With resolutions in large bad loan accounts such as Essar Steel and Binani Cement gathering pace at National Company Law Tribunal (NCLT), public sector lender Canara bank is likely to witness a significant decline in its bad loan ratios in the coming quarters.
The bank sees its gross non-performing assets (NPA) to be around 9 per cent and net NPA to be below five per cent by the end of this financial year, a top official said. The Bengaluru-headquartered lender had reported a gross NPA of 10.56 per cent and net NPA of 6.54 per cent in the quarter ended September, 2018.
"We expect our NPAs to come down substantially in the coming quarters. From resolutions of Uttam Galva and KSS Petron, we had already received Rs 11 billion, which will be accounted in the third quarter," N Sivasankaran, chief financial officer at Canara Bank told Business Standard.
"Our expectation is that a few more resolutions will happen in the current quarter including that of Essar Steel. If that happens, that is going to be a big positive," he added. The bank is also pinning hopes on recovering unpaid dues from Odisha Slurry, Binani Cement, which have been referred to the tribunal for bad loan resolution.
Canara Bank, which had a cash recovery of more than Rs 17 billion along with upgradation of about Rs 7.45 billion in the second quarter of ongoing fiscal, also hopes to improve its net interest margin (NIM) in the coming quarters.
From a NIM of 2.53 per cent in the September quarter, the public sector lender is hopeful of improving it to 2.75 per cent by the end of March, 2018. "We will be able to improve our margins despite some upward movement in cost of capital as the bank is also receiving substantial recovery of interest from the resolution of big bad loan accounts," Sivasankaran said.
On asset side, the bank is consciously trying to de-risk its balance sheet by increasing the retail advances pie. By the end of September quarter, retail advances stood close to 60 per cent of the total advances of Rs 4.09 trillion. Apart from retail advances, the bank is also witnessing uptick in the loan demand from corporates and non-banking financial companies (NBFCs).
"Despite IL&FS event, we are not reducing our level of engagement with NBFCs. Our total lending to NBFCs stood at Rs 460 billion and most of it are short-term loans with a tenure of three to six months," the CFO of the bank said.
The exposure of Canara Bank to the beleaguered infrastructure financing firm, IL&FS stands at around Rs 24 billion, out of which most accounts are standard except two. "Around Rs 4 billion of IL&FS loans had turned bad and we had done adequate provisioning for the amount. But, we are expecting some upgrades in those accounts," Sivasankaran added.