Canara Bank unlikely to invest further in AIF, provided 100% on current investment, says CEO Raju

Canara Bank

Canara Bank is unlikely to invest further in the alternative investment funds (AIFs) and has made 100 percent provisions on current investment, managing director and chief executive officer K Satyanarayana Raju has said.

“No, at this moment whatever is there, we have done final 100 percent provision on our AIF investment and there are no more chances for that,” Raju said in response to Moneycontrol’s question if the bank would continue with AIF investments.

In the March quarter, the lender made a provision of 11.57 crore on its AIF investments.

In December, the Reserve Bank of India (RBI) barred regulated entities such as banks, non-bank lenders and home financiers from investing in AIFs that have directly or indirectly invested in companies that have borrowed money from the lenders.

The RBI said lenders should liquidate their investment in the scheme within 30 days of the AIF scheme, in which lenders are investors, and make a downstream investment in any such debtor company.

If lenders have already invested in schemes having downstream investment in their debtor companies, the 30-day period for liquidation shall be counted from the date of issuance of this circular, the RBI added.

If lenders fail to liquidate their investments within 30 days, they need to make 100 percent provision on such investments, the central bank said.

These regulations were clarified by regulator, saying the definition of downstream investments would exclude investments in equity shares of the debtor company of the lender. However, the rules would apply to all other investments, including investments in hybrid instruments.

Provisioning by lenders which have investments in AIFs will be required only to the extent of investment by the lender in the AIF scheme which is further invested by the AIF in the debtor company, and not on the entire investment of the RE in the AIF scheme, the RBI said.

An AIF is a privately pooled investment vehicle, which collects funds from investors to invest them in accordance with a defined policy for the investors benefit.

Earlier in the day, Canara Bank reported an 18.4 percent rise in its net profit to Rs 3,757.23 crore in the fourth quarter on better asset quality and an increase in net interest income.

Bross non-performing asset (NPA) ratio of the bank improved to 4.23 percent from 5.35 percent in the year-ago period. Net NPA ratio stood at 1.27 percent  against 1.73 percent in the previous year.

Net interest income, the difference between the interest earned and paid, stood at Rs 9,580 crore, up 11.18 percent from the year-ago quarter.

Net interest margins stood at 3.07 percent, same as last year but a tad better from the previous quarter.