See no major impact of Basel III norms on Biz: Canara Bank

The Basel III capital regulations by Indian banks come into effect from April 1, on the basis of the guidelines issued last year. This as an international accounting standard for banks were to come into force from Jan 1, but the central bank rescheduled them to April 1, giving Indian banks four months to improve their capital adequacy in conformity with the new norms.

RK Dubey, Chairman of Canara Bank told CNBC-TV18 that Basel III norms will not have major impact on the business. "If there is a major impact, we are not able to envisage that", he said. Instead he feels that the company would absorb the impact by increasing business. According to Dubey there is no pressure on capital adequacy, as the company is adequately capitalised at the moment. Below is the verbatim transcript of his interview to CNBC-TV18 Q: Basel III norms come into effect from April 1. What kind of impact will it have on your capital, etc? A: We don’t feel any problem because our asset quality is already good and capital restructure is already comfortable. Whatever capital we require, we don’t need any extra capital in coming two years. Still, if more is required as per Basel III in tier one, we think we will do manage it either through the government or through the market. Q: Have you calculated the impact? What is your current capital adequacy as of March 31 or December 31? When the new rules apply, what will they come to? A: Our capital adequacy will be over 12 percent comfortably and tier one is also over nine percent. So we don’t find any pressure at the moment. Q: Have you calculated what will the impact be? A: March 31 is over just now. We are collecting figures. Core Banking system (CBS) gives figures only on April 1 evening. So, we are yet to collect all the figures and workout our need for the coming year. Then only we will be able to come out. Q: Do you have a thumb rule if you may need one percent more capital or your adequacy will go down from 12 percent to 11 percent because of Basel? A: We are adequately capitalised at the moment. Let us get the final figure of March 31, then we will workout our need and then we will talk to you. Q: You don’t see any impact on profitability because of Basel III norms? A: Whatever impact if there is any, we right now are not able to envisage that there will be major impact. We would be able to absorb by increasing business. Q: Canara Bank had filed a fraud case against Deccan Chronicle Holding with the CBI. Could you give us an update on that, how much is the exposure, how is it being treated? A: We have more than Rs 360 crore and suit has been filed in Debts Recovery Tribunal (DRT). We have gone pursuing the suite. We have gone for attachment before judgment for various properties and assets that were charged to us. We are expecting a judgment from the DRT. CBI also has started investigation. Q: When are you expecting the judgement? A: It is the judgement of the court. How can we say? We are pursuing with our advocates to expedite. Q: I was speaking to another state issue, the state electricity boards. Can you update us on any one state which is on the verge of signing? Has any state or set of states signed up on the bailout? A: I think Haryana and Rajasthan are ahead. Tamil Nadu also we don’t find any problem. Punjab only has said ‘no’ till now. All other states are on board. Q: With these three states where negotiations are in advance stage, what is the likely haircut that banks will have to take in terms of the interest paid on the loans? I would assume that it would be at least two-three percentage point cut? A: That maybe around 1.5-2 percent because the bond rates could be ranging from 9.7 percent to 10.25 percent. So, not a big haircut, but it would be closer to our base rate. _PAGEBREAK_ Q: So you will have to take a Net present value (NPV) loss? A: We would ensure that it is also recovered over a period of time. They have assured that they will not have banks as NPV loss. Q: Since Punjab may not agree to the debt restructuring package, what happens to the Punjab SEB and therefore consequently your exposure? A: Our exposure is not very big. It is less than Rs 300 crore. It is up to date, interest has been paid up to date. Punjab government themselves feel that they would be able to keep the account up to date. So, we don’t find any problem at the moment. Q: Are you exposed to any of the other three states where you said negotiations are at an advance stage - Uttar Pradesh, Haryana and Tamil Nadu? A: We don't find any problem there. We are definitely comfortable in all those three states. Q: Will you lend more if the package goes through? A: If the package goes through, yes, because then we know the timeline that the state government is definitely supporting. One might have seen - Haryana government has increased the tariff also. All other states are going as per the norms now set in by that. Q: What is the status on your deposit rates? Two big banks have already announced deposit cuts. Should we expect something from you? A: We shall hold our asset and liability committee (ALCO) and we will deliberate up on it. We have seen today only in the newspaper that there are two-three banks which have gone for the reduction of the rate of interest. We have to go in for reduction of rate of interest in the credit area. Then we will have to think of some reduction in the deposits because the liquidity was tight in the closing days of March but now liquidity has to better in the coming days. We might consider some cut. Q: Are you facing delayed payments from any SEB? A: All SEBs are on time. Q: How do you think your gross non performing liabilities (NPL) or net NPLs will move at the end of fourth quarter? Rs 6,090 was where you stood. Will it be likely much higher? A: I expect as per un-audited results available with me, we will be lower than Rs 6,000 crore. That is a positive. Our quantum recovery has been more, the cash recovery has been more, upgradation has been better and slippage, we were able to control. So, with the combination of all these three factors, our NPL terminal level would be definitely in the range of Rs 5,500-5,600 crore, lower than the December figure. Q: Could you give us some more colour on slippages? They were Rs 1,920 crore in the second quarter. What might be the slippages for fourth quarter? A: Overall slippages, we have contained in the fourth quarter by aggressive credit monitoring and on one-time settlement (OTS) also. Our quantum recovery has been quite good. We have crossed Rs 3,600 crore cash recovery and around Rs 700 crore upgradation. Due to which, our gross NPA maybe around 2.3 percent only. It will come down from 2.7 percent till December to 2.3 percent.