RBL Bank stock rating upgraded by BofA Securities

On Monday, BofA Securities adjusted its stance on RBL Bank Ltd (NSE:RATB). (RBK:IN), raising the stock rating from Underperform to Buy and increasing the price target to INR235.00 from INR175.00. The revision by BofA Securities reflects a positive outlook on the bank’s future performance, anticipating improvements in growth and asset quality metrics.

The upgrade comes after a detailed analysis of RBL Bank’s financial health, particularly focusing on the bank’s management of asset quality issues. According to BofA Securities, the bank has reached a turning point with 100% coverage on Microfinance Institutions (MFI) Non-Performing Assets (NPAs) and approximately 75% on the MFI Special Mention Accounts (SMA) book. This coverage is expected to bolster the bank’s asset quality metrics significantly in the financial year 2026.

Furthermore, RBL Bank has been proactively managing its funding costs, which is anticipated to support Net Interest Margins (NIMs). The bank has managed to reduce the average funding cost of savings accounts by 80 basis points sequentially. Despite a relatively lower Common Equity Tier 1 (CET1) ratio of 14.0%, which is considered a near-term concern, BofA Securities sees potential in the bank’s strategy.

The investment firm has applied a 0.8x Price-to-Book (P/B) Derived Discounted Dividend Model (DDM) target multiple, citing increased visibility on the bank’s growth prospects and Return on Equity (ROE). While RBL Bank’s ROEs of 12-13% may lag behind its peers in the near term, there is potential for loan growth to elevate to 16-18% levels over the next two to three years.

BofA Securities has also adjusted the Cost of Equity assumption for RBL Bank, lowering it to 14.0% from the previous 15.1%. This change further supports the improved outlook for the bank, indicating a more favorable risk assessment by the analysts. With these adjustments, BofA Securities signals confidence in RBL Bank’s trajectory toward financial improvement and market performance.

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