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RBL Bank's financial performance in the December 2024 quarter paints a concerning picture, marked by a dramatic fall in net profit. The bank's net profit plummeted to a mere Rs 47 crore, a stark contrast to the Rs 245 crore recorded in the same period the previous year. This significant drop is primarily attributed to substantial reversals in its microfinance (MFI) loan portfolio. The preceding September quarter had shown a net profit of Rs 231 crore, indicating a sharp downward trend in profitability over the past few months. While the core net interest income saw a modest 3 percent increase, reaching Rs 1,585 crore, this positive development was overshadowed by the negative impact of the MFI loan reversals.
The impact of the MFI portfolio's underperformance is multifaceted. The net interest margin (NIM) declined to 4.90 percent, down from 5.52 percent in the year-ago period. A significant 0.40 percentage point of this decline can be directly attributed to the issues within the microfinance exposures. Slippages on the MFI book skyrocketed to Rs 535 crore, far exceeding the usual range of Rs 125-150 crore. This surge in slippages is attributed to a confluence of factors, including historical over-leverage among borrowers, a nationwide campaign impacting repayment propensity, and localized issues such as resistance to payment in certain communities within Karnataka. The bank's management acknowledged these challenges, highlighting that collection efficiencies improved to 97 percent in December after a dip in the earlier months of the quarter.
While the management expresses optimism about improving collection rates, the normalization of the situation within the MFI business is projected to take up to two more quarters. Consequently, the bank anticipates a reduction in the MFI portfolio's share of the overall loan book, potentially dropping from over 7 percent in December to 6.5 percent as lending slows down. The challenges are not limited to the MFI segment; the credit card business, another area of significant exposure for RBL Bank, also faces similar normalization challenges. Net slippages in the credit card portfolio stood at Rs 533 crore, further contributing to the overall financial strain. The overall impact resulted in an increase in the gross non-performing assets (GNPA) ratio to 2.92 percent in December, up from 2.88 percent in September. This increase is a direct consequence of elevated gross slippages reaching Rs 1,309 crore, compared to Rs 666 crore in the year-ago period.
Looking ahead, the bank's management projects that it will take approximately two quarters for the NIMs to stabilize and return to the 5 percent range. Despite the challenges, the bank's overall capital adequacy remains robust at 15.4 percent as of December 31, 2024. Furthermore, the management has indicated that there are currently no plans for new fundraising initiatives. The situation highlights the vulnerabilities within the MFI lending landscape and underscores the need for banks to exercise caution and implement robust risk management strategies, particularly in segments vulnerable to macroeconomic fluctuations and social factors impacting repayment capabilities. The coming quarters will be crucial in determining whether RBL Bank can effectively navigate these challenges and restore its financial health.