Canara Bank, whose shares are up 66 per cent in the past one year, reported a mixed set of quarterly results -- in-line earnings led by lower provisions, offsetting the muted net interest income (NII). The PSU bank said its net interest margin (NIM) contracted 17 basis points sequentially on account of a change in the accounting policy. That said, the management expects NIM at 2.95 per cent for exit-FY25.
The Q1 loan growth was led by retail segment. The deposit growth was modest, with the CASA ratio seeing a sequential moderation, MOFSL said.
"There has been an improvement in overall asset quality ratios, with slippages seeing a slight improvement. We broadly maintain our earnings and estimate Canara Bank to deliver an FY26E RoA/RoE of 1.1 per cent/19.3 per cent. Reiterate BUY with a target price of Rs 133 (premised on 1.1 times FY26E ABV)," MOFSL said.
Kotak Institutional Equities maintained its 'Reduce' rating on the stock with a fair value target of Rs106. It values the bank at 1 time June 2026E adjusted book with return on equity of 15 per cent in the medium term.
"We have an unchanged investment theme for the bank. The bank is probably well past its best-in-class performance, which drives our rating at this stage. However, we do believe that Canara Bank is unlikely to show any adverse change in NPL ratios and consequently, credit costs. The bank’s guidance—(1) on growth is fairly conservative at 10 per cent YoY, (2) stable outlook on NIM with limited scope for improvement and (3) further improvement in gross and net NPL ratios but mostly led by increase in balance sheet growth," it said.
Meanwhile, Kotak said the contribution from recovery from written-off loans will be steadily declining putting additional pressure on Canara Bank's return on asset, unless the bank is able to improve cost ratios.
Canara Bank said its June quarter profit jumped 10.47 per cent to Rs 3,905.28 crore from Rs 3,534.84 crore in the same quarter last year. Gross NPA ratio slipped 101 bps to 4.14 per cent against 5.15 per cent in the June 2023 quarter. Net NPA ratio of the bank fell to 1.24 per cent, down 33 basis points from 1.57 per cent level in the year-ago quarter.
The accounting policy change hurt yields and NII. Earlier, the penal interest was shown in interest income, and now it is shown in other income, and the difference due to this has been Rs 150-160 crore. The bank said Canara Robeco disinvestment is expected in Q4, which should support CET-1 further. Besides, a total Rs 1,400 crore was added due to the new investment guidelines. A total of Rs 1,100 crore was added to reserve, and Rs 300 crore has gone to HTM.