Over 50% of slippages from the MSME sector: Canara Bank

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 15,779 (+0.4%). Top gainers in NIFTY50 were Hindalco (+10.1%), Tata Steel (+6.8%), and SBI (+4.1%). The top losers were Maruti (-2.3%), Power Grid (-2.1%), and Bajaj Auto (-1.6%). The top sectoral gainers were METAL (+5.0%), PSU BANK (+3.2%), and REALTY (+1.6%) and the sectoral losers were FMCG (-1.0%), AUTO (-0.4%), and PHARMA (-0.3%).

Excerpts of an interview with Mr LV Prabhakar, MD, Canara Bank (CANBK) with ET Now dated 28th July 2021:

• As far as slippages are concerned, they had given the guidance earlier in the quarter that their slippages will be around Rs 40bn. They worked on those lines.
• As far as the retail is concerned, their NPA is only 1.5%. One thing is timely assistance to these people, retail as well as MSME, and the second one is restructuring also helped a lot in assessing these people, at the same time controlling the NPAs.
• Out of Rs 42.5 bn slippages, about 55% to 58% is from MSME and 18% to 20% is it from retail. The rest is from other sectors.
• The lockdown led to the closure of business and cash flows were not there for MSME borrowers, as well as other people. It was a challenge in the month of April and May.
• In June, their collection efficiency increased to 91%. RBI resolution framework has helped a lot in assessing these people and in controlling the NPAs by restructuring the loans, wherever it is required.
• The best part of this restructuring, as far as their bank is concerned, is under MSME. They have restructured about Rs 33 bn and retail about Rs 76 bn and the total amount are over Rs 132 bn.
• After restructuring the people have started paying the instalments and already out of this, they have recovered about Rs 640 bn, out of which Rs 350 mn is an advance payment.
• They are going to have about 12% of their share in the equity and they are working on the accounts which can be transferred to this ARC with the approval of the board.
• In the last five quarters, every quarter, QoQ, the bank is strengthening the balance sheet. They are controlling the expenses. They are increasing the fee-based income because of which today their operating profit is at Rs 57 bn YoY; there is a growth of 34%.
• As far as loan book is concerned, corporate is about 45% and in the next couple of quarters, they do not see any stress as far as infrastructure and NBFC accounts are concerned because accounts have already passed through the stage. Now they are out of that impact of COVID.
• As far as provisions are concerned, as of date, all the accounts are amply provided. The provision coverage ratio is 81.18%. The bank is in a better position today compared to one year earlier when the provision coverage ratio was only 70%.
• Bank feels that subsidiaries have a lot of potentials and going forward this potential is going to increase significantly.
• Canara Bank stands 6th among 44 banks in the digital banking area. Going forward they are encouraging their customers to do more and more transactions through digital mode and they are encouraging their staff to handhold the customers to use the digital mode. Especially mobile banking, internet banking and also the debit cards and the credit cards to a larger extent, in which they have achieved significant success.

Asset Multiplier comments:

• The future of banking will be driven by major technological changes and will keep transforming. 
• The future of banking is ‘Digital’.  since most banks have already undergone their digital transformation, it will help in further stabilizing the Indian Banks.

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

• The closing price of CANBK was ₹ 150/- as of 29-July-2021.  It traded at 0.5x/ 0.4x/ 0.4x the consensus book value of ₹ 319/ 347/ 426 for FY22E/23E/24E respectively.
• The consensus price target is ₹ 160/- which trades at 0.4x the book value for FY24E of ₹ 426/-

 Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”