Bengaluru-headquartered Canara Bank aims to recover Rs 15,000 crore from bad loans in the current financial year, the bank’s managing director and chief executive officer LV Prabhakar told Moneycontrol in an interview on May 9.
Prabhakar said the bank aims to lower its gross and net non-performing asset (NPA) ratio to below 6 percent and 2 percent by the end of current fiscal from 7.51 percent and 2.65 percent as on March 31, 2022, respectively.
“In Q4FY22, the gross NPA has come down from Rs 60,000 crore to Rs 55,000 crore in absolute terms. Net NPA has come down from Rs 24,000 crore to 18,600 crore. So going forward we will be ensuring that recoveries will be more than slippages.”
Prabhakar also shared his guidance on credit and deposit growth for the back in FY23, among others. Edited excerpts:
Q: What is your outlook on credit demand for FY23?
A: Credit offtake will be there. There is no second thought. But the only thing is as Canara Bank, what we are focusing is that the growth should be in all sectors. Corporate, agriculture, MSME (micro, small and medium enterprises) and retail. Even if credit growth is lagging in one sector, other sectors will compensate for it. That is our strategy.
I see a lot of demand in housing. This time (FY22) we have grown our housing portfolio by 15 percent and will continue to grow as per the demand. In the MSME sector there is demand, as you have seen we have grown by about 9.9 percent. Agriculture, yes, again in June there will be rains and the kharif crop, it requires money. Corporate, now we are seeing a lot of demand in infrastructure, especially HAM (hybrid annuity model) projects.
We are seeing demand in sectors including port, airports, medical, health, renewable energy, and engineering also. These are the sectors where we see there will be demand and we are getting good proposals. That is how we could achieve a credit growth of about 9.77 percent in FY22. For FY23, we are projecting a growth rate of 8 percent minimum.
Q: Are you looking at inorganic growth?
A: Everything is organic. We are not into portfolio purchases and other things. We are sanctioning new proposals and also enhancement proposals. We want to have partners as co-lenders. Maybe going forward we will add four to five people, already we have two co-lending partnerships.
Four to five partners because we are very selective in co-lending norms. The way in which we maintain retail NPA below 1.4 percent and in housing (loans) less than 0.7 percent, in co-lending also we want to have a minimum NPA because of which we are selective.
Q: What is the loan target via co-lending partnerships?
A: Already with existing partners we have targeted about Rs 1,000 crore. With the new partners, we will be targeting about Rs 4,000-5,000 crore. All will be RAM (retail, agriculture and MSME) projects.
Q: What new products are there in the pipeline for FY23?
A: Actually, two loan products. The products are the same but we are changing the processes. We are penetrating into digitisation, wherein the personal loans, housing loans, these all will be disbursed online.
Documentation will be online, stamping will be online and disbursements we will be crediting to their account based upon the analytics. That is the process change which we are going through.
Q: Can you share your targets on deposit growth and CASA (current account savings account)?
A: In the last few quarters, we are ensuring that the CASA growth is at least 11 percent to 12 percent. This time (Q4FY22) also, savings bank deposits have grown by 12.2 percent and CASA has grown by more than 11.5 percent.
This 12 percent growth in CASA will continue, whereas on an overall basis the share of CASA will rise to 38 percent because this time we want to go a bit aggressive in increasing the retail term deposit portfolio. Last year we have grown (retail deposits) at 5 percent, this year we are projecting that we should grow at least by 8-9 percent. Overall deposit growth rate we have projected to be 8.5 percent minimum.
Q: The Reserve Bank of India (RBI) increased the repo rate by 40 basis points (bps) at an off-cycle meet. How will this impact your customers?
A: We have uploaded a circular and the 40-bps repo rate hike has been passed on to customers. About 34 percent of our portfolio is linked to the repo-linked lending rate or RLLR. Whereas on MCLR (marginal cost of fund-based lending rate), we have already raised by 10 bps and in our portfolio, 50 percent loans are linked to MCLR.
Q: So is the rate hike net interest margin (NIM) accretive?
A: Actually we have achieved the NIM target of 2.82 percent against the projection of 2.8 percent we made last year. Again, we are projecting a minimum NIM of about 2.9 percent.
Q: Operating expenses rose in Q4FY22. Can you share your guidance for FY23?
A: Our cost to income ratio last year was 49 percent. Now it is 46 percent and going forward it will be coming down which will enable us to become one of the best banks in the public sector and even private sector. As the bank’s business increases, there will be some increase in operating expenses because of the investment in infrastructure we have already undertaken, there may be some depreciation.
The new initiatives will result in some revenue expenditure too because of which there may be an increase of Rs 100-200 crore (in operating expenses).
This time also, if you see on a quarter-on-quarter basis, there is an increase of about Rs 350 crore. And for a bank with an operating profit of Rs 23,000 crore, Rs 200-300 crore increase in operating expenses will not matter as long as the cost to income ratio is under control.
Q: Can you share your expansion plans for FY23?
We are focusing on opening specialised branches with a focus on easing customers transactions especially on the asset side. We plan to open about 40 to 50 branches, mostly specialised. However, wherever required we will be opening general branches as well.
Q: What is your asset quality guidance for FY23?
A- We have said that we will bring our net NPA down to 2 percent and gross NPA to 6 percent. The recoveries will be more than slippages going forward.
In Q4FY22, the gross NPA has come down from Rs 60,000 crore to Rs 55,000 crore in absolute terms. Net NPAs came down from Rs 24,000 crore to 18,600 crore. So going forward we will be ensuring that recoveries will be more than slippages.
Q: What is the target on loan recovery and upgrades?
A: We should be recovering more than Rs 15,000 crore in FY23.
Q: By when you will be able to raise the Rs 9,000 crore that you have been planning?
A: During the current month itself or by the first week of next month we will obtain board approval for raising the exact amount. We are interested in raising AT-I bonds (additional tier-I) and tier II bonds, not equity.
Depending on the market conditions, we will be spreading this over a period of two to three quarters because as on date my capital adequacy is more than sufficient to take care of credit growth of about 10 percent.
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