Recommendation from Banking Sector

This column gives you scrip chosen by the research team during the fortnight that is fundamentally strong and expected to give good capital appreciation over a time period of 1 year.[EasyDNNnews:PaidContentStart]

Canara Bank : STRENGTHENING FUNDAMENTALS, UNLOCKING VALUE

HERE IS WHY
✓ StrongBalance Sheet Repair
✓ Robust Credit Growth
✓ Sector Tailwinds

I ndia’s banking sector stands as a pillar of the nation’s economic progress, playing a vital role in mobilising capital, expanding credit access and driving financial inclusion. In this context we recommend Canara Bank as our Choice Scrip. Canara Bank is one of India’s leading public sector banks, with a legacy spanning over a century. Established in 1906, the bank has evolved into a full-service commercial institution with a strong presence across retail, agriculture, MSME, corporate and international banking. The bank has undergone a meaningful transformation over the past few years, particularly after the merger with Syndicate Bank in 2020, which enhanced scale, geographic reach and customer base. Since then, management has focused on balance sheet clean-up, strengthening risk management practices and improving operational efficiency.

NII for Q2FY26 stood at around ₹9,141 crore, remaining broadly stable on a sequential basis and reflecting moderate YoY growth. Total income stands at ₹38,598 crore, increased by about 11 per cent YoY and 1.41 per cent QoQ. Net Profit for the quarter stood at ₹4,774 crore, registering a strong 18.93 per cent YoY growth while on a QoQ basis net profit growth was moderate reflecting normalisation after a strong Q1FY26 performance. Gross NPAs declined to 2.35 per cent, marking a sharp 138 bps YoY improvement while Net NPAs moderated further to 0.54 per cent, down 45 bps YoY. Provisioning coverage remained strong at 93.59 per cent, improving by 270 bps YoY. Slippage ratio declined to 0.76 per cent, down 24 bps YoY underscoring improving credit discipline across segments. Credit cost for the quarter stood at 0.68 per cent lower by 29 bps YoY.

The bank’s strategic focus on RAM lending continues to yield results. RAM credit grew 16.94 per cent YoY to ₹6.71 lakh crore. The bank’s loan portfolio is well diversified, with RAM segments accounting for 58 per cent of total advances, while corporate and other segments constitute remaining 42 per cent. The bank delivered strong business growth in Q2FY26, driven by momentum across granular lending segments. Global business grew 13.55 per cent YoY to ₹26.79 lakh crore. Return ratios remained healthy. RoA improved to 1.12 per cent, up 7 bps YoY; while NIM moderated to 2.52 per cent in September 2025, down from 2.88 per cent in September 2024, primarily due to rising deposit costs. However, margin compression appears to be stabilising. Improving asset mix, repricing of loans, and operating leverage are expected to support margins going forward.

Looking ahead, Canara Bank is well positioned to benefit from multiple structural and cyclical tailwinds. Continued recovery in corporate capex, strong retail credit demand, governmentled infrastructure spending, and resilient MSME activity are expected to drive steady loan growth. The bank’s improving asset quality, high provision coverage, and disciplined risk management provide comfort amid a still evolving macro environment. Further, strong internal capital generation, healthy operating cash flows, and stable deposit growth strengthen balance sheet flexibility. With GNPA and NNPA levels now well under control, incremental profitability is likely to be driven more by growth and operating efficiency rather than asset quality recovery alone. The bank also offers a healthy dividend yield of 2.6 per cent, enhancing total return potential. From a valuation perspective, banks are best assessed on a price-to-book basis, and Canara Bank’s P/B of around 1.21x, supported by a healthy ROE of nearly 18 per cent, suggests that valuations remain reasonable despite the recent stock price re-rating, offering a balanced risk-reward for long-term investors. Considering all the factors, we recommend BUY.

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