Despite the headline profit growth, the quarter revealed mixed signals with net interest income declining sequentially and gross non-performing assets remaining elevated at 3.02%, albeit showing improvement from 4.59% a year ago. The stock has underperformed significantly in recent months, down 37.32% over the past year compared to the Sensex's 3.64% gain, raising questions about whether the current valuation of 0.89 times book value presents an attractive entry point or reflects deeper structural concerns.
The results come at a critical juncture for Central Bank of India, which has been on a multi-year transformation journey to clean up its balance sheet and improve profitability. With 89.27% promoter holding by the Government of India, the bank's performance carries significant implications for the broader public sector banking ecosystem. The question facing investors now is whether the improving profit trajectory can be sustained amidst a challenging operating environment marked by margin pressures and persistent asset quality concerns.
Financial Performance: Profit Growth Driven by Lower Provisions
Central Bank of India's Q2 FY26 financial performance presents a nuanced picture. Interest earned rose 6.57% year-on-year to ₹8,776.54 crores from ₹8,235.34 crores in Q2 FY25, driven primarily by a 4.88% increase in interest on advances to ₹5,696.98 crores. However, sequentially, interest earned grew a modest 1.78% from ₹8,623.38 crores in Q1 FY26, indicating moderating momentum in core lending operations.
The bank's net interest income (NII) stood at ₹3,300.50 crores in Q2 FY26, declining 2.97% sequentially from ₹3,401.63 crores but remaining 3.71% below the year-ago quarter's ₹3,428.80 crores. This sequential compression in NII, despite growing advances, points to margin pressures that have become increasingly common across the banking sector. Interest expended climbed 13.90% year-on-year to ₹5,476.04 crores, outpacing the growth in interest income and reflecting the rising cost of deposits in a competitive environment.
| Metric (₹ Crores) | Q2 FY26 | Q1 FY26 | Q2 FY25 | QoQ Change | YoY Change |
|---|---|---|---|---|---|
| Interest Earned | 8,776.54 | 8,623.38 | 8,235.34 | +1.78% | +6.57% |
| Net Interest Income | 3,300.50 | 3,401.63 | 3,428.80 | -2.97% | -3.74% |
| Operating Profit | 1,795.42 | 2,315.41 | 2,175.99 | -22.46% | -17.49% |
| Profit Before Tax | 1,479.20 | 1,877.79 | 1,577.71 | -21.23% | -6.24% |
| Net Profit | 1,219.59 | 1,203.50 | 920.64 | +1.34% | +32.47% |
Operating profit before provisions declined sharply by 17.49% year-on-year to ₹1,795.42 crores, and fell 22.46% sequentially, highlighting the pressure on core operating performance. The saving grace came from provisions and contingencies, which appear to have been significantly lower in Q2 FY26 compared to the previous quarter, allowing profit before tax to reach ₹1,479.20 crores despite the operational headwinds.
Other income, a critical component for banks, stood at ₹1,507.17 crores in Q2 FY26, down 19.45% sequentially from ₹1,871.58 crores but still 8.58% lower than the year-ago period. This volatility in non-interest income, coupled with the declining operating profit trend, raises concerns about the sustainability of the bank's earnings trajectory without continued moderation in provisioning requirements.
Asset Quality: Gradual Improvement but Elevated Stress Persists
Central Bank of India's asset quality metrics show a mixed trajectory. Gross non-performing assets (GNPA) improved to 3.02% in Q2 FY26 from 3.14% in Q1 FY26 and 4.59% in Q2 FY25, representing a significant 157 basis points improvement year-on-year. Net NPA stood at 0.49% in Q2 FY26, down from 0.50% in the previous quarter and 0.70% a year ago, indicating effective recovery and write-off mechanisms.
However, the absolute GNPA ratio of 3.02% remains elevated compared to better-performing peers in the public sector banking space. Bank of Maharashtra, for instance, reported a GNPA of just 1.72%, whilst UCO Bank stood at 2.63%. This suggests that whilst Central Bank has made progress, it still has considerable ground to cover to match the asset quality standards of the sector's top performers.
Asset Quality Concern: Elevated Stress Levels
Whilst the bank has demonstrated consistent improvement in asset quality metrics over the past year, the absolute GNPA level of 3.02% remains materially higher than several public sector peers. The trajectory of improvement has also slowed sequentially, with GNPA declining only 12 basis points from Q1 FY26 to Q2 FY26 compared to the 157 basis points improvement year-on-year. Investors should monitor whether this deceleration in asset quality improvement reflects stabilisation at healthier levels or indicates emerging challenges in further cleanup.
