Canara Bank to raise up to Rs 3,500 crore through Tier II bonds

Public sector lender Canara Bank plans to raise upto Re 3,500 crore through tier II bonds in tranches for enhancing capital adequacy ratio to meet growth requirements.

Its last capital raise via Tier II bonds for Rs 2,500 crore was in December 2021 at coupon of 7.09 per cent. It is likely to come to market on August 25, 2022 with the first tranche of tier II bonds (10-year tenure) having primary size of Rs 1,000 crore. The proposed offering is expected to carry a green shoe option of Rs 1,000 crore, bond market sources said. 

Rating agency ICRA has assigned AAA rating with stable outlook to Canara Bank’s proposed Tier II bonds issuance.

In July, bank raised Rs 2,000 crore in capital through Additional Tier -1 (AT-1) bonds at coupon of 8.24 per cent. 

Its Capital Adequacy stood at 14.91 per cent with tier I of 12.13 per cent and tier II of 2.78 per cent as of June 30, 2022.

Meanwhile, another public sector lender Bank of Baroda is likely to hit the market with an AT1 bond by the end of this week. The primary issue size is Rs 500 crore with green shoe option of Rs 2,500 crore. 

Canara Bank executives said its Tier II bond issuance is predominantly for enhancing capital base crucial for credit growth. The bank’s loan book grew 14.47 per cent YoY, on par with the rate at which the banking system’s loan book expanded (14.4 per cent YoY) in June 2022. The outstanding advances stood at Rs 7.83 trillion as of June 2022.

Bengaluru-based public sector lender has approvals in place to raise upto Rs 9,000 crore through Additional Tier I binds (Rs 5,500 crore) and Tier II bonds (Rs 3,500 crore) in the financial year 2022-23.

The Stable outlook on the ratings factors in the expectation of an improvement in the solvency profile and internal capital generation and the strong liability profile. Bank’s sovereign ownership with demonstrated capital support from the government is one of credit strength. The GoI remains the bank’s largest shareholder, accounting for a 62.93 per cent equity stake as on June 30, 2022.

Canara Bank and Syndicate Bank, which was merged with the former in April 2020 had received equity capital amounting to Rs 18,234 crore during FY2018-FY2020. Out of which Rs. 6,571 crore was last infused in FY2020.