RBL Bank Q3 profit slumps 86% amid micro finance loan challenges

RBL Bank’s net profit slumped 86% to just Rs 33 crore in the quarter ended December 2024 from Rs 233 crore a year ago mainly due to an additional provision of Rs 414 crore the bank made to cover for potential loss on its micro finance loans.

The stress in the bank’s micro finance loans impacted its profitability during the quarter. If not for a tax provision writeback of Rs 150 crore linked to an appeal from the 2020-21 fiscal and a Rs 145 crore gain from the sale of the bank’s stake in DAM Capital in December, RBL Bank would have slipped into a loss during the quarter.

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

“We still expect above trend slippages in the next quarter. The issues with regards to overleveraging have impacted everyone in the micro finance industry but with the guardrails now being put we expect things to normalise in the first and second quarters of next fiscal,” Subramaniakumar said.

Loans due from micro finance borrowers beyond one day upto 60 days stood at Rs 545 crore at the end of December 2024, though lower than the Rs 616 crore at the end of September, is more than five times the Rs 100 crore to Rs 150 crore run rate of the bank, Jaideep Iyer, head strategy at RBL Bank.

Besides micro finance net slippages in the bank’s credit card portfolio are also high at Rs 533 crore. The bank will look to grow its secured loans faster in the next few quarters as it tries to stabilise its unsecured book, Iyer said.

To be sure, the micro finance book is only about 7% of the bank’s advances but delays in repayment and higher provisions have also impacted the bank’s net interest margin (NIM) and net interest income (NII). Iyer said the share of micro finance in the bank’s books is likely to come down in the next six months.

The bank’s NIM, or the yield earned on loans and that paid for deposits, fell to 4.90% in December 2024 from 5.52% a year ago and down from the 5.04% reported in September 2024. Similarly NII which is difference between total interest earned on loans and amount paid for funds, rose just 3% year on year and shrunk 2% versus September reflecting the interest lost from the micro finance loans.

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

The slower growth has resulted in the bank cutting its loan growth forecast for the current fiscal to 13% from 18% at the start of the year.
The bank’s gross NPA inched up to 2.92% from 2.88% in September though lower than 3.12% reported a year ago.

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