Bank of Baroda, Canara Bank Shed ₹54,000 Crore Loans to Protect Margins

Large public sector lenders, including Bank of Baroda (BoB) (NSE: BANKBARODA) and Canara Bank (NSE: CANBK), have collectively offloaded nearly ₹54,000 crore in corporate loans during the June 2025 quarter.

The move comes as these banks aimed to safeguard their net interest margins (NIMs) amid persistent repricing pressure from borrowers.

Rate Cuts Spark Repricing Demands

Following the 100 basis points (bps) repo rate cut since February, several public sector undertakings (PSUs) and non-banking financial companies (NBFCs) sought additional revisions to their existing loan rates, beyond the reductions already implemented.

To avoid further compressing their margins, banks opted to let go of such loans despite them being high-quality assets, choosing to prioritise profitability over balance sheet expansion.

Bank of Baroda: Sharp Decline in Corporate Book

BoB’s corporate loan book declined by 10% quarter-on-quarter, dropping to ₹3.7 lakh crore, with ₹42,000 crore worth of corporate loans shed during Q1 FY26. Loans to NBFCs, which account for about a third of BoB’s corporate book, were down 11.6% sequentially, shedding ₹15,000 crore.

MD and CEO Debadatta Chand stated, “There were some transactions, we had to let it go because the pricing was not working. They are high-quality assets but do not give optimal margins. Because of fine pricing, we could not retain those customers.”

Canara Bank: Similar Trend, Retail Focus

Canara Bank shed around ₹12,000 crore in loans to NBFCs, including a major central PSU, during the same quarter. According to MD and CEO K Satyanarayana Raju, the bank asked some borrowers to repay rather than lowering rates beyond repo adjustments. He noted that robust retail loan demand was sufficient to support overall growth, with gross advances rising 12.4% year-on-year to ₹11 lakh crore.

Despite this, NIM contracted to 2.55% in Q1 FY26 from 2.73% in the March quarter, while BoB’s NIM declined to 2.91% from 2.98%.

Competitive Pressures and Bond Market Shift

The market has also seen a rate war, with a large PSU bank reportedly offering 5.8–5.9% one-year loans to corporate and NBFC borrowers to bolster topline growth. Simultaneously, falling bond yields have spurred corporations to tap capital markets, with corporate bond issuances hitting ₹3.27 lakh crore in the June quarter, the highest in four years, at rates lower than bank lending.

Also Read: RBI Announces Final Redemption Price for Sovereign Gold Bond 2017-18 Series II!

Conclusion

By shedding low-margin corporate loans, BoB and Canara Bank are focusing on profitability, retail lending, and balance sheet discipline despite competitive pressures. However, with bond markets offering cheaper funding, banks face ongoing challenges to maintain lending spreads and NIM stability.

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