Canara Bank Q4 FY2023 Concall Summary

Key Takeaways

• Record full-year net profit crosses ₹10,000 crore: FY23 net profit hit ₹10,604 crore, driven by 23% NII growth and over 20% operating profit growth, while Q4 NIM reached 3.07%.
• Asset quality transformed in a single year: Gross NPA fell 216 bps YoY to 5.35%, net NPA fell 92 bps to 1.73%, and the SMA book halved; cash recoveries now exceed quarterly slippages.
• CASA finally turned a corner in Q4: After stagnating for three quarters under rate-driven term-deposit competition, CASA grew 4.26% QoQ, and management launched five-plus initiatives in April to sustain the momentum.
• Capital comfort is explicit and multi-year: CRAR at 16.68% is among the highest in the peer set, and management ruled out common equity issuance for the next 1–2 years even while absorbing IndAS provisioning from internal accruals.
• What to watch next quarter: Whether the April CASA initiatives convert the Q4 uptick into a durable trend, the pace of MCLR repricing on the remaining 40% of the book, and any NCLT-led resolutions that could further compress net NPA toward the sub-1% ambition.

Profitability & Margins

• NIM beat and guidance: Full-year NIM of 2.95% exceeded the 2.90% guidance, and Q4 printed at 3.07% with a 14 bps YoY improvement. FY24 guidance is set at 3.05%, supported by the fact that 40–45% of the MCLR book has yet to reprice.
• MCLR repricing tailwind: The remaining ~₹1,60,000 crore of MCLR loans will reset in H1 FY24, as interest resets happen annually; this provides a visible NIM support for at least two more quarters.
• Credit growth deliberately slowed on thin-margin AAA loans: Domestic credit growth appeared muted at 1.39% QoQ partly because ₹15,000 crore of overseas short-term oil-company loans were repaid, but also because the bank repriced or walked away from AAA-rated advances to protect NIM while term-deposit costs rose.
• Cost of funds unlikely to fall soon: More than 90% of term deposits have already repriced into higher-rate schemes, and the cost of funds will stay at current levels unless the CASA initiatives deliver meaningful growth.
• Treasury profit to moderate: The bank built up its HTM book during the rising-yield cycle, lifting portfolio yield from 6.28% to 6.63%, and now plans to convert some to AFS to book profits as yields fall, but management flagged that profitability will continue at a lower pace, not spectacularly.

Satyanarayana Raju: "We focus on quality at the same time higher returns; these two while keeping in that this is the actually the thing, but otherwise literally there is no question."

Asset Quality & Provisions

• Slippages trending down, recoveries overtaking them: Slippages fell sequentially from ₹4,736 crore (Mar-22) to ₹3,210 crore (Dec-22) to ₹2,973 crore (Mar-23). Cash recovery in Q4 was ₹4,349 crore, exceeding slippages by roughly ₹1,400 crore.
• Provision coverage built well beyond the regulatory floor: PCR improved 314 bps YoY to 87.31%, and management committed to adding at least 100 bps of additional cushion every quarter. An extra ₹720 crore provision was taken in Q4 as a general buffer, not tied to any specific stress.
• SMA book halved: The SMA position (₹5 crore and above) improved from 1.53% in March 2022 to 0.76%, reducing the pipeline of potential future stress.
• Net NPA ambition is explicit and near-term: Guidance is 1.2% but management is confident of achieving 1%, with the stated aim to bring net NPA below 1% at the earliest.
• Credit cost guided lower: FY24 credit cost is guided at 1.2%, with management confident of doing much better.
• ILFS and NCLT resolutions could provide upside: Some resolutions are expected during the financial year, though management cannot specify the quarter; ILFS alone contributed ₹600–650 crore to Q4 recoveries from written-off accounts.

Satyanarayana Raju: "Our aim is to see that our net NPA should come below 1% at the earliest that's the moto we are moving on that."

