Good news for Central Bank of India, shares surged in double digit after RBI removed from PCA watchlist –

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Central Bank of India has been removed from the Prompt Corrective Action Framework (PCAF) watchlist. The Reserve Bank of India (RBI) has taken this step after marked improvement in the performance of the bank on various parameters defined by the RBI. Earlier, a written commitment has also been provided to the RBI by the state-owned lender, in which it has said that it will comply with the minimum capital norms.

With this welcome development, the shares of Central Bank of India opened 15.5% higher on Wednesday morning after the RBI removed the lender from PCA framework after more than five years.

Three public sector banks had been put under RBI’s PCA framework. Of the three banks, Indian Overseas Bank and UCO Bank were removed from the watchlist in September 2021 itself and only Central Bank of India remained in the watchlist as it failed to comply with the prescribed norms.

The RBI issued a communiqué in this regard, saying that the performance of the Central Bank of India, currently under the Prompt Corrective Action Framework (PCAF) of RBI, was reviewed by the Board for Financial Supervision.

The board noted that as per the assessed figures of the bank for the year ended March 31, 2022, the bank is not in the breach of the PCA parameters. The PSU bank has also provided a written commitment that it would comply with the norms of Minimum Regulatory Capital, Net NPA and Leverage ratio on an ongoing basis.

Central Bank has also 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 in future.

Taking all the above things into consideration, it was decided by the RBI that Central Bank of India should be taken out of the PCA restrictions subject to certain conditions and continuous monitoring.

It is to be noted that here PCA is triggered when banks breach certain regulatory requirements, which include – return on asset, minimum capital and quantum of non-performing assets. If such things happened for the periods defined by the central bank, certain restrictions are imposed on a bank.

The restrictions imposed by the central bank, disable banks in a number of ways like- lending freely and others. The restrictions also force banks to operate under a restrictive environment that turns out to be a hurdle for their growth.

It is worth noting here that in the latest quarter, the gross NPA of the Central Bank of India fell to 14.9% of the gross advances as compared to 15.92% in the year-ago period. Net NPAs of the bank also declined to 3.93% from 5.09% recorded earlier.