RBL Bank’s September quarter contains a striking pair of numbers. Standalone profit rose nearly 170% year on year. Basic earnings per share rose just 6.5%. Both are correct. Emirates NBD’s investment has changed the size of the bank and the number of claims on its earnings.
The useful question for an existing shareholder is whether the stronger balance sheet can produce attractive, repeatable returns on that enlarged capital base. Q2 shows progress in operating efficiency and problem loans. It also shows why headline growth needs careful unpacking.
This memo uses the unaudited results released on 12 October 2026, with earlier filings for the capital and funding context. Facts, calculations and judgement are distinguished below.
First, understand the denominator
Reported facts: Standalone profit after tax increased from ₹178.52 crore in Q2 FY26 to ₹481.77 crore in Q2 FY27. Basic EPS increased from ₹2.92 to ₹3.11. These are quarterly, non-annualised EPS figures. Standalone results, pages 1–2.
On 18 June, RBL allotted 92.913482 crore shares to Emirates NBD at ₹280 each, raising ₹26,015.77 crore. The immediate share count increased from 61.9423213 crore to 154.8558033 crore, giving the investor 60% ownership at allotment. June allotment disclosure.
Calculation: Profit growth was 169.9%; basic EPS growth was 6.5%. Q2 is the first full quarter with the expanded share denominator. Q1 included the new shares for only part of the quarter, so its ₹3.38 EPS is an awkward sequential comparator even though Q2 profit was higher. EPS uses weighted-average shares, not the closing share count.
A smaller ownership percentage does not automatically mean value destruction. The bank received substantial cash for the new shares. As our Bajaj Finance capital-raise memo explains, issue price and subsequent returns matter alongside dilution. RBL’s next test is what the money earns.
There is genuine operating improvement
Operating profit before provisions increased from ₹728.39 crore to ₹1,396.13 crore. Provisions and contingencies excluding tax also increased, from ₹499.70 crore to ₹766.53 crore. Thus, the profit recovery did not come from a year-on-year reduction in that aggregate charge. Standalone results, page 1.
The bank reported 37% growth in net interest income while operating expenses increased 3%. Its cost-to-income ratio improved from 70.67% to 56.48%. That is meaningful operating leverage: income grew much faster than the cost of running the institution. However, sustaining the improvement depends on how much income repeats as the balance sheet changes. Q2 release, key financials and ratios.
There is an identifiable capital-related mechanism. On the July call, management said roughly ₹10,000 crore had retired expensive borrowings and deposits carrying approximately 7.25% cost; the balance was placed in short-term market instruments. Avoiding funding expense can improve earnings before new lending is fully built out. Q1 FY27 call transcript.
Judgement: This benefit is economically real. It should not be mistaken for proof that every rupee of fresh equity has already found an attractive long-term use. The next stage requires profitable deployment after credit losses, funding costs and operating expenses.
Funding growth needs a second reading
The investor presentation reports 34% deposit growth, but only 6% excluding FCNR deposits. FCNR deposits are foreign-currency deposits from non-residents. In September, RBL disclosed approximately US$3.40 billion mobilised under the RBI swap facility, supported by Emirates NBD and its affiliates. It also disclosed approximately US$1.08 billion of loans against those deposits. These figures were provisional and translated at the August-end exchange rate. September disclosure; Q2 presentation, page 3.
This is evidence that the new relationship can bring funding. It leaves a separate question about the bank’s everyday deposit franchise. Average CASA deposits, covering current and savings accounts, grew 5%; the average CASA ratio was 24%. Granular deposits below ₹3 crore grew 16% to ₹68,877 crore. These are useful measures of breadth and stability alongside the headline total. Q2 release.
The asset side needs the same care. Secured retail advances grew 52%, but the presentation identifies roughly ₹10,300 crore of loans against FCNR deposits within that category. Deposit-backed lending has different economics from building a housing or small-business lending franchise. Treating all secured growth as one interchangeable engine would obscure the mix. Q2 presentation, page 9.
Asset quality: improvement, with qualifications
Gross NPAs fell from ₹2,377.56 crore a year earlier to ₹1,456.12 crore. The ratio declined from 2.32% to 1.02%. The absolute decline matters: improvement is more than the mathematical effect of a larger loan book. Standalone results, page 2.
Still, write-offs contribute to the clean-up. The presentation records approximately ₹809 crore of Q2 write-offs and ₹894 crore of fresh additions to NPAs. Removing a loan from the reported balance does not undo its economic loss. Falling problem-loan stocks should therefore be assessed alongside fresh stress, recoveries and provisions. Q2 presentation, page 10.
Judgement: A stronger capital cushion buys time and capacity. It cannot substitute for underwriting discipline when lending expands quickly.
Value the returns that capital can produce
Reported return on equity was 4.43%, against 4.44% a year earlier, even as return on assets improved from 0.48% to 0.92%. The fresh equity helps explain why a much bigger profit has yet to lift ROE. Q2 release, key ratios.
Management’s July ambition was to reach double-digit ROE over three to four years, potentially earlier if conditions improved. That was an aspiration, not a guaranteed timetable. Q1 call transcript.
A sensible valuation framework starts with book value per share, sustainable ROE and the return investors require for the risk. A premium to book needs credible future earnings on that book. A discount can persist when capital earns too little, even if solvency is comfortable. Neither a current share price nor a target price is assumed here.
The favourable case is that promoter-linked funding, lower financing costs and better operating efficiency compound into stronger per-share earnings as capital is deployed. The adverse case is that unusual funding flows and rapid balance-sheet growth look impressive while ordinary deposit gathering and through-cycle returns remain weak.
Four observations would change the assessment:
- Consistent EPS and ROE improvement after the share denominator has stabilised would strengthen the case.
- Broader recurring deposits and sustained average CASA growth would support funding quality.
- Renewed slippages or rising loss charges would weaken the clean-up thesis.
- Growth without an improving return on equity would suggest that capital is being used faster than shareholder value is being created.
Bottom line: RBL has received the capital and delivered a better operating quarter. The investment case now depends on converting that stronger platform into durable earnings per share and adequate returns on equity. The 170% headline is an opening observation, not the conclusion.
Disclosure: The author confirms that he, his associates and relatives have no holdings in RBL Bank and no compensation or dealings with the company.
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