Canara Bank - Trumps on most counts - ElaraCapital

Total core income in-line

Containment in net slippages, improvement in margin and stable fee income led to total core net income at INR 23bn, in-line with our estimates. Much higher capital gains and contained operating expenses led to operating profit at INR 17bn higher than our estimation. The bank's credit cost was in-line, but higher restructured loan book provisions and investment depreciation provisions led to a bottomline at INR 7.25bn lesser than our estimates of INR 8.7bn. Overall, on the positive side, improvement in margin and NPLs aided profitability but much higher loan restructuring was a dampener.

Higher traction in credit book and contained liabilities costs stabilized margin

In Q4, the bank witnessed traction in credit offtake at INR 239bn with incremental C-D ratio at 34% from 6% in Q3FY13. Agriculture, SME and retail were the key credit growth drivers. Liabilities cost remained contained with reduction (of 25% QoQ) in whole-sale deposits to INR 718bn from INR 952bn in Q3FY13. Further decrease in whole-sale deposits would be determined by credit book expansion pace going forward. We do not foresee further decrease in whole-sale deposits composition, but successive downsizing of high-cost liabilities over quarters would have a positive impact on liabilities costs going forward as well.

Asset quality - a mixed bag

The bank managed to contain net slippages at INR 5.5bn as against INR 11bn in Q3FY13 and INR 5.1bn in Q4FY12. The bank's NPL recovery pace was the highest in Q4FY13. The bank's credit losses were in-line; but build-up in restructured loan book led to higher provisions of INR 1.6bn (compared to 700mn inQ4FY12). During the quarter, the bank added restructured loan book in MSME and large corporate at INR 1.4bn and 18.2bn respectively. We expect marginal improvement in asset quality with decrease in net slippages. The bank's management guidance on gross NPL below 2.0% and net NPL at 1.0% appears aggressive.

Source : Equity Bulls

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