We plan to raise Rs 6,000-8,000 crore in FY21 – Canara Bank

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green at 10,552 (+1.2%). Top gainers in NIFTY50 were M&M (+6.4%), HEROMOTOCO (+5.2) and TITAN (+3.8%). The top losers were AXISBANK (-1.9%), UPL (-1.0%) and VEDL (-0.9%). Top sectoral gainers were Auto (+2.8%), IT (+2.6%) and Metal (+0.6%) and sectoral losers were Bank (-0.1%) and PSU banks (-0.1%).

Edited Excerpts of an interview with Mr. LV Prabhakar, CEO, Canara Bank Ltd with Financial Express dated 2^nd July 2020:

• They have recovered from written-off accounts about Rs 1,470 crore, which is nearly 13% higher. Apart from that, the CRAR has been maintained at 13.65% and gross NPAs have been brought down by 62 basis points to 8.21%. PCR has increased by 773 bps to 75.86%.
• This time, sufficient provisioning for all the expected risks has been made. For staff expenses, they have extra provision of about Rs 1,100 crore. NPA provisioning, they have set aside about Rs 11,596 crore for the year and for the quarter, they have made about Rs 5,300 crore.
• As Syndicate Bank is getting merged with them, they have made Rs 340 crore extra provisioning.
• In Q1FY21, they declared Dewan Housing Finance as a fraud. They have taken the impact in Q4FY20, which is about Rs 497 crore of extra provisions.
• They have done extra provisioning because in the Covid scenario, they want to make their balance sheet strong. So wherever possible, they have proactively made provisioning. Simultaneously, they have taken care that CRAR did not get affected.
• In the first month of Q2, they will have a board meeting, in which they are planning to get an approval for Rs 6,000-8,000 crore of capital. As of now, their capital ratios are adequate.
• In order to factor in growth and any probable effect (of Covid), they are planning to go for a capital raise. This will be raised in Q3 or Q4 of FY21 in the form of or maybe AT-I (additional tier-I) bonds.
• There is a risk there because now nobody wants to subscribe to AT-I bonds after some problems with another bank , or they could go for some kind of tier-II issue. In March 2020, they raised Rs 3,000 crore at 7.12% in tier-II category.
• In terms of the number of borrowers, 19% and in terms of amount, 17% of the borrowers have availed moratorium.
• Some people have preferred to pay back. In the MSME segment, about 38% of the people have opted for it, whereas in retail it is only 5%. Some of them are housing loans and a few for vehicle loans.
• Whatever deferment is available is going to be for accounts which have defaulted after March 25. Before that the cases that came can be taken forward.
• They expect that about Rs 3,700 crore will be recovered from NCLT in FY21. The main account expected (to be resolved) is Bhushan Power and Steel.
• With Canara Covid support and the 100% government-guaranteed emergency credit line, in the last three months they have already disbursed about Rs 91,600 crore.
• In FY21, they expect growth ranging around 7-8%. There will definitely be demand from retail for housing and vehicle loans. With all the support that MSMEs, there should be traction there, too.
• NBFCs always need money because they invest further. As soon as the infrastructure side picks up, there will be demand from corporates as well.

Consensus Estimate: (Source: market screener and investing.com websites)

• The closing price of Canara Bank Ltd was ₹ 105/- as of 02-July-2020.  It traded at 0.3x/ 0.3x the consensus book value of ₹ 337 /336 for FY21E/22E respectively.
• The consensus price target of Canara Bank is ₹ 127/- which trades at 0.4x the book value of ₹ 336/-

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