RBL Bank Q3 Results: PAT Falls 86% YoY Led By Sharp Rise In Provisions For MFI Loans

A sharp rise in provisions for the microfinance institution book led RBL Bank to report an 86% on year fall in its net profit for the quarter ended December to nearly Rs 33 crore. Sequentially, the bottomline plummeted 85%.

Net interest income or core income barely rose by 3% year-on-year to Rs 1,585 crore as it was impacted by increased slippages.

Provisions for the quarter jumped nearly twofold on year to Rs 1,189 crore. This was largely because the bank had to make prudent additional provision of Rs 414 crore on its joint liability group loans. During Oct-Dec, the bank had written back tax provision of Rs 150.13 crore.

The private sector bank's asset quality deteriorated, with the gross non-performing assets ratio widening to 2.92% as of Dec. 31, 2024, compared to 2.88% in the previous quarter. However, net NPA ratio fell to 0.53% from 0.79% in the prior quarter.

The bank's gross slippage ratio saw a sharp rise to 1.50% as on December end from 1.19% a quarter ago and 0.88% a year ago.

Of the gross slippages, the microfinance business contributed Rs 521 crore and the credit card business totaled to Rs 533 crore.

The bank expects above trend slippages in the joint liability group in Jan-Mar as the industry is going through stress with overleveraging of borrowers. While microfinance institution business contributes 7% of the bank's overall loan book, it will remain 6.5-7% in the next two quarters, Executive Director Rajeev Ahuja said in the post earnings call.

According to Managing Director and Chief Executive Officer R Subramaniakumar, overleveraging of borrower is happening at the time of source--the time of approving a loan--which is creating an issue as borrowers end up raising money from elsewhere.

About 26% of RBL Bank's loan portfolio is overleveraged and 4-5% of loans are at source. The stress is coming largely from parts of Odisha, Uttar Pradesh and north Karnataka.

The MD expects the bank to start seeing normalisation in this segment from Jul-Sep onwards as guardrails have been put in place by the self regulatory organisations. Collection efficiency has been seeing an improvement and will likely normalise by the end of March quarter.

Credit cost of the bank grew sharply by 139 bps.

Overall, loan growth of the bank was 13% on year at Rs 90,412 crore and Kumar expects it to remain the same for Jan-Mar as well.

While retail advances grew by 19% on year to Rs 55,199 crore, growth in secured retail book was 38% on year.

Stress in the unsecured loan segment and the overall current macroeconomic environment led the bank to report such numbers for Oct-Dec, Kumar said.

Credit cards grew 8% on year to Rs 17,288 crore, followed by personal loans, which rose 5% on year to Rs 3,722 crore and JLG portfolio de-grew by 4% on year to Rs 6,532 crore.

Consequently, interest reversal and increased slippages in joint liability group segment also impacted the bank's net interest margins. It fell to 4.90% as on Dec 31 from 5.04% a quarter ago and 5.52% a year ago.

Kumar expects margins to start moving up to 5% in the next two quarters.