Ratings by ICRA (LettertoSE30102025)

Ref: Disclosure under Regulation 30 of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015

Pursuant to Regulation 30 of SEBI (LODR) Regulations, 2015, the Exchanges are hereby informed that Bank received credit rating from ICRA (Rating Agency) today i.e. 30.10.2025 as below:

A copy of the credit rating rationale issued by ICRA is enclosed herewith. This is for your information and records.

SANTOSH KUMAR BARIK

Digitally signed by SANTOSH KUMAR BARIK

Date: 2025.10.30

19:49:30 +05'30'

October 30, 2025

*lnstrument details are provided in Annexure l

Rationale

The ratings factor in Canara Bank's (Canara) sovereign ownership and its strong franchise with a market share of 5.8% in net advances and 6.4% in total deposits as on March 31, 2025. As on June 30, 2025, it was the fourth−largest public sector bank (PSB) and the sixth−largest bank in the Indian financial system in terms of total business (cumulative advances and deposits). The ratings are further supported by Canara's robust deposit franchise, resulting in a well−developed retail deposit base and a strong liquidity profile.

The ratings consider the bank's robust profitability and strong capitalisation profile with the same expected to remain healthy, going forward. The Government of India (GoI) has a track record of providing capital support to Canara, which has also raised capital from the market, supporting its overall capital profile.

While the bank witnessed a sustained improvement in its profitability in the past 2−3 years, the same is likely to moderate slightly amid the expected decline in the net interest margin (NIM). However, ICRA expects Canara to generate sufficient internal accruals to meet its growth capital requirements while keeping the desired cushion on the capital well above the regulatory levels {including capital conservation buffers (CCB)}. Nevertheless, the impact of transitioning to provisioning based on the expected credit loss (ECL) framework, on the capital and profitability levels will remain monitorable.

The headline asset quality indicators continue to improve and the residual vulnerable book, comprising overdue (SMA−1, SMA− 2)1 and standard restructured advances, witnessed a sustained improvement over the last few years. Further, given the high provision coverage for the legacy stressed assets, ICRA expects Canara's asset quality and solvency position to remain healthy. However, the asset quality remains monitorable due to loan book seasoning, given the high loan growth in recent years and the likelihood of any shock arising out of the ongoing macroeconomic and geopolitical developments. The rating for the Tier−I (AT−I) bonds factors in the healthy level of distributable reserves (DRs)2, which can be used to service the coupon on these bonds in the unforeseeable event of a loss.

The Stable outlook on the ratings reflects ICRA's expectation that the bank will be able to maintain a steady credit profile, with stable asset quality as well as healthy profitability and capitalisation.

‌1 SMA is defined as a special mention account (SMA), which is an account exhibiting signs of incipient stress resulting in the borrower defaulting in the timely servicing of their debt obligations though the account has not yet been classified as an NPA as per the extant RBl guidelines; SMA−1 accounts are overdue by 31−60 days while SMA−2 accounts are overdue by 61−90 days

‌2 DRs consist of reserves created through appropriation of profits (including statutory reserve)

Internal

Credit strengths

Sovereign ownership with demonstrated capital support from Gol - The GoI remains the bank's largest shareholder with a 62.93% equity stake as on June 30, 2025. With two rounds of equity capital of Rs. 4,500 crore raised from the market in FY2021 and FY2022, the GoI's shareholding has declined from 69.33% as on March 31, 2021. However, this provides enough headroom to raise capital from the markets, if required. The GoI has not infused any capital into Canara in the last four fiscals as its capital position remained comfortable and it raised capital from the market. Canara and Syndicate Bank (e−SB), which merged with Canara, had received sizeable equity capital support from the GoI, amounting to Rs. 18,234 crore during FY2018−FY2020. Recapitalisation and improving internal accruals over the years have helped the bank reduce its net non−performing advances (NNPAs) substantially. ICRA believes that Canara has comfortable capital cushions and is likely to remain self−sufficient for its capital requirements and expects it to continue receiving support from the GoI, if required.

Comfortable capital position and solvency - The bank's core equity capital (CET I) and Tier I capital stood at 12.29%3 and 14.58%, respectively, as on June 30, 2025 (12.05% and 14.37%, respectively, as on June 30, 2024), maintaining a buffer over the regulatory ratios. With the enhanced capital position and the decline in the NNPA level, NNPA/core capital improved to 7.29% as on June 30, 2025 from 14.2% as on June 30, 2024. In ICRA's view, Canara remains well placed for growth, in terms of its capital position, while absorbing any incremental stress and maintaining more than the desired cushion of 1% on the capital above the regulatory levels. Besides this, the subsidiaries largely remain self−sufficient in meeting their capital requirements although a few may require capital support, which is likely to remain manageable in relation to the bank's profit and the existing capital levels. Notwithstanding the sufficient internal accruals and capital position for growth, the Reserve Bank of India's (RBI) implementation of the ECL framework for credit exposures remains monitorable for the capital position.

