Canara Bank: Asset sale to reduce capital needs

Life insurance, housing finance, asset management key non-core assets

Canara Bank has been among the proactive public sector banks (PSBs) to dispose its non-core assets, to shore up its capital position. While it ranks fourth in terms of holding non-core assets, trailing peers such as State Bank of India (SBI), Punjab National Bank (PNB) and IDBI, analysts at Antique Stock Broking indicate Canara Bank’s non-core assets can reduce its capital requirement needs by 30 per cent.
 
The Street pegs the bank’s non-core assets could add up 30–32 per cent of Canara Bank’s market capitalisation (m-cap). In fact, its capital raising efforts has helped it increase tier-1 capital from 10.8 per cent in June 2016 to 12.5 per cent in Sepetember 2017.
 
The key asset for monetisation is Can Fin Homes, its listed housing finance company (HFC), which commands an m-cap of Rs 6,200 crore.
 

Compiled by BS Research Bureau

Canara Bank holds 30.7 per cent stake in it. In the past, the bank has utilised every opportune moment to divest stake in the HFC, thereby paring its holding from 43.5 per cent in September 2015 to the current levels. If the remaining stake is also sold, it could fetch Rs 2,000 crore, considering the valuation premium.
 
Its stock price has appreciated 47 per cent year-to-date, while its three-year return stands at 1,350 per cent.
 
Canara Bank was well in-the-money, when it made a complete exit from the credit rating agency CARE in June. The bank offloaded its 8.8 per cent stake in CARE to CRISIL for Rs 400 crore. Given the bank’s record, analysts are confident it should be able to repeat its success in the coming deals as well.
 
On Tuesday, the bank announced it had appointed investment bankers to sell its interest in Canara Robeco Asset Management, Can Fin Homes and Canbank Computer Services. The bank has, however, not given any details.
 
The life insurance arm, Canara HSBC OBC Life Insurance, is the next key non-core asset. Canara Bank holds 51 per cent stake in it. While the business doesn’t fit on the list of top 10 private life insurers in the deal Street, analysts are confident the life insurer’s bancassurance network should help the bank fetch a reasonable deal. Increasing interest by life insurers also works in the bank’s favour.
 
After all, Canara Bank, too, took everyone by surprise with its right issue in September 2016. Reckoned as an innovative instrument to be used by a PSB after many years, it reiterated investors’ faith in the bank. Benign valuations (1.2x FY19 price to book) also worked in its favour.