Canara Bank shares drop 6% despite strong Q2 profit and expanding loan book

Canara Bank shares dropped as much as 6.5% to ₹117 on Thursday, sliding even after the public sector lender reported a firm set of earnings led by expanding credit demand and healthier balance-sheet metrics.

Standalone net profit for the second quarter of the 2026–27 financial year climbed more than 8% to nearly ₹5,175 crore, compared with ₹4,774 crore in the corresponding period last year. Net interest income, the core difference between interest earned on advances and interest paid on deposits, grew over 20% to ₹11,005 crore from ₹9,141 crore twelve months earlier.

Strong operational momentum

The lender's total business footprint crossed ₹30.72 lakh crore during the quarter, marking a 15.88% expansion year-on-year. Asset quality continued its steady multi-year recovery, with gross non-performing assets dropping to 1.33% and quarterly slippages contained at 0.15%.

Speaking in an interview with The Hindu BusinessLine, Managing Director and Chief Executive Officer Brijesh Kumar Singh said the bank expects to comfortably surpass its 10% to 11% business growth guidance for the fiscal year while guarding profitability.

"Our core business is net interest income," Singh said, noting that underwriting standards remain calibrated with minimal stress. He pointed out that 87% of corporate exposures of ₹50 crore and above carry credit ratings of A or higher, while credit costs are projected to stay below 0.5%.

To fund credit growth in retail, agriculture, and small businesses, the state-run lender is relying on household savings rather than expensive wholesale money. Individual savings deposits grew 11.7% and retail term deposits rose 17.17%. The bank has opened 45 branches out of a planned 250 for the year to anchor this deposit drive.

How brokerages rate the stock

Brokerages took contrasting views of the bank's near-term valuation trajectory following the earnings release.

Motilal Oswal maintained a Buy rating, highlighting healthy loan growth across retail, farm, and MSME portfolios alongside declining operating expenses and provisions. It projected net interest margins to remain stable between 2.5% and 2.6% for the full year, aided by disciplined asset deployment.

JM Financial upgraded the lender to Buy, arguing that the stock trades at inexpensive multiples relative to its improving fundamentals and steady 14% growth in book value over the past year. The firm also observed that potential regulatory shifts regarding bancassurance commissions will have limited bearing on the bank, as insurance contributes only 2.2% of its pre-tax profit.

Morgan Stanley took a more cautious stance, retaining an Underweight rating. While acknowledging that net profit beat expectations on stronger interest income and contained operating costs, it argued that the bank has limited room for an upward valuation re-rating at 0.8 times its estimated September 2027 price-to-book value.

Canara Bank will also need to absorb additional provisions of ₹120 billion to ₹150 billion for the upcoming transition to expected credit loss accounting norms, which analysts estimate could shave 1.0% to 1.2% off its capital adequacy ratio.