Professional Documents
Culture Documents
Canara Bank - Crisil
Canara Bank - Crisil
Rating Rationale
November 23, 2023 | Mumbai
Canara Bank
'CRISIL AA+/Stable' assigned to Tier I Bonds (Under Basel III)
Rating Action
Rs.2000 Crore Tier I Bonds (Under Basel III) CRISIL AA+/Stable (Assigned)
Rs.2900 Crore Tier II Bonds (Under Basel III)& CRISIL AAA/Stable (Reaffirmed)
Rs.60000 Crore Certificate of Deposits CRISIL A1+ (Reaffirmed)
Tier I Bonds (Under Basel III) Aggregating Rs.12500
CRISIL AA+/Stable (Reaffirmed)
Crore
Tier II Bonds (Under Basel III) Aggregating Rs.7900 Crore CRISIL AAA/Stable (Reaffirmed)
& Originally issued by erstwhile Syndicate Bank
Note: None of the Directors on CRISIL Ratings Limited’s Board are members of rating committee and thus do not participate in discussion or assignment of any ratings.
The Board of Directors also does not discuss any ratings at its meetings.
1 crore = 10 million
Refer to Annexure for Details of Instruments & Bank Facilities
Detailed Rationale
CRISIL Ratings has assigned its ‘CRISIL AA+/Stable’ rating to Rs 2,000 Tier I bonds (under Basel III) and reaffirmed its
ratings on the existing debt instruments of Canara Bank at ‘CRISIL AAA/CRISIL AA+*/Stable/CRISIL A1+'.
The ratings continue to reflect the expectation of strong support from the majority stakeholder, the Government of India, and
the bank’s healthy market position. These strengths are partially offset by modest, albeit improving, asset quality and earnings
profile.
The rating on the Tier I bonds (under Basel III) meets 'CRISIL’s rating criteria for BASEL III-compliant instruments of banks'.
CRISIL Ratings evaluates the bank's (i) reserves position (adjusted for any medium-term stress in profitability) and (ii) cushion
over regulatory minimum Common Equity Tier I (CET1; including capital conservation buffer [CCB]) capital ratios. Also
evaluated is the demonstrated track record and management philosophy regarding maintenance of sufficient CET1 capital
cushion above the minimum regulatory requirement.
Analytical Approach
CRISIL Ratings has combined the business and financial risk profiles of Canara Bank and its subsidiaries and associates. This
is because of majority shareholding, business and financial linkages and shared brand. CRISIL Ratings has also factored in the
strong support the bank is expected to receive from its majority shareholder, the Government of India, on an ongoing basis and
in the event of distress.
Please refer Annexure - List of entities consolidated, which captures the list of entities considered and their analytical treatment of consolidation.
As a part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs over
fiscals 2015-2019, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the
government had outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019; Canara Bank and
eSyndicate Bank (erstwhile, Syndicate Bank) combined received Rs 7,704 crore and Rs 3,963 crore, respectively, in fiscals
2018 and 2019 under this package. The government allocated another Rs 70,000 crore in fiscal 2020, of which Canara
Bank (combined entity) received Rs 6,571 crore. Thus, over the past fiscals, government has infused around Rs 18,238
crore into the combined entity. There has been no infusion since fiscal 2021 as the capital position of the bank improved
and it raised capital from the market as well.
Networth of Rs 80,724 crore as on September 30, 2023 (Rs 73,607 crore as on March 31, 2023), is also supported by Rs
2,000 crore equity raised via QIP during fiscal 2021 and Rs 2,500 crore equity raised in fiscal 2022. CET1, Tier-I capital
adequacy ratio (CAR) and overall CAR stood at 11.6%, 13.6%, and 16.2%, respectively, on September 30, 2023 (11.6%,
13.8% and 16.7%, respectively, as on March 31, 2023).
