Chennai-based public sector lender Indian Overseas Bank (IOB) on Wednesday said the Hong Kong Monetary Authority (HKMA) has imposed enhanced supervision on its Hong Kong Branch in view of the capital position of the bank being below the requirement (including countercyclical buffer) of the Reserve Bank of India.
The move on IOB comes close on the heels of the regulator’s similar action on Allahabad Bank and Punjab National Bank on their Hong Kong branches. The HKMA, the de facto central bank of Hong Kong, is responsible for maintaining monetary and banking stability in that country.
In a regulatory filing, IOB said due to tighter norms, the Hong Kong branch (IOBHK) was required to maintain high quality liquid assets (HQLA) equivalent to 100% of unpledged deposits. Further, the branch has been refrained from proactively soliciting customer deposits while transactional deposits such as pledged deposits for commercial loans can be accepted in normal course.
“ We confirm that the above is applicable only to our Hong Kong branch and will not have any material impact on the bank’s operations in India and other overseas centres,” IOB said. Explaining the implications, the filing said: “IOBHK can continue to take deposits as margin for credit that is being disbursed and there is no restriction on extending credit.”
The HKMA has directed the branch to maintain a position of “net due to” its head office, other branches, any direct or indirect subsidiaries and associates of the bank. “Our Hong Kong branch operates with funds borrowed from India. Hence, this does not alter the position of the bank,” the filing further explained.
IOB, under RBI’s prompt corrective action (PCA) had reported a net loss of `3,606.73 crore for the January-March quarter of FY 18 as against net loss of `646.66 crore in the corresponding quarter last fiscal, mainly due to higher provisions on account of RBI guidelines on revised framework on resolution of stressed assets.
Post the revised framework, the bank had classified the specific restructured accounts in accordance with extant IRAC norms and made a provision of `799.37 crore towards such accounts during the current quarter.
On the asset quality front, the bank continued to reel under stress with gross NPA as on March 31, 2018 staying at `38,180 crore with the ratio of 25.28% as against `35,098 crore with ratio of 22.39% as on March 31, 2017, with the fresh slippage due to revised framework of stressed asset to the tune of `3,629 crore.