The net NPA ratio of 0.49% is notably low, suggesting that the bank maintains adequate provisions against its stressed assets. The significant gap between gross and net NPA indicates a provision coverage ratio that, whilst not explicitly disclosed for recent quarters, appears robust based on historical data showing 92.48% coverage as of March 2023.
On a positive note, advances grew from ₹244,399.28 crores as of March 2024 to ₹283,505.40 crores by March 2025, representing a healthy 16.00% year-on-year expansion. This growth in the loan book, coupled with improving asset quality metrics, suggests the bank is successfully balancing growth aspirations with risk management, though the sustainability of this balance remains to be tested in a potentially slowing economic environment.
Profitability Dynamics: Margin Pressures Challenge ROE Expansion
Central Bank of India's return on equity (ROE) stood at 10.88% in Q2 FY26, a respectable metric that reflects improving capital efficiency. However, this ROE, whilst positive, remains below the sector's best performers and indicates room for further improvement. The bank's return on assets (ROA) of 0.82% similarly lags behind peers like Bank of Maharashtra, which reported an ROA of 1.64%.
The net profit margin for Q2 FY26 came in at 14.04%, demonstrating the bank's ability to convert revenues into bottom-line profits. However, the operating profit margin excluding other income stood at 62.08%, down from higher levels in previous quarters, reflecting the margin compression challenges facing the banking sector. The declining trend in operating profit before provisions—from ₹2,315.41 crores in Q1 FY26 to ₹1,795.42 crores in Q2 FY26—underscores the pressure on core profitability metrics.
| Quarter | Net Profit (₹ Cr) | QoQ Change | YoY Change | Operating Profit (₹ Cr) |
|---|---|---|---|---|
| Sep'25 | 1,219.59 | +1.34% | +32.47% | 1,795.42 |
| Jun'25 | 1,203.50 | +15.49% | +35.69% | 2,315.41 |
| Mar'25 | 1,042.02 | +7.63% | +28.36% | 2,016.88 |
| Dec'24 | 968.18 | +5.16% | +33.07% | 1,976.72 |
| Sep'24 | 920.64 | +3.79% | +51.28% | 2,175.99 |
| Jun'24 | 886.96 | +9.25% | +107.22% | 2,005.51 |
The bank's shareholder funds increased to ₹36,881.48 crores as of March 2025 from ₹32,374.41 crores a year earlier, reflecting retained earnings and capital infusions. With share capital rising from ₹8,680.94 crores to ₹9,051.40 crores, the bank has strengthened its capital base, though this dilution also means existing shareholders' stakes have been marginally reduced.
Deposits grew to ₹413,270.98 crores by March 2025 from ₹385,540.78 crores in March 2024, representing a 7.19% year-on-year increase. This deposit growth, whilst positive, has come at a cost, as evidenced by the rising interest expended. The loan-to-deposit ratio appears healthy, with advances at ₹283,505.40 crores against deposits of ₹413,270.98 crores, suggesting adequate liquidity buffers.
Peer Comparison: Valuation Discount Reflects Operational Challenges
Central Bank of India trades at a price-to-book value (P/BV) ratio of 0.89x, representing a significant discount to several public sector banking peers. Punjab & Sind Bank commands a P/BV of 1.57x, UCO Bank trades at 1.23x, and Bank of Maharashtra at 1.40x. Only Bank of India trades at a deeper discount at 0.72x P/BV, suggesting that Central Bank's valuation reflects both sector-wide challenges and company-specific concerns.
| Bank | P/BV Ratio | Div Yield | ROA | Net NPA | Gross NPA |
|---|---|---|---|---|---|
| Central Bank | 0.92x | 0.79% | 0.94% | 0.49% | 3.13% |
| UCO Bank | 1.23x | 0.96% | 0.68% | 0.45% | 2.63% |
| Punjab & Sind Bank | 1.57x | 0.00% | 0.71% | 0.91% | 3.34% |
| Bank of Maharashtra | 1.40x | 2.60% | 1.64% | 0.18% | 1.72% |
| Bank Of India | 0.72x | 3.19% | 0.92% | 0.75% | 2.92% |
The valuation discount appears partially justified when examining operational metrics. Central Bank's ROA of 0.94% trails Bank of Maharashtra's 1.64% significantly, whilst its GNPA of 3.13% is notably higher than Bank of Maharashtra's 1.72%. However, Central Bank's net NPA of 0.49% is competitive with UCO Bank's 0.45% and superior to Bank of India's 0.75%, suggesting adequate provisioning.
