b) Liquidity coverage ratio (LCR)
QUALITATIVE DISCLOSURE
Liquidity Coverage Ratio (LCR) standard has been introduced with the objective that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HOLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario.
Minimum requirement of LCR as stipulated by RBI is 100% for the calendar year 2019 onwards. RBI has mandated the management of LCR for individual as well as group Bank operations. Accordingly, Bank is disclosing the LCR at solo and consolidated levels. The entities included while computing consolidated LCR are Canara Bank Solo (Domestic & Overseas Operation) & Canara Bank (Tanzania) Limited.
HOLA comprises of Level 1 assets (0% hair-cut), Level 2A assets (15% hair-cut) and Level 2B assets (50% hair-cut). Level 1 assets comprising of cash, excess CRR, excess SLR securities, Government securities to the extent allowed by RBI under Marginal Standing Facility (MSF) [2% of the Bank's Net Demand & Time Liabilities (NDTL)] and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR) [16% of the Bank's NDTL]. Level 2A assets comprises of sovereign guaranteed marketable securities, corporate bonds or commercial papers which are rated AA - and more are issued other than by financial institutions.
Expected net cash outflows under stress are the weighted sum of outflows minus inflows in the next 30 days. The inflows are taken with pre-defined hair-cuts and the outflows are taken at pre-defined run-off factors. Funding from retail and small business customers carries lower run-off factor as compared to wholesale funding.
Composition of HOLA: The Bank during the three months ended 31st March 2024 maintained average HOLA of '3,05,386.54 crore. Level 1 assets contribute to 98.21% of the total stock of HOLA. Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HOLA i.e. around 62.69% of the total HOLA. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 1.79% of the total stock of HOLA against maximum permissible level of 40%.
. Funding Profile: Unsecured wholesale funding
constitutes major portion of total weighted cash outflow. Retail deposits and deposits from small business customers put together contributed around 22.84% of the total weighted cash outflows.
Deposits from non-financial corporates, sovereigns, central banks, multi-lateral development banks and PSEs contributed around 30.44% of the total weighted cash outflows. Bank's exposure is majorly in Indian Rupee.
LCR of the Bank: Bank has maintained LCR well above the minimum regulatory level on an ongoing basis. Historical trend of Consolidated LCR of the Bank is as follows:
The daily average LCR of Canara Bank (Consolidated) for the quarter ended 31st March 2024 was 129.04%. The Bank has been maintaining HQLA mainly in the form of SLR investments over and above the mandatory requirements. The Bank has consistently kept a healthy funding profile with a major portion of funding through deposits. Retail deposits constitute major portion of total funding sources which are well-diversified. In addition to daily / monthly LCR reporting, Bank also monitors the liquidity position through various regulatory statements viz. Structural Liquidity Statement and Stock Ratios. Derivative exposures are considered insignificant due to almost matching inflows and outflows position. During the quarter, LCR for USD (significant foreign currency constituting more than 5% of the balance sheet of the Bank) was 128.64% on average.
Liquidity Management in the Bank is driven by the ALM Policy of the Bank and regulatory prescriptions. The ALCO has been empowered by the Bank's Board to formulate the Bank's funding strategies to ensure that the funding sources are well-diversified and are consistent with the operational requirements of the Bank. Adequate Contingency Funding Plan is also in place, which is reviewed on a periodic basis to ensure the availability of funds to meet any stressed liquidity event. Monitoring of liquidity is centralized at Risk Management Wing, Head Office and managed centrally at Integrated Treasury Wing, Head Office.
The following table summarizes the average of unweighted and weighted value of the LCR components for the 4th quarter of FY 2023-24. The simple average has been computed based on daily values for the three months of quarter.
c) Net Stable Funding ratio (NSFR)
QUALITATIVE DISCLOSURE
Net Stable Funding Ratio (NSFR) guidelines ensure reduction in funding risk over a longer time horizon by requiring banks to fund their activities with sufficiently stable sources of funding in orderto mitigate the risk of future funding stress. The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding.
