Canara Bank’s new MD & CEO, Brajesh Kumar Singh, says raising low-cost resources is his top priority. Singh tells Manju AB that the bank is shedding bulk deposits and focusing on retail and term deposits to improve its net interest margins (NIMs). Excerpts:
Since it has been less than two months since you took charge of Canara Bank, what are the key strategic changes you plan to push for?
Our first priority is to raise low-cost resources. That would mean increasing the share of CASA (current account savings account) deposits to 32% from around 30% now. The other priorities are improving net interest margins (NIMs), yields on advances, asset quality and customer experience.
We are ramping up loan growth, particularly in the MSME segment. We will also focus on human resources and are planning special training programmes for women, who constitute 33% of our workforce.
You come from banks where CASA and NIMs are higher, are you planning to move away from lending below 7%, which could be impacting Canara Bank’s NIMs?
We will not do sub-7% lending. Whenever such loans come up for reset, we are working towards resetting them in our favour. We are ready to shed many of these advances and opt for higher-yielding assets. The market is slightly better now.
Do you think the bank’s NIM has bottomed out at 2.5%?
We have protected our NIM at 2.52% as of June-end and have the aspiration and ability to raise it further. However, our guidance for FY27 remains at 2.60%, considering the many headwinds in the ecosystem.
Our cost of deposits came down by 27 basis points in the June quarter. We are shedding bulk deposits and increasing the share of retail and term deposits. Our net interest income (NII) crossed Rs 10,000 crore for the first time in the June quarter.
You also have an ambitious target for FCNR(B) deposits.
This quarter, all banks will be busy mobilising FCNR(B) deposits. We currently have $800 million and will cross $1 billion by the end of this month. Our target is to garner $2.5 billion through FCNR(B) deposits, ECBs (external commercial borrowings) and OFCBs (overseas foreign currency borrowings). Of this, FCNR(B) deposits should touch $1.5 billion. We will use these funds to reduce our reliance on bulk deposits.
We have bilateral tie-ups with several foreign banks. We are also collaborating with larger Indian banks that have a significant overseas presence for KYC verification and facilitating remittances to India. So, all banks are helping each other.
Are you strategically increasing the share of RAM (retail, agriculture and MSME) in your loan portfolio?
There are many benefits to doing this, including better leverage, diversified risk, lower credit costs and greater opportunities for cross-selling. We have increased the RAM share to 59% from 58% a year ago and want to take it to 60%, or even 62%.
Corporate credit growth is also holding up well for you. What is driving demand?
Private capex and government undertakings are driving credit demand. Working capital is the mainstay of this demand. There is significant demand from power execution companies, battery manufacturing firms, HAM projects and data centres. There is also demand from green energy companies. We have also financed NABARD and SIDBI.
Canara Bank was pursuing corporate defaults of about Rs 2.5 lakh crore involving companies such as Gupta Power Infrastructure and Aircel, among others. What is the status of these accounts?
Most of the large accounts have either been resolved or sold off. About 18 large corporate accounts have been transferred to NARCL (National Asset Reconstruction Company Ltd) at various points. They are at different stages of resolution. We are not holding any large corporate accounts on our books. Corporate defaults are slowing down for us.
Asset quality has improved, but SMA-2 accounts (overdue by 60 to 90 days) have increased. Is there a specific reason for this?
The delays in repayment are coming from two or three government accounts where there is a 100% guarantee. These are consortium-financed accounts, with most banks participating, so they are not slipping into NPA status. However, they have been oscillating between SMA-1 and SMA-2. SMA-1 has declined, while SMA-2 has increased.
As of June 30, one large account was added to the 30-day overdue category. However, these are public sector undertakings backed by government guarantees.
In the June quarter, gross NPA improved by 112 basis points to 1.57%, while net NPA declined by 27 basis points to 0.36%.
What are your plans for acquisition finance after the RBI allowed domestic banks to finance acquisitions?
It is a good avenue that has opened up. Indian companies are pursuing mergers and acquisitions both domestically and globally. We want to build synergies in this area, but we will start with domestic M&A activity before venturing into the global market. We are looking at a technical tie-up for acquisition finance.
How much are you providing for expected credit loss (ECL)?
We may need around Rs 10,000 crore to Rs 12,000 crore in ECL provisions, which we plan to make over the next two years. With annual profitability likely to cross Rs 20,000 crore, we should be able to manage this comfortably.