CRISIL upgrades rating on Tier I bonds of Canara Bank

CRISIL Ratings has upgraded its rating on the Tier I bonds (under Basel III) of Canara Bank to 'CRISIL AA+/Stable' from 'CRISIL AA/Stable'. CRISIL Ratings has also reaffirmed its 'CRISIL AAA/Stable/CRISIL A1+' ratings on the Tier II Bonds (under Basel III) and Lower Tier II bonds (under Basel II), and the short-term rating on the certificate of deposit.

The upgrade in the rating of Tier I bonds (under Basel III) factors in the improved position of Canara Bank to make future coupon payments, supported by proposed adjustment of accumulated losses with share premium account, and the improved capital ratios of the bank. Pursuant to the proposed adjustment, the eligible reserves to total assets ratio for the bank will improve. Additionally, vide the Department of Financial Services Gazette notification no. CG-DL-E-23032020-218862 (S.O. 1200 E) dated March 23, 2020 referred to as Nationalised Banks (Management and Miscellaneous Provisions) Amendment Scheme, 2020, the bank still has share premium reserves which can be utilised to set off any losses in future, and this supports the credit profile of the Tier I (under Basel III) instruments. Other public sector banks have also utilised this provision. However, any substantial depletion of the share premium account or any regulatory changes to appropriation of the share premium account pertaining to adjustment of accumulated losses are key monitorables.

Supported by regular capital infusion by the Government of India (GoI), equity raised via qualified institutional placements (QIP) and improved accruals, the capital ratios of Canara Bank have improved, as reflected in tier 1 and overall capital to risk-weighted adequacy ratio (CRAR) of 10.34% and 13.36%, respectively, as on June 30, 2021 as against 9.29% and 12.77%, respectively, a year earlier (10.08% and 13.18%, respectively, as on March 31, 2021). Further, the QIP of Rs 2,500 crore in August 2021, should also support the capital position.

The overall ratings continue to reflect the expectation of strong support from the majority stakeholder, GoI, and the healthy market position of the bank. These strengths are partially offset by the modest, albeit improving, asset quality and earnings profile.

Shares of Canara Bank was last trading in BSE at Rs. 163.55 as compared to the previous close of Rs. 159.85. The total number of shares traded during the day was 832887 in over 4609 trades.

The stock hit an intraday high of Rs. 164.75 and intraday low of 160. The net turnover during the day was Rs. 134818076.

Source : Equity Bulls

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