Canara Bank’s second quarter performance and outlook suggest a solid foundation for future growth, driven by improved asset quality and effective cost management, according to analyst. The bank reported a standalone profit after tax (PAT) of Rs 40 billion for the second quarter of FY25, marking an 11.3% year-on-year increase and surpassing expectations by 6%. This growth can be attributed to controlled operating expenses, which are expected to continue benefiting the bank’s bottom line, said a report by Motilal Oswal Financial Services.
The bank’s net interest income (NII) rose 4.6% year-on-year to Rs 93.2 billion, in line with expectations. Although the net interest margin (NIM) moderated slightly to 2.86%, the overall loan book grew impressively by 10.3% year-on-year to INR 9.8 trillion, indicating robust demand particularly in the retail segment. Management’s guidance of 11% credit growth for FY25 reflects confidence in sustaining this upward trajectory.
Despite a modest deposit growth rate of 9.3% year-on-year, Canara Bank’s current account-savings account (CASA) ratio has improved to approximately 31.3%. This enhancement in deposit dynamics is crucial for maintaining liquidity and supporting further lending activities.
Canara Bank continues to enhance its asset quality, with gross non-performing assets (GNPA) and net non-performing assets (NNPA) ratios showing significant improvement. The GNPA ratio fell to 3.73%, while the NNPA ratio improved to 0.99%, supported by reduced slippages which decreased to Rs 23.4 billion in Q2 from Rs 33.4 billion in Q1. The bank’s provision coverage ratio (PCR) of 74.1% reflects a strong buffer against potential future losses.
Management focus
The bank Management has expressed confidence in achieving credit cost guidance of less than 1% for FY25, despite a slight increase in the Special Mention Accounts (SMA) book, which currently stands at 1.48%. The bank is actively managing its portfolio, particularly in the retail segment, which saw a 10.7% quarter-on-quarter growth in advances.
The introduction of new retail gold loan products has resonated well with customers, contributing to the growth of the gold loan book, which stands at INR 1.65 trillion. This strategic focus on the retail market, particularly in high-yield segments, positions Canara Bank to capture increased market share while mitigating risks associated with corporate lending.
Analysts from Motilal Oswal Financial Services maintain a ‘Buy’ rating on Canara Bank with a target price of INR 125, reflecting an estimated upside of 20%. The projection is based on a price-to-book value of 1.1 times the estimated adjusted book value for FY26. The overall sentiment surrounding Canara Bank remains positive, driven by its strong fundamentals, consistent earnings growth, and proactive management strategies.
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