RBL Bank's Loan Portfolio May Be Weighing Growth

RBL Bank Ltd. has been facing major challenges in terms of growth, asset quality and net interest margins. The bank, in fact, has gone ahead and lowered its loan growth guidance to 15%, compared to an earlier guidance of 18–20%.

This has reflected in its stock price performance as well, with shares of the bank falling nearly 40% in in the ongoing fiscal so far.

Deterioration In Asset Quality

RBL Bank's exposure to the unsecured portfolio is on the higher side versus their secured portfolio. Its unsecured portfolio constitutes 55% of retail book and 41% of overall loan book. Slippages in the unsecured portfolio have led to deterioration in asset quality.

The Special Mention Accounts — the ones showing signs of turning into non-performing assets — indicate a concerning trend. SMA-0 (loans overdue between 0–30 days) stands at 3.1%, while SMA-1 (30–60 days overdue) is at 2.45% and SMA-2 (60-90 days overdue) is at 1.5%.

Higher Slippages Impacting Profitability

Slippages in credit cards and microfinance business have led to increased provisioning for RBL Bank. It had to make a provision of Rs 618 crore in quarter ended September 2024, against Rs 366 crore in the three months before due to concerns in the aforementioned segments.

This has led to profits taking a beating. The lender reported a profit of Rs 223 crore in September quarter, compared to Rs 372 crore in in the previous quarter and Rs 229 crore in the year-ago period.

Even high cost-to-income ratio and increased credit costs driven by stress in unsecured segment has impacted profitability. Credit costs significantly increased during FY24 to 1.40%, versus 0.92% in FY23. It is likely to move up further in the microfinance portfolio.

What Should You Watch Out For? 

One of the key question remains if RBL Bank will continue to prioritise return on assets over growth. Loan growth rate and the bank's ability to keep slippages low are going to be some other monitorables.

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