Indian Overseas Bank (IOB) will make strides towards posting a net profit in the fourth quarter ending March 31, 2020, and come out of the Reserve Bank of India’s prompt corrective action (PCA) framework, according to Karnam Sekar, MD and CEO.

The Chennai-headquartered public sector bank, which posted net losses in the last 18 quarters on the trot, has been under PCA since October 2015. Employees are clamouring that it is time their bank came out of the PCA, said Sekar.

In an interview with BusinessLine , Sekar emphasised that of the four checkboxes (related to capital, asset quality, profitability, and leverage) in the PCA matrix, the bank has not been able to tick only one (related to profitability). Once IOB puts put a tick on the profitability checkbox, based on the March 2020 quarter results, all restrictions on the bank will go. Excerpts:

What steps are you taking to bring IOB out of the PCA?

I took charge on July 1, 2019. My first priority was to bring IOB out of the PCA framework. It has been under PCA for the longest time – about four years now. So, we need to come out it. And that was the clamour of the staff also. Of the four PCA parameters, we have always been good on the leverage ratio.

On capital adequacy also, we are more or less okay as the government supported us (in the last two quarters – September and December – they have given us ₹8,000-crore capital). So, capital adequacy is not an issue. That brings us to two remaining issues – Net Non-Performing Assets (NNPAs) should come down and we should make profit. So, we decided that first we should tackle the NNPA.

As per RBI’s March 31, 2019, inspection report, a few accounts were identified where we had to make extra provisions, which we did in the September and December quarters. So, from 11 per cent, we could bring down the NNPA position to 5.81 per cent.

So, as per PCA criteria, our NNPA is less than 6 per cent. So, only one parameter is left – profit. This quarter we plan to move in that direction. In March 2020, IOB will definitely make a profit because our credit cost or provision is coming down. Once we come out of the PCA, based on our fourth quarter results, the going will be smooth for us.

How much provision burden will there

be, going forward?

With the provisions we made in the September and December quarters, our Provision Coverage Ratio (PCR) is now 86 per cent...So, we are in a comfortable position. So that is what I tell my people – till the other quarter, huge NPA was a problem for our bank, but from now onwards, the huge provision is a bonus (it is an asset). It is a goldmine, which we need to dig and take as much as we want.

Recovery, more or less, is stabilising at ₹1,500 crore to ₹2,000 crore every quarter. Ageing provisioning requirement is only ₹600 crore to ₹700 crore per quarter, whereas ploughing back of the provision (arising from recovery) will be more than ₹1,000 crore.

So, in each quarter, the ageing provision is taken care of by the recovery. On an average, our operating profit is in the range of ₹500 crore to ₹600 crore, depending on the quarter. Provision was the main cost. Slippage has come down drastically.

Up to December quarter, our slippages used to be in the range of ₹2,000 crore every quarter. But in the March 2020 quarter, our slippage is going to be less than ₹500 crore. This is sustainable.

While you are focussing on retail, agriculture and MSME (RAM) loans, what about corporate advances?

We have learnt from our mistakes. Our bank had taken disproportionate share in corporate advances vis-a-vis its actual market share 7 to 8 years ago. In the past, we had taken exposures of ₹2,000 crore to ₹2,500 crore to some of the corporates.

So, it became too much for us to digest. So, once such advances became NPA, it became too much of a pain (because of continuous provisions over the years). That is why it is taking so long for us to come out of the PCA.

So, we want to restrict large corporate advances to only two branches – one each in Mumbai and Delhi. We will have a ceiling on corporate exposure. We will bite only whatever we can chew. We have given small enhancements to ‘AAA’ and ‘AA’-rated corporate. Over the last three years, we have brought down the proportion of corporate advances in our total advances from 50 per cent to 33 per cent now.

What are your growth plans for the RAM segment?

We expect our MSME portfolio to grow from ₹32,000 crore to ₹50,000 crore in the next 18 to 24 months. Housing loans are expected to grow from ₹14,000 crore to ₹25,000 crore in the next 12 to 18 months.

The jewel loan portfolio will double from about ₹15,000 crore. Our RAM portfolio will grow from ₹1-lakh crore now to ₹1.50-lakh crore in the next two years. The corporate loan portfolio will go up from about ₹31,000 crore to ₹50,000 crore.

Related Topics
comment COMMENT NOW