Canara Bank expects GST reforms to give credit growth a leg-up in H2

Canara Bank expects credit momentum to continue in H2 of FY26, supported by GST rate cuts, robust rural lending, and higher retail demand even as it works to maintain profitability and asset quality

Public sector lender Canara Bank is betting on strong credit growth, driven by GST rate cuts and lending to rural infrastructure in the second half of the financial year, even as it continues to strengthen its asset quality in agriculture loans and maintain profitability momentum, said K Satyanarayana Raju during an interaction with Business Standard.

 

Canara Bank’s net profit grew by nearly 19 per cent year-on-year to ₹4,774 crore during the July–September period.

 

With higher consumer spending and greater traction in the retail, agriculture and MSME (RAM) segments, Canara Bank expects credit growth to surpass its guidance of 11 per cent in FY26.

 

“Whatever we have shown in H1 will continue in H2 also, especially on the credit side,” Raju said. In Q2FY26, the bank’s credit grew around 13 per cent year-on-year. However, deposit growth in H2 may moderate slightly between 10–11 per cent.

 

How does Canara Bank view income growth and margins?

 

On income composition, the Bengaluru-based bank expects both interest and non-interest income to remain supportive. “Our non-interest income has been growing at 8–12 per cent consistently for the last three years, and this year too it will continue at the same level,” he said.

 

Despite some near-term impact on the cost of deposits following recent rate cuts, the bank expects net interest margins (NIM) to stabilise by the fourth quarter of the current financial year. The bank’s NIM was 2.52 per cent in Q2, a decline of 3 basis points (bps) quarter-on-quarter and 34 bps year-on-year.

 

Raju attributed the slower pace of fee-based income growth to customer-centric concessions. “We haven’t increased any service charges for the past three years. The only way to improve fee income is through higher transaction volumes,” he said.

 

What’s the outlook for lending mix and corporate credit?

 

On the lending mix, Canara Bank aims to maintain a 60:40 composition between RAM and corporate segments.

 

The bank currently has a corporate credit pipeline of about ₹50,000 crore. The corporate book grew around 10 per cent this quarter.

 

How is Canara Bank preparing for the ECL framework?

 

On the new Expected Credit Loss (ECL) framework, the management indicated that the provisioning impact will be “minuscule” as Canara Bank has already begun creating additional buffers. “We are well prepared and have been providing additional standard asset provisions for the past few quarters,” Raju said. He added that around ₹380 crore of provisions have already been made against standard assets.

 

Will the DPDP Act impact costs for banks?

 

On the implementation of the Digital Personal Data Protection (DPDP) Act, the bank foresees minimal cost impact. “Public sector banks are already maintaining in-house data storage within the country. The Act will only enhance available infrastructure,” Raju said.

 

What changes are expected under the IBA proposal?

 

Raju said that the Indian Banks’ Association’s (IBA) proposal to exempt low-value transactions below ₹100 from mandatory SMS alerts would help banks reduce operational costs, citing the availability of cheaper digital alternatives such as app notifications and emails.