Citi has maintained its ‘Buy’ rating on RBL Bank, but has reduced its target price to Rs 255 due to heightened stress in the bank’s credit card portfolio, particularly its co-branded card with Bajaj Finance (BFL), and challenges in its microfinance (MFI) business.
The bank reported slippages of 4.7%, driven by elevated stress in these segments, with credit costs rising to 2.8% and net interest margin (NIM) contracting by 40 basis points (bps), largely due to interest reversals of Rs 1.2 billion. Despite a Rs 1.1 billion treasury gain, the bank’s return on assets (RoA) and return on equity (RoE) came in at less than 0.65% and 6%, well below the guided levels, leading to a significant earnings miss.
Citi noted that the Special Mention Account (SMA) pool in the MFI segment remains high, and the stress in the credit card business is expected to spill over, impacting the bank’s credit cost outlook. Additionally, a cautious stance in unsecured and corporate lending contributed to a slowdown in loan growth, which rose by 15% year-on-year and 1% quarter-on-quarter.
Given these challenges, Citi has cut its earnings estimates for RBL Bank by 15% for FY25, 12% for FY26, and 9% for FY27. The current market price (CMP) of RBL Bank is Rs 205.
Disclaimer: This article is for informational purposes only and should not be construed as financial advice. Please consult a financial advisor before making any investment decisions.
