Indian Overseas Bank (IOB) has set up what it calls a ‘war room’ to address the issues plaguing the bank, including mounting bad assets, after a call by the Reserve Bank of India to take ‘prompt corrective action’.
Speaking to FE, R Koteeswaran, MD & CEO, IOB, said: “RBI’s only aim was to shore up the bottom line of the bank.
Though we have been making steady progress in recoveries and maintaining decent operating profits, the ballooning NPAs have been eating into our profits,” he said.
The bank, which has been harping on a revival — especially since January this year — is working on recoveries in a big way and now expects to see the targeted results by the end of the current financial year.
Koteeswaran said that even before RBI’s intervention, the bank had set a separate wing called ‘war room’ with a couple of general managers in charge of action plan to individually monitor each and every account.
“During this quarter also, we have done excellent recoveries and the figures will come out once we announce the second quarter results,” he said. RBI has asked the bank to reduce NPAs and improve its Casa.
According to Koteeswaran, the bank made recoveries of above R800 crore in the fourth quarter of the previous financial year, but could not sustain the momentum in consecutive quarters because of staff transfers and related issues.
On what was the target the bank has set in paring down the NPAs, he said whatever target the ‘war room’ sets, will be achieved. “We will use whatever ammunition RBI has given us to recover bad assets, including invoking strategic debt restructuring (SDR) and announcing of wilful defaulters,” he said.
He claimed that RBI has not put on any restrictions on the normal banking operations of the bank. The bank can lend, take deposits and conduct all banking operations.
Koteeswaran said the RBI move will not have any impact on the planned fund raising of R2,009 crore from the government. “These are entirely different issues,” he said.
According to banking experts, RBI’s restrictions cover administrative and branch expansion plans, but put no curbs on normal banking operations, including lending.
Speaking to FE, Kunaey Garg, analyst, financial institutions, India Ratings & Research, said the RBI action will be credit-positive for IOB as in the case of United Bank of India in FY14. “A prompt corrective action is initiated if a bank’s capital adequacy ratio goes below 9%, its net non-performing assets ratio goes above 10% or return on assets falls below 0.25%, according to the RBI framework.” In IOB’s case, the RoA was below 0.25% during the last four quarters — it was negative in the September and December quarters of 2014-15 and 0.02% in the quarter ended June 2015,” he said.
IOB reported a 94.56% drop in its net profit at R14.76 crore for the first quarter of the current fiscal compared to Rs 271.72 crore in the same quarter previous fiscal. Gross NPAs stood at R16,451.20 crore as on June 30, 2015, against Rs 14,922.45 crore in the corresponding period previous year, with gross NPA ratio of 9.40% and 8.33%, respectively. Similarly, net NPAs were at Rs 10,643.43 crore against Rs 9,813.33 crore, with net NPA ratios of 6.31% and 5.68%, respectively. Provision coverage ratio stood at 50.79%.
Last year, global rating agency Standard & Poor’s cut long-term issuer rating for IOB from “BBB-” to “BB+” on sharp deterioration in the asset quality. In a similar move, Moody’s too downgraded the rating of the bank and warned that IOB’s reserves and capital provide a narrow buffer against potential losses.