Canara Bank advanced 3.67% to Rs 237.20 after ICRA upgraded the rating of bank's Basel-III Tier-II bonds worth Rs 7900 crore to 'ICRA AAA (Stable)' from 'ICRA AA+(hyb) (Stable)'.
The credit ratings agency has also upgraded its ratings on the Basel III Additional Tier l bonds worth Rs 1500 crore to 'ICRA AA+ (Stable)' from 'ICRA AA (hyb) (Stable)'.
ICRA said that the rating upgrade factors in the improvement in the solvency profile of Canara Bank which is expected to sustain going forward. An improved capital position has supported the bank's solvency profile, which is expected to get a further boost from improving profitability metrics and expectations of steady internal capital accruals.
The ratings continue to be supported by the bank's sovereign ownership and the demonstrated track record of capital support from the Government of India (GoI).
Canara had merged with erstwhile Syndicate Bank (e-SB), effective 1 April 2020. The merger had further increased the systemic importance of the bank in the Indian banking sector with a market share of 6.4% in advances and 7% in total deposits as on 30 June 2021. It is the third largest public sector bank (PSB) and the fourth-largest bank in the Indian financial system in terms of total business (advances and deposits cumulatively).
Though the asset quality stress because of the COVID-19 pandemic is lower than initially estimated, it remains a monitorable for the bank. The bank reported a sizeable quantum of restructured advances (3.5% of standard advances as on 30 September 2021) under the relief package to borrowers impacted by COVID-19. The performance of these advances will continue to be monitored.
Additionally, the overdue loan accounts (SMA-1 and SMA-2) for the bank stands at approximately 3.3% as on 30 September 2021. The gross fresh slippages are expected to remain high for FY2022 because of the elevated fresh slippages in H1 FY2022 (3.7% annualised), but moderate thereafter.
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The bank has steadily increased the provision cover for legacy stressed assets and has reduced its net NPA levels to 3.2% as on 30 September 2021 from 4.8% as on 31 March 2020. Though the slippages could remain high in FY2022 due to declining provisions for legacy stressed assets, ICRA expects the credit provisions to moderate as the bank is likely to significantly absorb the credit provisions from its operating profits. As a result, the bank's profitability is expected to improve with a return on assets (RoA) of over 0.2-0.3% in FY2022 and over 0.3-0.5% in FY2023.
The 'stable' outlook on the ratings factor in the expectations of an improving solvency profile, internal capital generation and the strong liability profile of the bank, apart from its sovereign ownership.
Incorporated in 1906, Canara Bank was merged with erstwhile Syndicate Bank (e-SB) on 1 April 2020 to form the third-largest public sector bank and the fourth-largest bank in the Indian banking system with a total asset base of Rs 11.9 lakh crore as on 30 September 2021. The bank has a market share of 6.4% and 7% in net advances and total deposits, respectively, as on 30 June 2021, with the GoI holding a majority stake (62.93% as on 30 September 2021). It has a network of 9,804 branches and 10,988 ATMs as on 30 September 2021.
The state-run bank's net profit surged 199.86% to Rs 1,332.61 crore on 2.59% increase in total income to Rs 21,331.49 crore in Q2 September 2021 over Q2 September 2020.
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