UDAY scheme package, a breather for Canara Bank

Canara Bank’s available-for-sale portfolio has improved to 4.45 per cent as of March 2016, from 3.58 per cent in the same period last year (March 2015). The bank attributes this increase mainly due to allotment of special State loans under UDAY scheme to the tune of ₹8,581 crore.

UDAY (Ujwal Discom Assurance Yojana) is a central government scheme for States to initiate the financial turnaround and revival package for electricity distribution companies.

“Asset quality stress will remain elevated, as the bank has taken only 50 per cent of the stress identified in the Reserve Bank of India’s Asset Quality Review. High slippages will mar earnings, led by lower margins and high credit cost,” said Motilal Oswal in its report on Canara Bank. It further added that “Loan/deposit growth is expected to be below the industry average at 3 per cent/8 per cent Year on Year (YoY). Canara Bank has the highest exposure (8 per cent of loans) to State Electricity Boards (SEBs). The UDAY scheme will have a meaningful impact on the reported loan growth.”

Canara Bank, in its Director’s report to shareholders, said aggregate investments (net) of the Bank is ₹1,42,309 crore. At the same time, portfolio modified duration has increased to 4.71 per cent as of March 2016 from 4.37 per cent as at same period last year. On the yield on investments, it dropped marginally to 7.92 per cent as on March 31, 2016, compared to 8 per cent as on March 31, 2015 – even though the Reserve Bank of India policy rate was reduced by 125 bps since January 2015. “Trading profit under domestic treasury operations stood at ₹990 crore during the year.”

The Bank continues to be an active player in the government securities market as a primary dealer. During the year, the aggregate amount of underwriting bids submitted was ₹56,554 crore, of which the underwriting commitment accepted by the RBI was ₹23,950 crore.

With regard to Treasury Bills under primary dealer (PD) business, as against the minimum success ratio of 40 per cent to be achieved in each half year, the Bank has achieved 65.63 per cent for the first-half year ended September 2015 and 43.14 per cent for the second-half year ended March 2016.