Aiming to reduce NPA in MSME book below 5% in 2 years, says Canara Bank MD
This story was originally published at 19:06 IST on 29 October 2024
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--Canara Bank: Aim to reduce NPA in MSME book below 5% in 2 years
--Canara Bank:May retain 4% on-qtr growth in retail, agri, MSME book Oct-Mar
--Canara Bank: Expect 3% on qtr growth in corporate loan book in Oct-Mar
--Canara Bank: Pressure on NIM will continue for next 1-2 quarters
--Canara Bank: Yield of advances has reached a peak
--Canara Bank: Rising cost of funds still a cause of concern
--Canara Bank: Credit growth may be around 11% by FY25-end
--Canara Bank: Retail, agri, MSME growth be higher than corporate book
--Canara Bank: Aim for growth in MSME book to touch 9-10% this year
--Canara Bank: Aim for retail loan book growth of 13-14%
--Canara Bank: Expect credit cost to remain below 1%
By Richard Fargose and Ashna Mariam George
MUMBAI – Canara bank has strengthened the underwriting standards for credit for micro, small, and medium enterprises, and is aiming to bring gross non-performing loans in this segment to 5% or below 5% in the next 2 years, said K. Satyanarayana Raju, the managing director and chief executive officer of the bank.
Among all the segments, the gross NPA ratio in MSME loans remains the highest for the bank at 7.7% as on Sept. 30. While interacting with the media at a post-earnings call, K. Satyanarayana Raju said that the gross NPA ratio in MSME loans has improved from 8.5% in the previous quarter, and will continue to do so in the future.
The total non-performing assets in MSME loans stood at INR 107.13 billon as of Sept. 30, lower than INR 113.65 billion a quarter ago and INR 120.76 billion a year ago. The asset quality improved during the quarter. The gross non-performing asset ratio improved to 3.73% from 4.14% reported a quarter ago and the net NPA ratio was at 0.99%, lower than 1.24% a quarter ago.
The bank expects credit growth to be higher at 11% in the current financial year, focusing on retail, agriculture and micro, small and medium enterprise book. It further sees the segment outperforming corporate loan book. The lender aims to achieve a 9-10% growth in micro, small and medium enterprises' loan book and 13-14% in the retail portfolio for this financial year.
The bank management expect the retail, agriculture and micro, small and medium enterprise loan book, collectively called RAM, will continue at 4% quarter-on-quarter growth in Oct-Mar.
The loan book from the retail, agriculture and micro, small and medium enterprise segment grew 4.5% on quarter and 11.5% on year to INR 5.77 trillion as of Sept. 30. The contribution of the retail, agriculture and micro, small and medium enterprise segment to the total loan book increased to 57% as on Sept. 30 from 56% a year ago, as per the bank's investor presentation.
The corporate loan book, which grew 2.8% on quarter to INR 4.35 trillion, is expected grow 3% on quarter in Oct-Mar, K. Satyanarayana Raju said.
When asked about the outlook on net interest margin going ahead, the bank's management said they expect pressure on net interest margin to continue for the next one to two quarters. "We are forced to pay a higher rate of interest on garnering deposits because the competition is like that in the market. Unless otherwise the market eases, the pressure on NIM will continue for the next one or two quarters," Raju said.
The bank reported a net interest margin of 2.88% for the quarter ended September, compared with 2.90% a quarter ago.
The management also said that the increasing cost of funds is a concern for the bank to maintain its net interest margin. "Every bank has lost their NIMs by almost 7-12 basis points...our reduction is only by 2 basis points...when we look forward, the cost of funds is still a concern for us, it's not that we are an outlier," Raju said.
The bank's cost of funds for Jul-Sept increased to 5.26% from 5.25% in the previous quarter. Raju also noted that the Reserve Bank of India's stand on the policy repo rate will impact the bank's net interest margin in near term. "If at all the repo rate reduction comes in next quarter or current quarter, immediately that will impact 41% of our portfolio because out of our total portfolio, 41% is linked to external benchmark lending rate. So there is every chance that immediately if there is a rate cut, we may lose some income," Raju said.
He said the yield of advances has reached a peak, and there is hardly any scope for upward movement. For Jul-Sept, yield of advances was 8.77% as against 8.66% in the previous quarter and 8.56% a year ago.
For the quarter ended September, the credit cost of the bank was 0.97%, compared with 1.02% a year ago and 0.90% a quarter ago. The lender further expects the credit cost to remain below 1% for the current financial year. It had earlier given a guidance of 1.10% by March, he said in an analyst call.
Earlier Tuesday, Canara Bank reported a net profit of INR 40.15 billion for the September quarter, up 11.3% on year, beating analysts' estimate of INR 37.73 billion. On Tuesday, shares of Canara Bank closed 3.1% higher at INR 103.76 rupees on the National Stock Exchange. End
With inputs from Christina Titus
Edited by Akul Nishant Akhoury
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