RBI issued the regulations on the implementation of the Net Stable Funding Ratio in May 2018 with minimum requirement of equal to at least 100%. The implementation is effective from 1st October, 2021. RBI has mandated the management of NSFR for individual as well as group Bank operations. Accordingly, Bank is disclosing the NSFR at solo and consolidated levels. The entities included while computing consolidated NSFR are Canara Bank Solo (Domestic & Overseas Operation) and Canara Bank (Tanzania) Limited.
Available Stable Funding (ASF) is defined as the portion of total regulatory capital and liabilities expected to be reliable which is determined by various factor weights according to the nature and maturity of liabilities with liabilities having maturity of 1 year or more receiving 100% weight.
Required Stable Funding (RSF) is defined as the portion of on-balance sheet and off-balance sheet exposures which requires to be funded on an ongoing basis. The amount of such stable funding required is a function of the liquidity characteristics and residual maturities of the various assets held.
Key drivers
The main drivers of the Available Stable Funding (ASF) are the capital base, retail deposit base, and funding from non-financial companies and long-term funding from institutional clients. The capital base formed around 11.44%, retail deposits (including deposits from small sized business customers) formed 65.33% and wholesale funding formed 23.23% of the total Available Stable Funding, after applying the relevant weights.
The Stable Funding primarily required for performing loans and securities constituted 71.54% of the total RSF after applying the relevant weights. The stock of High-Ouality Liquid Assets which majorly includes cash and reserve balances with the RBI, Government debt issuances attracted no or low amount of stable funding due to their high quality and liquid characteristic. Accordingly, the NSFR HOLA constituted 2.01% of the Required Stable Funding after applying the relevant weights. Other assets and contingent funding obligations, such as committed credit facilities, guarantees and letters of credit constituted 25.07% of the Required Stable Funding.
NSFR of the Bank
Bank’s NSFR at consolidated level comes to 123.06% as at the end of the quarter 02 (FY 2023-24) and the same is above the minimum regulatory requirement of 100%. The Available Stable Funding (ASF) as on 30th September 2023 stood at ?9,74,277 crores and amount of Required Stable Funding (RSF) as on 30th September 2023 was ?7,91,678 crores.
c) Sale and transfers to / from HTM category
During the Financial Year 2023-24, the Bank sold securities from HTM category are not in excess of 5% of the book value of HTM category. (In the previous year, the sale has not exceeded 5% of HTM category).
e) Divergence in asset classification and provisioning
As per RBI Master Direction No RBI/DOR/2021-22/83 DOR.ACC.REC.No.45/21.04.018/2021-22 dated 30.08.2021 (Updated as on 01.04.2024) on financial statements - Presentation and disclosures, divergence in the asset classification and provisioning, Banks should disclose divergences, if either or both of the following conditions are satisfied:
i. The additional provisioning for NPAs assessed by Reserve Bank of India as part of its supervisory process, exceeds five per cent of the reported profit before provisions and contingencies for the reference period, and
ii. The additional Gross NPAs identified by the Reserve Bank of India as part of its supervisory process exceeds five percent of the reported incremental Gross NPAs for the reference period.
In our Bank, divergences are within threshold limit specified above, hence no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI's annual supervisory process for FY 2023-24.
f) Disclosure of transfer of loan exposures
1. Details of loans transferred / acquired during the period ended 31.03.2024 under the RBI Master Direction on transfer of loan exposures dated 24.09.2021 are given below: -
a) Bank has not transferred / acquired any Loans not in default during the year ended 31.03.2024.
b) The Bank has not acquired any Stressed Loans (NPAs) / Special Mentioned Accounts (SMA) during the year ended 31.03.2024.
