‘Corporate loan rejig underway to improve margins’

The robust credit demand is giving an opportunity to lend at better rates. Canara Bank is using this opportunity to reduce exposure to low-yielding loans booked when liquidity was in plenty. In a telephonic interview with Abhijit Lele,

K SATYANARAYANA RAJU, managing director (MD) and chief executive officer (CEO), says the bank expects to improve net interest margin (NIM) on completion of this corporate loan rejig. Edited excerpts:

NIM improved in the March 2024 quarter to 3.05 per cent from 2.95 per cent in the year-ago quarter. Yet you have actually guided for a lower NIM of 2.9 per cent for endfy25. Why is the bank giving lower guidance for margin?

There is nothing special. Generally, when we give guidance to the market, we are conservative in our estimates. But we try to maintain NIM of around 3 per cent as the job of rejigging the corporate loan portfolio of ~60,000-70,000 crore is going on. If we are not able to replace them with high-yielding advances, it may impact interest income. But at this moment, we do not have any such concern. The practice at the bank is to give commitments conservatively but outperform it.

There is no concern about NIM and we arrived at a position from where there may not be further deterioration in margins

What has been the effect of high interest rates on bulk deposits in March 2024?

When the rates on bulk deposits were high in the market, we never quoted on bulk deposits and certificates of deposits (CDS) beyond 7.9 per cent. Other banks were quoting beyond 8.10-8.15 per cent. The bank could manage that situation. Also, whatever excess statutory liquidity ratio (SLR) we have, the bank has been using it effectively for raising money from the Reserve Bank of India (RBI) window at 6.5-6.75 per cent. There is no concern about NIM and we arrived at a position from where there may not be further deterioration in margins. The cost of deposits in bulk and CDS, which had gone up to 8.1 per cent, is now slowly coming down to 7.55-7.6 per cent. We have seen some softness in the bulk deposits but the same softness is not seen in retail term deposits.

What is the focus of the corporate portfolio revamp exercise?

We are not identifying any specific industries to whom we should not give loans to. Two years ago, we had surplus liquidity of around ~70,000 crore and had lent at low rates of 6.5-7 per cent. The decision was good then as the deposit rate was about four per cent. But in the last one year, incremental deposit acquisition cost has increased to 6.75 to 7 per cent. How can I lend money at less than that or near to it? When such exposure is reduced, some liquidity is injected into the system. We want to deploy this money in betterpriced loans. The demand for credit is not a problem. Corporate loan rejig is aimed at improving margins.

What is your reading of the liquidity in the system during the first half and beyond?

We are going with the assumption that liquidity conditions will be like those prevailing now. After elections are over, liquidity may improve further in the second half. At the fag end of the second quarter or in the initial days of the third quarter, we may see little softness in liquidity position after the stabilisation of the government.

Bank is guiding for deposit growth of 9 per cent for FY25, which is lower than what you actually achieved in FY24. Are you slowing down growth momentum?

You have to see the guidance given for deposit growth in FY24. It was 8.5 per cent, whereas we actually grew by 11.29 per cent. Our bank focused on liabilities in the fourth quarter to ensure that our incremental credit-todeposit (C/D) ratio does not cross 100 per cent. Now, the C/D ratio is about 73 per cent and cushion of around 170 basis points (bps). I have scope for credit growth and the guidance of 10 per cent. FY25 is also a conservative estimate in the backdrop of rejigging the corporate loan portfolio. We are very much confident that credit will grow near 12 per cent.