Shri.R. Subramaniakumar Managing Director & Chief Executive Officer
I have pleasure in presenting your Bank's Annual Report and financial statements forthe year 2017-18. I would like to share with you the performance highlights of the Bankduring the year as well as the outlook for the Bank going forward.
GDP grew at 6.7% in 2017-18 compared to 7.1% growth in 2016-17. Agriculture sector grewat 3.4% lower than 6.3% during 2016-17. This is due to de cient monsoon along with unevenspread across regions. The manufacturing sector grew at 5.5% as against the growth of 7.9%in the previous year. The decline in growth was due to lacklustre performance in the firstquarter of 2017-18 when the producers undertook destocking activities with theimplementation of the GST. However the sector witnessed improvement in the last 3quarters after the restocking activities were undertaken following waning of disruptionspost implementation of the GST. During 2017-18 the economy was driven by service sectorwith growth of 7.9% compared to 7.5% in 2016-17. The gross fixed capital formation(GFCF)as a % of GDP is stagnant at 28.5% since 2015-16. However there has been an improvementin Q3 (28.2%) and Q4 (29.1%) in the investment rate. Meanwhile India rose 30 places inthe World Bank's Ease of Doing Business ranking in 2017 to rank 100th in recognition ofthe Government's efforts to streamline the economy through reforms in taxation licensinginvestor protection and bankruptcy resolution and is poised to improve further.
Banking Environment in India
Banking sector is reeling under bad loans and heavy provision burden. As on 31.3.2018PSBs reported GNPA of Rs.895592 crore as against Rs.619199 crore as on 31.3.2017. For thesame period the provisions and contingencies of the PSBs increased by 57 percent fromRs.149808 crore to Rs.235508 crore. As such the net loss reported by PSBs amounted toRs.85362 crore as against the reported net profit of Rs.472 crore during the last year.More than half of the public sector banks are under the Prompt Corrective Action (PCA)framework due to high non-performing assets and negative return on assets (ROA). HoweverPCA is meant to help design a turnaround plan for banks. PSBs will continue to be a majorsource of funds for agriculture lending MSME and Retail Portfolio. Our Bank is alsowitnessing the trend observed in the banking industry in terms of asset quality andprovisioning. The stress of NPA is mainly due to new regulatory guidelines on stressedasset framework. With recognition of Corporate NPA the time to unlock value is imminent.Our Bank will remain a "Retail Agriculture and MSME-focused bank" in the comingyears also.
India is expected to maintain its status as the world's fastest growing economy withthe real GDP growth at 7.4 per cent and 7.5 per cent for 2018-19 and 2019-20 as per OECDestimates. Economy is rebounding after the transitory negative impacts of demonetizationand GST. As per National Council for Applied Economic Research (NCAER) implementation ofa comprehensive GST would provide gains to India's GDP in the range of 0.9 to 1.7 percent. However the economy is facing a number of headwinds like non-performing assets ofthe banking system elevated bond yields increased trade protectionism elevated globaloil prices and currency depreciation. High oil prices need to be taken as an opportunityto boost domestic production by addressing exogenous bottlenecks.
Outlook for Banking Sector vis--vis IOB
Revival in banking sector is expected due to NPA resolutions under the Insolvency andBankruptcy Code (IBC) which in turn is expected to release capital for the banks. Thelosses reported by PSBs in Q4 of 2017-18 were mainly on account of acceleration of badloan recognition in terms of RBI's revised framework on stressed assets. However thepositives are that the banking sector is moving close to full recognition of legacy of badloans and there is an improvement in provision coverage ratio. The asset recognition asNPA by banks will reduce profitability in the near term but produce benefits over thelonger term and cleaning the balance sheets will be credit positive for the bankingsector.
In the light of the outlook for the Banking Sector in general our Bank will befocusing on NPA reduction and on various aspects of its Turnaround strategy so as toimprove efficiency and productivity. Bank is poised to improve the fundamentals and poststrong results in FY19.
