Canara Bank plans to exceed its FY27 loan growth and foreign currency deposit targets amid strong credit demand. While higher funding costs may impact net interest margins, the bank is shifting toward retail deposits to protect profitability. Asset quality has shown steady improvement, with gross non-performing assets dropping to 1.57% in the recent quarter.
Detailed Coverage
Canara Bank is signaling a positive outlook for the current fiscal year, as it expects to surpass its original targets for loan growth and Foreign Currency Non-Resident (FCNR) deposits. The bank's management recently highlighted that sustained credit demand is driving this optimism, despite a challenging interest rate environment. To secure stable funding, the bank has successfully raised $775 million in FCNR deposits so far and is on track to cross the $1 billion milestone by the end of this month, as part of a larger plan to secure up to $2.5 billion in foreign inflows.
Impact on Profitability and Margins
The move to prioritize foreign currency deposits comes with a trade-off. Management estimates that these deposits could exert pressure on the bank's net interest margin—the difference between interest earned on loans and interest paid on deposits—by 50 to 60 basis points. To balance this, the bank is actively working to replace high-cost bulk deposits with more affordable retail term deposits. This strategy, combined with an improved credit-deposit ratio that has moved from 75% to 80%, is designed to support the bank's earnings stability. The net interest income has already crossed the ₹10,000 crore mark, reflecting the scale of the bank's current operations.
Asset Quality and Loan Book Health
On the asset quality front, Canara Bank continues to show improvement. The gross non-performing asset ratio fell to 1.57% in the April-June quarter, down from 1.84% previously, as the bank works toward a target of 1.50% by March 2027. Net non-performing assets have also declined to 0.36%. New bad loans, or slippages, remained low at 0.60%, staying comfortably below the bank's internal guidance of 0.80%. While some market participants had raised questions regarding an uptick in Special Mention Accounts—loans that are showing early signs of stress—management clarified that these were primarily isolated to specific state-guaranteed accounts that have since returned to regular status. The bank does not currently expect significant stress to emerge in its overall loan portfolio.
Investors looking ahead should focus on the bank's ability to maintain its net interest margin range of 2.5% to 2.6% as it manages these funding costs. Other key areas to track include the progress of retail deposit mobilization and the bank's ongoing efforts to meet its annual recovery target of ₹11,000 crore, which will be essential for keeping non-performing assets at the targeted levels.