Strengths
• Boasts an unbroken record of profits since its inception.
• Comfortable capital adequacy ratio.
• Expanded its branch and ATM network during the 2012 fiscal year.
• Recently consolidated its business position by rebalancing its assets and liabilities.
Weaknesses
• Potential for political interference.
• Limited presence in western India.
• High levels of non-performing assets.
Opportunities
• Drive to increase its overseas presence.
• The bank may expand into Western markets.
• The bank has been one of the fastest to increase infrastructure lending in recent years, ahead of its rivals.
• Net worth of the bank increased during 2012.
Threats
• Continued global economic downturn.
Company Overview Canara Bank, based in Bangalore, is India's 11th largest bank in terms of market
capitalisation. It was founded in 1906 and nationalised in 1969. It has nine subsidiaries, sponsored institutions and joint ventures in India and abroad. The bank has over 4,000 branches and more than 2,000 ATMs (during the 2012 fiscal year, the bank opened 343 new branches and 642 ATMs). Of these branches, 2,681 have internet and mobile banking services and 2,091 offer 'Anywhere Banking' services. All of its branches offer real-time gross settlement and national electronic funds transfer facilities. As of the end of June 2012, Canara Bank occupied a premier position in the Indian banking sector and boasts an unbroken record of profits since its inception. Canara recorded total staff of 43,397 as of the end of March 2011.
Our core view on the Indian economy sees a cyclical upturn in the coming years, with full-year real GDP growth projected to rebound to 5.5% this fiscal year (FY2013/14 [April-March]) from an estimated growth rate of 5.0% in FY2012/13 (see 'Cyclical Bounce Capped By Lingering Twin Deficits', April 5). Having said that, given the uncertain environment on the back of the continued presence of the country's lingering twin deficits - high current account and budgetary shortfalls - we believe that any rebound in growth is likely to be muted, without the historical vigour witnessed in previous recoveries. In this article, we look at indicators of banking sector activity, and what they suggest about the nature of India's impending growth bounce. With regards to our projections for the banking sector's prospects this year, we are forecasting total asset growth to rebound to 20.0% this year, from the slowdown to 13.2% growth in 2012.
Despite our sanguine outlook, we are not expecting a particularly forceful recovery in economic growth in the coming fiscal year. To be sure, our FY2013/14 real GDP growth forecast of 6.1% would be well below the 10-year trend growth rate of 8.0%. While a weaker external climate goes some way to explain this, we believe that the government's persistent fiscal failings are perhaps the largest impediment to stronger growth. New Delhi's failure to rein in the fiscal deficit has been a major reason behind India's struggles with stubborn inflation, historically high interest rates and a record current account shortfall. These factors have, in turn, exhausted investor patience with India's growth story.
In a worst case scenario, in which the government fails to make any progress on deficit reduction in the coming months, there is a possibility that India will lose its coveted investment grade status. Indeed, Fitch Ratings and Standard & Poor's, two of the 'Big Three' agencies, have already sounded out warnings on this front. A downgrade to junk would knock any nascent investment rebound off track, and potentially see Indian real GDP growth languish in the low-to-mid-single-digits for an extended period.