RBL Bank Rating buy; Loan growth slipped, CASA mix a positive

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October 12, 2020 3:30 AM

Q2 update shows retail was robust; credit cost to remain high in FY21;

Thus, credit cost would remain high at 3.7% for FY21e. Maintain Buy, with TP of Rs 230 (1.1x FY22e ABV).Thus, credit cost would remain high at 3.7% for FY21e. Maintain Buy, with TP of Rs 230 (1.1x FY22e ABV).

RBL Bank (RBL) has released its quarterly update emphasising its Q2FY21 business numbers. Here are the key highlights: Gross advances growth declined 3.1% y-o-y (0.8% q-o-q decline) to Rs 573 bn due to weak economic trends. However, retail advances growth came in strong at 23% y-o-y (7% q-o-q), while the wholesale portfolio declined. Thus, the share of the wholesale portfolio contracted to 44% (v/s 47% in Q1FY21).

The bank’s deposit base increased to Rs 645 bn, implying growth of 4.5% q-o-q (2.7% y-o-y). CASA reported healthy growth of ~21% y-o-y (8% q-o-q), and TD grew at 3% q-o-q (~4% y-o-y decline). The CASA ratio thus improved by ~100bp q-o-q to 31.1%.Overall, the CD ratio declined to ~87% v/s ~92% in Q1FY21. The liquidity coverage ratio (LCR) further improved to 170.7% (v/s 164% in Q1FY21).

Valuation and view: RBL reflected weak advances growth, led by decline in wholesale portfolio. On the other hand, the retail portfolio reflected strong sequential growth. We believe the uptick in retail growth would be led by MFI and Credit Cards. Also, credit card growth at the systemic level stood at ~13% q-o-q. The bank reflects strong traction in garnering CASA deposits.

On the asset quality front, we expect slippage trends to remain elevated in the unsecured and BB & below rated portfolios. Thus, credit cost would remain high at 3.7% for FY21e. Maintain Buy, with TP of Rs 230 (1.1x FY22e ABV).

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