Canara Bank could face an estimated impact of Rs 150-200 crore if the proposed cap on insurance commissions is implemented in its current form. However, the lender expects to offset part of the loss by increasing the volume of insurance products sold through its branches, managing director and chief executive officer Brajesh Kumar Singh said.
“Even if it is reduced, the loss to earnings will be very small. That is not our core business. In Rs 24,000 crore profit, Rs 200 crore is nothing. Not even 1%,” Singh said in an interaction with The New Indian Express.
The proposed cap on insurance commissions is still at the draft stage, and the final impact will depend on the guidelines eventually notified by the insurance regulator. The bank plans to continue offering insurance products alongside other financial services, focusing on customer convenience and higher distribution volumes to make up for any reduction in commissions.
The comments come at a time when Canara Bank's non-interest income declined 18% during the quarter. Singh expects rising financial literacy and greater awareness of insurance products to support distribution volumes and help offset the impact of lower commissions.
Canara Bank reported strong quarterly results, with several performance indicators exceeding its guidance. Net profit grew 8% year-on-year to Rs 5,175 crore, while net interest income rose 20.4% to Rs 11,005 crore.
On the interest income front, Singh expects the bank to maintain its net interest margin (NIM) in the 2.5-2.6% range over the next couple of quarters, with scope for a marginal improvement of one to two basis points.
The bank has maintained its NIM within the guided range over the past three quarters despite some pressure, he said. The Reserve Bank of India's shift in monetary policy stance from neutral to calibrated tightening could influence the interest rate environment, although a 25-basis-point rate movement alone would have a limited impact, he added.
The bank expects credit demand to remain strong in the current quarter, driven by festive-season spending and consumption-led borrowing. Demand for retail loans, including home and car loans, has remained firm following interest rate cuts last year, Singh said.
The lender will also step up deposit mobilisation to keep pace with credit growth. While advances have grown around 19-20%, deposit growth has been lower, prompting the bank to focus on strengthening its deposit franchise.
Canara Bank is comfortable with its credit-deposit ratio of around 81%. Singh said a ratio of 79-80% was reasonable, given the proportion of deposits banks must maintain under statutory liquidity ratio (SLR) and cash reserve ratio (CRR) requirements. Several banks operate at higher ratios of around 83-84%, he added.
The bank's current account and savings account (CASA) ratio stood at around 29%, below its guided range of 30-32%. Singh attributed the shortfall largely to the composition of deposits rather than a decline in the absolute amount of CASA deposits.
Canara Bank mobilised around Rs 55,000 crore through foreign currency non-resident (FCNR(B)) deposits during the quarter. As these deposits were booked as term deposits, they increased the overall term-deposit base and reduced CASA's share in the total deposit mix.
The bank expects the impact of this change in the deposit mix to ease in the coming quarter and plans to improve its CASA ratio through product offerings, pricing and customer outreach. Individual savings bank deposits are growing at 11.7%, which Singh described as encouraging. He said the bank would seek to improve its CASA ratio gradually rather than expect a quick return to the 35-40% levels seen in the past.
One point to verify before publication: The interview transcript does not establish whether the estimated Rs 150-200 crore impact from the proposed commission cap is annual or for a specific period. I have retained “impact” rather than describing it as an annual loss.
