RBL Bank may not achieve FY20 target due to expected rise in costs

The expected increase in costs of deposits likely to offset margin gains from high-yield loan segments, say analysts

Despite expectations of strong loan growth, mainly coming from high-yield unsecured segments such as credit cards, RBL Bank may not achieve its FY20 target for return on assets (RoA) of 1.5 per cent, thanks to the expected rise in costs. This could curb the rally in the bank’s stock (up 16 per cent since February). RoA measures the efficient use of a bank’s assets, which the Street considers while valuing banking stocks.

The rising share of high-yield unsecured business had marginally improved RBL’s NIM in the December-2018 quarter (Q3) despite tight liquidity and subdued deposit growth for the sector. The