Canara Bank leans on higher yield retail, agriculture and MSME loans to cushion the impact of interest rate cuts

MD, CEO and Executive Director Hardeep Singh Ahluwalia

With almost half of the loan portfolio linked to the repo rate, MD, CEO and Executive Director Hardeep Singh Ahluwalia says sharper RAM growth, tighter pricing discipline and improved asset quality are key to defending margins in a softer interest rate cycle.

The bank posted a 25.6 per cent year-on-year increase in net profit at ₹5,155 crore for the third quarter of FY26. The bank’s net interest income (NII) rose marginally by 1.1 per cent to ₹9,252 crore, while net interest margin (NIM) for the quarter stood at 2.50 per cent.

Management indicated that margins are expected to stabilize around 2.45-2.50 percent going forward.

Slippages during the quarter were limited to 0.64 per cent, with new slippages totaling ₹1,857 crore, largely in the agriculture and MSME segments.

During the quarter, the bank accelerated growth in lending to retail, agriculture and SMEs, which structurally offer higher spreads. RAM credit grew 18.7 per cent year-on-year to ₹7,04,041 crore during the quarter and now accounts for 59 per cent of total advances, up from 57 per cent a year earlier. The sharper mix tilt is intended to soften net interest margins at a time when repricing on the asset side is happening faster than adjustments on the liability side.

Selective on business loans

While RAM loans have emerged as the main growth driver, the bank stressed that this is not a sign of a decline in corporate lending. About ₹20,000 crore worth of corporate loans have already been approved and are awaiting disbursement, with corporate progress continuing to grow at a measured pace. However, the bank is selective in terms of prices and returns and prioritises profitability over volume growth in major lending.

Canara Bank has also managed to hold its own in terms of deposits despite intense competition within the banking system. The CASA ratio stood at around 30 per cent during the quarter at ₹4,12,359 crore, with savings deposits growing 8.51 per cent YoY and individual savings deposits rising over 10 per cent. Retail term deposits grew by almost 10 percent, largely driven by granular customers, strengthening the stability of the funding profile.

Ahluwalia said balance sheet strength and improving asset quality provide room to recalibrate growth as the interest rate cycle turns. With a provision coverage of more than 94 percent and a sharper focus on mix and pricing, the bank expects to absorb margin pressure in the short term while maintaining profitable growth.

Published on January 30, 2026