RBL Bank Slides 8% Despite a 170% Profit Jump, Even as Sensex Climbs 680 Points

A headline profit jump of 170% was not enough for RBL Bank on Tuesday. Shares of the private lender fell nearly 8% to Rs 387.85 on the BSE in early trade, a sharp move against a market that was rallying around it. By 10 AM the Sensex was up 678 points, or 0.94%, at 72,602.97, and the Nifty 50 had gained 204 points to 22,568.

Strong Numbers, Wrong Expectations

On paper, RBL Bank's September-quarter results looked strong. Net profit rose to Rs 482 crore from Rs 179 crore a year earlier. Net interest income grew 37% to Rs 2,131 crore, and operating profit nearly doubled, up 92%. Asset quality also improved: gross non-performing assets fell to 1.02% from 2.32% a year ago, and net NPAs dropped to 0.29%.

The problem was what investors had already priced in. The stock had hit a 52-week high of Rs 429.55 on September 23, up about 50% from its low a year earlier. Profit came in a few percentage points below brokerage estimates, mainly because the bank set aside more money for provisions than expected. Emkay said provisions were about 32% higher than it had modelled. IIFL Capital said strong 22% quarter-on-quarter loan growth forced higher standard-asset provisioning, which caused the miss even though pre-provision operating profit beat estimates.

The Margin Worry

The bigger concern is the next quarter. Analysts expect RBL Bank's net interest margin to shrink in the October-December period. The reasons: the full-quarter effect of foreign currency deposits it has taken on, and surplus funds parked in lower-yielding assets. IIFL expects a contraction of about 10 basis points before margins recover in the January-March quarter as repo-linked loans reprice after the RBI's recent rate hike.

The bank's credit card book stays muted, and management expects card slippages to settle at about Rs 400 crore a quarter for the rest of the year. Management said it has not yet seen stress from its rural business or from the West Asia conflict.

Even so, brokerages stayed constructive. Emkay and IIFL both kept Buy ratings with a target of Rs 475, and Elara Capital rated it Accumulate with a target of Rs 480. All three pointed to the bank's strong capital position and expected improvement in return on assets.

A Lopsided Market

RBL Bank's fall was part of a split session. Large-cap IT stocks led the benchmarks higher. HCL Technologies jumped nearly 5% to Rs 1,282.70 after its quarterly results, and TCS, Tech Mahindra and Infosys also gained, pushing the Nifty IT index up 1.7%. HDFC Bank added support.

Further down the market, the mood was different. The Nifty Smallcap 100 fell more than 1% even as the headline indices climbed, a sign that investors were buying large, liquid names and cutting riskier positions. Power Grid, NTPC, Titan and Maruti were among the Sensex laggards.

The backdrop was mixed. Asian markets were under heavy pressure, with South Korea's Kospi plunging on a chip-stock sell-off, while Brent crude eased about 1% to near $105 a barrel. The rupee opened 63 paise stronger at 95.17 per dollar. A morning gain of this size can easily fade by the close.

This is an original summary based on public reporting. See our editorial policy for how we source, write, and correct our stories.