RBI’s proposal on infra lending not to impact Canara Bank’s margins, says CEO

The public sector lender, Raju said, has a total infrastructure portfolio which includes different types of projects of Rs 1 lakh crore to Rs 1.10 lakh crore.

The Reserve Bank of India’s (RBI) proposal tightening the norms infrastructure projects will not have much impact on Canara Bank’s margins, managing director and chief executive officer K Satyanarayana Raju has said.

“We have started our internal assessment but it is just a draft circular for now and we do not see much impact on our margins and capital,” Raju said in a post-earnings conference on May 8.

The public sector lender’s infrastructure portfolio, worth Rs 1 lakh crore to Rs 1.29 lakh crore, grew 12 percent in FY23 from the previous year.

The bank was seeking clarity from the regulator on the level of provisioning. “With our internal assessment, we are charging extra rates of interest to our customers. We are seeking clarity from the regulator as to whether there are any minimum levels to get an understanding of our balance sheet,” Raju said.

Also read: Canara Bank Q4 net profit rises 18.4%, asset quality improves; declares Rs 16.10 dividend

RBI’s proposal

The Reserve Bank of India has proposed that banks set aside a provision of 5 percent of the loan amount for infrastructure projects at the construction phase. This will reduced to 2.5 percent once the project gets operational and will be cut further to 1 percent when the project receives adequate cash flow to repay its obligations.

The lenders are required to make the five percent provision in a phased manner: two percent in FY25, 3.5 percent in FY26 and five percent by FY27.

At present, lenders are required to have a provision of 0.4 percent on project loans that are not overdue or stressed.

Banks should also have clear visibility on the date on which a project is expected to begin commercial operations and increase provisions in case operations are delayed. Any delay over three years in beginning an infrastructure project should change the classification of the loan from standard to stressed, the RBI has said.

Q4 numbers 

Reports have said that banks will appeal against the RBI’s proposal. The Indian Banks Association (IBA) was gathering inputs and would write to the central bank against the move. The government, too, is evaluating the draft rules.

Canara Bank reported an 18.4 percent rise in net profit at Rs 3,757.23 crore in the March quarter on improved asset quality and an increase in net interest income.

The bank’s gross non-performing asset (NPA) ratio improved to 4.23 percent from 5.35 percent in the year-ago period. Its Net NPA ratio stood at 1.27 percent against 1.73 percent last year.