Rating Rationale

Strengths:
* Strong expectation of support from the majority owner, GoI:
The rating continues to factor in strong support expected from the GoI, both on an ongoing basis and in the event of distress, given that GoI's status as the majority shareholder in PSBs, and as the guardian of India's financial system. Stability of the banking sector is of prime importance to GoI, considering its criticality to the economy, strong public perception of sovereign backing for PSBs, and adverse implications of any PSB failure, in terms of a political fallout, systemic stability, and investor confidence. CRISIL believes the majority ownership creates a moral obligation on GoI to support PSBs, including Central Bank. GoI has infused Rs 6598 crore during fiscal 2019 (including Rs 2560 crore announced in February 2019).

* Sizeable scale of operations, backed by extensive branch network:
The bank operates on a large scale, and has an adequate resource profile. Being one of India's larger banks in terms of asset base, Central Bank has a pan-India presence, supported by 4,666 branches as on December 31, 2018, geographical diversity in deposits, and adequate low-cost current account and savings account (CASA) deposits. CASA deposits, at 44.6% of total deposits, as on December 31, 2018 (40.7% as on March 31, 2018), were in line with the industry average.

Weaknesses:
* Weak asset quality
Asset quality remains under stress, with gross non-performing assets (GNPAs) at 20.6% as on December 31, 2018, albeit lower than 21.5% as on March 31, 2018. In absolute terms, GNPAs decreased to Rs 35,332 crore, from Rs 38,130 crore for the same period. Slippages to NPAs for the nine months of fiscal 2019 (annualised) remained high, at 6.8% of net advances (12.2% of net advances for fiscal 2018). The bank is trying to improve its asset quality, by focusing more on recoveries and various resolutions, including sale of NPAs. Though CRISIL expects asset quality to gradually improve over the medium term, ability to arrest slippages and improve recovery will remain a key rating monitorable.

* Weak earnings profile
Earnings profile remains weak, marked by high provisioning cost. The bank incurred loss of Rs 3,164 crore for the nine months ended December 31, 2018, while return on assets ratio was negative 1.3% (annualised). High credit cost in the past few quarters' impacted profitability. Provisioning expenses stood at Rs 6,563 crore for the nine months ended December 31, 2018 (Rs 10,629 crore for fiscal 2018). Credit cost may remain high over the next few quarters, given the higher provisioning requirement on stressed assets, and due to ageing of NPAs. Weak earnings have put pressure on the bank's capital position, as Tier 1 and overall capital adequacy ratios stood at 7.4% and 9.3%, respectively, as on December 31, 2018. Nevertheless, with the proposed capital infusion of Rs 2,560 crore, ratios are expected to improve. Ability to arrest deterioration in asset quality, the resultant provisioning cost, and its impact on profitability will remain key rating monitorables over the medium term.