"I have brought my high cost deposits from 44.5 percent to 13.5 percent over last five months. Almost Rs 1 lakh crore of high cost deposits we have replaced or shed. Our Non-Performing Asset (NPA) has come down from 2.54 percent in March to 2.3 percent in June," Dubey explained.
Canara Bank will reduce its base rate with effect from July 08, 2013. The bank also reduced the rate of interest on deposits on few maturity slabs.
This has helped the bank to contract its cost of funds 50-80 bps in the first quarter of current financial year. Dubey expects it to go down further in the coming quarters.
Below is the verbatim transcript of the interview
Q: Canara Bank has cut base rate by 30 bps to 9.95 percent. If you could tell us that was this purely a business decision or has this come because we have heard in the last two days the Finance Minister and the Reserve Bank of India (RBI) governor asking for rate cut from the banks?
A: Whatever decision we take, it is always a business decision only. We also considered the call made by RBI governor and honourable Finance Minister to give support to the economy for growth. We had been considering this for quite sometime.
Q: How will this impact margins? Did you have any fall in the cost of funds because of high cost deposits or Certificate of Deposits (CD) being redeemed? How does your cost of funds work? For the current quarter what will happen to margins?
A: I have brought my high cost deposits from 44.5 percent to 13.5 percent over last five months. Almost Rs 1 lakh crore of high cost deposits we have replaced or shed. That is one reason. We have increased our Current Account Savings Account (CASA) also. Our cost on retail is yielding very good results. Our retail agriculture, small and medium enterprises (SME) loans are showing more than 30 percent growth Y-o-Y. Our Non-Performing Asset (NPA) has come down from 2.54 percent in March to 2.3 percent in June. If NPA goes down, CASA goes up, high cost comes down, and there was a room for us to take this decision.
Q: How much is your cost of funds lower in the April-June quarter compared to the previous Jan-March quarter?
A: It is around 50-80 bps lower and it is likely to go further down, because the impact is felt in the coming quarters.
Q: So far the concern has been that so far there has been no pass-through at all of the rates from the RBI. Is this the first of that pass-through and in future are we likely to see more transformation in the rates?
A: If it is required we will do that. If in the next policy announcement we get some more leeway we will definitely pass on this to our customers. For our retail customer the cost of borrowing will go down, Equated Monthly Installments (EMI) will go down. Across the board there will be impact on this.
Q: What is your Net Interest Margins (NIM) likely to be in the current quarter or next quarter?
A: Our NIM was 2.4 percent. We will be able to maintain it or maybe slightly less. It will be between 2.3-2.5 percent, which is a good margin.
Q: Why is it that you have waited till now till the Finance Minister made such a strong statement? After all, the rates were cut on May 3rd and earlier even in January. Why are banks so hesitant to pass on the benefit?
A: It is not linked with that rate cut. It is linked with when we find comfortable to do it
Q: I take your point. It is also linked to the fact that you have brought down your high cost deposits so seminally from 44 percent to 13 percent. This has been a five month issue. Why couldn’t\\'t you cut your rates earlier? Why is there so much resistance from the entire banking community?
A: Whenever you get up it is good and enjoy. It is for the economy to take benefit. It is for the people to take the benefit. Let us not get us into post-mortem of every damn thing. The good thing has been done. It should be appreciated and then it should be felt that it should lead others to follow.