Canara Bank has guided for lower credit growth and net interest margins (NIM) in FY27 after reporting strong loan growth in the previous fiscal. Interim MD & CEO Hardeep Singh Ahluwalia tells Narayanan V that the bank has historically outperformed its guidance and remains focused on higher-yielding retail, agriculture and MSME (RAM) loans, while carefully managing pricing in the corporate book to protect margins. Edited excerpts:
Canara Bank achieved 15.3% credit growth in FY26, but you have guided for 11-12% growth in FY27. Do you see a slowdown in credit demand?
There is a systematic method of arriving at guidance numbers. Whenever we give guidance, we look at GDP projections as well as the trend over the last three years. However, the bank has always had the tradition of surpassing the guidance number. Last year, we gave 13% guidance and comfortably surpassed that.
The credit growth will continue to be driven by retail, agriculture and MSME (RAM), which grew 19% (to ₹7.30 lakh crore) in the March quarter. The spreads are high in the RAM segment. Since my advances are growing over 15%, it gives me an advantage on price negotiation on corporate loans. That is why my NIM is also improving.
You have guided for 2.5%-2.6% NIM in FY27. Are the days of 3% plus NIM over?
Traditionally, our current account and savings account (CASA) deposits have been lower. We are rolling out many products to attract customers in this segment. Since our advances are growing at a healthy pace, we are negotiating margins carefully on the asset side.
Around 50% of our loan book is repo-linked, and the impact of the 25 basis points rate cut was reflected in only a 5 basis points decline in yield on advances, to 8.29% during the quarter. About 41% of our loan book is MCLR-linked advances. While we do not have any specific guidance, our endeavour is to move more towards MCLR-linked advances to improve yields and margins.
Domestic deposits grew only 7.95% against 15% advances growth in Q4. How do you plan to bridge this gap?
Traditionally, our branch network is concentrated in South India. Here, people prefer purchasing gold rather than keeping cash or fixed deposits. So we lose out on that aspect, which is why our CASA ratio is lower. But people here are more comfortable going to branches and availing gold loans whenever they are in difficulty.
While we may not have the same advantage on the liability side, we do have that advantage on the asset side. Having said that, we have introduced different CASA products across customer segments including students, women, salaried individuals, businessmen, trusts and associations.
Our savings bank deposits are increasing at a healthy rate of 11.4%, while retail term deposits are growing at around 10%. We are also opening branches in potential CASA centres, identifying locations using spatial techniques that help us determine high-potential CASA areas.
How do you manage the gold loan portfolio amid volatility in gold prices?
Our gold loan portfolio has grown 35% year-on-year and now stands at ₹2.45 lakh crore. As I mentioned, we have a very strong branch presence in South India, where people prefer gold over deposits. We are also maintaining our loan-to-value (LTV) ratio below 70% so we are able to cushion the volatility in gold prices and also keep the margin with us. We expect our gold loan portfolio to grow 15% this year.
What could be the impact of Expected Credit Loss (ECL) norms on Canara Bank?
ECL provisions will be made once the framework is implemented because it is a forward-looking approach. You have to look ahead and predict the probability of default, exposure at default and the likely loss if the default happens. Our rough estimate suggests that Stage-1 and Stage-3 assets will not have much impact.
Also, our provision coverage ratio is at a healthy 94.2%. The impact will mainly come from Stage-2 assets, where the regulatory floor has been increased from 0.4% to 5%. There, we estimate an additional provision requirement of around ₹2,500 crore.
For Stage-3 assets, it is roughly ₹5,000 crore, and another ₹2,500 crore for non-funded exposures such as letters of credit and bank guarantees. Across all three stages, we expect ECL provisions of around ₹10,000 crore. We are making profits of ₹19,000-20,000 crore annually, and since ECL provisioning can be staggered over four years, we can absorb the entire impact comfortably, even in the first go itself.