MOSL: CANARA BANK (Neutral)-Elevated provisions lead to losses-asset quality stress persists

Canara Bank: Elevated provisions lead to losses; asset quality stress persists

(CBK IN, Mkt Cap USD2.8b, CMP INR246, TP INR266, 8% Upside, Neutral)

• Canara Bank (CBK) reported a loss of INR48.6b, led by elevated provisions and opex, as the bank chose to not use the RBI's dispensation on spreading out provisioning for NCLT accounts, MTM provisions and gratuity provisions. PPoP decline of 41% YoY was led by lower total income (-15% YoY) and higher opex (+20% YoY), taking the CI ratio to 59.1%.
• NII declined 19% QoQ, but increased 10% YoY (3QFY18 NII included INR7b of interest on tax refund). Reported NIM was flat (+3bp) QoQ at 2.42% (domestic NIM at 2.65% v/s 2.64 in 3Q). Other income declined 15%/44% QoQ/YoY due to the bank recognizing MTM provisions upfront.
• Loan book grew 11.6% YoY, driven by 30.5% YoY growth in retail, while deposits growth was relatively modest at 6% YoY. On a sequential basis, the CD ratio declined slightly to 73% (74% in 3Q).
• Gross slippages spiked to INR132.4b (3.5% annualized, INR81b from the RBI's revised guidelines, INR7.7b from restructured book and INR8.3b due to failure of one SDR case), while upgrades/recoveries and write-offs came in at INR12.9b and INR48b, respectively. Absolute GNPA/NNPA rose 17.8%/12.8% QoQ to INR474b/INR285b, while GNPA/NNPA stood at 11.8%/7.5% (-146bp/-70bp QoQ). Total stressed book stood at 9.1% of advances (11.9% in 3Q).