RBL Bank: Retail Growth Amid Asset Quality Challenges in Q3 2025

RBL Bank Ltd (BOM:540065) reported its Q3 2025 earnings on January 18, 2025, highlighting strong retail growth amidst asset quality challenges. The private sector lender's profit after tax (PAT) declined 86% year-on-year (YoY) to ₹33 crore, primarily due to higher provisions. However, the bank maintained a robust operating performance, with operating profit surging 30% YoY to ₹997 crore.

Key Drivers of Retail Growth

RBL Bank's retail growth in Q3 2025 was driven by several key factors:

1. Housing Loans: Housing loans increased by 33% YoY, contributing significantly to the retail growth. This indicates a robust demand for housing finance, which is a positive sign for the bank's retail portfolio.
2. Rural Vehicle Finance: Rural vehicle finance grew by 30% YoY. This segment has been a significant contributor to the bank's retail growth, as it caters to the growing demand for vehicles in rural areas.
3. Commercial Banking Advances: Commercial banking advances grew by 21% YoY. This growth is driven by the bank's focus on secured retail and commercial banking, which has increased its share in the overall book by around 4% in the last 3-4 quarters.
4. Retail Advances: Overall, retail advances grew by 19% YoY to ₹55,199 crore. This growth is a result of the bank's focus on secured retail segments, such as housing loans and rural vehicle finance, as well as its expansion in other retail segments.

These drivers have contributed to the bank's strong retail growth in Q3 2025, with the retail-to-wholesale advances ratio standing at 61:39.

Managing Asset Quality Challenges

RBL Bank has managed to maintain a robust operating performance amidst asset quality challenges by focusing on several key areas:

1. Secured Portfolio Growth: The bank has increased its focus on secured retail and commercial banking, which has contributed to its overall growth. The share of the secured portfolio in the overall book has increased by around 4% in the last 3-4 quarters.
2. Prudent Provisioning: The bank has made additional provisions of ₹414 crore for its Joint Liability Group (JLG) portfolio, raising NPA coverage for this segment to 85%. This proactive approach has helped the bank maintain a high provision coverage ratio of 93.46%.
3. Disciplined Focus on Growth and Profitability: The bank has maintained a disciplined focus on growth with profitability, which has helped it generate pre-provision operating profit despite macroeconomic challenges.
4. Improved Asset Quality: Although the gross NPA ratio has slightly increased to 2.92%, the net NPA ratio has fallen to 0.53%. The bank has also seen a reduction in the SMA (Special Mention Accounts) bucket, signaling improved asset quality.
5. Diversified Revenue Streams: The bank has diversified its revenue streams, with other income surging 38% YoY to ₹1,073 crore in Q3 FY25. Core fee income also increased 19% YoY during the same period.

These factors have contributed to RBL Bank's ability to maintain a robust operating performance despite facing asset quality challenges.

Addressing Over-leveraging in Microfinance Segment

RBL Bank has implemented several strategies to address the over-leveraging issue in the microfinance segment. The bank has made additional provisions of ₹414 crore for its JLG portfolio, raising NPA coverage for this segment to 85%. This prudent measure helps to mitigate the risks associated with over-leveraging. Additionally, the bank has been working on improving collection efficiency and expects to see normalization in this segment by the end of the March quarter. The bank is also implementing guardrails put in place by self-regulatory organizations to prevent over-leveraging at the source of loan approval. These strategies aim to address the over-leveraging issue and improve the overall asset quality of the bank.

In conclusion, RBL Bank's strong retail growth in Q3 2025, driven by key drivers such as housing loans and rural vehicle finance, has contributed to the bank's overall growth. Despite facing asset quality challenges, the bank has managed to maintain a robust operating performance by focusing on secured portfolio growth, prudent provisioning, and diversified revenue streams. The bank's strategies to address the over-leveraging issue in the microfinance segment also contribute to its overall resilience. As the bank continues to navigate the macroeconomic environment, investors should monitor its progress in addressing asset quality challenges and maintaining its strong retail growth momentum.