Canara Bank hits highest level since February 2018; surges 83% in 6 months

In the past one week, it has rallied 10 per cent, as against a marginal 0.40 per cent gain in the S&P BSE Sensex

Shares of Canara Bank hit an over four-year high of Rs 338.30, up 1 per cent on the BSE in Monday's intra-day trade, on expectation of strong earning ahead alogn with stable outlook. The stock of the state-owned lender was trading at its highest level since February 2018.

In the past six months, it has zoomed 83 per cent as compared to 15 per cent rise in the S&P BSE Sensex. In the past one week, it has rallied 10 per cent as against a marginal 0.40 per cent gain in the benchmark index.

In the July-September quarter (Q2FY23), the public sector lender had reported an 89 per cent year-on-year (YoY) jump in net profit to Rs 2,525 crore in Q2FY23, aided by higher net interest income that came on the back of a healthy growth in advances.

The bank's net interest income grew by 18.5 per cent YoY to Rs 7,434 crore compared to Rs 6,273 crore last year. Net interest margin (NIM), a measure of profitability, of the bank stood at 2.86 per cent compared to 2.78 per cent in the previous quarter, and 2.77 per cent in the year-ago quarter. The bank expects margins to remain healthy given the rising rate environment.

"Overall slippages remained higher than expected at Rs 3,950 crore/2.4 per cent of loans. However, higher recoveries and write-offs along with healthy credit growth led to a 61-bps reduction in GNPA ratio to 6.4 per cent. The restructured book contracted by 42bps to 2.1 per cent of loans. With the NARCL transfer around the corner, NPA ratios should continue trending down. This, coupled with healthy PCR, should also lead to lower LLP, albeit being partly offset by the hit on treasury," analysts at Emkay Global Financial Services had said in a result update.

Meanwhile, Fitch Ratings expects Canara Bank to surpass its guidance of more than 10 per cent loan growth in the financial year ending March 2023 (FY23) given its current risk appetite and high corporate credit demand, including from overseas loans. The bank is still emphasizing credit quality, given the need to ensure optimum capital utilisation. The rating agency expect above average growth in retail and farm loans to continue though focus on secured asset classes such as housing and gold loans should continue to moderately balance risks and rewards.

Fitch said it has reassessed Canara's asset-quality score to 'b+' from 'b' due to easing asset-quality pressure, which rating agency expect to be sustained and progressively reflected in the bank's four-year average impaired-loan ratio. “The outlook is stable, as we expect the four-year average to remain above the 'bb' threshold of 5 per cent in the near term,” Fitch said in rating action commentary on October 4, 2022.

"The impaired-loan ratio fell to 7 per cent in 1QFY23 from 8.9 per cent in FY21 on lower fresh impaired loans and higher upgrades, although write-offs also helped. The specific loan-loss cover improved moderately to 66 per cent, mitigating some risks. Still, the cover is below that of most peers, which could put pressure on loan impairment charges if stress were to exceed our expectations," Fitch said.