Why RBL Bank Share Price is Falling

A few months ago, banking companies were the toast of investors, as the industry thrived on strong economic growth, rising credit demand, and favourable regulatory policies.

Indian banks benefited from increased lending, digitalisation efforts, and improved asset quality, making them a favourite sector for market participants.

Lately, however, while many banks have continued to show resilience, not all have managed to stay in favor. Shifts in market dynamics, rising interest rates, and cautious investor sentiment have now begun to affect some large banks in India.

RBL Bank, one of India's prominent private sector banks, is known for its wide range of services, including retail banking, corporate banking, and financial services. It has steadily grown its footprint across the country with a focus on digital banking solutions and a diverse product portfolio.

Over the years, RBL has expanded its reach and customer base, establishing itself as a key player in the Indian banking sector.

However, despite its strong position, RBL Bank share price has come under the spotlight in recent days, hitting its 52-week low.

Investors are increasingly concerned as the stock has embarked on a downward trend. Let's take a closer look at why RBL Bank's share price is falling.

Disappointing Quarterly Results

RBL Bank reported a 24% year-on-year (YoY) drop in standalone net profit at Rs 2.2 billion (bn) for the Q2FY25 quarter.

Net profit was below market expectations due to weak microfinance disbursements, increased slippages in the credit card portfolio, and a squeeze in its net interest margin (NIM).

The bank's net interest income (NII) rose 9.5% YoY to Rs 16.2 bn. On the other hand, its net interest margin (NIM) also fell to 5%, its lowest level in five quarters, further pressuring profitability. Lower NIM signals reduced profitability from core lending operations.

RBL Bank's pre-provision operating profit (PPoP) rose by 20.6% YoY to Rs 9.2 bn, boosted by higher non-interest income and a reduction in operating expenses. Higher provisions were needed to cover slippages in the credit card and microfinance segments, reflecting deteriorating asset quality.

Fresh slippages in the quarter reached Rs 10.3 bn, nearly doubling YoY. These slippages significantly impacted the bank's return on assets (ROA) and return on equity (ROE), both of which were well below guided levels.

The increasing slippages, combined with higher credit costs in the microfinance and credit card segments, have contributed to the sharp decline in RBL Bank's share price.

What Next?

RBL Bank's future strategies indicate a focused approach on building more stable and profitable growth. The bank is committed to increasing its retail advances and commercial banking sectors while slowing down its exposure to wholesale banking.

It also plans to expand its commercial card programme, with an aim to acquire 100+ clients and reach a monthly spend rate of Rs 7 bn by March 2025.

The bank is also looking to strengthen its asset quality by improving collection efficiencies in microfinance and credit card segments. The bank is focusing on reducing slippages and stabilising its performance in these key areas by the third quarter.

The bank's management also plans to continue its emphasis on growing granular deposits, with the aim of further improving its retail deposit base.

In terms of growth, RBL Bank expects to see a pullback in its slippages in the coming quarters and is working on improving operational efficiencies to reduce costs. It remains well-capitalised for the medium term and does not foresee the need for raising additional capital in the near future.

The bank is confident that once the transition-related disruptions and slippages stabilise, its future performance will improve, providing better returns for its shareholders.

However, only time will tell how well the bank can manage its asset quality and maintain a steady deposit growth.

How RBL Bank Share Price has Performed Recently

In the past five days, RBL Bank share price has tumbled 19%. In the last month, it is down 21.8%.

In 2024, so far its share price has tumbled 41.2%. Additionally, in the past one year it has slipped 27.3%.

The stock touched its 52-week high of Rs 300.5 on 11 January 2024 and a 52-week low of Rs 166.4 on 22 October 2023.

About RBL Bank

Incorporated in 1943, RBL Bank a private sector bank in India with an expanding presence across the country.

The bank offers services under five business verticals namely: corporate & institutional banking, commercial banking, branch & business banking, retail assets, and treasury and financial markets operations.

To know more about the company, you can check out RBL Bank's company fact sheet and its quarterly results.

You can also compare RBL Bank with its peers.

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To know more about the sector, you can have a look at the banking sector report on our website.

And to know what's moving the Indian stock markets today, check out the most recent share market updates here.

Happy investing!

Disclaimer: This article is for information purposes only. It is not a stock recommendation and should not be treated as such. Learn more about our recommendation services here...