Canara Bank (CANBK) Earnings Call Transcript & Summary

Good evening, everyone. Thank you for joining [indiscernible] Canara Bank Q2 FY '27 Earnings Conference Call. Today, we have with us the senior management team of Canara Bank, represented by Brajesh Kumar Singh, MD and CEO; Shri. Hardeep Singh Ahluwalia, ED; Shri. Bhavendra Kumar, ED; and Shri. S.K. Majumdar, ED. With this, I hand over the call to the MD sir for his opening remarks, post which we will have a Q&A session. Thank you, and over to you, sir.

Thank you. Thank you, there. I just welcome all our esteemed analyst to this analyst meet after having published our September quarterly results. And I'm very happy to inform some of the salient features, though we have already provided the full balance sheet and profit and loss statement posted. So we have this quarter crossed a very important milestone of INR 30 lakh crores of business, and our total global business stands at crores at 15.18% Y-o-Y growth. And then global deposit also grew by 13.13% Y-o-Y, and it is as of now, at INR 16.97 crores -- INR 16, 97,000 crores. Global advances grew very robustly at 19.46%, Y-o-Y, [indiscernible] and the most heartening to note is our core business, the income on core business, that is net interest income grew by 20.39% and it is at ever highest Y-o-Y also and our highest outstanding gross amount at INR 11,000-plus crores. Net profit also grew very handsomely, and it is also our highest profit of any quarter at INR 175 crores and Y-o-Y 8.4%. CRR is very well placed at 17.19% due to clawback also. And at the same time, our density of our respected asset has also improved like anything. Then PCR coverage is also -- we have increased it by 175 basis point Y-o-Y basis, and now it stands very robustly at 25.34%. Gross NPA, our total asset quality has improved like anything. Our guidance for the full year at March 31, '27 was for gross NPA [ 1.5% ] we have already improved it at 1.33%. Net NPA also, we said that it will be around 0.4%. It has further improved at [indiscernible] and it is as of now only at [ 1.30% ]. So if we go granularly in the advances side, it is the advances growth was broad best. I mean every RAM and large growth for everybody has equally contributed to discuss RAM grew by [indiscernible], retail credit at 31.61% and even -- in retail, if you talk about housing loan, it has also grown 17.35%. All these numbers are Y-o-Y. [indiscernible] grew by 25.5%. If we talk about MSME also, there is a very good growth at 15.49%. And in earnings per share, also 5% growth is 5%, and we are at INR 22.6. And there is a growth of 21 -- there is an improvement of 21 basis points on Y-o-Y versus in credit cost and it is very handsomely placed at 0.4%. And the slippage [indiscernible] has been contained like anything, and the annualized slippage ratio is only 0.58%, and there is an improvement of 18 basis points. So -- and let me just conclude by just giving how we have fared against our guidance, which we gave in the start of the year. So we said we'll grow total business by 10% to 11%. Against that, we have grown 15.8% advances, we said 11% to 12%. We have grown 19.46% deposit growth, we said 9% to 10%. Now we have growth at 13.13%. CASA, we have said that it will be between the range of 30% to 32%, which is as of now at 29%, is that we have protected at 39% in spite of the fact that we could garner 5.8 billion of FCNR (B) deposit, which in rupee terms is close to INR 55,000 crores, which is all under term deposit. Had it not been there, we would have been also achieved those surpass this guidance also. Despite of so much term deposit, [indiscernible] in a very short span of time, we are still maintaining 29%. NIMB said, it will range between 2.5% to 2.60%. We are at 2.53% on an annual basis. And on quarterly, it is 2.5% even better. Gross NPA, like I already discussed, net NPA also discussed, [indiscernible] discuss slippage ratio guidance was 0.80%. Now it is only 8.58%. Credit costs also have said that we have improved. And against the guidance of 0.75% is only 0.47%. Return on equity, we said 16.5%. It is 2% more around [indiscernible] to be precise. Earnings per share also we said 20% and it is at 22.6%. Return on average, we said between 1.01% to 1.05%. We are at 1.04%. So you see barring on CASA, that I've explained [indiscernible] we have surpassed by good margins on all the -- this thing. I mean, all the guidances. Now I shall be open to your analysis, your questions, your any further clarification from our side. And any guidance from your side, please?

