Is RBL Bank LTD Stock A Good Investment – RBL Bank Ltd (NSEI:RBLBANK) is one of the fast-growing private sector banks in India. The bank offers a wide range of banking and financial services like deposits, loans, payments bank services, credit cards, insurance, investment banking, wealth management, etc. RBL Bank has witnessed robust growth in recent years driven by its focus on retail and small business lending segments.
However, the bank’s financial performance has moderated in the last 2-3 years raising questions on whether RBL Bank stock is still a good investment in 2023. In this detailed article, we analyze RBL Bank’s business model, financial performance, valuation, and growth outlook to help you decide if RBL Bank shares are a good buy for your portfolio.
An Overview of RBL Bank Ltd
RBL Bank Ltd (formerly Ratnakar Bank) is a mid-sized private sector bank headquartered in Mumbai. The bank was founded in 1943 in Kolhapur, Maharashtra and obtained a banking license in 1997. In 2014, Ratnakar Bank was rebranded as RBL Bank to fuel its expansion plans. As of March 2022, RBL Bank had a network of 424 branches, 1,250+ ATMs and 721 business correspondents across India. The bank serves around 10 million customers across 21 states and union territories in India.
Some key facts about RBL Bank:
- Commenced operations in 1943, converted into a commercial bank in 1997
- Headquartered in Mumbai, Maharashtra
- Market Cap: Rs 13,809 crores as of November 20, 2023
- Total Business: Rs. 1.6 Lac crores as of March 2022
- Net Profit: Rs 119 crores in Q2 FY23
- NII Growth: 15% YoY in Q2 FY23
- Gross NPA: 3.80% in Q2 FY23
- Net NPA: 1.54% in Q2 FY23
- Tier I Capital Adequacy Ratio: 16.83%
RBL Bank is professionally managed under the leadership of Mr. Rajeev Ahuja (MD & CEO). The bank has a diversified shareholding pattern with institutions holding around 66.27% stake while promoters held around 10.72% stake as of September 2022.
RBL Bank Business Model and Product Offerings
RBL Bank operates as a ‘One Stop Shop’ for all banking and financial needs of retail, small business, micro-SME and corporate clients. The bank has adopted an innovative approach to business banking which focuses on understanding each client’s business model and providing customized solutions. RBL Bank classifies its operations under the following key business segments:
Retail Banking – Includes range of deposit products, retail asset products like home loans, auto loans, loans against property and other personal loans. Also offers credit cards, debit cards, mutual fund distribution, insurance distribution, etc. Retail banking accounted for 53% of total advances as of March 2022.
Business Banking – Tailored products for small businesses and self-employed professionals like current accounts, overdraft facilities, business loans, working capital finance, commercial vehicle loans, loans against property and other products. Business banking loans accounted for 8% of total advances.
Agri and Development Banking – Loans and customized products for agriculture & allied activities, micro finance groups and small businesses in rural/semi-urban markets. Contributed 7% to total advances.
Commercial & Rural Banking – Working capital loans, term loans, trade finance, foreign exchange services, supply chain financing and other products for medium and large businesses, MSMEs and mid-corporate clients. It accounted for 18% of total advances.
Financial Markets, Investment Banking & Asset Management – Treasury operations, trading in bonds, currencies, derivatives and equities. Also offers investment banking, brokerage, asset management and wealth management solutions.
Payments Bank – Offers payments bank solutions through its subsidiary ‘RBL Fintech’. Services include digital savings accounts, mobile payments, assisted commerce services,Doorstep Banking Solutions, money transfer, Aadhaar enabled payments, micro-ATM, etc.
RBL Bank has built a solid technology platform and hopes to emerge as a leading ‘FinTech’ player leveraging latest digital trends in banking like video KYC, facial recognition, chatbots, payments systems and blockchain solutions.
Analysis of RBL Bank’s Recent Financial Performance
RBL Bank has delivered decent growth over the past 5 years with its total business growing at 22% CAGR between FY17 to FY22. However, the bank has faced some challenges in terms of asset quality issues, rising credit costs and moderation in core operating profitability metrics in the last 2-3 years. Let’s take a closer look at RBL Bank’s financial performance in the last few quarters:
Loan Book Growth – RBL Bank’s advances grew at 11% YoY in Q2 FY23. The retail loans and business banking portfolio are the growth drivers while corporate loans remained flat. The management has guided for 15-17% loan growth in FY23.
Net Interest Income (NII) – RBL Bank’s NII rose 15% YoY to Rs 1,064 crore in Q2 FY23 aided by moderate loan growth. However, the net interest margin remained flat at 4.55% in Q2 FY23 indicating pressure on yields.
Non-Interest Income – The bank reported a 3% YoY growth in non-interest income at Rs 492 crore in Q2 FY23. Fee income showed healthy traction across cards, distribution and transaction banking fees. Trading income fell due to losses in bond portfolio.
Operating Expenses – Operating expenses went up by 21% YoY in Q2 FY23 on account of higher staff expenses. The Cost to income ratio deteriorated to 74.4% from 70.2% last year.
Credit Costs – Provisions declined by 4% YoY to Rs 375 crore in Q2 FY23 as asset quality showed signs of improvement. The bank expects credit costs to remain elevated at 2-2.5% in FY23.
Asset Quality – Gross NPA ratio moderated to 3.80% in Q2 FY23 while Net NPA ratio improved to 1.54%. The PCR ratio stood at a healthy 72%. While asset quality is recovering, it remains a monitorable.
Profitability – RBL Bank’s net profit grew 7% YoY to Rs 119 crore in Q2 due to higher credit costs and operating expenses. The Return on Assets stood at 0.85% in Q2 FY23.
