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Asia-PacificJanuary 8 2007

Thinking bigger

India’s third largest bank is increasing IT spend and seeking expertise from international partners in a huge push to increase market share. Karina Robinson reports.
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Canara Bank, India’s third largest bank with $29.7bn in assets and a 20% rise in profits to $345m in the financial year ending March 2006, is on a major drive to upgrade its technology and services in order to increase its fee income as competition from foreign and domestic banks increases. The Bangalore-headquartered bank, with a return on assets of 1.16, making it the 12th most profitable in India, according to The Banker’s Top 1000 listing, is spending $40m on its core banking technology, plus other sums on areas such as internet banking. Currently, less than half of its 2542 branches offer internet and mobile banking. By March, 80% of the branch network systems will be centralised.

Chairman and CEO M Rao, who joined the bank in 2005, aims to expand the bank’s market share in India from just over 5% to 6% by 2010. In an interview in London during a road show to publicise the bank’s $200m-$250m bond issue, the former head of Indian Bank (the 16th largest by assets in India) said that Canara’s technology spend and upgrade would free up 15% of its 47,000 workforce to be taught other skills and redeployed into new areas of business. The bank says it has already been sending most staff on training courses.

Redeployment targets

Canara Bank, which earns 85% of its income from the spread between deposits and loans and the rest from fees, is looking to use these employees to achieve its target of 20% of total income from fees by 2010, up from the current 15%. The bank is negotiating joint ventures with two large financial entities in Europe, one in the area of asset management and one in insurance. “We want to bring in world class players to scale up our operations, more for their management and product expertise,” says Mr Rao.

The bank, which began its operations in 1906 in Mangalore, a small port on the southern Indian coast, is 73% owned by the government. The rest of the shares are listed, with foreign institutions such as Citibank and HSBC holding 66% of these. Although the government has said its shareholding could fall to 51%, this is dependent on the bank needing more capital. Mr Rao points out that its Bank for International Settlements (BIS) capital ratio of 11.22 – and the hunger for Indian bonds among international investors – means the government’s shareholding will probably remain constant.

Geographic expansion

The bank’s decision to issue dollar-denominated securities was mainly to help fund a major expansion of its foreign branches. There are now two, one in London and one in Hong Kong, and the bank is aiming to open 20 by 2010 in locations such as Shanghai in order to push its remittances business and its business with Indian corporates who are expanding abroad.

Mr Rao insists the government does not interfere in the management of the bank, which operates in the south, west and north of the country and has 27.7 million customers.

“In terms of being a public sector bank, we do not have any different policies than any private sector bank. We have substantial autonomy,” he says. Some 40% of the bank’s loan book is destined for so-called priority sectors such as agriculture, small transport companies and small retail businesses, but Mr Rao points out the same rules apply to all banks in India.

He is also adamant that some of these sectors, such as microfinance, represent a great opportunity, as does the 48% of the Indian population that is unbanked.

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