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RBL Bank Ltd’s troubles with asset quality continued in the March quarter (Q4), though the private sector lender seemed to have shored up insurance in anticipation of an increase in stress. After all, the bank’s mainstay business of credit cards and micro finance are the most vulnerable to the pandemic’s impact.

Slippages during the quarter remained elevated at 1,439 crore and nearly 80% of them were from retail loans. The bank’s restructured loan pile rose to 1.41% of total loans from just 0.9% in Q3, reflecting that a large number of borrowers needed easier terms to repay during the pandemic. The outlook on asset quality remains uncertain due to the second covid wave, but the management indicated that disruptions have been minimal so far.

That said, RBL Bank has begun focusing more on secured retail lending such as home loans, two-wheelers, tractors and gold loans. These segments showed faster growth in Q4 than large segments such as credit cards and micro finance. Indeed, the lender’s credit card portfolio hardly grew, while micro finance grew by just 6%.

RBL Bank’s Q4 shows asset quality stress, second wave key risk
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RBL Bank’s Q4 shows asset quality stress, second wave key risk

Nevertheless, the management reiterated that the unsecured book remains a constant focus for growth. “Our credit card and micro finance business will be the focus, although it is a high credit cost business. Our earnings power offsets the risks here," said Vishwavir Ahuja, MD & CEO of the bank, in a media call post earnings on Tuesday. Indeed, retail loans, including credit cards, have been resilient in terms of asset quality even as they turned out to be most risky in current pandemic times. That said, investors remain wary of these risks notwithstanding the 27% rise in provisions by the bank.

The increase in provisions was the key reason behind the net profit missing analysts’ estimates in Q4. Another reason was that slippages continued to be elevated. Slippages along with the Supreme Court’s verdict to expand the scope of the compound interest waiver for moratorium period to all loans resulted in a large interest loss. The interest forgone meant that the bank’s core interest income dropped 11% for the quarter and eroded margins. Analysts said the pressure on margins will remain, given that the bank has been running down its troubled corporate loan book for the past two years. For the March quarter, too, corporate loans shrank 12%, while retail grew 13%.

Analysts said loan growth will remain tepid given the second wave while asset quality concerns are partially alleviated due to an increase in provisioning. “We expect loan growth to remain weak as the management remains cautious in growing its unsecured segments due to a challenging environment and a resurgence in covid-19 cases," wrote Motilal Oswal Financial Services analysts.

Shares of the lender have underperformed the sector index in the past one month, a reflection of the concerns over both growth and asset quality.

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