Canara Bank Q3 FY2025 Concall Summary

Key Takeaways

• Guidance broadly on track, deposit cost the pinch point: 9 of 13 March 2025 parameters already met within 9 months, but a market-wide rate war forced the bank to lean on excess SLR rather than chase expensive term deposits, constraining deposit growth to 8.4% and pulling business growth to 9.3% against a 10% target.
• Asset re-pricing is working, liability re-pricing is not: Corporate portfolio yield has been lifted from 7.1–7.2% to 8.5% through re-merging and re-jigging exposures, while MCLR and RLLR have stayed flat for two years. The only yield headwind is the cost of deposits.
• Recoveries are running ahead of slippages, and management expects that to hold: December quarter cash recoveries of ₹3,100 crores exceeded slippages, and the bank guides for slippages below ₹2,400 crores with recoveries above ₹3,000 crores in the March quarter, plus another ₹2,000 crores from written-off accounts.
• Subsidiary monetisation is now a FY26 event: All regulatory permissions are in place for Canara Robeco and Canara HSBC Insurance IPOs; merchant bankers are appointed and boards are monitoring progress. Can Fin Homes exit waits on a four-digit share price and a 1–2 year operational clean-up.
• What to watch next quarter: Whether the 2–3 year and 3–5 year deposit buckets (₹8,800 crores garnered in one month) can restore the 10 bps of LCR lost to new guidelines, and whether the remaining 5% HTM securities sale provides the expected treasury tailwind.

Deposit & Liquidity Management

• Deposit growth sacrificed to protect margins: Rather than join the market rate war for term deposits, the bank pledged ₹40,000–45,000 crores of excess SLR through the RBI window at ~6.5%, a cheaper alternative that supported the bottom line but left reported deposit growth at 8.4%.
• CASA under structural pressure: Even with 23 lakh new customers and ₹17,200 crores of incremental savings deposits, customers are shifting surplus into term deposits and mutual funds, a behaviour management calls a direct consequence of matured payment systems.
• Longer-tenure deposits deployed as an LCR fix: Two new buckets (2–3 years at 7.3%, 3–5 years at 7.4%) were introduced in early December and have already garnered over ₹8,800 crores, aimed at recapturing the 10 bps LCR impact from new guidelines effective April 1.
• LCR declined by design, not distress: The drop from 130% to 123% reflects a deliberate shift of cash balances into advances; management has room above its 105% internal floor and does not plan to reverse the move.
• CD ratio is a hard ceiling at 78%: Global CD ratio sits at 76.5% and management states it will not cross 78% in normal conditions, projecting 10.5–11% credit growth will keep it within that bound for March.

K Satyanarayana Raju: "Since in the market the rate of interest war is going on, it has become a costly affair. That is why last quarter when we have an 8% of excess SLR, instead of garnering the high cost term deposits, we depended on a window available with the RBI by pledging our excess SLR and raised it around 40,000-45,000 crores."

Asset Quality & Recoveries

• Recoveries outpaced slippages in Q3: Total recoveries plus upgradation reached ~₹3,600 crores, with cash recovery of ₹3,100 crores (₹653 crores from NCLT, the rest from other modes).
• March quarter guidance implies continued net recovery: Management expects slippages below ₹2,400 crores, recoveries above ₹3,000 crores, and an additional ₹2,000 crores from technical written-off accounts.
• Written-off account recoveries have a visible tail: The bank expects ~₹2,000–2,100 crores per quarter from this pool for the next 1–1.5 years, a trend management describes as sustainable over that window but declines to predict beyond it.
• Two large SMA 2 accounts resolved: The Steel Authority and Telangana state government exposures that were in SMA 2 as of September have moved out of even SMA 0 as of December 31.
• NARCL pipeline could add ₹500–600 crores: Two accounts are under consideration; if completed, the benefit would be cash recovery of 15% with the remaining 85% in security receipts, though provisioning cannot be reversed even with the Central Government guarantee.
• MSME underwriting tightened proactively: All MSME products were revisited two years ago and processing was centralised across 177 regional offices, resulting in controlled slippages and gradually declining NPAs in the segment.

