RBL Bank: Rewarded for weathering the note ban

RBL Bank scrip rose by about 5% as it continued to rerate on positive December quarter results

On a day when most banking stocks were under pressure, RBL Bank scrip rose by about five per cent as it continued to rerate on positive December quarter results. 

The bank’s performance exceeded expectations on many fronts, the most noteworthy being its loan book expanding 46 per cent at Rs 26,773 crore year-on-year despite demonetisation and an overall weak lending climate. 

RBL’s 62 per cent of credit growth comes from corporate lending. Sixty-three per cent of the bank’s total advances is working capital loans. This segment hasn’t witnessed a dearth in demand for RBL unlike project loans or other term loans for the industry. 

The bank’s gross non-performing assets ratio has remained a little over one per cent. 

Retail loans also grew 40 per cent year-on-year, though on a sequential basis, pockets such as agricultural loans and loans to microfinance institutions grew at a slower pace due to demonetisation. 

Analysts feel that at a time when the overall credit demand is weak, opting for banks with higher proportion of working capital loans may be rewarding for investors. 

“The risk on balance sheet of RBL Bank is much lower now and at times like these, I would prefer a bank like RBL,” says Rajiv Mehta, AVP- Research, IIFL. 

However, to sustain a good show on the bourses, it is critical that the bank’s liability franchise improves significantly. The Street would keep a close watch on this aspect. 

For instance, when compared to peers such as Federal Bank with deposits of over Rs 90,000 crore and CASA (Current Account-Savings Account) ratio of over 34 per cent, the liability franchise of RBL, total deposits of Rs 30,000 crore and CASA ratio of 23.2 per cent, indicate room for improvement. 

A higher ratio of low-cost CASA deposits can also push up profitability. While, RBL plans to improve branch presence and leverage on its corporate relationship to strengthen its CASA, how soon it delivers on this front holds key. 

Further, whether it can be achieved without compromising on its net interest margins (3.4 per cent in Q3) given the current operating environment would also be monitored.