Technology

In its 2QFY2016 results, Canara Bank reported a decline in PAT by 15.6% yoy,
mainly due to higher provisions and surge in operating expenses.
Loan book grows at a slow pace; NIM rises qoq
During 2QFY2016, the bank’s loan book grew by 3.9% yoy with retail loan book
growing at a faster pace at 14.3% yoy. The C-D ratio came down to 66.6% from
67.4% in 2QFY2015. Deposits growth was muted at 5.2% yoy with CASA deposits
showing momentum, which grew by 11.5% yoy. As a result, the domestic CASA
ratio for the bank rose by 178bp yoy to 25.5% as of 2QFY2016. The Reported
Global NIM rose sequentially from 2.21% in 1QFY2016 to 2.24% in the current
quarter which aided NII growth of 11.8% for the quarter. The Management
expects to reach 2.35% NIM by the end of this fiscal year. During 2QFY2016, the
non-interest income (excluding treasury) was subdued with a yoy growth of 4.4%
yoy largely aided by recoveries from written off accounts. Treasury income, at
Rs295cr, more than doubled for the quarter on a yoy basis (Rs144cr in 2QFY2015).
On the asset quality front, slippages came at Rs2,202cr (annualized slippage rate
of 2.7% as compared to 3.1% in 1QFY2016). Recoveries and upgrades were
lower at Rs1,261cr as compared to Rs2,478cr in 1QFY2016. As a result, the Gross
NPA ratio went up to 4.27% as compared to 3.98% in 1QFY2016, whereas the
Net NPA increased to 2.90% from 2.74% in 1QFY2016. Additionally, the bank
restructured advances worth Rs600cr during the quarter taking the book to
Rs29,026cr as on 2QFY2016. The Provision coverage ratio improved to 59.81%
from 58.68% in 2QFY2015.
Outlook and valuation: Canara Bank has been reporting subdued growth in its
profitability over the past several quarters. It has a larger exposure to various
stress sectors in the economy as compared to its peers. At the current market
price, the stock trades at 0.4x FY2017E ABV. We maintain our Neutral view on
the stock.

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