MOSL: RBL BANK (Buy)-Strong operating performance-asset quality improves sequentially

RBL BANK: Strong operating performance; asset quality improves sequentially

(RBL IN, Mkt Cap USD3.5b, CMP INR540, TP INR650, 20% Upside, Buy)

• RBL's 4QFY18 PAT rose 8%/37% QoQ/YoY to INR1.78b (in-line). NII grew 42% YoY to INR5b, led by 37% YoY advances growth and 48bp YoY NIM expansion to 3.98%. Opex growth trailed income growth sequentially (CI ratio of 52.8% v/s 54% in 3Q), leading to PPoP growth of 15%/36% QoQ/YoY. Key positives were: a) loan growth of 9% QoQ and 37% YoY, b) fee income growth of 32% YoY, driven by 167% YoY growth in distribution/CC fees and c) reported NIM expansion of 9bp QoQ to 3.98%, with improvement in spreads.
• Asset quality improved, with absolute GNPA declining 2% QoQ (1.4% of loans, -16bp QoQ). Sequential improvement in asset quality was due to controlled slippages (INR1.15b, 1.6% annualized) and upgrade of an INR525m agri account, which had slipped in 3Q. NNPA declined 12.7% QoQ to INR3.1b (0.78%, -19bp QoQ), as the bank provided aggressively to shore up reported PCR by 503bp QoQ to 57.53%.
• Loan growth was led by non-wholesale book growth of 42.4% YoY, increasing the share of non-wholesale to 41.0% from 39.4% a year ago. Strong CASA growth of 40% YoY (ahead of deposit growth of 27% YoY) led to CASA ratio improvement of 230bp YoY to 24.3%.
• Other highlights: a) Micro-banking impaired book decreased from 5.7% to 4.07%. b) Asset quality in agri book deteriorated further, with GNPA rising to 4.15% from 2.89%. c) Cards portfolio grew to 0.8m.