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Mr S.A. Bhat

S. Bridget Leena

Chennai, Oct. 5 Indian Overseas Bank sees a ‘tough’ year ahead and expects lower profitability for the current financial year. The bank had reported a 4.8 per cent fall in profits for the first quarter (Rs 255.9 crore compared with Rs 268.4 crore for the same period the previous year). The bank expects the trend to continue in the second quarter also.

“I expect an overall ‘dip’ in profits this year, we will be happy to reach the profitability reported last year. However, we don’t know whether we will be able to reach that level,” Mr S.A. Bhat, Chairman and Managing Director, IOB, said. (IOB reported 19 per cent growth in net profits to Rs 1,202 crore in 2007-08.) Income from treasury operations is also under pressure as the yields are not attractive.

Although credit expansion has not slowed down “we don’t have the resources to fund new projects and expansion,” he said. Mr Bhat said that due to this, “I am forced to curtail growth; I don’t feel the need to raise capital at high cost.” The bank expects to grow its deposits by 22 per cent and advances by 20 per cent. As on March 31, 2008, deposits were Rs 55,605 crore and advances Rs 61,056 crore.

Capital adequacy ratio will improve to 13 per cent by September, compared with 11.25 per cent in March due to additional capital mobilisation.

The bank expects a marginal increase in gross non performing assets (NPA) to 1.7 per cent and net non performing assets to 0.7 per cent for this year. It reported a gross NPA of 1.6 per cent and net NPA at 0.6 per cent in 2007-08.

Mr Bhat said due to the change in the definition of infrastructure funding by the Reserve Bank of India two corporate accounts amounting to Rs 100 crore have become bad debts, although the company has been paying interest.

According to the central bank, an infrastructure project should commence operations within two years of starting, if it does not, the company’s loan account is considered NPA even if it is paying due interest.

There are two corporate accounts of about Rs 100 crore combined, which is likely to become an NPA. Provisioning for bad debts will also impact profitability.

Non-interest income jumped to Rs 808 crore in 2007-08 from Rs 387 crore the previous year; the growth is expected to continue this year as well. RBI has given its approval for the bank to set up a branch in Australia and a representative office in Dubai. “We are yet to get permission from the respective countries to start our operations,” Mr Bhat said.

More Stories on : Outlook | Public Sector Banks

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