RBL Bank shares fell 15 percent on Friday. The weak September quarter results (RBL Bank Results) were the main reason behind this decline in the shares of the bank. RBL Bank reported a 79 percent year-on-year decline in net profit in the September quarter and stood at Rs 31 crore.
However, later in the course of trading, this stock reduced some of its losses. The stock of RBL Bank was trading at Rs 183.45, down 8.7 percent on the NSE at around 1 pm.
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Net interest income declined, but second income increased
RBL Bank’s Net Interest Income (NII) has also registered a decline in the September quarter, reflecting the demand for the bank’s products. NII stood at Rs 915.5 crore, down 1.8 per cent over the corresponding quarter of the previous financial year. Net interest income is the difference between the interest charged by the bank from the borrowers and the interest paid to the depositors.
However, the bank’s other income grew by 42 per cent to Rs 593 crore as compared to a year ago. The asset quality of RBL has also been impacted. The bank’s gross non-performing assets (NPA) at the end of Q2 increased to 5.4 per cent, an increase of 0.41 per cent over the previous quarter and 2.06 per cent over the corresponding quarter of the previous year.
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Bank’s NPA also increased
Net-NPA of RBL Bank also increased by 0.13 per cent quarterly and 0.76 per cent year-on-year to 2.14 per cent. Net-NPA gives the exact value of the NPAs remaining after various provisions have been made by the bank.
It had restructuring loans of Rs 1,352 crore, out of which loans worth Rs 645 crore were restructured in the second quarter. Also, the restructured loans worth Rs 136 crore have now turned into NPA. Loan restructuring means that the terms and conditions of the loan are changed afresh in case the borrower is facing difficulties in repaying the loan due to financial crisis arising out of unforeseen events like pandemic. This is called loan restructuring.
The bank has set aside a fund of Rs 651.49 crore for provisioning and contingencies, which is 33 per cent higher than the corresponding quarter last year. However, it is 53 per cent lower than the June quarter. Negative events like recession or fraud can be accidental. Banks need to set aside some funds to protect against such losses.
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What is the opinion of the brokerage?
Yes Securities has given a “buy” to RBL Bank. However, the target price of the stock has been revised to Rs 237. The brokerage firm CLSA has downgraded the stock’s rating from “Buy” to “Outperform”. Also, the target price for the stock has been increased from Rs 230 to Rs 235. CLSA said the bank has a long way to go to return to normalcy as its slippage continues to remain high.
JP Morgan has given a target price of Rs 200 for RBL and has rated the stock as “neutral”. The brokerage believes that the stock may struggle due to weak impact on asset quality and growth.
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