Canara Bank posts strong December quarter boosted by lower provisions

Canara Bank Q3 earnings: Canara Bank reported a robust standalone profit after tax (PAT) of Rs 3,660 crore in third quarter of current financial year, up 27 per cent annually.

The stellar performance was attributed to a reduction in provisions, contributing to the bank's improved asset quality. Net interest income (NII) also demonstrated 9.5 per cent annual growth, in line with expectations, while margins saw a 3 basis points sequential improvement hitting 3.03 per cent.

The bank's other income saw an 8 per cent annual increase, totalling Rs 4,300 crore. However, it witnessed a 7 per cent sequential decline, resulting in a 6 per cent miss. Operating expenses grew by 23 per cent annually, hitting Rs 6,910 crore with a 17 per cent sequential increase, but still beating estimates by 8 per cent. Pre-provision operating profit (PPoP) declined by 2 per cent annually, missing expectations by 7 per cent, analysts at Motilal Oswal said on Canara Bank’s December quarter earnings.

On the business front, Canara Bank's loan book expanded by 13 per cent annually, driven by robust growth in both retail and corporate loans. Deposits also showed a healthy growth of 8.5 per cent annually, with term deposits leading the way at a notable 14 per cent increase. The CASA ratio, however, moderated by 50 basis points sequentially  to 31.7 per cent.

Notably, asset quality ratios displayed significant improvement, with credit costs falling below 1 per cent. Fresh slippages for the quarter stood at Rs 2,697 crore, a decrease from Rs 2,987 crore in the previous quarter. Return on Assets (RoA) and Return on Equity (RoE) stood at 1.01 per cent and 21.95 per cent, respectively.

Canara Bank's management expressed confidence in sustaining net interest margins (NIMs) near 3.0 per cent. Despite a high cost-to-income ratio of 50.4 per cent due to wage revision settlements at 17 per cent, the bank remains optimistic about growing advances at 12 per cent+ YoY.

The bank made additional provisions of Rs 700 crore, allocating Rs 250 crore for actuarial pension and Rs 450 crore for wage revisions, demonstrating a proactive approach to potential challenges.

Analysts broadly maintain earnings estimates, expecting Canara Bank to deliver FY25 estimate return on assets and return on equity of 1.1 per cent and 19.5 per cent respectively. The bank's positive outlook, steady business growth, and improved asset quality reinforce its strong position. The buy rating was reiterated for a target price (TP) of Rs 570, Motilal Oswal said.