RBL Bank’s Q3 profit falls 86% amid microfinance loan challenges

RBL Bank’s net profit for the quarter ended December 2024 fell 86% to just Rs. 33 crore which was Rs. 233 crore, mainly to cover potential losses on its microfinance loans by the bank at Rs. 414 crore due to additional provision.

The bank’s profitability during the quarter was impacted by stress in its micro finance loans. If in the financial year 2020-21 attached to the appeal Rs. 150 crore tax provision writeback and sale of the bank’s stake in DAM Capital in December to Rs. 145 crore, RBL Bank would have been loss-making during this period, if not for the gain of Rs. quarter

CEO R Subramaniakumar said the bank remains cautious about short-term challenges affecting certain unsecured credit segments.

“We still expect an upward trend slippage in the next quarter. Issues related to overleveraging have affected everyone in the microfinance industry but now that the guardrails are in place we expect things to normalize in the first and second quarters of the next financial year,” Subramaniakumar said.

Loans from microfinance borrowers from one day to 60 days at the end of December 2024 will be Rs. 545 crore, though at the end of September Rs. 616 crore, which is less than Rs. 100 crore to Rs. 150 crore is more than five times. Bank’s Run Rate, Jaideep Iyer, Head Strategy at RBL Bank.

Although storage efficiency has improved to 98.5% in December from 97% in October, it will take a few more months to return to a normal rate of above 99% after which the stress will ease, Iyer said.

The microfinance net slippage in the bank’s credit card portfolio also stood at Rs. 533 crore is at a high level. The bank will look to increase its secured loans faster in the next few quarters as it tries to stabilize its unsecured book, Iyer said.

To be sure, the microfinance book accounts for only 7% of the bank’s advances but payment delays and high provisions have also affected the bank’s net interest margin (NIM) and net interest income (NII). Iyer said that the share of micro finance in the books of banks is likely to decrease in the next six months.

The bank’s NIM, or the yield earned on loans and what is paid on deposits, fell to 4.90% in December 2024 from 5.52% a year ago and down from 5.04% recorded in September 2024. Similarly NII which is the difference between the interest earned on the total interest. Loans and disbursements to funds, rose only 3% year-on-year and fell 2% compared to September, reflecting lost interest from microfinance loans.

Subramaniakumar said the high slippage in microfinance impacted the bank’s NII by 40 basis points during the quarter. One basis point is 0.01 percentage point.

Slower growth has resulted in the bank lowering its loan growth forecast for the current financial year to 13% from 18% at the start of the year.
The bank’s gross NPA rose to 2.92% from 2.88% in September, though lower than the 3.12% reported a year ago.

The increase in provisions means that the bank now has a provision coverage ratio of 82%, up from 75% a year ago, with micro finance loan coverage at 85%.