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Banks

India

Canara Bank
Update
Ratings
Foreign Currency Long-Term IDR Short-Term IDR Senior unsecured debt Upper Tier 2 bonds Viability Rating Support Rating Support Rating Floor National Long-Term Rating BBB F3 BBB B+ bbb 2 BBB Fitch AAA(ind)

Key Rating Drivers


Strong Sovereign Support: Fitch Ratings expects strong support for Canara from its 68% shareholder, the government of India. Canara is the fifth-largest bank in India in terms of assets and deposits with a large franchise (over 3,569 branches). Funding Weaker Than Peers: Despite its large deposit base, Canara has a weaker funding profile than peers due to its more regional franchise (south India focus). Low-cost retail current and savings account deposits contribute around 26% of domestic deposits, a substantially lower proportion than at peers. In addition, high-cost bulk deposits contributed around 39% of total funding at the financial year to end-March 2011 (FYE11), higher than at peers and even at lower-rated banks. Although bulk deposits are gradually reducing, due partly to slower loan growth, Canara's funding will remain weaker than peers' over the near to medium term. Volatile Asset Quality: Canara's gross NPL ratio increased to 1.81% at end-December 2011 (9M12) from 1.45% at FYE11. This was partly because Canara was slightly behind peer banks in implementing core banking solutions (only doing so at end-2010), which led to late NPL detection upon its transition to the system-based approach of measuring NPLs. Future asset quality pressure may mainly come from Canara's exposure to small industry (18% of gross loans), iron and steel (6%), textiles (5%), and electricity boards (4.5%). Moreover, the gross NPL ratio in agriculture may increase. While Fitch expects Canara's overall gross NPL ratio to remain stable over near term, restructured loans are expected to rise to around 7% of gross loans over next two years from the current level of 5.5%. Strong Capitalisation: Canara received around INR20bn of common equity through a qualified institutional placement at FYE11, resulting in a Tier 1 ratio of around 10.7% (factoring in unaudited half-yearly profits) at 9M12. Canara also has over INR30bn of headroom to raise fresh equity, giving it ample room for equity dilution. Weak Profitability: Net interest margins (NIMs) are lower than at most peers (2.46% (annualised) at 9M12) due to Canara's high funding costs (over 6.5%) and weak NIMs. Its fee income profile is also much weaker than peers' (fee income/total operating income of 7.4% at 9M12). This, coupled with high credit costs, pressures its return on average assets (RoAA), which declined to 0.94% at 9M12 from 1.37% at FYE11. That said, faster recoveries of system-generated NPLs and more stable margins may push RoAA to around 1% over the near term. Canara's profitability will remain weaker than peers' over the near to medium term, especially given its low provision coverage and high credit costs.

Sovereign Risk Long-Term Foreign-Currency IDR BBBLong-Term Local-Currency IDR BBB-

Outlooks
Long-Term Foreign-Currency IDR National Long-Term Rating Sovereign Long-Term Foreign-Currency IDR Sovereign Long-Term Local-Currency IDR Stable Stable Stable Stable

Financial Data
Canara Bank 31 Dec 11 31 Mar 11 (9 mths)a Total assets (USDm) Total assets (INRm) Total equity (INRm) Net income (INRm) ROA (%) ROE (%) Tier 1 ratio (%)
a b c

67,116 75,270 3,624,276 3,360,788 224,499 200,398 24,536 40,258.9 0.94 b 1.37 15.4 b 23.5 c 10.69 10.87

Unaudited Annualised Includes nine months profits

Related Research
Fitch Affirms Canara Bank's Ratings (November 2011)

Analysts
Tarun Kumar +91 22 4000 1713 tarun.kumar@fitchratings.com Ananda Bhoumik +91 22 4000 1720 ananda.bhoumik@fitchratings.com

Stable Liquidity Profile: Despite its weak funding profile, Canara faces no significant mismatches in its short-term buckets as it mainly uses fixed-tenor bulk deposits to finance short-term loans and retail deposits to finance long-term loans. It also maintains statutory securities up to 3% in excess of the minimum statutory liquidity ratio, which helps refinancing.

