Reiterate REDUCE on RBL Bank - Retail proforma slippages springing up in a hurry - HDFC Securities

Mr. Krishnan ASV, Institutional Research Analyst, HDFC Securities

RBK reported an in-line NII performance on the back of sequentially softer NIMs stemming from interest reversals. Operating profit was better-than- expected, led by stronger fee momentum, albeit with a continued over- dependence on credit cards (66% of fees during 3Q). Pro forma GNPAs spiked to ~4.6% in 3Q, despite aggressive write-offs. Over the past 18 months, RBK has seen asset quality slips across its portfolio. Our broader concerns on underwriting stem from a growing concentration risk with the loan mix skewed towards high-risk, high-RoA segments. We trim our FY21E earnings by ~8% and reiterate our REDUCE stance with a target price of Rs 214.

Slippages spike, led by retail: On a pro forma basis, RBK's slippages rose to ~Rs 14.7bn (9MFY21: ~3.4% annualised), ~90% contributed by its non- wholesale assets. Pro forma GNPLs rose to ~4.6% despite aggressive write- offs during the quarter (~39% of opening pro forma GNPLs). Segmental pro forma stress differed with micro-credit (2.6%) significantly lower than credit cards (5.7%), other non-wholesale (4.5%) and wholesale (4.5%) segments. We have cautiously raised our end-FY21E GNPL estimates to 4.9%.

Provisions jump, to remain elevated: Non-tax provisions remained elevated at Rs 6.1bn (-4.2% annualised), ~20% higher than our estimates. RBK drew down on close to half its contingency buffer (remaining stock of ~Rs 2.8bn, 0.5% of loans), propping up the pro forma PCR to ~70%. The management expects the current provisioning run rate to continue into 4QFY21. We raise our LLP estimates to ~3% over FY21-23E, from 2.7% earlier.

Granular liability traction continues: RBK's deposit momentum surprised positively with relatively strong traction in CASA (+23.5/3.8%) and deposits from retail and small business customers (+24/10%, 36.3% of total deposits). The bank's ability to sustain this granular deposit traction will be key.

Shares of RBL Bank Ltd was last trading in BSE at Rs.213.85 as compared to the previous close of Rs. 215. The total number of shares traded during the day was 1260952 in over 13234 trades.

The stock hit an intraday high of Rs. 231.1 and intraday low of 212.6. The net turnover during the day was Rs. 278289432.

Source : Equity Bulls

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