Canara Bank's healthy Q3 result sparks rally in PSB; index jumps 3%

Shares of public sector banks (PSBs) moved higher by up to 5 per cent on the National Stock Exchange (NSE) in Thursday’s intra-day trade after Canara Bank reported a healthy set of numbers for the quarter ended December 2021 (Q3FY22).

At 12:47 pm, the Nifty PSU Bank index, which reflects the performance of the public sector banks, was the top gainer among sectoral indices, was up nearly 3 per cent. In comparison, the Nifty50 index was down 2 per cent, while the Nifty Bank and Nifty Private Bank indices were 1 per cent lower, respectively,  on the NSE.

Among individual stocks, Canara Bank rallied 5 per cent to Rs 233, while Union Bank of India was up 4.8 per cent at Rs 44.70 on the NSE. State Bank of India (SBI), Punjab National Bank, Bank of India, Bank of Baroda, Bank of Maharashtra and Indian Bank were trading up between 2-3 per cent.

In Q3FY22, Canara Bank’s asset quality improved with its gross non-performing assets (GNPA) ratio reducing to 7.80 per cent, down from 8.42 per cent as at September 2021 (Q2FY22), 8.50 per cent as at June 2021 (Q1FY22) and 8.93 per cent as at March 2021 (Q4FY21).

Net non-performing asset (NNPA) ratio reduced to 2.86 per cent as at Q3FY22 from 3.21 per cent as at Q2FY22, 3.46 per cent Q1FY22 and 3.82 per cent as at Q4FY21.

Canara Bank’s standalone net profit more-than-doubled YoY at Rs 1,502 crore. Net interest income grew 14 per cent YoY at Rs 6,946 crore. CASA increased by 10.28 per cent YoY, improving the CASA ratio by 119 bps. The housing loan increased by 14.82 per cent YoY and retail loans recorded a growth of 10.02 per cent YoY, the bank said in a statement.

Meanwhile, Motilal Oswal Financial Services estimates PSBs to see continued traction in their operating performance, supported by modest business growth and a gradual reduction in provisions. On the other hand, an increase in bond yields would impact treasury performance. Slippage is likely to subside, which would support the asset quality performance, the brokerage said in its Q3FY22 results preview.

"Reduction in incremental slippages and improvement in collection should lead to a decline in credit cost. However, last quarter had lumpy recoveries in the form of DHFL. As a result, there was substantial reduction in provisions for lenders like SBI and Bank of Baroda, which may not be the case in Q3FY22. Management commentary on impact from third wave would be keenly watched," said ICICI Securities in a note.