NEW DELHI: Public sector lender Canara Bank expects its net interest margin (NIM) to remain under pressure in the first half of FY26 due to the impact of falling repo rates on its lending portfolio, while deposit rates remain elevated. However, the bank is optimistic about softening deposit rates by the third quarter, which could support margin stability.
Talking to The New Indian Express, Canara Bank MD and CEO K Satyanarayana Raju said the lender had to pass on the benefits of policy rate cuts quickly to nearly 44% of its loan book. However, it faces a lag in reducing interest rates on existing term deposits due to contractual obligations. "That is the pain point," the He said, adding that retail term deposit rates have yet to reflect the easing trend seen in bulk deposits.
The bank maintained that its NIM guidance for FY26 remains in the 2.71% to 2.73% range, down slightly from the 2.80% it clocked in the previous fiscal. “The softening of deposit rates, particularly in the bulk segment, is already visible, and a similar trend in retail deposits is expected from August onwards,” said Raju.
He acknowledged that in a falling rate regime, banks face headwinds as their cost of funds stays elevated longer than the yields on advances. Conversely, in a rising rate environment, the benefit accrues faster. “FY26 will be a tough year for banks on margin flexibility,” the executive said.
Despite the falling interest rate, Canara Bank does not foresee major challenges in deposit mobilization. “Mobilizing deposits is not an issue for public sector banks, but garnering low-cost deposits remains a challenge,” the executive said.
The bank’s CASA (current account savings account) ratio stands at 31.17%, with a target of 32% in FY26. However, Raju admits that achieving this is difficult given that CASA growth (5–6%) is lagging total deposit growth (12%). Digitization has empowered customers to shift funds into fixed deposits without visiting branches, complicating CASA growth, says the MD and CEO.
Bengaluru-headquartered Canara Bank expects total credit growth of 10–11% in FY26. Within that, retail, agriculture, and MSME (RAM) loans are expected to grow at 14%, with individual segments such as agriculture and MSME growing at around 10–12%. Corporate credit is forecast to grow at 10%.
Raju emphasized that credit growth is tied closely to GDP expansion. “When GDP is expected to grow at 6.25–6.5%, credit growth can be around 1.5–2% higher,” he said.
A pick-up in demand is expected from the third quarter onwards, supported by the RBI’s rate cuts.
In the retail segment, housing and vehicle loans are key focus areas. The bank’s unsecured personal loan book is relatively small—only Rs 20,000 crore out of a Rs 90,000 crore unsecured portfolio—and largely limited to salaried customers and pensioners. Education loans make up Rs 7,000 crore of the unsecured segment.
Canara Bank has the largest gold loan portfolio among Indian banks at Rs 1.81 lakh crore. Growth in this segment has moderated from 30% over the last two years to 19% in FY25, partly due to a higher base and stricter end-use monitoring.