[Operator Instructions] We will take the first question from the line of Mahrukh.

Hello, sir. Congratulations. Congratulations, sir. So I just had a couple of questions. What would be your incremental yield on corporate loans currently? And what would it be last quarter? As in what was the incremental yield on corporate loans in the second quarter? And what was it in the first quarter? And likewise, on gold loans [indiscernible]

Okay. That I will provide you. Yes, we have got [indiscernible]

The corporate yield is 7.72%. And on gold, it is increased to 9.10%. It has increased from 8.96% to 9.10%.

And corporate has improved?

From 7.68%, it has improved to 7.72%.

Okay, sir. Got it. Got it. And sir, what is your take on margins from here on? Do you see margins improve from year on to?

I guess we will be able to sustain this NIM at 2.5%. -- considering, I mean, there is a rate hike also up 0.25 basis points. We had 25 basis points. And our reported linked book is 53%. And again, MCRR will be also repriced, but at the same time, it will further depend upon how deposits and advances are getting repriced. But as of now, we speak 53% of book is already repriced. And then there is a festive decision, there will be a lot of festivity also. So there will be a lot of underwriting on the retail lending and growth propelled through widespread consumption. So we see there is good margin also. In retail, our margin is 8.65% [indiscernible] so that's why it will improve. 50% already repriced.

Got it, sir. Sir, and again, on gold loans, competition keeps increasing. I know Canara Bank has done well. It's one of the leaders there. But competition keeps increasing, so do you see pressure on yields going ahead? Your yield has actually improved Q-o-Q, but do you see pressure on yield going ahead, given that competition keeps rising, even large NBFCs are now getting into it in a big way?

So we were under a very competitive environment so that we are used to taking on competition. So yes. But one thing I would like to say, gold loan, we are doing for years altogether. And we are very -- I think very much skilled in doing gold loans. All our people are very smart. We have got a very good setup of [indiscernible], gold safes and the whole ecosystem we have got very well placed. We are market leaders also. And as of now, also, we are not pricing very aggressively like this NBFC and all. And we are always below NBFC, and they can't be below us considering they borrow from us only and then the further goal lending. They are not a deposit-taking NBFCs. So yes, competition is there, but we know how to -- we know this business, how to do this business. We will be further bettering. It will be not dipping, I guess.

We will take the next question from the line of Jai Mundhra.

Congratulations on a steady quarter. Few questions, sir. First is the bulk deposit, while we have raised huge FCNR (B), but it looks like that the bulk deposit has not moved either way. I was under the impression that you -- the bank may be tempted to reduce bulk deposits are only replaced bulk by FCNR. So what is your thought process? Can bulk deposit be decreased? And is there any -- the entire FCNR will be in retail TD only, right? Is that understanding correct?

Let me request Ahluwalia to answer here.

Sir, last quarter, we have increased the bulk and CD by INR 12,000 crores. So from [indiscernible] the bulk has gone to INR 4.37 lakhs. Now this quarter, we have consciously not taken and maintained at the June level from INR 437 to INR 438 million. During this process, we have decreased our cost of deposit by 1% because the FCNR deposits were at 1% less than the bulk prevailing market price.

So we have grown by 19% in advances also. We have grown 13% in deposits. So there is a gap also. So it was funded there also. The part of it was utilized there or credit fully with robust credit growth, it was utilized.

No, it has replaced what you understood was correct, replaced by deposits. It fully replace the bulk deposit. Otherwise, had FCNR (B) not been there, deposits would have been more by INR 30,000, INR 35,000 crores. I mean bulk CD put together.

Yes. Right. And in the process, you have saved 100 basis points cost on bulk, right?

