Canara Bank has raised its credit growth guidance to 13.5% from the earlier 10–11%, betting on retail and MSME demand. Interim MD & CEO Hardeep Singh Ahluwalia tells Narayanan V about the segments driving incremental growth, margin pressures amid a tight rate cycle, and the bank’s readiness for the transition to the expected credit loss (ECL) framework. Excerpts:
What led to the upward revision in credit growth guidance?
Over the past nine months, our retail, agriculture and MSME (RAM) portfolio has been the key driver of credit growth. The RAM book has grown 18.7% year-on-year (YoY). Traditionally, we see stronger momentum in the final quarter, and I expect RAM credit to grow at a similar pace, or even improve further.
Our retail portfolio has expanded 31% YoY to ₹2.73 lakh crore, led by housing and vehicle loans. This does not mean we are not growing our corporate book. Corporate advances have risen 7% to ₹4.88 lakh crore. We have sanctioned another ₹20,000 crore, of which some portion will be disbursed, and we also expect a few new proposals to come in.
How challenging is it to mobilise low-cost deposits?
Our deposits are growing at a very healthy pace of 12.95%. Compared to the industry, Canara Bank is doing well in current account and savings account (CASA) deposit mobilisation. Our CASA deposits are growing at 9.32%. Within CASA, savings deposits are growing at 8.51%, and within that, individual savings are growing by more than 10.52%.
CASA is an industry-wide challenge, but we have been able to retain our CASA at around the 30% level, while for some other banks it has dropped sharply. We have rolled out premium payroll accounts to attract the salaried class, Aspire for students and women, Jeevan Dhara for pensioners, and True Edge to attract institutional deposits.
All these products come with some embedded facilities in addition to a normal savings bank account. We are also deepening our relationship with high net-worth individuals.
What is your plan to improve net interest margins (NIMs)?
Since February last year, there have been four repo rate cuts, with a cumulative impact of 125 basis points (bps). About 49% of our loan book is repo-linked, so the benefit of rate cuts is transmitted to borrowers immediately.
As a result, our yield on advances has declined by 45 bps. However, our cost of deposits has come down by only 8 bps, as term deposits take time to reprice. That said, I believe the NIM contraction has now stabilised. In this quarter, NIM will remain in the range of 2.45% to 2.50%, but it should improve further.
With RAM growth at 18.7%, portfolio spreads are higher. NIM will move up if there are no further rate cuts.
Yield on advances has fallen for the fourth straight quarter.
We have consciously taken a decision to take our RAM-to-corporate ratio to 60:40, and we are progressing in that direction. In MSME, the yield on advances is 9.28%, while RAM credit overall yields 8.88%.
It is not that we are discouraging corporate credit, but we are being very conscious about pricing. We are therefore focusing more on RAM and reducing lower-yielding advances on the corporate side.
How prepared are you to meet the ECL framework?
Our profit last year was over ₹17,000 crore. This year as well, it will be in the range of ₹17,000–₹20,000 crore, or even higher. Our slippages are continuously coming down, and our provision coverage ratio stands at 94.19%. We have estimated that provisions under the ECL framework will be around ₹8,000–₹10,000 crore.
The bank is adequately capitalised to absorb any new changes that may come. Also, the ECL framework allows banks to amortise these provisions over four years. We have also roped in EY to guide us and Coforge for system integration, so that we are fully prepared to adopt the ECL framework.