RBL Bank Ltd. shares are in the spotlight after the private lender's March quarter earnings fell short of analyst estimates. The miss was largely attributed to softer margins and fee income, coupled with ongoing stress within its credit card segment.
While the bank showed strong performance in some areas, analysts are calling for greater consistency in earnings and return ratios before adopting a more constructive outlook on the stock.
Q4 Performance Highlights
The bank's loan growth picked up significantly, rising 21.8% year-on-year. This was driven by a 36% year-on-year increase in secured retail advances and a 28% year-on-year growth in wholesale advances. Gross Non-Performing Assets (NPA) saw an improvement, decreasing by 43 basis points quarter-on-quarter to 1.5%. However, elevated credit card slippages remained a concern for analysts.
Deposit growth also impressed, climbing 22% year-on-year, with the Current Account Savings Account (CASA) ratio improving to 33.6% due to seasonal factors in current accounts.
Analyst Perspectives and Target Revisions
HDFC Institutional Equities
HDFC Institutional Equities noted the recent Reserve Bank of India (RBI) approval for NBD Emirates' capital infusion, factoring in a substantial Rs 26,900 crore capital infusion along with the merger of Emirates NBD India branches by FY27E. While this infusion is expected to boost Tier I capital by 30% and loan growth by 25%, and lower funding costs, the brokerage highlighted persistent challenges. These include a sub-par deposit franchise, a lack of competitive moats on the asset side, and consistently high operating expense ratios, which could limit potential upsides from the deal. HDFC revised its target price for RBL Bank shares to Rs 290, up from Rs 230 previously.
Elara Securities
Elara Securities acknowledged that strategic repair initiatives are underway at RBL Bank. However, they believe the current valuation, at 1 times FY28E Price-to-Book Value (P/BV) following a 12% outperformance in the last three months, largely accounts for both recent progress and residual risks. Elara is seeking more sustained consistency in earnings and return ratios. They maintained an 'Accumulate' rating with a target price of Rs 345, based on 1.1x FY28E P/BV, rolling forward to March 2028E estimates.
MOFSL (Motilal Oswal Financial Services)
MOFSL found RBL Bank's Q4 net interest income (NII) and pre-provision operating profit (PPoP) to be in line with their estimates. A lower-than-expected tax outgo led to an overall earnings beat. However, the Net Interest Margin (NIM) declined by 22 basis points quarter-on-quarter, impacted by yield compression and a shift in the portfolio mix. Despite this, business growth was strong, with the bank reiterating its 20% loan growth guidance, driven by 20-25% wholesale growth and 15-20% MFI/unsecured growth.
MOFSL expects slippages to remain elevated in the first half of FY27, primarily due to credit cards, before moderating. They project a recovery in Return on Assets (RoA) to 1.3% by FY28E and reiterated a 'BUY' rating with a target price of Rs 370 (1.3x Sep’27E Adjusted Book Value).