Moody & #39;S May Lift Canara Bank, Seeks Financials

The Moody's Investor Services has sought details of Canara Bank's financial performance even as the bank expects a rating upgrade from the agency owing to its improved credit quality.

Sources in the bank said that Moody's officials are expected to meet their counterparts in the bank in September for re-rating the bank. They said the bank was confident of getting a rating upgrade even though the agency has scaled down India's rating.

According to sources, the bank had been able to settle most of its pending issues concerning its mutual fund scheme, Canstar, and its investment banking subsidiary, Canfina.

While the country's rating will be taken into consideration, it will not be an overriding factor in determining the bank's rating. However, Moody's rating also takes into account the performance of the bank's owners, the Government of India, sources said.

 

The bank's current foreign currency deposit ratings were in fact placed at the country's ceiling for such deposits in India reflecting the strong likelihood of support from the government.

As per its current outlook, Moody's in its report said, it may upgrade its current rating of the bank -- D. "The bank's improving credit quality is the single-most important source of positive pressure on the bank's financial strength rating," it said.

Three years back, Moody's had downgraded Canara Bank's financial strength from D-plus to D keeping in view the economic slowdown in the country and the poor performance of the bank's subsidiaries.

Earlier, Standard & Poor (S&P) had accorded a 'BBPI' rating for the nationalised Canara Bank, indicating that the bank continues to be under the moderate risk category. S&P had given a similar rating to Canara Bank's financial strength in 1998.

Rating agency Crisil has accorded a P1 plus (risk-free category) rating to Canara Bank's commercial papers and certificate of deposits.

Sources said the bank had settled its dues with most of the public sector undertakings, and through a voluntary retirement scheme it had become a leaner and fitter organisation.

According to the Moody's report, the current rating took into account the increasing competitive operating environment and the challenges the bank faces in modernising its operations as well as the high level of credit risk that Indian banks have to contend with. "The bank was weakened in the mid-90s by the failure of its mutual fund scheme and by a fraud case in which its investment banking subsidiary, Canfina, got entangled," the report said.

The D rating possess adequate financial strength but may be limited by factors such as a vulnerable or developing business franchise, weak financial fundamentals or an unstable operating environment.

Moody's current outlook states that improvements in recurring profitability and asset quality during 2000 have eased some of the negative pressures on the bank's financial strength. It said if these positive trends continue in the current year, the negative outlook may be lifted.

It said the bank's strengths include strong domestic network and growing deposits. Recurring profitability has recovered as a result of stabilised interest margins, a pick-up in non-interest income and improvement in efficiency. It said remaining liabilities of Canstar and Canfina are close to the resolution.

The bank is also planning to float a Rs 300 crore tier-II bond which will increase its capital adequacy ratio to 10.02 per cent from 9.82 per cent. Canara Bank posted a net profit of Rs 285 crore in 2000-01 compared with Rs 236 crore in 1999-2000, recording a growth of around 21 per cent.

The bank's operating profit rose to Rs 1,123 crore during 2000-01 compared with Rs 923 crore during 1999-2000. Bank officials have said the bank's profits would have been higher but for the VRS initiated by the bank during 2000-01.