Canara Bank, the leading nationalised public sector bank, in its Board of Directors meeting, held today approved the Capital Raising Plan of the Bank for the Financial Year 2021-22 amounting up to Rs 9000 cr by way of Equity and Debt Instruments. Canara Bank share price today is Rs 161.9, up Rs 8.25 or 5.4%. Canara Bank share price has doubled from a 52-week low of Rs 80.40.  The market cap of Canara Bank is Rs 26660 cr.

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Canara Bank Board of Directors of the Bank has approved to Raise Equity Share Capital amounting upto Rs 2500 cr (including Premium) by way of Qualified Institutional Placement (QIP) during the Financial Year 2021-22 out of the above Rs. 9000 cr.

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Emkay said that Canara Bank’s Credit growth has moderated to 3.6% yoy/0.8% qoq mainly due to corporate debulking and tepid growth in MSME (up 2.5% yoy/down 4.7% qoq). The retail portfolio clocked 12% yoy growth, led by housing and vehicle segments. Deposit growth has come in strong at 11.5% yoy/3.9% qoq, driven by a healthy momentum in CASA (up 14% yoy) and Retail TD (up 16.3% yoy). Reported NIM was moderate at 2.75%, mainly impacted by NPA recognition and interest waiver. Canara bank believes that it is well prepared to face the second Covid-19 wave and expects credit growth to improve in FY22. Better credit growth should lead to better LDR (Loan to Deposit Ratio), which will structurally support core margins in the long run.

Canara Bank’s Reported GNPA was flat at 8.9% vs. pro forma GNPA in Q3, mainly due to higher recovery and write-offs. The overall restructuring pool is low at 1.3% of loans, which is positive. Canara bank guides for FY22 slippages to be 2.1% - 2.3% with higher recoveries following resolutions in some lumpy corporate accounts, explains Emkay.

Emkay believes that merger related concerns are largely behind and the bank should report gradual improvement in its RoA/RoE to 0.4-0.5%/8-10% by FY23E24E (without factoring in dilution), led by better growth/moderate LLP (Limited Liability Partnership). Retain Buy with a revised Target price of Rs 175 (from Rs155), factoring in upgrades in earnings//multiple (core bank valued at 0.6x vs. 0.5x).

Canara Bank Key risks call /estimates:

Higher-than-expected NPA formation
slower growth trajectory and sharp rise in G-Sec yields leading to lower treasury gains.