After 4 years, NPA-laden IOB expects to be back in the black in FY20

IOB may exit RBI's Prompt Corrective Action framework by 2019-20

Public sector lender Indian Overseas Bank (IOB), which has been facing losses due to high non-performing assets (NPAs), is expected to post a full-year profit in 2019-20.   

The optimism comes in the backdrop of a number of the bank's branches turning a profit and growth in operating profit and net interest income (NII). The other major reason would be the reduction in NPAs as the bank is confident of finding solutions for cases worth around Rs 40 billion.  

"Both the crisis and consolidation phases are over. The bank is now stepping into the leveraging phase and it would continue for the next six months. The strategies that were adopted will not only turn around the bank but also ensure that it will be sustainable," said R Subramaniakumar, chief executive officer and managing director of IOB. 

Subramaniakumar is confident that for the first time after 12 consecutive quarters, the bank will post a quarterly profit in the fourth quarter of the current financial year and full-year profit in 2019-20. 

The bank has been making losses for the past four years. In 2014-15, its loss stood at Rs 4.54 billion. This rose to Rs 62.99 billion in 2017-18.  

The loss was mainly on account of high provisioning, which rose to 162 per cent from Rs 37.77 billion to Rs 99.29 billion during this period. Another reason was the bank's high exposure to the corporate segment, which accounts for nearly 65 per cent of its total NPAs -- which stand at around Rs 381 billion.    

Subramaniakumar says that of the total corporate exposure, nearly 65 per cent have been referred to the National Company Law Tribunal (NCLT). He adds that he is confident that cases worth nearly Rs 40 billion, including around Rs 16 billion related to Bhushan Power, will be resolved in this financial year. 

The bank is also taking other measures to clean up its NPAs, including selling assets to asset reconstruction companies and opting for one-time settlements. Last year alone, assets worth Rs 2.36 billion were sold and another Rs 13 billion worth were identified. In the past two months alone, nearly 3,400 accounts were settled. The bank registered its lowest slippage during the first-half of 2018-19 (pre-audit) compared to the other months in that past 12 months.

Further, two years ago, nearly 60 per cent of the bank's branches were not participating in credit. Today, that figure has come down to 33 per cent. 

In 2016, the number of loss-making branches was 718, or 20 per cent of the bank's total branches. In September 2018, that figure stood at only 7.69 per cent, or 254 branches. Further, Subramaniakumar says that the number of loss-making branches will be less than 100 by March 2019.  

Indian Overseas Bank is the only nationalised bank of the country to figure in the Forbes list of Top 500 World's Best Employers. 

Deposits in current and savings accounts have gone up to more than Rs 800 billion, as against Rs 660 billion two years ago. Subramaniakumar is targeting Rs 850 billion by March 2019. Further, non-interest income stands at around 20 per cent of the total income. 

The difference between non-interest income to total income and non-interest expenditure to total expenditure is expected to end at less than four per cent in the second quarter of 2018-19, as against 7.28 per cent in the first quarter of the same financial year and 13.68 per cent in FY2018. 

All these developments will help the bank come out from the Reserve Bank of India's Prompt Corrective Action by 2019-20.  

Meanwhile, the government has decided to infuse Rs 21.57 billion in IOB through preferential issues, which will help the bank meet the regulator's capital adequacy ratio norms.   

The bank is also confident that the government will infuse further capital and it has secured shareholders' approval for raising Rs 15 billion. After making profits, the bank might look at qualified institutional buyers or a qualified institutional placement to raise Tier-II capital and equity.