RBL Bank Ltd’s troubles with asset quality continued for the March quarter although the lender seems to have shored up insurance in anticipation of an increase in stress. After all, the private sector bank’s mainstay business of credit cards and micro finance are the most vulnerable to the pandemic’s impact.

Slippages during the quarter remained elevated at Rs1439 crore and nearly 80% of them were from retail loans. The bank’s restructured loan pile rose to 1.41% of total loans from just 0.9% in the December quarter, a reflection that a large number of borrowers needed easier terms to repay due to the pandemic. The outlook on asset quality remains uncertain due to the second wave of the pandemic but the management indicated that disruptions so far have been minimal.

That said, RBL Bank has begun focusing more on secured retail lending such as home loans, two-wheelers, tractors and gold loans. These segments showed faster growth for the March quarter than the large segments such as credit cards and micro finance. Indeed, the lender’s credit card portfolio hardly grew while micro finance grew by just 6%. Nevertheless, the management reiterated that the unsecured book remains a constant focus for growth. “Our credit card and micro finance business will be the focus although it is a high credit cost business. Our earnings power offsets the risks here," said Vishwavir Ahuja, managing director and chief executive officer of the bank in a media call post earnings on Tuesday. Indeed, retail loans including credit cards have otherwise been resilient in terms of asset quality even as they turn out to be most risky in current pandemic times. That said, investors of the lender remain wary on these risks notwithstanding the 27% increase in provisions by the bank.

The rise in provisions was the key reason behind the net profit for March quarter missing analysts’ estimates. Another reason was that slippages continued to be elevated. Slippages along with the Supreme Court’s verdict to expand the scope of the compound interest waiver for moratorium period to all loans resulted in a large interest loss. The interest forgone meant that the bank’s core interest income dropped 11% for the quarter and eroded margins too. Analysts expect the pressure on margins to remain given that the bank has been running down its troubled corporate loan book for the past two years. For the March quarter too, corporate loans shrank 12% while retail grew 13%.

Analysts believe that loan growth will remain tepid given the second wave while asset quality concerns are partially alleviated due to the bank’s increase in provisioning. “We expect loan growth to remain weak as the management remains cautious in growing its unsecured segments due to a challenging environment and a resurgence in COVID-19 cases," wrote those at Motilal Oswal Financial Services in a note.

Shares of the lender have underperformed the sector index in the past one month, a reflection of the concerns over both growth and asset quality.