Target: ₹290

CMP: ₹255.15

RBL Bank reported Q1-FY26 PAT of ₹2 billion (annualised RoA of 0.6 per cent). Strong treasury gains (₹280 crore n vs. ₹30 crore) drove the beat while the core performance was weak. Margin declined by about 40 bps q-o-q to 4.5 per cent (we had built in 4.67 per cent) owing to the impact of repo rate cut, product mix shift towards secured loans and elevated slippage.

Management stated that margin should gradually improve here on in FY26F (we have built in an avg. 4.6 per cent).

Costs grew by 12 per cent y-o-y and were up 9 per cent q-o-q, as the bank fast-tracked the in-house collection infrastructure, which entailed some costs. Moderating MFI SMA book is comforting and improves visibility of 200 bps credit costs for FY26F. With a CET-1 ratio of 14.1 per cent, the bank is unlikely to be in a hurry to raise capital in the near- to medium-term.

We expect RoA to improve to 0.9/1 per cent in FY27F/28F, respectively, from 0.5 per cent in FY25. RoE to improve to about 9/11 per cent in FY27F/28F, respectively, from about 5 per cent in FY25. Maintain Add rating on the stock with a higher target price of ₹290 (₹260 earlier).

Downside risks: Lower-than-expected margin/loan growth, worsening asset quality and any capital raising in the near term

Published on July 22, 2025