Raju further said, “Our only concern is CASA is not growing the way the other deposits are going. That is why there is a special campaign that we have started from 1st January onwards with special incentives to all the outlets.”
ET Now: This quarter reported a dip in your pre-provisioning profitability by almost 2%. What was the reason for it? Was it one-off in nature? Your employee costs have surged and cost to income also have surged. Is it likely to remain elevated or do you expect it to normalise going forward?
K Satyanarayana Raju: It is not a continuous system, it is a one-time measure. Actually, you might be aware that the Employees Association and the IBA has entered into an agreement for wage revision once every five years. The latest agreement is due from the 1st November 2022. So, in the last 14 months, we were providing for it in anticipation of it. The incremental wage revision will happen at around 14% to 15%. But when we realised that recently that wage agreement was concluded with a 17% growth rate, from November 2022 to December 2023, for 14 months, we calculated it at 17% and what we have already provided and minus whatever is the difference. The entire Rs 700 crore has been provided now.
Actually, every month we are providing Rs 115 crore. Now Rs 129 crore per month is required. So, whatever gap is there, that additional 400 crores we have provided this month towards meeting the requirement of the wage. In addition to that, we also provided retirement benefits of these incremental benefits.
A major part of actuaries, around Rs 250 crore also we have provided for. That is the reason we provided a total of Rs 700 crore additionally, that is the reason you have seen some 2% dip in that gross profit and it is reflected in the increase in the employee cost. But it is only one time, we just want to observe that since the agreement is already concluded.
ET Now: You have reported a flat net interest margin this quarter. What is the outlook in terms of your net interest margins for the coming quarters? Interest expenses are growing faster than interest income. So, what would be the key drivers?
K Satyanarayana Raju: Last quarter also when I interacted with all of the market, we clearly mentioned that there is a pressure from the cost of deposit. In Canara Bank, the cost of deposit has increased almost six basis points whereas the yield on advances has increased by only three basis points. The impact pressure is there on us.
Even for NIM, last time we are told that our expectation for the current year will be around 2.9% to 3% the NIM, but we are trying our best to utilise the optimum resources available within that. We are repricing our corporate loans where we want and we are focussed more on RAM sector, where we get higher yields.
We are focussed simultaneously on the credit cost by reducing the slippages and the quality of the recoveries and NPAs. All these things are helping us to maintain NIM at just above 3%. But the next quarter again, our NIM will be between 2.9% and 3%, but our efforts will continue to be nearer to that 3%.
ET Now: But what about CASA because a lot of peers have talked about how that is expected to be under pressure? What is your expectation of hitting that 35% target?
K Satyanarayana Raju: This one particular parameter was an ambitious target for us. We kept for 35% because we were struggling with a weak CASA among the peer banks. But because of the market conditions where the liquidity issue is there and there is a heavy demand for the liabilities, competition is high and rate of interests are also very high. Many banks are offering a very high rate of interest for mobilising liabilities. So, reaching that 35% will be a little difficult for us.
We have grown CASA at 5.05%, but in the current quarter we are thinking that whatever growth we targeted for deposits, the same growth we want to reflect in the CASA also so that our CASA growth year-on-year at least will touch 8% while deposits will grow at 8-8.5%.
ET Now: Your credit costs went down and slippages too were lower? How are you looking at that panning out because your NPAs from MSMEs and corporates look elevated. Are you seeing any stress building up in any particular areas of your loan book?
K Satyanarayana Raju: We are finding NPAs in new loans. Whatever we had lent three-four years back, only those NPAs we have seen. For the last two-three years, our NPAs in the MSME loans have come down from 14% to 8.5%. The reason behind that is in the current year, we reframed all our schemes. We tightened the onboarding systems, but somewhere where we have a low stress in that portfolio, specialised area-wise schemes were introduced. That is within the last three years, current year MSME growth is higher. We are almost touching double digit 10% growth. But the slippages are coming down.
It is the same in the case of corporates also. Whatever we have sanctioned in the last three years, none of the accounts are reflecting stress even in the SMA-1 or 2. It is the legacy accounts which we already converted into NPAs and now we are only focussing on recovery of these accounts. But I do not see any fresh slippages in the corporate sector, but nominal slippages will be there in the RAM sector regularly but that is a part of our business concern, but our recoveries are much more than what we are allowing the slippages.
ET Now: How is the deposit growth building up because that appears to be the biggest challenge for the entire sector? Are you witnessing any pressure in that pocket?
K Satyanarayana Raju:
In the current financial year, in absolute number, our retail term deposits have grown around Rs 31,000 crore. We see good traction in that retail term deposits in both in the 444 scheme as well as in the one-year bucket. So we see that the continuous it is there last, if you compare for the last two years, the current year growth in the retail term deposits is much better.
At this moment, I do not see any pressure on canvassing retail term deposits because every day, we see that accumulation is in triple digit. That will continue for this quarter also. But our only concern is our CASA is not growing the way the other deposits are going. That is why there is a special campaign that we have started from 1st January onwards with special incentives to all the outlets. Entire machinery is focused on liability campaign, especially for the CASA campaign.
ET Now: There is a bit of pressure when it comes to the CASA. But separately, I wanted your word regarding the unsecured part of the book because, of course, RBI has asked to increase the risk weights there. Commensurate to that, have you increased the interest rates on your unsecured lending already?
K Satyanarayana Raju:
Yes, we have increased our clean loan portfolio. Because of the increase in in that rate of interest by 35 basis points because of the increase in the risk weightage, our capital has been impacted by 52 basis points. That is partly why we want to share it with our NBFC clients also. Thankfully, 95% of clients have come forward and shared that burden to some extent on negotiation basis. In one or two cases where it has not happened, we asked them to repay it and we have taken the prepayments.
ET Now: There is about 7,500 crore worth of bonds to be issued. How do you plan to utilize these funds?
K Satyanarayana Raju:
This is for the capital. The board has permitted us to raise the AT1 bonds and the tier-2 bonds. It is a total of Rs 7,500 crore – Rs 3,500 crore is for AT1 bonds and Rs 4,000 crore is tier-2 bonds. For Tier-1 bonds, we had gone to the market in December first or second week and we could raise Rs 1,443 crore. Actually we had gone to the market for Rs 1,000 crore, keeping in the rate at 8.4% expectation but at that rate, we got more funds. So we absorbed the entire Rs 1,400 crore.
The remaining Rs 6,100 crores, we can raise in this current quarter, subject to favourable rate of interest. If our rates are comfortable, if the market conditions are conducive, then we will raise it in this quarter. Otherwise we may go in the next quarter. But definitely we want to raise it in the next two months, but we are very much concerned about the rate of interest.