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 USD3.5b, CMP INR380, TP INR415, 9% Upside, Neutral)

• Canara Bank’s (CBK) PPoP growth of 42% YoY (9% beat on other income) was offset by elevated provisions of INR26.7b (59% miss), leading to a 51% YoY decline in PAT to INR1.3b.
• Reported NIM was flat QoQ at 2.35% (domestic NIM at 2.64% v/s 2.60 in 2Q). NII grew 32%/52% QoQ/YoY. 3QFY18 NII had INR7b of interest reversals. Other income grew -13%/-19% YoY/QoQ due to MTM provisions on the treasury portfolio due to a rise in bond yields.
• Loan growth picked up to 12.5% YoY, driven by 32.9% YoY growth in retail, while deposits declined 1.3% YoY, leading to a CD ratio of 74.0% (72.2% in 2QFY18).
• Gross slippages declined sharply (69% YoY) to INR26.4b, while cash recoveries came in at INR15.27b. Absolute GNPA increased 3% QoQ to INR403b, while GNPA/NNPA stood at 10.38%/6.78% (-13bp/-25bp QoQ). Total stressed book stood at 11.9% of advances (13.4% in 2Q).

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 8.75%/9.57%/12.49%.