Canara Bank reported a robust jump in net profit at Rs 899 crore for the quarter-ended March

2011, up 69% compared to Rs 503.4 crore for the same period last year.

Its net interest income (NII) was up 23% at Rs 1,973 crore versus Rs 1,597.6 crore.

In an interview with CNBC-TV18, S Raman, CMD of Canara Bank, spoke about the company's
Q4 results and the road ahead.

Below is a verbatim transcript of the interview. Also watch the video.

Q: What we don't have is your net interest margin performance for this quarter. Could you
walk us through where net interest margins were for the fourth quarter?

A: The net interest margin is at 3.20% for Q4. For the entire year, it is 3.12% as against 2.80%
the previous year. It has been a significantly wonderful year for Canara Bank. For the first time
our net profit crossed the figure of Rs 4000 crore — highest ever. Then net profit for Q4 stood at
almost Rs 899 crore showing a growth of 78.7% over the last Q4. The operating profit recorded a
growth of 20.7% YoY to reach a figure of Rs 6,100 crore.

The net interest income has grown by very healthy 37.7% while NIM, as I just mentioned, it is
3.12% as against 2.80% for the last year. The bank has declared the highest ever dividend at Rs
110 crore. Business of the bank crossed a landmark figure of Rs 5 lakh crore for the first time,
recording a growth of 25.4%. The deposits grew by 25.3% and advances also grew by 25.5%.

Last time our CASA was 29% and now this time it is 30.3% this year. One of the great
achievements for the banks has been the amount of rigorous cash recoveries during this year. We
could get cash recoveries of more than Rs 2000 crore from our NPLs during this year. As a
result, the gross NPA ratio improved to 1.45% from 1.52% last year.

Q: On a quarter on quarter basis actually it seems like NPAs have gone up a little bit —
any reason that has happened?

A: NPAs have gone up a little bit but nothing very special to mention. It is spread across the
sectors and mostly in small accounts in which Canara Bank has had a record of very aggressive
cash recoveries. As I just mentioned Rs 2000 crore was the amount recovered and we are very
confident that we will be recovering at least Rs 2,500 crore during the course of the next year.

So NPAs are not going to be a big issue with us because we have been very successful in
recovering our NPAs and that will continue in the next year.

Q: The NII growth as well is little below market estimates. I think you have reported Rs
1,973 crore. The market expected to see somewhere upwards of Rs 2000 crore. For FY12,
what would you say is a target that Canara Bank has set in terms of its NII growth and
what looks achievable?
A: I would say NIMs will about 3% even for the next year despite all the pressures, which are
there.

Q: For the net interest income sir?

A: I would not like to quote a figure for next year but 3% NIM would be an achievable figure
and that’s what we will target and achieve that.

Q: You have made some provisioning as well which is of course with regards to pension
requirements for banks. How much more provisioning would you be required to do
through the course of FY12?

A: About Rs 500 crore every year — Rs 125 crore per quarter will be the provision required
during each of the quarters for the next four years. Amortization is at the rate of Rs 500 crore
each year, so that’s what it is.

Next year the additional provision on account of gratuity and pension will be Rs 500 crore.

Q: Has Canara Bank taken a final decision on its base rate and deposit rates, post the RBI
50 bps hike?

A: Yes, we have increased the base rate and the BPLR effective today by 50 basis points and our
base rate now stands at 10%.
http://www.moneycontrol.com/news/result-analysis/expect-increasenpas-for-sbiq4-karvy_515396.html

Expect increase in NPAs for SBI in Q4:

Karvy
Published on Sat, Jan 22, 2011 at 17:09 |  Source : CNBC-TV18

Updated at Sat, Jan 22, 2011 at 17:39  

 Story
 Stock Quotes
 Stock Advice


     

Banking major State

Bank of India (SBI) has
really beaten all street
expectations with net
interest income up by
43% at Rs 9,050 crore for
October-December 2010.
CNBC-TV18 had
estimated the figure at
around Rs 8,323 crore.
ALSO READ
Meanwhile, the net profit
has gone up to Rs 2,828
 News and Notices about SBI
crore for the third quarter
 See interviews with SBI Management
compared to Rs 2,479
 See what other Experts & Brokerages are saying about SBI crore same period last
 See previous Results of SBI year, which is up about
14%. The street estimate
was about Rs 2644 crore.

The net NPAs have gone down on a year on year basis at 1.61% versus 1.88% and the total
provisions also have come in much lower than what the street was expecting at Rs 2051 crore
versus Rs 857 crore. The capital adequacy is at 13.16% versus 13.77%.

Reflecting on the stellar Q3 performance, Hemindra Hazari of Karvy Stock Broking said the
numbers were on expected lines. “This will be the last reporting quarter of the existing Chairman
who mind you has had the longest tenure since the legendary RK Talwar was the chairman in
1970s,” he explained.  
Hazari expected to see an increase in NPA levels for the bank. “In the last one to two years there
has been an urgent effort by the management to increase this market share and credit,” he stated. 

According to Vaibhav Agarwal of Angel Broking the bank performed quite well in this quarter
both on asset quality as well as the net interest income front. On Q4, he said, "They get a lot of
float income and fee income from government and other sources. So, they will have enough of a
buffer to take slightly higher provisioning expenses in the fourth quarter."

