Corporation Bank’s loan book registered 2.2% qoq/20.2% yoy growth in Q2 FY13. Corporate segment witnessed robust growth of 46.1% yoy, followed by Agriculture (38.5% yoy), Retail (31.7% yoy) and SME (23.4% yoy). Resultantly, the proportion of corporate lending increased further to 47.7% in Q2 FY13 from 39.3% in Q2 FY12. Within Retail, gold loans (171.4% yoy), Mortgage (96.1% yoy) and Vehicle loans (80.9% yoy) were the main growth drivers. Credit growth in FY13 is likely to be in-line with system loan growth. Deposits grew by healthy 7.2% qoq/19.2% yoy driven by 8.3% sequential growth in CASA and 6.9% qoq growth in Term deposits. CASA ratio increased by 20bps to 20.9% led by 14.5% qoq growth in Current Deposits and 5% growth in Savings Deposits.
NIM declined by 6bps to 2.23% in Q2 FY13, led by steep fall in C/D ratio from 73% in Q1 FY13 to 68% in Q2 FY13, increase in CoF by 3bps qoq and decrease in YoA by 5bps qoq. We do not foresee a significant increase in NIM in ensuing quarters due to low CASA ratio and heavy reliance on bulk deposits.
Delinquency ratio dipped to 1.8% in Q2 FY13 from 2.9% in Q1 FY13. However, lower recoveries and up-gradations (Rs500mn in Q2 FY13 compared to Rs1,654mn in Q1 FY13) resulted in spurt in GNPAs by 15.4% qoq. Chunky slippages came in from a micro finance institution account (Rs800mn), the textile segment (Rs800mn) and the education segment (Rs300mn). Although delinquencies were lower in Q2 FY13, the pressure on asset quality still persists due to macroeconomic challenges. GNPA and NNPA ratio stood at 2.0% and 1.4% respectively. Outstanding restructured book stood at 9% of total advances. During the quarter, bank restructured advances worth Rs2.5bn compared to Rs10.7bn in the previous quarter. PCR was nearly stable at ~60%.
Core fee income witnessed robust growth of 15.9%qoq/20.4% yoy. Overall non-interest income de-grew by 0.5% qoq/18.2% yoy driven by de-growth in forex (82.6% qoq), cash management services (33.2% qoq) and relatively lower recoveries from w/off accounts. Weak NII and non-interest income was offset by decline in operating expenses, thereby resulting in decrease in C/I ratio by 176bps to 39.3%.
Factoring in pressure on asset quality, lower CASA ratio, significant dependence on bulk deposits, weak non-interest income growth, relatively weak capitalization (Tier I ratio – 8.4%) and lower expected RoA (0.8% in FY13), we downgrade the stock to market performer with a target price of Rs440.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||37,445||36,506||2.6||30,907||21.2|
|Net Interest Income||8,032||8,084||(0.6)||7,436||8.0|
|Key Ratios||Q2 FY13||Q1 FY13||chg qoq||Q2 FY12||chg yoy|
|Yield on advances (%)||11.9||11.6||0.3||11.8||0.1|
|Cost of Deposits (%)||8.3||8.1||0.2||7.6||0.7|
|Cost of Funds (%)||7.4||7.4||0.0||6.8||0.6|
|Non-interest income (%)||28.9||28.8||0.0||34.9||(6.0)|
|Non-interest income/Interest exp (%)||11.1||11.5||(0.4)||17.0||(5.9)|
|Cost to Income (%)||39.3||41.0||(1.8)||38.7||0.6|