Why Canara Bank Share Price is Falling

The Nifty PSU Bank index touched an all-time high on 26 April 2024.

High demand for capital for infrastructure, which will result in strong credit growth, and improving return on equity (ROE), and the inclusion of Indian bonds in the global bond index, made the case for PSU banks stronger.

However, today, stocks from the entire PSU Bank sector have taken a hit, with Canara bank seeing the largest decline in its stock price.

The bank's shares are down more than 5% today.

So, what's causing the decline in the stock price?

Let's find out...

Slide in PSU Bank Stocks

Shares of India's state-run lenders including Canara Bank, tumbled up to 6% today after the Reserve Bank of India (RBI) released a draft proposing tighter rules for lending and heightened monitoring for under-construction infrastructure projects.

The Nifty public sector undertaking (PSU) bank index, which has risen by an impressive 27% in 2024 so far, fell up to 5% in trade today.

All constituents of the PSU Bank index were trading in the red.

The top laggards on the index were Punjab National Bank, Canara Bank, Union Bank, Bank of Baroda, and Bank of India all slipping more than 3%.

The central bank's draft rules include a classification of the projects as per their phase and higher provisioning of up to 5% during the construction phase, even if the asset is standard.

This is significantly higher than the current provision of 0.4% for non-default exposures.

Other PSU stocks also took a hit. State-run counters such as Power Finance Corporation (PFC), REC Ltd, Bharat Heavy Electrical Ltd (BHEL), Bharat Dynamics Ltd, RVNL, Ircon and Mazagon Dock Shipbuilders were down up to 12% for the day after the RBI's notice.

Strong Fundamentals to Drive Growth

A large part of the lender's advances come from the corporate (42.1%) and retail (28.1%) segments followed by agriculture (15.6%) and micro, small, and medium enterprises (14.2%).

Between 2019-2023, the bank has doubled its advances, reporting a CAGR of 16.8%. And while the advances have doubled, the NPAs have halved, from a whopping 7.5% in the financial year 2018 to 1.7% in 2023. This suggests a massive improvement in asset quality.

The robust growth has enabled the lender to expand its margins, turning its losses into profits and boosting its return on equity. The average RoE for the past 5 years stands at 16.4%.

The bank's heightened emphasis on credit expansion has propelled its success. It has generously rewarded investors for its stellar performance in the financial year 2023. With a 84% increase in the dividend per share, the dividend yield has risen from 3.3% to 4.7%.

Over the nine months leading up to 2024, the lender's profits surged by 45% on a year-on-year basis.

Considering the encouraging outcomes of this year's profits, it's highly likely that the bank will continue to reward its shareholders.

How Canara Bank Share Price has Performed Recently

In the past five days, shares of the company have fallen 4.7%.

However, the stock is up 52% in the past six months and around 89% in the year gone by.

The stock touched its 52-week high of Rs 632.65 on 3 May 2024 and a 52-week low of Rs 291.30 on 19 May 2023.

At the current price, the company trades at a price to book value multiple of 1.3x.

About Canara Bank

Canara was incorporated in 1906 and nationalised in 1969, along with 13 other major commercial banks of India, by the government of India.

The bank is headquartered in Bangalore and was merged with erstwhile Syndicate Bank (e-SB) in April 2020.

The bank has a market share of 6.2% and 6.5% in net advances and total deposits with the government of India holding a majority stake (62.93% as on 30 September 2023).

It had a network of 9,518 domestic branches and 10,553 ATMs as on 30 September 2023.

Its segments include treasury operations, retail banking operations, wholesale banking operations and other banking operations.

It has completed over a century in the industry and occupies a premier position in the comity of Indian banks.

For more details about the company, you can have a look at Canara Bank's fact sheet and Canara Bank's quarterly results on our website.

For a sector overview, you can read our banking sector report.

You can also compare Canara Bank with its peers on our website:

Canara Bank vs SBI

Canara Bank vs Union Bank

Canara Bank vs Indian Bank

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