What Could Trigger a Rating Action


Weakening in Financials: Despite its strong capitalisation, Canara's financials are weaker than peers', putting pressure on its Viability Rating (VR), which could be downgraded if these conditions persist. Sovereign support, which is the key determinant of its IDR, remains strong.

www.fitchratings.com

19 April 2012

Banks
Canara Bank Balance Sheet
Year End USDm 31 Mar 2011 Year End As % of INRm Assets 31 Mar 2010 Year End As % of INRm Assets 31 Mar 2009 Year End As % of INRm Assets 31 Mar 2008 Year End As % of INRm Assets

Assets
A. Loans 1. Residential Mortgage Loans 2. Other Mortgage Loans 3. Other Consumer/ Retail Loans 4. Corporate & Commercial Loans 5. Other Loans 6. Less: Reserves for Impaired Loans/ NPLs 7. Net Loans 8. Gross Loans 9. Memo: Impaired Loans included above 10. Memo: Loans at Fair Value included above B. Other Earning Assets 1. Loans and Advances to Banks 2. Reverse Repos and Cash Collateral 3. Trading Securities and at FV through Income 4. Derivatives 5. Available for Sale Securities 6. Held to Maturity Securities 7. At-equity Investments in Associates 8. Other Securities 9. Total Securities 10. Memo: Government Securities included Above 11. Memo: Total Securities Pledged 12. Investments in Property 13. Insurance Assets 14. Other Earning Assets 15. Total Earning Assets C. Non-Earning Assets 1. Cash and Due From Banks 2. Memo: Mandatory Reserves included above 3. Foreclosed Real Estate 4. Fixed Assets 5. Goodwill 6. Other Intangibles 7. Current Tax Assets 8. Deferred Tax Assets 9. Discontinued Operations 10. Other Assets 11. Total Assets Liabilities and Equity D. Interest-Bearing Liabilities 1. Customer Deposits - Current 2. Customer Deposits - Savings 3. Customer Deposits - Term 4. Total Customer Deposits 5. Deposits from Banks 6. Repos and Cash Collateral 7. Other Deposits and Short-term Borrowings 8. Total Deposits, Money Market and Short-term Funding 9. Senior Debt Maturing after 1 Year 10. Subordinated Borrowing 11. Other Funding 12. Total Long Term Funding 13. Derivatives 14. Trading Liabilities 15. Total Funding E. Non-Interest Bearing Liabilities 1. Fair Value Portion of Debt 2. Credit impairment reserves 3. Reserves for Pensions and Other 4. Current Tax Liabilities 5. Deferred Tax Liabilities 6. Other Deferred Liabilities 7. Discontinued Operations 8. Insurance Liabilities 9. Other Liabilities 10. Total Liabilities F. Hybrid Capital 1. Pref. Shares and Hybrid Capital accounted for as Debt 2. Pref. Shares and Hybrid Capital accounted for as Equity G. Equity 1. Common Equity 2. Non-controlling Interest 3. Securities Revaluation Reserves 4. Foreign Exchange Revaluation Reserves 5. Fixed Asset Revaluations and Other Accumulated OCI 6. Total Equity 7. Total Liabilities and Equity 8. Memo: Fitch Core Capital 9. Memo: Fitch Eligible Capital Exchange rate 3,408.5 n.a. 3,662.5 n.a. 40,679.5 165.4 47,585.0 47,750.5 691.9 n.a. 1,602.0 n.a. 56.2 n.a. 4,889.1 13,690.3 n.a. 110.2 18,745.8 16,010.1 n.a. n.a. n.a. n.a. 67,932.9 5,275.5 4,769.7 n.a. 637.0 0.0 0.0 220.6 0.0 0.0 1,203.6 75,269.6 152,190.0 n.a. 163,530.0 n.a. 1,816,337.8 7,386.1 2,124,671.7 2,132,057.8 30,892.1 n.a. 71,531.3 n.a. 2,510.0 n.a. 218,300.0 611,270.0 n.a. 4,919.2 836,999.2 714,850.0 n.a. n.a. n.a. n.a. 3,033,202.2 4.53 4.87 54.05 0.22 63.22 63.44 0.92 2.13 0.07 6.50 18.19 0.15 24.90 21.27 90.25 101,165.0 n.a. 134,769.1 n.a. 1,465,280.2 7,868.0 1,693,346.3 1,701,214.3 25,903.1 n.a. 31,672.9 n.a. 4,163.3 n.a. 144,672.3 543,285.9 4,648.0 n.a. 696,769.5 627,804.0 n.a. n.a. n.a. n.a. 2,421,788.7 3.82 5.09 55.35 0.30 63.96 64.26 0.98 1.20 0.16 5.46 20.52 0.18 26.32 23.71 91.48 78,960.0 n.a. 119,020.0 n.a. 1,190,791.9 6,577.9 1,382,194.0 1,388,771.9 21,679.7 n.a. 27,443.3 n.a. 4,116.2 n.a. 161,818.6 407,773.8 4,060.5 n.a. 577,769.1 508,317.7 n.a. n.a. n.a. n.a. 1,987,406.4 3.59 5.42 54.21 0.30 62.93 63.23 0.99 1.25 0.19 7.37 18.57 0.18 26.30 23.14 90.48 66,580.0 n.a. 110,070.0 n.a. 899,461.5 3,731.0 1,072,380.5 1,076,111.5 12,726.2 n.a. 37,145.5 n.a. 2,040.4 n.a. 205,952.0 287,116.5 3,006.9 n.a. 498,115.8 428,303.7 n.a. n.a. n.a. n.a. 1,607,641.8 3.69 6.10 49.82 0.21 59.40 59.61 0.70 2.06 0.11 11.41 15.90 0.17 27.59 23.72 89.05

