Crisil revises outlook on Canara Bank's debt instruments to stable
Mar 05, 2021
Bengaluru (Karnataka) [India], March 5 : Crisil has revised its outlook on long-term debt instruments of Canara Bank to stable from negative while reaffirming the ratings at AAA and AA.
The rating on certificate of deposits has been reaffirmed at A1-plus. Crisil had assigned a negative outlook to long-term debt instruments of the bank on August 29 last year following resolution of watch with developing implications.
The negative outlook was assigned to reflect potential stress the bank's asset quality and consequently profitability could witness on account of challenging macro-environment. The revision in outlook to stable factors in better-than-expected performance during the ongoing Covid-19 pandemic.
The reported gross non-performing assets (NPAs) stood at 7.46 per cent as on December 31, 2020. Excluding the benefit of Supreme Court stay on NPA recognition, the pro-forma gross NPA was at 8.95 per cent (against reported gross NPA of 9.39 per cent as on March 31, 2020).
While it will increase from these levels, it is expected to remain lower than what Crisil had earlier envisaged.
Asset quality has also been supported by various schemes launched by the government (GoI) and Reserve Bank of India (RBI), like Emergency Credit Line Guarantee Scheme, which has benefitted the micro, small and medium enterprises.
The one-time restructuring scheme is also expected to benefit reported NPA metrics. Canara Bank has restructured 1.6 per cent of its advances as on December 31, 2020 and can additionally restructure another 1.7 per cent over next couple of quarters.
Besides, the bank reported profit after tax of Rs 1,547 crore for the nine months ended December 31, 2020, with an annualised return on assets of 0.2 per cent.
Crisil said 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 the bank is likely to receive from its majority owner (the government) and healthy market position.
While 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 withdrew its rating on Rs 1,000 crore upper tier II bonds under Basel II norms since there is no outstanding amount.
