InvestorQ : How did Central Bank report such a sharp growth in net profits in the Sep-20 quarter?
Aditi Sharma made post

How did Central Bank report such a sharp growth in net profits in the Sep-20 quarter?

Mahima Roy answered.
7 months ago

Central Bank of India may have shown trepid growth on top line but really impressed on the bottom line front. The Central Bank of India reported 1.97% rise in net revenue income in the Sep-20 quarter at Rs.6861 crore. Revenues in the Jun-20 COVID quarter continued to remain at an extremely robust level.

The bank earned a lot more from its operations. The operating profits of CBI were up 43% at Rs.1467 crore for the Sep-20 quarter due to lower interest costs on the back of low bond yields and also ample liquidity in the system. This led to the operating margins of CBI getting a boost from 15.24% to 21.38% in Sep-20 quarter period.

The bottom line or the net profit of Central Bank was 27.8% higher at Rs.166 crore due to the operational benefits transmitting and lower provisions for doubtful debts. As a result, the net profit margin of Central Bank improved by 49 basis points to 2.42% in Sep-20 quarter

Let us now turn to the one issue that was the real worry. Gross NPAs are down from 19.89% to 17.36% but it must be said that the gross NPA figure is just not sustainable at these elevated levels. The net NPAs at 5.60% also hints at a lot of toxicity still left in the system.

The bigger concern is on the ROA and Capital Adequacy front. The ROA at 0.20% remains way below the private banking standards and is too weak. Capital adequacy ratio at 12.34% is a big challenge as it restrains the capacity to expand the loan book and raising fresh capital in these markets is already a Herculean task.