Canara Bank sees interest margins improving to 2.9% in FY13 on higher lending to fund credit demand

New Delhi: Indian state-run lender Canara Bank expects to improve its net interest margin (NIM) by up to 30 basis points to 2.9% in the next fiscal year 2012-13 from 2.6% at present as a potential further cut in cash reserve ratio (CRR) will help it lend more to meet rising credit demand, Chairman and Managing Director S Raman said.

“Market sentiment has suddenly improved and logically one or two CRR cuts would come. Credit demand would be much more higher next year... There will be marginal improvement of NIM by 20-30 basis points to around 2.9% (in FY13) from 2.6%-2.7% in the current fiscal,” Raman said.

Earlier January, the Reserve Bank of India (RBI) had cut CRR -- the portion of deposits that banks are required to keep with RBI -- from 6% to 5.5%, thereby infusing Rs 320 billion into the system.

The central bank may consider another CRR cut if liquidity remains tight, RBI Deputy Governor Subir Gokarn had said earlier this week.

Canara Bank expects to clock a credit growth of 18%-19% in the next fiscal year, while it aims 17%-18% growth in deposits, Raman said.

The bank's outstanding advances as on December 31 were at Rs 2.19 trillion, rising by 15.46% from Rs 1.9 trillion a year ago, while its total deposits as on December 31 at Rs 3.15 trillion rose by 19.71% as compared to Rs 2.63 trillion a year ago.

Notably, credit growth of most Indian banks have remained under pressure in this fiscal year as persistent key policy, or repo rate, hikes by the RBI curbed demand until it pressed the pause button on the rate hike cycle in December to address concerns about moderating growth.

The RBI raised the repo rate by 375 basis points to 8.5% in 13 sequential steps since March 2010 to tame stubbornly high inflation, which had remained above 9% for 12 months in a row till November.

The Bangalore-based bank's fiscal third quarter (October-December) net profit fell 20.82% to Rs 8.75 billion from Rs 11.05 billion in the same quarter a year ago on account of higher provisioning for bad loans.

Canara Bank's shares were trading at Rs 512.20 on the Bombay Stock Exchange (BSE) at 11:29 am today, down 2.61% from the previous close.

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Canara Bank

Canara Bank is an India-based company. The company was established in 1906. It is a state-owned financial services company. The company was formerly known as Canara Bank Hindu Permanent Fund and ...

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