RBL Bank shares: Upside potential strong, downside limited; ICICI Sec explains why

RBL Bank shares offer attractive risk rewards with strong upside but limited downside due to impending open offer, ICICI Securities said in its latest note. The broking firm said its meeting with the private lender's MD and CEO further strengthened its positive stance on the bank. It viewed the proposed $3 billion capital infusion from Emirates NBD as a transformational step that would lift RBL Bank’s net worth, CET1, technology capabilities, funding competitiveness and distribution reach. 

This, the domestic brokerage said, secured a long growth runway. 

ICICI Securities said pro forma return on asset (RoA) for RBL Bank is expected to move to a structurally higher range above 1.5 per cent, although return on equity (RoE) would likely remain in single digits due to low leverage. 

Under the proposed structure, RBL Bank is looking to function as a subsidiary of Emirates NBD while remaining listed, and the management is optimistic about securing all required approvals.

ICICI Securities said net interest margin (NIM) and RoA had bottomed out. It expected MFI to sustain sequential growth with better slippage trends. Credit card slippages are seen staying elevated, but the credit card book is expected to return to growth of about 7–8 per cent year-on-year by FY26, compared with the current contraction. 

ICICI Securities said the RBL Bank had already invested in and reasonably scaled its retail secured portfolio. This, combined with wider distribution and more competitive funding, is seen supporting a stronger growth trajectory. A larger share of secured retail assets is also expected to enable healthier expansion in higher-yielding unsecured retail. 

The brokerage said RoA could rise structurally from around 1 per cent to above 1.5 per cent.  It maintained its RBL Bank target price of Rs 415, implying over 35 per cent upside. The downside risk is limited, given the Rs 280 per share open offer. ICICI Securities flagged deal-execution hurdles, if any, as a key risk.

The bank sees the Emirates NBD transaction completing by Q1FY27. Under the proposed structure, Emirates NBD’s existing Indian branches would be merged into RBL, which would then operate as a subsidiary of the foreign parent. 

ICICI Securities noted that RBI’s WOS guidelines allowed foreign banks to dilute their stake to 74 per cent or lower. It believed 'control' had been a central consideration for Emirates NBD and that the subsidiary structure, if permitted, could allow effective control to be exercised over a longer horizon.

ICICI Securities estimated a 10-15 basis-point improvement in RBL Bank's NIM in each of the next two quarters. It expected further improvement in MFI slippages. Credit card slippages are seen staying elevated, though the book is set to turn around. Overall, the brokerage said NIM and RoA are poised to improve.