MOSL: RBL BANK (Buy)-Elevated provisioning drives loss; watchful of near-term asset quality
RBL BANK: Elevated provisioning drives loss; watchful of near-term asset quality
(RBK IN, Mkt Cap USD1.6b, CMP INR194, TP INR235, 21% Upside, Buy)
Credit cost to stay elevated; PCR improves sharply to ~61%
- RBL Bank (RBK) reported a weak quarter, with net loss of INR4.6b, impacted by elevated provisions (INR14.3b) - as the bank upfronted the impact of the second COVID wave and shored up its PCR to ~61%. Business growth remains muted, impacted by a weak business environment. On the other hand, margins are seeing a sequential uptick, aided by lower cost of funds, some excess liquidity deployment, and lower interest reversals v/s 4QFY21.
- The bank has suggested a change in business strategy, with an increasing focus on home loans and expansion in the Credit Cards business. On the contrary, it would de-risk the loan book by pruning the unsecured portfolio mix other than Cards/MFI.
- On the asset quality front, slippage was elevated - largely from the Retail portfolio (Cards/MFI), while higher write-offs provided some support. Thus, the GNPA ratio witnessed deterioration, while NNPA improved on heavy provisioning. Total restructuring stood at 2.03% of loans. We cut our earnings estimate sharply by 72% for FY22, factoring in higher credit cost (5.3%) and subdued loan growth, while we increase our FY23 earnings estimate marginally. We expect the bank to deliver FY23E RoA/RoE of 1.3%/11.6%. Maintain Buy.
RBL Bank Limited is a banking company. The Bank is engaged in providing a range of banking and financial services, including commercial banking, retail banking, agriculture finance and financial inclusion, treasury operations and other banking related activities. The Bank's segments include Corporate/Wholesale Banking, which includes lending, deposits and other banking services provided to corporate customers of the Bank; Retail Banking, which includes lending, deposits and other banking services provided to retail customers of the Bank through branch network or other approved delivery channels; Treasury, which includes investments, all financial markets activities undertaken on behalf of the Bank's customers, trading, maintenance of reserve requirements and resource mobilization from other Banks and financial Institutions, and Other Banking Operations segment, which includes para banking activities, such as Bancassurance and credit cards.
Motilal Oswal Financial Services Ltd. is a reputed name in Financial Services and Online Trading with group companies providing services such as Private Wealth Management, Retail Broking and Distribution, Institutional Broking, Asset Management, Investment Banking, Private Equity, Commodity Broking, Currency Broking, Principal Strategies & Home Finance.
Motilal Oswal Securities is a group company of Motilal Oswal Financial Service Limited which started as a stock trading company and has blossomed into well diversified firm offering a range of financial products and services. Motilal Oswal has built a reputation as the source for best stock trading company and this has taken a wealth of experience, knowledge and expertise, constantly working in tandem, over the years.
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