Business and Financial Performance Highlights 2017-18
Total deposits stood at Rs. 216832 crore as on 31st March 2018 as against Rs.211343 crore as on 31st March 2017 by reducing high cost deposits and bulk deposits andincreasing retail term deposits with a view to reduce the cost of funds and have a stabledeposit pro le.
Gross Advances stood at Rs.150999 crore as on 31st March 2018 as against Rs.156776crore as on 31st March 2017. The Bank has consciously rebalanced its credit portfolio withRAM's (Retail Agri and MSME) share of total domestic advances improving from 58.74% as on31.03.2017 to 66.14% as on 31.03.2018. Operating Profit of the Bank is Rs. 3629.08 crorefor the year ended 31.03.2018 as against Rs. 3650.20 crore for the year ended 31.03.2017.
Net Loss for the year ended 31.03.2018 is Rs. 6299.49 crore as against Rs. 3416.74crore for the year ended 31.03.2017 mainly due to provisions of Rs. 9928.58 crore madeduring the year including higher provisions on account of RBI guidelines on revisedframework on Resolution of Stressed Assets. While Total Income for the year ended31.03.2018 is Rs. 21662 crore as against Rs. 23091 crore for the year ended 31.03.2017 onaccount of less treasury income and contraction of credit and Interest Income stood at Rs.17915 crore as against Rs. 19719 crore for the corresponding periods Non Interest Incomeimproved to Rs. 3746 crore for the year ended 31.03.2018 as against Rs. 3373 crore for theprevious year.
Total Expenditure declined from Rs. 19441 crore for the year ended 31.03.2017 to Rs.18033 crore for the year ended 31.03.2018.
Gross NPA as at 31st March 2018 is at Rs. 38180 crore with ratio of 25.28% as againstRs. 35098 crore with ratio of 22.39% as on 31st March 2017 with fresh slippage due torevised framework of stressed asset of Rs. 3629 crore.
Net NPA is Rs.20400 crore with ratio of 15.33% on 31.03.2018 as against Rs. 19749crore with ratio at 13.99% as on 31.03.2017.
On the Recovery front the Bank has performed well by clocking recovery of around Rs.15496 crore for FY 2017-18 as against Rs. 8710 crore for FY 2016-17. The Bank was able toimprove CASA ratio to 36.75% as on 31.03.2018 as against 36.09% as on 31st March 2017.
Core Retail (Housing Loans Vehicle Loans Clean Loans Education Loans MortgageLoans) of the Bank has shown y-o-y growth of 26.26%.
Provision Coverage Ratio has improved to 59.45% as on 31.03.2018 from 53.63% a yearback.
Cost to Income Ratio is 60.61% as on 31.03.2018.
NIM stood at 2.19% for the year ended 31.03.2018.
Average Cost of Deposit is 5.49% for the year ended 31.03.2018 as against 6.17%for the year ended 31.03.2017.
With the guidance and oversight of an experienced and professional Board the Bank hadin the previous year finalized a Turnaround Strategy with special focus on the followingareas :
Technology Issues and leveraging
NPA Resolution and NPA Management
Credit Monitoring and arresting fresh slippage
HR management and HR development
Leveraging Capital and Business Growth I take this opportunity to apprise ourshareholders of the steps the Bank has taken during the year under review on these focusareas as well as our future plans to improve the efficiency and productivity of the Bankin these areas that form the cornerstone of our Turnaround Strategy.
1. Technology issues and leveraging
Our Bank is the first Public Sector Bank to have migrated to latest version of Finacleand has successfully migrated all the branches including Overseas Branches to Finacle10.2.17 version. The Bank is in the process of leveraging the Finacle package for serviceenhancement. Bank's in-house team has developed several applications with customisationsin Finacle as well as in the surrounding applications.
Technology platform stabilization was taken as top agenda and as assured Bankstabilized the CBS platform.
Digital Initiatives and strong technology penetration. IOB has always been a pioneer inlaunching various digital products and schemes that benefit customers the most along withutmost convenience.