Weakness:
Modest, albeit improving, asset quality and earnings profile
Asset quality, with gross non-performing assets (NPAs) of 4.8% as on September 30, 2023 (5.4% as on March 31, 2023
and 7.5% as on March 31, 2022) remains modest, albeit on an improving trend. The improvement over the years is driven
both by lower slippages and high write-offs. The bank witnessed very high slippages in fiscals 2019 and 2020 at Rs 27,072
crore and Rs 24,107 crore, respectively. These were primarily from its large corporate exposure to companies in vulnerable
sectors, such as iron and steel, infrastructure and construction, and finance. The micro and small enterprises exposure has
also experienced elevated levels of stress. There was improvement visible in fiscal 2021 with lower slippages of Rs 17,885
crore, which further reduced to Rs 12,707 crore for fiscal 2022. For fiscal 2023, slippages were at levels similar to fiscal
2022. Slippages for the first quarter of fiscal 2024 stood at Rs 3,428 crore, 13% lower than the same period previous fiscal.
The bank’s asset quality has been supported by various schemes launched by the Government of India and the Reserve
Bank of India (RBI), such as Emergency Credit Line Guarantee Scheme, which has benefitted the micro, small and medium
enterprises (MSMEs). The restructuring schemes have also
benefitted the reported NPA metrics. Canara Bank had restructured portfolio of around 2.35% of its advances as on June
30, 2023. The bank has written off a total of Rs 63,549 crore through fiscals 2019-2023, of which Rs 12,311 crore was
written off in fiscal 2023. Cumulatively, this also brought down gross NPA ratio by 431 basis points.
The traction in slippages, especially in the current challenging macro environment, will continue to be monitored.
Nevertheless, with the bank’s focus on recoveries, also supported by recoveries through the Insolvency and Bankruptcy
Code route, gross NPAs have seen an improving trend. Gross NPAs from the corporate segment stood at around 6.4%,
followed by MSMEs (9.6%), agriculture (3.5%) and retail (1.4%) as on March 31, 2023.
While earnings profile had been impacted over the last few fiscals because of high credit costs, it has improved since fiscal
2021. As against substantial losses incurred over the last couple of years (loss of Rs 5,839 crore for fiscal 2020), the bank
has been reporting profits since fiscal 2021. It reported a profit after tax (PAT) of Rs 10,604 crore during fiscal 2023 (return
on assets [RoA]) of 0.8%), against Rs 5,678 crore during fiscal 2022 (RoA of 0.5%). Profit during first half ended September
30, 2023, was Rs 7,141 crore (annualised RoA of 1.0%).
Nevertheless, earnings profile remains constrained by lower proportion of current account savings account deposits
impacting net interest margin and the pre-provisioning operating profit. Furthermore, while the provisioning coverage ratio
Nevertheless, CRISIL Ratings will continue to monitor the traction in asset quality and its consequent impact on profitability.
Liquidity: Superior
Liquidity continues to be superior, supported by a sizeable retail deposit base that forms a significant part of the total deposits.
Liquidity coverage ratio was 132.4% as on September 30, 2023, as against the regulatory requirement of 100%. The bank had
excess statutory liquidity ratio of 6.58% of net demand and time liabilities (NDTL) as on March 31, 2023. Liquidity also benefits
from access to systemic sources of funds, such as the liquidity adjustment facility from the RBI, access to the call money
market and refinance limits from sources such as the National Housing Bank and National Bank for Agriculture and Rural
Development.
ESG profile
CRISIL Ratings believes the environment, social, and governance (ESG) profile of Canara Bank supports its already strong
credit risk profile.
The ESG profile for financial sector entities typically factors in governance as a key differentiator. The sector has reasonable
social impact because of its substantial employee and customer base and can play a key role in promoting financial inclusion.
While the sector does not have direct adverse environmental impact, the lending decisions may have a bearing on the
environment.
Canara Bank has an ongoing focus on strengthening the various aspects of its ESG profile.
