Canara Bank sees NIM floor at 2.5%, confident of absorbing ECL hit without fresh equity

Canara Bank's executive director SK Majumdar has struck a confident tone on the lender's outlook for FY27, saying margins have stabilised, asset quality remains strong, and the bank can absorb upcoming ECL provisioning requirements without needing to raise fresh capital.

Deposit growth numbers were misleading

The headline deposit growth figure of 9.7 percent for Q4 raised eyebrows, but Majumdar was quick to put it in context. The lower number was a quirk of timing — last-minute corporate and government deposits worth around Rs 10,000 crore simply did not arrive before the March 31 closing date. On a sustainable basis, Canara Bank is already running at 11 to 12 percent year-on-year deposit growth. The executive director expressed no doubt that double-digit deposit growth would continue through FY27.

Margins have bottomed out at 2.54%

Despite operating in a falling interest rate environment where half the bank's advances are linked to the repo rate, Canara Bank's NIMs actually improved by nine basis points sequentially to 2.54 percent. The reason is straightforward — while advance yields fell by five basis points, the cost of deposits fell faster, dropping by eight basis points. Majumdar called the current NIM of 2.5 percent highly sustainable and said net interest income growth should hold steady even if a significant improvement is unlikely in the near term.

Operating profit drop was a one-off

The near 26 percent sequential decline in operating profit looked alarming on the surface, but Majumdar pointed to two specific reasons that are unlikely to repeat. The previous quarter had included roughly Rs 1,900 crore from the sale of two subsidiaries, Canara Robeco and Canara HSBC, which naturally boosted that base. Weaker treasury income due to geopolitical uncertainty further dragged the Q4 number. Majumdar said treasury income has already recovered and that additional income from written-off account recoveries and priority sector lending certificates will more than compensate going forward. He expects operating profit to grow substantially in coming quarters.

ECL provisioning: Rs 10,000 crore needed, manageable in 2 years

With the RBI's Expected Credit Loss provisioning guidelines now out, Canara Bank estimates it will need to set aside approximately Rs 10,000 crore in additional provisions. However, Majumdar was relaxed about the timeline and impact. With annual profits running at Rs 19,000 to 20,000 crore, a provision coverage ratio already above 94 percent, and net NPA at just 0.43 percent, the bank believes it can absorb the entire ECL requirement within one to two years without raising additional equity while maintaining a CET1 ratio of around 12 percent. Raising fresh equity remains an option kept open but no decision has been taken.

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MSME risk is real but contained

On asset quality risks, Majumdar identified MSMEs as the segment most exposed to current global uncertainty. However, he said government support measures have provided enough flexibility and time for exporters and small businesses to navigate the stress. He described the impact on bank financials as very muted so far and expects it to remain manageable.

ROA above 1% to be maintained

Canara Bank's return on assets moderated to exactly 1 percent in Q4, largely due to the treasury income slump. Majumdar said this is a temporary dip and expressed confidence that treasury recovery combined with other non-interest income streams will push ROA back above 1 percent on a consistent quarterly basis through FY27.

The overall picture from Canara Bank is one of a lender that has navigated a tough quarter largely due to one-off factors, with its core fundamentals — asset quality, deposit growth, and margins — remaining intact heading into the new financial year.

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