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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

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