State-owned Indian Overseas Bank (OIB) on Wednesday reported a 28 per cent jump in net profit at Rs 500 crore from Rs 392 crore in the year-ago period, led by higher income and better asset quality. Total income of the Chennai-based bank rose to Rs 6,227 crore as against Rs 5,028 crore a year ago, led by an interest income of Rs 5,424 crore, which jumped from Rs 4,435 crore in the trailing 12 months period. Non-interest income also rose to Rs 803 crore from Rs 593 crore, Ajay Kumar Srivastava, chief executive and managing director of the bank, told reporters in an earnings call.
He said the bank, which was under the Reserve Bank‘s PCA (prompt corrective action) scheme for six years from FY18 when almost a third of its assets turned dud, improved its asset quality by a notch, with gross bad loans coming down to Rs 13,629 crore or 7.13 per cent from Rs 14,919 crore or 9.12 per cent. Its net NPAs also improved to Rs 2,590 crore or 1.44 per cent from Rs 3,698 crore or 2.43 per cent. When pointed out that this is still an industry leading number, Srivastava defended the same saying of the total bad loans of Rs 29,000 crore, as much as Rs 25,000 crore are locked in various NCLTs and thus this has tied his hands in aggressive recoveries.
“So, I don’t have any scope for aggressive recovery. We have identified some 1,000-odd accounts worth Rs 4,700 crore — all from small businesses — to be sold to ARCs including the national bad bank NARCL,” he said. He said the bottom line was boosted by lower slippages, which was to the tune of Rs 535 crore or 0.31 per cent of total assets and all of them form small accounts, including education loan, where the bad loan ratio is as high as 16-17 per cent. But the bank made good with recoveries of Rs 886 crore of which Rs 407 crore came in from technically written off accounts. Ss much as Rs 740 crore are cash recoveries and the remaining are upgrades. He said the ideal NPA target for March 2024 is under 5 per cent but sounded not so confident of meeting the same given the constraints.
The bank’s key profitability gauge net interest margin which is the difference between the interest expenses and interest earned rose from 2.53 per cent to 3.21 per cent and Srivastava does not see the same improving much as he is not repricing the existing assets rapidly. Bank’s deposits rose to Rs 2,64,401 crore from Rs 2,60,045 crore, much lower than the industry average, and the CEO explained that the bank has been focusing only on the low-cost CASA (current account savings account) deposits and completely kept away from bulk deposits which were coming at a higher cost.
Accordingly, CASA deposits rose to Rs 1,16,694 crore from Rs 1,12,012 crore or 44.14 per cent from 43.07 per cent.Advances grew 17 per cent to Rs 1,91,263 crore from Rs 1,63,544 crore, taking the business mix to Rs 4,55,664 crore from Rs 4,23,589 crore.He said with a 94.03 per cent provisions coverage, up from 91.86 per cent, and a core capital of 16.56 per cent, up from 14.79 per cent; the bank does not need growth capital this year.
He does not see any challenge from the large corporate accounts but sounded cautious on the small accounts especially the education book which had lots of legacy NPAs with the dud loans printing in 16-17 per cent of the total book of Rs 3,400 crore.Though it has not stopped lending, during the reporting quarter the book remained flat partly due to repayments, he said.
He said given the fully secured nature of gold loans, the bank will be focusing on this segment which now stands at Rs 39,000 crore and grew by Rs 3,400 crore in the quarter. The NPA in this book is under 1 per cent only, he said.