There is growing importance of ESG among investors and lenders. The bank’s commitment to ESG will play a key role in
enhancing stakeholder confidence, given shareholding by foreign portfolio investors and access to domestic capital markets.
Outlook: Stable
Canara Bank should continue to benefit from the strong government support and maintain a healthy market share.
Rating Sensitivity factors
Downward factors
Material change in shareholding and/or expectation of support from the government
Substantial deterioration in asset quality because of increasing slippages, thereby impacting earnings profile
Decline in capital adequacy ratios below minimum regulatory requirements (including capital conservation buffer, which is
Tier I of 9.5% and overall CAR of 11.5%) for an extended period
About the Company
Set up in 1906, Canara Bank is one of the larger PSBs. It made its initial public offering in 2002. As on September 30, 2023,
government ownership in the bank stood at 62.93%.
Amalgamation of Syndicate Bank into Canara Bank was effective from April 1, 2020. The merged entity enjoys the benefits of a
larger balance sheet, optimised capital utilisation, and wider geographic reach leading to deeper penetration. Domestic
network comprises 9,518 branches and 10,553 ATMs. Additionally, it has international presence via three overseas branches
(New York, London and Dubai).
Besides banking, it undertakes factoring, asset management, insurance and retail and institutional broking services through its
subsidiaries and associates.
Key Financial Indicators
As on / for the period March 31, 2023 2022
Total assets Rs crore 13,45,732 12,28,105
Total income (net of interest expense) Rs crore 50,198 42,881
PAT Rs crore 10,604 5,678
Gross NPA % 5.35 7.51
Overall CAR % 16.68 14.90
RoA % 0.82 0.48
The factors that could trigger a default event for non-equity tier I capital instruments (under Basel III), resulting in non-payment
of coupon, are: i) the bank exercising coupon discretion; ii) inadequacy of eligible reserves to honor coupon payment if the
bank reports a loss or low profit; or iii) the bank breaching the minimum regulatory CET I (including CCB) ratio. Moreover, given
the additional risk attributes, the rating transition for non-equity tier I capital instruments (under Basel III) can potentially be
higher and faster than that for tier II instruments.
CRISIL Ratings will disclose complexity level for all securities - including those that are yet to be placed - based on available
information. The complexity level for instruments may be updated, where required, in the rating rationale published
subsequent to the issuance of the instrument when details on such features are available.
For more details on the CRISIL Ratings` complexity levels please visit www.crisilratings.com. Users may also call the
Customer Service Helpdesk with queries on specific instruments.
CRISIL CRISIL
-- -- 08-07-22 A1+ 01-07-21 A1+ 07-12-20 CRISIL A1+ --
CRISIL
-- -- -- 02-03-21 A1+ 29-08-20 CRISIL A1+ --
Lower
Tier-II
CRISIL CRISIL CRISIL
Bonds LT -- -- 29-08-22 28-09-21 21-12-20 Withdrawn
(under AAA/Stable AAA/Stable AAA/Negative
Basel II)
CRISIL CRISIL CRISIL
-- -- 08-07-22 AAA/Stable 01-07-21 AAA/Stable 07-12-20 AAA/Negative --
CRISIL CRISIL
-- -- -- 02-03-21 AAA/Stable 29-08-20 AAA/Negative --
CRISIL
-- -- -- -- 03-06-20 AAA/Watch --
Developing
Perpetual
Tier-I
Bonds LT -- -- -- -- 29-08-20 Withdrawn Withdrawn
(under
Basel II)
CRISIL
-- -- -- -- 03-06-20 AAA/Watch --
Developing
Tier I LT 14500.0 CRISIL 25-08-23 CRISIL 29-08-22 CRISIL 28-09-21 CRISIL 21-12-20 CRISIL CRISIL
Bonds AA+/Stable AA+/Stable AA+/Stable AA+/Stable AA/Negative AA/Watch
Developing
CRISIL CRISIL
-- -- -- 02-03-21 AA/Stable 29-08-20 AA/Negative --
