Central Bank of India soars 15% as RBI removes lender from PCA framework

The RBI removed public sector lender from the Prompt Corrective Action Framework on complying with parameters like net non-performing assets and capital ratios

Shares of Central Bank of India (CBI) soared 15 per cent to Rs 23.50 on the BSE in Wednesday's intra-day trade, amid heavy volumes, after the Reserve Bank of India (RBI) removed the public sector lender from its Prompt Corrective Action (PCA) framework on complying with parameters like net non-performing assets (NNPAs) and capital ratios.

At 09:41 AM, the stock of Central Bank of India traded 9 per cent higher at Rs 22.15, as compared to 0.05 per cent decline in the S&P BSE Sensex. Trading volumes on the counter jumped over three-fold, as around 33.16 million equity shares had changed hands on the NSE and BSE till the time of writing of this report. Earlier, the stock had hit a 52-week high of Rs 25.15 per share on September 30, 2021.

"The Central Bank's performance was reviewed by the Board for Financial Supervision. According to the assessed figures of the bank for the year ended March 31, 2022, the lender is not in breach of the PCA parameters," RBI said in a statement. CLICK HERE FOR FULL RELEASE

In June 2017, RBI had placed Central Bank under PCA due to high net NPAs and negative return on assets.

Meanwhile, PSU banks have remained laggards in the past few years due to concerns like subdued credit growth and asset quality pressure, said analysts.

The subdued bank credit growth observed in the last few years was mainly on account of weak demand, balance sheet deleveraging, shift to other funding sources and risk aversion by lenders. The underperformance was further compounded by the outbreak of Covid-19, given heightened uncertainty on growth and asset quality.

However, analysts at ICICI Securities believe that a gradual improvement in asset quality of PSBs after a long period of stress, driven by lower fresh slippages, resolution, write-offs, recapitalisation and sale of doubtful/loss assets to ARCs by taking haircuts.

Thus, asset quality pains of PSU banks seem to have bottomed out as the GNPA ratio has moderated to its lowest level in the last couple of years.

"Restructured book also continued to report a gradual improvement with no signs of any substantial slippages from the portfolio. In addition, with an economic recovery gathering pace and increased focus of PSU banks towards retail and MSME segment, bank credit growth started picking up gradually. With continued traction in granular loans coupled with a pickup in working capital utilisation followed by capex led credit demand, overall credit offtake of PSU banks is expected to remain healthy," the brokerage firm said.