Recommendation Review: Central Bank Of India

We had recommended Central Bank of India (CBI) to our readers in DSIJ Vol. 28m Issue No. 12 (dated June 2, 2013), when the scrip was trading at Rs 69. Our recommendation was backed by factors such as the expected betterment in the interest rate scenario and improvement in the financial performance as well as the asset class of the bank. However, the June 2013 quarter has been quite disappointing for the bank. On the revenue front, the bank saw growth of 10 per cent to Rs 5846 crore, mainly due to a rise in revenues from interest on advances which grew by Rs 408 crore.

The major sources of income for the bank are interest earned from advances, income on investment and interest on balance with the RBI. The major sources of income for the bank are interest earned from advances, income on investment and interest on balance with the RBI. Its other income plunged by 85 per cent to Rs 598 crore in Q1FY14 against that in the corresponding quarter of the last fiscal. The bank’s operating expenses increased by 13 per cent and reached Rs 5443 crore during Q1FY14 on a YoY basis. Further, both employee expenses and other expenses grew by 25 per cent to Rs 801 crore and Rs 335 crore respectively. However, if we consider the total operating income, excluding the other income, it would have reported a decline of 14 per cent over the last fiscal’s corresponding period income.

Further, in the quarter under review, the bank increased its provisions and contingencies by 179 per cent to Rs 983 crore, which pulled down the net profit by 93 per cent. The bottomline for CBI stood at Rs 336 crore in Q1FY13. The gross non-performing assets (NPAs) and net NPAs for the bank extended by 116 basis points and 63 basis points to 6.03 per cent and 3.85 per cent respectively. With not much improvement seen in the near term, we recommend investors to exit the counter at its current levels.