central bank of india: Central Bank of India sets a target of reducing bad loans to the tune of Rs 6,000 crore in next three months


State-owned lender Central Bank of India has set a target of reducing bad loans to the tune of Rs 6,000 crore in the next three months in order to bring the gross non-performing assets ratio below 10%.

The bank is carrying a gross NPA burden of Rs 29,000 crore, which is 14.9% of its outstanding loan portfolio.

“We are aiming to reduce gross NPA below 10% by December this year,” managing director MV Rao told ET, barely two days after Reserve Bank of India lifted the business restrictions on the bank under the prompt corrective action framework.

This will be achieved through a combination strategies — transferring bad loans to the National Asset reconstruction Company Ltd (NRACL), selling to bad loans to other asset reconstruction companies and technical write off of loans, Rao said.

The bank is in fact in the process of transferring three or four bad loan accounts including one related to the Future Group to NRACL. This would help reduction of Rs 1500 crore of bad loans.

Its net NPA however stood at 3.93%, well below the 6% risk threshold. This reflects that the bank has made adequate provisions against a big chunk of its bad loans.

The Mumbai-based lender is the last one to exit the PCA framework, which is triggered when banks breach three primary risk thresholds based on parameters such as net NPA, minimum capital criteria and return on assets.

Rao said the bank is adequately capitalised to support growth with Rs 38000 crore of lendable resources. Its capital adequacy ratio stood at 13.3% at the end of June.

“However, its said that you should raise capital when the going is good. So, as RBI lifted the PCA restrictions, our board will discuss this point,” Rao said.

The bank is aiming to grow its loan book by minimum 12% this fiscal over Rs 1.90 lakh crore of gross advances as of March 2022. The retail, agriculture and MSME (RAM) loan book contributes 65% of total advances while the balance is corporate book.

Rao said the bank is ready for offering competitive interest rates on loans for business expansion. “I have the pricing power. With CASA at 51%, I have bigger room to price good assets,” Rao said.

Higher ratio of the low cost current and savings accounts (CASA) help banks reduce cost of funds.

The bank is also looking to hire 1800 people this fiscal to strengthen its manpower.

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