Icra Presents 3-Pronged Strategy For Indian Bank Turnaround

The beleaguered Indian Bank might soon get a fresh lease of life if the suggestions in the final report of the Investment Information and Credit Rating Agency (Icra) are accepted by the government and the bank.

Icra, appointed by the central government to formulate a revival plan for Indian Bank, has said in its final report that even though the bank has made efforts to reduce operating losses, which is expected to come down from Rs 223 crore in 1995-96 to Rs 95 crore in 1996-97, the quantum of improvement cannot make the bank viable in a sustained manner. It has suggested a three pronged strategy to improve the banks viability:

 

To retain existing customers by a strong and unambiguous show of unison between the key stakeholders;

To immediately implement the changes required to move the bank towards its long-term strategies; and

To show a modicum of improvement in 1997-98 along the key focus parameters of the long-term strategy.

Icra has said that an immediate infusion of equity totalling Rs 2150 crore is needed for compensation ofaccumulated losses. The required equity reduces to Rs 1950 crore if some of the risk weighted assets are transferred to an ARF that does not require capital to support these assets. Three options have been suggested regarding size and timing of the infusion:

Option one, which is the best in terms of costs and benefits, involve recapitalisation of Rs 2150 crore by Sept. 1997 so that a CRAR of 8 % can be achieved by March 31, 1998..

Option two is recapitalisation of Rs 725 crore by September 1997 and again by Rs 1625 crore by September 1998. By this method, the bank will achieve a operating profit in 1997-98 and CRAR of 8 per cent by March 99.Option three is recapitalisation of the bank to the tune of Rs 1175 crore by Sept. 1997 and Rs 1175 crore by Sept. 1998. For the management, Icra has set out a four point programme :

Set up a strategy implementation committee to play the central role in evolution and implementation of strategy;

To coordinate the action plans of all committees and task forces and prepare a 5-year perspective plan and strategy for implementation;

An action plan to be evolved so that business growth of at least 16 per cent per annum takes place over the next 5 years, the credit risk management is changed such that incremental NPA generation is limited to less than 2 %t per annum, an asset-liability management system is installed, and a mechanism is put in place for monitoring of revenues, costs and profits from different business segments.

The management has also been asked to modify the existing organisational and decision making structure to get desired results.

Option one involves recapitalisation of Rs 2150 crore by September 1997 so that the bank can achieve CRAR of 8 per cent by March 31, 1998