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 level. 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 haircuts 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 2023 maintained average HOLA of '2,90,122.01 crore. Level 1 assets contribute to 97.81% of the total stock of HOLA. Facility to avail Liquidity for Liquidity Coverage Ratio constitutes the highest portion to HOLA i.e. around 61.36% of the total HOLA. Level 2 assets which are lower in quality as compared to Level 1 assets, constitute 2.19% 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 21.09% of the total weighted cash outflows. Deposits from non-financial corporates, sovereigns, central banks, multilateral development banks and PSEs contributed around 39.36% of the total weighted cash outflows. Bank's exposure is majorly in Indian Rupee.
The daily average LCR of Canara Bank (Consolidated) for the quarter ended 31st March 2023 was 121.79%. 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.
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 is consistent with the operational requirements of the Bank. Adequate Contingency Funding Plan is also in place, which is reviewed on 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.
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 level. 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 accordingtothe 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 10.49%, retail deposits (including deposits from small sized business customers) formed 63.33% and wholesale funding formed 21.25% of the total Available Stable Funding, after applying the relevant weights.
The Stable Funding primarily required for performing loans and securities constituted 29.88% 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 1.95% 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 67.07% of the Required Stable Funding.
c) Sale and transfers to / from HTM category
During the Financial Year 2022-23, 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
In terms of paragraph C.4 (e) of Annexure III to the Reserve Bank of India (Financial Statements-Presentation and Disclosures) Directions, 2021 updated till (Updated as on February 20, 2023) Banks shall make suitable disclosures, 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 ten 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 exceed ten per cent 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 2022.
f) Disclosure of transfer of loan exposures
1. Details of loans transferred / acquired during the period ended 31.03.2023 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 31.03.2023.
b) The Bank has not acquired any Stressed Loans (NPAs) / Special Mentioned Accounts (SMA) during the year ended 31.03.2023.
c) Details of Stressed Loans (NPAs) transferred during the year ended 31.03.2023:
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 2022-23 bank is holding a provision of '31.32 Crore (previous year '31.32 Crore) towards unhedged foreign currency exposure. Further Bank is also holding a capital of '11.03 Crore (previous year '53.89 Crore) as on 31.03.2023 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 make incremental provisioning (over and above the extant standard assets provisioning) on the total credit exposure to such entities at the specified rates.
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.
During the year the Bank has not undertaken derivative trades in IRS under the Investment Portfolio.
Buy-Sell Swaps (Proprietary) were undertaken during the year. No FRAs were under taken during the year.
The Bank has been undertaking derivatives trades like IRS and FRAs, for the purpose of hedging the Bank's Foreign Currency liabilities. Options and swaps are also undertaken on behalf of clients on back to back basis.
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 PolicyHedge 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 is 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 is NIL
(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 Pro-Forma Financial Statements to RBI for every half year starting from September 2021 as per the guidelines of RBI.
h) Disclosure on amortization of expenditure on account of enhancement in family pension of employees of banks: Nil
i) Pursuant to proposed bipartite agreement on wage revision (due with effect from November 1,2022), an estimated provision of '384.48 Crore has been made towards wage revision for the period ended March 31, 2023.
j) 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. The Bank has adopted new tax regime rates as per section 115BAA of the Income Tax Act, 1961 with effect from Assessment Year 2022- 23. While calculating the impact of the change in tax regime from Assessment Year 2022-23, an amount of deferred tax of '2,972.77 crores have been charged to P & L Account in the current period. Further, Provision for Income Tax for financial year 2021- 22 amounting to '1,578.20 crores have also been reversed in the current period including '443.06 Crore on account of change of regime.
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
On account of LIBOR transition, the Foreign Exchange Dealers Association of India (FEDAI) reference rates fixation mechanism has undergone certain changes. Due to this the reference rate will be published in tune with LIBOR till 30.06.2023 and also in tune with Alternate reference rates (ARR).
Bank has assessed impact of transition process from LIBOR to ARR and steering committee formed by Bank deliberated the same in periodical meetings. Following impact was assessed:
• Bank's overseas exposure was mainly linked to USD LIBOR, which has end date for transition for existing contract till 30.06.2023.
