Canara Bank in the fourth quarter reported sequentially better numbers on asset quality and improved provisions for bad loans. Rakesh Sharma, managing director and chief executive, spoke to Abhijit Lele on consolidating gains and fortifying the balance sheet. Excerpts from the interview.
The bank has shown a drop in non-performing loans sequentially. Is that an aberration? Will pressure continue in 2017-18?
The fall in outstanding non-performing loans is the result of steady efforts at recoveries and prompt action wherever stress was becoming evident. It is not a one-off event. The effective resolution should help to keep a check on asset quality.
Is it fair to say that the bank is over the hump in terms of piling up stressed assets? And it would see a further decline in the bad loans portfolio?
The worst is over for stressed assets. The bank will reduce stressed loans (their number and share in the loan portfolio). Yet as a prudent banker, it would keep an eye on stressed assets and not lower its guard.
Last week the government, through an Ordinance, gave the Reserve Bank of India more powers for resolving stressed accounts and triggering action like insolvency proceedings. The RBI also amended rules for Joint Lending Forums (JLF) to aid banks to improve resolution?
Both the steps will help to speed up the decision-making process and, as a consequence, bring down the number of bad loans. The bank will now take a firm approach for referring cases of insolvency to the legal forum (National Company Law Tribunal).
Coming to provisioning for bad loans, the bank’s provision coverage ratio (PCR) has shown some improvement?
There has been a definite increase in the provisions, whose purpose is to make the balance sheet healthy. Higher provisions have been made in spite of their adverse effects on profits. The bank would like to have a 70 per cent provision coverage ratio (PCR). As for this year, the PCR is expected to improve by two-three percentage points. The share of low-cost deposits has shown a substantial increase in 2017-18 due to demonetisation.
Still the share of the Current Accounts and Savings Accounts (CASA) in deposits remains low when compared to peer banks. How will the bank change the status?
Traditionally the share of the CASA has been low for Canara Bank. The focus in 2017-18 has been to increase the CASA pool. It grew by five percentage points to 32 per cent by March from 27 per cent a year earlier. Our target is to raise it to 35 per cent by the end of the current financial year.
The government had asked public sector banks to look at shedding stakes in non-core assets and investments. The bank was in the process of reducing stakes in the housing finance and factoring companies. Will there be further divestments?
The bank has divested a 13.45 per cent stake in Canfin Homes Ltd and realised profits of Rs 703 crore. The process of selling stakes in the factoring subsidiary is under way and we hope to conclude the sale by June. Beyond this, there is nothing more on the agenda now.