Worst almost over; see gross NPA near 9% by Mar '17: Canara Bank

Canara Bank will work to contain its gross non-performing assets (GNPA) level below 9 percent by March 2017, says MD & CEO Rakesh Sharma. He believes the worst is over for the bank and profitability will be better during the second half of the year.

Earlier today, the bank reported second quarter net profit of Rs 357 crore with gross NPA at 9.82 percent. Fresh slippages were sequentially lower at Rs 2,449 crore from Rs 3,878 crore.

Sharma says the bank has been undertaking upgradations and recovery and does not expect fresh slippages to exceed Rs 2,000 crore in the coming quarters.Below is the transcript of Rakesh Sharma’s interview to Latha Venkatesh on CNBC-TV18.Q: You spoke at length about the asset quality numbers in your press conference, but just to reiterate, are you confident that you have seen the worst? You have gone down in terms of fresh slippages from Rs 3,800 crore to Rs 2,400 crore. Can we be reasonably sure that in the third and fourth quarters, the numbers will be under Rs 2,000?A: Yes, in fact, you are right. As you see, as compared to Q1, our slippages have come down substantially and the next quarter also, like of course, our special mention account (SMA) 2 accounts are in the range of Rs 17,000 crore, but we have gone and analysed account by account. We do not expect slippages more than Rs 1,500 or maximum Rs 2,000 crore. So, the slippages are well under control and of course, rather we are trying for some upgradations and recovery. So, with that, the worst is almost over and we will be able to contain the non-performing assets (NPA) by March, 2017.Q: What about credit growth? Even now, your net interest income (NII) is still falling, so what is the credit growth and what is the margin picture?A: No, but if you see that NII has slightly come down, but the main reason that in the falling interest scenario, the interest income and net interest margins (NIM) will somehow come down and some like especially keeping in view that now the 9 percent NPA which most of these are not generating an income. Once we are able to provide solution for these NPA, the interest income will also increase and even provisions, there will be some benefits. But at the same time, despite that, if you see our operating profit, year-on-year (Y-o-Y) it has increased by more than 10 percent and if we compare to Q1, it has increased by 17.7 percent. And NIM has also increased. We have been able to control our cost of deposits also. So that way profitability is likely to improve during Q3 and Q4.Q: Will a further fall in interest rates help you or hurt you because for many banks, when interest rates fall, you get gains on your investment book but you have to provide more for pensions because the kitty is earning less. If the interest were to fall by 50 basis points or 25 basis points, will you be a net winner?A: Yes, in fact, in the case of Canara Bank, if you see, the yield is around 7.88 percent and the modified duration which was 4.76 percent it has now increased to 5.11 percent. And with the fall in interest rates, it works two ways. Of course, simultaneously we will be reducing the interest rates on deposits also. So, more or less, it will be compensated on advances. But in treasury, we will be certainly with the type of yield we are having in treasury and the type of modified average duration we are having, we are certainly going to gain. And as far as the pension provision is concerned, in both Q1 and Q2, we have made more than whatever provision is required, so there we will not get any hit.