Using share premium money to offset losses will benefit stakeholders: IOB chief

When Indian Overseas Bank sets off its accumulated losses with funds from its share premium account, the “timeframe of dividend announcement changes for the better”, said R Subramaniakumar, Managing Director and CEO, IOB.

The bank on Friday announced that its board has approved a plan to transfer ₹ 6,978.94 crore from its share premium account to adjust for its accumulated losses of equal amount as of March 31, 2017.

The total money available in the share premium account, which is the premium that shareholders have paid over the face value of its shares, is ₹7,650 crore.

This will strengthen its balance sheet by doing away with the accumulated losses.

Clarifying the bank’s decision to media persons today, he said this will benefit stakeholders. While any decision on dividend announcements is for statutory processes, by setting off the accumulated losses, all sections of the stakeholders stand to benefit, he said.

The government holds an 82 per cent stake in the bank and the public 17.59 per cent, which includes LIC’s 9 per cent.

The bank will conduct an Extraordinary General Meeting of its shareholders on January 30 to approve the board’s proposal of utilising share premium money to offset the accumulated losses.

Subramaniakumar said the move was unanimously approved by its board.

Responding to a question on the Andhra Pradesh High Court shooting down a similar proposal by Global Trust Bank in 2004 to utilise funds in the share premium account to provide for bad loans, the chief executive said that had been under the provision of the Companies Act, 1956.

IOB, he said, had consulted “legal luminaries” and it was clear that provisions in the Banking Regulation Act, 1949, and the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, provide for such a move. “We are clear on corporate governance,” he said.

With the offset of accumulated losses, nothing changes materially, according to Subramaniakumar, except that the existing stakeholders, including minority shareholders, get a fairer picture of the bank and will help investors make “clear decisions”, he said.

The bank is only “setting off” not “writing off” its losses. Net worth remains constant, capital structure remains intact and there is no impact on capital adequacy ratio. “Its commitments and liabilities remain constant,” he said.

Building a case for the proposal, the CEO, quoting recent quarterly figures, said IOB has steadily improved its performance. It has controlled slippages, increased recovery of dues on bad loans and prevented new slippages.

Operating profits are up but it is handicapped by the provisioning it has to make for bad loans. The bank, which is on the RBI’s watch list for prompt corrective action, is on the “recovery path in letter and spirit,” he said.

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