Captains Speak     

Published: December 15, 2024
Updated: December 15, 2024

Canara Bank

MF, insurance arms to go public

We are keen on listing our mutual fund and life insurance arms in fiscal 2025.” Giving an indication to this effect at a conference call organized to discuss the performance of Canara Bank during Q2FY25, K Satyanaraya Raju, Managing Director and CEO, added, “The disinvestment in the mutual fund arm, Canara Bank Rebeco, will support the capital adequacy ratio of the bank, which is already sufficient at present.

According to Mr Raju, the board has already given the green signal for IPOs of Canara Rebeco and Canara HSBC, the mutual fund and life insurance arms respectively. The bank will retain a majority stake in both after they go public.

On the performance of Canara Bank during Q2FY25, Mr Raju said the bank reported an 11% growth in net profit at Rs 4,014.53 crore and a 5% growth in net interest income (NII), while the core fee income improved by 18%. The Net Interest Margin (NIM) of the bank declined to 2.86%, compared to 3.02% in the corresponding previous quarter.

ASSET QUALITY UP

On the business front, the bank has posted a 9% growth in business with a 10% increase in the loan book. Asset quality has improved sharply in Q2FY25. The bank has maintained a steady credit-deposit ratio at 75.1%, from 75.0% in the previous period. The CASA ratio has moved up slightly on a sequential basis to 28.7% at end-September 2024. Fresh slippages of loans declined to Rs 2,345 crore, compared to Rs 3,337 crore in the previous quarter and Rs 2,987 crore in the corresponding quarter last year. Recoveries of NPAs stood at Rs 1,188 crore, upgradations at Rs 659 crore, and the write-off of loans was Rs 3,121 crore in Q2FY25. The provision coverage ratio was steady at 90.89% at endSeptember 2024, compared to 89.22% a quarter ago and 88.73% a year ago. The capital adequacy ratio of the bank stood at 16.6% with the Tier I ratio at 14.6% at endSeptember 2024.

Pointing out that business growth during the quarter was moderate, Mr Raju added that the business of the bank increased 9% YoY to Rs 2359344 crore at end-September 2024, driven by a 10% surge in advances to Rs 1011997 crore. Deposits rose 9% to Rs 1347347 crore at end-September 2024. The CASA deposits of the bank increased 5% YoY to Rs 387327 crore at end-September 2024. Current account deposits rose 5% to Rs 46622 crore, while saving account deposits increased 5% to Rs 340705 crore at end-September 2024. The CASA ratio declined to 28.7% at end-September 2024 compared to 29.8% at end- September 2023, while it improved from 28.6% a quarter ago. Term deposits have increased 11% to Rs 960020 crore at end-September 2024. Overseas deposits have increased 22% to Rs 108634 crore at end-September 2024.

Maintaining that the bank has registered strong retail loan growth, Mr Raju noted that advances growth was driven by retail loans rising 31% YoY to Rs 194556 crore at endSeptember 2024, while credit to agriculture increased 3% to Rs 242930 crore and MSME 6% to Rs 139103 crore. Corporate credit has increased 7% to Rs 435408 crore at end-September 2024. Overseas credit has jumped 27% to Rs 57848 crore at end-September 2024. The Investment book of the bank increased 12% YoY to Rs 378310 crore at end-September 2024. The SLR book moved up 9% to Rs 326523 crore, with the non-SLR book rising 35% to Rs 49047 crore at end-September 2024. The AFS book dipped 16% to Rs 52044 crore, while the HTM book rose 6% to Rs 300563 crore at end-September 2024. However, margins have declined. The bank has showed a 40 bps YoY jump in the cost of deposits to 5.26%, while yield on advances in creased at a moderate 21 bps YoY to 8.77% in Q2FY25. Thus, the NIM has declined 15 bps YoY and 4 bps qoq to 2.86%.

NEW BRANCHES

The bank has added 35 branches and reduced 133 ATMs in Q2FY2025, taking the overall tally to 9,662 branches and 9,881 ATMs at end- September 2024. The book value of the bank stood at Rs 97.0 per share at end-September 2024, while the adjusted book value (net of NNPA and 25% of restructured advances) was Rs 84.3 per share at end-September 2024.

According to him, the credit cost has declined by 20 bps yoy to 0.9% in Q1FY25. The credit deposit ratio for the bank stands at 73.04% at end-June 2024. The bank has reduced the GNPA ratio by 9 bps qoq to 4.14% and the NNPA by 3 bps qoq to 1.24% at end-June 2024. The bank has witnessed an increase in average cost of incremental deposits to above 7.5%, while it is expected to remain elevated due to liquidity concerns. The yield on advances has been slightly impacted due to reclassification of penal interest income to other income, leading to a 6 bps decline in yield to 8.66% in Q1FY25. About 51% of the loan book of the bank is linked to MCLR and 38% to RRLR. The bank has witnessed conversion of Rs 15,000 crore of current account deposits received in Q4FY25 to bulk deposits in Q1FY25. The bank has created full provision for employees’ wage hike at the rate of 17%. Segment wise, agriculture contributed fresh slippages of Rs 900 crore, MSME Rs 1,220 crore, retail Rs 500 crore and corporate Rs 600 crore.

The restructured loan book of the bank has declined to Rs 16,000 crore, of which the standard book is Rs 1,100 crore at end-June 2024. The bank has witnessed an increase in the SMA-0 loan book due to exposure to a PSU company in Andhra Pradesh. The bank has a sufficient capital adequacy ratio and does not require capital raising. The bank expects divestment in Canara Robecco in Q4FY2025, which will support the capital adequacy ratio. The bank has maintained the guidance of 10% growth in deposits and advances. The bank aims to reduce the GNPA ratio to 3.5% and NNPA ratio to 1.1%, while raising PCR to 90% by end-March 2025. The bank expects NIMs to be at 2.95% in Q4FY25.