Last two years have been tough for the Chennai-based Indian Overseas Bank
(IOB), on account of growing NPAs, increased costs in the wake of an aggressive approach on the expansion front and a sudden migration to the new core banking solution (CBS) platform-- all of which have put a lot of pressure on the several branches of IOB.
On top of this, the bank was also put under Reserve Bank of India's (RBI's) Prompt Corrective Action
Today, the bank is on the verge of a turnaround and has already addressed major issues prescribed under the PCA. R Subramaniakumar
, MD & CEO, IOB
told T E Narasimhan
that a turnaround is expected in the financial year 2018-19 and this is expected to be sustained thereafter.
How is the turnaround plan shaping up?
The bank has moved to a consolidation phase, from its erstwhile crisis phase that began a year ago, and this is expected to be complete by December 2017. From January 2018 onwards, it will step into the leveraging phase, where we will be able to accelerate business as well as recovery, besides making improvement in terms of putting curbs on slippages.
There have been a string of measures that have been taken in the past one year. Have they started yielding results?
We were planning growth at the branch and unit level to support the turnaround and it is moving in the right direction. Nearly eighteen months ago, around 21 per cent of the branches were making losses. Today, this has come down to 12-13 per cent. We have around 472 branches across the country and plan to bring down the number of loss-making branches to less than 300 by March-end in 2018.
Over 50 per cent of the branches were not participating in credit expansion earlier. Today it is only 10-15%. What has triggered change?
All these were achieved due to fairness and transparency in dealings. Teams were formed and we ensured the involvement of every staff member at the branch level, besides taking several measures to improve customer service and enhance the bank's performance.
Given these factors, I am optimistic that a turnaround will happen in the financial year 2018-19 and profit will be sustained on a quarter-to-quarter basis thereafter.
NPA levels continue to be high at around Rs 35,000 crore. What are your plans in this regard?
Currently, it stands at around Rs 7,000 crore; the NCLT has given direction for another Rs 3,000 crore for resolution and we are currently working with other banks to seek a resolution in this regard. So around Rs 10,000 crore will be tackled by next year.
Of the remaining Rs 25,000 crore, a majority falls under the Rs 50 lakh and above category of accounts. These stand at around 1,400-1,500 accounts, for which we are taking a lot of measures, including legal action for recovery through the SARFAESI Act and other rehabilitation measures-- all of which are gradually yielding results. Borrowers are also coming forward for one-time settlement.
Apart from this, IOB
also has plans to tackle NPA accounts that are highly collateralised through legal action, sale to ARC and OTS, among other routes.
What about slippages?
It has been a big focus. We have created an analytical-based system for easy and continuous monitoring.
In March 2016, slippages were registered to the tune of around Rs 22,000 crore while recovery stood at around Rs 5,800 crore. In March 2017, the bank lost around Rs 12,000 crore in slippages and it recovered around Rs 8,700 crore.
We are aggressively positioning the bank such that slippages are curbed through early visits to the units. We are aiming to reverse the trend, which means our recovery will be more than slippages in the quarters to come.
During the March-June period in 2017, the net addition to the NPA was Rs 355 crore, which earlier used to be in four digits in the previous financial year.
What about PCA parameters?
Under the PCA framework, we were directed to match the CASA level of our peers. At the beginning of the PCA in September 2015, IOB's CASA was one of the lowest at around 23-28 per cent, now it is fairly comparable to peers at over 36 per cent and we are no longer laggards. The second direction was to reduce high-cost deposit and rebalance the composition of the deposit.
High-cost deposits dropped from Rs 52,000 crore to Rs 168 crore. Rebalancing was achieved with a fair degree of compliance. Around 58 per cent of credit was towards corporate and mid-corporate sectors, now it has come down to 48 per cent. Retail, MSMEs, agricultural and other sectors increased, thereby, rebalancing high-risk weighted assets with low-risk ones. We have exited from some accounts where the risk was high. The cost of deposit dropped by around 150 basis points (bps).
Another important direction was to increase the fee-based income and reduce expenditure. Expenditure was down by 2.06 per cent and fee-based income increased, though not to the level envisaged, but it is moving to a better level on a quarter-to-quarter basis. Over a period of two quarters, there will be further improvements. Banking products are being marketed through specified persons and we plan to have around 3,300 specified persons across banks. To meet this end, training of personnel is currently underway.
On aggressive recovery of NPAs, the bank has made a significant improvement-- a development that can be observed from the results of various actions taken by us. The return on assets (ROA) was, however, negative. In order to make this positive, the bank needs to register a quarterly profit, which is what we are working on currently.
What about capital?
Our annual general meeting (AGM) and Board has accorded approval to raise funds to the extent of Rs 3,500 crore, which includes infusion by GOI, QIP, AT1, AT2 bonds. We are currently waiting for the government's approval, following which we will look at raising funds during the fourth quarter.