Insurance, MF ventures to list in 15-18 months: Canara Bank MD & CEO

K Satyanarayana Raju, managing director and chief executive officer of Canara Bank, took charge of the state-owned lender in February this year. Raju spoke to Manojit Saha about the bank’s growth plan for the next three years.

Here are edited excerpts from the video interview.

You were appointed in February as MD & CEO. What will be your priorities in the three-year tenure?

There was a strategic business meeting of the board in the first week of May and we discussed it with respective business heads, and also with the field functionaries. In that strategic meeting we fixed parameters for the next 1000 days, which is approximately three years.

We want to grow business at an average of 12 per cent. We want to attain a credit deposit ratio of 76-77 per cent in three years. (For) current and savings account deposits (CASA), which is 33 per cent at this moment, we are aiming to reach 38 per cent in three years—which will help to improve net interest margins (NIM) further.

We want to bring our gross NPA (non-performing assets) below 3 per cent and net NPA below 1 per cent.

Canara Bank’s provision coverage ratio (PCR) is 68 per cent, slightly less than peers. Any plans to improve PCR?

PCR including technical write-offs is 87 per cent. Without technical write-off, it is 68 per cent. We want to improve our PCR 75-100 bps every quarter. We are confident that in one year’s time we would be above 70 per cent.

Canara Bank expects margins to improve even if deposits will get re-priced at a higher rate. What is the reason for this optimism?

Ninety per cent of the public sector bank’s term deposits are in the bucket of one year. Under the higher interest rate regime, depositors are at liberty to pre-close their existing deposits and put it in higher rate deposits. They need not continue till the contact period expires. Already 80-85 per cent of that bracket has been re-priced in the higher deposit rate schemes. We have already reached a maximum of interest expenses.

On the other hand, 49 per cent of the bank’s credit portfolio is linked to MCLR, 90 per cent of which is re-priced annually. So there is a scope to re-price [loans] at a higher price. That takes care of our higher NIM projection, from 2.95% to 3.05%.

Is there a plan to unlock values from the subsidiaries – the insurance, mutual fund and the home loan subsidiary?

We know that there is untapped potential in subsidiaries. As on date the value of these subsidiaries is Rs 12,500 crore. During our recent business conclave, we have advised them [subsidiaries] that they have to work to double the value in the next three years. We want to see the value of these subsidiaries not less than Rs 25,000 crore. We told them to prepare the business plan keeping the valuation in mind.

One of the subsidiaries is Canfin Homes. Whatever little disturbances there were last year now it has been stabilised. A new MD has taken over. The entire team is now engaged in growing the organisation.

The second one is Canara Robeco Mutual Fund. Last year it was the best performing mutual funds in India. We have 51 per cent stake in the company and have taken another stakeholder Robeco in confidence and advised the mutual fund for listing. We have told their board to initiate a public issue. It may take 15-18 months to complete the formality. I expect in the next financial year the company to come out with the public issue.

Will Canara Bank continue to hold the maximum stake post the public issue?

I can assure you we will hold the majority stake. If you are going for an IPO, you may have to dilute 1-2% - both the stakeholders will dilute in equal proportion.

The other one is Canara-HSBC Life Insurance. Whether you look at embedded value, premium income, it ranks between 9 and 10. There also we are unlocking value. HSBC has also agreed with us, and we have decided that this company also goes for the listing in 15-18 months.