CRISIL revises outlook of Canara Bank’s long-term debt instruments

CRISIL Ratings has revised its outlook on the long-term debt instruments of Canara Bank to ‘Stable’ from ‘Negative’, while reaffirming the ratings at ‘CRISIL AAA/CRISIL AA’. The rating on the certificate of deposits has been reaffirmed at ‘CRISIL A1+’.

CRISIL Ratings had assigned a ‘Negative’ outlook to the long-term debt instruments of Canara Bank on August 29, 2020, following resolution of ‘watch with developing implications’. The ‘Negative’ outlook was assigned to reflect the potential stress that the bank’s asset quality and, consequently, profitability could witness on account of the challenging macro environment.

Revision in the outlook to ‘Stable’ factors in better-than-expected performance of the bank during the current challenging macro environment due to the ongoing Covid-19 pandemic. The reported gross non-performing assets (NPA) stood at 7.46% as on December 31, 2020. Excluding the benefit of Supreme Court stay on NPA recognition, the pro-forma gross NPA was at 8.95% (against reported gross NPA of 9.39% as on March 31, 2020). While it would increase from these levels, it is expected to remain lower than what CRISIL Ratings had earlier envisaged. Asset quality has also been supported by various schemes launched by the Government of India (GoI) and Reserve Bank of India (RBI), like Emergency Credit Line Guarantee Scheme, which has benefitted the micro, small & medium enterprises. The one-time restructuring scheme is also expected to benefit reported NPA metrics. Canara Bank has restructured ~1.6% of its advances as on December 31, 2020 and could additionally restructure another ~1.7% of advances over next couple of quarters.

Further, the bank reported profit after tax (PAT) of Rs 1,547 crore for the nine months ended December 31, 2020, with an annualised return on assets (RoA) of 0.2%. CRISIL Ratings believes the bank will report a profit for the full year (fiscal 2021) as well, against the substantial loss of Rs 5,839 crore for fiscal 2020.

The ratings continue to factor in expectation of strong support Canara Bank is likely to receive from its majority owner, GoI, and the healthy market position. The ‘CRISIL AA/Stable’ rating on Tier I bonds (under Basel III) factors in the adequacy of Canara Bank’s eligible reserves to service coupon after adjusting for any medium-term impact of profitability on the bank’s reserves position in a stress scenario.

While the economic activity has started picking up, any sudden surge in Covid-19 cases leading to partial lockdowns could negatively impact the collections. Hence, the bank’s asset quality and its consequent impact on earnings profile will continue to be closely monitored.

CRISIL Ratings has withdrawn its rating on Rs 1,000 crore Upper Tier II bonds (under Basel II), since there is no outstanding amount against the same.

Shares of CANARA BANK was last trading in BSE at Rs.159.55 as compared to the previous close of Rs. 168.55. The total number of shares traded during the day was 1861483 in over 13125 trades.

The stock hit an intraday high of Rs. 167.9 and intraday low of 157.2. The net turnover during the day was Rs. 299928739.