JPMorgan also had underweight call on the stock and cut target price by 15 percent to Rs 280 from Rs 330 as it feel asset quality is likely to depress near-term profitability.
Shares of RBL Bank fell nearly 20 percent intraday on October 23 after global brokerage houses remained bearish on the stock due to a poor how in the September quarter results.
The stock, so far, corrected around 67 percent from its record high touched in May 2019 due to asset quality concerns, but the lender maintained its net interest income, operating income and loan growth.
It hit a record low of Rs 230.55 today and was quoting at Rs 234.50, down Rs 52.40, or 18.26 percent on the BSE at 1010 hrs IST.
The private sector lender's July-September quarter profit fell sharply by 73.4 percent year-on-year due to a sharp spike in provisions, and asset quality also deteriorated sequentially.
Given the difficult corporate credit environment, the lender had faced challenges in a few corporate accounts, the company notified a few months ago.
"As a matter of prudence, we have taken higher than required provisions on these accounts which have impacted our bottomline," Vishwavir Ahuja, MD & CEO, RBL Bank said in a BSE filing.
Global brokerage house Morgan Stanley assigned underweight rating to RBL Bank and slashed target price by 40 percent to Rs 240 from Rs 400 per share earlier after it reduced EPS estimates Sharply as it built in higher NPLs/slower growth.
The research house cut its FY20/21/22 EPS estimates by 42 percent/25 percent/24 percent and remained cautious on asset quality, given the weak macros. It expects the return on equity to remain in low teens.
Bank's asset quality deteriorated sharply during the quarter with gross non-performing assets (NPA) as a percentage of gross advances rising 122bps sequentially to 2.6 percent and net NPA climbing 91bps QoQ to 1.56 percent in Q2.
The bank expects stress of Rs 1,800 crore in books, from 4 groups. Approximately Rs 800 crore of Rs 1,800 crore has been recognised as NPA in Q2," it said.
JPMorgan also had underweight call on the stock and cut target price by 15 percent to Rs 280 from Rs 330 as it feels asset quality is likely to depress near-term profitability, though operating profit growth was strong at 42 percent led by retail.
The brokerage cut its FY20/21 EPS estimates by 28 percent/2 percent. Equity raise, and containment of BB book and below exposure are key for re-rating.
While downgrading stance to cautious, Sharekhan said going forward, with overhang on asset-quality performance, raising capital is likely to be an uphill task.
"Delay in capital raising may result in weaker pricing and/or impact ROE and valuations. We believe risk-reward has turned unfavourable for investors and bottom fishing in the stock should be avoided; moreover, investors should instead focus on better-run companies with a strong outlook," it added.Disclaimer: The above report is compiled from information available on public platforms. Moneycontrol.com advises users to check with certified experts before taking any investment decisions.Get access to India's fastest growing financial subscriptions service Moneycontrol Pro for as little as Rs 599 for first year. Use the code "GETPRO". Moneycontrol Pro offers you all the information you need for wealth creation including actionable investment ideas, independent research and insights & analysis For more information, check out the Moneycontrol website or mobile app.