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    RBL stock may face pressure on asset quality worries

    Synopsis

    In the September quarter, the bank reported the highest ever quarterly slippages of Rs 1,377 crore.

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    Given the macro economic environment, the risks remain high and therefore investors would be better off waiting.

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    ET Intelligence Group: A sharp rise in RBL Bank’s fresh slippages or bad loans has raised concerns among investors thereby prompting analysts to reduce the earnings estimates for the fiscal.

    As a result, the stock is likely to remain under pressure in the coming months.

    In the September quarter, the bank reported the highest ever quarterly slippages of Rs 1,377 crore implying an annualised slippage ratio of nearly 10 per cent compared with 2.1 per cent a quarter ago. Additionally, the amount of forewarned stressed loans has increased by 80 per cent to Rs 1,800 crore, recovery of which in the near term looks unlikely.

    Gross non-performing assets (GNPA) doubled quarter-on-quarter to Rs 1,540 crore or 2.6 per cent of advances.

    “With asset quality on a slippery slope, we reduce our target multiple to 1.5 times from 2.0 times,” said Darpin Shah, banking analyst with HDFC securities in a report. The bank’s stock which more than halved in the three months period before the result announced on Wednesday, has fallen another 10 per cent and closed at Rs 251.9 on Thursday. It is now trading at a 1.4 times the current book value per share.

    Experts believe that the multiple could fall further if the asset quality worsens.
    RBL snip 1

    In the September quarter, net interest income (NII) grew by 46.5 per cent year-on-year to Rs 869 crore driven by expansion in net interest margin (NIM) and growth in loans and advances. NIM increased by 53 basis points to 4.7 per cent and loans and advances grew by 27.5 per cent. However, net profit fell by 74 per cent due to higher provisioning. Provisions and contingencies spiked to Rs 533 crore in the quarter against Rs 213 crore in the preceding quarter.

    On the call with the analysts, the management clarified that majority of slippages will be covered by the end of the December quarter and profitability will be back by the March quarter.

    The management also said it does not see any major stress in construction, real state, infrastructure, renewables and power sectors where the bank has significant exposure.

    Given the macro economic environment, the risks remain high and therefore investors would be better off waiting.
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    The Economic Times