RBL Bank reported a profit of ₹54 crore during the September quarter, against ₹205 crore a year ago. Provisions and contingencies surged 281.8% year-on-year to ₹533.30 crore during the quarter.
The bank reported a sharp deterioration in its asset quality with incremental impairment at 10% of the loan book, driven by the bank’s exposure to select groups facing liquidity and promoter solvency challenges.
While the management suggests having taken a conservative worst-case view for its slippage and credit cost guidance, according to brokerage firm SBI Cap, fiscal year 2020 forecasts build in credit costs at 250 basis points. "We revise our FY20/FY21 earnings forecasts downward by 41%/12% to incorporate the higher credit costs and likely moderation in loan growth (to conserve capital)", the brokerage firm added.
SBI Cap has downgraded its rating on the stock to hold, with a revised target price of ₹330.
Gross bad loans increased 138.63% to ₹1,539.10 crore during the quarter led by elevated slippages of ₹1,380 crore. Gross non-performing asset as a percentage of advances climbed to 2.6% from 1.4% a year ago.
"Sluggish economic environment and its chunky exposure to BBB/BB & below pool remains a concern. Strong growth in the retail operations was led by cards/MFI and robust margins do provide some cushion to its operating performance. But higher slippages and in turn, higher credit cost drives a sharp cut in our FY20/FY21 estiamtes. Thus we estimate FY20 profit after tax to decline 20% year on year before earnings begin to normalize in FY21", said Motilal Oswal Research in a note to its investors.