Canara Bank Q3 FY2024 Concall Summary

Key Takeaways

• Earnings beat on clean-up quarter: Net profit reached ₹3,656 crores, with 9M FY24 profit already exceeding full-year FY23, even as the bank absorbed a one-time ₹700 crore wage revision hit.
• Asset quality is the real story: Gross NPA fell 150 bps YoY to 4.39%, credit cost dropped below 1%, and the provision coverage ratio improved to 89%, giving the P&L a structural buffer.
• The RAM shift is deliberate and margin-conscious: RAM now 56% of loans, growing at 14.56%, while the bank actively repriced or exited low-yield NBFC exposures rather than chase topline growth.
• Cost-income spike is a one-off, not a trend: The quarterly ratio jumped to 50.37% solely on the 17% wage settlement catch-up; management is confident of a sub-45% full-year exit.
• What to watch next quarter: Whether the CASA ratio stabilizes after falling to 31.65% against a 35% target, and if the residual actuarial provision lands materially below the ₹250 crore taken this quarter.

Asset Quality: The Structural Turn

• NPA stock improvement: Gross NPA declined 150 bps YoY to 4.39% and Net NPA fell 64 bps to 1.32%, with the provision coverage ratio strengthening 269 bps to 89.01%. The bank has already beaten its full-year gross NPA guidance of 4.5%.
• Credit cost below 1%: Credit cost fell to 0.97% against a 1.20% guidance, driven by a healthy portfolio and improved recoveries. The slippage ratio at 1.24% also beat the 1.30% target.
• Slippages are contained and monitored early: Fresh slippages declined QoQ to ₹2,697 crores, split across MSME (₹1,200 crores), Agriculture (₹1,000 crores) and Retail (₹400 crores). SMA 1 and 2 accounts above ₹5 crores are just 0.63% of the book, and the bank intervenes while accounts are still in these early buckets.
• Recoveries engine is diversified: Recoveries from written-off accounts are strong, driven by OTS schemes executed across 10,000 outlets through Bank Adalats and Village Sabhas. NCLT contributed only ~₹450 crores, with the bulk of the ₹51,000-52,000 crore written-off pool still tied up in tribunal cases.
• Provision write-back adds a tailwind: ₹490 crores was written back mainly from restructuring provisions (RF 1 and RF 2) as accounts completed their required tenure and became standard or loans closed, plus some delayed-resolution provisions reversed on NCLT admission.
• Write-off discipline: The bank wants to restrict write-offs to near the amount recovered or upgraded from written-off NPAs. Most write-offs are forced by NCLT resolution timelines, not discretionary clean-up.

Raju: "Our main focus is consistency. That is I am sure that it is reflecting in our quarter-on-quarter results."

Margin & Profitability Mechanics

• The wage revision hit, fully absorbed: The 17% bipartite settlement (effective November 2022) created a 14-month catch-up gap of ~₹450 crores, plus three months of regular provision at ₹129 crores per month. An additional ₹250 crores in actuarial retirement benefit provision was taken proactively because the bank had cushion. The total ₹700 crore incremental hit landed entirely in Q3.
• Future wage run-rate is predictable: Going forward, the quarterly wage provision normalizes to ~₹130 crores per month, with only a small residual actuarial amount possible in the March quarter, described as "much, much less than 250" crores.
• Cost-income ratio will snap back: The quarterly ratio spiked to 50.37% on the one-time provision, but the cumulative ratio stands at 45.93%. Management is confident of exiting the full year below the 45% guidance.
• Yield on advances is still rising: Management stated the yield on advances cannot be stagnant and keeps increasing as long as the higher interest rate regime persists. MCLR is defined based on cost of funds, and since January 1, much higher deposit rates will impact MCLR proportionately in coming months, though it takes a minimum twelve months for a rate change to impact the entire 51% MCLR-linked portfolio.
• Other interest income has peaked: The bank has reached an "optimum level" and further improvement will be "very difficult" because market funds are tight and the bank cannot generate enough funds to deploy effectively. Management declined to provide a steady-state run-rate or item-wise breakdown when pressed by analysts.
• NIM outlook is steady: The bank expects NIM between 2.9% and 3.0%, and is trying to maintain it nearer to 3%.

Raju: "The major concern here is the yield on advances cannot be stagnant, sir. We keep increasing it till the higher rate of interest regime is there in the market."

