ET’s Atmadip Ray spoke to Canara Bank managing director
LV Prabhakar to delve deep on the bank’s future guidance and strategy as well as on the plans about the subsidiaries and associate companies.
How is Canara Bank poised? What is your outlook for the entire banking sector?
After amalgamation, we have grown significantly. Our net profit at Rs 1,666 crore for March quarter reflects over 300 per cent growth over Rs 406 crore seen in the June FY21 quarter. Business grew 9.7 per cent with retail, agriculture and MSME (RAM) segments showing 11 per cent growth and housing loans showing 15 per cent rise over the same period. Based on this platform, Canara Bank is poised to show strong performance this fiscal. We would like to achieve a business volume of Rs 20 lakh crore by March 2023 from Rs 18.27 lakh crore at the end of March 2021. Our projection is to grow ROA (return on assets) by 0.7 per cent over 4.48 per cent now and ROE (return on equity) to 15 per cent from 11 per cent. Our credit growth projection is 8 per cent over Rs 7.41 lakh crore.
For the banking sector as a whole, a double-digit loan growth looks achievable this fiscal with good traction in infrastructure projects. This traction in growth is reflected in the rise in net interest income in the March quarter for all lenders.
You are expecting double-digit credit growth for the banking sector. Then why Canara Bank’s projection is below the industry average?
We kept the lending growth projection at 8 per cent, but this is the minimum we would achieve. We would chase a double-digit growth. In our last year’s guidance, we had projected 7,5 per cent credit growth but we achieved 9.77 per cent. So, what we are projecting is the minimum.
Last year, our corporate credit growth was at 8.27 per cent, and with the demand we are observing in capex, we expect to achieve more than 8 per cent corporate credit growth comfortably.
You appear to be very optimistic. Won’t the runaway inflation and the monetary contraction to control it squeeze demand and therefore the demand for credit growth?
In a developing country like ours, inflation to some extent as a result of the monetary expansion and expansion of credit, provided borrowers leverage it to create assets. However, we are confident that the Reserve Bank of India would bring down inflation to around 4 per cent as per the mandate. RBI would go for more rate hikes to achieve this.
What is your guidance on asset quality? Do slippages from the agriculture and retail segments make you worried?
Our target is to bring down gross non-performing assets ratio 6 per cent from 8.51 per cent seen at the end of March. Net NPA projection is 2 per cent from 2.65 per cent.
On slippages, which was at Rs 3600 crore for the fourth quarter which is just about 1.7 per cent of total loans (on annualized basis). This is normal. Yes, of course we would like to bring the ratio down further but some slippages cannot be avoided. Our recovery of bad loans was quite healthy at Rs 15562 crore. Overall we could deduct Rs 24000 crore from bad loans. Gross NPAs now stand at Rs 55,651.58 crore.
Let me turn the focus on the fraud on Can Fin Home. How big is the fraud? What’s the status of the follow-up internal investigation?
Following the whistleblower’s letter, an investigation was done wherein about 37 accounts involving less than Rs 4 crore were found to be fraud. The amount is fully provided for. As a proactive move, we are verifying other accounts as well. However, this type of investigation is a continuous process.
Would you like to bring down Canara’s 30 per cent stake in Can Fin Home? What are your thoughts on other subsidiaries? Any divestment likely this year?
We see a lot of potential in Can Fin Home. The potential is not realized yet. We see future value in our subsidiaries. So, there would not be any divestment before the subsidiaries create more value. At least, no divestment plans this year.
What are the areas Canara Bank would like to venture into. You have recently spoken about a credit card subsidiary. How is the plan going?
Our new mobile app will be ready within a month.
As things stand now, a credit card subsidiary is just an idea we have floated. A clear roadmap will be ready within two-three quarters. It’s an attractive business. We would like to give it a try. We can set up a new subsidiary or can use any of the existing subsidiaries to venture into credit card business. The options are open.
You have said that the merger has made Canara Bank stronger. Is there space for more such consolidation?
Consolidation has made Canara Bank strong and future ready.
The government is likely to push for the merger of more public sector banks. Do you have an appetite for another merger with a public sector bank?
I can only say that we are future ready and ready to create value. We have proposed a dividend Rs 6.5 per equity share. This is 20 per cent of your profit. We have created value for shareholders and would continue to do so.