Canara Bank vies for recovery of Rs 650 crore of its NPAs
Pradeep Rane
18 September 2003

Mumbai: Canara Bank is taking aggressive measures to recover its bad loans and is targeting cash recoveries of Rs 650 crore of its non-performing assets (NPAs).

This will help the bank to bring down its gross NPAs further, leading to a lower provisioning requirement in the coming years. Its net NPAs are at 3.6 per cent, which is the lowest among the five largest banks in the country. The net NPAs are projected to fall to 3 per cent by FY04.

Earlier, Canara Bank's profitability was affected due to higher provisioning on account of the losses incurred by Canfina, a wholly owned subsidiary, which went into trouble during the 1992 security scam. The total provisioning held for Canfina by end-FY03 is Rs 400 crore, which is sufficient to meet future obligations till 2007.

Canara Bank, the third largest public sector bank with an asset base of Rs 82,000 crore ($18 billion), has been quite aggressive in recovering its bad loans in the past two years.

One of the biggest beneficiaries of the recent fall in interest rates, and with one of the largest investment portfolios in the banking sector, Canara Bank has been a major beneficiary of the fall in interest rates in the past two years.

As of financial year 2003, unrealised gains in its investment portfolio stood at Rs 3,900 crore. In the buy-back programme of government securities done in July 2003, the bank swapped more than Rs 1,300 crore of high-coupon securities.

Large treasury profits from its investment portfolio are helping the bank clean up its balance sheet and also invest in technology for better business prospects in the coming years.

Total gains from these high coupon securities are estimated to be in excess of 30 per cent. The investment book maturity pattern of the bank shows that Canara Bank will benefit the most in a falling interest rate environment. But the bank has a cushion of up to 200 basis points rise in interest rates on account of un-booked gains.

According to a report issued by leading broking firm Enam Securities, Canara Bank's net interest margin is sustainable in FY04 despite falling yield on assets owing to a rapid fall in cost of term deposits, lower interest cost on savings deposits and improving asset quality. The bank has been showing above industry average growth in assets despite its larger size.

There could also be a pickup in credit off-take in the second half of the fiscal, which should improve the bank's core earnings. It is expected that there will be a 33-per cent rise in the bank's net profit in FY04, driven by a 23-per cent growth in its net interest income.

The bank's increasing focus on the retail front has also yielded good results in the last two years, the report said. Retail assets, which stood at 8.5 per cent of the credit portfolio in FY02, accounted for 14 per cent of the credit book in FY03. It is expected to go up to 22 per cent by FY05.

From being almost a fully corporate bank, Canara Bank is now at the forefront in retail disbursements. Retail loans grew 71 per cent and home loans grew 108 per cent in FY03, the report added.

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