>CANARA BANK: Focus remains on Non-Performing Asset (NPA) Recovery (KJMC Insitutional Research)

■ Loan book to grow by 20% CAGR during FY11-13E: CBK has a very strong track record of loan book growing above industry standards by 24% CAGR FY09‐11 while deposits grew by 25.4% CAGR FY09‐11. We believe loan book to grow moderately by 20% CAGR FY11 – 13E given the global scenario looking bleak. CBK will continue to maintain higher than industry growth rates supported by strong sanction pipeline in infrastructure segment.


■ Stress on asset quality to remain; expecting strong recoveries: CBKs asset quality has been stable and best in its peer group. With bank moving to system based NPA recognition, Gross and Net NPA increased to 1.7% and 1.4% respectively which is still better as compared to its peers. We believe stress on asset quality will continue to remain in next two quarters given the fact of higher interest cost and slowdown in the world economy.


■ Pressure on NIMs to ease in FY13E: In H1 FY12 NIMs of the bank were under pressure due to high interest rates. We expect pressure to ease out in FY13E once inflation will come down giving room for RBI to cut repo rate. We expect NIMs to fall by 27bps to 2.4% in FY12E and improve in FY13E to 2.5%


■ Bank delivering consistent return ratios: CBK has been consistent in delivering strong return ratios RoANW and RoAA above 20% and 1% respectively in last two years. In FY11, RoANW and RoAA stood at 23.2% and 1.3% respectively reflecting its strong performance in the bottom line. However, we expect decline in both RoANW and RoAA in FY12E to 17.3% and 1.0% respectively due to higher interest cost impacting bottom line which will improve back in FY13E to 21.2% and 1.2% respectively.

RISH TRADER