Ad Here  
May
June
July
August
September
October
 
 
Light at the end of the tunnel The two levels of reforms Software to assess risk A good idea. It can turn sour if disruption continues to linger on... Ban gold imports Reviving growth... Sustainable development need of the hour Proof of identity to millions… Tasks for the new government A big bite Crafting the big Plan Crafting the big Plan Why this gross under-performance? No deficit financing here! NIA targets premium income of Rs 12,000 crore Not many keen to pursue research... Mobility solutions will drive the auto industry Dr Stefan Weckbach: FTA will help step up investments, trade... Groupon kicks in... Shift industries to the sea! Crafting the big Plan Bali in UN nutrition panel Crafting the big Plan Health for all... Fighting financial frauds Focus on increased penetration The Brit connection continues Meet Prof. Hot Chips A strong diversified base to build Insure your way forward Coming up: a BRICS currency? Welcome Walmart Crafting the big Plan Why are we NOT IN THE RACE?
 
Light at the end of the tunnel
NPAs of IOB were reduced from Rs 22,000 crore by end March 2016 to Rs 12,000 crore at March 2017. Target: Rs 9000 crore by the end of March 2018.

“IOB received Rs 12,000 crore of deposits through demonetisation. The surge in demonetisation-induced deposits increased costs on deposits from the average of 5 per cent to 5.5 per cent,” said R Subramaniakumar, Managing Director & Chief Executive Officer, Indian Overseas Bank (IOB).

IOB has been burdened with a large volume of stressed assets. The exercise of re-balancing the balance sheet continues, said Kumar. The bank has been endeavouring to reduce the concentration of bulk deposits and also stay away from large-scale lending. Gross advances at the end of 31 March 2017 stood at Rs 156,776 crore against Rs 172,727 crore as on 31 March 2016. 

The several prudent measures adopted helped the bank report a higher global operating profit of Rs 3650 crore in 2016-17 (Rs 2885 crore). Gross NPA were higher at Rs 35,098 crore at the end of March 2017(Rs 30,049 crore). This demanded a much greater provision, of 

Rs 7067 crore, resulting in a net loss of Rs 3417 crore (Rs 2897 crore). 

Why stressed assets?

Kumar traced the circumstances that led to the current crisis, in line with the experience of most banks in the public sector: “infrastructure development was given high priority. The slowdown of the economy, combined with a fall in global demand,  severely impacted the performance of several large companies. Many of these had invested heavily in massive infrastructure projects in power, steel, etc. 

“Companies that had built capacity in the earlier boom period suffered from the low utilisation of capacity, resulting in high costs, in turn leading to low demand and lower capacity utilisation. Large sectors like power, textiles, steel... suffered from a slump in demand. The fall in growth in exports also severely affected the working of several companies engaged in exports contribu-ting to the bank’s stressed assets,” said Kumar.

The cumulative effect of these, Kumar said, severely impacted the financial sector. With 60 per cent of the bank’s lending made to corporates, their despair and defaults affected the bank. The high cost of deposits and the fall in demand for loans reduced interest spreads and hence profits, he said.

 

Will bounce back in two years...

The CMD said that the bank fully recognized the severity of the problem and adopted stringent measures to restore health. Kumar said the recent efforts made to focus on quick resolution mechanisms and the Bankruptcy & Insolvency Act, are bringing about significant changes: “we are now able to see light at the end of the tunnel,” said Kumar. 

The efforts taken included segmentation of the loan portfolios among small, medium and large businesses and putting in place strategies to understand the specific problems and provide reliefs, where needed. In cases where IOB leads the consortium of bank lenders, IOB suggests solutions for turnaround and restructuring: “in this, we endeavour not to choke regular operations and provide working capital support,” said Kumar.

These measures have helped: “our NPAs have reduced from Rs 22,000 crore at the end of March 2016 to around Rs 12,000 crore at the end of March 2017. We further target a 25 per cent reduction to Rs 9000 crore by March 2018”, said Kumar.

Kumar is hopeful of IOB re-emerging  a strong bank in less than two years.  – SV


Author :
Reported On :
Sector :
Shoulder :
RELATED NEWS
ABOUT IE
IE, the business magazine from south was launched in 1968 and pioneered business journalism in south. Through the 45 years IE has been focusing on well-presented and well-researched articles. When giants in the industry stumbled to keep pace with the digital revolution, IE stayed affixed embracing technology.
Read more
 
PRIVACY POLICY
Economist Communications Ltd is committed to ensuring that your privacy is protected.
Read more
TERMS AND CONDITIONS
You agree that your use of this Website and the purchase of the magazine will be governed by these terms and conditions.
Read more
 
CONTACT US
S-15, Industrial Estate,
Guindy,
Chennai - 600 032.
PHONE: +91 44 22501236
EMAIL: indecom1968@gmail.com