The RAM Pivot & NBFC Repricing

• RAM is now 56% of the book: RAM sector composition increased from 54% a year ago to 56%, with corporate declining from 46% to 44%. RAM grew at 14.56%, while corporate still grew at a healthy 8.26%.
• NBFC exposure was deliberately pruned: When the regulator increased risk weightage on certain NBFCs, the bank passed part of that burden to existing NBFCs enjoying concessional rates. Where mutual agreement on a rate increase was not reached, the bank asked for and received repayment. This was a yield-conscious decision, not a demand problem.
• Pricing power varies by rating: For AAA-rated NBFC entities, the pass-through of the risk weight increase is more than 15 basis points; for AA and A-rated entities, the increase is higher. Final pricing depends on the relationship and ancillary business.
• Corporate growth is still targeted at 10%: The bank is confident of achieving 10% corporate growth, with applications pending from NBFCs now willing to pay the demanded rate, plus demand from infrastructure, green energy, steel, power, data centre creation, and manufacturing. Sanctions are pending for disbursal and several proposals are in the pipeline.
• Growth strategy is margin-first: Management explicitly stated it wants to grow faster in RAM than corporate because it does not want to grow the balance sheet at the cost of the bottom line. Current-year growth projections (with 1-2% variation) may carry into the next financial year.

Raju: "We are very much cost consciousness, yield consciousness is there. So we don't want to compromise at the cost of bottom-line to show a growth at the topline."

Deposit Mobilization & the CASA Gap

• CASA is the weak spot: CASA ratio fell to 31.65% against a 35% guidance, growing only 5.05% YoY versus total deposit growth of 8.55%. The bank has launched an exclusive campaign for Retail Term Deposits and CASA, and management is hopeful that year-on-year CASA growth will sync with deposit growth.
• CD ratio is being actively managed: The CD ratio has risen from 67-68% two to three years ago to 75% now. Management sees 75-77% as a healthy bracket and wants to stay there. This quarter, the bank wants to match deposit and advance growth at the same rate (~3-3.5%), and special campaigns have been started for deposit mobilization.
• Deposit growth guidance maintained: The bank is holding its 8.5% deposit growth guidance, with global business growth guidance of 10% maintained and advance growth guidance raised to 12% from 10.5% on actual performance of 11.69%.

Capital, Returns & Disinvestment

• Capital adequacy absorbed the RBI shock: Capital adequacy fell 42 bps from 16.20% to 15.78%, with the RBI risk weightage change on NBFC and personal loan exposures taking 52 bps, partially offset by 10 bps from internal accruals.
• AT1 and Tier 2 issuance is rate-sensitive: The board approved raising up to ₹7,500 crores (AT1 ₹3,500 crores, Tier 2 ₹4,000 crores). ₹1,000 crores of AT1 bonds were raised at 8.4% in Q3, with ₹1,443 crores of bidding absorbed. The remaining ₹6,100 crores will be raised in the next two months if market conditions are favorable, but management emphasized it is rate-sensitive and will not rush.
• Return ratios are running ahead of guidance: ROE at 21.95% (guidance 19.50%), ROA at 1.01% (guidance 1%), and EPS at ₹79.21 (guidance ₹65) all exceeded full-year targets in the first nine months. Management stated the current EPS run rate can be sustained.
• Two disinvestments are in the pipeline: One has already received board approval and been informed to SEBI; the second is in process. Disinvestment may happen in FY25.

Raju: "We are watching the market because we are very rate sensitive and concerned about that rate of interest. Whenever we feel that it is favorable to us, definitely we will raise this remaining 6100 crores in the next two months if the market favors to us."

Technology, Analytics & the Human Stack

• Data analytics is driving incremental growth: After two years of cleaning legacy data using dump data analytics, the bank is now confident its data is cleaned to the maximum extent. Leads generated through analytics studying expenditure behaviour over 5-10 years are contributing 8-12% of incremental growth in the last nine months across products including savings bank, current account, MSME, housing loan, vehicle loan, personal loan, and pension loans. The aim is to increase this to 20-25%.
• A Centre of Excellence for Data and Analytics (DnA) was inaugurated on January 1, along with a data lake. A hackathon with 2,899 global applications and over 250 ideas was conducted on AI/ML in customer experience, default prediction, and fraud prevention.
• Digital infrastructure is scaling: UPI transactions jumped from ~₹98 crores per annum three years back to ₹83 crores per month now. The bank was the first to launch CBDC interoperability, and API banking has expanded from 35 to 135 live APIs. All 84,000 employees have been onboarded on CBDC.
• Technology is a supplement, not a substitute: Management views its 84,000 employees as a strength and sees technology as a supplement to human efforts, particularly in a service business like banking. Every employee receives at least 1-3 days of training on each new technological initiative, with virtual classes using metaverse imparted to training institutes. When pressed twice by an analyst on the spending amount for technology-enabled human resources, management did not quantify it.

Raju: "Technology is a supplement to their efforts. I don't think that the technology is a substitute for the human resources. For banking sector, it is a service. Selling the services is mainly human beings, sir."

Guidance & Commitments

Key Metrics