Earnings Outlook
High provisions in unsecured loans to hit RBL Bank's PAT in Oct-Dec
This story was originally published at 22:01 IST on 16 January 2025
Register to read our real-time news.Informist, Thursday, Jan. 16, 2025
By Christina Titus
MUMBAI – RBL Bank's net profit for the quarter ended December is expected to fall on year for the second time in a row as asset quality pressure persists in the microfinance and credit card segments. The stress in the asset quality would push up credit costs, higher loan loss provisions, and moderation in loan growth, which will weigh on the bank's earnings.
The net profit of the bank for the December quarter is expected to decline 22% on year to INR 1.82 billion, the average of estimates from five brokerages showed. On a sequential basis, the net profit is estimated to fall 18.4%. The brokerages' estimates for the company's net profit are in the range of INR 700 million-INR 2.74 billion. For the September quarter, the bank's net profit saw a sharp fall of 24.3% on year to INR 2.23 billion.
Though asset quality stress in the unsecured segment is a concern for the bank, fresh slippages for RBL Bank may not rise materially on a sequential basis from already elevated levels seen in the previous quarter, YES Securities said. As of Sept. 30, the credit card and microfinance loan book of the bank stood at INR 175.38 billion and INR 69.71 billion, respectively. Out of the total slippages of INR 8.17 billion during the Jul-Sept quarter, credit cards contributed the most at INR 6.06 billion and microfinance was about INR 2.31 billion, the bank's management had said in a post-earnings call after the September quarter earnings.
The bank had also said that it saw an increase in slippages from the microfinance segment for the December quarter as well, while it was optimistic about the improvement in the credit card segment. Emkay Global Financial Services predicts the same about the credit card segment. "RBL Bank, being hurt by transition related asset quality pain in 2Q (Jul-Sept), expects some moderation in 3Q (Oct-Dec)."
With the asset quality remaining under pressure, Emkay Global pegged the gross non-performing asset ratio for the bank at 3.1%, slightly higher than the 2.88% it had reported in the September quarter. Motilal Oswal estimated the NPA ratio for the bank would be 3.2% for the latest quarter.
Due to the ongoing asset quality stress in the microfinance book, brokerages expect provisions will rise for the December quarter. YES Securities said it expects the bank would create excess provisions by using the gains made from the sale of its stake in DAM Capital. In December, the bank sold its entire 8.16% stake in DAM Capital Advisors Ltd. through an offer for sale for INR 1.63 billion. The bank's provisions for the September quarter stood at INR 6.18 billion compared with INR 3.66 billion in the June quarter.
Estimates from brokerage firms showed the lender's net interest income rising 5.1% on year to INR 16.25 billion and sequentially, it is expected to increase marginally by 0.6%. YES Securities said that net interest income would broadly be in line with the average loan growth as the rise in yield on advances would likely be in tandem with the rise in cost of deposits.
The bank's credit growth had also been hit in the December quarter, brokerage firms said. The loan growth declined from 15% on year in Jul-Sept to 13% on year in Oct-Dec due to moderation in growth in its unsecured loans and large corporate advances, according to Nirmal Bang.
Provisional data from the bank showed as of Dec. 31, gross advances rose 13% on year to INR 927.40 billion while total deposits rose 15% on year to INR 1.07 trillion.
Most brokerage firms see the bank's net interest margin falling sequentially. Emkay Global estimates the margin will contract 15 bps while Nuvama forecasts the margin will be lower by 18 bps. Nirmal Bang pegged the margin will fall 2 bps on quarter and 36 bps on year.
The bank will detail its earnings for Oct-Dec on Saturday. Investors will keenly watch the data on asset quality in the unsecured segment as well as the bank management's commentary about it. On Thursday, shares of RBL Bank closed 1.0% higher at INR 158.49 on the National Stock Exchange.
Following are the Oct-Dec earnings estimates for RBL Bank based on reports from five brokerage firms in the descending order by the estimate of net profit:
|
Brokerage firm |
Net interest income |
Net profit |
|
YES Securities (India) Ltd |
16,683.00 |
2,738.00 |
|
Nirmal Bang Equities Pvt Ltd |
16,820.00 |
2,162.00 |
|
Emkay Global Financial Services Ltd |
16,390.00 |
1,884.00 |
|
Nuvama Wealth Management Ltd |
15,800.00 |
1,600.00 |
|
Motilal Oswal Financial Services Ltd |
15,545.00 |
700 |
|
Average |
16,247.60 |
1,816.80 |
End
Edited by Akul Nishant Akhoury
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