RBL Bank may make lesser profit for every rupee lent going forward. Here's why

RBL Bank shares fell on Tuesday, halting a two-day winning run, after a business update from the private sector lender showed its deposit growth hit a seven-quarter low, stoking concerns about its shrinking market share. The RBL Bank stock fell by as much as 7.3 percent to Rs 80.95 apiece on the BSE.

RBL's deposit growth came in at 6.37 percent to Rs 79,217 crore in the quarter ended June on a year-on-year basis, according to a regulatory filing. That is the lowest level of growth in seven quarters — highlighting its lacklustre business growth, which might hurt its earnings as well.

RBL shares have been in a broader downtrend for the past few months.

As of Monday, they have lost 31.2 percent of their value so far in 2022 — a period in which the Nifty Bank has dropped 8.8 percent.

The lender's gross loans increased 6.5 percent on year to Rs 62,095 crore, according to the filing.

RBL's share in the loan market came down to 0.51 percent in the three-month period from 0.54 percent in the corresponding period a year ago.

However, in some respite for investors, its CASA ratio — the ratio of a lender's deposits current accounts against those in savings accounts — improved by 230 basis points to an all-time high of 36 percent in the April-June period.

A higher CASA ratio means a lower cost of funds for a bank — as no interest is paid to the depositor in a current account.

The data comes at a time when the RBI has increased the repo rate — or the key interest rate at which it lends money to commercial banks such as RBL — by 90 basis points since May from a pandemic-era low, as central banks scramble to tackle red-hot inflation.

RBL Bank's net profit for the January-March period fell short of Street estimates even though its net interest income — the difference between interest earned and interest paid — saw a jump of 24.9 percent on year.

According to HDFC Securities, RBL Bank's net profit missed its estimate despite a healthy net interest margin —  a key measure of profitability for financial institutions—  and positive loan growth owing to its higher credit cost at 2.7 percent.

HDFC Securities has a 'reduce' rating on the RBL Bank stock, which has already hit its target price of Rs 113. As of Monday, RBL shares are 22.7 percent below the target price.