RBL Bank – Better quarter; gathering pace – Q2FY27

MUMBAI, 13 OCTOBER: RBL Bank (RBK IN) delivered a strong Q2FY27, with PAT at INR 4.8bn (~170% YoY/90% QoQ), led by: (i) full-quarter benefit of the capital raise and the large FCNR(B) deposit mobilization, lifting NII by 37% YoY/29% QoQ and (ii) tight opex control. Asset quality improved, led by credit cards (key contributor to slippage) and should further improve in H2FY27, lowering credit costs. In the near term, excess liquidity will move from treasury assets to higher-rated corporate loans and over time, to better-yielding assets, supporting NIMs and RoA. We recommend Accumulate with a TP of INR 480 (on 1.5x Sep 2028E ABV).

Strong balance sheet expansion courtesy capital raise: Loans grew ~42% YoY/22% QoQ (33% YoY on an average basis), including INR 103bn of FCNR-funded deployment. Corporate loans grew 60% YoY. Deposits grew ~34% YoY/25% QoQ, but the CASA ratio fell to 27.0% (-220bps QoQ) led by large FCNR deposit flow via TDs. Management has guided for organic loan growth of 22-25% in FY27 (5-6% QoQ for the next two quarters), but was more upbeat on the new ability available to the bank to lend to better-rated large corporates, together with trade-corridor flows through Emirates NBD’s network (starting with the Middle East).

Operating leverage clearly visible: Opex rose only 3.3% YoY (+7.2% QoQ), against total income growth of 29% YoY, leading to core PPoP growth of 88% YoY/53% QoQ. Other income grew 15.5% YoY/12.3% QoQ, though part of the fee growth came from a one-off forex swap gain. A key drag on RoA improvement was high cost-income/opex to assets given business orientation towards riskier assets, which should turn a key contributor incrementally to catalyze an improvement in RoA by 25-35bps in the next two years.

NIM rebounds on capital flow-through; yield mix, a near-term drag: NIM expanded by 48bps QoQ to 4.6%, helped by the full-quarter benefit of the capital raise. Book yield declined by 41bps to 10.8%, but the yield decline reflects mix rather than pricing with the surplus liquidity sitting in non-SLR investments and will move into wholesale loans and later into higher-yielding assets. Management expects blended NIM to marginally dip in Q3FY27 but move up in Q4FY27 – Additionally, supported (with lag) by the recent 25bps repo hike.

Credit cards turning the corner: Slippages fell to INR 8.9bn (-5% QoQ), and the annualized slippage ratio improved to 2.5% (3.2% QoQ and 3.7% YoY). Monthly card slippage dropped to INR1.0-1.25bn in Sep ’26, and management expects the card slippage ratio to fall from ~11% to ~6% of the segment share, also leading to credit cost dropping sharply in H2FY27. Credit cost was 63bps (vs. 54bps QoQ), including 11bps of standard asset provisions.

Recommend Accumulate with TP of INR 480: Strong capital position yields a multi-year growth runway. With operating leverage and stress/provisions normalizing, expect ROAs to sharply improve to 1.2% in FY27E and +1.4% in FY28E with further optionality of better ROAs beyond 1.5% in FY29E on better execution (better yielded asset deployment with lower credit cost). Also, watch for the bank’s liability franchise improvement, business mix and leverage from parent’s network. We recommend Accumulate with a TP of INR 480 (on 1.5x Sep-28E ABV). Key risks are slower liquidity deployment, a renewed rise in card/MFI stress, a weak monsoon and NIM dilution from a wholesale-heavy mix.

Report by: PRITESH BUMB, Elara Securities

(Disclaimer: The information provided here is investment advice only. Investing in the markets is subject to risks and please consult your advisor before investing)

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