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MOSL: RBL BANK (Buy)-Strong operating performance-asset quality blip from one-off slippage

RBL BANK: Strong operating performance; asset quality blip from one-off slippage

(RBL IN, Mkt Cap USD3.1b, CMP INR537, TP INR680, 27% Upside, Buy)

• RBL’s 3QFY18 PAT increased 28% YoY to INR1.65b, below our estimate by 10%, mainly due to opex missing estimates by 9% (retail expansion costs) and higher provisions (as the bank provided INR500m toward MFI book, out of total provisions of INR823m), despite NII (INR4.7b; +11%/+45% QoQ/YoY) exceeding estimate by 5%. Key positives were: a) loan growth of 10% QoQ and 38% YoY, b) fee income growth of 50% YoY, driven by 183% growth in distribution/CC fees and c) margin improvement of 15bp QoQ to 3.89%, driven partly by a reduction in cost of funds from CASA inflows and partly by an increase in the CD ratio.
• Absolute GNPAs increased 19% QoQ, (1.56% of loans, +12bp QoQ). The Sequential sequential decline in asset quality was mainly due to slippage from one SDR account of INR525m, which should be upgraded in 4Q, according to the management. NNPA increased 37% during the quarter to INR3.6b (0.97%, +19bp QoQ), as reported PCR declined 573 bp QoQ to 52.5%.
• Loan growth was led by non-wholesale book growth of 43% YoY, increasing the share of non-wholesale to 39.5% from 38.1% a year ago. Strong CASA growth of 33% YoY (ahead of deposit growth of 29% YoY) led to CASA ratio improvement ofing 80bp YoY (+30bp QoQ) to 24%.