235,549.8 7.01 212,966.5 6.34 n.a. 28,444.0 0.85 0.0 0.00 0.0 0.00 9,851.9 0.29 0.0 0.00 0.0 0.00 53,739.6 1.60 3,360,787.5 100.00

164,859.2 6.23 151,018.7 5.70 0.0 0.00 28,593.7 1.08 0.0 0.00 0.0 0.00 4,156.5 0.16 0.0 0.00 0.0 0.00 28,012.7 1.06 2,647,410.8 100.00

139,154.5 6.34 n.a. 0.0 0.00 29,294.6 1.33 0.0 0.00 0.0 0.00 1,607.4 0.07 0.0 0.00 0.0 0.00 38,995.1 1.78 2,196,458.0 100.00

141,228.6 7.82 n.a. n.a. 29,168.7 1.62 0.0 0.00 0.0 0.00 1,383.2 0.08 0.0 0.00 n.a. 25,864.6 1.43 1,805,286.9 100.00

5,385.5 13,128.1 44,763.2 63,276.8 2,562.5 n.a. 1,164.3 67,003.6 n.a. 1,673.8 n.a. 1,673.8 n.a. n.a. 68,677.4 0.0 175.8 n.a. n.a. 31.6 n.a. n.a. n.a. 1,540.5 70,425.4 356.0 n.a. 4,488.2 n.a. n.a. n.a. n.a. 4,488.2 75,269.6 4,488.2 5,015.6

240,461.9 586,171.1 1,998,676.3 2,825,309.3 114,417.3 n.a. 51,984.0 2,991,710.6 n.a. 74,736.5 n.a. 74,736.5 n.a. n.a. 3,066,447.1 0.0 7,850.0 n.a. n.a. 1,413.0 n.a. n.a. n.a. 68,783.2 3,144,493.3 15,896.0 n.a.

7.15 17.44 59.47 84.07 3.40 1.55 89.02 2.22 2.22 91.24 0.00 0.23 0.04 2.05 93.56 0.47 -

178,449.4 498,754.2 1,605,898.6 2,283,102.2 63,412.2 n.a. 8,425.4 2,354,939.8 1,985.9 44,385.0 n.a. 46,370.9 n.a. n.a. 2,401,310.7 0.0 6,003.3 n.a. n.a. 328.7 n.a. n.a. n.a. 63,441.0 2,471,083.7 29,609.3 n.a.

6.74 18.84 60.66 86.24 2.40 0.32 88.95 0.08 1.68 1.75 90.70 0.00 0.23 0.01 2.40 93.34 1.12 -

142,761.0 418,109.4 1,269,883.8 1,830,754.2 38,171.0 n.a. 61,876.0 1,930,801.2 8,690.1 44,385.0 n.a. 53,075.1 n.a. n.a. 1,983,876.3 0.0 n.a. n.a. n.a. 466.7 n.a. n.a. n.a. 64,978.9 2,049,321.9 25,058.4 n.a.

