Bad loans in Q1 went up due to small accounts: M Narendra

Interview with Chairman & MD, Indian Overseas Bank

Chennai-based Indian Overseas Bank’s chairman and managing director, M Narendra, says it has room to raise Rs 3,500 crore via infrastructure bonds, in an interview to Manojit Saha. Edited excerpts:

The bank reduced its balance sheet size during the first quarter. Why?

In financial years 2010-11 and 2011-12, we had grown substantially but in the next two years, we slowed down, which might continue until the economy improves. But, overall in the past four years, the total business has almost doubled and is now close to Rs 4 lakh crore. We were able to increase our loan market to 2.76 per cent as compared to 1.7 per cent.

In the first quarter, the business mix fell mainly due to some deposits that have matured or some short-term loans which are repaid. We have given a guidance (forecast) of 15 per cent growth in both credit and deposits for the current financial year.

The net profit in the first quarter has more than doubled, on a year-on-year basis, to Rs 272 crore but non-performing assets (NPAs) increased and provisioning fell. How do you explain this?

The profit in the first quarter was in line with the preceding one (Q4 of FY14), which was Rs 268 crore. The operating profit was Rs 686 crore, even if we have to provide Rs 250 crore for shifting securities to the held to maturity category, from available for sale. The treasury gains were also higher. So, the point is the operating profit is in the right direction, even if we have pressure on restructuring and NPAs.

The NPAs in the first quarter have gone up mainly due to small accounts, of less than Rs 50 lakh each. We have Rs 710 crore of incremental NPAs from the small accounts. In addition, there was one large foreign account with an exposure of Rs 389 crore, that has slipped during the quarter. However, we have also made Rs 540 crore of recovery during the same period.

Even though we have provided adequately, the provision coverage ratio might be looking a bit low. As and when the profit increases, we will increase the coverage ratio.

Will you be raising funds via long-term bonds?

We can raise up to Rs 3,500 crore. We are planning to take up the issue at the board level.

What capital infusion are you looking from the government?

We don’t know how much will come. Last year, the government capital infusion was Rs 1,200 crore. We expect a similar amount.

The government has talked about consolidation in public sector banks. Your view?

Consolidation should bring about unique positive outcomes. There should be some synergy. When the economy will revert to its high growth path, both business and profitability of the banks will increase. In IOB, we have demonstrated that we can grow organically. We plan to add 400 branches this year. IOB wants to maintain its individual identity. We are in the seventh position in size among public sector banks. We could have moved up to the fifth spot but we decided to moderate growth due to the prevailing market condition.