Margin & Income Drivers

• Yield on advances inched up 2 bps QoQ to 8.79%: The improvement is driven entirely by re-jigging low-yielding corporate exposures, not by benchmark rate moves, since MCLR and RLLR have been unchanged for two years.
• Corporate yield transformation is material: A ₹4 lakh crore corporate portfolio that yielded 7.1–7.2% one year ago now touches 8.5%, achieved through re-merging and re-jigging exposures.
• Fee income grew 23.31% YoY: Centralisation of non-fund based business and cash management and collection centres created in H2 last year contributed ~₹100 crores.
• Treasury income has a second leg coming: The bank sold only part of the permitted 5% HTM securities in Q3, booking ~₹300 crores; the remaining balance can be sold in the current quarter.
• Penal interest reclassification shifted ~₹150–160 crores between line items: New RBI guidelines moved penal interest from interest income to other charges, reducing interest income and increasing miscellaneous receipts with no net P&L impact.
• Other interest income has bottomed: Management states no further decline is expected from this line.

K Satyanarayana Raju: "one year back, our corporate portfolio of 4 lakh crore used to give at 7.1 to 7.20. That was the yield, average yield. But now we are successfully, by re-merging, re-jigging that the exposures and all, now we are almost touching 8.5% in the corporate yield."

Loan Book & Segment Strategy

• Credit growth guidance raised to 10.5%: Already at 10.45%, management expects to easily achieve 10.5%, with MSME growth confidently projected to touch double digits this year.
• Gold loan growth is deliberate and compliance-tested: Retail gold loans grew ~15% (₹28,000 crores to ₹30,000 crores), driven by a new metro product structured as a secured personal loan without end-use documentation. Management states LTV is maintained throughout the loan, all products are EMI-based with no bullet payments, and an RBI audit has concluded with no adverse comments on the agriculture gold loan book.
• Unsecured lending is deliberately narrow: The ₹15,500 crore book is restricted to salaried and pensioner customers who draw salary through the bank; there are no pre-approved loans and no non-salaried clean loans. NPAs are below 1%, representing 6–7% of retail.
• MFI and portfolio buyouts are negligible: MFI exposure has been cut from ~₹700 crores to ₹300 crores with a maximum cap of ₹40 crores; portfolio buyouts total only ₹1,600 crores; co-lending is below ₹1,000 crores. The bank is focusing on branch-generated loans.
• Renewable energy exposure is building: Current exposure stands at ~₹6,500 crores with sanctions of ~₹15,000 crores, disclosed after initial deflection by management.

K Satyanarayana Raju: "We don't lend too much to, we don't lend too aggressively in anywhere and we are not active in portfolio buyout of any portfolio."

Subsidiary Monetisation & Capital

• Canara Robeco and Canara HSBC Insurance IPOs are a FY26 event: All regulatory permissions are obtained; boards have created sub-committees for close monitoring; merchant bankers have been appointed. Management expects both companies to come to market in the next financial year.
• Can Fin Homes exit is gated on price and operational clean-up: Management has initiated changes at the top level and in functioning, wants to wait 1–2 years for results to show real value, and will consider exit only when the share price crosses four digits. A board-level strategy meeting is scheduled for March or April.
• IRRBB guidelines pose no capital threat: The impact of interest rate change is below 15% of Tier 1 capital, so no additional capital is required under Pillar 2.

K Satyanarayana Raju: "We want to wait for that one or two years when it results are coming out the real value will come out. When the real value comes out, then we may think about that this, whether it has to be strategic sale or whatever it may be."

Operating Expenditure & Expansion

• OpEx is rising on IT and branch investment: Heavy IT investment over the last three years is now converting to service charges and ATS, while aggressive branch expansion (211 last year, 250 this year) is adding to costs.
• Branch expansion targets North and East India: The plan is to open 250–300 new branches every year for 2–3 years, focusing on regions where CASA potential is higher.
• Annual expense growth guided at 6–7%: Cost-to-income ratio is expected to continue around 47–48%.
• Canara Crest targets HNI retention: Launched in January 2025, the programme makes all 10,000 branches the customer's home branch and converts Branch Managers into Relationship Managers, aiming to stem CASA attrition among high-value customers.

Guidance & Commitments

Key Metrics