore under the Reserve Bank of India's two Covid-19 restructuring windows. Of this, loans worth over Rs 136 crore had turned NPA at the end of the second quarter.
Outstanding advances remained flat at Rs 56,009 crore. While wholesale advances rose 5% year-on-year, retail advances fell 4%.
But RBL Bank has guided that growth is coming back in its corporate and retail books, with the second half of the fiscal looking better than the first.
Of the 30 analysts tracking RBL Bank company, 17 recommend a 'buy', nine suggest a 'hold' and four have a 'sell' call, according to Bloomberg data. The 12-month consensus price target implies an upside of 27.2%.
Here is what analysts said about RBL Bank's Q2 performance:
Target price revised upward to Rs 215 per share from Rs 200 before.
Profitability sub-par owing to slow growth, margin contraction and higher provisions.
Relapse from restructured portfolio and persisting stress in microfinance portfolio to keep NPAs high.
Meaningful credit growth and normalisation in asset quality expected in FY23.
Near term asset quality pressures and shorter tenure of managing director remain irritants.
Target price revised to Rs 236 per share from Rs 203.
Overall asset quality outlook is positive as slippages trend down further in the coming quarters and recoveries are expected to materialise.
Management expects second half of FY22 provisioning to be less than half of first half of FY22, which would materially aid exit quarter return on assets of 1%.
In October, bank has disbursed around Rs 1,000 crore of corporate loans with visibility of further business in the coming months.
With easing of lockdown restrictions, the bank is witnessing positive momentum in retail assets, which is expected to pick up further from the December quarter.
Provision coverage ratio to improve to 65% by the end of the financial year, from 61.7% now.
Recommendation changed from Buy to Accumulate. Target price cut to Rs 230 from Rs 245.
While slippages remained elevated during the second quarter, restructured book increased sharply on a sequential basis to 3.7% from 2% of the loan book.
Microfinance NPA ratio increased sharply quarter-on-quarter, from 10% to 17%, also driven by a shrinking base.
Management expects microfinance share to be under 10%, compensated by additional exposure on cards. Other unsecured loans will be replaced by secured loans like tractor and affordable housing.
While the bank's growth orientation and undemanding valuations are comforting, returns are increasingly less attractive compared to the risks in the book.