6.50 19.04 57.82 83.35 1.74 2.82 87.91 0.40 2.02 2.42 90.32 0.00 0.02 2.96 93.30 1.14 -

131,129.7 352,673.5 1,021,936.7 1,505,739.9 34,984.3 n.a. 11,400.0 1,552,124.2 13,772.3 41,135.0 n.a. 54,907.3 n.a. n.a. 1,607,031.5 0.0 n.a. n.a. n.a. 1,486.7 n.a. n.a. n.a. 71,746.2 1,680,264.4 20,017.6 n.a.

7.26 19.54 56.61 83.41 1.94 0.63 85.98 0.76 2.28 3.04 89.02 0.00 0.08 3.97 93.07 1.11 -

200,398.2 5.96 n.a. n.a. n.a. n.a. 200,398.2 5.96 3,360,787.5 100.00 200,398.2 5.96 223,944.7 6.66

146,717.8 5.54 n.a. n.a. n.a. n.a. 146,717.8 5.54 2,647,410.8 100.00 146,717.8 5.54 161,522.5 6.10 USD1 = INR45.13500

122,077.7 5.56 n.a. n.a. n.a. n.a. 122,077.7 5.56 2,196,458.0 100.00 122,077.7 5.56 135,207.7 6.16 USD1 = INR50.94500

105,004.9 5.82 n.a. n.a. n.a. n.a. 105,004.9 5.82 1,805,286.9 100.00 105,004.9 5.82 115,013.7 6.37 USD1 = INR39.97000