CRISIL
-- -- -- -- 03-06-20 AA/Watch --
Developing
Tier II
CRISIL
Bonds CRISIL CRISIL CRISIL CRISIL CRISIL
LT 10800.0 25-08-23 29-08-22 28-09-21 21-12-20 AAA/Watch
(Under AAA/Stable AAA/Stable AAA/Stable AAA/Stable AAA/Negative
Developing
Basel III)
CRISIL CRISIL CRISIL
-- -- 08-07-22 AAA/Stable 01-07-21 AAA/Stable 07-12-20 AAA/Negative --
CRISIL CRISIL
-- -- -- 02-03-21 AAA/Stable 29-08-20 AAA/Negative --
CRISIL
-- -- -- -- 03-06-20 AAA/Watch --
Developing
Upper
Tier-II CRISIL
Bonds LT -- -- -- 02-03-21 Withdrawn 21-12-20 CRISIL AAA/Watch
(under AAA/Negative Developing
Basel II)
CRISIL
-- -- -- -- 07-12-20 --
AAA/Negative
CRISIL
-- -- -- -- 29-08-20 --
AAA/Negative
CRISIL
-- -- -- -- 03-06-20 AAA/Watch --
Developing
All amounts are in Rs.Cr.
Criteria Details
About CRISIL Ratings Limited (A subsidiary of CRISIL Limited, an S&P Global Company)
CRISIL Ratings pioneered the concept of credit rating in India in 1987. With a tradition of independence, analytical rigour and
innovation, we set the standards in the credit rating business. We rate the entire range of debt instruments, such as bank loans,
certificates of deposit, commercial paper, non-convertible/convertible/partially convertible bonds and debentures, perpetual
bonds, bank hybrid capital instruments, asset-backed and mortgage-backed securities, partial guarantees and other structured
debt instruments. We have rated over 33,000 large and mid-scale corporates and financial institutions. We have also instituted
several innovations in India in the rating business, including ratings for municipal bonds, partially guaranteed instruments and
infrastructure investment trusts (InvITs).
CRISIL Ratings Limited ('CRISIL Ratings') is a wholly-owned subsidiary of CRISIL Limited ('CRISIL'). CRISIL Ratings Limited is
registered in India as a credit rating agency with the Securities and Exchange Board of India ("SEBI").
CRISIL is a leading, agile and innovative global analytics company driven by its mission of making markets function better.
It is India’s foremost provider of ratings, data, research, analytics and solutions with a strong track record of growth, culture of
innovation, and global footprint.
It has delivered independent opinions, actionable insights, and efficient solutions to over 100,000 customers through businesses
that operate from India, the US, the UK, Argentina, Poland, China, Hong Kong and Singapore.
It is majority owned by S&P Global Inc, a leading provider of transparent and independent ratings, benchmarks, analytics and
data to the capital and commodity markets worldwide.
CRISIL respects your privacy. We may use your contact information, such as your name, address and email id to fulfil your request and service your
account and to provide you with additional information from CRISIL. For further information on CRISIL's privacy policy please visit www.crisil.com.
DISCLAIMER
This disclaimer is part of and applies to each credit rating report and/or credit rating rationale ('report') that is provided by
CRISIL Ratings Limited ('CRISIL Ratings'). To avoid doubt, the term 'report' includes the information, ratings and other content
forming part of the report. The report is intended for the jurisdiction of India only. This report does not constitute an offer of
services. Without limiting the generality of the foregoing, nothing in the report is to be construed as CRISIL Ratings providing
or intending to provide any services in jurisdictions where CRISIL Ratings does not have the necessary licenses and/or
registration to carry out its business activities referred to above. Access or use of this report does not create a client
relationship between CRISIL Ratings and the user.