- Under the ATM rationalization program 826 unviable ATMs have been closed from1.09.2015 to 31.03.2018 resulting in annual savings of Rs. 27.72 crore.
- Bank has already deployed another 704 new Cash Recyclers and 700 new ATMS which areunder implementation.
- Bank has also deployed 700 E-Passbook kiosks
- The Bank rolled out the first of its kind "Mobile Cash Recycler" inFebruary 2018.
- Bharat Bill Payment System (BBPS) has been enabled using Insta Pay and Post Loginmodes in our internet banking. Our Bank was the first PSB to onboard a biller (TNEB) inBBPS
- As an acquirer UPI has been made LIVE for our Bank.
- IMPS can be done using Aadhar apart from IMPS using Account Number and MMID.
- Bank introduced many digital initiatives like IOB Sahayak IOB Nanban IOB Connectfor the better dissemination of information to customers.
Our Bank has initiated implementation of the processes aligning with the best practicesof Information Technology Infrastructure Library (ITIL) so as to have improved IT servicedelivery and satisfaction through optimized costs and resources for better management ofrisk and services to enable strong alignment between IT and the business.
Technology Risk Management Framework devised.
Strengthening system security is one of the key strategies of the Bank. SWIFT systemwas integrated with CBS for all payment messages along with centralization of FEXoperations with Document Management Solution (DMS) and all other directions on SWIFTsecurity has been complied with. Several initiatives for strengthening SWIFT operationswere taken including centralization of SWIFT operations STP with CBS implemented. Varioussecurity measures were implemented across the Bank including Anti virus implementation andupdation Endpoint Advanced Threat Protection (ATP) Deep Discovery Analyser (DDAN).
Online processing of retail loans viz. Housing Loans Vehicle Loans and Clean loanswith digitalization right from sourcing of loan credit rating standardized documentationand loan disbursement.
Customized menu provided to branches for linking the Aadhaar with customer ID.
SMS Alert facility to Deposit Customers on TDS deduction submission of Form 15G/15Hexemption of Form 15 G/H when crossing the threshold limit enabled.
Several security features were introduced to give better protection to customers usingnet banking including increasing OTP to 6 digits setting of daily transaction limit forcorporate customers option for resending OTP through alternate service providers if thefirst request fails GSTIN Registration Online Suspending debit card online TNEB paymentsession xation etc
2. NPA resolution and NPA Management
An important focus of the Turnaround Strategy is NPA Management. As informed and sharedearlier NPA slippage gradually reduced in Q1 Q2 and Q3 and the recovery improved duringthe same period. Further as strategised the recovery increased over slippage during thefirst 3 quarters.
The total slippage for quarter ended March '18 stood at Rs. 9868 crore mainly onaccount of the impact of RBI guidelines on revised framework on Resolution of StressedAssets. Pursuant to the revised framework the Bank has classified the specificrestructured accounts in accordance with extant IRAC norms. The fresh slippage due torevised framework of stressed assets amounts to Rs. 3629 crore. NPA Recovery for the yearis Rs. 15496 crore which is 77.91% higher than last year. Net accrual to GNPA in 2017-18is Rs. 3082 crore as against Rs. 5050 crore in March '17 thus showing reduction in the NetGNPA accrual.
GNPA of Retail is 2.44 % as on 31.03.2018 with reduction of 19.95% over March'17. The Bank has taken the following measures for NPA Management :
Special focus on Chronic NPA accounts where provision is 100% accounts migrating tohigher provisions in small value accounts Daily Recovery Report mechanism Effectingrecovery through Lok Adalats Recovery Camps Recovery drives etc. National Recovery Dayobserved to settle maximum small value NPA accounts.
Active utilisation of Business Correspondents and RDO in recovery of agriculture NPAaccounts.
