RBL Bank Share Price Slips Post Morgan Stanley's Target Price Downgrade

Shares of RBL Bank Ltd. dropped more than 5% in Friday's trading session after Morgan Stanley Research downgraded its price target for the lender. On Thursday, the brokerage reduced RBL Bank's target price to Rs 160 from Rs 180, signaling a potential downside of 3.54%. The revised target reflects concerns over higher credit costs and shrinking margins.

Morgan Stanley also lowered its earnings projections for RBL Bank, cutting forecasts by 1% for fiscal 2025, 9% for fiscal 2026, and 2% for fiscal 2027. This adjustment was attributed to challenges related to asset quality in the bank's credit card and micro-lending portfolios.

Furthermore, the brokerage revised its sustainable return on equity assumptions for the bank, reducing the base case from 10% to 9.5%, the bear case from 7.5% to 6.3%, and the bull case from 15% to 14.5%. The bank's gross non-performing assets rose to 2.88% in the September quarter, contributing to a 24% year-on-year decline in net profit to Rs 223 crore.

The downgrade follows a series of regulatory and operational challenges for RBL Bank. On Nov. 22, the Reserve Bank of India imposed a penalty of Rs 61.4 lakh on the bank for failing to comply with know-your-customer regulations. Additionally, the bank paused the issuance of new co-branded credit cards after changes in its partnership arrangements, though it reassured customers that existing cardholders would not be impacted.

Share price of RBL Bank fell as much as 5.56% to Rs 155.20 apiece, the lowest level since Dec. 2. It pared losses to trade 3.64% lower at Rs 158.35 apiece, as of 11:13 a.m. This compares to a 0.07% advance in the NSE Nifty 50.

The stock has fallen 43.63% on a year-to-date basis. Total traded volume so far in the day stood at 3.4 times its 30-day average. The relative strength index was at 37.66.

Out of 23 analysts tracking the company, 11 maintain a 'buy' rating, six recommend a 'hold' and six suggest 'sell', according to Bloomberg data. The average 12-month analysts' consensus price target implies an upside of 30.1%.