RBL Bank stock falls 14% to 52-week low after 24% Q2 profit drop: should you buy?

The RBL Bank stock price took a sharp hit, dropping 14% on October 21 to reach its 52-week low, following the bank's disappointing Q2 results.

The private sector lender reported a significant 24% year-on-year decline in net profit, falling to ₹223 crore, mainly due to asset quality challenges in its credit card and microlending books.

With investors concerned about the bank’s future performance, the RBL Bank share price hit an intraday low of ₹176.5 on the NSE during the trading session.

RBL Bank Q2 results: net profit drops

RBL Bank's Q2 results for the quarter ending September 30, 2024, revealed a post-tax net profit of ₹223 crore, down from ₹294 crore in the same period last year and ₹372 crore in the preceding June quarter.

The decline in profitability was largely attributed to challenges in the bank's microfinance and credit card segments, which have impacted its asset quality.

The gross non-performing assets (NPA) ratio slightly improved, declining by 0.25% to 2.88%. However, this was not enough to offset concerns about the bank's credit performance.

RBL Bank stock price hits 52-week low

The RBL Bank stock price opened with a loss of nearly 6% in early trading on October 21, before sliding further to a 14% decline, marking a 52-week low of ₹176.5 per share.

Despite a 15% growth in advances, the bank’s core net interest income saw only a modest 9% rise, reaching ₹1,615 crore.

This slower growth is tied to ongoing asset quality concerns in both the microfinance and credit card sectors.

Source: TradingView

The bank’s net interest margin (NIM) also contracted, dropping to 5.04% from 5.54% in the previous year.

RBL Bank’s management indicated that it may take up to nine months for the NIM to recover to its target range of 5.4-5.5%.

Slower growth in the credit card business

In the second quarter, RBL Bank saw a 32% surge in other income to ₹618 crore, which provided some relief amid slower interest income growth.

However, the bank's provisions rose sharply to ₹618 crore, driven by increased stress on its asset quality. The management expects credit costs to follow a similar trend in the upcoming third quarter.

RBL Bank also reported a 20% increase in deposits, with a focus on attracting more non-bulk, granular liabilities. In the credit card segment, growth is expected to either match or trail overall asset growth as the bank shifts its strategy.

Rather than focusing on portfolio expansion, RBL Bank aims to improve the quality of its credit card portfolio by generating more business from existing customers.

Should you buy, sell, or hold RBL Bank shares?

The recent decline in the RBL Bank share price, coupled with its weak Q2 results, has raised questions about the bank's near-term prospects.

Investors should weigh the risks associated with the ongoing asset quality issues, particularly in the credit card and microlending books, before making any decisions.

For those considering investing in RBL Bank shares, it may be wise to wait and see how the bank addresses these challenges in the coming quarters.

With provisions on the rise and net interest margins under pressure, caution is advised.

However, for long-term investors, the bank's efforts to improve its deposit base and enhance portfolio quality may offer potential growth opportunities once the asset quality stabilizes.