RBL Bank loan growth accelerates as asset quality and margins improve

Investment View and Valuation

Emkay Global Financial Services’ October 13, 2026 result update on RBL Bank retains a BUY rating and raises the target price by 10.5 per cent to Rs475 from Rs430. The target is based on 1.6 times September 2028E adjusted book value.

Emkay expects a gradual improvement in return on assets to 1.0-1.3 per cent during FY27E-FY29E, supported by stronger credit growth, margin normalisation and improving asset quality. The broker views the stock’s valuation as reasonable.

Q2 FY27 Financial Performance

RBL Bank reported Q2 FY27 profit after tax of Rs482 crore and return on assets of 0.9 per cent. Profit was 4 per cent below Emkay’s estimate because provisions were 32 per cent above its expectation, although it was 3 per cent above consensus.

Net income of Rs3,208 crore was broadly in line with Emkay’s estimate and 3 per cent above consensus. Pre-provision operating profit of Rs1,396 crore was 12 per cent above Emkay’s estimate, aided by in-line net interest income and lower operating expenses.

Net interest income rose 37 per cent year on year and 29 per cent quarter on quarter to Rs2,131 crore, while reported net interest margin improved to 4.6 per cent from 4.1 per cent in Q1 FY27.

Credit Growth and Liquidity Deployment

Credit growth accelerated to about 42 per cent year on year and 22 per cent quarter on quarter in Q2 FY27, led by broad-based lending growth and FCNR(B)-related leverage, while the credit-card portfolio remained muted.

RBL Bank held surplus liquidity following capital raising and FCNR(B) deposit mobilisation. Management has used part of it to repay or avoid renewing higher-cost borrowings and bulk term deposits, while deploying the balance in short-term investments and wholesale loans. The bank plans to direct this liquidity towards wholesale banking and secured retail lending.

Management expects credit-card balances to stabilise from the following quarter and return to growth over the next six months, targeting 10-12 per cent growth next year. It expects MFI growth of about 25 per cent year on year, although MFI is principally used to meet priority-sector lending requirements.

Margin Outlook and Distribution Expansion

Management expects a modest margin decline in Q3 FY27 because FCNR(B)-led leverage will have a full-quarter effect and surplus liquidity remains in lower-yielding assets. Repo-rate benefits should partly offset this pressure. Margins are expected to recover gradually from Q4 FY27 as liquidity is deployed into advances.

Yield on advances fell to 10.8 per cent from 11.2 per cent due to portfolio mix, a higher wholesale share, a lower unsecured retail share and FCNR(B)-related balance-sheet leverage.

Management intends to improve margins through lower retail and savings deposit rates, a better CASA mix and redeployment of non-SLR investments into higher-yielding loans. It plans to add about 30-50 branches each quarter to strengthen distribution and deposit mobilisation.

Asset Quality and Credit Costs

Asset quality improved, with gross slippages declining to Rs890 crore, or 2.5 per cent of loans. Higher write-offs alongside lower slippages reduced the gross NPA ratio by 28 basis points sequentially to 1.0 per cent.

Credit-card slippages improved but remained elevated, while MFI slippages increased quarter on quarter. Management said retail and rural collections remained stable, with no material portfolio impact from the Middle East conflict so far, but it remains watchful of deficient monsoons in some districts.

Management expects credit-card slippages to stabilise at about Rs400 crore in Q3 FY27 and Q4 FY27, with credit costs declining to about 6 per cent from earlier low double-digit levels.

Earnings Estimates and Key Risks

Emkay’s revised FY27E, FY28E and FY29E profit after tax estimates are Rs2,025 crore, Rs2,788 crore and Rs3,854 crore, respectively. The FY27E estimate was raised 7.4 per cent, FY28E was cut 9.6 per cent and FY29E was broadly unchanged.

Key risks:

• Delayed asset-quality recovery in MFI and cards
• Slower business growth
• Attrition among key management personnel