Rating Rationale

Strengths
* Expectation of strong support from GoI:
In its ratings on public sector banks (PSBs), CRISIL continues to factor in support from GoI, which is both the majority shareholder and the guardian of India's financial system. Stability of the banking sector is of prime importance to the government, given the criticality of the sector to the economy, strong public perception of sovereign backing for PSBs, and severe implications of failure of any PSB in terms of political fallout, systemic stability, and investor confidence in public sector institutions. Majority ownership creates a moral obligation on the government to support PSBs, including Central Bank.

As a part of the Indradhanush framework, the government had pledged to infuse at least Rs 70,000 crore in PSBs between fiscals 2015 and 2019, of which Rs 25,000 crore each was infused in fiscals 2016 and 2017. Furthermore, in October 2017, the government had outlined a recapitalisation package of Rs 2.11 lakh crore over fiscals 2018 and 2019. In August 2019, the government announced the first found of capital infusion (of around Rs 55,250 crore) in 10 PSBs (of the total Rs 70,000 crore proposed for fiscal 2020). GoI infused Rs 6,598 crore in Central Bank in fiscal 2019 (including Rs 2,560 crore announced in February 2019), and has announced Rs 3,300 crore of capital infusion in the current fiscal.

* Sizeable scale of operations, backed by an 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 4,659 branches as on June 30, 2019, geographic diversity in deposits, and adequate low-cost current account and savings account (CASA) deposits. CASA deposits, at 45.5% of total deposits, as on June 30, 2019 (38.7% as on June 30, 2018), was better than peers. Total assets were Rs 3,30,047 crore as on June 30, 2019.

Weaknesses
* Weak asset quality
Asset quality remains weak, with gross non-performing assets (GNPAs) at 19.93% as on June 30, 2019 (19.29% as on March 31, 2019), albeit lower than 22.17% as on June 30, 2018. In absolute terms, GNPAs decreased to Rs 32,908 crore from Rs 38,778 crore for the same period. Slippages to NPAs (annualised; as a percentage of net opening advances) declined marginally, but remained high at 6.1% in the first quarter of fiscal 2020 (6.6% for fiscal 2019). The bank is trying to improve its asset quality by focusing more on recoveries and through several resolution mechanisms, 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 sensitivity factor.

* Weak earnings profile
Earnings have weakened considerably in the past few years primarily due to high credit cost. Net loss was Rs 5,641 crore in fiscal 2019 as against Rs 5,105 crore the previous fiscal, driven by elevated credit cost (3.4% vis-a-vis 3.2%). Consequently, return on assets deteriorated to negative 1.7% from negative 1.5%. Nevertheless, profit after tax (PAT) was Rs 118 crore for the quarter ended June 30, 2019 - supported by tax write back of Rs 48 crore, treasury income of Rs 233 crore, and decrease in provision costs (Rs 1,035 crore in Q1 FY20 vis-a-vis Rs 2,744 crore in Q1 FY19) - as against loss of Rs 1,522 crore for the corresponding period of the previous fiscal. Provisioning coverage ratio (excluding technical write-off) increased to 65.2% (76.85% including technical write-off) as on June 30, 2019, from 52.3% (66.42%) a year ago. Ability to arrest deterioration in asset quality, the resultant provisioning cost, and its impact on profitability will remain key rating sensitivity factors over the medium term.

Liquidity: Superior
Liquidity position is comfortable, supported by a sizeable retail deposit base, which also forms a significant part of total deposits. Liquidity coverage ratio was 279.8% as on March 31, 2019, against the regulatory requirement of 90%. The excess statutory liquidity ratio was Rs 52,719 crore (17.2%) as on July 31, 2019. The bank also has access to systemic sources of funds, including the liquidity adjustment facility from the Reserve Bank of India (RBI), call money market, and refinance limit from entities such as National Housing Bank and National Bank for Agriculture and Rural Development.