USD1 = INR44.65000

Canara Bank April 2012

Banks
Canara Bank Income Statement
31 Mar 2011 31 Mar 2010 31 Mar 2009 31 Mar 2008 Year End Year End As % of Year End As % of Year End As % of Year End As % of USDm INRm Earning INRm Earning INRm Earning INRm Earning Unqualified Unqualified Assets Unqualified Assets Unqualified Assets Unqualified Assets 1. Interest Income on Loans 2. Other Interest Income 3. Dividend Income 4. Gross Interest and Dividend Income 5. Interest Expense on Customer Deposits 6. Other Interest Expense 7. Total Interest Expense 8. Net Interest Income 9. Net Gains (Losses) on Trading and Derivatives 10. Net Gains (Losses) on Other Securities 11. Net Gains (Losses) on Assets at FV through Income Statement 12. Net Insurance Income 13. Net Fees and Commissions 14. Other Operating Income 15. Total Non-Interest Operating Income 16. Personnel Expenses 17. Other Operating Expenses 18. Total Non-Interest Expenses 19. Equity-accounted Profit/ Loss - Operating 20. Pre-Impairment Operating Profit 21. Loan Impairment Charge 22. Securities and Other Credit Impairment Charges 23. Operating Profit 24. Equity-accounted Profit/ Loss - Non-operating 25. Non-recurring Income 26. Non-recurring Expense 27. Change in Fair Value of Own Debt 28. Other Non-operating Income and Expenses 29. Pre-tax Profit 30. Tax expense 31. Profit/Loss from Discontinued Operations 32. Net Income 33. Change in Value of AFS Investments 34. Revaluation of Fixed Assets 35. Currency Translation Differences 36. Remaining OCI Gains/(losses) 37. Fitch Comprehensive Income 38. Memo: Profit Allocation to Non-controlling Interests 39. Memo: Net Income after Allocation to Non-controlling Interests 40. Memo: Common Dividends Relating to the Period 41. Memo: Preferred Dividends Related to the Period Exchange rate 3,819.0 1,346.5 n.a. 5,165.5 3,189.6 223.8 3,413.4 1,752.1 25.2 85.4 0.1 n.a. 169.3 325.4 605.4 661.9 327.8 989.8 n.a. 1,367.7 224.2 17.9 1,125.6 n.a. n.a. n.a. n.a. n.a. 1,125.6 224.0 n.a. 901.7 n.a. n.a. n.a. n.a. 901.7 n.a. 901.7 127.1 0.0 170,518.5 60,121.7 n.a. 230,640.2 142,414.6 9,992.8 152,407.4 78,232.8 1,123.8 3,813.6 4.5 n.a. 7,558.3 14,530.2 27,030.4 29,555.0 14,638.2 44,193.2 n.a. 61,070.0 10,011.8 799.3 50,258.9 n.a. n.a. n.a. n.a. n.a. 50,258.9 10,000.0 n.a. 40,258.9 n.a. n.a. n.a. n.a. 40,258.9 n.a. 40,258.9 5,673.0 0.0 5.62 1.98 7.60 4.70 0.33 5.02 2.58 0.04 0.13 0.00 0.25 0.48 0.89 0.97 0.48 1.46 2.01 0.33 0.03 1.66 1.66 0.33 1.33 1.33 1.33 0.19 0.00 139,464.3 48,055.3 n.a. 187,519.6 122,849.8 7,864.5 130,714.3 56,805.3 7,295.1 2,152.1 27.8 n.a. 7,239.2 11,864.8 28,579.0 21,944.5 12,831.7 34,776.2 n.a. 50,608.1 14,261.7 -1,867.9 38,214.3 n.a. n.a. n.a. n.a. n.a. 38,214.3 8,000.0 n.a. 30,214.3 n.a. n.a. n.a. 8,389.3 38,603.6 n.a. 30,214.3 4,800.0 0.0 5.76 1.98 7.74 5.07 0.32 5.40 2.35 0.30 0.09 0.00 0.30 0.49 1.18 0.91 0.53 1.44 2.09 0.59 -0.08 1.58 1.58 0.33 1.25 0.35 1.59 1.25 0.20 0.00 128,131.4 43,059.1 n.a. 171,190.5 114,502.2 9,510.3 124,012.5 47,178.0 5,587.5 n.a. -4,073.5 n.a. 6,037.7 11,478.6 19,030.3 18,778.2 11,874.2 30,652.4 n.a. 35,555.9 9,000.0 840.0 25,715.9 n.a. 8.3 n.a. n.a. n.a. 25,724.2 5,000.0 n.a. 20,724.2 n.a. n.a. n.a. 10,057.2 30,781.4 n.a. 20,724.2 3,837.5 n.a. 6.45 2.17 8.61 5.76 0.48 6.24 2.37 0.28 -0.20 0.30 0.58 0.96 0.94 0.60 1.54 1.79 0.45 0.04 1.29 0.00 1.29 0.25 1.04 0.51 1.55 1.04 0.19 98,753.4 43,253.9 n.a. 142,007.3 99,451.6 7,177.8 106,629.4 35,377.9 3,396.5 n.a. -1,379.9 n.a. 5,688.5 13,032.8 20,737.9 16,618.0 11,294.8 27,912.8 n.a. 28,203.0 8,750.0 413.8 19,039.2 n.a. 10.9 n.a. n.a. n.a. 19,050.1 3,400.0 n.a. 15,650.1 n.a. n.a. n.a. n.a. 15,650.1 n.a. 15,650.1 3,840.0 n.a. 6.14 2.69 8.83 6.19 0.45 6.63 2.20 0.21 -0.09 0.35 0.81 1.29 1.03 0.70 1.74 1.75 0.54 0.03 1.18 0.00 1.18 0.21 0.97 0.97 0.97 0.24 -

