RBL Bank Share Price Gains After Citi's Addition To 90-Day Positive Catalyst Watch
Citi expects RBL Bank's Return on Assets to improve to 45-50 basis points, driven by the much-awaited normalisation of credit costs.
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RBL Bank Ltd.'s share price rose nearly 3% on Monday following a positive outlook from Citi Research, which added the bank to its 90-day Catalyst Watch list. Citi expects RBL Bank's Return on Assets to improve to 45-50 basis points, driven by the much-awaited normalisation of credit costs.
Citi's report highlighted several key triggers for this optimistic forecast. Firstly, stress in the Joint Liability Group and credit card segments is expected to further subside in the first quarter, with slippages moderating to 4.5% from approximately 4.7% in the fourth quarter.
Accelerated provisioning on JLG in the fourth quarter (100% on Gross Non-Performing Assets and 75% on Special Mention Accounts) and adequate provision in the cards portfolio are anticipated to normalise credit costs to 2.2%.
Additionally, the repricing of the floating-rate portfolio and a mix change in favour of secured segments are expected to lead to a 28-30 basis points pressure on Net Interest Margins.
However, NIMs will bottom out sooner compared to peers, according to the brokerage. The report also forecasts industry average loan growth of 9% year-on-year and 2% quarter-on-quarter, led by commercial banking, business loans, and home loans, along with deposits growth of 10% year-on-year and 1% quarter-on-quarter. Citi has revised its target price for RBL Bank to Rs 285 from Rs 230.
In a related development, RBL Bank is aiming to widen its net interest margins from retail assets by shifting the portfolio mix towards higher-yielding assets. The private sector lender will launch commercial vehicle financing and used four-wheeler finance in the next three months, Kumar Ashish, head of retail assets and collections at the bank, told PTI.
The increase in NIMs, which is being targeted at a time when the entire industry is facing challenges on this front, will be achieved while maintaining that the secured retail share in the overall loan mix was at around 31% level, he said.
