Canara Bank Q3 FY2023 Concall Summary

Key Takeaways

• Record profit, broad-based strength: Net profit surged 92% YoY to an all-time high of ₹2,882 crores, driven by 24% NII growth, while the global business crossed ₹20 lakh crores.
• Asset quality transformed the P&L: Gross NPAs fell 191 bps YoY to 5.89% as slippages halved and recoveries outpaced new stress, pulling credit costs down and pushing PCR up 306 bps to 86.3%.
• NIM crossed a psychological threshold: Margins hit 3.05%, exceeding prior guidance, as the bank managed to reprice assets faster than deposits despite aggressive special-rate deposit campaigns.
• The deposit engine is running hot: A 666-day special scheme at 7.5% garnered over ₹1 lakh crore gross, funding 14-15% credit growth while keeping the CD ratio at a comfortable 73.5%.
• What to watch next quarter: Whether the 3% NIM holds as the bank laps its special-deposit surge, the pace of CASA improvement from new API and BC initiatives, and any spillover of restructured MSME slippages.

Profitability & Margins

• NII surge, no one-offs: The 24% YoY and 11% QoQ jump in net interest income was entirely organic, with no one-off interest on income tax refunds or investment gains inflating the number.
• NIM crossed 3% on asset repricing: Yield on advances rose ~20 bps while cost of deposits rose only 10 bps (to 4.19%), even as the bank offered 7.5% on its flagship 666-day deposit through the entire quarter. The December 35 bps repo hike was passed on to borrowers only in January, a deliberate lag that protected margins.
• Cost discipline amplified the operating leverage: The cost-to-income ratio improved 184 bps YoY to 44.4%, helped by post-amalgamation synergy benefits: renegotiated ATM landlord rentals saved ~₹160 crores annually, and renegotiated technology vendor contracts saved over ₹500 crores in one year.
• Tax provision jumped on a good problem: The ~₹900 crore tax charge reflects that accumulated losses of ~₹7,300-7,400 crore have been fully wiped out by December, so taxable income is now growing as slippages fall, recoveries rise, and provisions reverse.
• DTA is self-correcting: The DTA stands at ~₹6,600 crore, only ~₹200-300 crore above the 10% of CET1 regulatory limit; March quarter profit is expected to bring it to just about 10%, so no additional provision is needed.
• ROA nearing the 1% milestone: Achieved 0.76% against a 0.70% guidance; management expects to be "nearer to 1%" next year based on the last 4-5 quarters' momentum, with formal guidance after the Board budget discussion.

Raju: "I'm sure that we will be nearer to the 1% with the five basis points here and there."

Asset Quality & Credit Cost

• Slippages collapsed, recoveries surged: Fresh slippages fell to ₹3,040 crores while recovery and upgradation exceeded ₹4,000 crores, driving the gross NPA ratio down 191 bps YoY to 5.89% and net NPA down 90 bps to 1.96%.
• Zero corporate slippage in Q3: The entire slippage pool came from agriculture (₹1,050 cr), MSME (₹1,150 cr), and retail (₹750 cr). The corporate book is clean this quarter.
• Restructured book is the residual risk: RF1 slippage is a manageable 2.8% on a ₹2,800 crore outstanding pool. RF2 is the concern: 14% slippage on ₹11,500 crore outstanding, with the MSME portion inside RF2 (₹2,200 crore outstanding) slipping at ~12-13%.
• Credit cost running below guidance: Credit cost is tracking at 1.21-1.25% against a 1.5% guidance, and management expects this lower range to hold as the recovery-upgradation trend continues to outpace slippages quarter-on-quarter.
• PCR built steadily, not in one leap: Provision coverage ratio rose ~300 bps over the year to 86.3%, with management aiming to add ~1% of additional comfort every quarter rather than targeting a fixed number.
• Recovery outlook is confident but unquantified: Management expects the trend of recoveries exceeding slippages to continue in Q4, but declined to give specific recovery numbers, citing past instances where expected resolutions spilled over because money did not arrive on time.

Raju: "We are aiming that every quarter let us show some 1% additional comfort in the form of additional PCR."

