Canara Bank (CBK) reported a significantly lower PAT at Rs 850 million (down 87% y-o-y) on 8 bps q-o-q decline in NIM to 2.2% and sharp increase in provisions (up 70% y-o-y). Higher provisions were due to humongous slippages arising out of asset quality review by RBI. Decline in margin was due to impact of recent base rate cut and higher interest reversals.
Headline asset quality deteriorated with GNPLs up 157 bps q-o-q at 5.8%. We believe asset quality pain will persist in near term, which coupled with rise in provisions for restructured book to 15% from existing 5% will keep credit cost at elevated levels. Advances growth was muted at 6% y-o-y and our estimates factor in advances CAGR of 8% over FY15-18.
Slippages were much higher at Rs 54 billion, of which 61% was due to asset quality review by RBI. Steel, infra and textile sectors contributed to large portion of the slippages; management guided for slippage of Rs 30 billion in Q4 from asset quality review; fresh restructuring was Rs 2.2 billion during Q3. Outstanding restructured book is Rs 287 billion (8.5% of loans vs. 8.9% in Q2FY16); and bank sold assets of Rs 1.5 billion to ARC during the quarter and outstanding security receipts stands at Rs 12.3 billion; CBK refinanced Rs 16 billion through 5:25 scheme. Pipeline for the same also stands at Rs 16 billion.