The Hindu Business Line : Canara Bank ready to fund more M&As

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Chennai Feb. 26 Cordiality and courtesy mark any interaction with Mr M.B.N. Rao, Chairman and Managing Director, Canara Bank. For someone who generally prefers to stay out of the spotlight, the past few years in Mr Rao's career have seldom afforded him that option.

As a senior executive in Indian Bank, he spent the better part of the last decade, trying to turn the tide when the bank went through very difficult years. He was elevated as Executive Director of Indian Bank in December 2000 and was made Chairman and Managing Director in December 2003. This was one of the rare instances, where a bank executive rose to the highest office in the same bank. Mr Rao was thereafter moved to Canara Bank in June 2005.

Excerpts from a recent interview that Mr Rao gave to Business Line:

Are banks like yours participating in funding overseas acquisitions by Indian companies?

About the latest acquisitions I cannot say anything. But there are other acquisitions that we have funded in infrastructure and other areas, to the tune of about $50 million so far.

We'll do more, if there are good opportunities. We have the window for it. We recently raised about $250 million as upper Tier-2 capital.

We have gone in for a $1-billion medium term note programme.

How will you cope with the demand for credit, when deposit growth has not been that high?

In the last three years, in addition to deposits, there was a liquidity overhang of nearly Rs 3 lakh crore that helped fuel the credit growth. Now that liquidity overhang has come down to approximately Rs 70,000 crore - by way of LAF (liquidity adjustment facility) and other facilities. The average SLR (statutory liquidity ratio) has also come down to about 28 per cent from 40 per cent a while ago. So there is not much leeway there.

We have to raise deposits. We are offering attractive rates of interest. We are trying to be market savvy, offer more products for young professionals and target marketing of high net worth customers. We need to intensify deposit mobilisation efforts, while simultaneously readjusting our portfolios.

A number of banks are now going in for bulk deposits. What do you have to say about this trend and its impact on costs?

We need to accept that any market has segments. Corporates get higher rates than retail deposits because of deregulation. That is part of a segment and to that extent banks do not spend substantial amounts by way of intermediation costs. If we raise bigger amounts, the operating expenses are lower. Ultimately we need to see the overall costs of funds - because interest costs alone don't give a fair indication.

Generally, in each year, in the last quarter there is always pressure, because this is the busy season and there is more demand for funds from the corporates and the economy as a whole. To that extent, each bank would like to mop up more resources.

Why was your performance in the third quarter not good? (Profits were up marginally)

No. In fact our performance in the third quarter was good. We were able to maintain the net interest margin at 3.14 per cent, despite the interest rate moving up. The main reason for the lower profits was that two thirds of our investment portfolio was marked to market. So when rates go up, we had to make a provision. Of course we could take some of those securities to the HTM (held-to-maturity), because the RBI permits it. But that is only regulatory forbearance. It does not prevent depreciation of the portfolio. It only means we don't have to make a provision. We felt that a larger portion of the portfolio should be marked to market.

Should the banking cash transaction tax be removed?

No. It is required. In a country like India, where a large part of the economy has to be brought into books and to trace transactions, this measure will help. More people have to come into the regular economy from the black economy. I find that this is an incentive for people to come in.

More Stories on : Interview | Public Sector Banks | Mergers & Acquisitions

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