Reasons behind RBL Bank Stock Fall (19th July 2019)

Introduction

In this article, we are going to analyse the RBL Bank Q1 FY2019-20 results update released on 19th July, 2019. Why did the stock fall post results? Lets see what are the reasons behind RBL Bank stock fall after releasing Q1 results.

RBL Bank Q1 FY2019-20 Results Update

Q1 FY2019-20 Results

In the following table, RBL Bank Q1 FY2019-20 Results are shown:

RBL Bank Q1 FY 2019-20 Results
RBL Bank Q1 FY 2019-20 Results
Income
  1. Net Interest Income (NII)
    • NII is the difference between the interest earned and the interest expended. NII is the core or basic source of income for any bank.
    • For Q1 FY20, NII of RBL bank is Rs.817 Cr, grew by 48% y-o-y from Rs.553 Cr in Q1 FY19 last year. The growth in NII is 11% q-o-q as compared with NII of Rs.739 Cr in Q4 FY19.
    • Thus, a consistent growth is seen in NII of Bank y-o-y as well as q-o-q.
  2. Non-Interest Income
    • Non-Interest Income is the income from corporate banking fees, trade/remmitance, processing fees, third party sale, transaction fees etc.
    • Non-Interest Income for Q1 FY20 is Rs.487 Cr from Rs.326 Cr in Q1 FY19 ie. increased by 48% y-o-y. While as compared with last quarter, it is increased by 11% from Rs.409 Cr in Q4 FY19.
    • Thus, this q-o-q and y-o-y growth in Non-Interest Income can be seen as a positive sign for the bank.
  3. Total Net Income
    • Total Net Income has increased by 48% y-o-y Cr from Rs.879 Cr (Q1 FY19) to Rs.1,299 Cr in Q1 FY20.
    • As compared with Q4 FY19, Total Net Income has increased by 13% from Rs.1,148 Cr, which is a good signal towards for the bank’s total net income.
Operating Profit
  • Operating profit for Q1 FY20 is Rs.619 Cr which is grown by 43% y-o-y from Rs.432 Cr, in Q1 FY19.
  • On the otherhand, a growth of almost 11% q-o-q is seen in Q1 FY20 as compared with Q4 FY19 (Rs.560 Cr).
  • Thus, operating profits are increasing continuously on y-o-y as well as q-o-q basis.
Provisioning
  • The provisioning of Rs.427 Cr towards NPAs is done through the operating profit of Rs.619 Cr in Q1 FY20.
  • As compared with Q1 FY19, the provisioning has increased by almost 64% y-o-y (Rs.260 Cr) and grew by 17% q-o-q from Rs.365 in Q4 FY19.
Net Profit
  • Net profit in Q1 FY20 came out to be Rs.267 Cr, increased by 41% y-o-y from Rs.190 Cr in lasyt years’ Q1 (Q1 FY19). While, as compared with last quarter numbers, net profit has grown by 8% q-o-q from Rs.247 Cr in Q4 FY19.
  • A consistent and healthy growth in net profits for y-o-y and q-o-q is a positive sign for the bank.

Summary of Banlance sheet & Key Ratios

RBL Bank Q1 FY2019-20 Balance sheet Summary & Key Ratios
RBL Bank Q1 FY2019-20 Balance sheet Summary & Key Ratios
  1. Advances, Total Deposits and CASA deposits
    • For Q1 FY20, Advances, Total Deposits and CASA deposits have seen a y-o-y grwoth of 35%, 35% and 43% respectively as compared with the numbers in Q1 FY19. While if the q-o-q growth is concerned, Advances, Total Deposits and CASA deposits have increased by 5%, 4% and 8% respectively.
  2. Gross and Net NPA
    • Gross NPA in Q1 FY20 is 1.38% as compared with Q1 FY19 = 1.40% and Q4 FY19 = 1.38%.
    • On the other hand, net NPA has seen a slight decrease with 0.65% in Q1 FY20 as compared to Q1 FY19 = 0.75% and Q4 FY19 = 0.69%.

Why did RBL Bank stock fall post results?

  • When apperantly seen, net NPA numbers can demonstrate the muted record of NPAs. But according to the commentary by Mr.Ahuja, MD & CEO of RBL Bank, there is a likelyhood of increase in the NPA numbers of the bank in coming 2-3 quarters.
  • As far as bank’s portfolio is taken into the consideration, a certain level of stressed assets have emerged out. Due to a few of the stressed assets, bank’s Gross NPA can go up to 2-2.2%. As a result, credit cost can boost up to 35-40 basis points in coming quarters as per the requirement by the bank.
  • A very high level of leverage have been given to the borrower companies relative to the performance level and repayment capacity of these companies.
  • Mr. Ahuja has signalled for a possibility of erosion of the bank’s asset value in such kind of future stressed situation. As a result, the bank can face more accute challenges due to the associated risk in its portfolio.
  • Therefore, RBL bank may need a time for the recovery of the probable stressed assets in near future.
  • In the consequence of these commentary statements by the bank’s MD focusing on the concerns over bank’s future stressed assets, the market has given negative reaction for the RBL Bank stock. The stock has seen a fall of almost 13% despite posting 41% y-o-y growth in the Net profits.

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