RBL Bank's profit nearly doubled on new equity, but on the call it named no return target for next year

Much of last quarter's gain is the new equity at work

RBL Bank's profit nearly doubled last quarter on the quarter before, while the return on assets is still below the bank's target. The question for an owner is how much of that is a better bank and how much is simply a bigger one.

Net interest income, what the bank earns on loans and investments less what it pays for deposits, rose sharply on the quarter before. By our arithmetic that is almost exactly the rise in profit before provisions. An analyst on the call said it is about what the fresh equity alone would earn in a quarter, and an executive agreed the rough sum came to a similar number. The executive added that part of it was already in the quarter before and that not all the money can be lent at the rate used.

Cost-to-income fell by more than management guided in July, but operating costs rose on the quarter, so it was income, not thrift, that did the work.

The return target has been reset since April 2024

The bank's own return-on-assets target tells the longer story. In April 2024 it aimed for up to 1.4% by the end of 2026. In July 2024 it guided about 1.15% for March 2025; in July 2025, 1% for March 2026; and in July 2026, 1% for the second or third quarter of this financial year: the same 1% moved out by two to three quarters.

The equity is the reason to care. By our arithmetic last quarter's profit, annualised, is a return of about 4.6% on the net worth the bank gave after the Emirates NBD investment. Asked for a target for the next financial year, an executive asked analysts to settle down with the current figure. Jaideep Iyer, an executive director, then said: "So I think one should see significant tailwinds, but I don't think we would want to comment at specifics at this stage.". Asked whether the Board had set multi-year targets for management, the reply was that nothing was on the chart yet. In July the bank had called double-digit return on equity in three to four years an aspiration, and said return on assets should be better than 1% by the end of this financial year. By our arithmetic, a double-digit return needs more than double last quarter's annualised profit.

Card losses are still falling; the margin is guided lower

Cards are one named route to a better return. Now an executive puts card credit cost at 5.5 to 6%, with slippages expected to fall further. Card slippages in September alone ran at ₹125 to ₹130 crore, against more than ₹600 crore for the quarter, which the next call can check.

The margin did what July's guidance said, landing inside the range it guided. Management now expects it slightly lower this quarter and probably higher in the next.

Asset quality needs its denominator. Gross bad loans fell as a share of advances, but advances grew sharply, and part of that growth is ₹10,300 crore of leverage given to customers for foreign-currency (FCNR) deposits. By our arithmetic the rupee stock of bad loans fell far less than the ratio did.

What we do not know yet

Fee income was helped by a one-off from the currency swap behind the foreign-currency deposits. Management said it cannot be expected to recur.

The next calls will test the margin against "slightly lower", the card figures against the new slippage path, and the return on assets against its target.

Asked on this call for that target, an executive said the bank would come back with details over the next few months.