Public sector lender Canara Bank on Monday said that CRISIL has placed its long-term debt instruments on 'rating watch with developing implications'. This has been done on account of the announcements made by the Ministry of Finance (MoF) GoI, with respect to the proposed amalgamation of public sector banks as there has been significant progress on the amalgamation including approvals from the Boards of the banks.
CRISIL will resolve the rating watch once clarity emerges, post-merger completion, on the merged entity's business and financial profile, the rating agency has said in its report.
"CRISIL will monitor for potential integration challenges and any impact on the earnings profile of the merged entity. The asset quality of the merged entity will also be a monitorable," it said.
The rating on Rs 2,500 crore Tier I Bonds (Under Basel III) has been placed at 'CRISIL AA' with 'rating watch with developing implications'.
On August 30, 2019, Ministry of Finance announced a set of reforms for public sector banks (PSBs) including consolidation, capital infusion and measures to enhance governance standards. A key announcement was also the amalgamation of 6 PSBs into 4 anchor PSBs. As part of this announcement, it was proposed to amalgamate Syndicate Bank with Canara Bank.
In terms of pro-forma merged financials, the merged bank would have total assets of Rs 10.2 lakh crore, with gross non-performing assets (NPAs) of 9.6% as on September 30, 2019, CRISIL said in its report. Common equity tier I (CET-I), Tier I and overall capital adequacy ratio (CAR) were at 9.9%, 11.1% and 13.9% as on September 30, 2019. On the business side, there are potential synergies stemming from a larger distribution network with deeper penetration in key states and operational efficiencies, it added.
"The ratings on the debt instruments of Canara Bank will continue to factor in the expectation of strong support from the majority owner, Government of India (GoI), and the bank's strong market position and adequate capitalisation, and expectation of strong support from majority owner, GoI," CRISIL said.
The ratings also factor in the stress on Canara Bank's asset quality, especially in the corporate portfolio and increase in provisions that would continue to impact profitability, it added.
Canara Bank is one of the larger PSB by assets and has a pan-India presence, with a network of 6,305 branches as on September 30, 2019.
Edited by Chitranjan Kumar