Target: ₹475
CMP: ₹385.10
RBL Bank’s Q2 PAT stood at ₹480 crore/ROA at 0.9 per cent, which is 4 per cent below our estimates largely due to higher provisions (32 per cent above our estimate). However, the bank continues to report accelerated growth driven by broad-based growth along with FCNR(B) leverage, while its cards portfolio is muted. RBL carries surplus liquidity, which it plans to deploy into wholesale and secured retail lending.
Margins are expected to moderate in Q3-FY27 due to the full-quarter impact of FCNR(B)-led leverage and surplus funds parked in lower-yielding assets, and partly offset by repo rate hike benefits, before recovering gradually in Q4-FY27. Asset quality continued to improve, with gross slippages at 2.5 per cent of loans, albeit still elevated. So far, the management has not seen any stress from the rural business or the West Asia conflict, although it remains watchful.
Over the longer term, the bank expects to reduce its cost of funds through rationalisation of retail and savings deposit rates, alongside improvement in the CASA mix.
However, the management expects card slippages to stabilise at ₹400 crore in Q4/Q4FY27. We tweak our earnings estimates and retain Buy on RBL, while raising TP by 10.5 per cent to ₹475 from ₹430 (roll forward to 1.6x Sep-28E ABV).
Key risks: Delay in asset quality recovery in MFI/cards, slower business growth and KMP attrition