Canara Bank hopes Rs 32k cr deposits will help in NPA recovery

Bankers have maintained a positive stance after the roll-out of the demonetisation scheme. Rakesh Sharma, MD & CEO of Canara Bank concurs with the optimism and says that though the bank faced initial hiccups in having their deposits placed in RBI currency chests, the task force formed to manage the chaotic situation has made life easier.He also said borrowing is not a problem for the bank. According to him, the huge amount of deposits received via demonetisation is going to help the bank in recovering non-performing assets (NPAs). Sharma also sees no stress in the book currently and remains positive on the impact of cash cleanup on banks. He said the bank received Rs 32,000 crore deposits since November 10 and the current and savings account ratio (CASA) has gone up by 30 percent. Recovery in loan accounts is at Rs 4,000 crore. He further said that the bank has been prudent in marketing MSME and funds received via demonetisation will be used to regularise SMEs. The bank has 50 percent of its loan book in priority sector lending.He also expects improvement in digitisation of banking transactions.Below is the verbatim transcript of Rakesh Sharma’s interview to Latha Venkatesh & Nigel D'Souza on CNBC-TV18.Latha: First just a technical questions which I didn’t get. Some banks were complaining that their deposits are not getting registered in the currency chests because the vans are moving slowly and the chests are bit loaded with work. So, they have to borrow money from the wholesale market and pay their cash reserve ratio (CRR) because they have bloated deposits. Do you have any such problems? A: Let me first clarify, initial three-four days this problem was there but like after fourth day or fifth day when Reserve Bank of India (RBI) made this taskforce and we started taken up with RBI after that there are no issues. In fact major portion of our money has been remitted to RBI and on continuous basis it has been remitted to RBI. Some small 20-25 percent will be in pipeline but otherwise there is no issue. In fact rather we have surplus statutory liquidity ratio (SLR) and borrowing is not at all a problem for us at least. Other banks also now they are sending to RBI currency chest. Nigel: Do you see your nonperforming assets (NPAs) to the SME segment rising?A: No, in fact we have been very aggressively we have been marketing SME. So, retail that priority sector we have around 50 percent of our advances. Some short-term stress maybe there but that also I don’t foresee. In fact rather we are now recovering those advances. Around Rs 4,000 crore there is a reduction. Now how much it has gone to for that stressed accounts and some portion has gone to NPAs also. Now our immediate focus in fact you ask me the bankers will be one –since we have got these funds some portion of course will be withdraw. However, that one good quality credit growth and second these funds basically will be better utilised. We will be contacting the borrowers for regularising our SMEs for making recoveries in NPAs. So, during this period more or less the things have stabilised. Now the rush is coming down, so the focus will move towards that. So, it will be good I think. So, temporarily may be short period 15 days maybe.Latha: I didn’t get you, you said 50 percent of your exposure is of your priority sector is to SMEs, what is 50 percent?A: Total priority sector advances are 50 percent. I don’t think there will be stress rather recoveries are happening, there may be recoveries, so temporarily maybe week or ten days they are little bit thinking what to do. After 10-15 days we will start contacting the borrowers, so we are doing that. Things are improving and will improve I am sure. Latha: What did you say was that Rs 4,000 crore? Is that the money that got paid back in to loan accounts?A: The total deposits that bank has received in this currency notes around Rs 32,000 crore during this 10-11 days period. So some portion our deposits have increased almost by Rs 24,000 crore. In fact the current account saving account (CASA) has improved first time in Canara Bank. CASA has gone to 30 percent very good growth and some portion of course because they will be depositing in loan accounts also. So, that is why I was saying that there will not be stress in fact some recoveries will be coming in loan account. Rs 4,000 crore recoveries are there. Now some portion of course will be in regular accounts, some portion is stress accounts. Some in NPA accounts also. So, that way it will be a positive thing that is my feeling.Nigel: Let us shift focus then bond prices they have short up, so obviously G-sec yields have been falling. How much profit can you book? What is your SLR book looking like?A: Two things, I would like to mention here. One our yield is very good, average yield is around 7.9 or something. Second, our modified duration is around 4.8 years so that way some AFS also around 22-23 percent we are holding so there is good hidden profit. However, finally how much we sell, because we will not like to sell entire thing so we will wait and watch, of course profit will be there. We are standing on good profit. Latha: What is your exposure to commercial vehicles (CVs) and to construction equipment, are you not seeing NPAs in that segment?A: Two things, one – we don’t have much mortgaged loans. Second in housing sector we have finance but major part is that in salaried structure. Whenever this EMIs are fixed, we take that portion where we are giving the loans so which is at the registered value. These salaried persons and that way I don’t think, temporarily people are thinking what is this uncertainty in the market, but I don’t think, after one month or something things will settle down. There will not be adverse effect I feel. Nigel: Some people were expecting that the government will recapitalise banks if they get a large dividend from the RBI. Has the government indicated anything to you?A: So far we have been having visits with the government, but mainly now things are basically to improve the situation how many ATMs have been recalibrated, recapitalisation that of course has not been discussed so far. One thing I will like to mention here one minute if you give me, all alone we have been telling about digital banking and all these things, so our focus was to improve e-transactions. Last year from 50 we have been able to increase form 60-65. Now with this major step which is very good step with this digitalisation will improve. In fact already 111 posh machines we have deployed, we have sent to the rural market where our all lead bank districts we have set the vehicle there we will be telling take RuPay card so this will help in further digitisation which will ultimately help in reducing the cost of transactions for the banks. So, medium-term there will be many positive points which will be seen. Digital banking will be huge benefit so we have to take it in this way.