The Hindu Business Line : RBI notification on core projects to help IOB reduce NPAs

Chennai, Nov. 26 Indian Overseas Bank’s NPAs would be reduced by Rs 150 crore due to the Reserve Bank of India’s recent re-classification on infrastructure projects. This is significant to the bank, whose bad debts surged by Rs 600 crore in the second quarter of 2008-09.

Until recently, the RBI norms classified loans borrowed for infrastructure projects as NPAs if the projects were suffering delay in implementation — even if the borrowers were paying interests on time. The Indian Banks’ Association (IBA) had requested the RBI to reconsider this, saying that there are occasions when the completion of infrastructure projects gets delayed for legal and other extraneous reasons.

Therefore, as a one-time measure, the RBI, in its recent circular, said with the current market developments if these projects are found eligible for restructuring then they could be categorised as ‘standard’. However, the project would have to be implemented within a period of six months from the RBI date of circular.

Mr S.A. Bhat, Chairman and Managing Director, Indian Overseas Bank, said, “The RBI notification on infrastructure projects under implementation will help the bank reduce NPAs by Rs 150 crore.” IOB had lent to two Andhra Pradesh-based power projects, whose implementation had got delayed. The bank has another major NPA of Rs 300 crore — a loan given to a real estate company. “We are hopeful that this bad loan will also become a standard asset with the accountholder willing to pay off the dues,” Mr Bhat said.

IOB reported an increase in gross NPAs to Rs 1,725 crore for the second quarter of 2008-09, against Rs 1,099 crore in first quarter of 2008-09.

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