CASA & Liability Franchise

• The structural challenge is geographic: Canara Bank is a 117-year-old South-based bank, and post-amalgamation another South-based bank merged into it. South Indian branches historically produce lower CASA ratios, so the starting point is structurally weaker than northern peers.
• FY23 stagnation was rate-driven, not bank-specific: Across the industry, savers moved from savings accounts to term deposits as banks offered up to 8% on retail term deposits. CASA was muted for three quarters before Q4 delivered 4.26% QoQ growth.
• April 3 initiative blitz targets a durable shift: Five-plus CASA initiatives launched in the first week of April, including a salary premium package with term life cover of ₹1 lakh to ₹6 lakh (claimed as a first in India), a non-salaried "Select" product across segments, a super-senior (75+) product with doorstep banking, and a single contact centre (1030) offering 35 services in 12 languages.
• The deposit-repricing asymmetry works against banks: Term deposits do not require waiting one year to reprice; depositors can switch to higher-rate schemes within a day, which is why over 90% of the book has already repriced.

Satyanarayana Raju: "We want to be very active in the first week of April itself. We kept our house ready, we have completed our process of internal promotions and transfers in the first week itself, and we made the people in their respective positions especially in the key positions and within seven days and we launched on the 3rd of April, almost addressing the CASA only more than five initiatives."

Capital & Regulatory Readiness

• CRAR among the highest in the peer set: At 16.68%, the bank has headroom to sustain double-digit credit growth for 2–3 years without raising common equity.
• No common equity issuance for 1–2 years: Management was explicit that internal accruals are strong enough to meet all regulatory requirements, including IndAS provisioning, without going to the market.
• IndAS/ECL requirement is a five-year number, not annual: The ₹42,000 crore figure cited by analysts translates to roughly ₹8,000–8,500 crore per year, which management says is comfortably covered by internal accruals. The bank's risk-weighted assets are the lowest among peers at 65%, providing a 9% cushion versus peers at 74%+.
• Tier 2 bond replenishment on the agenda: The next board meeting will seek permission to replenish maturing AT1 bonds, taking advantage of favourable market conditions.

Satyanarayana Raju: "Our internal accruals are so strong that we need not go to the market for depending to meet that regulatory requirements that's actually the communication what we are communicating to you."

Digital & Technology Transformation

• API banking launched with 50-plus features: The bank plans to scale this to 200 features during the year, aiming to let corporates transact without visiting a branch.
• Digital lending platform nearing launch: Operations are expected to commence from June month-end, with the platform about to be finalized.
• UPI and CBDC first-mover claims: Canara Bank was the first public sector bank to launch a credit card on UPI, and CBDC is live in 13 cities with customer and merchant onboarding underway.
• IT CapEx commitment stays elevated: The board has approved over ₹1,200 crore in IT capital expenditure, which will continue.
• Branchless banking ambition: Management's stated aim is to put branch banking on the customer's mobile phone, targeting younger and tech-savvy customers.

Satyanarayana Raju: "Ultimately our aim is to meet the requirements of the younger generation and tech savvy people so that we want to make ultimately the branch banking in their mobile, so for any purposes they need not come."

Subsidiaries & Value Unlocking

• Two listings on the horizon: The board has given go-ahead for listing Canara Robeco Asset Management Company and Canara-HSBC Life Insurance, with an expected timeline of 15 to 18 months subject to regulatory formalities.
• Subsidiary value target set at 100% growth: Management has given a roadmap to all associates and subsidiaries to double Canara Bank's share of their value from ₹12,500 crore to ₹25,000 crore.
• Can Fin Homes performing well: The subsidiary posted ₹621 crore profit under its new MD and is expected to do extremely well.
• Non-core entities being resolved: Canara-Tanzania Limited is likely to go for closure with valuation underway; Canara Bank Financial Services is already defunct and will be closed once pending litigations are resolved.

Guidance & Commitments

Key Metrics