Central Bank of India: Five things about another bank on RBI's radar for bad loans

The Central Bank of India has become the fifth public sector bank (PSB) to come under the Reserve Bank of India's Prompt Corrective Action (PCA). The RBI had put Dena Bank, IDBI Bank, Indian Overseas Bank and UCO Bank under the PCA framework. The RBI will now work very closely with the bank management to improve its performance.  Here are five facts about the Central Bank of India ;

Among the  top 12 banks in India
Central Bank of India has a balance sheet size of Rs 3 lakh crore plus, which put it among the large banks in India with SBI, ICICI Bank, HDFC Bank and others. Of the five banks that are now under PCA, only IDBI Bank is in the league of the Central Bank of India.

High NPAs
Central Bank of India's net non performing loans have reached 10 per cent plus, which is very high in the industry. Banks like HDFC Bank have a net NPA of 0.25 per cent. This high level of NPA is putting a lot of pressure on profitability because of high provisioning every year. The RBI has been insisting that banks provide even for standard assets in the stressed sector.

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High Cost Model
In the age of digital banking, the bank's cost to income ratio is very high at 67.31 per cent. The private sector banks operate on a cost to income ratio of less than 50 per cent. The cost also has an impact on margins.

Low On Capital
The biggest challenge is on the capital side as the capital  adequacy has reached 10.95 per cent as against the minimum capital requirement of 9 per cent. The government has to provide capital to the bank. The other sources of generating capital hardly exist as the valuations are too low in the market.  The rising level of provisioning would further erode the capital at the bank.

Low retail banking exposure
At a time when the corporate book is not growing and banks are facing low credit growth, many private banks are growing because of high growth in the retail segment. Retail  banking is growing at double digit numbers. Unlike private banks, whose half of the assets are in retail, PSBs like Central Bank have a very low retail exposure. Central Bank's 20 per cent of the advances are in retail, which restricts its ability to compensate the loss of growth on the corporate side from retail banking.

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