CRISIL has enhanced the rated amount while retaining 'AAA/Stable/A1+' ratings on Canara Bank's certificate of deposits (CD) programme and debt instruments. The rated amount enhanced to Rs 500 billion from Rs 400 billion for total bank loan facilities.

The rating continue to factor in the strong support that the bank is expected to receive from its majority owner the Government of India (GoI). The ratings also reflect the bank's strong market position and adequate capitalisation. These rating strengths are, however, partially offset by Canara Bank's modest resource profile and average earnings position.

The distinguishing feature of Tier-II capital instruments under Basel III is the existence of the point of non-viability (PONV) trigger, the occurrence of which may result in loss of principal to the investor, and hence, to default on the instrument by the issuer. As per the Basel III guidelines, the PONV trigger will be determined by the Reserve Bank of India (RBI). CRISIL believes that the PONV trigger is a remote possibility in the Indian context given the robust regulatory and supervisory framework, and the systemic importance of the banking sector. The inherent risk associated with the PONV feature is adequately factored into the rating on the instrument.

The current ratings continue to factor in the strong support that Canara Bank is likely to receive from GoI, both on an ongoing basis and in the event of any distress. This is because GoI is both the majority shareholder in public sector banks (PSBs) and the guardian of India's financial system. The stability of the banking sector is of prime importance to GoI, given the criticality of the sector to the economy, the strong public perception of sovereign backing for PSBs, and the severe political repercussions in case of failure of any PSB on sovereign credit-worthiness.

CRISIL believes Canara Bank will benefit from continued GoI support. The bank is likely to maintain its adequate capitalisation and strong market position over the medium term. The outlook may be revised to 'Negative' if there is steep and sustained deterioration in Canara Bank's asset quality or earnings profile

Shares of the bank gained Rs 26.85, or 6.47%, to settle  at  Rs 442.  The total volume of shares traded  was  651,973 at  the BSE (Monday).