RBL Bank Q2 Results: Profit Jumps 46% Even As Provisions Surge 2.6 Times

RBL Bank Ltd.'s profit rose in the second quarter meeting analysts' estimates even as its provisions increased.

Net profit of the private lender rose 45.9% year-on-year to Rs 294.1 crore in the quarter ended September. Analysts polled by Bloomberg estimated a net profit of Rs 284.6 crore.

Net interest income, or core income, for the bank rose 25.6% to Rs 1,475 crore in the quarter.

Asset quality for the lender remained stable with gross non-performing asset ratio falling 10 basis points sequentially to 3.12%, as of September. Net NPA ratio, too, fell by 22 bps quarter-on-quarter to 0.78%.

However, provisions for the quarter rose 2.65 times from a year earlier to Rs 640.4 crore.

The marked increase in provisioning was led by the creation of contingent provisions in the bank's microfinance and credit card segments, at 1% of the total advances amounting to ~Rs 252 crore.

The bank also changed its credit card provisioning policy, setting aside full provisions for non-performing assets at 120 days, instead of the previous 180 days, resulting in an additional provision of Rs 48 crore.

The bank received a tax provision write-back of Rs 222.92 crore (pre-tax of Rs 297.89 crore), which were used to furnish the additional provisions.

A key change this quarter was with regards to reclassification of charges paid to Business Correspondents of the bank.

The bank historically deducted BC charges from interest income, justifying it as being paid from the interest earned. However, in this quarter, the bank has moved BC charges to the expense line for better presentation. This change doesn't affect operating profit or profit after tax.

However, the net interest income for the bank is higher by Rs 173 crore (Rs 176 crore in Q1 FY24) and correspondingly, operating expenses also increased by the same amount.

After reclassification, the net interest margin for the bank moved up by 1 basis point, to 5.54% on a sequential basis.

In response to the additional provisions created for the credit card and microfinance segment, R Subramaniakumar, managing director and chief executive officer of RBL Bank, said that the underlying asset quality remains robust and they don't see any stress, given the increase in risk underwriting capabilities.

"Our collection and recovery efficiency has also improved," he said.

Provision coverage ratio, including technical write-offs, was at 88.4% as against 85.9% in Q1 FY23.

“There will be an increase in our cost of deposits by ~20 basis points, but we are confident in improving our net interest margins due to our changing mix of advances, which are moving away from wholesale (low-yielding) to medium and high-yielding advances."

The guidance for credit costs for the year remains at 1.5-2%, he said, with NIMs in the range of 5.5-5.6% going ahead.

In terms of stress noted in the unsecured retail loan pockets, Subramaniakumar said that personal loans are a shelf product for RBL Bank, and they don’t have it as a balance sheet building product.

"We have personal loans as a product for customer retention. Hence, we feel we won’t see any stress in that segment. Our unsecured book consists of the microfinance segment for which we have risk weight of 75% and credit cards which have a risk weight of 25%. In our view, these two books are behaving well," he said.

The bank reported fresh slippages of Rs 541 crore this quarter, down 33.4% over the past year.

The CEO said that the bank is well-capitalised, with a capital adequacy ratio of 17.07% and tier-1 capital of 15.15%.

"As of now, our growth plans of 20% on assets don’t require additional capital. If required, we would look at tier-2 capital. Our tier-1 capital has improved by 10 basis points over the last quarter due to internal accruals," he said.

RBL Bank registered a 13% year-on-year growth in deposits at Rs 89,780 crore. Subramaniakumar expects to end the year with 18% growth in deposits, and is confident in the bank's ability to mobilise deposits.

Subramaniakumar also said that the bank added 67 lakh customers this quarter, which is 20 lakh more than what the bank added in the same quarter last year.

The CASA deposits grew by 12% year-on-year, and the bank recorded a CASA ratio of 35.7%, down 50 basis points from 36.2% noted last year.