EQUITIES

Analyst corner: Canara Bank – Maintain ‘rating suspended’

CASA ratio was unchanged at 33% while NIM was flat qoq at 2.3%.

Net NPLs at a 19-quarter low. Canara Bank reported a loss primarily on account of higher provisions for staff costs and bad loans. Net NPLs are at a ~5 year low (15% qoq and 20% yoy). Gross and net NPLs continue to decline which is comforting. We are waiting for the merger process to get its final shape and form to get clarity on the financial position of the combined entity, especially with respect to capital and net worth position.

Maintain Rating Suspended. Canara Bank reported a loss primarily on account of higher provisions for staff and bad loans. Operating profits declined ~30% yoy with a 2% yoy increase in revenues offset by 45% yoy growth in operating expenses. The sharp increase in staff costs appears to be a normalisation of retirement related costs to align the assumptions between Syndicate Bank and Canara Bank, in our view.

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Revenue growth was weak with a weak NII growth (5% decline yoy) offset by a 17% yoy growth in noninterest income led by recovery from written off loans. Loan growth was muted at 1% yoy while deposits grew 4% yoy. Growth in loans was primarily driven by retail (7% yoy), SME declined 8% yoy while corporate/other loans were flat yoy.

CASA ratio was unchanged at 33% while NIM was flat qoq at 2.3%. Provisions were on the higher side primarily on account of improvement in coverage ratio. The overall progress on asset quality was mostly felt at the net NPL number as the bank has made significantly higher provisions to improve the provision coverage ratio. This improvement could be driven by harmonising common exposures between the merged banks as well as ageing related provisions that we see in 4Q .

The bank has reported a decline in gross NPLs of ~20 bps to 8.2% while net NPLs declined 90bps qoq to 4.2% of loans on a sequential basis. Net NPLs are closer to FY2015 levels. The slippages have been quite high at 4% (annualised).

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