The March quarter witnessed unprecedented pressure on public sector banks' treasury operations, with 12 listed PSU lenders reporting a 22% drop in other income - the steepest decline in 15 quarters. According to Mint analysis of 36 listed banks, total income growth for PSU banks slipped to just 0.4%, while net profit rose only 7% - the slowest growth in nine quarters. This contrasts sharply with private banks, where about 24 private lenders reported nearly 18% profit growth - the strongest since Q1FY25. The yield on the 10-year benchmark bond rose nearly 30 basis points after the West Asia conflict erupted on February 28, climbing to 7% levels seen when the RBI began its rate-cut cycle in February 2025. Analysts warn that treasury losses could deepen in the June quarter, particularly for PSU banks, as elevated oil prices and sticky inflation expectations keep global yields elevated.
State-run lender Canara Bank reported a 10% decline in net profit to ₹4,506 crore for the March quarter, compared to ₹5,003 crore in the same quarter last year. According to The Economic Times, the profit decline was primarily attributed to treasury losses triggered by rising sovereign bond yields, which accelerated after hostilities began in West Asia. Interim managing director and CEO Hardeep Singh Ahluwalia explained that the bank faced an ₹800 crore mark-to-market loss due to adverse movements in bond yields and equity markets. However, he expressed optimism that once geopolitical tensions ease and yields cool down, the MTM loss will translate into profit. The bank's treasury operations faced significant pressure from the spike in sovereign bond yields, marking a notable shift from the previous quarter's performance.
State-run lender Canara Bank has implemented a 5 basis points increase in its Marginal Cost of Funds Based Lending Rate (MCLR) effective from May 12, 2026, as reported by Mint. The rate hike affects all floating-interest rate loans including car loans, home loans, and personal loans, with the one-year MCLR increasing from 8.70% to 8.75%. According to Mint, this revision directly impacts borrowers' equated monthly installment (EMI) payments, as most retail loans are linked to the one-year MCLR. The bank's MCLR structure shows overnight rate at 7.85% to 7.90%, 1 month at 7.90% to 7.95%, 3 months at 8.15% to 8.20%, 6 months at 8.50% to 8.55%, 2 years at 8.95% to 9.00%, and 3 years at 9.00% to 9.05%. While interest rates for savings accounts, fixed deposits, and fixed-interest loans remain unchanged, borrowers with floating-rate loans will see increased EMIs from the next reset period.
Despite quarterly challenges, Canara Bank demonstrated strong core income performance with annual net interest income growing 6% over FY25. As reported by The Economic Times, the bank is now prioritizing core income to maintain its net interest margins at the current level of 2.51% for FY26, with guidance to keep it in the 2.5-2.6% range. The bank is actively rationalizing deposit costs by shedding bulk deposits, which are costlier than retail deposits. Out of ₹10.08 lakh crore in term deposits, ₹4.20 lakh crore consists of bulk and certificate of deposits. The bank's main focus remains on the RAM (retail, agriculture and MSME) sector where spreads are high, with advances growth expected at 11-12% this year while deposit growth is projected at 9-10%. Ahluwalia emphasized that the bank is trying to boost retail deposits including current and savings accounts through field force initiatives.
The bank's asset quality showed significant improvement with Gross NPA ratio declining to 1.84% from 2.08% in the December quarter, representing an 110 basis points improvement from 2.94% a year ago. According to The Economic Times, Net NPA ratio also improved to 0.43% from 0.45% sequentially. In absolute terms, Gross NPAs declined by over ₹2,000 crore to ₹22,740 crore from ₹24,832 crore in December, while Net NPAs remained relatively stable at ₹5,209 crore from ₹5,322 crore last quarter. The bank maintains a slippage ratio of 0.69%, which is among the best in the industry. Despite writing off nearly ₹7,000 crore in the last two quarters, the bank has a write-off pool of ₹67,000 crore and expects to recover ₹6,500-6,800 crore this year. Ahluwalia noted that the bank has not come across any war-related stress in any borrower segment and has identified accounts where additional advances of ₹18,000-20,000 crore will be provided under the emergency credit line guarantee scheme.
Despite the quarterly challenges, Canara Bank demonstrated strong full-year performance with net profit increasing 12.7% to ₹19,187 crore for fiscal year 2026, compared with ₹17,027 crore in the preceding fiscal year. As reported by The Economic Times, the bank's asset quality improved with a drop in provisions during the quarter. The bank's credit-deposit ratio stands at 78%, which is lower than the industry average of 82%, addressing concerns about the gap in credit-deposit growth. However, shares of Canara Bank are trading 2.3% lower at ₹131.2 after the results announcement, as reported by CNBC TV18. The stock has declined 15% so far this year, reflecting investor concerns about the profit decline despite improved asset quality metrics and the bank's strong full-year performance. Analysts warn that PSU banks could face sharper pressure in the June quarter if elevated oil prices keep bond yields high, with potential spillover effects on credit demand, margins, and eventually asset quality.