c) Details of Stressed Loans (NPAs) transferred during the year ended 31.03.2024:
Note: In addition to the above, Bank has transferred stressed financial assets of M/s. SREI Infrastructure Finance Ltd & SREI Equipment Finance Ltd., to NARCL under Resolution Plan through CIRP process under IBC 2016 for '1564.107 crore (our share)
d) Distribution of the SRs held by the Bank across the various categories of Recovery Ratings assigned to such SRs by the credit rating agencies as on 31.03.2024 is given as under:
Note: The above table includes SR of '178.79 crore issued as a part of resolution plan in transfer of M/s. SREI Infrastructure Finance Ltd., & SREI Equipment Finance Ltd to NARCL. The table also includes SR of '17.79 crore issued in the account of M/s. Hitodi Infrastructure Pvt. Ltd., (Non-Performing Investment) transferred to NARCL.
e) Quantum of excess provision reversed to the P & L account on account of sale of stressed loans: '371.67 crore
c) Risk category-wise country exposure
Only in respect of country where a Bank's net funded exposure is 1% or more of its total assets, the Bank is required to make provision for country Risk. On 31.03.2024 the net funded exposure to USA (Low Risk) has exceeded 1% of the total assets of the Bank. (1% of the total assets of the Bank as on 31.03.2024 is '14,915.41 crore) for which required provision is made
g) Unhedged foreign currency exposure
Reserve Bank of India vide its communication Number DBOD.No.BP.BC. 85 / 21.06.200/2013-14 dated January 15 2014 advised the Bank to provide incremental provision and capital with regard to Bank's exposure to entities with unhedged foreign currency exposures. Accordingly, for the financial year 2023-24 bank is holding a provision of '6.60 Crore (previous year '31.32 Crore) towards unhedged foreign currency exposure. Further Bank is also holding a capital of '10.42 Crore (previous year '11.03 Crore) as on 31.03.2024 towards the risk on unhedged foreign currency exposure.
Policy to manage currency induced credit risk with regard to Unhedged Foreign Currency Exposure are dealt with as per the guidelines issued by Reserve Bank of India vide their notification DOR.MRG.REC.76/00-00- 007/2022-23 dated 11.10.2022
The Unhedged Foreign Currency Exposure (UFCE) and Annual Earnings are computed before Interest and Depreciation (EBID) for each borrower entity. UFCE is arrived at first by calculating the gross foreign currency exposure of the entity and then deducting the extent of hedge by way of derivative contract and natural hedge on account of cash flow from operations (of the entity).The extent of potential loss to the entity will be calculated by multiplying the UFCE with Largest Annualised Volatilities (LAV) seen in USD/INR rates during the last ten years period. In case of Overseas Branches / Subsidiaries; potential loss due to UFCE shall be computed by replacing INR with the domestic currency of that jurisdiction and USD with the foreign currency (i.e., currency other than domestic currency of that jurisdiction) in which the entity has maximum exposure. Potential loss on account of exchange rate movements are compared with annual EBID (Earnings Before Interest & Depreciation) and expressed as a percentage of EBID i.e., Potential loss/ EBID percentage. As a prudential measure, Bank is holding incremental capital and making incremental provisioning (over and above the extant standard assets provisioning) on the total credit exposure to such entities at the specified rates.
c) Disclosures on risk exposure in derivatives
I) Qualitative disclosures
The Credit Risk Management Policy, approved by the Board of Directors, on the use of derivative instruments to hedge / trade is in place.
a) The Investment Portfolio of the Bank consists of assets with characteristics such as fixed interest rate, zero coupon and floating interest rates and is subject to interest rate risk. The Bank also has issued Tier I & Tier II bonds and this capital cost is at fixed rate with no exit option. The policy permits hedging the interest rate risk on this liability as well.
The Bank is permitted to use Forward Rate Agreement (FRA) and Interest Rate Swap (IRS) and only plain vanilla transactions are permitted. These instruments are used not only for hedging the interest rate risk in the investment portfolio but also for market making and on behalf of clients on back to back basis.
During the year, the Bank has undertaken derivative trades in IRS under the Proprietary Portfolio and on behalf of clients on back-to-back basis.
