Corporation Bank’s loan book reported 6.4% sequential growth against our expectation of 7.5%. SME (11.7% qoq), Agriculture (9.1%) and Retail (8.1% qoq) segments were the main growth drivers. The yoy credit growth momentum was robust within these segments, posting 30%+ growth in each. Corporate lending was relatively slow witnessing a growth of 3.5% qoq/11.5% yoy. Within Retail, Mortgage and Vehicle loans are growing at a faster pace recording 85.2% and 76.5% yoy growth, respectively. As on Dec’2012, bank’s Priority Sector portfolio stands at 34.2% of adjusted net bank credit. Deposits de-grew by 2.3% qoq led by a decline of 4.5% in CASA deposits and 1.8% in Term Deposits. A sequential decline of 9% in Current Deposits resulted in decrease in CASA ratio from 20.9% in Q2 FY13 to 20.5% in Q3 FY13. However, bank is focusing to overcome these challenges by increasing footprints in CASA accretive locations. Robust growth in advances and shrivel in deposits resulted in sharp increase in C/D ratio by 6ppt to 74% in Q3 FY13.
NIM improved by 12bps sequentially to 2.35% in Q3 FY13, almost in line with our expectation of 10bps. The increase was largely driven by significant improvement in C/D ratio. CoD declined significantly from 8.3% in Q2 FY13 to 8.06% in Q3 FY13. NIM is expected to remain stable owing to focus on relatively higher yielding loans, improvement in asset quality and thrust to improve CASA mobilization.
Delinquency ratio increased from 1.8% in Q2 FY13 to 2.8% in Q3 FY13. However, significant write-offs barred GNPA ratio from rising significantly. GNPA (2.18% in Q3 FY13) and NNPA (1.63% in Q3 FY13) ratio rose by 21bps and 25bps qoq, respectively. PCR declined further by 240bps sequentially to 58% in Q3 FY13. Outstanding restructured book stood at 8.5% of total advances compared to 9% in the previous quarter. During the quarter, bank restructured advances worth Rs2.6bn. Bank made additional provision of 0.75% on the existing restructured book (as mandated by RBI), thereby resulting in an increase in the provision on standard advances from Rs110mn in Q2 FY13 to Rs280mn in Q3 FY13. These provisions are expected to remain elevated with the implementation of Mahapatra Committee recommendation, to increase the provision on standard restructured advances to 3.75% (current 2.75%) by Mar’2014 and to further 5% by Mar’2015.
Non-interest income grew by 18.7% qoq driven by robust recovery from written-off accounts, forex and investment sale. Cost/Income ratio rose by 1ppt qoq to 40.3%, led by branch additions (52 branches in Q3 FY13) and manning of these branches. Corporation Bank still stands to be one most operationally efficient bank with C/I ratio of less than 42%.
Corporation Bank’s Tier I ratio of 8.08% is relatively lower requiring sufficient capital infusion to meet the Basel III norms. However, excess SLR of ~Rs100bn (currently 30% of total deposits as against requirement of 23%) can be used to meet bank’s capital requirement.
In addition to the pressure on asset quality, relatively lower margin, lower CASA ratio and weak capitalization limits the upside on the stock despite low valuation. We maintain Market Performer rating on the stock with a target price of Rs451.
|(Rs mn)||Q3 FY13||Q2 FY13||% qoq||Q3 FY12||% yoy|
|Total Interest Income||38,709||37,445||3.4||33,628||15.1|
|Net Interest Income||8,834||8,032||10.0||8,618||2.5|
|Key Ratios||Q3 FY13||Q2 FY13||chg qoq||Q3 FY12||chg yoy|
|Yield on advances (%)||11.6||11.9||(0.3)||11.9||(0.4)|
|Cost of Deposits (%)||8.1||8.3||(0.2)||7.6||0.4|
|Cost of Funds (%)||7.3||7.4||(0.1)||6.9||0.4|
|Non-interest income (%)||30.5||28.9||1.6||33.9||(3.4)|
Interest exp (%)
|Cost to Income (%)||40.3||39.3||1.0||36.6||3.6|