IDFC First Bank and Canara Bank are two mid-sized banks one from the private sector and the latter from the public sector. While in the last 1 year Canara Bank soared over 50 percent, IDFC First Bank has added just 10 percent in this period.
In 2022 so far, IDFC First Bank has remained muted, up just 1 percent. Of the 8 months in 2022, it has given positive returns in just 2 - July and August, rising 56 percent in these 2 months. Canara Bank, on the other hand, has jumped 22 percent in 2022 so far, giving positive returns in 5 of the 8 months of 2022. In July and August combined, the stock advanced 33 percent.
However, in the long term, both lending stocks have given negative returns. In the last 5 years, Canara Bank has lost over 40 percent of investor wealth while IDFC First Bank has fallen 18 percent.
About the two
Canara Bank is a public sector enterprise that includes segments like Treasury Operations, Retail Banking Operations, Wholesale Banking Operations, Life Insurance Operation and Other Banking Operations. It is the third largest nationalised bank in India. It is under the ownership of the Ministry of Finance, Government of India. It is headquartered in Bangalore. Established in 1906 at Mangalore by Ammembal Subba Rao Pai, the bank also has offices in London, Hong Kong, Dubai and New York.
IDFC First Bank is an Indian Private Sector Bank that is owned by IDFC, an integrated infrastructure finance company. The bank started operations on 1 October 2015, after receiving a universal banking licence from the Reserve Bank of India in July 2015. Its segments include Treasury, Corporate/Wholesale Banking and Retail Banking. The Company operates approximately 596 branches and over 677 automated teller machines (ATMs).
Earnings
Canara Bank’s net profit grew by 71.8 percent year on year (YoY) to ₹2,022 crore in the quarter ended June (Q1FY23) on the back of a rise in its net interest income (NII) and other income. It had posted a net profit of ₹1,177 crore during the same period last year (Q1FY22). Sequentially, its net profit rose 21.4 percent from ₹1,666 crore in Q4FY22. Its net interest income (NII) was up 10.15 percent in Q1FY23 to ₹6,785 crore from ₹6,160 crore in Q1FY22. However, it was down 3.14 percent sequentially, from ₹7,005 crore in the March 2022 quarter.
The bank’s asset quality profile improved with gross non-performing assets (GNPAs) at 6.98 percent till June 2022 from 8.5 percent in the year-ago quarter. Net NPAs dipped to 2.48 percent from 3.46 percent a year ago. NPA provisions rose to ₹2,673 crore in Q1FY23 from ₹2,334 crore in Q1FY22. The provision coverage ratio rose to 84.51 percent for the quarter under review from 81.18 percent a year ago.
In the June quarter, IDFC First Bank announced its highest-ever standalone profit of ₹474.33 crore for the quarter ended June 2022, against a loss of ₹630 crore in the corresponding period of the previous fiscal. The increase in core operating income and fall in provisions aided the profitability. Its net interest income grew by 26 percent to ₹2,751.1 crore for the June FY23 quarter, against ₹2,184.8 crore recorded in the year-ago period, with a 39 bps YoY improvement in net interest margin at 5.89 percent for the quarter.
"We have seen a steady growth of over 20 percent YoY, both on the lending side as well as the deposits side in Q1FY23. Our return on assets has nearly touched 1 percent and we expect it to rise from here," said V Vaidyanathan, Managing Director and CEO. On the asset quality front, gross non-performing assets as a percentage of gross advances improved to 3.36 percent, down by 34 bps sequentially and net NPAs declined to 1.3 percent in Q1FY23, from 1.53 percent in Q4FY22.
Which one to pick?
Rohit Khatri, AVP, Fundamental Research at Religare Broking has chosen IDFC First Bank among the two.
"We would prefer IDFC first bank at this point of time given that asset quality has normalized and loan growth continues to remain strong. Its recent Q1FY23 numbers have also been strong with NII growth of 18.5 percent and Advances growth of 22 percent YoY. Asset quality has also seen marked improvement sequentially.
Meanwhile, Cyril Charly, Research Analyst at Geojit Financial Services also stated that IDFC First Bank has accelerated its growth pace post it's successfully realigned of advances by bringing down its infra books.
"With a higher proportion of fixed-rate loans adding pressure on margins during the rising rate scenario, reducing legacy borrowings of higher rates will outweigh the same in the long run. Even though NPA numbers are slightly elevated, they will gradually subside supported by higher collection efficiency. We expect advances to grow at a CAGR of 19 percent over FY22-24. The stock is currently trading slightly above its long-term averages giving enough room for upside potential in long run," Charly said.
“The bank has seen a meaningful improvement in the CASA ratio to 36 percent, while it plans to invest in franchisee network and building granular deposit base, which we believe will gain more importance in a rising interest rate scenario,” analysts at Emkay Global Financial Services said.
Banking space
As per Motilal Oswal, private Banks’ asset quality continues to improve with moderation in credit costs and NPA ratios, while the restructured book also dropped sequentially. The improvement was also led by moderation in slippages and supported by healthy recovery and upgrades, it added.
"BFSI has reported strong results as the asset quality continues to improve with moderation in credit costs and NPA ratios," it said.
Going ahead, MOSL noted that the changing macro backdrop with heightened worries on rising rate and liquidity tightening is impacting the global markets. Meanwhile, the earnings season continues to remain healthy, notwithstanding the challenges on multiple fronts, it added.
“Banks are getting more confident on credit risk having sailed through the covid second wave relatively well. Credit cost was managed better than expected due to reversal of standard asset provisioning or utilisation of contingency provisions or non-creation of incremental buffer,” another brokerage ICICI Securities said. The brokerage firm believes growth to gather pace post Q1FY23 as further levers are available for SME, business banking and corporate lending. “