Healthy earnings profile - Canara continued to report healthy core operating profitability, as a percentage of average total assets (ATA), though it moderated to 1.82% in FY2025 from 1.97% in FY2024 due to the compression in NIMs. It declined further to 1.63% in Q1 FY2026. Moreover, credit costs remained at manageable levels and stood at 0.55% (annualised) of ATA in Q1 FY2026 and 0.55% in FY2025 (0.69% in FY2024) due to controlled slippages and healthy recoveries/upgrades. The bank also reported strong trading gains of Rs. 1,617 crore in Q1 FY2026 and Rs. 2,666 crore in FY2025 (Rs. 1,623 crore in FY2024), which led to a healthy return on assets (RoA) of 1.12% (annualised) in Q1 FY2026 and 1.08% in FY2025 (1.03% in FY2024). Going forward, Canara's profitability margins may remain under pressure with the expected compression in interest spreads and hence NIMs due to policy rate cuts. The ability to control fresh slippages and maintain lower credit provisions will be key for healthy profitability, going forward.

Well-developed deposit franchise - Canara has a well−developed deposit franchise and draws support from its extensive network of 9,861 domestic branches as on June 30, 2025, with a strong footprint across South India. It witnessed a healthy global deposit growth of 9.92% YoY during the quarter ended June 30, 2025, leading to a credit−to−deposit (CD) ratio of 73.15% (70.9% as on June 30, 2024). Further, the deposit growth of 11.01% in FY2025 was higher than the PSB average of 10.11%. However, Canara had a relatively lower domestic current account and savings account (CASA) base of 29.6% as on June 30, 2025 (31.0% as on June 30, 2024) compared to the PSB average. Lower CASA deposits and the high interest rates on term deposits offered by the bank have kept its overall cost of funds historically above the PSB average. Canara's cost of funds stood at 5.67% compared to the PSB average of 5.18% in FY2025. ICRA expects the bank to continue maintaining a strong liquidity profile on account of its healthy core deposit base and widespread branch network.

Credit challenges

Asset quality improved but remains monitorable - The annualised gross fresh NPA generation rate stood at 0.83% in Q1 FY2026 (1.18% in FY2025, 1.59% in FY2024), materially below the elevated levels seen in the past (4−8% over FY2017−FY2020). Further, write−offs, healthy recoveries/upgrades and loan book growth led to a decline in the gross NPA (GNPA) percentage to 2.69% as on June 30, 2025 from 4.14% as on June 30, 2024. While NNPAs declined to 0.63% as on June 30, 2025 from the high

‌3 Including interim profit

levels observed in the recent past, it was slightly above the PSB average of 0.51% as on March 31, 2025. The asset quality remains monitorable for loan book seasoning amid the high loan growth in recent years. Additionally, geopolitical issues, the impact of macroeconomic shocks on borrowers {especially micro, small and medium enterprises (MSMEs)} and concerns around overleveraging among retail borrowers could impact the asset quality metrics adversely.

Environmental and social risks

While banks like Canara do not face material physical climate risks, they are exposed to environmental risks indirectly through their portfolio of assets. If the entities or businesses, to which banks and financial institutions have an exposure, face business disruptions because of physical climate adversities or if such businesses face climate transition risks because of technological, regulatory or customer behaviour changes, it could translate into credit risks for banks. However, such risk is not material for Canara as it benefits from adequate portfolio diversification. Further, the lending is typically short−to−medium term, allowing it to adapt and take incremental exposure to businesses that face relatively fewer downside environmental risks.

With regard to social risks, data security and customer privacy are among the key sources of vulnerability for banks as material lapses could be detrimental to their reputation and invite regulatory censure. Canara has not faced material lapses over the years. Customer preferences are increasingly shifting towards digital banking, which provides an opportunity to reduce the operating costs. Canara has been making the requisite investments to enhance its digital interface with its customers. While it contributes to promoting financial inclusion by lending to the underserved segments, its lending practices remain prudent as reflected in the healthy asset quality numbers in this segment compared with its peers.

Canara's reported liquidity coverage ratio of 144.2% and net stable funding ratio of 127.3% in Q1 FY2026 were well above the regulatory requirement of 100%. ICRA expects the bank to maintain its strong liquidity profile, given the large proportion of retail deposits and the high portfolio of liquid investments. It can also avail liquidity support from the RBI (through reverse repo against excess statutory liquidity ratio (SLR) investments and marginal standing facility mechanism) in case of urgent liquidity requirements.

Positive factors - Not applicable as all the ratings are at the highest level for the respective instruments

Negative factors - The ratings will be reassessed in case of a change in the sovereign ownership. Further, an RoA of less than 0.3% and/or a decline in the capital cushions over the regulatory levels to less than 100 basis points (bps) on a sustained basis will remain negative triggers. A sharp deterioration in the profitability and weakening of the DRs eligible for the coupon payment on the AT−I bonds will be negative triggers for the rating for these bonds.

About the company

Canara was incorporated in 1906 and nationalised in 1969, along with 12 PSBs, by the GoI. The bank is headquartered in Bengaluru.

Canara was merged with Syndicate Bank (e−SB) on April 1, 2020. It had a total asset base of Rs. 17.2 lakh crore as on June 30, 2025. The bank had a market share of 5.8% and 6.4% in net advances and total deposits, respectively, as on June 30, 2025, with the GoI holding a majority stake (62.93%). It had a network of 9,861 domestic branches and 7,907 ATMs as on June 30, 2025.

Key financial indicators (standalone)

Source: Canara Bank, ICRA Research; All ratios as per ICRA Research; Amount in Rs. crore unless mentioned otherwise

* Total assets exclude revaluation reserves

^ Including Q1 FY2026 profit

Total income includes net interest income and non−interest income excluding trading income/loss

Status of non-cooperation with previous CRA: Not applicable Any other information: None

Rating history for past three years

LT - Long term; ST - Short term