Earnings Outlook
Stress in RBL Bank's credit card, microfinance book to hit PAT
This story was originally published at 15:56 IST on 17 October 2024
Register to read our real-time news.Informist, Thursday, Oct. 17, 2024
By Christina Titus
MUMBAI – RBL Bank's net profit for the quarter ended September is expected to fall over 18.6% on a sequential basis, as per the average of the estimates of six brokerage firms. The fall could be contributed to by a rise in provisions for stress seen in the areas of microfinance and credit cards, analysts said. On a year-on-year basis, the net profit is seen rising 2.9%.
"Slower credit growth, lower margins, and higher loan loss provisions to weigh on earnings, while slippages to shoot up on quarter due to transitional non-performing assets in credit cards and elevated stress in microfinance institutions," Emkay Global Financial Services said in a pre-earnings report. The expected higher stress in the card segment for the quarter could be mainly due to the new arrangement between Bajaj Finance and RBL Bank, under which collection will now be the sole responsibility of the bank and, thus, could lead to some transitional pain, the brokerage firm said.
As per the bank's investor presentation for Apr-Jun, the credit card portfolio was up 22% on year at INR 173.94 billion and the microfinance book was up 11% at INR 72.53 billion.
On a sequential basis, brokerages expect the asset quality ratios to deteriorate. Motilal Oswal, in a pre-earnings report, pegged the gross non-performing asset ratio at 2.8% as on Sept. 30, higher than 2.69% as on Jun. 30, and the net non-performing asset ratio at 0.8%, against 0.74% a quarter ago.
Provisional data released by the bank showed gross advances rose 15% on year to INR 897.86 billion as of Sept. 30. Retail advances grew 24% on year, while wholesale advances were up 3%. The ratio of retail and wholesale advances for the period was about 62:38.
The bank's total deposits rose 20% on year to INR 1.08 trillion as of Sept. 30. Of the total deposits, current account savings accounts deposits were up 13% on year at INR 362.21 billion at the end of September. The current account savings accounts ratio declined to 33.5% from 35.7% a year ago.
Estimates from brokerage firms showed the lender's net interest income rising 13.2% on year to INR 166.89 billion, while sequentially it is expected to fall nearly 2%. The year-on-year growth in net interest income is driven by retail loans, Centrum Broking said. YES Securities expects net interest income growth to be slower than average loan growth in the first quarter due to higher interest on income tax refund.
Most brokerages expect the bank's net interest margin to fall on a sequential basis. Nirmal Bang estimates the net interest margin at 5.2%, down 5 basis points on quarter and 17 bps on year. Dolat Capital, however, expects margins to remain stable on a sequential basis. "NIM is likely to remain stable QoQ at ~5.4-5.5%, as the benefit of loan-mix change is partly offset by rise in interest reversals," the brokerage firm said. For Apr-Jun, the bank reported a net interest margin of 5.37%.
While announcing the earnings for Apr-Jun, the bank's management said the margins should be "flattish" for another quarter, before improving in the second half of the financial year.
Apart from the unsecured segment, the sequential rise in provisions is also led by the write-back of alternative investment fund provisions in Apr-Jun, according to YES Securities. In Apr-Jun, the bank's provisions were at INR 3.66 billion.
The recent guidelines issued by the Reserve Bank of India has led to a decline in the bank's liquidity coverage ratio. Emkay Global Financial Services anticipates a residual effect on the Jul-Sept quarter as well. The liquidity coverage ratio of the bank was 129% as of Sept. 30, compared to 142% a year ago, as per the provisional data.
The bank will detail its earnings for Jul-Sept on Saturday. Its commentary on margins and credit cost would be key monitorables. At 1331 IST, shares of RBL Bank were 3.1% lower at INR 204.25 on the National Stock Exchange.
Following are the Jul-Sept earnings estimates of RBL Bank based on reports compiled by Informist from six brokerage houses:
| BROKERAGE FIRM | NET INTEREST INCOME (in INR million) | NET PROFIT (in INR million) | |
| Centrum Broking Ltd |
|
2,598.00 | |
| Dolat Capital Market Pvt Ltd | 16,470.00 | 3,087.00 | |
| Emkay Global Financial Services Ltd | 16,185.00 | 3,327.00 | |
| Motilal Oswal Financial Services Ltd | 16,690.00 | 2,522.00 | |
| Yes Securities(India)Ltd | 17,349.00 | 3,294.00 | |
| Nirmal Bang Equities Pvt Ltd | 16,827.00 | 3,322.00 | |
| Average | 16,689.33 | 3,025.00 |
End
Edited by Avishek Dutta
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