The Central Bank of India was the only institution in the public sector subject to the stringent prompt corrective action (PCA) framework until the Reserve Bank of India on Tuesday eased the regulatory restrictions.
Shares of the Central Bank of India started trading 15.5 percent higher on Wednesday as a result of the Reserve Bank of India’s (RBI) decision to remove the lender from the prompt corrective action (PCA) framework after more than half a decade. The stock price rose by 11% from its previous day closing when the market opened trading today morning.
Prompt corrective action (PCA) is activated when banks breach particular legal norms, such as those pertaining to return on assets, minimum capital requirements, and the quantity of non-performing assets, including management compensation, directors’ fees and anything related to lending.
Due to its sizeable net NPA (non-performing assets) and poor Return on Assets, Central Bank of India was included to the framework in June 2017.
The RBI had stated on August 8 that a necessary need for it to leave PCA is that a weak bank’s turnaround must be sustained.
Finally, the bank saw a turnaround in FY22 and announced its second consecutive full-year profit.
It reported a profit of Rs 1,045 crore for the fiscal year. Its net profit for the June quarter increased by 14.2 percent over the same period the year prior, totalling Rs 234.78 crore as opposed to Rs 205.58 crore.
The gross NPA ratio declined from 15.92% of gross advances at this point in time to 14.9% of gross advances.
Additionally, net NPAs declined from 5.09 percent to 3.93 percent in the first quarter of the previous fiscal year.
Gross advances stood at Rs 1.95 trillion end of June, up 11% from the same month last year.
Small and retail agricultural loans accounted about 66% of the total loan book.
To reach Rs 3.43 trillion, deposits as a whole climbed by 3.4%. 51.5% of the total deposits came from CASA.
So is it a good time to invest in Central Bank of India? With all the hype surrounding it with RBI leaving Central Bank alone, the price of the shares have gone up. It’s a good opportunity if you are looking for something short term or anything longterm. The stock has corrected by a huge margin and a possible reversal is at the corner. If you do not like buying after shares jump by a good margin, you could also wait for a couple of weeks so that the price neutralizes to get a better average.
However, I feel at the current price Risk to Reward ratio is good. Let us know in comments, what do you wish to do with Central bank of India shares?