• Most of the Bank's assets and liabilities are due to mature by 30.06.2023. However, some of the exposure is maturing beyond 30.06.2023 for which Bank has incorporated transition clause in respective LIBOR linked contracts.
• There will be no financial impact even though LIBOR and ARR has price difference as Credit Adjustment Spread (CAS) will take care of pricing difference.
• All the exposure in other currencies has already been shifted to respective ARRs and no LIBOR linked contract is outstanding in other currencies such as EUR, GBP, CHF and JPY.
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.
Pursuant to the revision in additional employer contribution to NPS Fund from existing 10% to 14% as per the 11th Bi-Partite Settlement and Joint Note dated 11.11.2020, the Bank has started contributing from December 2021 to NPS Fund.
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 31.03.2023
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 MHRD, 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), Gol 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, IlSc, NIT etc of the country.
Based on this the MHRD proposed to set up Higher Education Financing Agency (HEFA) a Joint Venture Company with an initial authorized capital of '2000 Cr. MHRD has contributed '1,000 Cr. and Canara Bank has contributed proportionately '100 Cr.
Subsequently, 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 Cr wherein Govt. will provide an additional equity of '5,000 Cr. and Canara Bank will contribute '500 Cr. As on 31.03.2023, MHRD has infused Capital of '4,812.50 Cr. and Canara Bank has contributed '481.25 Cr, respectively. As at 31.03.2023, Company has sanctioned Term Loans to the extent of '36,091.66 Cr with a disbursement at '16,845.21 Cr.
f) Accounting Standard 27 - Financial Reporting of Interests in Joint Ventures
Commercial Indo Bank LLC, Moscow our Joint Venture with State Bank of India
Board of Directors vide orders dated 17.06.2020 had permitted the sale of our stake of 40% to State Bank of India at a consideration of USD 14.67 Mn, which was the original investment made by our Bank. On 30.09.2021 the sale of stake in CIBL, Moscow was permitted by RBI.
As a part of strategic initiative for rationalization of international operation, the bank has transferred its entire shareholding (40%) in the Commercial Indo Bank LLC, Moscow to majority shareholder SBI as on 30.11.2022 at the value of USD 14.67 Mn. with the permission of Central Bank of Russia also.
Owing to sanctions on Russian entities, the consideration amount was settled in equivalent Indian Rupees, after obtaining due permission from RBI, and the same amounted to '121.29 Crores.
As our entire stake of 40% in the Joint Venture 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 31.03.2023
g) 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 2022-23,Bank has issued Basel III Compliant Additional Tier I Bonds aggregating to '4000.00 crore (During the Sep 2022 Quarter in Two Tranches of '2000 crore Each) and Basel III Compliant Additional Tier II Bonds aggregating to '2000 crore through private placement.
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 FY 2022-23, the Central Government approved capital infusion of '130.65 Cr to Kerala Gramin Bank to be contributed by Government of India, Canara Bank and Government of Kerala in the ratio of 50:35:15 as prescribed in the RRB Act,1976. Accordingly, Bank has infused a capital of '45.73 Crores in Kerala Gramin Bank vide GOI, Ministry of Finance DO.No 3/9/2020-RRB dated 29.03.2023 and the shares were pending for allotment and will be allotted after receipt of proportionate share of capital from GOI and Kerala Government.
19. During the year, Bank has transferred '2000 Crore to Special Reserve created u/s 36 (1) (viii) of Income Tax Act, 1961.
20. 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 Non-Performing 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 Cr as equity, out of the total equity requirement of '2750 Cr. from 15 banks. Till now Bank has released '169.09 Cr as equity to NARCL out of the current paid up capital of '1409.09 Cr.
Bank's committed contribution in IDRCL (i.e. 5%) is '2.50 Cr as equity, out of the total equity requirement of '50 Cr. from 14 banks. Till now Bank has released '1.00 Cr as equity to IDRCL out of the current paid up capital of '20.00 Cr.
Remaining commitments of Bank towards NARCL & IDRCL are shown under contingent liability.
21. Figures of the previous year have been regrouped/
rearranged / reclassified wherever necessary.
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