The dividend yield of 0.79% is modest compared to Bank of India's 3.19% and Bank of Maharashtra's 2.60%, reflecting the bank's strategy of retaining earnings to strengthen capital rather than distributing to shareholders. For income-focused investors, this lower yield may be a deterrent, though growth-oriented investors might view the retained earnings as fuel for future expansion.
Central Bank's market capitalisation of ₹34,069 crores positions it as the 12th largest amongst 17 public sector banks, reflecting its mid-tier status in the pecking order. This positioning suggests limited pricing power and heightened competition for both deposits and quality lending opportunities.
Valuation Analysis: Attractive Entry Point or Value Trap?
Central Bank of India's current valuation metrics present a compelling case for contrarian investors. Trading at 8.21 times trailing twelve-month earnings and 0.89 times book value, the stock appears significantly undervalued compared to historical norms and peer averages. The PEG ratio of 0.28x suggests the stock is trading well below its growth rate, typically a sign of undervaluation.
However, the stock's 37.32% decline over the past year against the Sensex's 3.64% gain raises questions about whether this discount reflects genuine value or a value trap. The stock has consistently underperformed across multiple timeframes: down 2.33% over one month (vs Sensex +1.52%), down 4.27% over three months (vs Sensex +2.06%), and up only 1.99% over six months (vs Sensex +6.87%).
Valuation Disconnect: Technical Weakness Versus Fundamental Improvement
Central Bank's valuation presents a paradox. Fundamental metrics show steady improvement—net profit at record highs, asset quality improving, and ROE expanding to 10.88%. Yet the stock trades at multi-year low valuations with a P/BV of 0.89x and has lost 37% over the past year. This disconnect suggests either the market is pricing in future deterioration not yet visible in the numbers, or the stock represents a contrarian opportunity for patient investors willing to look past near-term technical weakness. The resolution of this paradox will likely determine investor returns over the next 12-18 months.
The stock's 52-week range of ₹32.81 to ₹61.89 shows significant volatility, with the current price of ₹36.96 sitting just 12.65% above the 52-week low but a substantial 40.28% below the 52-week high. This proximity to the lower end of the range could signal either an attractive entry point or further downside risk depending on one's perspective.
Technical indicators paint a cautious picture. The stock trades in a "mildly bearish" trend according to multiple indicators, with the price below its 20-day, 100-day, and 200-day moving averages. Only the 50-day moving average at ₹36.56 sits below the current price, providing minimal technical support. The MACD shows mixed signals—mildly bullish on the weekly timeframe but bearish on monthly charts.
From a longer-term perspective, the stock has delivered impressive returns over three years (90.52% vs Sensex 43.73%) and five years (262.00% vs Sensex 109.97%), demonstrating that patient investors who bought during previous downturns were handsomely rewarded. Whether history will repeat remains the critical question.
Shareholding Pattern: Government Commitment Remains Unwavering
Central Bank of India's shareholding structure reflects its status as a government-controlled entity. Promoter holding—entirely held by the President of India—stood at 89.27% as of September 2025, unchanged from June 2025 but down from 93.08% in December 2024. This 3.81 percentage point reduction in Q4 FY25 likely reflects the government's strategic disinvestment programme, though the stake remains overwhelmingly dominant.
| Category | Sep'25 | Jun'25 | Mar'25 | QoQ Change |
|---|---|---|---|---|
| Promoter | 89.27% | 89.27% | 89.27% | 0.00pp |
| FII | 0.87% | 0.96% | 1.27% | -0.09pp |
| Mutual Funds | 0.26% | 0.30% | 0.22% | -0.04pp |
| Insurance | 3.25% | 3.31% | 3.47% | -0.06pp |
| Other DII | 1.36% | 1.46% | 2.18% | -0.10pp |
| Non-Institutional | 4.98% | 4.70% | 3.58% | +0.28pp |
Foreign institutional investor (FII) holdings declined to 0.87% in September 2025 from 0.96% in June 2025 and 1.27% in March 2025, suggesting waning international interest in the stock. The number of FII holders increased marginally from 62 to 64, but the declining stake indicates net selling by this investor category. This FII exodus mirrors the broader market sentiment reflected in the stock's poor price performance.