Buy-Sell Swaps (Proprietary) were undertaken during the year. No FRAs were under taken during the year.
b) The risk management policies and major control limits like stop loss limits, counterparty exposure limits, PV01, etc. approved by the Board of Directors are in place. These risk limits are monitored and reviewed regularly. MIS/Reports are submitted periodically to Risk Management Committee. The hedge effectiveness of the outstanding derivative deals are monitored in relation to the underlying asset / liability on fortnightly basis.
c) Accounting Policy
Hedge Positions
• Accrual on account of interest expenses/ income on the IRS are accounted and recognized as income / expense.
• Hedge effectiveness of the outstanding derivative deals are monitored in relation to the fair value of the swap and underlying asset / liability. The Bank has used the relevant INBMK Yield + Spread as declared by FIMMDA for arriving at the fair value of the underlying Asset / Liability. If the hedge is not effective, hedge swaps are accounted as trading swaps. If swap is terminated before maturity, the MTM loss / gain and accruals till such date are accounted as income / expense under Interest Paid / received on IRS.
Trading Positions
• Trading swaps are marked to market at frequent intervals and changes are recorded in the income statements.
• Accrual on account of interest expenses/ income on the IRS are accounted and recognized as income / expense.
• Gains or losses on termination of swaps are recorded as immediate income or expenses under the above head.
12. Disclosure of penalties imposed by the Reserve Bank of India
Penalties imposed by the Reserve Bank of India (except for currency chest and operational Issues) under the following provisions during the Financial Year 2023-24 are detailed in the below table:
(i) Banking Regulation Act, 1949,
(ii) Payment and Settlement Systems Act, 2007 and
(iii) Government Securities Act, 2006 (for bouncing of SGL)
c) Marketing and distribution
The details of fees / remuneration received in respect of the marketing and distribution function (excluding bancassurance business) undertaken by them: Nil
f) Implementation of IFRS converged Indian Accounting Standards
As per RBI guidelines, the Bank is in the process of implementing the Indian Accounting Standards (Ind AS). A Project Steering Committee headed by Executive Director has been formed to take the required steps on a continuous basis for smooth convergence. RBI, vide its communication ref: DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March 2019 has deferred implementation of Ind AS for all Scheduled Commercial Banks till further notice. Bank is submitting ProForma Financial Statements to RBI for every half year starting from September 2021 as per the guidelines of RBI.
h) The current tax expenses and deferred tax expenses are determined in accordance with the provisions of the Income Tax Act, 1961 and as per the Accounting Standard 22-"Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India respectively after taking into account taxes paid at the foreign offices, which are based on the tax laws of respective jurisdictions.
i) Disclosure of Letters of Comfort (LoCs) issued by banks
Bank has not issued any letters of comfort during the financial year during year 2023-24.
Only one LOC issued vide dated 03/08/2009 in favour of Central Bank of UAE on behalf of Representative Office, Sharjah is outstanding as on date.
Financial Impact
As our Representative Office, Sharjah is not undertaking any commercial operations; there is no financial impact of LOC issued in favour of Central Bank of UAE.
Disclosure regarding Letter of Undertaking-cum-Indemnity issued by the Bank in favour of Trustees, Canara Robeco Mutual Fund:
During FY 2023-24, the Bank has issued Letter of Undertaking-Cum-Indemnity for '13.05 crore in favour of Trustees Canara Robeco Mutual Fund with regard to one pending litigation pertaining to erstwhile Canstar Scheme of Canbank Investment Management Services.
The Bank was already holding 100% provision in this regard.
15. Accounting Standards
In compliance with the guidelines issued by the RBI regarding disclosure requirements of the various Accounting Standards issued by Institute of Chartered Accountants of India (ICAI), the following information is disclosed:
a) Accounting Standard 5 - Net Profit / Loss for the period, prior period items and changes in accounting policies:
There are no material prior period items.
b) Accounting Standard 11 - The Effects of Changes in Foreign Exchange Rates
Accounting for transactions involving foreign exchange is done in accordance with AS-11 on "The Effects of Changes in Foreign Exchange Rates", issued by the ICAI. In the terms of AS-11, the foreign currency operations of the Bank are classified as a) Integral Operations and b) Non-Integral Operations.
