Fresh out of PCA, Central Bank wants to remain cautious

MUMBAI : State-owned Central Bank of India, the last lender to exit Reserve Bank of India’s (RBI) corrective action, wants to retain the cautiousness it has learnt over the last five years, picking and choosing corporate lending opportunities, managing director and chief executive Matam Venkata Rao said.

“Just because we are out of prompt corrective action (PCA), does not mean we will go all-out,» Rao said.

The bank had written thrice to RBI, requesting a relook at the PCA restrictions and apprising it of the progress it made. It did so in January, May and once again after the June quarter financial results. Finally, on 20 September, RBI said Central Bank would no longer be subject to PCA restrictions.

“Throughout the organization, it is a matter of joy for all of us. Almost after six years of continuous losses, we have recorded a profit in 2021-22,» said Rao.

Used as a regulatory tool to course-correct lenders, corrective action entails curbs on high-risk lending and setting aside more money as provisions, besides others.

“After PCA, we went back to the drawing board and looked at addressing gaps in our policy framework, internal controls and asset underwriting standards,» said Rao.

Central Bank plans to continue on the path of caution and pursue its current business model. Rao said the bank’s credit-deposit (CD) ratio, earlier at 52%, has now improved to 57%. CD ratio indicates how much of a bank’s deposit base is being utilized for loans. The bank has set a target of reaching a CD ratio of 60-62% in March and 70% by the end of the next financial year.

The bank, he said, has also balanced the credit book, with 65% of it from retail, agriculture and small business loans and the rest in corporate loans. Central Bank has also set a target of 7% growth in deposits and 12% growth in credit this fiscal. At this rate of growth, Rao said, the bank would not need any further capital infusion till next September.

“We have achieved that balance and would like to continue that balance. We aim to grow our balance sheet, but our approach would be to have capital-light assets,» he said, adding that the bank is now quite choosy in lending to corporates, based on the risk weight requirements and ratings.

The lender has also made changes to internal policies in order to empower staff to take business decisions. Branch managers now have enhanced powers to sanction loans, albeit based on their seniority and the type of loan product.

The bank has also formed a credit processing and approval centre which centrally looks at documentation and acts as an additional vetting layer for loan proposals. “This credit processing centre was introduced in June last year, and since then, our disbursements have grown over 30%,» he said.

That said, the bank’s gross bad loans are still at 14.9%, although provisions have ensured its net non-performing assets (NPAs) are at 3.9%. Gross NPA, Rao said, is not at all an indicator of asset quality since these are all legacy assets where resolutions are dependent on the National Company Law Tribunal (NCLT).

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