Fitch Ratings has affirmed Canara Bank's Long-Term Issuer Default Rating (IDR) at 'BBB-'.
The Outlook is Stable.
At the same time, Fitch has upgraded Canara's Viability Rating (VR) to 'bb', from 'bb-'. In addition, Fitch has affirmed the Government Support Rating (GSR) at 'bbb-' and Short-Term IDR at 'F3'. A full list of rating actions is below.
Key Rating Drivers
Government Support-Driven IDR: Canara's IDR and GSR are equalised with India's sovereign rating (BBB-/Stable), reflecting Fitch's view of a high probability of extraordinary state support for the bank, if required. This takes into consideration the state's 63% ownership, the bank's large size and reach, and our assessment that the state has a strong propensity to support the banking system in general. The Stable Outlook on the IDR mirrors that on the sovereign IDR.
VR Upgrade: The upgrade of Canara's VR is supported by improvements in its risk profile, asset quality and profitability, which we expect to be sustained in an improving operating environment (OE). We have positive outlooks on most rating factor scores, mirroring the positive outlook on the OE. This reflects potential for higher scores if recent improvements are sustained, as we expect, and if the OE score is revised upwards.
Improving Operating Environment: We recently revised the outlook on Indian banks' OE score to positive, from stable, reflecting our expectations of reduced sector risks due to the Reserve Bank of India's enhanced regulation and supervision.
The positive outlook on the OE indicates potential for an upward revision of the 'bb+' score if Fitch assesses the sector's strengthened regulatory regime and improved financial performance as sustainable, with several key financial metrics close to when the score was last at 'bbb-' in 2019. The outlook is also supported by India's large and diversified economy and its strong medium-term growth potential - consistent with Fitch's forecast of GDP growth of above 6% through the financial year ending March 2027 (FY27).
Large Franchise: Canara has a strong local franchise and reach as India's fourth-largest state bank, although, like state-owned peers, it is occasionally subject to government influence on lending. The bank's status should sustain business and profit generation, particularly in an improving OE.
Enhanced Risk Profile: We have revised Canara's risk profile score to 'bb', from 'bb-'. This reflects improved underwriting standards and risk controls, better loan diversification and clean-up of legacy bad loans as well as the bank's limited unsecured retail exposure. Canara has tightened underwriting following regulatory measures and asset quality pressures in the last cycle, but above-average loan growth and swift build-up of personal loans are risks to the VR.
Resilient Asset Quality: We have revised the asset-quality score to 'bb', from 'bb-', as we expect the impaired-loan ratio, which has improved in recent years, to be sustained close to 2.0% to FY28. The ratio decreased to 2.1% in 9MFY26, from 2.9% in FY25, driven by a slight reduction in bad loans, better recoveries, loan growth as well as write-offs. Credit costs eased to 0.6% of loans in 9MFY26, from 1% in FY25, and loan loss coverage rose by 200 bp to 79%, or 163% including other loan provisions based on Fitch's estimate.
Profitability to Remain Strong: We have revised Canara's earnings and profitability score to 'bb', from 'bb-'. The revision reflects the improved profitability in recent years and our expectation that the bank's operating profit/risk-weighted asset ratio would remain steady at around 2.9% to FY27, with wider margins and tight cost control offsetting slightly higher credits cost.
Largely Stable Capital Buffers: We expect the common equity Tier 1 (CET1) ratio to remain close to 12.5% to FY28 (FY25: 12%), factoring in dividend payments and loan growth, after steady internal accruals saw the ratio rise to 14.2% in 9MFY26, including profit. The net impaired loans/CET1 ratio declined to 5.3% in 9MFY26, from 8.3% in FY25, indicating improved capital buffers.
Robust Funding and Liquidity: Funding and liquidity is a strength for Canara's VR, as for other state banks. We estimate that the loan/customer deposit ratio exceeded 86% in 9MFY26, up from 81% in FY25 and just below the peer average of about 87%. Customer deposits comprised about 91% of total non-equity funding in 9MFY26, with a liquidity coverage ratio of 126%.
Rating Sensitivities
Factors that Could, Individually or Collectively, Lead to Negative Rating Action/Downgrade
The Long-Term IDR and GSR could be downgraded if we believe sovereign support for Canara has weakened. This would be reflected in negative rating action on India's sovereign rating or the state's reduced propensity to extend timely support.
The Short-Term IDR maps to the Long-Term IDR, in line with Fitch criteria, and would be downgraded if the Long-Term IDR is downgraded.
We do not expect a VR downgrade in the near term, given the improving OE, but a downgrade would be possible if we assess the risk profile to have weakened and become a more binding constraint on Canara's financial profile and loss-absorption buffers, increasing the risk of much weaker financial metrics.
Factors that Could, Individually or Collectively, Lead to Positive Rating Action/Upgrade
Positive action on the sovereign rating could lead to a corresponding change to Canara's Long-Term IDR and GSR, provided that we believe the sovereign's propensity to support the bank remains unchanged.
The Short-Term IDR may be upgraded if the sovereign's Short-Term IDR is upgraded. The likelihood of an upgrade based on Canara's intrinsic strength is low.
