MOSL: CANARA BANK (Neutral)-Asset quality stress persists-improvement in operating performance

Canara Bank: Asset quality stress persists; improvement in operating performance

(CBK IN,Mkt Cap USD2.8b, CMP INR259, TP INR278, 7% Upside, Neutral)

• NII grew 30%/43% QoQ/YoY, primarily led by a recovery of INR5.2b from resolution of Bhushan Steel and INR2.2b of income tax refund. Reported NIM expanded 10bp QoQ to 2.52% (domestic NIM at 2.75% v/s 2.65 in 4Q). Other income increased 38% QoQ, largely on account of recovery of INR2.8b from the resolution of Electro Steel; treasury gains were muted at INR1b (-26% YoY). PAT came in at INR2.8b (+12% YoY) v/s a loss of INR48.6b in 4QFY18.
• Opex growth of 9% QoQ trailed total income growth of 32% QoQ, leading to PPoP growth of 66%/19% QoQ/YoY to INR29.3b. CI ratio declined to 48.7%. Loan loss provisions declined 72% QoQ to INR24.6b. The bank chose to avail the RBI's dispensation on spreading out MTM provisions of INR4.5b over the next three quarters.
• Loan book grew 12.7% YoY, driven by 36.2% YoY growth in retail, while deposits growth also picked up to 9.7% YoY. CD ratio improved to 72.4% (v/s 70.6% in 4QFY18).
• Gross slippages moderated to INR40.1b (1.1% annualized), while upgrades/recoveries and write-offs came in strong at INR42.1b and INR28b, respectively. Absolute GNPA/NNPA decreased 5.9%/6.5% QoQ to INR446.6b/INR266.9b, while GNPA/NNPA stood at 11.1%/6.9% (-79bp/-57bp QoQ). Total stressed book stood at 9.0% of advances (9.4% in 4QFY18).