Systematic recovery through SARFAESI action in case of Retail NPA accounts wheremortgage is available. Recovery teams make multiple visits to MSME medium sector NPAaccounts to rehabilitate upgrade or resolve through compromise Skip tracing ofuntraceable borrowers done through credit agencies in retail NPA accounts as well as MSMENPA accounts of Small and Micro Sector and follow up for recovery Special OTS scheme toempower Branch / Regional / Zonal Managers to settle OTS.
Optimal utilisation of Debt Recovery Agents
Special full time Recovery Teams with 10 to 15 members in each region who have beenallocated specific branches for follow up of NPA accounts.
IOB Sahayak a mobile app for our Staff has been released by our Bank withfeatures including NPA Recovery Visit and NPA War Stressed Asset Vertical has been set upwith 3 subverticals to deal with stressed assets of slabs upto Rs. 1 crore Rs. 1 crore toRs. 3 crore and above Rs. 3 crore in terms of RBI's revised framework for stressed assetresolution.
3. Credit monitoring and arresting fresh slippage
Specialised Credit Monitoring Department has been formed at Zonal Offices headed by AGMto improve the credit overview to identify early warning signals and to arrest freshslippages.
Credit underwriting skills are being strengthened at field level through intensivecredit and FEX training. SMA Portal is available under Business Intelligence whichprovides data on all SMA accounts with colour coding to drive focused recovery with visualcolour impact.
SMA accounts are allotted to every staff member at the branch for follow up andrecovery of overdues in irregular accounts. SMS alerts are also sent to staff remindingthem of their responsibility.
Soft calls made through call centres for recovery of overdue SME accounts to ensurethat small value accounts are followed up regularly.
SMS alerts to borrowers for repayment of overdue amount personal visits from BranchManager to Zonal Manager on continuous basis.
4. HR management and HR development
Staff morale improved with establishing strong connect between Senior Management andfield team HR engagement initiatives like mentoring the executives succession planningbuilding career path has been established To build up the capacity of officers handlingspecialized areas like Treasury Risk Management Accounting Credit Management Forex ITetc. certification programs introduced from accredited institutions like IndianInstitute of Banking & Finance (IIBF) Mumbai National Institute of BankingManagement (NIBM) Pune and Moody's Analytics.
The training system has been strengthened with induction of Senior faculty to make itmore effective.
5. Leverage Capital & Business growth
IOB improved in many fronts and the stress of NPA is seen mainly due to new regulatoryguidelines on stressed asset framework.
i) Domestic CASA at 37.43% is at peak with SB growth of 5.35% and addition of 2 millioncustomers demonstrates the customer service level improvement
ii) Core Retail segment grew by 26.26 % YoY & 6.71% QoQ with Housing Loans growthof 36%.
iii) RAM is robust 66% of the total domestic advances. With Retail share of 20.34%Agri 22.35% MSME 23.54% the rebalancing of loan book is achieved to conserve capital andimprove the fundamentals.
iv) COD at 5.49% without losing deposit base has shown improvement over 6.17% as atMarch 17. Lower bulk and almost NIL high cost deposit is a testimony of balancesheet strengthening.
v) AlthoughYOAis7.51% thereductiondemonstrates competitiveness of our loan products.However with healthy recovery especially under chronic NPA it will increase in FY 19.
vi) Priority sector of 47.48% facilitated risk spread and participation of all branchesin the Bank's Turnaround effort.
vii) The interest income reduced by 9.15% mainly due to restructured corporate bookunder SDR S4A etc not earning since almost one year despite being standard (now slippedto NPA due to revised regulatory framework) but the non interest income increased by11.08% .
viii) Interest expenditure reduced by 14.33% with the strong CASA and low bulk nilhigh cost deposit.
ix) Operating profit for Q4 2017-18 almost doubled QoQ and remained at YoY and despiteless interest earning assets grew by 8.47% over corresponding quarter of last year.
x) Bank booked loss of Rs. 3607 crore in Q4 2017-18 mainly due to high provision on NPAto the extent of Rs. 6738 crore.
