RBL Bank open offer: What investors should know; Emirates NBD deal explained

RBL Bank has announced a strategic transaction under which Emirates NBD (ENBD), the second-largest bank in the UAE, will invest about $3 billion (approximately Rs 25,000 crore) through a preferential issue. Following the transaction, ENBD will acquire a 60 per cent stake in RBL Bank, subject to shareholder and regulatory approvals. Post completion, Emirates NBD’s Indian business will merge with RBL Bank. Nirmal Bang pointed out that the merger will take place under Section 44A of the Banking Regulation Act, eliminating the need for a National Company Law Tribunal (NCLT) process.

Highlighting key takeaways from RBL Bank's concall, Nirmal Bang said $3 billion infusion is expected to lift RBL’s net worth to about Rs 42,000 crore, making it one of the best-capitalised banks in India. The capital raise will also trigger an open offer at Rs 280 per share, aligned with the deal price. Under SEBI guidelines, the open offer can be completed first, and the preferential issue (and open offer) will be proportionately adjusted to ensure minimum public shareholding remains at 25 per cent.

The transaction will allow RBL to accelerate growth, scale its existing businesses, and make significant investments in technology, branding, and distribution. Nirmal Bang said accelerated growth may kick in within two quarters of the transaction’s completion. The bank’s current footprint of 561 branches will be expanded substantially, focusing on creating long-term value through deeper distribution reach.

"Given the fund infusion from Emirates NBD expected in 1QFY27, we increase our earnings estimates by 19 per cent/17 per cent for FY27/28E. We estimate FY27/28E RoA of 1.2 per cent /1.4 per cent. Reiterate Buy with a target price of Rs 350 (premised on 1.3x FY27E BV)," MOFSL said.

Global expertise
According to Nirmal Bang, ENBD’s entry brings global banking expertise, advanced digital capabilities, and access to the high-growth India–Middle East trade corridor. The collaboration is expected to unlock opportunities in cross-border payments, trade finance, and transaction banking. Importantly, the partnership should also help narrow RBL’s cost of funds gap (currently around 1 percentage point higher than large private peers) and potentially lead to credit rating upgrades.

Inorganic opportunities

On the business front, high growth is anticipated across retail and SME segments, particularly in liabilities, mortgages, vehicle finance, and gold loans — the latter expected to triple or quadruple as the branch network expands. Corporate and commercial lending are also expected to grow faster than historical trends. Retail deposits below Rs 3 crore are projected to rise sharply in tandem with branch expansion. While organic growth remains the priority, RBL has not ruled out selective inorganic opportunities, Nirmal Bang highlighted.

Asset quality
In terms of asset quality, the brokerage observed that stress in the credit card book — particularly in older vintages — remains an area of attention, though normalization is expected within one to two quarters. The microfinance portfolio is recovering well and should revert to pre-COVID stability levels soon. RBL also executed routine technical write-offs amounting to Rs 1.4 billion in corporate banking and Rs 15 billion in microfinance, with recoveries running at 0.6–0.8 per cent per month.

Nirmal Bang flagged a mark-to-market impact of about Rs 44 crorein Q2, linked to lower net worth at Utkarsh Small Finance Bank Holding Company due to expected credit loss (ECL) adjustments, which is not expected to have lasting effects. The one-time transition impact under the ECL framework is estimated at 6–8 per cent of current net worth, while ongoing credit costs could rise modestly to 60–65 basis points, mainly from higher provisioning in unsecured and wholesale portfolios.

Margin
Management expects margins to expand from Q3 onwards, with a 10–15 basis point improvement each quarter, targeting an exit NIM of 4.75–4.80 per cent by March. Nirmal Bang added that yields on advances have bottomed out and are likely to improve due to a shift in loan mix, while the cost of funds will continue to ease, albeit at a slower pace than in the previous quarters.