The Hindu Business Line : Recoveries offset dip in treasury gain for IOB

Chennai, April 28 Thanks to robust recoveries of bad loans, Indian Overseas Bank was able to overcome a Rs 200-crore hit on account of depreciation of its investments and turn in a net profit for the fourth quarter of last year.

The bank has reported a net profit of Rs 305.95 crore for the quarter, compared with Rs 289.76 crore in the corresponding quarter of last year.

What saved the day for the bank was a Rs 100-crore recovery from accounts written-off previously. The amount, along with any interest received from the gone-case accounts, goes straight to the bottomline.

In the fourth quarter of the previous year, IOB had to take a hit of around Rs 70 crore, which means that it had a difference of Rs 130 crore to overcome.

Total recoveries in the last quarter alone were Rs 255 crore (Rs 184 crore). Of this, recoveries from written-off accounts were Rs 100 crore. The rest of the recoveries would have resulted in release of provisions, which also helped buttress the bottomline.

While the figures relating to ‘release of provisions’ for the fourth quarter are not readily available, the full-year figures tell the story better.

For the whole year 2007-08, IOB’s recovery from written-off accounts was Rs 150 crore, interest earned from such accounts was Rs 51 crore and release of provisions amounted to Rs 269 crore—all totalling to Rs 470 crore. The corresponding figure for last year was Rs 320 crore.

This difference of Rs 150 crore accounts for the bulk of the bank’s incremental net profit of Rs 194 crore achieved last year over the previous year.

Mr R Krishnan, General Manager, who is responsible for recoveries put it graphically: “In the last quarter, we recovered Rs 72,000 crore every minute.”

The higher recovery is also captured by the robust growth in ‘other income’, which increased by Rs 420 crore for the full year. The contribution of treasury gains to this was just Rs 16 crore.

Gross non performing assets, as at end-March 2008, stood at Rs 997 crore against Rs 1,120 crore a year ago.

NIM falls

While this is the story as regards recoveries, both net interest margin and return on average assets have shown decline – the former from 3.82 per cent to 3.29 per cent and the latter from 1.36 per cent to 1.30 per cent.

At a press conference here, IOB’s Chairman and Managing Director, Mr S. A. Bhat, said that the bank expected credit to grow by at least 22 per cent in the current year—a lot would depend upon the RBI’s credit policy stance tomorrow. He said that there was no problem in funding credit growth.

Apart from raising deposits, the bank has a leeway to raise Rs 2,700 crore in long term bonds (tier-II capital). Incidentally, the bank is fully compliant with Basel-II requirements for capital and its capital adequacy ratio stood at 11.13 per cent, as at March 31, 2008.

Mr Bhat said that with banks now being allowed to short-sell securities, the bank (any bank) would be in a position to make treasury profits, whichever way the yields move.

Syndication desk

Meanwhile, the ‘syndication desk’ that IOB started last year appears to have paid off—last year, the bank earned commission of Rs 12 crore from syndication of loans. Mr Bhat expects this to double this year.

Answering a question, he said that he was worried about the current year’s performance of overseas branches, because of difficulties in raising resources.

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