In the next two quarters, the bank will be focusing on NPA reduction and lowering the cost of funds to improve the net interest margin.

It’s almost 7 in the evening; well past the usual business hours of any bank. M. Narendra, Chairman and Managing Director of the Chennai-headquartered Indian Overseas Bank, has just finished briefing his lieutenants.

He has a couple of meetings scheduled after that. In between, Business Line caught up with him for an interview.

He answered a range of questions on the bank’s performance, growing non-performing assets, recovery targets and his outlook on rates.

Talking about NPAs, he says, given the weak global economic condition and poor consumer sentiment, some may skip a few dues. But they will get back on track. Barring a few, Indians, in general, are not wilful defaulters.

“We have to understand and support them, help them bounce back, and recover their dues for, after all, banking is all about relationship,” he explains.


With the slowing economy, the general feeling in the industry is that NPAs will continue to grow. Your bank too reported higher NPAs in the second quarter.

We are seized of the matter in its totality and it is engaging the top priority of the management. The total involvement of staff at all levels is being ensured to meet this challenge. We have initiated many proactive efforts, resulting in perceptible improvement in NPA management.

Emphasis is on 100 per cent action under SARFAESI in all eligible cases. Special powers have been delegated to branch heads to sanction one-time settlements and out-of-court settlements.

And, in respect of NPAs up to Rs 5 lakh, discretionary powers are given to regional heads to expedite negotiated settlements. Rs 41 crore was recovered under this campaign during the half year ended September 2012.

During the first half, Rs 5 crore worth NPAs were settled through Lok Adalats.

How is the recovery trend? How much of your NPAs have been recovered in cash, and how many accounts, upgraded?

With continuous follow-up, even at the General Managers’ level, the recovery trend is quite encouraging. The total cash recovery till November 2 was Rs 487 crore, and upgradation, Rs 164 crore. The recovery tempo will accelerate further.

What's your recovery target for the year?

For the financial year ending March 2013, our recovery target is Rs 1,450 crore.

Is your restructured account portfolio too going up?

Yes. The restructured account portfolio of the bank has grown to Rs 14,775 crore as on September 30, from Rs 12,641 crore on March 31, 2012. The percentage of restructured advances to total advances was 9.63 per cent as on September 30.

After reducing rates and doing away with processing fee, how is the bank’s retail credit, especially housing loans, performing?

The market has taken the cut and incentives well. There has been a pick up in retail and housing credit after the rate-cut and other concessions.

In October alone, retail credit increased by Rs 400 crore, of which, housing loans amounted to Rs 72 crore and educational loan, Rs 56 crore.

What’s the share of CASA (current account, savings account) to total deposits?

25 per cent.

Would you cut deposit rates for better net interest margins?

As inflation is moderating, banks will be required to review interest rates. We will watch for the regulator’s signal and industry’s response before taking a call.

Then your customers may pull out their savings account deposits or move to term deposits…

Our bank’s savings bank deposits are stable and core, built on the bank’s efficient customer service. They are not interest sensitive as could be seen from the progressive growth in the bank’s savings bank deposits over the period.

Hence, there won’t be any threat by way of pulling out of savings account deposits by our customers or moving to fixed deposits.

In fact, lowering of term deposit rates is an opportunity for the bank to replace its high-cost deposits and protect the net interest margin.

Your bank reported a 24 per cent drop in net profit in the second quarter. Will the following two quarters be better?

The drop in second quarter net profit was mainly due to increased provision towards restructured accounts and non-performing assets.

The bank will be focusing on NPA reduction and lowering the cost of funds in the next two quarters to improve the NIM, which will help the bank post better results this year.

Are you making money on foreign operations?

We are doing well in our foreign operations despite global uncertainties. Our global operating profit growth was 12.49 per cent last year. This year, the operating profit grew 25.77 per cent in the half year itself. We may also go for additional capital to fund future business.

(This article was published on November 18, 2012)
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