Yes, yes. Wherever we have replaced [indiscernible] that was 7.5%. Further, we have saved on cost of CRR and SLR also, which is also 22, 23 points. Considering these were not supposed to be a charge CSLR also. So again, there is -- that arming also.

So sir, I'm not able to understand your NIM trajectory because 50% of the book will move up by 25 basis points immediately or it has already moved. And bulk deposit, even if the rates seem still softer or stable times, right? So mathematically, the NIM should go up only. What is the [indiscernible]

Okay. Okay, I'll answer. This quarter, that effect of that FCNR (B) leverage will also come, wherein we do not have a spread of 2.55%. It is the spread in the 3.2 billion in leverage is only 40, 50 basis points. So that will be compensated with this a little more, it will compensate more. So that impact will also come from this quarter now.

And sir, into interest income on advances, was there any one-off? I mean, the calculated yield and even the reported yields are up by 3, 4 basis points on the yield, loan yield, is there anything which helped us in improving the loan yields?

No, no, no. It is only since our average advances has continuously increased and it never [indiscernible] so due to average advances on the trading side and very calibrated underwriting also we have done. We have not done any sub 7 loans. Whether we have studied some of the sub 7 loans. And at the same time, we have some of the high-cost deployed like Mr. Ahluwalia told. So that's why this increased earning is there. It merely on the count of average outstanding advance is going one side northward only.

Right. Understood. And sir, your gold loan -- total gold loan in rupees crore and how much of that is agri gold and retail gold, sir, if you have that number.

Okay. So INR 282,000 -- INR 2,082,000 crores is the total gold loan, out of which agriculture is INR 1,074,000 and other [indiscernible] other, non-agriculture, INR 1,008,000. So all together, INR 2,082,000 crores.

Right. Last question, sir, from my side is, sir, AFS reserves. If you can quantify what was the IFRS result at the end of Q1 and at the end of Q2?

Number I will also give, but in percentage terms, I would like to say 80% of our investment book is HTM, 20% other than HTM, AFS and FPL. Out of that, also 15% book is [indiscernible] some percentage is AFS. So even if HTA is not supposed to -- if you are asking about that dent mark-to-market. So STM is not supposed to be hit by MTM, but AFS is also not hitting our profit and loss that will directly go to AFS result. Only BTL, which is less than 4%, around 4%, their impact of mark-to-market is coming. But also I can quantify last.

You wanted to know that what is the increased loss the loss for the quarter is around INR 1,300 crores for the quarter in AFS.

Okay. But that is adjusted in AFS , right? Nothing to do with [indiscernible]

Exactly. It is adjusted in AFS.

And sorry, sir, you were mentioning about the sensitivity of [indiscernible].

Yes. last quarter, our earnings was from INR 55 crores. This year...

This year lost [indiscernible]

This year loss was INR 55 crores. Last quarter, earnings was around INR 500 crore. [indiscernible] So altogether, losses INR 600 crores.

Lastly, sir, if you can -- I think I heard you on TV saying about this broad situation is not very problematic as of now. But are you seeing anything that can reduce your recovery efforts even for the -- in those affected districts, how is -- how can that -- I mean, if you can.

Not much. Three states have been declared drought affected. Part of Karnataka than Maharashtra. So these 2 states are only affected that to part -- so there will not be much effect on the recovery because restructuring is happening through and total exposure to drought prone not less than -- around INR 13,000 crores. So that will not affect much [indiscernible]. And again, some dispersion also will come from SLBC side. So that has already come. So we'll sell through that, I guess.

So the, say INR 300 crores INR 14,000 crores will be restructured, right? Or can be restructured?

Yes. The restructured somewhere [indiscernible] moratorium deferment is there. Moratorium is there some restructuring, some additional support also, it comes it is decided by state by state by state-level banker committee. Unlike last to last quarter, emergency line of credit was there. So that helped. So some kind of dispense on every time comes. This will be also not an exception you see.

Sir, my worry is by the time dispensation come, can these accounts become NPA or they will be...

