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NII in line; PAT beat led by higher treasury income

RoA outlook steady; NIMs decline 18bp QoQ

* CBK reported 1QFY26 standalone PAT of INR47.5b (15% beat), up 21.7% YoY/down 5% QoQ, aided by a healthy beat in other income.

* NII declined by 1.7% YoY/4.6% QoQ to INR90b (in line). NIMs declined by 18bp QoQ/35bp YoY to 2.55%.

* Loan book grew 13.4% YoY/2.3% QoQ to INR10.7t, while deposits increased by 9.9% YoY/0.7% QoQ. CASA deposits declined by 4.6% QoQ (up 3.7% YoY). As a result, CASA ratio declined 161bp QoQ to 29.6%.

* Slippages fell 19.8% QoQ and 35.1% YoY to INR21.7b. As a result, GNPA/ NNPA ratios improved by 25bp/7bp QoQ to 2.69%/0.63%. PCR increased by 608bp YoY/40bp QoQ to 77.1%.

* We increase our earnings estimates by 11-13%, factoring in better other income and lower provisions. We estimate CBK to deliver FY27E RoA/ RoE of 1.1%/19%. Reiterate BUY with a revised TP of INR135 (based on 1.0x FY27E ABV).

Business growth/NIM guidance maintained; asset quality improves

* 1Q PAT rose 21.7% YoY to INR47.5b (15% beat), led by healthy treasury income and in-line NII. For FY26, we expect earnings to grow by 12% YoY to INR190.7b.

* NII fell 1.7% YoY/4.6% QoQ to INR90b (in line). NIMs contracted 35bp YoY and 18bp QoQ to 2.55%. Other income grew 32.7% YoY/11.2% QoQ to INR70.6b (20% beat), aided by healthy treasury income of INR16.2b (up 127% QoQ). Total revenue grew 10.9% YoY/1.8% QoQ to INR160.7b (7% beat).

* Operating expenses stood flat QoQ at INR75.2b (5% higher than est.). Thus, C/I ratio declined to 46.8% from 47.5% as on 4QFY25. PPoP grew 12.3% YoY/3.3% QoQ to INR 85.5b (~8% beat). Core PPoP declined by 4.5% YoY/ 8.4% QoQ to INR69.4b. Provisions stood at INR23.5b (up 3% YoY/28% QoQ), in line with MOFSLe.

* Loan book grew by a healthy 13.4% YoY/2.3% QoQ, led by robust growth in retail segment by 34% YoY/5.4% QoQ. Within this, housing grew 13.9% YoY/ 3% QoQ. Deposits grew 9.9% YoY/0.7% QoQ, led by growth in TDs at 11% YoY/2.9% QoQ. CASA deposits fell by 4.6% QoQ (up 3.7% YoY). Thus, CASA ratio declined to 29.6% (down 161bp QoQ). CD ratio rose to 73.1%.

* GNPA/NNPA ratios improved 25bp/7bp QoQ to 2.69%/0.63%. PCR improved to 77.1%. Total slippages declined to INR21.7b (down 35.1% YoY and 19.8% QoQ). Reported credit cost stood at 0.72% vs. the bank’s guidance of a credit cost of 0.9% for FY26. The bank expects the slippage ratio to remain benign at 0.9% for FY26.

* SMA book moderated to 0.8% in 1QFY26 from 0.96% in 4QFY25. While the bank expects no relapse from this book, it also maintains sufficient provisions against the same.

Highlights from the management commentary

* 2Q will fully reflect the impact of the repo rate cut. The bank aims to maintain NIMs at 2.5%. In the absence of further rate cuts, NIMs could improve in 3Q and 4Q. If two additional repo rate cuts of 25bp each are implemented, achieving the NIM guidance of 2.75-2.8% will be challenging.

* Yield compression began in Mar’25, and with 45% of its book linked to RRLR, the bank passed on a 100bp reduction in yields during 1Q. However, it did not reduce deposit rates.

* The bank maintains that the CASA ratio should remain above 30%. With term deposit rates declining, there is a growing tendency among customers to move funds into savings accounts over fixed deposits.

* The credit cost guidance has been set conservatively, but the bank expects to outperform its asset quality guidance in 2Q/3Q.

* Guidance: Business growth at 10.5% YoY; advances at 10-11% YoY; deposits at 9-10% YoY. NIMs (global) guidance maintained at 2.75-2.8%.

Valuation and view

CBK reported a healthy quarter, with earnings beat driven by treasury income, inline NII, and contained opex. NIM contraction is attributed to yield repricing due to repo cuts, while the cost of funds was largely stable. CBK expects NIMs to recover gradually to 2.75-2.8%, aided by a reduction in the cost of funds and an improving outlook in 2HFY26. Loan growth was steady and driven by robust growth in the retail segment, while deposit growth was marginal amid outflow of the seasonal CA growth of 4Q. Asset quality improved, with slippages too witnessing a steady reduction, leading to a controlled credit cost for the bank. CBK maintains healthy provisions for the SMA book, though it does not expect any material relapse from the SMA pool. We increase our earnings estimates by 11-13%, factoring in better other income and lower provisions. We estimate CBK to deliver FY27E RoA/ RoE of 1.1%/19%. Reiterate BUY with a revised TP of INR135 (based on 1.0x FY27E ABV).

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