Syndicate Bank - Absence of catalysts - ElaraCapital

Core interest income below expectations

In Q4FY13, Syndicate Bank posted NII (of INR 13.4bn, 0.6% growth YoY and 4% decline QoQ), 12% below our estimates of INR 15.3bn; NIM fell to 297bps from 329bps in Q3FY13. The bank witnessed spurt in non-interest income; total fee income rose significantly much ahead of our expectations; cash recovery and capital gains also reported handsome gains. Operating costs were quite contained with opex/assets ratio reducing to 168bps from 178bps in Q3FY13; the bank managed to contain cost-income ratio at 48%. Incremental net slippages remained contained at INR 1.9bn (as compared to INR 1.8bn in Q3FY13). Restructured loan book reduced to INR 91bn due to repayments and up-gradations. The bank continued to take tax credit advantage due to MAT credit, which we believe would be largely absent hurting bottomline going forward.

Moderation in margin

Subdued expansion in low-cost deposits and decrease in asset yield led to decrease in margin by 32bps on (QoQ basis). On volume side, incremental C-D ratio also reduced to 87% from 96% in Q3FY13. On credit book front, the bank recorded traction in SME and gold loans (priority & non-priority both). On investment book front, the bank posted higher growth in N-SLR investments. Surprisingly, even though, the bank posted higher growth in high-yielding advances, the bank's credit yield was under pressure.

Improvement in asset quality; a key positive

Containment in net slippages and reduction in restructured loan book was quite encouraging. Though, for the reported net slippages of INR 1.9bn, the bank's credit losses provision of INR 1.6bn was lesser and loan write-offs were higher. The bank's gross NPLs came down to 199bps with NPL provision buffer at 83%. Restructured loan book came down to INR 91bn (6.1% of gross credit book from 7.2% in Q3FY13).

Source : Equity Bulls

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