Mutual fund holdings similarly declined to 0.26% from 0.30% in the previous quarter, indicating domestic institutional investors are also reducing exposure. Insurance company holdings fell to 3.25% from 3.31%, whilst other domestic institutional investor (DII) stakes dropped to 1.36% from 1.46%. The consistent decline across all institutional categories—FII, mutual funds, insurance, and other DIIs—paints a concerning picture of institutional confidence.
The sole bright spot comes from non-institutional investors, whose holdings increased to 4.98% from 4.70%, with the number of such investors rising to 721,161 from 718,819. This suggests retail investors are accumulating shares even as institutions exit, a pattern that could indicate either contrarian opportunity or retail investors catching a falling knife.
Stock Performance: Severe Underperformance Across All Timeframes
Central Bank of India's stock performance has been disappointing across virtually all timeframes. The stock declined 2.66% on 17 October 2025, significantly underperforming the Sensex's 0.58% gain, resulting in a negative alpha of 3.24 percentage points. Over the past week, the stock fell 2.97% against the Sensex's 1.76% gain, widening the underperformance to 4.73 percentage points.
| Period | Stock Return | Sensex Return | Alpha | Performance |
|---|---|---|---|---|
| 1 Week | -2.97% | +1.76% | -4.73% | Underperformer |
| 1 Month | -2.33% | +1.52% | -3.85% | Underperformer |
| 3 Months | -4.27% | +2.06% | -6.33% | Underperformer |
| 6 Months | +1.99% | +6.87% | -4.88% | Underperformer |
| YTD 2025 | -30.64% | +7.44% | -38.08% | Severe Underperformer |
| 1 Year | -37.32% | +3.64% | -40.96% | Severe Underperformer |
| 3 Years | +90.52% | +43.73% | +46.79% | Outperformer |
| 5 Years | +262.00% | +109.97% | +152.03% | Strong Outperformer |
The year-to-date performance is particularly stark, with the stock down 30.64% compared to the Sensex's 7.44% gain, resulting in a negative alpha of 38.08 percentage points. Over one year, the stock has lost 37.32% whilst the Sensex gained 3.64%, making Central Bank one of the worst performers in the public sector banking space. The stock has even underperformed its sector, with public banks as a category down 83.30% over the year, though Central Bank's 37.32% decline represents a 45.98 percentage point outperformance versus the sector.
The stock's beta of 1.20 indicates it is more volatile than the broader market, typically rising and falling by larger proportions than the Sensex. With a volatility of 40.20% compared to the Sensex's 12.55%, Central Bank represents a high-risk proposition. The negative risk-adjusted return of -0.93 over one year classifies the stock in the "high risk, low return" category—the worst possible quadrant for investors.
Looking at longer timeframes provides some consolation. Over three years, the stock returned 90.52% compared to the Sensex's 43.73%, generating a positive alpha of 46.79 percentage points. Over five years, the returns are even more impressive at 262.00% versus the Sensex's 109.97%, delivering alpha of 152.03 percentage points. This demonstrates that whilst recent performance has been abysmal, patient long-term investors who bought during previous downturns were well rewarded.
"Central Bank's valuation discount reflects not just sector headwinds but company-specific execution risks. The improving fundamentals suggest potential, but the persistent technical weakness and institutional exodus demand caution."
Investment Thesis: Turnaround Story with Execution Risks
Central Bank of India presents as a classic turnaround story—a government-owned bank emerging from a troubled past with improving asset quality, growing profitability, and attractive valuations. The bank's quality grade has stabilised at "Average" for 13 consecutive quarters since June 2022, suggesting the worst may be behind it. The financial trend turned "Positive" in June 2025, indicating improving momentum in key metrics.
However, the technical trend remains "Mildly Bearish," and the stock's consistent underperformance suggests the market remains sceptical about the sustainability of the improvement. The proprietary score of 51 out of 100 places the stock in "HOLD" territory, upgraded from "SELL" as recently as 22 September 2025, but still not compelling enough for a "BUY" recommendation.
