Atmadip Ray from ET spoke with the Managing Director of Canara Bank
LV Prabhakar to deepen the future orientations and strategy of the bank as well as the projects concerning the subsidiaries and associated companies.
How is Canara Bank prepared? What are your prospects for the banking sector as a whole?
After the merger, we have grown considerably. Our net profit of Rs 1,666 crore for the March quarter reflects growth of over 300% from the Rs 406 crore seen in the June quarter FY21. Activity increased by 9.7%, with the retail, agriculture and MSME (RAM) segments posting 11% growth and housing loans posting a 15% rise during the same period. Based on this platform, Canara Bank is poised to post strong performance this fiscal year. 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 increase ROA (return on assets) by 0.7% from 4.48% now and ROE (return on equity) from 11% to 15%. Our credit growth projection is 8% on Rs 7.41 lakh crore.
For the banking sector as a whole, double-digit loan growth looks achievable this fiscal year with good traction in infrastructure projects. This growth pull is reflected in higher net interest income in the March quarter for all lenders.
You expect double-digit credit growth for the banking sector. So why is Canara Bank’s projection below the industry average?
We maintained the loan growth projection at 8%, but that is the minimum we would achieve. We are aiming for double-digit growth. In our forecast last year, we had forecast credit growth of 7.5%, but we have reached 9.77%. So what we are projecting is the minimum.
Last year, our business credit growth was 8.27%, and with the demand we are seeing for investments, we expect to comfortably achieve more than 8% growth in business credit.
You seem very optimistic. Won’t galloping inflation and monetary contraction to control it weigh on demand and therefore on the demand for credit growth?
In a developing country like ours, inflation results to some extent from monetary expansion and credit expansion, provided that borrowers take advantage of it to create assets. However, we are confident that the Reserve Bank of India would bring inflation down to around 4% in line with its mandate. RBI would go for more rate hikes to achieve this.
What is your orientation on asset quality? Are you worried about the slippages in the agriculture and distribution segments?
Our target is to bring the gross non-performing assets ratio down to 6% from 8.51% at the end of March. Net NPA projection is 2% versus 2.65%.
On slippages, which were Rs 3,600 crore for the fourth quarter, roughly 1.7% of total lending (on an annualized basis). It’s normal. Yes, of course, we would like to reduce the ratio further, but some slippages cannot be avoided. Our collection of bad debts was quite healthy at Rs 15,562 crore. All in all, we could deduct Rs 24,000 crore from bad debts. Gross NPAs now stand at Rs 55,651.58 crore.
Let me focus on the fraud on Can Fin Home. How big is the fraud? What about the internal follow-up investigation?
Following the whistleblower letter, an investigation was conducted in which around 37 accounts involving less than Rs 4 crore were found to be fraudulent. The amount is fully provisioned. We proactively verify other accounts as well. However, this type of investigation is an ongoing process.
Would you like to drop Canara’s 30% stake in Can Fin Home? What do you think of the other subsidiaries? A probable divestment this year?
We see a lot of potential in Can Fin Home. The potential is not yet realized. We see future value in our subsidiaries. There would therefore be no disinvestment before the subsidiaries no longer create value. At least, no disposal plan this year.
What are the areas in which Canara Bank would like to venture. You recently talked about a credit card subsidiary. How’s the plan going?
Our new mobile application will be ready within a month.
As it stands, a credit card subsidiary is just an idea we’ve tossed around. A clear roadmap will be ready within two to three quarters. It’s an attractive job. We would like to try. We can create a new subsidiary or use any of the existing subsidiaries to get into the credit card business. The options are open.
You said the merger strengthened Canara Bank. Is there room for such consolidation?
Consolidation has made Canara Bank solid and ready for the future.
The government is likely to press for the merger of more public sector banks. Do you want another merger with a public sector bank?
I can only say that we are ready for the future and ready to create value. We proposed a dividend of Rs 6.5 per share. That’s 20 percent of your profit. We have created shareholder value and will continue to do so.