United States

Analyst Research Report Snapshot


Spark Capital: Q3FY13 Result Reviews of CRPBK




Spark Capital Advisors(India) Private Limited


13 Feb 2013





Companies referenced:


Available for Immediate Download

Corporation Bank - Capital constraint compounds asset quality concerns: Maintain SELL Corporation bank’s (CRPBK) 3QFY13 performance was marked by a continuing deterioration in asset quality, with slippages of 2.8% (annualised) ahead of the average run rate of ~1.6%. PSL lending currently stands at 34% of ANBC, the same level as 4QFY12, necessitates a larger proportion of incremental PSL lending in 4QFY13. Notwithstanding a 35% yoy rise in agri loans, agri continues to amount to only 8.7% of ANBC much below the mandated 18% and we expect both NIMs and asset quality to remain under pressure as these loans take-off. Loans amounting to Rs. 2.6bn were restructured during the quarter taking the overall stock of restructured loans to 7.2% of the book; the restructured book has risen 2x since 3QFY12 while higher provisioning on restructuring (Rs. 760mn) will keep provisioning elevated into FY14. Additionally, risky sector exposures have remained high at 28% of the book while exposure to power is 10% vs 8% in 1QFY12. CRPBK’s low T1 capital (at 8.1%) would necessitate a further infusion of capital in FY14, with the bank only likely to receive Rs. 2bn of capital from the GOI as against a request for Rs. 10bn, the capital overhang will remain; capital infusion below book value remains a key risk (refer our note “Heads I win; Tails, you lose” dated Sep 07, 2012). Compounding the problem is a dependence on hybrid T1 instruments adjusted for which T1 capital is currently at 7.4%. Even inclusive of a capital raise of Rs. 15bn therefore, the bank’s core T1 would be ~8% at end FY13, meaning frequent infusions as the transition to Basel 3 starts. While pension liabilities are likely to be challenging in a wage revision year CRPBK’s skewed rate of return on plan assets (8.85% against 8% for most PSU banks) could mean a two-fold impact on costs, a key risk in our view. With multiple headwinds continuing in the form of asset quality pressures, margins, capital and costs we maintain our SELL rating with a target price of Rs. 361, 0.8x our stress case FY14E ABV.

Why buy analyst research?

  • Institutional quality research
  • Available for Immediate Download
  • Detailed company or industry insight
  • Print or save
  • 24 hour customer support
Return to previous page without adding this item to your cart.
Email Customer Support.

About Analyst Research

Analyst research reports are available for immediate download after purchase. You will have unlimited access to the report for 24 hours after purchase, to download, print or save it as many times as you wish. Analyst Research provided by Reuters does not constitute investment advice, and is not endorsed by Reuters Research. This information is protected by copyright and intellectual property laws. More information on Analyst Research.