RBL’s Q2 weakness a hiccup... we’ll recover by FY20 close: Vishwavir Ahuja

Stock slips to near IPO price as net profit plunges 73%; brokerages slash target price

Shares of RBL Bank came close to falling below their IPO price on Wednesday as the private-sector lender reported a weak performance in the three months to September. The stock hit a 52-week low of Rs 230.55, near the 2016 IPO price of Rs 225, as net profit plunged 73% amid questions over the lender’s asset quality. Top global brokerages, such as Morgan Stanley and Citigroup, drastically reduced the target price on the lender. “We expect RBL to see muted earnings trends in the near term, given (the) continued weakness in asset quality,” Morgan Stanley said in a report. It slashed the target price to Rs 240 from Rs 400, and Citigroup to Rs 365 from Rs 480.

However, CEO Vishwavir Ahuja told Joel Rebello in an interview after the earnings that the bank would recover from this ‘hiccup’ by the end of the fiscal. Edited excerpts:

What is the reason for this asset-quality deterioration?

This is a ‘hiccup’ in the otherwise impeccable corporate banking business journey we have had. We have been operating with very strong asset quality fundamentals. In the past six years, our gross NPAs never exceeded 50 basis points. Ever since asset quality review started for banks, there has been so much of blood-letting and balance sheets of banks have been impacted. Our bank had a completely clean slate so far. At the end of it, the economy has continued to be sluggish and ultimately it has started affecting even some of the companies that used to be high-quality businesses. We avoided so many pitfalls and did not look at bulk of the selections available to us due to prudence. But at some point, the contagion effect spread to even some of these companies; so it has impacted some names for us. The challenge is not systematic or to do with a sector. We will deal with this within this financial year.

How did you do on other parameters?
Our operating profit for this quarter was up 42%. It is only the impact for the provisions that has affected net profit and that also for a couple of quarters. Our franchise is healthy and strong as demonstrated by the 27% balance sheet growth, 31% deposit growth and 42% CASA growth. So it’s a franchise that is chugging along, with a strong platform for the future. Once we cross this minor hump, we will be back to what we used to be previously fast growing. This is a story of 4-5 accounts that have become victims in the larger picture. We also happened to be one of the lenders. We will take these learnings into consideration with respect to highly leveraged promoters and scale of exposures that need to be capped.

What is the outlook for your business?
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There is no asset quality concerns beyond these names. We have given sector-wise details on asset quality and there are no issues on that. Our target is to enter the fourth quarter this year on performance and profitability. We will get back next year to our 2020 guidance in terms of growth, operating leverage, net interest income, fee income and CASA growth. Our return on assets and return on equity were impacted this year because of the profit impact, but we will be back on track.

— With inputs from Sanam Mirchandani in Mumbai
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