Net interest income (NII) or the difference between interest earned on loans and that paid for deposits, fell 2% year on year as the bank had to reverse earlier earned interest due to stress in its credit card, MSME and micro finance porfolio.
Net interest margin (NIM) dropped to 4.19% from 4.57% a year earlier due to the reversal. Loan book dropped 5% year on year as the bank continued to shed wholesale loans even as retail loans grew 16%.
A 19% growth in other income, led by fees from the bank’s credit cards business, supported profits. CEO Vishwavir Ahuja credit costs will remain high for the last quarter of the fiscal as loans to individuals, small enterprises and micro finance report a 5% to 6% NPA ratio.
“We have seen credit costs at 110 basis points and it will remain at similar levels in the last quarter as the full impact of the pandemic has not played out as yet…retail is showing some stress particularly in cards and micro banking but we still believe there is an opportunity to grow in these businesses once the impact of Covid is washed out,” Ahuja said.
RBL Bank’s gross NPAs fell to 1.84% compared to 3.33% a year ago but including loans which were not classified as NPAs due to a Supreme Court stay, those NPAs should have been 4.57%.
Total restructured book stood at 0.91% of the bank’s loan book largely including a Rs 475 crore credit card loans and about Rs 75 crore loans to MSMEs.
Total provisions remained elevated at Rs 610 crore compared to Rs 623 crore last year keeping profits under check.
Ahuja said the bank will look to increase its secured retail loans business in the next fiscal as it looks to mitigate its risks from the high yielding credit card and micro finance business.
“We have started a affordable home loan business a year ago which is now a Rs 500 crore book. We now plan to start a home loan and tractor loan business to leverage our network and tap the earnings potential while counter balancing our other risk profile ” Ahuja said.
Micro finance loans which make for about 12% of the loan book are still limping back to normalcy as about 66% of the loans are showing collection efficiency of 92% lower than the 99% norm for the sector.
“The new loans booked post June are at 99% efficiency and as good as pre Covid levels. It is the legacy loans which are under stress. But we are confident that this book will be back to normal once the Covid stress plays out,” Ahuja said.