All overseas branches, offshore banking units, overseas subsidiaries are treated as nonintegral operations and domestic operations in foreign exchange and representative offices area treated as integral operations.
c) Accounting Standard 15 - Employee Benefits
The actuarial assumptions in respect of gratuity, pension and privilege leave, for determining the present value of obligations and contributions of the bank, have been made by fixing various parameters for:
- Salary escalation by taking into account inflation, seniority, promotion and other factors mentioned in Accounting Standard 15 (Revised) issued by ICAI.
- Attrition rate by reference to past experience and expected future experience and includes all types of withdrawals other than death but including those due to disability.
- Provision towards sick leave has been made in the books of account on the basis of Actuarial valuation.
New Pension Scheme Contribution
The Bank has a Defined Contribution Pension Scheme (DCPS) applicable to all categories of officers joining the Bank on or after August 1, 2010. The Scheme is managed by NPS Trust under the Pension Fund Regulatory and Development Authority. National Securities Depository Limited has been appointed as the Central Record Keeping Agency for the NPS.
e) Accounting Standard 18 - Related Party Disclosures Names of Related parties and their relationship with the Bank - Parent - Canara Bank Key Management Personnel -
i) Shri. K. Satyanarayana Raju
Managing Director & Chief Executive Officer
ii) Shri. Debashish Mukherjee Executive Director
iii) Shri. Ashok Chandra, Executive Director
iv) Shri. Hardeep Singh Ahluwalia Executive Director
v) Shri. Bhavendra Kumar (w.e.f. from 9th October 2023)
vi) Shri. S K Majumdar
Group Chief Financial Officer
vii) Shri. Santosh Kumar Barik, Company secretary (w.e.f. from 21st April 2023)
Parent -
i) Canara Bank
Subsidiaries -
i) Canbank Financial Services Ltd.
ii) Canbank Venture Capital Fund Ltd.
iii) Canbank Factors Ltd.
iv) Canara Robecco Asset Management Company Ltd.
v) Canbank Computer Services Ltd.
vi) Canara Bank Securities Ltd. (formerly GILT Securities Trading Corpn. Ltd)
vii) Canara HSBC Oriental Bank of Commerce Life Insurance Company Ltd.
viii) Canara Bank (Tanzania) Ltd.
Joint Ventures -
Nil
As our entire stake of 40% in the Joint Venture (Commercial Indo Bank LLC, Moscow our Joint Venture with State Bank of India) has been sold to State Bank of India on 30.11.2022, there is no financial reporting of interests in the Joint venture as on 31.03.2024
Associates -
i) Canfin Homes Ltd.
ii) Regional Rural Banks sponsored by the Bank:
a) Karnataka Gramin Bank
(Erstwhile Pragati Krishna Gramin Bank)
b) Kerala Gramin Bank
(Erstwhile South Malabar Gramin Bank)
c) Andhra Pragathi Grameena Bank
d) Karnataka Vikas Grameena Bank
HIGHER EDUCATION FINANCING AGENCY (HEFA)
Higher Education Financing Agency (HEFA) is a joint venture of Ministry of Human Resources Development (MHRD) (now Ministry of Education (MoE)), Government of India (90.91%) and Canara Bank (9.09%) for financing creation of capital assets in premier educational institutions in India. HEFA is registered under Section 8 (Not-for-profit) under the Companies Act 2013 as a Union Govt. company and as Non-deposit taking NBFC with RBI.
The Ministry of Human Resources Development (MHRD) (now Ministry of Education (MoE)), GoI with an object to build world-class higher educational institutions and to set up research facilities, intended to provide a platform, through a special purpose vehicle, for improvement of the infrastructure standards of the higher educational institutions like IIM, IIT, AIIMS, IISER, IISc, NIT, IIITs etc. of the country.
