Canara Bank plans to expand its retail business by 10 percent in FY22, riding on the economic recovery as the COVID-19 pandemic abates, managing director and chief executive officer LV Prabhakar said in an interview to Moneycontrol.
Prabhakar said there’s no evidence of stress building up in the retail segment. The state-owned bank’s gross non-performing assets (NPAs) was 1.35 percent in the retail segment in September and 0.97 percent in the housing loan segment. Prabhakar also touched upon NPA guidance, business outlook, and restructuring. Edited excerpts:
What were the key trends observed in Q2?
The Q2 results were better than Q1 results. If you see the CRAR (capital to risk assets ratio) we are at a comfortable position because 14.37 percent is the highest in the last one decade for Canara Bank. CET1 (common equity tier-1) at 10.09 percent, where a jump of 188 bps, is seen, is the best in recent times. We have sufficient capital to take care of regulatory requirements and aggressive growth. There’s no need to go to the market.
What’s the strategy on growth?
CASA (current and savings accounts) we are growing at over 12 percent. In the last one year we have added Rs 35,000 crore of CASA in absolute terms. Our domestic business has grown by Rs 1,05,000 crore. We are seeing growth in all parameters.
Can you comment on asset quality?
Our net NPA has gone down by 21 bps to 3.21 percent and gross NPA has gone down from 8.5 percent to 8.42 percent. In spite of allowing Srei to slip to the tune of Rs 3,200 crore, the NPA percentage has come down. Recoveries in this quarter were strong at around Rs 7,200 crore, with cash recovery at Rs 3,717 crore including written-off accounts. We have upgradations, too. On the NPA side, I can say the bank has done very well.
Are there fresh signals on stress in the retail book?
We are in a comfortable position to grow ahead and also absorb any stress that arises. Retail credit is 57 percent of our book and 43 percent is corporate. Retail is growing at 10 percent. Under retail, housing and agriculture are growing at 14 percent. There’s healthy growth as far as retail is concerned. There’s no stress being seen in retail because our gross NPA under retail is 1.35 percent, housing is 0.97 percent.
Retail NPA in all parameters is less than 2 percent and one of the best as far as banking industry is concerned. With 10 percent growth in retail and 8-9 percent in RAM (retail, agriculture and MSMEs), our overall growth for FY22 will be minimum 7.5 percent, which could possibly be achieved in Q3 only.
How much NPAs does the bank plan to transfer to the bad bank?
As far as the National Asset Reconstruction Company Ltd. is concerned, we are the promoter with a 12 percent stake. Around Rs 4,000 crore NPAs will be transferred from Canara Bank. The work is progressing – however, we are yet to transfer.
Can you give us a sense on NPA guidance?
We have given a guidance of net NPA at 2.8 percent and gross NPA at 7.9 percent. Given the current speed of recovery and controls, gross NPA can come down to 7.5 percent.
Where do you see the majority of recoveries?
Out of total Rs 7,200 crore recovery, majority is retail and one major account is recovery from DHFL. In DHFL, we got Rs 1,700 crore. About Rs 715 crore has been recovered from written-off accounts, upgradation is about Rs 2,671 crore. It is important because recovery is more than slippage. Our gross NPA and net NPA has come down in spite of adding Srei.
How is the restructured book looking at this point?
Under the Reserve Bank of India 1.0 framework on restructuring, we have done around Rs 5,000 crore of restructuring. All of it is standard except around Rs 32 crore. Here, Rs 4,200 crore worth restructuring was done by corporates.
Under the RBI 2.0 framework, we have done around Rs 13,475 crore including agriculture, retail, small business and MSME. As on September 30, 52 percent of this portfolio we are seeing that people are paying installments in advance. People have availed of the facility only as a safety measure.
In the second resolution, there are no corporates, only retail, agriculture, small businesses and MSMEs. We expect less than 1 percent of the total restructured pool to slip into NPAs over a period of time.
What is the strategy on loan mix going ahead?
We try to balance growth between corporate and retail. In corporate, we are looking for growth at 7.5 percent, whereas in retail we will be growing more than 10 percent. Overall growth will be more than 7.5 percent, could settle at 8 percent. With growth, we would also want to take care of the underwriting quality.
What is the approach to new loans from a credit underwriting perspective factoring COVID-19 impact?
As we are the third-largest public sector bank in India, last year we did verticalisation of portfolios. We have a retail asset hub, wherein only 242 touch points all over India cater to the requirement of 10,000 branches. These 242 units do the processing of loans, etc.. Here, we have the best people posted with proper strength and experience and this has enabled our outstanding home loan book to grow by 14 percent and overall retail has grown more than 10 percent.
Is it the same in the housing division?
In housing, the sanctions have grown by 34 percent. We also started a vertical for SMEs and are focused on having a good SME portfolio and our NPA here is comparatively better than other banks.
What is the outlook on housing loans? Any specific segment to focus on?
Our housing loan outstanding is growing at 14 percent, sanctions are growing at 35 percent, and we have a mix of different segments within housing. We don’t want to have concentration in any sector or sub-sector… We are serving affordable housing as well as big-ticket home loans over Rs 1 crore.
PSU banks have been catching up on lateral hires. How would Canara Bank go about it?
We have outsourced our chief compliance officer from the market. Remaining officials are being given assignments as per qualification and experience. As of now, there’s no requirement to hire directly from the market or for any lateral appointments.
Would you elaborate on the unsecured and credit card segment?
Unsecured credit, apart from credit card business, we are taking exposure under our risk appetite limits. We are focusing on credit card business. Earlier it was average, now we are slowly focusing on that.
Going forward, under fee-based income, credit cards will also be contributing to some significant extent. As on date, we have 800,000 cards. We are offering credit cards to valued customers. However, there is a long way to go.
What’s the response to the credit outreach programme organised by PSU banks?
As we are the state-level bankers’ committee convener in Karnataka, Kerala and Lakshadweep, we are driving the outreach programme and in the other states we are participating along with other banks. Traction for sanction and disbursals is being seen in the retail segment, including agriculture and MSMEs. Under this outreach programme, we are looking at mid-corporates and not large corporates. So far, we have seen good traction.
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