Detailed Narrative
Q3 FY25 Financial Performance Overview
RBL Bank reported net advances growth of 13% year-on-year to INR90,412 crores, driven by a 38% Y-o-Y increase in secured retail advances and 21% Y-o-Y growth in commercial banking. Total deposits grew 15% Y-o-Y to INR106,753 crores, with granular deposits increasing 20% Y-o-Y. Net Interest Income (NII) was INR1,585 crores, up 3% Y-o-Y but down 2% sequentially, while Net Interest Margin (NIM) declined sequentially to 4.9% due to interest reversals and lower JLG disbursals.
Asset Quality and Provisioning Strategy
The bank's asset quality saw Gross NPA at 2.92% and Net NPA at 0.53%, with the Provisioning Coverage Ratio (PCR) improving to 82.17% from approximately 73% last quarter. Elevated net slippages were observed in the JLG segment at INR521 crores and in credit cards at INR533 crores. Management adopted an aggressive provisioning strategy, including an additional INR414 crores for JLG NPAs, bringing JLG GNPA coverage to 85%, and utilizing one-off📎 gains (INR144 crores from stake sale, INR150 crores tax write-back) for provisioning.
JLG Portfolio Management and Outlook
The JLG segment experienced significant slippages, but collection efficiency improved to 98.4% in December 2024 from 97.5% in September 2024. Management expects JLG slippages to be broadly similar in Q4 FY25 but anticipates a material reduction from Q1 FY26 onwards, driven by sustained improvement in collection trends. Proactive risk mitigation includes increasing CGFMU cover for incremental JLG disbursals to approximately 42% (from 25% in Q2).
Credit Cards Performance and Normalization
Credit card advances, including personal loans, grew 8% Y-o-Y but declined 2% sequentially. Slippages in the cards book were INR533 crores, down from INR606 crores last quarter. Management expects slippage trends to continue decreasing, with normalization anticipated in the Q1-Q2 FY26 timeframe. The bank maintains an aggressive provisioning policy for credit cards, taking 100% provisioning in 120 days, aiming for a clean slate by FY26.
Capital Adequacy and Growth Strategy
The bank's CET 1 ratio stood at 13.7%, impacted by a risk weight change for the JLG book from 75% to 125%. Despite this, management expressed confidence in maintaining capital adequacy, stating there is no need for a capital raise in the foreseeable future and expecting capital burn to be less than 10 basis points per quarter. Growth will be driven by wholesale and secured retail businesses, with unsecured lending moderating as a proportion.
Cost Management and Profitability Outlook
The cost-to-income ratio improved to 62.5% from 64.2% last quarter. Management is focused on cost control through consolidations, process simplifications, and system improvements, aiming to keep operating expenses at a similar level, excluding capex-related depreciation. Despite high provisioning impacting Q3 net profit to INR33 crores, management stated it is 'highly unlikely' to report a net loss in Q4, intending to utilize contingency provisions (INR273 crores) and PPOP to minimize carry-forward baggage.
MFIN Guardrails and Underwriting Standards
RBL Bank has proactively adopted more stringent underwriting standards for its MFI portfolio than the MFIN guidelines, including assessing the family as a unit, not lending to customers with even 1 DPD in their own book or outside, and adhering to the INR2 lakh limit. While the MFIN guideline on the number of institutions has been pushed to April 1st, the bank believes its proactive measures will improve portfolio quality and mitigate risks from overleveraged customers.