Based on this, the MoE (erstwhile MHRD) proposed to set up Higher Education Financing Agency (HEFA) a Joint Venture Company with an initial authorized capital of '2000 crore. MHRD has contributed '1,000 crore and Canara Bank has contributed proportionately '100 crore.
Subsequently, MoE (erstwhile MHRD) extended the scope of existing mandate of HEFA equity base and range of institutions to be financed. Accordingly, the authorized capital has been increased to '10,000 crore, wherein Govt. will provide an additional equity of '5,000 crore and Canara Bank will contribute '500 crore. As on 31.03.2024, MoE has infused Capital of '4,812.50 crore and Canara Bank has contributed '481.25 crore, respectively. As at 31.03.2024, Company has sanctioned Term Loans to the extent of '39719.75 crore and has disbursed '19968.26 crore.
f) Accounting Standard 24 - Discontinuing Operation
The Board of the bank vide order dated 27.01.2022 has accorded permission for winding up of SyndBank Services Ltd., Bank's wholly owned Subsidiary. Petition for voluntary liquidation of the Company has been filed before NCLT on
15.02.2023. Subsequent to the NCLT order dated
25.07.2023, the Company stands dissolved.
g) Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures
Not applicable, since no interest in any Joint Venture as on 31-03-2024.
h) Accounting Standard 28 - Impairment of Assets
Assets are reviewed for impairment at the end of the year, whenever events or changes in circumstances warrant that the carrying amount of an asset may not be recoverable. Recoverability of an asset to be held and used is measured by a comparison for the carrying amount of an asset to future net discounted cash flows expected to be generated by the asset. If such an asset is considered to be impaired, the impairment to be recognized and is measured by the amount by which the carrying amount of the asset exceeds the recoverable amount of the asset. However, in the opinion of the Bank's Management, there is no indication of material impairment to the assets during the year to which Accounting Standard 28 - "Impairment of Assets" applies.
16. During the FY 2023-24, Bank has issued Basel III Compliant Additional Tier I Bonds aggregating to '3403 crore through private placement and redeemed of '2500 crore Basel Ill Compliant Tier II Bonds due to maturity.
17. As per RBI guidelines, DOR.ACC.REC. No.91/21.04.018/2022-23 dated December 13, 2022, the details of the item under Schedule 5 /11/14/16 i.e. Other Liabilities / Other Assets / Other Income / Other Expenses exceeding 1% of the total Assets / Total income is as under:
18. During the year, Bank has transferred '850 crore to Special Reserve created u/s 36 (1) (viii) of Income Tax Act, 1961.
19. The Hon'ble Finance Minister, in the Union Budget 2021 announced the formation of an ARC-AMC structure, comprising of two entities viz. National Asset Reconstruction Company Limited (NARCL), and India Debt Resolution Company Limited (IDRCL) for aggregation and resolution of NonPerforming Assets (NPAs) in the Banking Industry.
NARCL a Government entity, has been incorporated on 7th July 2021 with majority stake held by Public Sector Banks and balance by private banks with Canara Bank (with 12% shareholding) being the sponsor Bank. It is registered with the Reserve Bank of India as an Asset Reconstruction
Company under Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002.
Bank's committed contribution as a sponsor in NARCL is '330 crore as equity, out of the total equity requirement of '2750 crore from 15 banks. Till now, Bank has released '330 crore as equity to NARCL out of the current paid-up capital of '2750 crore.
Bank's committed contribution in IDRCL (i.e. 5%) is '2.50 crore as equity, out of the total equity requirement of '50 crore from 14 banks. Till now Bank has released '1.00 crore as equity to IDRCL out of the current paid-up capital of '20.00 crore.
Remaining commitments of Bank towards NARCL & IDRCL are shown under contingent liability.
20. Figures of the previous year have been regrouped/ rearranged / reclassified wherever necessary.
|