Canara Bank To Raise Additional Rs 1000 Crore Through Bonds

To infuse fresh capital and augment its Tier-II capital, Public sector lender Canara Bank, has decided to raise additional capital of Rs 1000 crore through issue of BASEL-III complaint Tier-II Bonds (Series-II). The Bank has received AAA / Stable of rating from CRISIL and similar rating (ICRA-AAA ) from ICRA for the proposed issue of the said bonds. 

To improve Tier I capital, the government has already infused Rs 500 crore in the bank and it is expected to receive some capital as the government has proposed to infuse Rs 11200 crore in all Public sector banks in FY15.

In Q3FY14, Capital to Risk Weighted Asset Ratio (CRAR) for the bank was 9.83 per cent against mandatory 9 per cent of Basel-III norms. Going deep into it, Tier I ratio was at 7.48 per cent as compared with mandatory 7 per cent of Basel-III norm, while Tier II ratio was 2.35 per cent. But CRAR is showing a decreasing trend in FY14 as it has gone down to 9.83 per cent in Q3FY14 where it was 11.13 per cent in Q1FY14. That is a matter of concern and to improve it, the bank is raising funds again. 

This is the second time in FY14 when Canara bank is raising fund through Basel-III complaint Tier-II Bonds. Before this proposed issue, the bank raised Rs 1500 crore by issuing unsecured, non-convertible, redeemable Basel-III compliant bonds through private placement. Face value of each bond was Rs 10 lakh and carries a fixed coupon rate of 9.73 per cent pa and is listed on the wholesale debt market segment of National Stock Exchange of India.

This is nowadays a common practice in the banking sector. There are several banks which have raised funds through this route (BASEL-III complaint Tier-II Bonds). State bank of India raised Rs 2000 crore, Union Bank raised Rs 2000 crore, Bank of India raised Rs1000 crore, United Bank Rs 500 crore and Yes Bank raised Rs 300 crore. 

The bank performance in December quarter FY14 was not up to the mark as its net interest margin dropped from 2.36 per cent in Q3FY13 to 2.21 per cent in Q3FY14, while net profit was down by 42 per cent YoY to Rs 409 crore in Q3FY14. On assets quality front, Gross NPAs of the bank stood at 2.79 per cent of total advance in Q3FY14 as compared to 2.64 per cent in Q2FY13. On the other hand, book value of the bank has improved from Rs 486 per share in Q3FY13 to Rs 518 per share in Q3FY14. At present the stock is trading at 0.46 times of its book value.