Amid speculation over its privatisation, Indian Overseas Bank (IOB) has staged an impressive turnaround with a strong net profit in the pandemic-hit FY21 after suffering losses for six years in a row.

The Chennai-headquartered PSU lender reported a net profit of ₹831 crore in FY21 against a net loss of ₹8,527 crore in FY20, on the back of strong operating profit that stood at ₹5,896 crore against ₹3,534 crore, aided by higher non-interest income, which was at ₹5,559 crore (₹3,306 crore).

“From March 2020 quarter, we have been progressively increasing our profit. After 2014, we have recorded an annual net profit in FY21. Our gross and net NPA levels have witnessed a substantial decrease. It’s a great achievement for all of us and it will encourage us to do much better in future,” said Partha Pratim Sengupta, Managing Director & CEO, IOB.

Out of PCA programme

The bank’s net profit in March 2021 quarter also more than doubled to ₹350 crore compared to ₹144 crore in March 2020 quarter, when IOB resumed to profit curve after a gap of 18 quarters. Its net NPA declined to 3.58 per cent in March 2021 quarter from 5.44 per cent in March 2020 quarter.

IOB’s previous annual net profit was ₹602 crore in FY14 and after that the bank slipped to loss due to high levels of bad loans. Consequently, the bank was put under the PCA (prompt corrective action) programme by the RBI from September 2015.

In 2017, under the leadership of R Subramaniakumar, IOB embarked on a massive turnaround programme with a multi-pronged strategy under which it rebalanced its portfolio by significantly reducing exposure to large corporates, stepped our recoveries and focused on containing incremental slippages.

The strategy yielded positive outcome as it achieved impressive operational efficiency. The bank exhibited quarter wise consistent improvement in reducing the gross and net NPAs and upgraded the provision coverage ratio from 53.63 per cent in FY 17 to 71.39 per cent in FY19. Automation of NPA administration such as transparent OTS settlement and identifying the early warning signal accounts helped the bank to contain fresh slippages and improved the NPA recovery.

Turnaround strategy

His successor, Karnam Sekar, who took charge as the MD & CEO of the bank in July 2019, carried forward the initiatives taken by his predecessor with a greater focus on the turnaround strategy.

Under Sekar, the bank focused on improving net interest income (NII), which was stagnant as it couldn’t grow the book in the previous 4-5 year due to restrictions as part of PCA. It also decided to focus on improving CASA percentage as it was lagging behind public sector banks’ growth level.

Though losses continued, the December 2019 quarter saw its net NPA dropping below six per cent, helped by the government’s capital infusion of ₹4,360 crore. With reduced NPAs and lower provisions, the bank generated a net profit in the March 2020 quarter and has continued the profitable journey.

Capital infusion plans

Sengupta said deposits, advances and investments have recorded growth despite pandemic in FY21 and it is hopeful of continuing the performance. The bank has written to the RBI to move out of the PCA framework and the exit from PCA will help the bank focus on credit growth and other expansion activities. It has also planned for a capital infusion of ₹2,000 crore during this fiscal.