Shares of RBL Bank experienced their sharpest decline in almost two years, falling 7.55% to ₹388.30 on the BSE after trading over 9% down on Tuesday. This significant drop occurred because unexpectedly high provisions overshadowed the bank's substantial growth in net profit and improvements in margins for the second quarter of FY27.
RBL Bank, which operates as a subsidiary of Emirates NBD, announced a 2.7-fold year-on-year increase in net profit, reaching ₹482 crore for the July-September quarter of FY27 (Q2FY27). This positive performance was bolstered by strong net interest income (NII) and consistent loan growth. Specifically, NII saw a 37% year-on-year rise and increased by 29% sequentially to ₹2,131 crore.
The bank's profitability metric, the Net Interest Margin (NIM), expanded by 48 basis points sequentially to 4.61%, up from 4.51% in the previous year's quarter. However, provisions surged by 53% year-on-year and 28% sequentially, totaling ₹766.5 crore during the quarter.
Management anticipates that the NIM will experience a slight softening in the immediate future, though it is projected to improve in Q4FY27. This recovery is expected to be supported by reduced funding costs and the gradual utilization of excess liquidity. Furthermore, the benefits derived from the recent repo rate hike are also anticipated to help sustain margins. Conversely, proposed measures from the insurance regulator might cause the bank's bancassurance income, which currently generates about ₹300 crore annually, to decrease by 50-60%.
Overall slippage rates are forecasted to trend downwards, with credit card slippages likely moderating to approximately ₹400 crore in both Q3 and Q4 of FY27. Motilal Oswal noted in a report released on Tuesday that despite reporting a healthy quarter with NII aligning closely with forecasts, the unexpected provisioning partially negated the gains, leading to a minor earnings shortfall.
Emkay stated that the bank's net profit missed its estimate by 4%, primarily because provisions were 32% higher than anticipated. Despite this, the bank maintained accelerated, widespread loan growth, partly fueled by leveraging FCNR(B) deposits, although growth within its credit card segment remained subdued. Emkay further commented that margins are expected to moderate in Q3FY27 due to the full-quarter effect of FCNR(B)-led leverage and surplus funds held in lower-yielding assets, though this impact should be partially counteracted by the repo rate increase before margins begin a gradual recovery in Q4FY27.