MC Interview | Canara Bank works to raise valuation of CanFin Homes after RBI draft norms on aligning businesses: CEO Satyanarayan Raju

Canara Bank

Canara Bank is working on improving valuation of its subsidiary CanFin Homes after the Reserve Bank of India (RBI) draft circular on business and prudential regulation for investments, Managing Director and Chief Executive Officer K Satyanarayan Raju said in an exclusive interview with Moneycontrol.

Raju said the impact of the circular is only on the CanFin Homes and no other subsidiary is doing parallelly the same activity what the bank does. “We have shared with all of you that we are working on improving the valuation of CanFin Homes. We expect good results will continue in the coming quarters.”

The draft proposal from the RBI released on October 4 said that only a single entity within a bank group can undertake a particular form of permissible business. It said that multiple entities within a bank group shall not undertake the same business or hold or acquire the same category of licence from any financial sector regulator.

Raju said the bank has not taken any exposure to the telecom sector in the last two to two-and-a-half years, while the lender has taken some exposure in Jio recently.

Excerpts from the interview:

Why bank’s SMA 2 has gone up in this quarter?

One state-owned company from the steel sector has been added to the SMA 2 category in the last quarter, and now it has been continuing in this quarter too. Additionally, one state government’s irrigation project has fallen into the SMA 2 category. The exposure is around Rs 3,000 crore, which is guaranteed by the state. If you remove these two accounts of Rs 6,700 crore, our actual SMA2 will come below Rs 4,000 crore.

Why the bank has increased HTM portfolio over the last one year?

There is a 5 percent of HTM, which the bank can sell in the market, but we are not exercising so far because we are expecting a rate cut. Once the rate softening takes place, we may get a higher yield. All other banks have sold and they have booked the profit. Nevertheless, for announcing these profits, we are not still exercising that 5 percent HTM sale. We are keeping it pending for that fourth quarter.

If necessary, we will do it or else, when the yields will fall we will do it and then can earn higher profits.

What is the guidance on the NIMs after it shrinks sharply over the year?

We have given guidance of 2.9 percent and now we are at 2.88 percent, not far away from the guidance. We think that pressure on our cost of funds will continue for the next two quarters and I don't see any comfort or softening in that area.

So, in and around of 2.85 percent, the margins may continue like that only. We can't see that it will come back again to 3 percent in the current financial year.

Your staff cost has increased sharply in this quarter, will this growth continue?

Because of the bipartite settlement, we should think that the wages have increased by 17 percent. The staff cost has increased by 15 percent. Now it's reached Rs 4,300 crore per quarter. We expect that in whatever the quarterly, the DA increase will be there 1 percent or 2 percent.

Credit to commercial real estate and chemicals and chemical products have grown sharply in this quarter...

It depends on the proposals you receive. It's not that we have kept some target and achieving it. Suppose in the first quarter, we might not have got that particular area with the viable proposals or the projects. Then naturally, that particular quarter, you may not see some growth. But suddenly, we may get some good proposals in the next quarter.

We don't have any negative approach on those things. We are selective on sanctioning of those. We got a good proposal in this quarter. With the good collateral coverage and the promoters are good and the rate price was also as what we expected, we got it and hence sanctioned it. Otherwise, there is no specific that we have taken certain call and moving towards that.

There is no bar on that. If good proposals come, we are open to sanction.

Do you have any exposures to the telecom segment?

There is no new loans have been sanctioned during the last 2-2.5 years. With Jio, we have taken some exposure recently.

What is your guidance on deposit growth and how much CASA percent of the total deposit you want to maintain?

From the June quarter to the September quarter, we improved 28 basis points in the quarter. We want to show some growth quarter-on-quarter and we have given a guidance for the deposit at 9 percent and the advances at 10 percent. We want to surpass that guidance.

We are expecting that we may touch 32 percent of CASA percent of the total deposit because it is 31.28 percent now. By the end of the month, we may look at that 32 percent.

Are you going to review and evaluate implications of the RBI’s draft circular on business and prudential regulations for investment?

The impact of the circular for us is only on CanFin Homes, except from this, none of our subsidiaries are parallelly doing same activity what the bank does. We have already shared with all of you that we are working on improving its valuation. We expect good results will continue in the coming quarters.

Why your associate Karnataka Grameen Bank is posting a loss since the last four quarters, when can we expect profitability to return for this entity?

Last year, the performance was bad because there was a huge NPA, repeated restructuring, and all. We have taken a cautious call on the accounts. This has attracted more provisions which resulted in loss for the entity.

In the September quarter, it has come out of that loss, it ended in profit, but the Supreme Court order for their employees to make the payment for pension for last 20 years and once increment for last 30 years. All these things have forced regional rural banks to provide more provision towards that employee's cost and reflecting a loss.

From the next quarter onwards, we expect the profitability for this entity.