Below is a verbatim transcript of the interview. Also watch the video.

Q: Your initial reaction to SBI’s numbers? It has really surpassed all expectations?

Hazari: The numbers have surpassed expectations but I think this is to have been expected
because please bear in mind this will be the last reporting quarter of the existing Chairman who
mind you has had the longest tenure since the legendary RK Talwar was the chairman in 1970s.
So we were expecting SBI to have better-than-expected results and I think that is what these
results have shown.

You can also see that the provisions have been much lower than what analysts have been
expecting and I have always maintained that for State Bank of India it will be fourth quarter,
which should really be the decisive quarter where one can evaluate the entire performance of
State Bank for financial year 11.

Q: Also as far as their provision coverage ratio is concerned it’s about 64%, they need to go
to 70% as well on that—do you think that will come in the fourth quarter?

Hazari: The 70% coverage, I believe, will be met by the September of this year. So even by
March I don’t think they will achieve 70%. Bear in mind, also, at the moment we are assuming
that there will be normal growth in NPAs. We could be in for a slight surprise in the fourth
quarter on that because if the NPAs start increasing then the 70% coverage on the enhanced
NPAs.

Q: NPAs, in fact, on a QonQ basis have increased it by about Rs 50 crore. Where do you
see that going forward?

Hazari: In my opinion, in the entire banking industry you will see an increase in NPA’s and that
will really materialize in quarter four. They will be primarily driven by lot of small accounts in
the sub-Rs 15-25 crore account category.

In the case of SBI, there maybe even a further acceleration in NPA because in the last one to two
years there has been an urgent effort by the management to increase this market share and credit.
Therefore we believe that going forward there could be a build up in NPAs of State Bank of
India.

Q: First your initial reaction to the numbers?

Agarwal: The numbers were definitely higher than our estimates. If you look at the profit before
tax figure, it was about 10% higher than our estimates. Broadly on the asset quality front as well
as on the net interest income front the bank has performed quite well in this quarter.

Q: The provisions, of course, were much lower than what analyst and the street was really
expecting. What happened there, where do you see that going forward—do you think that
hit will come more in Q4?

Agarwal: We don’t have all the numbers regarding the slippages but I think those would have
been lower and the banks may also have seen some strong recoveries and upgrades because even
with the lower provisioning expense they have managed to increase the provision cover. There is
nothing to complain about there.

Again, when it comes to fourth quarter numbers what happens with SBI in the fourth quarter,
they get a lot of float income and fee income from government and other sources so they will
have enough of a buffer to take slightly higher provisioning expenses in the fourth quarter in any
case. However, if you look at the overall asset quality there is clearly an improving trend.

Q: What about the provisions for the teaser home loans, which SBI also had to provide at
2% instead of the 0.4%—how does that pan out?

Agarwal: We don’t have all the details but we would have to assume at this point that the
provision expense that is being reported would include that sum as well. It is after that they still
manage to show a decline in provision expenses. But, of course, we await further details from the
management.

Q: As far as the margins of SBI are concerned, of course, we have to wait for the
management to tell us that—but where do you see margins. On one hand the PLR hike that
SBI took was not inline with the deposit rate hike which was quite aggressive but on the
other hand they have very strong CASA ratios. Do you think margins will be impacted or
by how much do you think they would be impacted?

Hazari: In Q3, what we have seen is, all of the large banks which have reported their margins
actually have increased over Q2, which is slightly surprising because they have been able to do
re-pricing of their loans. In Q3, I don’t think there will be a problem for bank margins. The
impact will be felt in Q4 and Q1 of the next year.

So I don’t think that you will find any problems with bank margins for Q3—at best they could
remain constant as compared to Q2.

Q: What is the entire outlook for SBI by end of this fiscal?

Hazari: We were expecting earnings to be quite flattish for the entire financial year because we
believe that Q4 you will see a sharp increase in NPAs which will require further enhanced
provisioning. This will be in addition to—because they are bellow the 70% coverage ratio—so
even for the old NPAs they have to bring it up to 70%. We believe that there will be more NPA
build up in SBI which will increase the bad debt provisioning. Therefore, our estimates for full
financial year 2011 would be very flat.

We do not see much earnings growth taking place this year. As I have said, fourth quarter will be
a decisive quarter for SBI and third quarter may not give you an accurate picture of actually how
the full year is going to pan out.

Q: What is your view on the NIMs and what is your outlook for SBI for the entire fiscal?

Agarwal: As far as the NIMs are concerned, SBI is one of the very few banks where, given
where their CASA ratio is, their NIMs are anyways been much lower than their potential. Unlike
other banks whether it be larger or the smaller ones we are factoring declining NIMs to the other
banks, but in the case of SBI, they do have other levers to really counter margin pressures.

They have done well in this quarter and even if they see a marginal decline again in fourth
quarter, broadly, still if you look at the overall year as well as going into FY12 on the margin
front, SBI should outperform its peers.

Tags: State Bank of India, Karvy Stock Broking, Hemindra Hazari, NPA, Vaibhav Agarwal