Canara Bank expects business momentum to pick up in the second half of FY26 following a sluggish Q1, the MD and CEO K Satyanarayana Raju said on July 25. Speaking to NDTV Profit, Raju cited improving returns and stable Return on Assets (ROA) as key factors supporting the bank’s outlook for stronger performance in the latter part of FY26.When asked about ROA outlook post Q1, he said, "Hopefully we will maintain 1.14% ROA (of Q1) going forward. It's gradually picking up and the second half of the financial year will be the peak in the business, in the banking sector. So, the returns and all will be improved gradually.”The leading public sector lender reported a 22% YoY jump in its Q1 net profit, which Raju attributed primarily to strong non-interest income. He said that the bank was able to earn nearly Rs 1,200 crore from just PSLC income, driven by strong demand for excess priority sector lending certificates.“Our fee income growth is nearly 16%. The second is treasury income, which contributed very well this time because of our AFS portfolio. The third factor is PSLC, which is always significant in the first quarter due to our priority sector advances being much higher than the regulator’s requirements. We generally sell the excess amount in the market as PSLCs. This time, due to the huge demand for PSLCs, we earned a higher commission,” Raju noted.Canara Bank Q1 Results: Profit Rises 22%, Asset Quality ImprovesAddressing the decline in Net Interest Income (NII) in Q1, he clarified that while absolute interest income remained steady, the dip in NII was primarily due to a drop in yields on advances. “If you see the interest income, there is no reduction. We were able to maintain the absolute number at Rs 31,000 crore. The cost of funds is stable, but the yield on advances has come down. The negativity in NII is due to yields on advances falling because the RBI cut repo rates by almost 100 basis points,” he explained. As a result, the bank’s yield on advances fell from “8.83% to 8.47% marking a 36 basis points reduction" in NIM. This also impacted the lender’s ROA, which dipped in Q1 to 1.14% but still exceeded the bank’s guidance of 1.05%, Raju said.On declining CASA deposits, he explained that this was not due to savings rate repricing but largely because of a seasonal decline in institutional deposits. “We receive more than Rs 20,000 to 25,000 crores in institutional branches within PSUs and PSCs, which reflects in the CASA at the March year-end. So, as of March 25, if you see the current deposits, it was almost Rs 77,800 crore gross, but they have come down to Rs 54,000 crore gross. That means we lost mainly in institutional deposits,” the CEO outlined.In Q1 FY26, Canara Bank’s NII slightly declined by 1.71% year-on-year to Rs 9,009 crore from Rs 9,166 crore in Q1 FY25. However, net profit saw a 22% YoY increase, rising to Rs 4,752 crore from Rs 3,905 crore. The lender’s NIM declined from 2.9% in Q1FY25 to 2.55% in Q1FY26.Canara Bank May Post 12% Credit Growth, Says MD K Satyanarayan. Read more on Earnings by NDTV Profit.