Shares of IOB, Central Bank of India surge on privatisation reports

The value of shares of public sector banks (PSBs) — Indian Overseas Bank (IOB) and Central Bank of India — spiked on Monday following reports suggesting the two financial institutions might be privatised.
 
The stock of Mumbai-based Central Bank closed eight per cent higher at Rs 23 per share on the BSE, while those of Chennai-based IOB closed 12 per cent higher at Rs 21.55 a share.
 
The PSU Bank Index closed marginally higher (0.36 per cent) at 2,500.6 on the NSE, as compared to the last Friday.
 
While the Central Bank declared results for Q4FY21 and FY21 on Monday, the IOB board is slated to meet on June 14, 2021 to assess the financial performance of Q4 and FY21.
 
The Central Bank has posted a net loss of Rs 1,349 crore in the fourth quarter ended March 2021 (Q4FY21) on dip in net interest income (NIM). It had posted a net loss of Rs 1,529 crore in the fourth quarter of the last financial year ended March 2o2o.
 
For the entire FY21, the net loss reduced to Rs 888 crore from Rs 1,121 crore, while its capital adequacy rose to 14.81 per cent in March 2021 from 11.72 per cent a year ago. The Common Equity Tier-I rose to 12.82 per cent in March 2021, up from 9.33 per cent the previous year.
 
Its NIM declined by 21.3 per cent to Rs 1,516 crore in Q4FY21 from Rs 1,926 crore in Q4FY20. The NIMs shrunk to 2.04 per cent in Q4FY21 from 2.75 per cent in Q4FY20. Its other income rose to Rs 902 crore from Rs 795 crore.

 
The Gross NPAs declined to 16.55 per cent in March 2021 from 18.92 per cent a year ago, while the net NPAs declined to 5.77 per cent from 7.63 per cent during the same period. The provisioning coverage ratio improved from 77.29 per cent to 82.54 per cent in March 2021 over March 2020.
 
Even as talks of privatising PSBs gained ground, global rating agency Fitch on Monday said the government’s move faces risk from political opposition and structural challenges, including heightened balance-sheet stress, owing to the ongoing pandemic.
 
The pandemic is likely to keep banks’ performance subdued for the next two-three years. Political support in favour of legislative changes, which are required to complete the sale, could be a significant hurdle for the government, it said.
 
There could also be more resistance from trade unions this time around, which will be against the safety-net withdrawal of state ownership. Success of the plan will also require sufficient interest from investors willing to acquire large stakes in state-owned banks and run them, Fitch said in a statement.
 
The privatisation plan was announced in the Union budget for 2021-22 as a part of the government’s broader divestment goals for FY22. It includes privatisation of several other non-financial state-owned entities and listing of the wholly owned Life Insurance Corporation of India.