Dena Bankâ€™s lending portfolio remained almost flat sequentially against our expectation of 3.5% qoq growth. The yoy credit growth momentum was robust at 37.8%, with a strong traction in Priority Sector credit (41.4% yoy) and MSME (36.2% yoy). Management has guided credit growth of ~20% in FY13, largely driven by MSME, Priority Sector and Retail segment. Deposits recorded a healthy growth of 4.8% qoq/30.1% yoy. The growth was largely driven by 8% sequential growth in CASA, followed by 3.7% qoq growth in Term Deposits. CASA ratio rose by 95bps qoq to 31.9% in Q2 FY13, led by 22.8% qoq growth in Current Deposits and 4% qoq growth in Savings Deposits. Management is confident of sustaining CASA ratio at 30%+ going forward. With deposits growing ahead of advances in Q2 FY13, C/D ratio decreased 4ppt, from 75% in Q1 FY13 to 71% in Q2 FY13.
NIM declined by 20bps qoq to 2.86% in Q2 FY13, owing to decline in YoA (14bps qoq; due to rationalization of interest rates in certain credit segments to sustain asset quality) more than offset the fall in CoD (4bps) and decrease in C/D ratio. We expect NIM of ~3% in FY13, led by revival in C/D ratio, focus on relatively better yielding credit segments and improvement in CoD.
Asset quality disappointed slightly with GNPA (1.97%) and NNPA (1.22%) ratio increasing by 17bps and 21bps respectively in Q2 FY13. Delinquency ratio rose from 1.3% in Q1 FY13 to 1.9% in Q2 FY13. Out of the total slippages of Rs2.9bn, the largest account was of ~Rs600mn pertaining to hotel industry. Less-than-commensurate provisioning resulted in decline in PCR from 75.6% in Q1 FY13 to 72.5% in Q2 FY13. However, it is still one of the highest among its peers. Outstanding restructured advances stood at 7.6% of total advances, adding advances to the restructured book to the tune of ~Rs3bn during Q2 FY13. These included 3 textile accounts (Rs1.5bn), 1 port account (Rs600mn) and 1 steel account (Rs600mn). Management expects restructuring of advances worth Rs1.6bn in Q3 FY13.
Non-interest income de-grew by 5.5% sequentially, led by weak CEB income growth (1.5% qoq) and lower trading profits and slower recovery (Rs91.2mn in Q2 FY13 compared to Rs128mn in Q2 FY12). Bank added 59 new branches and 16 ATMs during the quarter, keeping the C/I ratio intact below 40% in H1 FY13. Bank targets to add 25 branches in H2 FY12.
Keeping in view Dena Bankâ€™s better asset quality (lower delinquencies and restructuring compared to its peers), sustenance of CASA ratio above 30%+ in challenging times, lower volatility in margins, healthy PCR, lean operating structure and ~1% RoA, we believe the bank would continue to put up a resilient show in tough times. Thereby, we maintain our BUY rating with increased target price of Rs130.
|(Rs mn)||Q2 FY13||Q1 FY13||% qoq||Q2 FY12||% yoy|
|Total Interest Income||21,940||21,372||2.7||16,338||34.3|
|Net Interest Income||5,940||6,122||(3.0)||5,149||15.4|
|Key Ratios||Q2 FY13||Q1 FY13||chg qoq||Q2 FY12||chg yoy|
|Yield on advances (%)||11.8||12.0||(0.1)||12.0||(0.2)|
|Cost of Deposits (%)||7.6||7.7||(0.0)||7.0||0.7|
|Non-interest income (%)||18.4||18.8||(0.4)||18.0||0.3|
Interest exp (%)
|Cost to Income (%)||39.9||39.3||0.7||44.0||(4.0)|
|Gross NPA (%)||2.0||1.8||0.2||
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