Here’s why stocks of RBL Bank and Cholamandalam Investment declined by 3% on Tuesday – CNBC TV18

The stocks of RBL Bank and Cholamandalam Investment and Finance Company were in focus on Tuesday, December 17, following brokerage notes that highlighted concerns regarding their growth, asset quality, and margins. Both stocks witnessed declines in response to the reports.

Brokerage firm Citi highlighted challenges in RBL Bank’s asset quality, particularly in its microfinance portfolio. According to the brokerage, the bank’s Special Mention Accounts (SMA) across different buckets indicate a concerning trend:

• SMA-0 (loans overdue between 0-30 days) stands at 3.1%.
• SMA-1 (30-60 days overdue) is at 2.45%.
• SMA-2 (60-90 days overdue) is at 1.5%.

The bank’s collection efficiency remains below 98% across all these categories, indicating spillover effects on slippages and credit costs in Q3 (October to December) and Q4 (January to March). While Citi anticipates a slight improvement in credit card slippages, these are expected to remain higher than the long-term average.

Furthermore, the bank’s net interest margin (NIM) is likely to face additional pressure and may shrink in the third quarter of the ongoing fiscal.

Elevated stress, slowing unsecured loan segments, and constrained capital have forced RBL Bank to prioritise return on assets (RoA) over growth. As a result, Citi now expects a low double-digit growth rate for FY25, compared to the bank’s earlier guidance of 18-20% growth.

Despite the challenges, Citi has maintained a ‘Buy’ rating on RBL Bank with a target price of ₹255 per share.

Meanwhile, InCred downgraded Cholamandalam Investment’s stock to ‘Hold’ from ‘Add’ and reduced the target price to ₹1,300 from ₹1,550 per share. The brokerage cited unfavourable risk-reward dynamics driven by slowing growth and rising asset quality concerns.

The brokerage expects weak demand in the commercial vehicle (CV) segment and increasing discounts to affect disbursals adversely. It also expressed caution about asset quality, noting an overlap between microfinance borrowers and customers purchasing used commercial vehicles.

While the falling interest rate cycle is expected to provide a boost to NIM, the brokerage believes this benefit may be offset by higher collection costs and increased operating expenses (OPEX).

In line with these observations, InCred has cut its earnings estimates by 3.5%-5.5% over the next few fiscal years.

On Tuesday, the stock of RBL Bank declined by around 3.7% to close at ₹166 per share, while Cholamandalam Investment fell by 3.1% to close at ₹1,245.15 per share.