Deposit Strategy & Liquidity

• Special-rate deposits funded the growth surge: The 666-day scheme launched October 6th at 7.5% (7% base + 0.5% for senior citizens) garnered more than ₹1 lakh crore in gross new deposits, though net growth reflects renewals and maturities of existing 1-year term deposits, 90% of which are for one year. A new 400-day scheme at an attractive rate was introduced one week before the call and is already seeing good traction.
• Deposit pricing is a stakeholder-sharing philosophy: Management frames above-market deposit rates as sharing benefits with depositor-stakeholders, not as a liquidity scramble. The bank also delayed passing the December 35 bps repo hike to borrowers until January, a move peers made in December itself.
• CD ratio has room to run: The ratio improved from 67% two years ago to 73.51% now, with a target of 75% (plus or minus 1-2%). Management explicitly ruled out a sudden jump to 79%.
• No big deposit rate changes foreseen: The bank is comfortable with its liquidity position to match projected 14-15% credit growth and sees no need for near-term rate adjustments unless the interest rate scenario changes drastically, in which case it will course-correct on the liability side.
• Special schemes are finite: These are limited-period offerings tied to the bank's funding appetite and will be withdrawn once that appetite is met.

Raju: "We are very much comfortable with our liquidity issue. Just we want to share whatever benefits we are getting when we are growing it. So, because the customers are our major contributors as stakeholders in our growth we want to share some part of that towards the customers' benefit, depositors' benefit."

Loan Book Composition & Growth

• Corporate book spiked on a single low-risk trade: Global corporate credit showed high single-quarter growth because ~₹15,000 crores was lent to AAA-rated sovereign oil companies in Q3, with a similar amount flowing through the overseas book. Domestic corporate credit grew ~14% YoY, in line with RAM.
• RAM growth stayed broad-based: Domestic gross advances grew ~14% in 9M, with RAM (retail, agriculture, MSME) growing ~13.8%. The bank intends to maintain a ~45% corporate, ~55% RAM mix.
• Gold loans remain the standout product: The portfolio grew 34.2% to ₹1,15,286 crores, sustaining industry-leading growth.
• Real estate growth was base-effect driven: The 21% sequential growth in real estate is attributed to a low base, not a structural shift.
• Credit growth guidance held at 14-15%: Management is confident of at least 14% domestic gross advances growth for Q4, with the same tempo continuing into next year barring unexpected events.

Digital & Technology Investments

• MeitY ranked Canara #1 among 47 banks for digital journeys in FY22, validating the technology push that management calls its next aggression frontier.
• Mobile banking adoption doubled in a year: The ai1 app, launched mid-last year, saw active customers grow from 77 lakhs to 1.55 crore within 12 months, achieving a 4.2-4.3 Play Store rating. Features like block-in/block-out for suspected transactions drove adoption.
• QR code penetration is a rural reach play: With 60% of branches in rural/semi-urban areas, the bank distributed 21 lakh+ QR codes in 12 months, the highest among PSBs. An audio confirmation system for QR transactions, a first in India, was piloted in Bangalore and is expanding nationwide by month-end.
• API banking and digital lending are near-term catalysts: API banking for corporates launches within a month with 15 features and is expected to be a game changer for CASA. An end-to-end digital lending platform targeting the majority of RAM flow is targeted for completion in the next six months.
• BC network expanded aggressively at low cost: Business correspondent points jumped from 8,900 in September to nearly 14,000, with ~6,000 BCs recruited in the last 1-2 months, expanding outreach with minimal OpEx.
• CASA improvement is the explicit technology bet: Management acknowledges CASA is historically low and expects the combination of branch network, enhanced BC network, and heavy technology investment to produce a clear change in coming quarters.

Majumdar: "We know that our CASA is low historically but we want to correct that and you will see in the next coming quarters that clear change in that CASA, Sir."

Capital & Regulatory Preparedness

• Capital raise is partly done: The Board approved ~₹9,000 crores of capital raising; ₹6,000 crores has already been raised, with the remaining ₹3,000 crores to be considered at the appropriate time depending on cost and requirement. The reported capital number includes the interim nine-month PAT.
• ECL provision impact is unquantified: When asked for a rough estimate of the ECL/IndAS impact on capital, management declined to give any number, stating only that the capital gap would be at par with or a bit better than peers.
• CBDC is in final testing: The bank is in the UAT stage for CBDC and will launch immediately when infrastructure is ready.
• PSL income is a near-term drag: Q3 PSL income was very low at ~₹70 crores, and Q4 is expected to be equally muted due to low appetite from other banks in the PSLC marketplace.

Guidance & Commitments

Key Metrics