Central Bank of India (CBoI) will not go the whole hog in acquiring all kinds of assets just because it has come out of the restrictive prompt corrective action (PCA) framework, according to Matam Venkata Rao, MD and CEO, Central Bank of India.
The Reserve Bank of India (RBI) lifted PCA restrictions on the public sector bank on September 20. The Bank was placed under PCA in June 2017 in view of high Net Non-Performing Assets and negative Return on Assets.
In an interaction with businessline, Rao, who took charge of the bank on March 1, 2021, emphasised that during the PCA period, the bank became very disciplined in acquiring assets and the same will continue.
He observed that advances growth will be equitable among the RAM (Retail, Agriculture and MSME) and corporate segments even as the bank has liquidity of ₹38,000 crore in the investment book as on date to take care of loan demand.
What does coming out of PCA mean to you?
We were in losses for the past six years. For the first time, we recorded a profit in the March 2022 quarter and subsequently in the June quarter. We knew for sure that we will be coming out of PCA. It was only a matter of time. After inspection in the previous month, the RBI’s team was satisfied that what the bank has been doing and achieving is sustainable. It is not just about the numbers—satisfying the PCA benchmarks (capital, asset quality and leverage). It is also about sustainability regarding the policies we have framed via-a-vis each aspect of our business, how underwriting of assets is happening and robustness of internal controls. So, RBI will gauge all these things.
Now that you are out of PCA, will the way you do business change?
It was not as if lot of restrictions were placed on us once our bank was placed under PCA. There was no bar on recruitment. But the only hurdle was that the cost-to-income ratio could not go up. For branch expansion, we had to take permission. For assets, RBI said we could not go below investment grade. So, these were not hurdles for us. If we look back, whatever discipline has come, it is because of imposition of PCA. It really helped us grow with quality. We also understand that if we waver from the set path again, we will meet with some accidents. So, lifting of PCA doesn’t mean that we will go the whole hog in acquiring all kinds of assets. We will be very disciplined in acquiring assets. We have worked on improving confidence of our people to take decisions. This has helped our bank move forward in a very balanced way.
Will you step up corporate lending?
When it comes to our loan book, we have reached the targeted balance, with 63 per cent of the loan book comprising retail, agriculture and MSME (RAM) advances and the balance 37 per cent comprising corporate advances. So, we want to maintain this balance. Our growth will be equitable among RAM and corporate segments.
Our total advances are at ₹1.89 lakh crore. But our risk-weighted assets (RWA) is 65 per cent. That means whatever assets we have acquired are all highly rated ones. These are all capital light assets. So, to acquire these assets, the interest rate matters. For good rated assets, borrowers definitely demand low rate of interest. We can offer this because low cost current account, savings account (CASA) deposits constitute 51 per cent of our total deposits. This gives us the pricing power.
Our credit-deposit ratio (CD) was 52 per cent a year back. Now, it is touching 57 per cent. Here whatever amount we are putting in the credit book, almost an equal amount is placed in the investment book. In the investment book, as on date, we have liquidity of ₹38,000 crore. These resources are available to us for lending.
How many more co-lending tie-ups are you planning to enter into this year?
We are the largest lender among public sector banks via co-lending with non-banking finance companies. We have about ₹3,000 crore outstanding loan portfolio (comprising home loans, MSME loans backed by mortgages, gold loans and medical equipment financing) via the co-lending route. Right now, we have co-lending tie-up with 11 NBFCs. We intend to increase such partnerships to 25 by March 2023.