RBL Bank continues to maintain its cautious stance on growth even as there is steady improvement in monthly collections trends. Restructuring requests remain low while it expects most of the COVID-led stress to come from credit cards and MSME portfolios. Bank expects FY21E credit costs at similar levels to FY20 (3.5%). Retail liability momentum remains healthy with higher focus towards granular deposits. These are the takeaways from meetings with the management at the Citi SMID conference 2020.
RBL highlighted that collection trends are improving on MoM basis. Credit card spends have reached pre-COVID levels during festive season. New card issuance is expected to reach pre-Covid run rate by Jan'21. However, RBL maintains its conservative stance towards lending and will look for stability in demand trends before accelerating on growth. While demand remains strong in MFI segment, the bank is monitoring collection trends as some states like Assam, West Bengal & Maharashtra are still lagging behind in recoveries. While most of portfolio debulking in wholesale book is over, credit offtake remains tepid. SME is expected to recover in FY22E, meanwhile ECLGS scheme remains preferred route for lending towards this segment. RBL is trying new sourcing strategies, which can help reduce its reliance on Bajaj Finance.
Bank is seeing limited restructuring requests from its retail clients and expects corporate restructuring to be subset of exit Aug '20 morat book of ~5%. Restructuring may happen in credit cards (stress pool of ~8.6% of cc loans) and MSME segments. However, bank expects credit costs to remain at ~3.5%. It has also tightened its credit filters to safeguard asset quality. Supreme Court judgement on NPA recognition should provide clarity on slippages.
Lower interest reversal on NPA should lead to better NIM from 4QFY21. The bank expects to reach exit RoA of 1.5% by 4QFY22. We raise FY21E net profit by ~5% as we build in higher fees and raise TP to INR 275 (1.2x FY22E P/Adj. B) from INR 225. Maintain Buy.
Shares of RBL Bank Ltd was last trading in BSE at Rs.231.85 as compared to the previous close of Rs. 225.6. The total number of shares traded during the day was 657220 in over 5297 trades.
The stock hit an intraday high of Rs. 234.8 and intraday low of 226.55. The net turnover during the day was Rs. 151899351.