xi) Cost to income ratio reduced from 65.71% in Q3 2017-18 to 58.49% in Q4 2017-18.
xii) RWA reduces drastically to 89.34% from 107.89% with the higher provision andrebalancing of loan book.
xiii) Loss making branches reduced from 15.89% to 11.13% in one year
xiv) NPA Recovery at Rs. 15496 crore in the year is one of the highest. However thesame is impacted by slippage of Rs. 16825 crore with Rs. 3692 crore slipped due to newframe work in stressed assets. These assets along with another Rs.3000 crore would havebeen restructured but for withdrawal of the restructured guidelines.
xv) Net addition to NPA is Rs. 3082 crore only in the entire year and the major portionis Rs. 3692 crore of slippage due to revised framework.
xvi) GNPA AND NNPA peaked due to these reasons however with Rs. 8000 crore under NCLTlist 1& list 2 of RBI resolution in atleast 50% accounts amounting to atleast Rs.4000 crore will be unlocked. The provision in these accounts are 71% & 63%respectively.
xvii) Bank did not avail forbearance given towards MTM loss and spreading the NCLTprovision and accounted for the same in this year itself thereby removing the future denitives.
With almost all big ticket accounts recognized the future will be focusing on NPAreduction and the strategy is to digitalise RAM processing already retail is end to endautomated and improve efficiency and productivity. The robust recovery team of 400 pluson the field is working exclusively on the small value recovery.
Bank is poised to improve the fundamentals and post strong results in FY19.
Bank's turnaround strategy is focused on augmenting fee based income andimproving credit growth with accelerated growth in retail and MSME while not losing sightof Mid Corporate and Large Corporate. The Bank has rebalanced the credit portfolio withRAM's (Retail Agri and MSME) share of total domestic advances improving from 58.74% to66.14% YoY (March '18 over March '17). Retail credit recorded a growth of 17.98% and MSMEgrew by 6.71% YoY. Core Retail grew by 26.26% YoY. Priority Sector Lending as a % of ANBCas on 31.03.2018 is 47.47% as against the requirement of 40%. Agriculture as a % of ANBCas on 31.03.2018 is 20.23% as against the requirement of 18%.
The initiatives taken to improve RAM are as follows :
? Retail Credit Scoring Model introduced for easy and timely sanction.
? Retail Asset Vertical formed for focussed attention.
? 57 Retail Marts introduced at 32 centres
? 156 exclusive Retail Business Managers nominated
? Tie up with Vehicle Dealers and reputed Educational Institutions.
? Tie up with Fintech companies and leading property portals
? Focused lending through 28 specialised and 273 SME focussed branches
? Introduced 9 Cluster Specific schemes
? Online registration of MSME application with E-Tracking
? End to end digitalisation and online Retail and MSME credit processing
? Introduced New Scoring Model for MSMEs
? IOB SME 300 Daily product aimed at Small Traders / Vendors
? Lead generation from Standup India KVIC Udayamitra portals
Introduced IOB GST EASE Scheme to facilitate borrowers to formalize theirbusiness from the issues related to input tax credit etc. during post GST implementation
Enrolled as member with RXIL to participate in the TReDS platform for financingagainst receivables
Focus to sanction capital efficient growth with RWA based approach such as lending toA AA AAA rated borrowers Zero Risk Weight assets Jewel Loans Loans againstliquid securities Central Government guaranteed loans retail & MSME segments.
Cautious approach in stressed sectors
Revenue generation is a primary focus area. The Bank is focusing on non interest incomegrowth driven by technology.
Sustained growth in CASA through building up of digital based products and frequentcampaigns.
Reduction in cost of deposits gives the Bank headroom for being competitive in retailloans
Expenditure control both in administrative costs and employee cost with optimizing ofresource management. The Bank's space audit initiative has yielded good results. ATMoperations earlier outsourced have been made in-house.
Bank is aggressively concentrating on cost reduction by reducing the number of lossincurring branches as well as rationalisation of branches and administrative offices. TheBank presently has 3332 Branches and 3552 ATM / Cash Recyclers.
