We are focusing on low-cost deposits to protect margins

Despite rising interest rates, the credit demand from productive segments of the economy has remained buoyant for Canara Bank, the fourth largest commercial bank in the country. In an interview with Manju AB, chairman A C Mahajan says the bank's strategic focus on credit allocation has been characterised by the balance
maintained among productive segments, emerging small and medium enterprises and various retail segments. Excerpts:

How is Canara Bank trying to cope with the liquidity tightening and higher cost of funds?

Our focus is on mobilising higher volumes of low-cost resources and core deposits to tide over the difficult times and protect the shrinking margins. In the current scenario, we are also concentrating on generating higher volumes of non-interest income, especially fee-based income through cross-selling of insurance and mutual fund products.

From where will the growth come — the retail or the corporate sector?

At present, retail lending is witnessing a slowdown. Canara Bank, over the years, has diversified its business segments by focusing on productive and niche market segments. The bank's strategic focus on credit allocation has been characterised by maintaining a balance between productive segments like agriculture, large corporates and emerging small and medium industries, infrastructure and various retail segments. Despite rising interest rates, the credit demand from productive segments of the economy has remained, by and large, buoyant

Will you go slow on housing loans?

The bank is focusing on some of the retail segments like housing, education and retail trade. In order to boost housing loans, the bank has kept its interest rates untouched on the priority housing loans up to Rs 30 lakh, which constitute a majority share in its retail housing loan portfolio. Several initiatives have been taken to expand the bank's retail credit, including housing loans.

Is there still a good demand for corporate loans? In which sectors the demand is still strong?

Notwithstanding an upward movement in interest rates, investment demand continues to be strong, particularly in sectors, such as, steel, textiles, hospitals and education. There continues to be a strong demand from almost all infrastructure segments -- power, roads, ports and bridges. Our credit flows especially to SMEs have been robust
so far in the current financial year.

RBI, in its monetary policy, has asked banks to go slow on credit growth. How will Canara Bank curtail credit growth?

In the annual policy statement, RBI has projected a non-food credit expansion of about 20 per cent for 2008-09, moderated from over 22 per cent growth recorded in 2007-08. In the current economic situation, the demand for credit from the productive segments has been so far buoyant. The bank's credit growth, so far during the financial year, has been stronger in some of the productive segments such as SMEs, infrastructure and education. We are confident of achieving a credit growth in excess of 20 per cent during 2008-09 in line with the Reserve Bank’s projection.

If you look at the banking industry as a whole, the net NPA (non-performing asset) levels have been climbing. What are the NPA figures for Canara Bank? How will you check it?

Our focus on effective credit management resulted in a progressive reduction in NPAs over the last few years. The bank's gross NPA at 1.31 per cent for the year ended March 2008 is lowest among its peers due to better credit quality, monitoring and recovery. The bank's focus on the NPA management front has been yielding good results in containing NPAs. We would continue our credit monitoring mechanisms and overall efforts towards checking fresh NPAs and enhancing further the asset quality in the
current year.

Banks are trying to grow CASA (current account-savings account), as source of cheap funds. What are your s plans on this front?

As already mentioned, our strategic focus is on mobilising higher volumes of low-cost CASA deposits. Our concerted efforts on CASA deposits are showing tangible results. Our CASA base is improving. Recently, apart from launching value-added savings and current account products, we have launched special campaigns for further augmenting our CASA deposits base. We expect our CASA deposits to register perceptible improvement in 2008-09.