CLSA

RBL Bank (Buy)

Target: ₹235

CMP: ₹179.35

RBL Bank management at the 28th Annual Citics CLSA Forum indicated fast creditcard segment recovery while microfinance (MFI) asset quality and growth still lags.

Slippages are expected to remain high in FY22 and the bank still needs to catch up in improving its provisioning coverage ratio (PCR). Growth is expected to remain muted in FY22 and to recover to a mid-teens level by FY23.

RBL’s credit card portfolio is emerging from wave-two impact with early overdue bucket trends in July and August indicating full normalisation in September; management expects to return to pre-Covid delinquencies levels in this segment in 3Q. The MFI segment, however, still lags with collection efficiency improvements below expectations, indicating deeper wave-two impact on MFI customers.

RBL’s loan growth may remain muted in FY22, hindered by a shrinking MFI book and low corporate loans growth. In the MFI segment, RBL may continue a cautious disbursements stance until repayments normalise.

We cut FY23/24 estimates 4 per cent on lower growth and marginally higher credit costs. We keep a Buy rating based on undemanding valuations but cut our target price from ₹245 to ₹235. Our new target price is based on 0.95x Sep-23 P/adjusted BV multiple using the residual-income method.

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