So like I've said, there is no stress in my gold book or going further also, even if you take SMA-0 into consideration, total rate is only 2.42%. And slippages also last quarter were only 0.15%. So this way, we do not see or perceive any stress in our book.

This 2.4% is all ticket size, right, including below INR 5 crores.

[indiscernible]. If you talk about more than INR 5 crores, then it less than 1%, 0.3% only.

We will give the next question from the line of Sushil Choksey.

Congratulations to team Canara in excellent performance. First question to you, sir, your key ratio level. [indiscernible] I've heard whatever you reply to [indiscernible] So I have 3 questions. As you were saying, there is no stress. Margins have bottomed out, our efforts on saving [indiscernible] looking god with respect to your C&I deposit taking up. Would you like to revise your guidance for the year on any parameter starting from ROA, ROE, cost to income, CD or any of the [indiscernible]

Like I said, sir, these were all decided before by joining the bank. And we are just respecting that. I said I'll work hard. Team will work hard, will better it. So you have seen everywhere we have already bettered it and we'll keep on -- we'll sustain it. So instead of -- I said instead of going and revising my own guidance is, so let me better it. So we are watering it only. We are not restricting ourselves anywhere [indiscernible]. We are not sticking to guidance. You see against the advances growth, 11%, 12%, we are booking. We are just concentrating ourselves to let this growth story be a very sustainable one. So we have no plan to [indiscernible], sir, yes.

And as of October 14, what is the visibility on RAM business being festive quarter and Karnataka has a big festive specifically around this [indiscernible] Second thing, how is your ball loan business looking? How is your corporate pipeline looking and overall business mix, how do you see visibility for Canara for the quarter and for the year? And specifically looking at the businesses which are emerging in the state of Karnataka and Tamilnadu, where we have a good concentrate manufacturing businesses are expanding, be it auto, be it, defend many other such businesses are emerging out of these 2 states. So how is the new business segment emerging for you where the credit is likely [indiscernible]?

So first question, sir, we are seeing very robust demand for retail and products you see, like our housing loan in excess of 17%, 18% is growing total retail 21%, vehicle loan, 25%. So it's a very good demand also that to without this festive season. So we have already started getting those numbers. We are already in the festive mode. And then yes, our presence is very good in the state of Karnataka and Tamilnadu, [indiscernible] also. So the what benefit we get due to this presents and since we are born here only that we are very well recognized. So that branding and the issue is not there, and we are -- we're kind of first-wise bank here. So that benefit we are already getting. So likely this quarter due to this festivity and other like garners have also have seen in spite of [indiscernible] raising reported by 25 basis points. He revised our growth projections for the country from 6.7% to 7.1%, 40 basis points. So that the country is also very resilient and robust, and we do not see any stress in our books also. So we see that this quarter going further will be a good quarter. And again, regarding pipeline of large corporate book or corporate [indiscernible]. So altogether, all ready tanks are not disbursed and we have got good hot leads in hand. So that is around INR 47,000 crores, let's say, around in and out INR 50,000 crores. And in June, also similar kind of pipeline was there. So I guess, there is a sustained demand also from the market, most particularly from power sector, green sector, power evacuation, battery savers, data centers. So many from infrastructure also. So there are -- there is a good pipeline, I can say that 50,000 is in my hand only. And RAM is also doing a good set.

Sir, my next question is, how is outlook for recovery from written-off account. Second thing is on your subsidiary. And third is treasury, you'll have a painful time. How are we [indiscernible] the storm where treasury is concerned. So if you can highlight more on your subsidiaries and the return of accounts.