On the whole, while RBL Bank is recovering well from the pandemic related stress, performance remains mediocre due to challenges in asset quality, margins and credit costs. A sustained turnaround in core profitability remains critical.
RBL Bank Share Price and Market Valuation
RBL Bank has faced significant pressure on its stock price in the last 2-3 years due to the above discussed business challenges. Here is a quick look at RBL Bank’s share price movement and market valuation trends:
- RBL Bank’s stock price has fallen sharply from lifetime highs of Rs. 660 touched in January 2018 to current level of around Rs 135.
- The stock has generated nearly -30% returns in 1 year, -22% returns in 2 years and -61% returns in 3 years as of November 20, 2023.
- Market Cap stands at Rs 13,809 crores as on November 20, 2023 compared to around Rs 25,000 crores in 2018.
- RBL Bank trades at a Price to Book value of 1.07 times as of November 20, 2023.
- RBL Bank valuation remains attractive compared to other mid-sized private banks in terms of the Price to Book Value ratio. However, financial performance will need to catch-up.
Overall, RBL Bank stock has faced huge correction in recent years as fundamentals disappointed. With improving growth visibility, valuations appear reasonable for long term investors. But near term upside looks limited until performance picks up decisively.
Is RBL Bank Stock a Good Buy for Long Term?
Now that we have discussed RBL Bank’s business model, financial performance, latest results and stock price trends – should you buy this stock for long term investment? Let’s summarize the key pros and cons:
Arguments in Favour of Buying RBL Bank
- Professional management, innovative approach to banking focused on technology
- Presence and reach across India with 400+ branches, niche focus on retail and small business banking
- Reasonable valuation at 1x price to book with improving market share
- Strong capital position with Tier I ratio of 17%, growth prospects appear decent
- Focus on driving retail and small business advances which are high margin
- Strong NRI customer franchise, digitization efforts to aid process efficiency
- Asset quality situation is stabilizing, credit costs should normalize going ahead
- Trades at reasonable valuations despite significant correction from 2018 highs
Reasons for Caution while Buying RBL Shares
- Financial performance has been mediocre and volatile in the last 2-3 years
- Return on assets and margins remain below optimal levels
- Asset quality faced significant issues during Covid though recovering now
- Higher credit costs may continue to impact profitability in the near term
- Faces stiff competition from larger private banks and dynamic fintech players
- Low float and small market cap accentuates share price volatility
- Macro-economic risks related to inflation, liquidity tightening exists
Conclusion – RBL Bank Offers Value But Near Term Upside Looks Limited
RBL Bank is fundamentally a sound franchise in the high growth retail and small business banking space. While recent financial performance has been unimpressive, the bank is strengthening its foundations. The stress in corporate portfolio is reducing and balance sheet is healing steadily. Valuations appear reasonable for long term investors. However, near term upside in the stock looks limited until we see a decisive turnaround and improvement in return ratios. Investors need to trim exposure if fundamentals deteriorate but RBL Bank remains a decent bet for those with higher risk appetite and investment horizon of 3-5 years. But conservative investors may be better off looking at other private banks with stronger and consistent fundamentals.
Frequently Asked Questions about RBL Bank Stock
Is RBL Bank share a multibagger stock?
RBL Bank has multibagger potential given its presence in high growth banking segments and reasonable valuations. However, financial performance needs to improve considerably through better asset quality and recovery in margins for the stock to become a true multi-bagger. Near term upside seems limited until fundamentals catch-up.
Is RBL Bank share worth buying today?
RBL Bank stock appears reasonably valued for long term investors at around 1x P/B and offers decent upside potential. However, near term financial performance is likely to remain volatile given asset quality challenges. Investors need to adopt a 3-5 year outlook and await a turnaround in fundamentals.
What is the forecast for RBL Bank share price in 2023?
Most analysts have a neutral rating on RBL Bank with average target price of Rs 160-170 for 2023. This points to limited upside from current levels. Share price is expected to consolidate unless core profitability improves decisively.
Should I buy more RBL Bank shares on dips?
Investors having a core portfolio allocation in the stock can utilize big dips to accumulate more shares. But one needs to be cautious given the near term headwinds. Build exposure gradually on significant declines only for long term gains.
What is the target price for RBL Bank in 1 year?
Based on current business fundamentals, RBL Bank share price is likely to trade rangebound between Rs 130-160 over the next 1 year. Significant upmove beyond Rs 200 looks unlikely over the next 12 months unless performance improves faster than expected.
Will RBL Bank survive the competition?
Being an innovative player with niche focus, RBL Bank is well placed to survive competition from larger banks. However, the bank needs to improve its financial performance in terms of margins, asset quality and profitability. Further strengthening of capital and liquidity buffers through capital raise will also help RBL Bank thrive in the competitive market.
How much should I invest in RBL Bank shares?
RBL Bank can be considered as a medium risk-medium return investment opportunity. Allocation of 1-3% of total portfolio value should be adequate for most investors. Conservative investors may restrict exposure to less than 1%.
Does RBL Bank pay dividends? What is the dividend yield?
RBL Bank has paid dividends in the past 5 years with average dividend payout ratio of 15-20%. However, dividend payout was lowered in FY22 due to Covid related impact. At current market price, RBL Bank offers a modest dividend yield of around 1%.
Which are the top shareholders of RBL Bank?
East Bridge Capital, Vanguard group and HDFC Mutual fund are among the largest institutional investors in RBL Bank with over 5% stake each. Promoter group led by Mr. Vishwavir Ahuja holds around 10.7% shares in the bank.
Should I sell RBL Bank shares at current levels?
Investors with short term horizon of 3-6 months can consider booking profits on rallies above Rs 165. However, long term investors should continue holding given reasonable valuations. One can expect 20-30% upside over the next 2-3 years once fundamentals improve.
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