Central Bank of India may exit PCA next year after RBI revises norms

November 04, 2021 2:30 AM

The lender’s asset quality also improved in the reporting quarter with gross and net bad loans ratio falling to 15.52% and 4.51%, respectively, as on September-end, from 17.36% and 5.60%, respectively, a year ago.

The central bank has excluded the parameter of return on assets (ROA) from the list of triggers that could put a bank under the PCA framework.The central bank has excluded the parameter of return on assets (ROA) from the list of triggers that could put a bank under the PCA framework.

By Piyush Shukla

The Reserve Bank of India’s modified guidelines on prompt corrective action (PCA) framework will likely aid Central Bank of India to exit the same next year. The central bank has excluded the parameter of return on assets (ROA) from the list of triggers that could put a bank under the PCA framework.

The RBI had placed Central Bank of India under the prompt corrective action framework in June 2017 for negative return on assets and higher ratio of bad loans, among others. Presently, it is the only lender facing restrictions under the framework.

According to the RBI’s revised circular on PCA, capital, asset quality and leverage will be the parameters used to identify lenders weak enough to enter PCA. As on September 30, Central Bank of India’s capital adequacy ratio (CRAR) improved to 15.38% from 12.34% a year ago, registering an improvement of 304 basis points. Of this, common equity Tier-I capital stood at 13.41%, while Tier-II capital was 1.97%.

The lender’s asset quality also improved in the reporting quarter with gross and net bad loans ratio falling to 15.52% and 4.51%, respectively, as on September-end, from 17.36% and 5.60%, respectively, a year ago.

Leverage ratio, as at the end of September, stood at 5.15%, higher than 3.96% as on September 30, 2020. “The bank meets all the revised parameters for exiting the PCA framework and we expect the bank could exit the PCA in the current financial year,” Anil Gupta, vice-president and sector head of financial sector ratings at Icra told the Financial Express.

In a report dated September 30, Icra had reaffirmed A+ rating on Central Bank of India’s Tier-II bonds amounting to Rs 2,500 crore. It also revised the outlook on these bonds to stable from negative after an improvement in the bank’s capital position and solvency profile, mainly backed by Rs. 4,800-crore capital infusion by the Centre.

“The ‘stable’ outlook factors in the improved prospects of the bank for exiting the PCA framework and resuming business growth, which will be a positive from a profitability perspective,” the report said.

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