You are using an older browser version. Please use a supported version for the best MSN experience.

Hope springs eternal for Canara Bank in 2017-18

LiveMint logoLiveMint 20-07-2017 Aparna Iyer

Canara Bank believes that 2017-18 would be a year of recovery and growth, or so it says in its results presentation to analysts and investors. One cannot fault the bank on its optimism because most lenders are now left with a tenuous thread of hope after bad loans ravaged their books for the past two years.

The Bengaluru-based public sector lender reported a net profit of Rs251 crore for the quarter ended June, which is a growth of 10% from a year ago following a fall in profit for two successive quarters.

The fact that growth in net interest income, the core income a bank earns, has improved to 17.59% in the June quarter from a little over 14% in the previous quarter should also comfort investors. It also comes on the back of improved loan growth of 6.7%, especially during a slow quarter. But the bank’s profits are still propped up by trading gains.

Before investors begin to bet on the recovery Canara Bank believes would come this year, some digging on its asset quality is a must.

The headline bad loan ratios on a gross and net basis would show that the lender’s troubles have deepened. Gross non-performing assets (NPAs) ratio has climbed to 10.56% while net NPA ratio rose to 7.09% from 6.33% in the previous quarter.

Fresh slippages have also risen to Rs5,439 crore during the quarter, the highest since March 2016. While a rise in cash recoveries and a simultaneous fall in write-offs augur well for Canara Bank, the rate at which bad loans are turning healthy is still too low.

Further, the bank is earning its bread from loans to micro, small and medium enterprises (MSMEs), and retail loans. MSMEs contributed to more than 20% of fresh slippages and one hopes that the fresh loans to this segment by the lender are good assets.

To its credit, Canara Bank has continued to axe its toxic corporate loan book and its infrastructure loans shrank by 11% during the quarter. In contrast, its retail book grew by 8.34%, led by auto and personal loans.

However, at the end of the June quarter, the bank is sitting on a restructured loan book of roughly Rs21,000 crore (6% of total loans) in addition to a still-performing infrastructure loan stock of more than Rs40,000 crore.

With a slew of large corporate loans being taken up by lenders for resolution through bankruptcy proceedings at the behest of the Reserve Bank of India, investors will keep their fingers crossed that Canara Bank’s past performance is no guide to future losses.

More From LiveMint

image beaconimage beaconimage beacon