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Balance sheet mix and NIM levers to cushion earnings

CBK delivered a strong quarter with an all-round beat as core PPoP was 13.3% higher, led by better NII (superior NIM), fees and opex. Loan growth was healthy at 6.5% QoQ; excluding FCNR(B) related loans too, domestic credit growth was strong at ~5% QoQ mainly aided by corporate/agri. NIM may sustain at current level supported by (1) rise in corporate/agri loan yields (2) upcoming festive season that could spur demand for retail credit (3) low LDR at ~80% and (4) EBLR repricing. For FY27/28E we raise NIM by 7/6bps and core PAT by avg. ~6%. We keep multiple at 1.0x but raise TP to INR160 from INR150 as we roll forward to Sep’28 ABV. Retain ‘BUY’

Strong core earnings due to beat on all parameters:

NII was higher at INR110bn (PLe INR105.6bn), driven by NIM (calc.) that was a beat 2.38% (PLe 2.27%). Reported NIM improved 3bps QoQ to 2.55%. Loan and deposit growth at 20.4%/13.1% YoY were in-line. LDR increased to 80.2% (79.3% in Q1FY27). Other income was lower at INR 57.7bn (PLe INR 65.2bn) due to lower treasury income, partly offset by higher fees at INR 39.3bn (PLe INR 36.2bn). Opex was 6.3% below PLe at INR 80.2bn; core PPoP at INR 81.8bn was 13.3% above PLe. Asset quality improved due to lower net slippages, with GNPA at 1.33% (PLe 1.38%) and NNPA at 0.30%. Lower net slippages and reversal in NPI provisions led to lesser overall provisions at INR 17.8bn (PLe INR 22.2bn). Core PAT was 26.6% above PLe at INR 47.4bn, while reported PAT stood at INR 51.7bn.

Credit momentum could sustain:

Loan growth was healthy at 6.5% QoQ; excl. FCNR(B) related loans, domestic loan growth was also strong at 4.8% QoQ which was driven by corporate (+6.4%) and agri (10.2%). Strong agri growth was mainly led by agri-gold (+15%). Bank expects loan momentum to sustain as corporate pipeline is INR470bn and festive demand is expected to support retail lending. FCNR(B) deposits of USD5.8bn helped avoid raising wholesale funding of INR300-350bn; which was partly offset by low spreads of 40–50bps on FCNR(B) related advances.

Upgrade in margins:

NIM trajectory was better supported by improvement in corporate and gold loan yields by 5/14bps to 7.7%/9.1%. CBK expects reported NIM to sustain at ~2.55%, aided by repricing of repo-linked loans (53% share). One-time ECL provision is estimated at INR120–150bn, which is expected to be absorbed over 2 years, against RBI's 5-year dispensation supported by strong capital buffers (CET-1: 12.8%).

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