We are not aware that any user intends to rely on the report or of the manner in which a user intends to use the report. In
preparing our report we have not taken into consideration the objectives or particular needs of any particular user. It is made
abundantly clear that the report is not intended to and does not constitute an investment advice. The report is not an offer to
sell or an offer to purchase or subscribe for any investment in any securities, instruments, facilities or solicitation of any kind to
enter into any deal or transaction with the entity to which the report pertains. The report should not be the sole or primary
basis for any investment decision within the meaning of any law or regulation (including the laws and regulations applicable in
the US).
Ratings from CRISIL Ratings are statements of opinion as of the date they are expressed and not statements of fact or
recommendations to purchase, hold or sell any securities/instruments or to make any investment decisions. Any opinions
expressed here are in good faith, are subject to change without notice, and are only current as of the stated date of their
issue. CRISIL Ratings assumes no obligation to update its opinions following publication in any form or format although CRISIL
Ratings may disseminate its opinions and analysis. The rating contained in the report is not a substitute for the skill, judgment
and experience of the user, its management, employees, advisors and/or clients when making investment or other business
decisions. The recipients of the report should rely on their own judgment and take their own professional advice before acting
on the report in any way. CRISIL Ratings or its associates may have other commercial transactions with the entity to which the
report pertains.
Neither CRISIL Ratings nor its affiliates, third-party providers, as well as their directors, officers, shareholders, employees or
agents (collectively, 'CRISIL Ratings Parties') guarantee the accuracy, completeness or adequacy of the report, and no CRISIL
Ratings Party shall have any liability for any errors, omissions or interruptions therein, regardless of the cause, or for the
results obtained from the use of any part of the report. EACH CRISIL RATINGS PARTY DISCLAIMS ANY AND ALL EXPRESS OR
IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO ANY WARRANTIES OF MERCHANTABILITY, SUITABILITY OR FITNESS
FOR A PARTICULAR PURPOSE OR USE. In no event shall any CRISIL Ratings Party be liable to any party for any direct, indirect,
incidental, exemplary, compensatory, punitive, special or consequential damages, costs, expenses, legal fees or losses
(including, without limitation, lost income or lost profits and opportunity costs) in connection with any use of any part of the
report even if advised of the possibility of such damages.
CRISIL Ratings may receive compensation for its ratings and certain credit-related analyses, normally from issuers or
underwriters of the instruments, facilities, securities or from obligors. Public ratings and analysis by CRISIL Ratings, as are
required to be disclosed under the regulations of the Securities and Exchange Board of India (and other applicable regulations,
if any), are made available on its website, www.crisilratings.com (free of charge). Reports with more detail and additional
information may be available for subscription at a fee - more details about ratings by CRISIL Ratings are available here:
www.crisilratings.com.
CRISIL Ratings and its affiliates do not act as a fiduciary. While CRISIL Ratings has obtained information from sources it believes
to be reliable, CRISIL Ratings does not perform an audit and undertakes no duty of due diligence or independent verification of
any information it receives and/or relies on in its reports. CRISIL Ratings has established policies and procedures to maintain
the confidentiality of certain non-public information received in connection with each analytical process. CRISIL Ratings has in
place a ratings code of conduct and policies for managing conflict of interest. For details please refer to:
https://www.crisil.com/en/home/our-businesses/ratings/regulatory-disclosures/highlighted-policies.html.
Rating criteria by CRISIL Ratings are generally available without charge to the public on the CRISIL Ratings public website,
www.crisilratings.com. For latest rating information on any instrument of any company rated by CRISIL Ratings, you may
contact the CRISIL Ratings desk at [email protected], or at (0091) 1800 267 1301.
This report should not be reproduced or redistributed to any other person or in any form without prior written consent from
CRISIL Ratings.
All rights reserved @ CRISIL Ratings Limited. CRISIL Ratings is a wholly owned subsidiary of CRISIL Limited.