Corporation Bank surges 68% in three days post Essar Steel ruling

Shares of Corporation Bank were locked in 20 per cent upper circuit at Rs 26.45 on the BSE on Tuesday, thus zooming 68 per cent in past three trading days, after the Supreme Court ruled in favor of financial creditors in its verdict on Essar Steel resolution .

The state-owned lender's stock price has soared 94 per cent from its 52-week low of Rs 13.60 touched on October 15, 2019.

The counter saw nearly six-fold jump in trading volumes today. Till 10.36 am, a combined 1.2 crore shares changing hands on the NSE and BSE. There were pending buy orders for 946,165 shares on both the exchanges.

The Supreme Court (SC) on Friday said the National Company Law Appellate Tribunal (NCLAT) should not interfere with the decisions of the committee of creditors (CoC) in the Essar Steel insolvency case.

In terms of results, Corporation Bank had reported a 26 per cent rise in its net profit to Rs 130 crore for the second quarter ended September 30, on the back of lower provisioning for bad loans.

The lender's asset quality witnessed improvement as the gross non-performing assets (NPAs) fell to 15.43 per cent (Rs 20,823 crore) of the gross advances at the end of September 2019, compared with 17.46 per cent (Rs 21,714 crore) by the year-ago period. Net NPA or bad loans fell substantially to 5.59 per cent (Rs 6,751 crore), against 11.65 per cent (Rs 13,534 crore) a year ago.

In a separate development, Union Bank of India has submitted to the exchanges that “The bank has received a communication from ministry of finance on November 16, 2019 stating that the alternative mechanism has accorded in-principle approval to proposed amalgamation of the Andhra Bank and Corporation Bank into Union Bank of India.”

Corporation Bank plans to trim slippages by 50% to Rs 4000 crore in FY20

Corporation Bank, which was in February this year taken out of Reserve Bank of India's prompt corrective action (PCA) framework, has said it would reduce slippages to up to Rs 4,000 crore in the financial year ending March 2020.

Slippages, or standard assets becoming bad loans, were around Rs 2,000 crore every quarter in FY19. This means the bank would reduce slippages by almost 50 per cent. 

"Henceforth, the slippages should not be more than Rs 1,000 crore per quarter. It will be only in smaller accounts. As for big-ticket loans, we have covered most of the accounts,” Managing Director and Chief Executive P V Bharathi told Business Standard.

The public sector bank’s stock closed 2 per cent lower at rs 25 per share on BSE on Monday.

The RBI had placed the lender under PCA framework in December 2017 in view of high non-performing assets (NPAs) and requirement to raise capital. The PCA framework had placed curbs on the bank giving out big-ticket loans and had expected the bank to engage in effective cost controls.

Gross NPAs of the bank have declined to 15.35 per cent in March 2019 from 17.35 per cent in March 2018. With large provisions made during the year, its net NPA came down to 5.71 per cent in March 2019 from 11.74 per cent a year ago.

The bank’s provision coverage ratio jumped to 83.30 per cent in March 2019 from 63.65 per cent a year ago, on account of higher provisioning in the quarter.

“There is no backdating of bad loans (NPAs). We have ensured that, henceforth, we should consistently have net NPAs of below 6 per cent. We have identified accounts on our own also,” Bharati said.

The lender's credit costs, or the amount provided for bad loans as a percentage of loans, spiralled to 8.89 per cent in FY19 against 8.68 per cent in FY18.

"The credit cost will be coming down. For the past two years, the bank has focused on improving the quality of assets. Going forward, we are going to take very cautious approach on quality of assets that we contract,” she said.

The credit cost for FY20 is estimated at 2-2.5 per cent, close to the level of 2.65 per cent seen in FY17, another Corporation Bank official said.

Referring to pace of lending in FY20, she said the bank has taken a conservative growth estimate of 7-9 per cent for this year.

The loans portfolio grew from Rs 1.19 trillion in March 2018 to Rs 1.21 trillion in March 2019. The bank is spreading across all sectors – especially retail, agriculture and MSME, mid corporate and large corporates. The bank has portfolio of Rs 20,000 crore under each bucket.