Motilal Oswal said that RBL Bank reported weak earnings in 4QFY21, affected by elevated provisions and tepid Net Interest Income (NII) growth. RBL Bank’s management increased provisioning in its delinquent unsecured portfolio. On the business front, deposit growth picked up sequentially led by CASA, while loan growth improved QoQ. 

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However, growth in its Credit Cards portfolio remains muted. The management hinted at a change in business strategy, with increasing focus towards Home, Two-Wheeler, Tractor, and Gold loans, while de-risking its loan book by pruning the mix of unsecured portfolios other than Credit Cards/MFI.

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On the asset quality front, slippages stood elevated – largely from the Retail portfolio, while higher recoveries and upgrades aided improvement in asset quality, Motilal Oswal said. Total restructuring stood 1.6% of loans (in line with its earlier guidance). 

Motilal Oswal cuts their FY22E/FY23E earnings estimates by 7%/9% to factor in higher credit cost and subdued loan growth over FY22E, while they estimate credit cost to moderate slightly to 3.4% this fiscal. Motilal Oswal expects RBL Bank to deliver FY22E/FY23E RoA of 0.9%/1.1% and value RBL Bank at Rs 250 (1.1x FY23E ABV). Motilal Oswal maintains BUY rating on RBL Bank.

RBL Bank management’s focus is on improving provision coverage by 7-10% in FY22. Currently, it remains cautious in disbursing MFI loans in key stressed states of West Bengal, Assam, Maharashtra, and Punjab. The management suggested that it may de-risk its loan book by pruning the mix of unsecured portfolios other than Credit Cards/MFI business. Its new focus segments will be home loans, gold loans, tractors, and two-Wheeler loans, says RBL Bank.

Motilal Oswal expects loan growth to remain weak as the management remains cautious in growing its unsecured segments due to a challenging environment and resurgence in COVID-19 cases. It has guided a change in business strategy, with increasing focus towards Home, Two-Wheeler, Tractor, and Gold loans, while de-risking some of its unsecured portfolio other than Cards/MFI business. 

"While asset quality ratios have improved and collection efficiency across business segments have recovered, we continue to remain watchful, given the higher proportion of unsecured assets and uncertain environment. Motilal Oswal cut their FY22E/FY23E earnings estimates by 7%/9% to factor in higher credit cost and subdued loan growth this fiscal," it said.

It recommends buying on RBL with a target price of Rs 250.