Central Bank of India (CBI), a state-owned commercial bank, plans to shut 13% of its branches to improve its financial health, which has been under pressure for several years. As CBI is still under PCA (Prompt Corrective Action). Let’s deep dive into more about this report in this article as we move ahead.
Shutting down of Branches by CBI:
- After being under PCA banks have a lot of restrictions while accepting deposits and granting loans also opening of new branches is not allowed and can’t hire new people.
- To continue their business these banks, have to take borrowing but being under PCA banks also have restrictions on taking borrowing.
- RBI starts intervening when the banks have more than acceptable NPA (Non- Performing Assets) or have some capital-related regulations. RBI kept banks having this kind of issue under PCA.
- In 2017, there were a lot of banks under PCA like the Bank of Maharashtra, Central Bank of India, and IDBI bank to improve their financial health.
- Currently, almost all the PSBs (Public Sector Banks) are free from PCA except the Central Bank of India, so to improve its financial health, CBI has to take some major steps to cut its cost.
- Hence, 600 branches out of 4594 branches might be closed soon or merged.
- The Gross NPA of the Central bank of India is 15.13%.
- The Capital Adequacy Ratio of 15.88%.
- Technically, If the gross NPA of a bank crosses the capital adequacy ratio then a bank is having a high chance of going to be bankrupt.
What Should Investors Do?
Normally Indian banks do not get bankrupt as any other bank saved them but this should act as an example if the bank is not performing well then it should be shut down it may be wrong with the depositor but the depositor should also know their bank’s strength. This is a bitter truth that we need to understand that saving banks by merging or privatizing isn’t the solution.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.