Leadership insights shaping the way forward.
Watch Shri Brajesh Kumar Singh, MD & CEO, Canara Bank, share his perspectives on the repo rate hike, its implications for the banking sector, and the Bank's growth outlook in an exclusive interaction with ET NOW First Trade.
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What Brajesh Singh said
Written from the verified transcript and checked against it. Every figure links to the moment it was said.
Brajesh Singh, MD & CEO of Canara Bank, discussed the impact of the 25 bps repo rate hike on the bank's lending and margins. He said that 53% of the bank's asset book is repo-linked and will reprice overnight, while MCLR-based loans will take longer. Singh acknowledged some near-term NIM tailwind from the hike but could not quantify the exact impact yet. He expects credit costs to remain stable due to ample liquidity and good underwriting. Regarding $5.8 billion FCNR(B) deposits, Singh said the impact on NIM would be minimal, around 1-2 bps, after accounting for savings on CRR/SLR and replacing high-cost deposits. He stated that RAM segment loans, mostly repo-linked, will see automatic pass-through, but agriculture loans will not be hiked. Singh noted broad-based RAM growth and said West Asia crisis impact has been minimal, with slippages at 0.15% last quarter.
Key takeaways
Canara Bank's 53% repo-linked asset book will reprice overnight following the 25 bps rate hike.
$5.8 billion FCNR(B) deposits will have only a 1-2 bps impact on NIM, aided by CRR/SLR savings and high-cost deposit replacement.
Q2 slippages were minimal at 0.15%, annualizing to 0.60%, indicating low stress in the book.
0:00But tell me, with 53% of the book repo-linked for you, how quickly do you expect the 25 bps hike to flow through to lending yields for you?
1:01Singh, could the 25 bps hike provide a near-term tailwind to NIM before deposit cost repricing?
1:58If repo rate stays at 5.5 or moves up by another maybe 25, 50 bips or so, how much cushion do you think you have before a higher borrowing cost start translating to maybe slightly higher credit costs?
2:58So this $5.8 billion raised from FCNRB deposits, against your expectations, will that be NIM dilutive for you?
4:25And are you seeing scope to price incremental loans higher following the rate hike, particularly in the RAM space?
5:11Within this, which segments are driving the acceleration for you?
5:48What is it looking like with the portion in your book which has a direct exposure to that particular risk? How much would that be?
7:13And how sustainable is the underlying deposit growth and credit growth?
Let me now welcome on board Rajesh Kumar Singh, the CEO and MD at Canara Bank, to talk about what he's made of the policy and, of course, the sector outlook thereof. Mr. Singh, great to have you today on ET Now. Thank you so much for your time. But tell me, with 53% of the book repo-linked for you, how quickly do you expect the 25 bps hike to flow through to lending yields for you?
See, whatever asset portfolio which is linked to external reference rate like repo, that gets repriced overnight. You see, so that will be passed on either way, whenever it gets reduced or whenever it gets increased, overnight itself. So from tomorrow, that will be effectively reported, that will be passed on. But MCLR-based, it will take some time, considering MCLR, deposit cost and other things are involved. That will also happen, but not now.
We are still counting, so it was just announced some time back. But there will be some effect considering substantial amount of our asset book is on repo reference rate. I cannot quantify as of now, you see, very precisely.
And credit cost currently at just about half a percent thereabouts. If repo rate stays at 5.5 or moves up by another maybe 25, 50 bips or so, how much cushion do you think you have before a higher borrowing cost start translating to maybe slightly higher credit costs?
So as of now, there is enough liquidity in the marketplace. So I do not see in this quarter itself there would be some hike. Again, whenever this repo rate is hiked or lowered, there is a lag between deposits getting repriced. So that way, I do not see much pressure on our NIM from the cost of funds side. So credit cost will be hovering around the same, I guess, considering the good liquidity in the market and good kind of proposals available, and with the kind of underwriting standards and our credit collections. So that will remain in the range, I guess.
