Canara Bank Q2 Profit Hits Record ₹5,175 Crore as Treasury Gains Fade

Canara Bank has posted the highest quarterly profit in its history, but the September quarter numbers carry a clear warning for investors in public sector lenders: strong lending growth is doing the heavy lifting while treasury gains, a dependable cushion in earlier years, have all but vanished.

The Bengaluru-headquartered lender reported a standalone net profit of ₹5,175 crore for the second quarter of FY27, up 8.4% from ₹4,774 crore a year earlier and 6.6% higher than the ₹4,856 crore it earned in the June quarter, according to figures reported by Business Standard. Net interest income (NII), the gap between what the bank earns on loans and pays on deposits, rose 20.4% year-on-year to ₹11,005 crore.

Investors welcomed the numbers. Canara Bank shares closed at ₹125.17 on Wednesday, up nearly 4%, the Free Press Journal reported, though the stock remained about 19% lower for the year so far.

Core income up, treasury down

The quarter’s headline profit masks a sharp split between the bank’s lending engine and its bond book. Non-interest income fell 18.2% year-on-year to ₹5,772 crore. Treasury income dropped 68.5% to ₹499 crore from ₹1,583 crore, with profit on sale of investments collapsing 87.4% to ₹153 crore. Business Standard attributed the decline to hardening bond yields, which reduce the value of government securities that banks hold and limit their ability to book trading gains.

Recoveries from written-off accounts, another source of other income that state-run banks have leaned on since the clean-up years, also fell 25% to ₹1,260 crore.

Against that, the core business moved quickly. Global advances grew 19.5% to ₹13.75 lakh crore, while global deposits rose 13.1% to ₹16.97 lakh crore, taking total global business past ₹30 lakh crore. Within domestic lending, which rose 16.95%, retail loans grew 31.6%, vehicle loans 25.5% and housing loans 17.4%. Loans to the retail, agriculture and MSME segments, which the bank tracks as RAM credit, rose 21.03% to ₹8,12,310 crore, according to the bank’s investor presentation as summarised by Investing.com.

Net interest margin improved to 2.55% from 2.52% in the June quarter and 2.50% a year earlier. Pre-provision operating profit rose a more modest 2% to ₹8,758 crore, as operating expenses climbed 5.4% to ₹8,019 crore.

Bad loans fall sharply

The cleanest part of the scorecard was asset quality. Gross non-performing assets fell to ₹18,299 crore from ₹27,040 crore a year ago, taking the gross NPA ratio down to 1.33% from 2.35%. The net NPA ratio eased to 0.30% from 0.54%, and provision coverage rose to 95.34%.

Fresh slippages, however, edged up to ₹1,844 crore from ₹1,781 crore in the previous quarter, a number analysts will watch as retail and vehicle lending grows at a fast clip. The annualised slippage ratio stood at 0.58% and credit cost at 0.47%, both lower than a year earlier. Total provisions and contingencies fell 6.1% year-on-year to ₹3,583 crore, which helped profit grow faster than operating income.

Capital remained comfortable. The capital adequacy ratio under Basel III rose to 17.19% from 16.20%, and the common equity tier-I ratio improved to 12.80% from 12.21%.

Running ahead of its own guidance

For the first half of FY27, Canara Bank has comfortably outpaced the targets it set for the year, according to the guidance table in its investor presentation. Advances growth of 19.46% compares with guidance of 11–12%, and deposit growth of 13.13% is well ahead of the 9–10% target. Return on equity of 18.49% is above the 16.50% goal, and gross NPA at 1.33% is better than the 1.50% the bank had pencilled in.

Management has said it does not plan to raise full-year guidance, according to Investing.com’s summary, and expects margins to hold at around 2.55%. That conservative stance is notable given how far ahead of plan the bank is running.

One soft spot is funding mix. The current account and savings account (CASA) ratio stood at 29.00%, below the bank’s 30–32% target. With loans growing more than 6 percentage points faster than deposits, the bank will need to keep raising relatively costlier term deposits, which could cap margin expansion in the second half.

Why it matters for investors

Canara Bank’s result offers an early read on how public sector banks are coping with a tougher bond market. For much of the past few years, treasury profits padded the bottom line of state-run lenders. With yields rising, that support has thinned, and earnings now depend more squarely on loan growth, margins and credit costs.

On that test, Canara Bank has done well this quarter. NII growth of over 20% is strong for a lender of its size, and the improvement in asset quality has given it room to set aside less money for bad loans. The concern is sustainability: loan growth near 20% is far above the bank’s own guidance, and rapid expansion in retail and vehicle loans tends to reveal its credit quality only after a lag.

There is also a looming provisioning cost. The bank’s presentation flagged a one-time expected credit loss (ECL) provision of ₹12,000–15,000 crore, including ₹2,000–3,000 crore of mark-to-market impact on held-to-maturity securities, as the sector moves to the Reserve Bank of India’s forward-looking ECL regime. The strong provision coverage and capital buffer should help absorb that, but the transition could weigh on reported numbers when it is recognised.

What comes next

The next few weeks will bring results from other large state-run lenders, giving investors a chance to judge whether Canara Bank’s mix of fast loan growth and shrinking treasury income is a sector-wide pattern. Within the bank, the key markers will be deposit mobilisation and the CASA ratio, the trend in fresh slippages from the retail book, and any clarity on how and when the ECL transition charge will be spread.

For now, the September quarter shows a lender with record profit, low bad loans and strong capital. Whether it can keep that momentum without the help of bond gains is the question the market will ask in the quarters ahead.