Fitch Ratings has affirmed Canara Bank’s Long-Term Issuer Default Rating (IDR) at ‘BBB-’ with a Stable Outlook. The Viability Rating (VR) remains at ‘bb-’, while the Government Support Rating (GSR) stays at ‘bbb-’.

The ratings reflect a high probability of state support, given the government’s 63% stake in Canara Bank and its systemic importance.

The bank’s risk profile continues to weigh on its VR, as its past risk appetite impacted financial metrics in weaker economic conditions.

Canara Bank’s asset quality has improved, with the impaired-loan ratio dropping to 3.3% in 9MFY25 from 4.2% in FY24. The loan loss coverage ratio rose to 74%, reducing risks from overdue loans.

Profitability appears to have peaked, with the operating profit/risk-weighted asset ratio steady at 3%.

Fitch expects this to decline by 40 basis points by FY27, though it will stay above the 1.25% ‘bb’ category threshold.

The bank’s Common Equity Tier 1 (CET1) ratio improved to 12% in 9MFY25 and may rise to 12.5% by FY27. Funding and liquidity remain strong, with a liquidity coverage ratio of 123% and a loan-to-deposit ratio exceeding 80%.

A downgrade in India’s sovereign rating or a reduction in the government’s support propensity could lower Canara Bank’s rating. Conversely, a sovereign upgrade or a significant improvement in asset quality and capital buffers could lead to an upgrade.