India Ratings and Research (Ind-Ra) has affirmed Canara Bank's (Canara) long-term issuer rating at 'AAA'. The outlook is stable.

Canara's Long-Term Issuer Rating is driven by Ind-Ra's expectation of continued strong support from the government of India (GoI). This reflects its majority government ownership (66.3% at end-march 2016), its systemic importance as the fifth-largest government-owned bank and second- and third-largest by branch networks in Karnataka and Kerala, respectively. Canara also had 4.6% of system advances and 5.3% of system deposits at end-March 2016.

Moreover, it attracted an Rs 9.5 billion infusion from GoI and Rs 15.20 billion from the Life Insurance Corporation of India in FY16. For all these reasons, Canara's long-term issuer rating is at the highest level, which also drives the rating on its Basel III Tier-2 bonds, which have a point-of-non-viability trigger.

In its recent report, Ind-Ra continues to highlight that PSBs overall would continue to require significant amount of capital even at a bare minimum growth trajectory during FY17-FY19. Also, following the clean-up under the asset quality review, NPL aging would keep pressure on credit costs well into FY17.

In this context, Ind-Ra expects Canara to report better-operating performance, helped by its stable net interest margins (2.25% in FY16; 2.4% in FY15) and declining operating costs, which remain in line with the median ratios for similarly rated peers.

Shares of the bank gained Rs 1.6, or 0.67%, to trade at  Rs 239.90.  The total volume of shares settle  was  329,989 at the BSE (Wednesday).