The Prompt Corrective Action (PCA) plan it was ordered to adopt hasn't yet enabled a turnaround at Chennai-based Indian Overseas Bank (IOB).
It was put under the PCR by the Reserve Bank of India in October 2015 but the government-owned lender continues to report losses in each quarter since, due to the heavy burden of provisioning for loans gone bad.
Beside an adverse business climate and the Asset Quality Review ordered by RBI in the second half of 2015-16, with its fallout, uncertainty over appointment of a fulltime chief executive by the government had also hit its performance. R Koteeswaran, full-time managing director and chief executive (MD & CEO), demitted office at the end of June 2016. The government appointed R Subramaniakumar as full-time chief only in March 2017. He'd joined IOB as executive director at the end of September 2016 on a lateral transfer from Indian Bank. And, was assigned additional responsibility as MD & CEO from November 11, 2016.
The higher provision in 2016-17 for non-performing assets (NPAs), Rs 7,067 crore, forced the bank to report a net loss of Rs 3,417 crore for the year, up from the loss of Rs 2,897 crore a year before.
Analysts said like most public sector banks, IOB faces a high risk of standard assets slipping into NPAs. This is driven by the stretched cash flows of highly leveraged corporate customers and limited ability, in the current environment, to recover from exposure to large corporate borrowers whose loans have slipped into NPAs. The bank has large exposure to vulnerable sectors such as power and iron & steel.
A turnaround strategy has been finalised under the new MD. Its principal focus is bad loan recoveries, minimising of new slippage and credit monitoring. Gross non-performing loans rose to Rs 35,098 crore at end-March 2017, from Rs 30,049 crore a year before.
IOB plans to raise equity capital of about Rs 1,300 crore from qualified institutional buyers, to meet the capital adequacy ratio norms. This was 10.5% under Basel-III norms, with common equity tier-I capital at 7.58%, at end-March 2017.