Canara Bank has taken a strategic call to focus more on high-yielding loans in the retail, agriculture and small business sector even as it seeks to protect its lending margins amid stress on the deposit front.

The higher growth rate in the RAM (retail, agriculture and micro, small and medium enterprise) sector has taken its share in the lender’s total loan mix to 56% from 54% a year ago while advances to corporates have fallen to 44% from 46% earlier. This has enabled the state-run bank to maintain its net interest margin (NIM) in the 3% range at a time when the cost of deposits has gone up. 

“We have taken a call that we want to grow faster in the RAM than in the corporate sector as we get higher yields. We don't want to grow our balance sheet at the cost of bottom-line,” said Canara Bank managing director and CEO Satyanarayana Raju.

Pursuing higher profits than topline growth has also meant that Canara Bank has taken a firm stance that it would raise the rate of interest for non-banking financial companies (NBFCs) after the Reserve Bank of India (RBI) increased the risk weight on credit to them. The bank’s loan exposure to NBFCs fell drastically, almost Rs 8,000 crore from the preceding quarter to the December quarter.

“After RBI increased the risk weightage, we took a call that a part of that burden has to be passed on to our existing NBFCs who are enjoying a concessional rate of interest. Wherever they are accepted on negotiations, we have continued that loan exposure. There may be one or two cases where it has not happened. There is a huge demand from NBFCs for funding. But we are very much yield conscious. We don't want to compromise at the cost of bottom-line to show a growth at the topline,” Raju told analysts. 

Canara Bank’s net profit in the first nine months of the current financial year has already surpassed the previous fiscal’s figure of Rs 10,604 crore. The lender’s net profit has reached Rs 10,797 crore during the nine months ended 31 December 2023.

The Bengaluru-headquartered bank has also taken a strategic call to mobilise deposits through several initiatives so that it grows in sync with the loan growth. For the last several quarters, credit has been outpacing the bank’s deposit growth. While the loan book is seeing an almost 12% year-on-year rise, deposits is growing at around 8.5%.

“The deposits also we want to grow at the rate the advances are growing,” said Raju.

An area of concern is the slower growth in low-cost CASA (current account savings account) deposits. While the target set was to lift it to 35% of total deposits, the bank is able to maintain it at only 31.65%. 

“Our area of concern continues to be CASA. Though the deposits are growing at 8.55%, our CASA year-on-year has grown only 5.05%. We want to bring it in sync with our total deposit growth. We have initiated several campaigns in the current quarter to mobilise deposits, with main focus on CASA. We are also projecting retail term deposits,” said Raju.

The bank is also focusing on recoveries from written off accounts. Besides the bad loans being contested under the National Company Law Tribunal (NCLT), the bank is running one-time settlement (OTS) schemes to attract recovery from write offs pegged at Rs 14,000-15,000 crore. 

“We have an attractive OTS system. We have streamlined our machinery to focus more on that. We have bank adalats and our staff conduct village sabhas to encourage borrowers to go for one-time settlement. Since these are bad loans entirely provided for, whatever money we get through recoveries becomes profit for us,” Raju said. 

Canara Bank has Rs 69,000 crore in its written off pool, out of which around Rs 52,000 crore is locked in NCLT cases.  Fresh slippages are slowing down, with the December 2023 quarter amounting to Rs 2,697 crore from Rs 3,000 crore a year ago. While slippage from MSME (micro, small and medium enterprises) loans stood at Rs 1,200 crore, it was Rs 1,000 crore from agriculture and Rs 400 crore from retail.

“We had set a target that our slippages would be well within our recoveries towards non-performing assets (NPAs), written off loans and upgradation. We are achieving that for the last few quarters,” said Raju. 

The lender’s asset quality has improved, with gross NPAs declining to 4.39% as of 31 December 2023 as against the guideline of 4.50% for the entire financial year. Net NPA has improved by 64 basis points year-on-year, falling to 1.32% as of December 2023.

 Canara Bank will meet the guidance it provided earlier for the current financial year across many key parameters. As against the guidance for a loan growth of 10.5%, the bank is seeing an 11.69% year-on-year rise and expects to maintain it at 12% for the full fiscal. While the guidance given for deposit growth was 8.5%, the current pace is 8.55%. As against the slippage ratio guidance of 1.30%, the current standing is 1.24%. 

For the first time, Canara Bank’s credit cost fell below 1% to stand at 0.97% for the quarter ended December 2023. The return on equity was at 21.95% as against the guidance of 19.50%. The earnings per share was at Rs 79.21 versus the guidance of Rs 65.

The credit-to-deposit (CD) ratio is 75%, up from 68% a few years back. “We were losing so much money in the interest income as the CD ratio was around 67-68%. We felt we could go up to 77-78%. This is a healthy maintenance of the CD ratio. We want to be in that bracket only,” said Raju.