Central Bank of India share price jumps 6% on reports of likely exit from RBI's PCA framework; restrictions explained

Shares of Central Bank of India rose more than six per cent in the early trade on the reports that Reserve Bank of India (RBI) may lift restrictions on the bank. The development assumes significance in the backdrop that the Central Bank of India, the only public sector lender under the RBI's prompt corrective action (PCA) framework, recently made a presentation to the Reserve Bank. In the representation to the RBI, an improvement in Central Bank of India's financial health parameters on a sustained basis for the past five quarters was found, reported news agency PTI  

As per the news agency, which cited sources, the RBI is looking at the bank's request and may take a view on this soon based on quantitative and qualitative parameters. 

Besides, Central Bank of India, there were two more banks—Indian Overseas Bank and UCO Bank — were under the RBI's watch until September 2021, when then top bank removed them from the framework.  

The Central Bank of India was put under the PCA framework in June 2017 due to its high net non-performing assets (NPAs) and low Return on Assets. 

How RBI PCA framework affects a bank? 

PCA is triggered when banks breach certain regulatory requirements such as return on asset, minimum capital and quantum of the non-performing assets including on lending, management compensation and directors' fees. 

The bank under PCA faces RBI restrictions on dividend distribution, branch expansion, management compensation or requiring promoters to infuse capital. 

Last year, the RBI issued a revised Prompt Corrective Action (PCA) framework for banks to enable supervisory intervention at "appropriate time" and also act as a tool for effective market discipline. 

As per the revised guidelines, capital, asset quality and leverage are the key areas for monitoring in the revised framework. 

Central Bank of India reported a 14.2 per cent rise in net profit to Rs 234.78 crore in the first quarter ended June this fiscal as compared to Rs 205.58 crore in the same quarter a year ago. 

In the latest quarter, the bank's gross NPA fell to 14.9 per cent of the gross advances as compared to 15.92 per cent in the year-ago period. Net NPAs too declined to 3.93 per cent from 5.09 per cent in the first quarter of the previous year. 

Meanwhile, shares of Central Bank of India rose 6.2% to Rs 19 per share in BSE intraday trade on Monday.