Canara Bank reported a net profit of Rs 4,774 crore in Q2 FY26, up 19% year-on-year, driven by improved asset quality and growth in advances. Yet the bank’s net interest income fell by 2% and net interest margin fell to 2.52%. Managing Director and CEO of the bank K Satyanarayana Raju in an interaction with Dipak Mondal of New Indian Express explains these incongruities. Excerpts:
Your Q2 profit has gone up by around 18%, but your net interest income has contracted by 2%, and margins have fallen. How would you sum up your Q2 performance?
The Q2 performance is broadly at the expected level. You are right — there’s a 2% reduction in net interest income. This is mainly because when the regulator reduced the repo rate by 100 basis points, nearly 46% of our entire portfolio, which is linked to the repo rate, had to be repriced immediately. However, our term deposits up to June 8 were garnered at higher interest rates — mostly for one year or 444 days — so those remain fixed. That creates a natural lag when rates fall; banks have to absorb some burden for three to four quarters. That said, if you look quarter-on-quarter, our net interest income has actually improved by Rs132 crore between June and September, and our cost of deposits has come down by 9 basis points.
Your net profit is up 18%. What’s driving this consistent growth?
We’ve been growing steadily every quarter for the past 10–12 quarters. That’s because of a clear, consistent strategy that we follow every quarter. Our surplus in the priority sector also helps. In fact, while many banks face a shortfall, we have a large surplus, which we monetize by selling PSLCs every quarter.
When do you expect deposit rates to be fully repriced?
If there are no further rate cuts, visible improvement should start from the second half of the fourth quarter — around February next year. Currently, less than 20% of deposits have been repriced because 90% of our term deposits are for one year or 444 days.
Retail and vehicle loans have grown sharply — around 30% and 25%, respectively. What’s driving this?
The growth in vehicle loans was definitely helped by the GST rate cut and the festive season. There was nearly 100% growth compared to the same period last year. Many customers were waiting for the GST rate cut, and once it came, the demand surged. The momentum will continue this quarter too.
What about personal loans and credit cards?
Those are not focus areas for us. Our credit card outstanding is about Rs 2,000 crore and personal loans around Rs12,000 crore. We lend only to customers drawing salary or pension through us — not to new-to-bank customers. That’s why our NPAs are just 0.35% in this segment.
Your deposit and credit growth are both around 13.5% in the first half, yet your full-year guidance remains 9–11%. Why so conservative?
We always give annual guidance and never revise it mid-year. Historically, we’ve always outperformed our guidance comfortably. So, while it may end up around 12–13%, we’ll stick to what we announced.
Your NIM guidance was 2.8%, but it’s now around 2.52%. Can you reach that level?
Realistically, no. When we gave the 2.8% guidance in May, we didn’t anticipate the 50 bps rate cut in June. That hit us earlier than expected, so maintaining 2.75–2.8% this year will be difficult.
Your NIM is under 3%, which is lower than some peers. How do you respond to that?
What matters more — NIM or profit? Our balance sheet size is smaller than PNB and Bank of Baroda, yet our operating profit is second only to SBI among PSBs. That’s due to operational efficiency. We have the lowest CASA among peers, so expecting a 3.5% NIM isn’t realistic. Instead, we focus on efficiency — and that’s delivering results.
What do you mean by operational efficiency?
About 85% of our business is branch-generated; only 15–16% comes via builders, DSAs or dealers. That saves huge commission costs. Our cost-to-income ratio is among the lowest in the sector — around 30%. Our operating expenses are also among the lowest compared to peers.
Corporate loan growth is about 9–10%, much lower than retail. Why so?
That’s intentional. Our three-year strategy aims for a 60:40 mix between retail-agriculture-MSME (RAM) and corporate. We are already at about 58% RAM and 42% corporate. We are selective with corporates, but our fast decision-making and low turnaround time help us attract quality clients.
RBI has now allowed banks to fund mergers and acquisitions. How do you view this?
It’s a welcome move. Earlier, even AAA-rated companies had to approach foreign banks due to restrictions. This gives us an opportunity to expand our corporate book with high-quality clients and better yields.