USD1 = INR44.65000

USD1 = INR45.13500

USD1 = INR50.94500

USD1 = INR39.97000

Canara Bank April 2012

Banks
Canara Bank Summary Analytics
31 Mar 2011 31 Mar 2010 31 Mar 2009 31 Mar 2008 Year End Year End Year End Year End A. Interest Ratios 1. Interest Income on Loans/ Average Gross Loans 2. Interest Expense on Customer Deposits/ Average Customer Deposits 3. Interest Income/ Average Earning Assets 4. Interest Expense/ Average Interest-bearing Liabilities 5. Net Interest Income/ Average Earning Assets 6. Net Int. Inc Less Loan Impairment Charges/ Av. Earning Assets 7. Net Interest Inc Less Preferred Stock Dividend/ Average Earning Assets B. Other Operating Profitability Ratios 1. Non-Interest Income/ Gross Revenues 2. Non-Interest Expense/ Gross Revenues 3. Non-Interest Expense/ Average Assets 4. Pre-impairment Op. Profit/ Average Equity 5. Pre-impairment Op. Profit/ Average Total Assets 6. Loans and securities impairment charges/ Pre-impairment Op. Profit 7. Operating Profit/ Average Equity 8. Operating Profit/ Average Total Assets 9. Taxes/ Pre-tax Profit 10. Pre-Impairment Operating Profit / Risk Weighted Assets 11. Operating Profit / Risk Weighted Assets C. Other Profitability Ratios 1. Net Income/ Average Total Equity 2. Net Income/ Average Total Assets 3. Fitch Comprehensive Income/ Average Total Equity 4. Fitch Comprehensive Income/ Average Total Assets 5. Net Income/ Av. Total Assets plus Av. Managed Securitized Assets 6. Net Income/ Risk Weighted Assets 7. Fitch Comprehensive Income/ Risk Weighted Assets D. Capitalization 1. Fitch Core Capital/Weighted Risks 2. Fitch Eligible Capital/ Weighted Risks 3. Tangible Common Equity/ Tangible Assets 4. Tier 1 Regulatory Capital Ratio 5. Total Regulatory Capital Ratio 6. Core Tier 1 Regulatory Capital Ratio 7. Equity/ Total Assets 8. Cash Dividends Paid & Declared/ Net Income 9. Cash Dividend Paid & Declared/ Fitch Comprehensive Income 10. Cash Dividends & Share Repurchase/Net Income 11. Net Income - Cash Dividends/ Total Equity E. Loan Quality 1. Growth of Total Assets 2. Growth of Gross Loans 3. Impaired Loans(NPLs)/ Gross Loans 4. Reserves for Impaired Loans/ Gross loans 5. Reserves for Impaired Loans/ Impaired Loans 6. Impaired Loans less Reserves for Imp Loans/ Equity 7. Loan Impairment Charges/ Average Gross Loans 8. Net Charge-offs/ Average Gross Loans 9. Impaired Loans + Foreclosed Assets/ Gross Loans + Foreclosed Assets F. Funding 1. Loans/ Customer Deposits 2. Interbank Assets/ Interbank Liabilities 3. Customer Deposits/ Total Funding excl Derivatives

9.14 5.62 8.61 5.67 2.92 2.55 2.92 25.68 41.98 1.50 35.65 2.07 17.70 29.34 1.71 19.90 3.47 2.85 23.50 1.37 23.50 1.37 1.37 2.29 2.29 11.38 12.72 5.96 10.87 15.38 n.a. 5.96 14.09 14.09 14.09 17.26 26.95 25.33 1.45 0.35 23.91 11.73 0.54 n.a. 1.45 75.46 62.52 92.14

9.19 5.98 8.58 6.01 2.60 1.95 2.60 33.47 40.73 1.45 37.46 2.11 24.49 28.29 1.59 20.93 37.33 28.19 22.37 1.26 28.58 1.61 1.26 22.29 28.48 108.23 119.15 5.54 8.54 13.43 n.a. 5.54 15.89 12.43 15.89 17.32 20.53 22.50 1.52 0.46 30.37 12.29 0.94 n.a. 1.52 74.51 49.95 95.08

10.40 6.86 9.09 7.04 2.50 2.03 2.50 28.74 46.30 1.54 34.36 1.78 27.67 24.85 1.29 19.44 31.58 22.84 20.03 1.04 29.75 1.54 1.04 18.41 27.34 108.42 10.81 5.56 8.01 14.10 n.a. 5.56 18.52 12.47 18.52 13.83 21.67 29.05 1.56 0.47 30.34 12.37 0.73 n.a. 1.56 75.86 71.90 92.28

9.56 6.85 8.90 6.83 2.22 1.67 2.22 36.96 49.74 1.62 28.58 1.64 32.49 19.30 1.11 17.85 26.95 18.19 15.86 0.91 15.86 0.91 0.91 14.95 14.95 100.33 9.90 5.82 7.01 13.25 n.a. 5.82 24.54 24.54 24.54 11.25 8.78 8.75 1.18 0.35 29.32 8.57 0.85 n.a. 1.18 71.47 106.18 93.70

Canara Bank April 2012

Banks

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Related Criteria
Global Financial Institutions Rating Criteria (August 2011) Canara Bank April 2012

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