Q&A: S Raman, CMD, Canara Bank

'Raised funds keeping Basel-III in mind'

Canara Bank, which recently raised Rs 2000 crore through qualified institutional placement, has become only the second public sector bank to take this route after Bank of India’s issue in 2007-08. Chairman and Managing Director S Raman discusses growth plans with Abhijit Lele and Manojit Saha. Edited excerpts:

What was the main objective of this fund-raising?
We believe that capital should be raised when the market is conducive and not when one needs it. Capital is required to sustain growth momentum. Our balance sheet has been growing at 23-24 per cent over the past few years and we hope to maintain this. In addition, the proposed Basel-III norms lay importance on having core capital. The fund-raising exercise has been undertaken keeping this in mind.

The government allowed us to reserve 20 per cent of the issue for foreign institutional investors. We have received very good response. The FII portion was oversubscribed 1.89 times.

What has been the effect of this fund-raising on your capital adequacy ratio?
Thanks to this infusion, our capital adequacy ratio will improve to 15 per cent from the current 13.5 per cent. Importantly, Tier-I capital will be more than nine per cent.

What about the government’s holding after the dilution?
The government holding will drop to 67.8 per cent from 73.17 per cent. This is still much above 51 per cent, the minimum stake the government must have in state-run banks. This means we can continue to access the capital market and this gives us enormous strength.

What kind of credit and deposit growth are you looking at in the next financial year?
With the economy expected to growth at nine per cent, our loan growth will be 23-24 per cent. Deposits may grow at 19-20 per cent.

The Reserve Bank of India (RBI) has raised policy rates yet again. Do you think banks will increase lending rates?
Taking cue from the monetary policy action, banks will revise interest rates. There could be a rise of 25 basis points in lending rates. A lot of activity has already happened on the deposit rate front. We will review rates shortly. RBI has to balance growth and effects of policy action. There could be further rise in the future.

Would banks revise deposit rates?
Over the last few months, there has been aggressive activity as far as resource mobilisation is concerned. Now, the focus will be on asset side.

With banks raising deposit rates at quite high costs, do you see pressure on the net interest margin?
Our NIM was 3.2 per cent in the third quarter. As we have already raised lending rates this quarter, we expect to maintain our margins at the same level.