RBL Bank, a private sector lender in India, has reported a significant decline in its net profit for the third quarter (Q3) of the current financial year. The bank’s net profit has slumped by 86% to ₹64 crore (approximately $8.3 million) from ₹467 crore (approximately $61.5 million) in the same period last year. This steep decline is primarily attributed to the challenges faced by the bank’s microfinance loan portfolio.
The microfinance segment, which is a significant contributor to RBL Bank’s revenue, has been under pressure due to the Reserve Bank of India’s (RBI) new norms and regulations introduced in August 2020. The RBI has imposed stricter lending norms and reduced the permissible limits for microfinance institutions (MFIs) to reduce their vulnerability to the economic downturn. These regulations have led to a decline in disbursements and growth in the microfinance segment, resulting in higher provisioning and slippages for RBL Bank.
In addition to the regulatory challenges, RBL Bank has also been facing difficulties in collecting dues from its microfinance borrowers. The bank has reported a significant increase in non-performing assets (NPAs) in its microfinance portfolio, which has resulted in higher provisioning and a decline in profitability.
The bank’s overall asset quality has also deteriorated, with the gross NPA ratio increasing to 4.44% from 3.44% in the same period last year. The bank’s net interest margin (NIM) has also declined to 4.21% from 4.56% due to the increased competition in the market and the rise in interest rates.
Despite these challenges, RBL Bank’s management remains optimistic about the bank’s prospects. The bank’s CEO, Vishwavir Ahuja, stated that the bank is taking steps to strengthen its microfinance portfolio and improve its asset quality. The bank is also exploring opportunities to diversify its lending business and reduce its dependence on the microfinance segment.
Overall, RBL Bank’s Q3 results are a reflection of the challenges faced by the microfinance industry in India. The industry is going through a significant transformation, and banks like RBL Bank are taking steps to adapt to the new regulatory environment and improve their risk management practices.