Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.

Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Corporation Bank: Challenges ahead - Views on News from Equitymaster
  • E-MAIL
  • A  A  A
  • May 22, 2003

    Corporation Bank: Challenges ahead

    Corporation Bank is one of the most efficient banks in the country with sound asset quality. The bank announced its results last week and reported robust growth (35%) in its bottomline for FY03. Topline growth (8%) was, however, subdued in the same period. We take an in depth look at the performance of the bank and the key takeaways of the analyst meet held by the same.

    While the bank has reported a slow growth in topline, significant improvement in net interest income and other income has been the main driver for bottomline growth. Net interest income has shown a growth of 27% in FY03, mainly fueled by a fall in interest expenses. Interest expenses have fallen primarily on account of lower cost of deposits (from 7.6% to 6.7% in FY03). As a consequence, net interest margins have improved to 3.6% from 3.2% last year.

    On the other income front, the bank has shown a 39% rise. Out of the total other income of Rs 5.3 bn, nearly half, or Rs 2.6 bn, came from profits earned from sale of investments. This indicates the extent to which Corporation Bank’s other income has been helped by falling interest rates. This also indicates that such levels of other income are not sustainable in the long run, especially when interest rates stop falling and start to stabilize.

    Having enumerated the primary reasons for the robust performance of Corporation Bank, we would like to concentrate now on the performance of the core business of the bank. One disturbing aspect of the bank’s core business is the fact that the bank has seen its net advances grow by just over 9%. Considering that the growth in net bank credit for FY03 was close to 12%, this performance has been disappointing. While the bank has been consistent in its topline growth for all the quarters in FY03 the indications are that it has not been able to grow its assets as much as it would have wanted to.

    This indicates that competitive pressure is eating into the market share of the bank. We believe that the new generation private sector banks are growing their assets at a blistering pace and they seem to be eating in to the market share of public sector banks. Also the growth in advances of Corporation Bank has been mainly brought about by the strong growth in retail assets. To put things in perspective retail assets have grown by Rs 8.0 bn (52.0%), whereas non-retail assets have recorded a marginal growth by Rs 2.3 bn (2.3%). While the size of the new private sector banks are not comparable to their public sector counter parts, one thing seems clear, public sector banks seem to be facing the heat.

    However, all is not gloomy for Corporation Bank on this front. The bank has added 51 new branches in FY03, apart from being aggressive on the ATM front. These moves are likely to ensure that the bank is able to attract a higher quantum of business going forward. However, the key challenge of staving off competition still remains. On the asset quality front, the bank continues to exhibit its strengths. The bank has brought down its net NPA levels to 1.6% compared to 2.3% in FY02. The coverage ratio has also improved to 69% compared to 56% in FY02.

    Public sector banks have exhibited strong growth rates in their bottomline mainly due to falling interest rates. The challenge from hereon for Corporation Bank and other public sector banks is to manage competition. Also the challenge will be to integrate technology in their business processes in order to increase efficiencies. The bank’s valuation from hereon will be a factor of how it will be able to meet these challenges.



    Equitymaster requests your view! Post a comment on "Corporation Bank: Challenges ahead". Click here!


    More Views on News

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Axis Bank: Outside Watchlist Slippages a Big Worry (Quarterly Results Update - Detailed)

    Jul 31, 2017

    Almost 74% of the watchlist as provided by the bank of Rs 226 billion in FY16 has turned into non-performing assets.

    HDFC Bank: Asset Quality Deteriorates due to Farm Loan Waiver (Quarterly Results Update - Detailed)

    Jul 25, 2017

    Asset quality was under pressure on account of farm loan waivers. Despite the higher provisioning, the company reported a healthy profit growth of 20%.

    SBI: Merger Pushes up Bad Loans (Quarterly Results Update - Detailed)

    May 23, 2017

    State Bank of India (SBI) ended FY17 on a healthy note but concerns on bad loans from associate banks remain.

    More Views on News

    Most Popular

    Demonetisation Barely Made Any Difference to Tax Collections(Vivek Kaul's Diary)

    Aug 7, 2017

    The data tells us quite a different story from the one the government is trying to project.

    A 'Backdoor' to Multibaggers: It's Like Investing in Asian Paints Ten Years Ago(The 5 Minute Wrapup)

    Aug 10, 2017

    Don't miss these proxy bets on growing companies or in a few years you will be looking back with regret.

    Should You Invest In Bharat-22 ETF? Know Here...(Outside View)

    Aug 8, 2017

    Bharat-22 is one of the most diverse ETFs offered so far by the Government. Know here if you should invest...

    Signs of Life in the India VIX(Daily Profit Hunter)

    Aug 12, 2017

    The India VIX is up 36% in the last week. Fear has gone up but is still low by historical standards.

    7 Financial Gifts For Your Sister This Raksha Bandhan(Outside View)

    Aug 7, 2017

    Raksha Bandhan signifies the brother-sister bond. Here are 7 thoughtful financial gifts for sisters...

    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms


    Aug 18, 2017 (Close)


    • Track your investment in CORPORATION BANK with Equitymaster's Portfolio Tracker. Set live price alerts, get research alerts and more. Get access now...
    • Add To MyStocks



    Compare Company With Charts