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Corp Bank: Working hard on CASA - Views on News from Equitymaster

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Corp Bank: Working hard on CASA

Jul 30, 2010

Corporation Bank declared its 1QFY11 results. The bank has reported a 49% YoY and 28% YoY growth in net interest income and net profits respectively. Here is our analysis of the results.

Performance summary
  • Net interest income grows by 49% YoY in 1QFY11 on the back of 37% YoY growth in advances.
  • Other income falls by 26% YoY during 1QFY11 due to lower treasury gains.
  • Net profit margin improves by 1.5% to 16.5% in 1QFY11 thanks to lower operating costs.
  • Capital adequacy ratio at 15.1% at the end of 1QFY11.
  • Net NPA to advances marginally higher at 0.4% in 1QFY11.

Rs (m) 1QFY10 1QFY11 Change
Interest income 17,422 20,277 16.4%
Interest Expense 12,746 13,302 4.4%
Net Interest Income 4,676 6,975 49.2%
Net interest margin (%) 2.3% 2.6%  
Other Income 3,593 2,661 -25.9%
Other Expense 3,086 3,433 11.2%
Provisions and contingencies 1,019 1,266 24.2%
Profit before tax 4,164 4,937 18.6%
Tax 1,550 1,600 3.2%
Profit after tax / (loss) 2,614 3,337 27.7%
Net profit margin (%) 15.0% 16.5%  
No. of shares (m)   143.4  
Book value per share (Rs)*   425.9  
Price to book value (x)   1.3  
* Book value as on 30th June 2010

What has driven performance in 1QFY11?
  • Capitalizing on its relationships with large corporate in southern India, Corporation Bank managed to grow its advance book by nearly 37% YoY, largely relying on the incremental offtakes to the large corporates. Also, the upward re-pricing of loans ahead of the base rate implementation helped matters. Corporation Bankís NIM moved up to 2.6% in 1QFY11 with CASA funding being 31% of total deposits. The bank expects another Rs 120 bn worth of assets to get re-priced under base rate and add Rs 1.6 bn over FY11. Its target for CASA is 35% over the next 3 to 4 years. This effort is expected to boost the bankís margins substantially.

    Leaning towards lower-risk assets...
    (Rs m) 1QFY10 1QFY11 Change
    Advances 473,775 648,047 36.8%
    Retail 91,720 98,990 7.9%
    % of total advances 19% 15%  
    SME 44,540 58,010 30.2%
    % of total advances 9% 9%  
    Large corporate 124,460 182,960 47.0%
    % of total advances 26% 28%  
    Deposits 721,271 910,347 26.2%
    CASA 271,835 282,672 4.0%
    % of total 38% 31%  
    Term deposits 449,436 627,675 39.7%
    % of total 62% 69%  
    Credit deposit ratio 65.7% 71.2%  

  • During 1QFY11, Corporation Bank witnessed lower share of non-interest income while the growth in fee income was restricted to 25% YoY. The fact that Corporation Bank has made very marginal headway on the fee income front continues to make it vulnerable to losses on the treasury side.

  • Corporation Bankís cost to income ratio has fallen marginally from 37% in 1QFY10 to 36% in 1HFY11. The same is nearly 5% lower than its peers in the PSU banking space and is one of the best (lowest) in the sector.

  • Corporation Bankís gross NPA has been brought down to 1.1% compared to 1.3% in 1QFY10 while its net NPA remained at 0.4% during this period. The bankís provision coverage ratio of 77% is also above the RBIís mandated limit of 70%.

What to expect?
At the current price of Rs 570, the stock is attractively valued at 1 time our estimated FY13 adjusted book value ( Research Pro subscribers can view latest updates here). The bankís annualised return on equity stands at a healthy 21.9%. However, Corporation Bank may require further equity dilution in the medium term to sustain growth at current rates. We see sustenance of margins and asset quality to be an issue in the coming quarters. Having said that, the current valuations, do leave moderate upside for investors.

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Mar 25, 2019 09:23 AM


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