IOB hopes to post profit in Q2, come out from PCA this fiscal: MD & CEO

Bank is focusing hard on reducing its net NPAs to achieve this end, will enter one-time settlement with defaulters to pare bad loans

Indian Overseas Bank (IOB) is expecting to register a net profit in the September quarter of the current financial year and come out of Prompt Corrective Action (PCA) by the end of the year. 

The bank is focusing hard on reducing its net Non Performing Assets (NPA) to achieve this end, and would take measures through One-Time Settlements (OTS) to bring down the bad loans. 

It is also working on improving net interest income (NII) and net interest margin (NIM), apart from boosting Current Account and Saving Account (CASA) deposits, among other meaures, in order to improve its performance, said Karnam Sekar, managing director and chief executive officer, IOB. 

The lender has also sought Rs 6,000 crore from the central government for the current fiscal. It has been making losses for the past five years. High levels of NPAs brought it under the Reserve Bank of India's prompt corrective action (PCA) in 2015. IOB, in fact, has been under the PCA purview much longer than many other banks, Sekar said. 

"We are trying to reduce the NPAs and improve the operating profit, and hope to see a net profit this September and come out of PCA during this year," Sekar said. 

"While the bank was able to reduce its gross NPAs, net NPAs continue to be at around 11 per cent. We need to bring them down to under six per cent to come out of PCA. Coming out of PCA needs three broad ratios to be maintained - Capital Adequacy, Net NPA and profit. We are sure we will meet profit, and capital adequacy ratio. Net NPA is a major issue. The entire focus of the bank is on that area now," Sekar added.

The Bank is focusing on OTS with some of its accounts and is amenable to such a settlement with some of its bigger accounts this year as well. It also plans to sell assets to an Asset Reconstruction Company (ARC) and grow its books in specific sectors with lesser risk weight such as jewellery loans, within the PCA framework, in order to improve NII and NIM during the year and come out of PCA. 

The actions are mostly focused around reduction of NPAs and improve the interest income. Interest income was more or less stagnant during the past five years. The bank has formed a special taskforce and has already settled around 10,000 small accounts under the special OTS. It is expecting large number of settlements in the next two quarters as well.

Sekar said NPAs in the education loan portfolio are on the higher side and that IOB will take action to find out the defaulters, inform their employees and put out details in social media to recover bad loans.