Canara Bank hopes to sustain margins at 2.64% ahead

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South India based Canara Bank has achieved a capital adequacy ratio of 13.22% as on December 31, informs chairman and managing director S Raman.

The public sector lender reported a 20% slump in net profits at Rs 876 crore mainly on account of higher provisioning. Its Q3 provisions stood at Rs 501.18 crore against Rs 157.28 crore (YoY).

Analysts say the bank's relatively high exposure to state electricity board may have to higher restructuring.

Speaking to CNBC-TV18, Raman said, the bank had provided Rs 92.7 crore in October-December period for pension liability. "There were fresh slippages of about Rs 862 crore and we have restructured assets worth Rs 1,559 crore," he said.

Canara Bank's net interest income for the quarter came in at Rs 1,918 crore versus Rs 2,119 crore, YoY. The gross NPAs stood at Rs 3,999 crore, while it managed to clock net interest margins at 2.64%.    

Raman said the bank is well capitalised for now and will be able to sustain margins at current level. "Our global business had increased by 18%, while domestic advances grew by 16.3%."

Below is the edited transcript of Raman's interview with CNBC-TV18. Also watch the accompanying video.

Q: Can you take us through the highlights?

A: The bank has posted sequential increase in net profit quarter on quarter during the current financial year, so our net profit for Q3 is more than Q2, which was more than Q1, so we are maintaining the uptrend. Net profit, which was Rs 726 crore in Q1 of this year increased to Rs 852 crore in Q2. It has now further improved to Rs 876 crore for Q3. The net profit would have been much higher than what we have been able to show, but for the additional provision on account of depreciation and investments to the extent of Rs 185 crore and Rs 157 crore in diminishing fair value of restructured assets.

The major amount out of this Rs 157 crore is on account of one account. But for these developments our profit would have been much higher. The bank continues to have a very strong capital position. Our capital adequacy ratio is 13.22% with a tier-I ratio of 9.48%, if we reckon nine months profit of Rs 2454 crore, it works out to 14.44% with a tier-I ratio in excess of 10% that is 10.69%. This is without seeking any capital from the government so far as this is concerned. So, capitalwise we are amongst the strongest and the most well capitalized banks in India. We are very proud of that.

One of the major achievements during this year has been the record cash recoveries. We have been doing very well in terms of recovery out of our NPA accounts. We have been able to recover Rs 2,346 crore for nine months, this is in comparison to Rs 1,200 crore for the nine month period of last year that is almost 100% more. It is also higher than the cash recovery of Rs 2032 crore for the entire year, last year. So, all in all it has been a very good performance.

Global business of the bank increased by 18%, our domestic business has increased by 17.7% in comparison to 16.5% for the industry. Global deposits increased by almost 20% and domestic deposits grew 18.8% compared to industries growth of 16.9%. Global advances similarly has grown by 15.5% and our domestic advances grew by 16.3% in comparison to the industry figure of 15.9%. NIM is 2.52% for December, domestic NIM 2.64%.

Return on average assets for this quarter is now 1.02% and it has significantly improved from 0.88%, which was in Q1 and 0.94% in Q2. All in all it has been a satisfactory performance. We have passed through a difficult year and we are very confident we are on our good path for much better performance still in the coming quarters in the year.

Q: Can you take me through the NIMs again. You have done 2.52% is it versus 2.62% in the September quarter?

A: 2.52% is for global and domestic is 2.64%.

Q: That compares to what in the previous quarter. You were at 2.6% last quarter as well?

A: Yes around that level.

Q: Can you tell us what were the fresh slippages? How much did you encounter in Q3 itself, as well what were the restructured accounts. How much did you have to get into restructuring in the current quarter, quarter under review?

A: The amount of slippages has been coming down quarter after quarter, on December 31, 2010, we had an additional slippages of Rs 1,665 crore then on December 31, 2011, for the entire year it was Rs 3,508 crore. For this H1 it was Rs 2,600 crore and this quarter the slippages have been contained to Rs 862 crore.

That is positive, about Rs 400 crore less than the amount of the slippages, which we encountered in Q2, so asset quality has been fully in control for these reasons, which I was just mentioning. Recoveries has been record. Recoveries have been continuing and then slippages have been contained. The amount of slippages quarter after quarter is declining. We are very confident and hopeful of maintaining the same trend in the coming quarters and the periods.

Q: What about restructured assets. What is the total book and how much did it increased in the Q3?

A: In the Q3 we restructured about Rs 1,559 crore and our total amount of restructured portfolio is just about of Rs 9,555 crore.

Q: Can you tell us how things will pan out in the current quarter and maybe in the first half of FY13? How much do you think you will do in terms of the loan growth in the current quarter, as well in terms of margins?

A: Margins are likely to be around this level because credit growth has not been very robust as far, but we have grown slightly better than the industry. We hope that we will maintain that particular trend and we will grow around 16-17% so far as credit is concerned and also deposits around 18%. So, we will grow around the industry level.