Poised to achieve a total global business of Rs 4 lakh crore in 2009-10, Canara Bank, the country?s fifth largest bank in terms of aggregate business, says that the fourth and last quarter, too, has gone its way. In an interview with FE?s Shreya Roy, AC Mahajan, Canara Bank?s chairman & managing director, talks about the bank?s overseas expansion plans, performance over the past year and the impact of regulatory changes on its margins.
How are you expecting the fourth quarter and the year to shape up for Canara Bank?
Reserve Bank of India, in its latest policy announcement, has lowered the business growth forecast by 17% for deposits and 16% for advances. In the first three quarters of the financial year 2009-10, we have outperformed the industry in terms of business and recorded high profits. There was, however, an element of treasury profits in our total profits. Treasury profits depend on the volatility in the market and other factors. Consequently, we are not sure if the same level of treasury profits could be maintained in the fourth quarter. Barring this uncertainty, we expect to do well in the last quarter.
What are your expansion plans abroad in the coming year?
We have drawn up a medium-term strategy to scale up our overseas presence by identifying 21 international centres for the global expansion drive. The Bank has RBI?s approval to open branches and offices in South Africa, Germany, Oman, Bahrain, Qatar, the UK, the US, Brazil, Tanzania, the UAE and Japan.
We will be approaching the respective regulator/licensing authority in these countries for necessary approvals. Meanwhile, we are opening one representative office in Sharjah, UAE, and a branch at Leicester, the UK, soon. We will now be reviewing our international expansion strategy.
RBI has directed daily calculation of interest rates on savings accounts from April 1. What impact will this have on your cost of deposits and margins?
We will abide by the RBI guidelines. The shift to daily calculation of interest rates on savings may increase our overall cost of deposits by 15-16 bps and our margins, on standalone basis, may be impacted accordingly. Our IT systems are fully geared up for the conversion of interest calculation from monthly product basis to daily product basis.
How do you see the new base rate model for interest rates impacting lending?
Base rate is another benchmark, which is being introduced by RBI in pricing of loan products. The earlier benchmark prime lending rate (BPLR) was also used for the pricing of products. Because of certain unavoidable reasons, such as liquidity influx and mandatory lending under DRI, credit to agriculture, credit to exports and small & medium enterprises, the bank?s credit to sub-BPLR was increasing in percentage terms and there is a perception in the minds of market participants that the BPLR has lost its relevance. Hence, the base rate concept is introduced now.
The base rate model only includes few elements of costing in computation of base rate vis-?-vis a wide range of inputs taken for calculating BPLR. Banks will be free to charge higher interest by way of a spread since they will not be permitted to lend below the base rate.
The finance ministry has spoken about financial inclusion and expanding the geographic reach of banks. What are Canara Bank?s plans for financial inclusion?
Canara Bank has achieved total financial inclusion in all the 26 lead districts spread over five states: Karnataka, Kerala, Tamil Nadu, Bihar and Uttar Pradesh. The bank has extended its total financial inclusion campaign to 1,639 villages across the country and has introduced various schemes for the financially excluded segments.
Further, the Bank has envisaged plans to extend the banking services in rural areas through the business correspondents model and also plans to increase the number of biometric ATMs to 50 by March 31, 2011.