Bank is currently prioritising the resolution of accounts referred to NCLT as suchresolution has the potential to improve capital allocation.
Conservation of capital and reduction of Risk Weighted Assets (RWA) will play a vitalrole in the growth path charted for the Bank.
The recapitalisation plan for Public Sector Banks announced by the Government of Indiaduring the year under review is accompanied by a strong Reforms Agenda for Public SectorBanks under the overarching framework of "Responsive and Responsible PSBs" aimedat EASE Enhanced Access and Service Excellence focusing on six themes of customerresponsiveness responsible banking credit off take PSBs as Udyami Mitra deepeningfinancial inclusion & digitalisation and developing personnel for brand PSB. These sixthemes are already a sharp focus area for the Bank.
Ratings Outlook Upgrade
International Credit Rating Agency Moody's Investors Service Singapore has revisedtheir rating outlook on our Bank and our Hongkong Branch to "POSITIVE" from"STABLE" (09.02.2018) CRISIL Limited has revised its outlook on the long termdebt instruments of Indian Overseas Bank (IOB) to STABLE' from NEGATIVE'while reaf firming the ratings at CRISIL A+/A-/FAA. The rating on the certificates ofdeposits programme of the Bank has been reaf firmed at 'CRISIL A1+'. (25.01.2018)
Awards and Accolades won by IOB:
Runner Up Award for Best Payment Initiatives amongst Medium Banks from IBA.
Bank's quarterly Hindi Magazine " VANI " has received prize in Bronzecategory from Association of Business Communicators Mumbai.
2nd Prize for in-house Hindi magazine VANI for 2016-17 received by our MD & CEO onthe occasion of Hindi Diwas ie. 14.09.2017 from Hon'ble President of India Our Bank waschosen as one of the winners (out of 36 banks) of Intelligent Enterprise Award(Category-Enterprise Apps) presented by Indian Express group for the year 2017 for theproduct IOB PAY which is an online integration. Basketball : Our Bank's BasketballTeam is No.1 in the Country for having won a Gold Medal in the recently concludedNational Federation Cup held at Chittoor (May 2018).
? The Bank has won 2 State level tournaments viz. Mayor Radhakrishnan State levelInvitational @ Egmore Chennai and State Level Invitational Tournament @ RoyapuramChennai
? At the National Level the Bank has notched up wins in 6 All India tournaments viz.52nd Nachimuthu Gounder Cup @ Coimbatore PSG Tech @ Coimbatore Invitation tournament @Rohtak Haryana 4th Mulki Sunder Ram Shetty organised by Vijaya Bank @ BangaloreInvitation tournament @ Kolkata and Invitation tournament @ Goa
In Hockey this year the Bank has won two State level tournaments viz. 11thPasupathi Abdul Shadhik Memorial at Ariyalur and Invitational tournament at Madurai.
Our Bank's Volleyball team is No.1 in Tamil Nadu by virtue of winning thePrestigious State Championship @ Chennai. Besides this we have also won Sunder MemorialState Level Tournament @ Chennai and All India Mayor's Cup @ Bangalore.
Three players viz. Shri.Rupinder Pal Singh (Olympian in Hockey) Shri.A.Aravind andShri.P.Jeevanantham (Basketball) had represented our Indian Teams in the recently heldCommonwealth Games at Gold Coast Australia 2018.
I take this opportunity to thank the members of the Board the Government of India andthe Reserve Bank of India for their valuable support and guidance as the Bank continues toface challenging times. I thank all our valued customers for their continued support andtrust and assure them that their custom is extremely important to us as we endeavour toimprove their banking experience with us. I also place on record my appreciation for thededication and commitment of our staff members. It is the support and encouragement of allour stakeholders that enhances our strength and resilience in our pursuit of the goal ofturnaround and helps us Stay focused which in turn helps us Stay Ahead.
With warm regards
Managing Director & Chief Executive Officer