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Canara Bank reported a strong Q2 FY25 with net profit crossing ₹4,014 crore for the first time, up 11.31% YoY. Global business grew 9.42% to ₹23.59 lakh crore, driven by RAM sector growth of 11.54%. Asset quality improved sharply: gross NPA fell to 3.73% (down 103bps YoY) and net NPA to 0.99% (below 1% for the first time). PCR reached a record 90.89%. NIM remained resilient at 2.88% despite industry pressure, aided by shedding low-yielding advances and a new gold loan product. Management guided for ~11% credit growth in FY25, with RAM focus. Key risks include elevated SMA-2 from a steel exposure (RINL) and potential margin compression if deposit costs rise further.
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Guidance to track
- Management expects full-year credit growth of around 11%, driven by 3.5-4% quarterly growth in H2, despite shedding low-yielding advances.
- Credit cost guidance of 1.10% is expected to be undershot; management sees it below 1% for the full year.
- RAM (Retail, Agriculture, MSME) credit is expected to grow faster than corporate, with retail growing 13-14% and MSME 9-10%.
- Gold loan portfolio is expected to grow 16-17% this year, driven by a new digitized product for metro cities.
Risks flagged
- A central government steel exposure (RINL) contributed to SMA-2 spike; resolution is ongoing but could slip into NPA if not resolved.
- CASA ratio at 31% keeps cost of deposits higher than peers; NIM may struggle to cross 3% in near term.
- Another large SMA-2 account (~₹3,000 crore) with state government guarantee; though currently moved to SMA-1, it remains a risk.
- Co-lending book is only ₹320 crore; management is cautious on underwriting standards, limiting growth in this segment.
Key quotes
- Our net profit has increased at 11.31% year on year, and first time it has crossed a quarterly net profit of 4,000 crore, stood at 4,014 crore.
- Our gross NPA has come down below 4%. That is, June quarter, it was 4.14%. Now it has come down to 3.73%, with a year-on-year decline of 103 basis points.
- Under the present conditions of tough, high rate of interest for deposits, the cost of deposits. Controlling the cost of deposit is little tough for the bankers. Under such circumstances, expecting a crossing of the NIM for 3% in the near quarters, one, two quarters, may. It may not be possible.
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