Canara Bank Sets Record Date for Call Option on Bonds Worth ₹4,500 Crore
Canara Bank, one of India’s leading public sector banks (PSBs), has announced its decision to exercise the call option on its Basel III-compliant Additional Tier-I and Tier-II bonds, amounting to a total of ₹4,500 crore. The bank has also set the record dates for these transactions. This move comes after receiving the Reserve Bank of India’s (RBI) approval and is expected to enhance the bank’s financial structuring while optimizing its capital base.
Record Date for Additional Tier-I Bond (₹1,500 Crore)
The PSU lender will exercise the call option on its 9.55% unsecured, non-convertible Basel III-compliant Additional Tier-I bond, originally issued on March 5, 2015. The redemption and interest payment will be made on March 5, 2025. Canara Bank has set Tuesday, February 19, 2025, as the record date for this transaction.
The Tier-I bonds are perpetual in nature, meaning they do not have a fixed maturity date, but the issuing bank has the option to redeem them after a specific period, subject to regulatory approval. The RBI’s nod for this move indicates that Canara Bank is in a stable financial position to exercise the call option without affecting its capital adequacy.
Record Date for Tier-II Bond (₹3,000 Crore)
Similarly, Canara Bank will also exercise the call option on its 7.18% unsecured, subordinated, non-convertible Basel III-compliant Tier-II bond, which was issued on March 11, 2020. The redemption and interest payout for this bond will take place on March 11, 2025. The bank has set Monday, February 24, 2025, as the record date.
Tier-II bonds, unlike Tier-I bonds, have a fixed maturity period, but the issuing bank can recall them before maturity under specific conditions. By opting to exercise the call option, Canara Bank is likely looking to restructure its liabilities and optimize capital utilization.
RBI Approval & Canara Bank’s Statement
The bank had informed the stock exchanges on January 31, 2025, about its decision to exercise the call option on these bonds. According to an exchange filing, Canara Bank stated:
“We wish to inform that the Reserve Bank of India, vide letter ref: DOR.CAP.S6813/21-01-002/2024-25 dated 29th January 2025, has permitted the Bank to exercise the call option of the above-said Bonds, and the Bank is in the process of exercising the call option on the due date, i.e., 05th Mar 2025 & 11th Mar 2025, respectively, as per the terms of issuance.”
This strategic financial move is part of Canara Bank’s broader efforts to manage its capital structure efficiently and reduce overall borrowing costs.
Canara Bank’s Stock Performance Amid Market Weakness
On February 10, 2025, Canara Bank’s stock was trading 1.73% lower at ₹92.42 per share on the BSE at 2:15 PM. During the trading session, the stock touched a day’s high of ₹94.40 and a low of ₹91.91. The decline in share price reflects the broader market weakness but does not necessarily indicate investor concerns over the bank’s decision.
Canara Bank’s Financial Metrics & Ratios
The bank’s financial health remains strong, as indicated by key financial metrics and valuation ratios:
| Metric | Value |
|---|---|
| Market Cap | ₹84,529 Cr. |
| Current Price | ₹93.2 |
| High / Low | ₹129 / ₹87.8 |
| Stock P/E | 5.13 |
| Book Value | ₹102 |
| Dividend Yield | 3.40% |
| ROCE (Return on Capital Employed) | 6.63% |
| ROE (Return on Equity) | 17.9% |
| Face Value | ₹2.00 |
| Debt to Equity | 14.9 |
| Industry P/E | 8.29 |
| Total Debt | ₹13,69,780 Cr. |
| PEG Ratio | 0.06 |
| Intrinsic Value | ₹244 |
| Graham Number | ₹203 |
| Piotroski Score | 7.00 |
| Price to Book Value | 0.93 |
Implications for Investors
For investors, Canara Bank’s decision to exercise the call option signals confidence in its financial health and capital adequacy. The move will likely reduce interest costs and improve the bank’s overall profitability in the long term. Additionally, with a low P/E ratio of 5.13, the stock remains undervalued compared to the industry P/E of 8.29, making it an attractive bet for long-term investors.
However, potential investors should closely monitor macroeconomic conditions, regulatory changes, and the bank’s future bond issuances before making investment decisions.
Final Thoughts
Canara Bank’s decision to redeem its Basel III-compliant bonds ahead of schedule is a well-calculated financial move that showcases the bank’s strong capital position. With RBI approval in place, the bank is expected to execute these transactions smoothly. While the broader market volatility has impacted Canara Bank’s stock in the short term, its strong fundamentals and attractive valuations could make it a promising long-term investment.
As the PSU banking sector continues to evolve with changing regulatory frameworks and financial strategies, Canara Bank’s proactive approach to capital management positions it well for future growth. Investors should stay tuned for further updates on the bank’s financial strategies and upcoming corporate actions.
For more market insights, follow our blog.
Stay tuned for more updates and insights on the stock market! For more insights on investing in the Indian stock market, check out resource like ET, NSE India.
Disclaimer: This blog post is for informational purposes only and should not be considered financial advice. Investors should conduct thorough research and consult with a qualified financial advisor before making any investment decisions.