Canara Bank is ready to shed Rs 70,000 of corporate loans that are riding on low interest rate so that yield on advances improve and net interest margin (NIM) is maintained at 3% in a year when the lender expects liquidity to be tight in the market even after the general elections. 

The state-owned lender has already started shedding and repricing its loans which is leading to the credit growth figures looking subdued.

The green patch behind this decision is that in April alone the bank has been able to grow its deposits by Rs 9,000 crore while credit increased by Rs 3,000 crore.

“About two years back, we were sitting on excess liquidity of Rs 70,000 to Rs 80,000 crore which we put to use by doing institutional lending at cheap rates. We had even lent at 6.5-7%. Now those rates are too low and we don’t want to grow the topline at the cost of bottom line. So as when these deposits come for repricing, we are letting it go in parts. For the part we keep, we are revising interest rates in tune with the available rates in the market,” Canara Bank managing director and CEO K Satyanarayana Raju said.

The bank had guided for a credit growth of 10.50% in FY24 but performed beyond this at almost 12%. In some segments like RAM (retail, agriculture and MSME), which is the focus area of the bank, the growth has been at 13.52% in the March quarter. 

“Our loan growth seems lower than peers because we have taken a conscious decision to shed all the corporate advances with lower interest rate. So, when such loans come up for repricing, we are either negotiating on higher interest rates or closing them. Sometimes 20% of the loan is retained while in other cases it is 50% at new rates. But we are rejigging our loan portfolio for higher rates,” Raju explained as analysts questioned him on lower credit growth figures.

The bank improved its yield on advances to 8.71% and cost of deposits to 5. 5%, as on 31 March 2024. The CASA (current account savings account) deposits of the bank improved by 63 basis points to 32.26% from 31.62% in the preceding quarter.

With the demand for credit remaining strong, the bank has decided to deploy its money in better-priced loans. Though the guidance for credit and deposit growth in FY25 is 10% and 9% respectively, Raju said this is a conservative estimate and expressed confidence that the bank would be able to cross those numbers.  

“The demand for credit is strong. In FY24, our guidance for credit was 10.50% but we achieved 11.34% growth. Similarly, guidance for deposits was 8.5% whereas we actually grew by 11.29%. We focused on liabilities in the fiscal fourth quarter so that incremental credit-to-deposit ratio does not cross 100%. Now the CD ratio is around 73% and we are comfortable with that cushion,” said Raju.   

 The credit guidance of 10% for FY25 is a conservative estimate made when the bank is rejigging the corporate loan portfolio, Raju said.  Credit should grow near 12% in the current fiscal despite the decision taken to shed low-yielding corporate loans, he added.

The guidance for NIM in FY25 is 2.90%, lower than the 3.05% it achieved as on 31 March 2024.