Canara Bank Reports Q4 FY26 Net Interest Margin Increase, Eyes Growth in Retail Asset Market Segment

Canara Bank Aims to Increase Exposure to Retail, Agriculture, and Micro, Small, and Medium Enterprises (RAM) Loans

Bengaluru-based PSU lender Canara Bank plans to increase its exposure to the retail, agriculture, and micro, small, and medium enterprises (RAM) loan segment over the next year, particularly in housing and vehicle loans, to improve its margins further. According to Hardeep Singh Ahluwalia, managing director and chief executive officer, the bank aims to increase its RAM portfolio to around 60 percent of its total portfolio, up from 59 percent currently.

Aggressive RAM Growth Drives Sequential Improvement in Net Interest Margin (NIM)

After facing pressure on NIM for much of FY26, Canara Bank reported a 9-basis-point sequential improvement in Q4, which Ahluwalia attributed to aggressive RAM growth. The bank's gold loans also remain an important pillar of its advances book. The bank has signalled confidence in managing the transition to the new Expected Credit Loss (ECL) norms.

Read also: Treasury Yields Experience Largest Increase in Two Weeks Following Release of Labor Market Data

The bank's retail advances have seen the maximum growth in its credit portfolio, driven by a robust pace of growth in its housing loan, vehicle loan, and gold loan portfolios. The bank is planning to increase retail exposure further in FY27, with a target of 60 percent of its portfolio.

Loan Growth and Deposit Growth Guidance

The bank's loan growth guidance for FY27 is 11-12 percent, higher than FY26's 9.5-10.5 percent, while deposit growth remains at 9-10 percent. The bank's guidance is based on GDP assumptions, internal calculations, and historical trends.

Read also: US-Iran Tensions Spark Uptick in Oil Prices Amid Global Market Decline

Gold Loan Book and RBI's New Norms

The bank's gold loan portfolio stands at about Rs 2.45 lakh crore, and it expects growth of over 15 percent in FY27, broadly in line with the pace of the past few years. The bank has a digital platform for users where they can comfortably avail gold loans without hassle. The bank maintains a very healthy loan-to-value (LTV) ratio, which is below 70 percent, keeping the volatility in mind.

Impact of New ECL Norms on Provisions and CET-1 Ratio

Under the new ECL norms, Stage 1 and Stage 3 are broadly manageable because the bank's Special Mention Account (SMA) and non-performing asset (NPA) coverage are already strong. The big impact will be Stage 2, where provisions could rise due to the higher regulatory floor, which has increased from 0.4 percent to 5 percent. The bank may need an additional provision of at least Rs 2,500 crore.

Asset Quality and West Asia Crisis

The bank's asset quality remains controlled, with an annual slippage ratio of just 0.69 percent, and SMA books have declined from Rs 40,000 crore to Rs 33,000 crore despite strong credit growth. The bank can leverage the new ECLGS guidelines from the government to mitigate any potential asset quality impact.

Technology Spending in FY27

The bank is now looking to invest heavily in tech infrastructure, with a focus on cybersecurity, digital banking, and institutional integrations. The bank has allotted about Rs 320 crore to secure next-generation software, and its digital banking app now offers around 350 features.