IOB seeks Rs 1,000-crore capital infusion from government

Chennai-headquartered Indian Overseas Bank (IOB) has written to the government for a capital infusion of about Rs 1,000 crore to maintain a capital adequacy ratio (CAR) of 12 per cent and to ensure a credit growth of 20 per cent in the next 3 years.

“Taking into account a 20 per cent business growth over the next three years, and to maintain 12 per cent capital adequacy ratio, of which, 8 per cent will be Tier-I capital, I have projected (to the government) the kind of capital the bank will need,” SA Bhat, chairman and managing director of Indian Overseas Bank, said on the sidelines of a seminar organised by the Federation of Indian Chambers of Commerce and Industry (Ficci) and Indian Banks’ Association (IBA).

Bhat said the infusion might be either through preference shares or perpetual debt instrument.

He also said the bank could raise Rs 500 core through perpetual debt. “If I am able to raise that much, the requirement from the government will come down to only Rs 500 crore,” he said. However, he ruled out any possibility of a follow-on public offer for the next one year.

By June-end, the bank's CAR was 13.24 per cent, of which Tier-I capital was 7.55 per cent.

On the asset quality front, the state-run bank plans to get aggressive on recoveries to reduce its net non-performing asset (NPA).

The bank, with net NPA of 2.04 per cent at the end of the first quarter, aims to reduce it to 1.5 per cent by the end of the current financial year.

The bank’s net NPA shot up in the first quarter due to the merger of Suvarna Sahakari Co-operative Bank with it. It resulted in an addition of Rs 311 crore in bad loans to the bank’s balance sheet.

“I think I will be able to recover whatever I want in 2-3 years,” Bhat said on recovery of bad loans from the co-operative bank's books.

IOB, which had restructured loans worth Rs 8,200 crore till June-end, says about 5-10 per cent of those restructured loans may become NPA.

The provision coverage ratio (PCR) of the bank is also expected to increase. With the Reserve Bank of India allowing banks to deduct floating provision from gross NPA to arrive at net NPA, the move will help the bank to increase its provision coverage ratio.

“Our provision coverage ratio was 50 per cent as on June-end. I plan to increase it. In addition, the moment I get Rs 172 crore from floating provision, my PCR will also go up,” he said.