Despite continued contraction in margins due to lower loan yields/other interest income, and higher provisions, Canara Bank posted in-line earnings with PAT at Rs41bn/1% RoA, mainly aided by higher other income (especially treasury gains/recovery from written-off loans). Credit growth remains rangebound at 11% YoY/4% QoQ, while deposit growth is still lower leading to steady expansion in the bank’s otherwise LDR at ~74%. The bank’s headline asset quality continues to improve, with GNPA ratio down by 40bps QoQ to 3.3% due to contained slippages, partly offset by higher write-offs, while specific PCR is stable at 74%. The bank’s SMA 1+2 book (1.1% of loans) remains elevated, but notably, government support for RINL should de-stress the SMA pool. We trim FY25-27E earnings by 1-2% due to slower growth/margin pressure, but expect the bank to deliver 1% RoA.
OutlookWe retain BUY with a cut (of 7.7%) in TP to Rs120 (earlier Rs130), valuing the SA bank at 1x Dec-26E ABV vs earlier 1.1x Sep-26E ABV and, additionally, subs at Rs6/sh.
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