The Hindu Business Line : IOB to focus on building quality asset base

ABSENCE of lucrative avenues for deploying low-cost funds has forced Indian Overseas Bank (IOB) to evolve a strategy of building up quality assets (advances) and not wasting capabilities on increasing its deposits (liabilities).

At present, the bank finds absolutely no problem in raising its deposit base, but is more worried over slow pick-up in demand on the industrial credit front, the IOB Chairman and Managing Director, Mr S.C. Gupta, said.

Addressing newspersons after inaugurating the bank's personal banking branch at Jubilee Hills here on Wednesday, Mr Gupta said, "The bank has taken a conscious decision to focus on building its quality asset base and not to add significant liabilities. We are of the view that extra growth in deposits is a losing proposition."

The growth in bank's domestic deposits has witnessed a fall at 8.75 per cent as at the end of December 2003 from 14 per cent during 2002-03, 16.3 per cent in 2001-02 and 18.4 per cent in 2000-01.

However, Mr Gupta said the bank would continue its focus on low-cost deposits to increase the spreads, especially keeping in view of the gradually falling yield on advances.

The bank's yield on advances has come down to 10.21 per cent as at the end of December 2003 compared to 11.98 per cent in March 2000. During this period, the bank has brought down its cost of deposits to 5.66 per cent from 7.81 per cent. The bank's domestic net interest margin (NIM) has improved to 3.58 per cent from 2.53 per cent during this period.

On the management of non-performing assets (NPAs), Mr Gupta said the bank planned to bring down the NPAs to near zero levels by way of accelerated recovery efforts and increased provisions.

Having already brought down the net NPAs to 3.83 per cent by December 2003 from 7.65 per cent in March 2000, it planned to further reduce the net NPA level to below one per cent by 2006, he said.