Central Bank of India likely to leave the RBI PCA framework, suggest news reports

22 Aug 2022 , 08:13 AM

Following an improvement in its financial situation, the Central Bank of India, the sole public sector lender subject to the RBI’s prompt corrective action (PCA) framework, may soon be released from limitations.

According to news reports, the bank has already submitted a representation to the Reserve Bank of India (RBI) based on the steady improvement in financial indicators over the last five quarters.

Reports claim that the RBI is reviewing the bank’s proposal and may shortly provide a decision based on both quantitative and qualitative criteria.

In the first quarter of this fiscal year, which ended in June, the Central Bank of India reported a 14.2% increase in net profit to Rs234.78 crore from Rs205.58 crore in the corresponding quarter last year.

The bank’s gross NPA decreased from 15.92% of gross advances in the prior quarter to 14.9% in the most recent quarter. Net NPAs also decreased, from 5.09% in the first quarter of the previous year to 3.93% in the current quarter.

In June 2017, the PCA framework was applied to the Central Bank of India because of its large net non-performing assets (NPAs) and low Return on Assets.

When banks violate specific regulatory standards, such as those relating to return on assets, minimum capital requirements, and the quantity of non-performing assets, including those related to lending, management compensation, and directors’ fees, PCA is triggered.

RBI limits on dividend payments, branch expansion, management compensation, and demanding promoter capital injection apply to the bank covered by the PCA.

A revamped Prompt Corrective Action (PCA) framework for banks was released by the RBI last year in order to facilitate supervisory intervention at the “right moment” and serve as a tool for efficient market discipline.

Capital, asset quality, and leverage are the three main areas for monitoring under the updated framework, according to the new standards.