KEY STRENGTHS
- Record Profitability: Net profit of ₹1,219.59 crores represents highest-ever quarterly profit, up 32.47% YoY
- Improving Asset Quality: GNPA declined 157 bps YoY to 3.02%; Net NPA at comfortable 0.49%
- Strong Capital Base: Shareholder funds grew to ₹36,881.48 crores, supporting growth aspirations
- Attractive Valuation: P/BV of 0.89x and P/E of 8.21x represent significant discount to peers
- Government Backing: 89.27% promoter holding ensures stability and access to capital if needed
- Healthy Loan Growth: Advances expanded 16% YoY to ₹283,505.40 crores, demonstrating growth momentum
- Improving ROE: Return on equity of 10.88% shows enhanced capital efficiency
KEY CONCERNS
- Margin Compression: NII declined 2.97% QoQ and 3.74% YoY despite loan growth, indicating pricing pressure
- Operating Profit Decline: Operating profit fell 17.49% YoY and 22.46% QoQ, raising sustainability concerns
- Elevated GNPA: At 3.02%, gross NPA remains higher than better-performing peers like Bank of Maharashtra (1.72%)
- Institutional Exodus: FII, MF, Insurance, and DII holdings all declined QoQ, signalling weak confidence
- Technical Weakness: Stock in mildly bearish trend, trading below key moving averages with negative momentum
- Severe Underperformance: Down 37.32% over one year vs Sensex +3.64%, indicating structural concerns
- Lower ROA: Return on assets of 0.82% trails peers like Bank of Maharashtra (1.64%)
Outlook: What to Watch in Coming Quarters
The trajectory of Central Bank of India over the next 12-18 months will likely be determined by its ability to address the margin compression challenge whilst maintaining asset quality discipline. The bank needs to demonstrate that its record profitability is sustainable through improving core operating metrics rather than relying primarily on lower provisions.
POSITIVE CATALYSTS
- ✓ NII Stabilisation: Sequential improvement in net interest income would signal margin pressures easing
- ✓ Operating Leverage: Recovery in operating profit growth would demonstrate core business strength
- ✓ Further GNPA Decline: Movement towards 2.5% or below would narrow gap with best-in-class peers
- ✓ Institutional Re-entry: FII or mutual fund stake increases would signal renewed confidence
- ✓ ROE Expansion: Movement towards 12-13% ROE would justify valuation re-rating
RED FLAGS TO MONITOR
- ⚠ Continued NII Decline: Further sequential drops would confirm structural margin challenges
- ⚠ GNPA Deterioration: Any uptick in gross NPA would derail the improvement narrative
- ⚠ Rising Slippages: Increase in fresh NPA additions would pressure profitability
- ⚠ Deposit Growth Challenges: Inability to mobilise low-cost deposits would worsen margins
- ⚠ Technical Breakdown: Break below ₹32.81 (52-week low) would signal further downside
Investors should also monitor the bank's strategy around government disinvestment. With promoter holding at 89.27%, any significant stake sale programme could create supply overhang, though it might also attract strategic investors if priced attractively. The bank's ability to improve its return on assets towards 1.2-1.5% levels would be crucial for sustainable value creation.
The broader economic environment will play a role as well. A slowdown in credit growth or rising stress in retail and MSME segments—where public sector banks have significant exposure—could derail the improvement trajectory. Conversely, a benign credit environment with stable interest rates could allow the bank to consolidate its gains and expand margins.
The Verdict: Cautious Hold with Watchful Eye
Score: 51/100
For Fresh Investors: Not recommended for fresh purchases at current levels. Whilst the valuation appears attractive on paper, the consistent institutional selling, technical weakness, and margin compression concerns warrant caution. Better risk-reward opportunities exist in the public sector banking space. Those keen on exposure should wait for either a technical trend reversal or clear evidence of operating profit stabilisation.
For Existing Holders: Continue to hold with a watchful eye on Q3 FY26 results. The improving asset quality and record profitability provide a floor, whilst the attractive valuation offers potential upside if execution improves. However, set a mental stop-loss around ₹32-33 levels (near 52-week low) to limit downside. Monitor quarterly NII trends closely—two consecutive quarters of sequential NII improvement would strengthen the hold case significantly.
Fair Value Estimate: ₹42-45 (14-22% upside from current levels), contingent on demonstrating sustainable operating profit growth and margin stabilisation over the next two quarters.
⚠️ Investment Disclaimer
This article is for educational and informational purposes only and should not be construed as financial advice. Investors should conduct their own due diligence, consider their risk tolerance and investment objectives, and consult with a qualified financial advisor before making any investment decisions.
