Fitch Ratings has reaffirmed Canara Bank’s Long-Term Issuer Default Rating (IDR) at ‘BBB-‘ with a Stable Outlook, along with its Viability Rating (VR) at ‘bb-‘ and Government Support Rating (GSR) at ‘bbb-‘. The ratings are based on the high probability of state support, given the government’s 63% stake in the bank and its systemic importance. The VR is also influenced by the bank’s risk profile, which has negatively impacted its financial metrics in weaker economic conditions.
Despite these challenges, Canara Bank’s asset quality has improved, with the impaired-loan ratio decreasing to 3.3% and the loan loss coverage ratio rising to 74%. The bank’s profitability appears to have peaked, with the operating profit/risk-weighted asset ratio steady at 3%, although Fitch expects this ratio to decline by 40 basis points by FY27. The bank’s Common Equity Tier 1 (CET1) ratio improved to 12% and may rise to 12.5% by FY27, while funding and liquidity remain strong with a liquidity coverage ratio of 123% and a loan-to-deposit ratio exceeding 80%.
The ratings are subject to certain triggers, with a downgrade in India’s sovereign rating or a reduction in the government’s support propensity potentially lowering Canara Bank’s rating. On the other hand, a sovereign upgrade or a significant improvement in asset quality and capital buffers could lead to an upgrade. Overall, the ratings reflect Fitch’s view on Canara Bank’s creditworthiness and its potential for future performance.