Shares of the Central Bank of India, a prominent state-owned financial institution, continued their downward trend on April 2, 2024, marking the third consecutive day of losses. The stock plummeted by 11%, closing at ₹36.86—its lowest point in 18 months. This decline has resulted in a staggering 16% drop over just three days, with the stock now trading 52% lower than its peak of ₹77 in February 2024.
Factors Contributing to the Decline
The recent downturn in Central Bank’s stock can be traced back to last week’s issuance of shares to qualified institutional buyers (QIBs) through a Qualified Institutional Placement (QIP). Alongside Central Bank, three other public sector banks—Punjab and Sind Bank, UCO Bank, and Indian Overseas Bank—also participated in this fundraising initiative.
Notably, the Life Insurance Corporation of India emerged as the leading investor in this QIP, with significant contributions from SBI Life Insurance, ICICI Prudential Life, and IIFL Finance, among others. This fundraising effort aims to align with the Minimum Public Shareholding (MPS) norms, necessitating a reduction in government shareholding, which currently exceeds 90% across these banks.
- The Indian government holds 89.3% of Central Bank of India’s shares, with an additional 3.16% owned by the Life Insurance Corporation.
- Foreign institutional investors (FIIs) possess a mere 1.3% stake, while general shareholders own 3.6% as of December 2023.
Implications of Government Regulations
In January 2024, the Indian government sanctioned a ₹2,000 crore fundraising plan for five public sector banks to ensure compliance with MPS requirements, which mandate a minimum of 25% public holding. This regulatory push highlights the government’s strategy to enhance market participation in these banks, although it has not yet translated into positive stock performance.
Future Earnings Outlook for PSU Banks
Looking ahead, domestic brokerage firm Motilal Oswal anticipates that public sector banks will experience modest earnings growth of 4.5% year-on-year in Q4 FY25, aided by controlled operating expenses and a rise in other income streams. Despite the slight projected decline in net interest margins (NIMs), net interest income (NII) is expected to grow by 2.8% year-on-year.
Key projections include:
- 9% compound annual growth rate (CAGR) in aggregate earnings from FY25 to FY27.
- Stability in asset quality, with expectations that credit costs will remain manageable.
- Improved treasury performance anticipated as bond yields decline, despite existing volatility in equity markets.
Recent Financial Performance
In a positive turn, the Central Bank of India’s standalone net profit surged by 33.58%, reaching ₹958.93 crore in Q3 FY25, compared to ₹717.86 crore in the same quarter of the previous year. Additionally, total income rose by 6.56%, totaling ₹9,738.64 crore for Q3 FY25, up from ₹9,138.93 crore in Q3 FY24.
As the market observes these developments, stakeholders remain cautious yet hopeful that the ongoing adjustments will foster a more robust financial landscape in the coming months.
For further insights, check out our articles on QIPs by state-owned banks and the potential for value investing in current market conditions.
