Central Bank of India sold Rs 23,000 crore loans in FY17 to meet RBI capital norms

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Troubled with capital constraints, state-owned Central Bank of India sold close to Rs 23,000 crore worth of loans in FY17 to meet the capital mandate following the Reserve Bank of India's (RBI) cleanup drive.

Gross advances of the bank shrunk to Rs 1.53 lakh crore in March 2017, a de-growth of 19.5 percent as against Rs 1.90 lakh crore in March 2016 which was due to sale of loan assets of Rs 22,991.22 crore through IBPC (Inter-Bank Participation Certification) participation, Central Bank of India’s financial results stated.

IBPC transactions are aimed to fill short-term requirements of banks and are typically bought back by the seller bank within three to four months, depending on the agreement.

The selling bank receives cash in return for loans sold to shore up its immediate capital needs.

This helped Central Bank of India to shore up its capital adequacy ratio under Basel III to 10.95 percent from 10.41 percent a year ago. The tier-I capital was up to 8.62 percent from 8.20 percent.

Current norms under Basel III require banks to maintain a minimum capital adequacy of 9 percent and a Tier-I ratio of 7 percent. Capital adequacy is a measure of a bank’s solvency based on its financial strength.

“The bank has been weighed down on account of capital. Last year, we didn’t get the capital we required (from the government) and that’s why we had to shed the assets worth Rs 23,000 crore through IBPC…To meet the capital mandate, we had to de-grow and hence our NPA number looks more pronounced but in absolute terms, NPAs have risen only by about Rs 1,000 crore,” said Rajeev Rishi, Chairman and Managing Director of Central Bank of India.

The public sector bank reported a rise in gross NPA (non-performing assets) at 17.81 percent of total loans as compared to 14.14 percent in the previous quarter. In absolute terms, this increased to Rs 27,251 crore from Rs 25,843 crore as on December 2016. The bank targets to bring in 14 percent by March end in FY18.

Net NPAs rose to 10.20 percent (Rs 14,218 crore) from 7.36 percent (Rs 13,241 crore).

Last year, Central Bank of India received a capital of Rs 100 crore while this year, Rishi has requested for Rs 3,500 crore.

“We need for both growth and Basel III. Even if I don’t increase my capital adequacy ratio levels, I will need the money. We expect the loan growth to be 8-10 percent.

The bank will also look at raising capital from the market through a QIP or sale of non-core assets including its 8 percent stake in IL&FS, which could generate about Rs 1,000 crore and some real estate.

On the bank’s growth the Rishi said the bank did many things but got eclipsed due to high NPAs.

The bank increased its CASA (current and savings account) share to 40 percent from 31 percent three years ago with high cost deposits down to Rs 10,000 crore from a whopping Rs 56,000 crore and its staff strength was down by about 4,000 to 37,000.

It also made an operating profit of 17 percent, however a net loss of Rs 592 crore (down from loss of Rs 898 crore a year ago.)

For the full year, the bank’s loss increased to Rs 2,439 crore from Rs 1,418 crore in FY16.

The bank chief said, “But my focus will be on recoveries and if I can get them done, things should get better...I am expecting almost Rs 3,000 crore recoveries and about Rs 1,500 crore upgradation. My slippages pipeline is at about Rs 7,000 crore for FY18.”