MOSL: CANARA BANK (Neutral)-Elevated provisions offset PPoP growth-asset quality stress persists

​Canara Bank: Elevated provisions offset PPoP growth; asset quality stress persists

(CBK IN, Mkt Cap USD3.4b, CMP INR404, TP INR386, 4% Downside, Neutral)

• Canara Bank's (CBK) PPoP growth of 16% YoY (9% beat on opex beat of 4%) was offset by elevated provisions of INR21.6b (44% miss), leading to a 27% YoY decline in PAT to INR2.6b.
• Reported NIM was flat QoQ at 2.34% (domestic NIM at 2.6% v/s 2.56 in 1Q). NII grew 3%/14% QoQ/YoY. 1QFY18 NII had INR800-900m of interest reversals. Other income grew 9% YoY (-8% QoQ as 1Q included gains from stake sale in CARE).
• Loan growth picked up marginally to 9.5% YoY, driven by 21.7% YoY growth in retail, while deposits growth was relatively muted at 2.5% YoY, leading to the CD ratio increasing to 72.2% (67.5%/71.7% in 2QFY17/1QFY18).
• Gross slippages declined sharply (40% QoQ) to INR33.7b, driven by controlled slippages in agri/MSME (INR3b/8b). Absolute GNPA increased 4% QoQ to INR392b, while GNPA/NNPA stood at 10.51%/7.02% (-5bp/-7bp QoQ). Total stressed book stood at 13.4% of advances (13.8% in 1Q).
• Other highlights: (a) The bank is in discussions to raise total capital of INR63b (INR35b equity). (b) CET1 ratio/tier 1 ratio/CAR stood at 8.68%/9.5%/12.45%.