Canara Bank shares fell as much as 6.5% to the day's low of ₹117 on the BSE on Thursday despite reporting Q2FY27 earnings, making it the major loser in the Nifty PSU Bank index. The decline came even as the lender reported a standalone net profit of nearly ₹5,175 crore for the second quarter of FY27, up more than 8% from ₹4,774 crore in the year-ago period. This sharp decline contrasts sharply with the 3% jump to ₹124 following the strong Q2 results announcement on October 14. The positive initial market reaction to the bank's 8.4% year-on-year rise in net profit was short-lived, with investors now showing caution about the bank's performance amid broader market volatility.
Canara Bank has a robust corporate loan pipeline totaling ₹47,000 crore, reflecting steady credit demand from India Inc amid rising bond yields that made market borrowing costlier. As per The Economic Times, managing director Brajesh Kumar Singh revealed that the bank has a sanctioned corporate loans pool of ₹30,000 crore and proposals worth ₹17,000 crore which are being reviewed. This strong pipeline, combined with festive demand from individuals, is expected to keep the bank's advance growth above 19% year-on-year for the third quarter. The state-owned lender reported 19.5% year-on-year credit growth for the second quarter to ₹13.75 lakh crore, with the credit-deposit growth gap widening to 640 basis points from 250 basis points seen three months back. Singh indicated that the bank is taking efforts to grow deposits in excess of 13% to narrow this gap.
Managing Director and CEO Rajesh Kumar Singh disclosed that the bank's estimated one-time ECL provision could range from ₹12,000 crore to ₹15,000 crore, up by around ₹3,000 crore from its earlier estimate. He attributed the increase partly to higher bond yields and the additional mark-to-market provisioning requirement. The Reserve Bank of India has allowed a transition period of up to five years, however, management indicated that the bank might recognise the provision over about two years, depending on market conditions and the movement in bond yields. Singh said there was currently no plan to pass the additional cost on to customers, acknowledging that return on assets could fall below 1%, although the bank expects higher profits and improving asset quality to help absorb the impact. SBI Securities analyst Sunny Agrawal noted that while business growth was strong, the ECL transition impact has been revised upward to ₹12,000-₹15,000 crore from ₹10,000-₹12,000 crore, which could weigh on credit costs.
The bank demonstrated robust financial performance with net interest income (NII) increasing more than 20% year-on-year to ₹11,005 crore in Q2 FY27, compared with ₹9,141 crore in the corresponding quarter last year. Total income rose 6% year-on-year to ₹40,931 crore in Q2 from ₹38,598 crore in the same period last year, with interest income surging to ₹35,159 crore from ₹31,544 crore on a year-on-year basis. Operating profit grew marginally to ₹8,758 crore compared to ₹8,588 crore in the corresponding quarter of the previous fiscal year. The net interest margin (NIM) improved to 2.6% for the quarter from 2.5% in the preceding quarter, while non-interest income declined 18% to ₹5,772 crore due to a 68.5% drop in treasury income to ₹499 crore from ₹1,583 crore a year ago, as bond yields hardened. The bank reported a loss of around ₹1,300 crore on its available-for-sale investment portfolio during the quarter, which was adjusted against the AFS reserve.
Asset quality showed significant improvement during the quarter. Gross non-performing assets (GNPA) ratio improved to 1.33% at the end of September from 1.57% three months back and 2.35% a year ago. The net NPA ratio fell to 0.30% from 0.36% quarter-on-quarter and 0.54% year earlier. Provisions and contingencies declined 28.2% year-on-year to ₹1,782 crore from ₹2,354 crore in the corresponding quarter last year. The provision coverage ratio improved to 95.34% from 94.76% in June 2026 and 93.59% year ago. Fresh slippages during the quarter stood at ₹1,844 crore against ₹1,781 crore in the previous quarter, while the annualised slippage ratio stood at 0.58%, down 18 basis points year-on-year. The provision for bad loans declined to ₹1,339 crore as against ₹1,504 crore in the second quarter of the last financial year. The lender's asset quality improved with lower NPAs across asset classes.
Despite the market decline, brokerages have shared positive commentary on Canara Bank. Motilal Oswal retained its 'Buy' rating with a target price of ₹160, expecting the bank to deliver FY27 RoA and RoE of 1.06% and 18.9% respectively. The lender's Net Interest Margin (NIM) is expected to be range-bound at 2.5-2.6% for FY27 aided by rate hikes, with loan growth being healthy and broad-based. The bank will need to make additional provisions of ₹12,000-₹15,000 crore for ECL transition with an estimated impact of 1.0-1.2% on the Capital to Risk-Weighted Assets Ratio (CRAR). MOFSL analysts said the lender delivered a steady quarter, supported by improved margins, lower provisions and operating expenses, and continued improvement in asset quality. The bank retained its loan growth guidance of 11-12% and expects return on assets (RoA) to exceed 1% in FY27. JM Financial has upgraded the stock to Buy and raised the target price of ₹150 (20% upside), noting that the company offers good growth momentum, steady margins and improving asset quality, and is well-placed among peers on the IRDAI paper's impact on insurance fee income.
Canara Bank exceeded regulatory targets for priority-sector lending, with such credit accounting for 44.99% of adjusted net bank credit, against the mandated 40%. Agricultural credit stood at 20.61%, above the 18% target. The bank operated 10,146 branches and 10,764 ATMs and recyclers as of September 30, including four overseas branches in London, New York, Dubai and GIFT City. The capital adequacy ratio under Basel III stood at 17.19% at the end of September 2026, compared with 16.20% a year earlier, while the common equity tier-I ratio improved to 12.80% from 12.21%.
