central bank of india: Out of PCA, Central Bank aims for below 10% NPA in three months

Kolkata: Central Bank of India, the latest lender to extricate itself from regulatory curbs, has set a target of reducing bad loans to the tune of ₹6,000 crore in the next three months to bring the gross non-performing assets ratio below 10%.

The state-owned bank is carrying a gross NPA burden of ₹29,000 crore, which is 14.9% of its outstanding loan portfolio.

“We are aiming to reduce gross NPA below 10% by December this year,” managing director MV Rao told ET.

The Reserve Bank of India (RBI) lifted business restrictions on the bank under the prompt corrective action (PCA) framework Tuesday, prompting the stock to surge nearly 10% the next day.

Rao said the reduction will be achieved through a combination of strategies – transferring bad loans to the National Asset Reconstruction Company Ltd (NARCL), selling bad loans to other asset reconstruction companies and technical write-off of loans.

The bank is in the process of transferring three or four bad loan accounts including one related to the Future Group to NARCL. This would help reduce ₹1,500 crore in bad loans.

Its net NPA, however, stood at 3.93%, well below the 6% risk threshold. This reflects that the bank has made adequate provisions against a big chunk of its bad loans.

The Mumbai-based lender is the last one to exit the PCA framework, which is triggered when banks breach three primary risk thresholds based on parameters such as net NPA, minimum capital criteria and return on assets.

Rao said the bank is adequately capitalised to support growth with ₹38,000 crore of lendable resources. Its capital adequacy ratio stood at 13.3% at the end of June.

“However, it is said that you should raise capital when the going is good. So, as RBI lifted the PCA restrictions, our board will discuss this point,” Rao said.

The bank is aiming to grow its loan book by a minimum of 12% this fiscal over ₹1.90 lakh crore of gross advances as of March 2022. The retail, agriculture and MSME loan book contribute 65% of total advances while the balance is the corporate book.

Rao said the bank is ready for offering competitive interest rates on loans for business expansion. “I have the pricing power. With CASA at 51%, I have a bigger room to price good assets,” Rao said.

A higher ratio of the low-cost current and savings accounts (CASA) helps banks reduce the cost of funds.

The bank is also looking to hire 1,800 people this fiscal to strengthen its manpower.