Worried over higher slippages and provisions, FY20-21 earnings estimates have been cut by brokerage firms
The stock was punished on Wednesday over speculation of insider trading
The RBL Bank Ltd stock, which was beaten down on Wednesday, recouped some losses on Thursday. The stock gained nearly 4% intraday on the National Stock Exchange (NSE), ending the day’s session at ₹319.20, up 1.7%.
The stock was punished on Wednesday over speculation of insider trading. However, the bank later clarified that market transactions by employees were a “routine activity" with regular exercise of ESOPs (employee stock ownership plans) and sale of equity shares thereafter.
The Street took some solace from this clarification, attracting investors’ interest at lower levels. But according to some analysts, while some buying may have happened at the current levels, shares of the bank are unlikely to regain their lost charm anytime soon.
It should be noted that the RBL Bank stock hit a 52-week high of ₹716.40 on NSE in May this year. But its fall from glory was swift, with the stock tanking to a 52-week low of ₹286.10 on Wednesday. The fall worsened after the management recently indicated that its asset quality could be under pressure in the coming quarters.
In the June quarter, RBL Bank reported a 41% jump in net profit from a year ago, aided by a healthy 48% growth in core income. As the accompanying chart shows, although its gross bad loan ratio for the June quarter was steady, slippages rose. What also soured investors’ sentiment was the lender’s exposure to Coffee Day Enterprises Ltd, whose founder V.G. Siddhartha passed away recently.
Post-June quarter earnings, a slew of brokerage firms expressed concerns on the RBL Bank’s exposure to stressed corporate accounts. Worried over higher slippages and consequent provisions, some of them reduced their earnings estimates for FY20 and FY21. In a 27 August report, Emkay Global Financial Services Ltd expected the stock to remain under pressure until it recognizes its corporate stress pool and returns to its otherwise high-return-on-assets trajectory.
In short, despite RBL Bank’s track record of robust loan growth, stable asset quality and strong return ratios, the above-mentioned concerns may weigh on the stock in the near term.