Okay, sir. So I'll start with the recovery part. Recovery are though there is no challenge as such. In percentage basis, we are recovering very handsome. And every quarter, we are recovering more than what we are slipping. This quarter is also not an exception. That is one. But yes, at the same time, let me accept that very pull up that return of accounts is drilling down. And all those gross advances also see, it is only 1.33% and in the total absolute terms solicits around INR 18,000 crores only. So part of it is already resolved and recovered also. And which is some of the outstanding [indiscernible] in our book, only due to CRP or PIRP processes. So that pool is drilling down, and we are not slipping also very heavily in the new slippages, only 0.15% quarter. So that tool is a -- so in absolute term, recovery will be not as much as what we are recovering as of now. But yes, 1 or 2 quarters, there is absolutely no issue. But going further, that very pool is dwindling down one thing. But there will be other benefits which we are not slipping than what we will recover. So that is one thing. And then the next question you asked sir regarding...

Treasury and subsidiary.

Subsidiary last time 2 of our subsidiaries, we listed them. They're all good profit earnings and their shares stock is also doing good. [indiscernible] Kendra Robeco, that is a mutual asset company. This quarter also, we intend to sell it out one of our a subsidiary called Canara Bank factor, that deal is already done. So total investment was only INR 14 crores, but we'll get ForEx. ForEx will get at least. Our share will ForEx. So that is on account of subsidiary, all -- we have got 14 subsidiary, associates and joint ventures, every where we are doing good. All our subsidiaries are doing good and giving synergy to us and augmenting our balance sheet side also. So then we come to treasury operations, yes, there is pain in that side only due to hardening of yield. And at the same time, there were no much OMO operations so that we had any arbitrage. So last year, very handsome income was there from [indiscernible] side. This year instead of income, there is a loss. But that everybody is exposed to that. We do not have much say to that. But yes, with our own prudence, we are trying to minimize losses. But whatever is mandated like mark to mark, you have to book, you have to book. So that is what we have booked and said I will be not a little bit less affected, considering 80% of book [indiscernible] 20%, 15% in FX, that will go to [indiscernible] directly. 5% that vulnerability is there. For one quarter, it was affected by INR 600 crores that is due to 44 basis points hardening of yield in one quarter. It is for the half [indiscernible] hardening, but that is a dynamic situation, we do not know. So if you know we can speculate, but there's no speculation. Whatever is there, we are coping with that. But that is being compensated by robust NII growth.

Yes, I agree with you on all the parameters. Sir, my last question, I know I won't get to answer, but still I'm asking you. Look, government has expedited results season for PSU banks this time. And this is led by some speculation or reality, we don't know that there is a Diwali gift of some merger and Canara stands out to pick 1 or 2 banks in the [indiscernible]. Do you have any comment on it?

It was all our decision to give a result as early as possible if I've got nothing to do with the government. It is all solely our decision management decision and have supported by all my vertical leads and our statutory centralistic [indiscernible] alters only. Why we wanted to result published early as possible, considering every quarter, every -- we are publishing these results by 22, 24 and sometime by 28th of the month. In a way, what happens, we lose 1 month. Then we are left with only 2 months in the quarter. So even if you are not that much bogged down with the process of auditing and publishing our results, still your mind is occupied with the results and all. So that way, we have just tried to make ourselves free. Now at least, we are having 2.5 months instead of 2 months to perform in the quarter, and this is a very important quarter.

Same all PSU banks are justifying with productivity. Congratulations and best wishes that it sustains the same momentum for quarters to come.

We will take the next question from the line of Parth Gutka. As there is no response, we will move to the next question from the line of [indiscernible]

A few questions on my side. Firstly, if you can share what was the interest of IT refund this quarter. I believe the number for June quarter was roughly INR 250 crores. Secondly, what was the quantum of AS 15-related provision in the June quarter as well as September quarter? .

Okay. I'll ask CFO to answer this, yes.

So this quarter, we could book the IT interest income around INR 90 crores. And your second question is regarding AS-15 provision. So pension and gratuity are put together, INR 950 crores we have provided as per actuarial valuation.

Is INR 950 crores, sir, is for September quarter, right? .

Yes. This is for quarter, correct.

And what was the corresponding number for the June quarter? .

June [indiscernible] more or less same. Another INR 40 crores, INR 50 crores, it was less, but more or less same time.