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.
10 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.