Much awaited news has come: Central Bank of India is out of PCA

Central Bank of India is now removed by the Reserve Bank of India from its Prompt Corrective Action (PCA) framework on complying with parameters like net non-performing assets (NNPAs) and capital ratios.

RBI in a statement said “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. It has been decided that Central Bank of India is taken out of the PCA restrictions subject to certain conditions and continuous monitoring.”

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital and quantum of non-performing assets. The restrictions disable banks in several ways from lending freely and force them to operate under a restrictive environment that turns out to be a hurdle to growth.

In June 2017, Reserve Bank of India had placed Central Bank under PCA due to high net NPAs and negative return on assets. Of the three state-owned lenders under the RBI’s PCA framework, Indian Overseas Bank and UCO Bank were removed from the watchlist in September 2021.

Central Bank of India has provided a written commitment that it would comply with the norms of Minimum Regulatory Capital, net NPA and leverage ratio on an ongoing basis. It has apprised the RBI of the structural and systemic improvements that it has put in place which would help the bank in continuing to meet these commitments.

Central Bank of India reported a 14.2 per cent rise in net profit to Rs 234.78 crore in the first quarter ended June this fiscal as compared to Rs 205.58 crore in the same quarter a year ago.

It was much awaited news since many investors are hoping that the moment it is out of the PCA the stock would fly.

Already 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.