Rising government bond yields pose a potential mark-to-market (MTM) provisioning risk for Canara Bank, even as the lender expects strong festive-season demand for housing and vehicle loans, managing director and chief executive officer Brajesh Kumar Singh told Mint.
The bank will assess the impact based on market conditions over the next six months, he said. Higher bond yields push down the market value of existing fixed-rate bonds, potentially requiring banks to recognise losses on investment portfolios and make additional provisions, depending on how the investments are classified and accounted for.
The yield on the 10-year government bond has risen from around 6.75% in June to approximately 7.38%, amid elevated and rising inflation. The RBI’s recent rate increase has added to the pressure on yields, increasing the potential mark-to-market (MTM) risk for banks, Singh said.
The eventual impact would depend on yields prevailing on the relevant measurement date, Singh said. However, the impact would be relatively small compared with Canara Bank’s overall business of around ₹30 trillion.
reported an 8.4% year-on-year rise in net profit to ₹5,175 crore in the September quarter, while net interest income increased 20.39% to ₹11,005 crore. However, treasury income declined 68.48% to ₹499 crore from ₹1,583 crore a year earlier, and profit on the sale of investments fell 87.43% to ₹153 crore, according to bank’s investor presentation. It didn’t quantify the impact of rising government bond yields or attribute the decline in treasury income specifically to bond yields.
Credit growth
The lender expects to sustain and protect margins in the coming quarters, supported by retail lending demand, improving recoveries and calibrated underwriting, he said.
Canara Bank is currently recording year-on-year growth of 17.97% in advances and more than 14% in total business, exceeding its initial guidance for the financial year. The bank has retained its guidance of 11-12% growth in advances and 10-11% in total business for FY27 but is working to outperform these targets, Singh said.
Singh said the bank did not expect margins to shrink in the coming quarters, citing its underwriting standards, low slippages and focus on profitability and operational efficiency.
“Our underwriting standards are good, slippages are less and gross NPAs are very minimal,” he said, adding that the bank was following a calibrated approach to lending.
The bank’s net interest margin (NIM) stood at 2.55% in the September quarter, Singh said. He added that the bank had not only protected its margins but also improved them, supported partly by changes in market yields.
Retail portfolio
On asset quality, fresh slippages remained at 0.15% of advances, unchanged from the previous quarter, Singh said. In absolute terms, slippages increased to ₹1,844 crore in the September quarter from ₹1,781 crore in June.
He attributed the increase to small amounts across different segments rather than stress concentrated in a particular sector.
Canara Bank’s retail portfolio grew 31.61% year-on-year and 3.34% sequentially, Singh said, adding that the lender expected to maintain its growth momentum.
Housing and vehicle loans are expected to benefit from stronger seasonal demand during the festive period. The bank is also competing with non-banking financial companies () in vehicle finance, where lenders are seeking to capture a larger share of the market.
Canara Bank has introduced promotional measures, including waivers of processing charges, to attract borrowers. Singh said the bank’s interest rates were competitive and that it expected to continue growing in the segment.
The lender had recorded vehicle-loan growth of more than 25% in the corresponding period last year, he said.
Canara Bank has mobilised around $5.8 billion through foreign currency non-resident (FCNR(B)) deposits, translating to approximately ₹55,000 crore, Singh said. He described the deposits as a stable source of funding, with tenures of three to five years, and said their cost was around 100 basis points below prevailing market benchmarks.
The deposits do not attract cash reserve ratio (CRR) or statutory liquidity ratio (SLR) requirements, providing an additional cost advantage, Singh said. The bank also expects to earn returns from deploying the funds, making the deposits beneficial rather than a cost burden.
On the proposed merchant discount rate (MDR) framework for Unified Payments Interface (UPI) transactions, Singh said he did not expect transaction volumes to decline significantly.
He cited the large share of transactions below ₹2,000, which remain free under the framework, as a factor supporting continued adoption. Certain categories, including fuel, insurance and utility payments, have separate fixed charges, while capital-market transactions carry a rate of 0.02%, he said.
Singh said the bank continued to see benefits from digital payments, although he did not provide a specific estimate of the impact on transaction volumes.
The lender will continue to focus on credit growth, asset quality and profitability while seeking to outperform its annual guidance, he said.