Canara Bank

Canara Bank reported robust financial results for Q1 FY26, with global business growing 11% YoY to ₹25.63 lakh crores, surpassing the initial guidance of 10%. Deposits increased by 10% YoY to ₹14.67 lakh crores, and global advances grew 12.42% YoY to ₹10.96 lakh crores, both exceeding guidance. Operating profit rose 12.32% YoY to ₹8,554 crores, and net profit saw a significant 21.69% YoY increase to ₹4,752 crores. The Return on Asset (RoA) for the quarter stood at 1.14%, improving by 9 bps YoY and exceeding the FY26 guidance of 1.05%.

The bank demonstrated substantial improvement in asset quality during Q1 FY26. Gross Non-Performing Assets (GNPA) declined by 145 bps YoY to 2.69%, while Net Non-Performing Assets (NNPA) reduced by 61 bps YoY to 0.63%. The Provision Coverage Ratio (PCR) improved significantly by 395 bps, reaching 93.17%. The slippage ratio also saw a decrease of 52 bps YoY, settling at 0.80%. Management expressed confidence that the March 2026 targets for GNPA/NNPA are likely to be surpassed by September or December 2025.

Canara Bank successfully rebalanced its credit portfolio, with the RAM (Retail, Agriculture, MSME) sector growing nearly 15% YoY in the June quarter. This strategic shift resulted in the RAM sector now constituting 58% of the total asset book, achieving the bank's three-year target ahead of schedule. Retail credit grew 34% YoY to ₹2.35 lakh crores, driven by housing loans (up 14% to ₹1.09 lakh crores) and vehicle loans (up 22.09% to ₹0.21 lakh crores). Corporate credit grew at 10%.

The Net Interest Margin (NIM) for Q1 FY26 was 2.55%. Management noted that while the cost of deposits was controlled, the reduction in yield on advances, particularly from RLR-linked books, impacted NIM. They anticipate NIM may not fall below 2.5% in the current quarter and could gradually improve in Q3 and Q4 if no further rate cuts occur. The previous FY26 NIM guidance of 2.75-2.80% is now considered difficult to maintain given the market's expectation of additional rate cuts.

The bank generated ₹1,200 crores in PSLC (Priority Sector Lending Certificate) income in Q1, with management confirming its sustainability for the current and future years. Canara Bank maintains a strong capital position, with CET 1 crossing 12% to stand at 12.29%, an improvement of 24 bps YoY. The bank also made a precautionary additional provisioning of ₹1,200 crores against two large SMA2 accounts totaling ₹5,000 crores, expressing high confidence that these accounts will not slip into NPA.

Canara Bank is heavily investing in digital transformation, allocating ₹1,000 crores annually to technology. Key initiatives include a comprehensive digital lending platform, aiming to convert the entire RAM portfolio to digital by March 2026. Significant investments are also being made in cyber security (₹70 crores) and a revamped credit card platform (₹100 crores). To support these efforts, the bank recruited 120 specialist IT personnel and is onboarding another 60 specialists at a project leadership level.

The bank's CASA ratio temporarily dipped below 30% in Q1, primarily due to withdrawals of institutional deposits influenced by central government policy. However, individual savings bank deposits are consistently growing over 6%. Management expects the CASA ratio to recover to above 30% by the end of FY26, with a target of 32%, anticipating that falling interest rates will encourage customers to retain funds in savings accounts rather than term deposits.

Q1 FY26 saw a significant treasury income of ₹1,993 crores, boosted by OMO (Open Market Operations) support, contributing approximately ₹500 crores. For Q2, the bank plans to encash excess PSLCs, expecting to generate around ₹1,000 crores to compensate for potential lower treasury income. Management also anticipates much better recoveries in Q2 from approved OTS (One Time^📎 Settlement) agreements, including four large proposals worth ₹1,200 crores, which are due for repayment.