A VR upgrade is likely if we revise the bank's OE score to 'bbb-'. A higher OE score would imply lower system risks and would most likely lead to upward revisions of most other rating factor scores, in line with the implied scores under Fitch's Bank Rating Criteria. This is provided that the bank maintains steady performance, as we expect. Canara's risk profile is an important consideration in assessing whether improvements to its financial metrics can be sustained.
OTHER DEBT AND ISSUER RATINGS: KEY RATING DRIVERS
Canara's medium-term note programme and senior notes are rated at the same level as its Long-Term IDR, in line with Fitch's criteria.
Canara's Long-Term IDR (xgs) is driven by its VR. The Short-Term IDR (xgs) maps from the Long-Term IDR (xgs) in accordance with Fitch criteria. Senior unsecured long-term ratings (xgs) are assigned at the level of the Long-Term IDR (xgs).
OTHER DEBT AND ISSUER RATINGS: RATING SENSITIVITIES
The ratings on Canara's programme and senior debt will move in tandem with the IDR, although Fitch views an upgrade as unlikely in the near term.
The Long-Term IDR (xgs) will move in tandem with the VR. The Short-Term IDR (xgs) is sensitive primarily to changes in the Long-Term IDR (xgs) and is mapped according to Fitch criteria. A change in the Long-Term IDRs (xgs) would lead to a similar change in the senior unsecured long-term rating (xgs ).
VR ADJUSTMENTS
The operating environment score of 'bb+' is above the 'b' category implied score due to the following adjustment reason(s): economic performance (positive), and size and structure of economy (positive).
The business profile score of 'bb+' is below the 'bbb' category implied score due to the following adjustment reason(s): management, governance and strategy (negative).
The funding & liquidity score of 'bbb-' is above the 'bb' category implied score due to the following adjustment reason(s): deposit structure (positive).
Sources of Information
The principal sources of information used in the analysis are described in the Applicable Criteria.
REFERENCES FOR SUBSTANTIALLY MATERIAL SOURCE CITED AS KEY DRIVER OF RATING
The principal sources of information used in the analysis are described in the Applicable Criteria.
Public Ratings with Credit Linkage to other ratings
Canara's IDRs are driven by India's sovereign rating. A change in the sovereign's IDRs would be reflected in Canara's IDRs.
ESG Considerations
Canara has an ESG Relevance Score of '4' for Governance Structure, in line with similarly rated state banks. This reflects our assessment that key governance aspects, particularly board independence and effectiveness, ownership concentration and protection of creditor or stakeholder rights, are of moderate influence, yet negative for Canara's credit profile, and relevant to the ratings in conjunction with other factors.
The board is dominated by government appointees, and business models often focus on supporting government strategy, with lending directed towards promoting socioeconomic and macroeconomic policies. These factors also drive our view on the bank's state linkages. This affects the support prospects that drive the long-term ratings.
The highest level of ESG credit relevance is a score of '3', unless otherwise disclosed in this section. A score of '3' means ESG issues are credit-neutral or have only a minimal credit impact on the entity, either due to their nature or the way in which they are being managed by the entity. Fitch's ESG Relevance Scores are not inputs in the rating process; they are an observation on the relevance and materiality of ESG factors in the rating decision. For more information on Fitch's ESG Relevance Scores, visitwww.fitchratings.com/topics/esg/products#esg-relevance-scores
RATING ACTIONS
Entity / Debt
Rating
Prior
Canara Bank
LT IDR
BBB-
Affirmed
BBB-
ST IDR
F3
Affirmed
F3
Viability
bb
Upgrade
bb-
Government Support
bbb-
Affirmed
bbb-
LT IDR (xgs)
BB(xgs)
Upgrade
BB-(xgs)
ST IDR (xgs)
B(xgs)
Affirmed
B(xgs)
senior unsecured
LT
BBB-
Affirmed
BBB-
senior unsecured
LT (xgs)
BB(xgs)
Upgrade
BB-(xgs)
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VIEW ADDITIONAL RATING DETAILS
Additional information is available on www.fitchratings.com
PARTICIPATION STATUS
The rated entity (and/or its agents) or, in the case of structured finance, one or more of the transaction parties participated in the rating process except that the following issuer(s), if any, did not participate in the rating process, or provide additional information, beyond the issuer's available public disclosure.
APPLICABLE CRITERIA
Bank Rating Criteria (pub. 22 Mar 2025) (including rating assumption sensitivity)
Financial Institutions Climate Vulnerability Rating Criteria (pub. 09 Dec 2025)
ADDITIONAL DISCLOSURES
Dodd-Frank Rating Information Disclosure Form
Solicitation Status
Endorsement Policy
ENDORSEMENT STATUS
Canara Bank EU Endorsed, UK Endorsed
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Endorsement Policy
Fitch's international credit ratings produced outside the EU or the UK, as the case may be, are endorsed for use by regulated entities within the EU or the UK, respectively, for regulatory purposes, pursuant to the terms of the EU CRA Regulation or the UK Credit Rating Agencies (Amendment etc.) (EU Exit) Regulations 2019, as the case may be. Fitch's approach to endorsement in the EU and the UK can be found on Fitch's Regulatory Affairs page on Fitch's website. The endorsement status of international credit ratings is provided within the entity summary page for each rated entity and in the transaction detail pages for structured finance transactions on the Fitch website. These disclosures are updated on a daily basis.
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