Despite reporting higher losses in the December quarter, Chennai-headquartered Indian Overseas Bank (IOB) has signalled the end of its worst period, with its net NPA falling below six per cent. The bank sees profits coming in from the fourth quarter of this fiscal.
With this, the bank has crossed a major hurdle in its efforts to come out of the RBI’s PCA framework.
Capital infusion
With the government infusing a capital of ₹4,360 crore, the bank filled the shortfall in provisions and, as a result, net NPAs fell to 5.81 per cent as of December 31, 2019.
“I am very happy to announce today that we have brought down the net NPA to below six per cent during the December quarter. Now our objective is to make profits every quarter, said Karnam Sekar, Managing Director and CEO of IOB.
The bank is confident that it will not only be able to contain NPAs and slippages but also improve recoveries. “With higher other income, due to lower provisioning and higher recoveries, we will be able to make a profit from the March quarter,” he said. However, its net loss for the third quarter ended December 31, 2019, increased to ₹6075 crore, against ₹346 crore in the year-ago period, due to higher provisioning of ₹6,664 crore for non-performing assets (NPAs) and investments.
Fresh slippages stood at ₹1,648 crore (₹1,700 crore) and recovery, including technical write-off, was ₹7,085 crore (₹3,723 crore).
For the December 2019 quarter, its net interest income stood at ₹2,868 crore (₹2,988 crore), while operating profit declined to ₹762 crore against ₹1,466 crore. The bank does not foresee any slippage in corporate accounts from Q4 of this fiscal as all big corporate accounts have already slipped.
In the RAM (retail, agriculture and MSME) segment, slippages have been coming down quarter-on-quarter. Going forward, provisioning requirements for fresh slippages will be minimal.
B Swaminathan, Executive Director, IOB, explained that the bank strengthened its asset recovery structure by transferring all corporate accounts to select branches.
The bank has decided to improve its lending in the RAM segment as it is not keen on big corporate lending.
“The RAM segment’s share is now 72 per cent in total credit exposure. Going forward, we want to be known as an MSME-focussed bank,” said Ajay Kumar Srivastava, Executive Director of IOB.
About 178 branches have been chosen to grow the MSME lending and 22 will focus on big-ticket MSME loans – ₹10 crore, ₹15 crore ₹25 crore. The bank seeks to grow the MSME portfolio to about ₹50,000 crore in the next 15 months from ₹32,000 crore at present.