Public sector lender Canara Bank, whose net interest margin (NIM) moderated to 2.90% in Q1FY25, is open to hiking the marginal cost of funds-based lending rate (MCLR) if the cost of deposits rises more. The lender is expecting its NIM to improve by 5 basis points (bps) in H2FY25, managing director and CEO K Satyanarayana Raju tells Piyush Shukla in an interaction. Excerpts:
Will you hike lending rates to enhance margin?
About 38% of our advances are linked to the external benchmark lending rate (EBLR), which we cannot change until the regulator changes the repo rate. The rest is linked to the MCLR which is computed taking into account the cost of deposits. If the cost of deposit burden increases, we raise the MCLR by 5-10 bps every month, based on calculation. But MCLR rates reset with a lag of one year. In case of deposits, the hike is passed on immediately. Therefore there is a stress on the margin. When we gave 2.90% NIM guidance in Q4FY24, markets thought we were being conservative. But now people are realising that we were realistic as the NIM was at 2.90% in Q1. NIM may increase by 5 bps in Q3 or Q4 of this fiscal.
What is the guidance on the asset quality?
We want to lower our gross non-performing asset (GNPA) ratio to 3.5% by March 2025, from 4.14% in the June quarter. Our target is to reduce the net NPA to 1.10% by fiscal-end, from 1.24% in the reporting quarter.
What is the target for recoveries for the year?
We have maintained that our recoveries and upgrades will be higher than slippages for the full year. On an average, if you take Rs 3,000 crore of slippages per quarter, Rs 12,000 crore of fresh slippages will occur in the full year. Our recoveries and upgrades will be higher than that amount.
The Centre has proposed banks to lend to stressed MSMEs. Is Canara Bank willing to lend to such entities?
I agree with the government’s decision that MSME lending should not be compared on par with corporate lending. We, in fact, have been working on these reforms for last three years. We believe that MSMEs’ risk rating should be done differently. But, the broader banking industry is risk-rating MSME and corporate loans on the same parameters. That is depriving MSMEs of sanctions and concessions. We have been risk-rating MSME and corporate loans separately for the last one-and-a-half years. While we lend to corporates after detailed analysis of their balance sheets, parameters for MSME lending are different. Whenever the government is ready to give higher cover for the Credit Guarantee Fund Trust for Micro and Small Enterprises scheme, banks will not hesitate to lend to MSMEs because the sector creates vast employment. Though some stress will be there, the government has come forward to shoulder it.
Has the bank assessed higher provisions requirement for final expected credit loss and project finance guidelines?
We are already working on that internally. The provision assessment we made for project fiancee guidelines is very nominal – it won’t hit us much. We can make it in one quarter itself. Regarding ECL, the regulator has proposed to implement the norms within five years of introduction of the final guidelines, but we are capable of providing the entire amount in first year itself, without breaching the regulatory capital requirements.
The bank’s board has approved raising Rs 8,500 crore via debt. When will the bank exercise the option?
It is very difficult to tell the exact time line of fundraise. We have a flexible mechanism to raise funds at a quick pace and we are watching the market. Whenever the rates are right, we will tap the bond market. Our capital adequacy ratio is higher than the regulatory requirement. The board has provided a cushion which we will use when it is required and market conditions are favourable
