As Indian Overseas Bank Reports Rs 6k Crore Loss for Q3, Is the Worst Behind It?
Chennai: Public sector lender Indian Overseas Bank (IOB) on Monday evening reported a substantial increase in its loss for the quarter ended December 2019.
The widening loss was primarily due to a step increase in provisions. Net loss for stood at Rs 6,075 crore in the October-December quarter, up from a loss of Rs 346 crore in the year-ago period, according to a stock exchange filing.
The loss stood at Rs 2,254 crore for the quarter ended September 2019. The Chennai-based lender has seen a over three-fold jump in provisions. The bank’s provisions and contingencies rose to Rs. 6,663 crore in the third quarter from Rs. 2,075 crore in the year-ago period. That’s because of a more than threefold jump in provisions.
Notwithstanding the bloated number on the loss front, the bank appears to have improved its asset quality during the quarter under review. Gross non-performing assets (NPA) ratio dropped to 17.12% from 20% in the three months ended September. Net NPAs, too, fell to 5.81% from 9.84%. Thus, it has managed to bring the net NPA level below 6% as mandated by the Reserve Bank of India. The substantial reduction in net NPA in the third quarter vis-a-vis the preceding one is indeed significant. So much so, the net NPA in absolute term has come down to Rs 5,421 crore.
“The year 2019-20 is declared as year of resurgence,” the lender said in a statement. “The bank plans to come out of the prompt corrective action (PAC) by focusing on recovery, low-cost deposits and less capital consuming advances.”
Indian Overseas Bank was placed under the RBI’s prompt corrective action framework – a development that restricts a bank’s ability to grow its loan book by limiting the accumulation of higher risk assets – back in 2015. The lender’s net interest income, or core income, also fell to Rs 1,278 crore from Rs 1,383 crore last year.
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The bank’s common equity tier-1 ratio – a key measure of financial strength – stood at 3.53% in December 2019. The regulatory requirement, however, is 5.5%. Total capital adequacy ratio stood at 5.53% in the third quarter compared with the RBI norm of 9 per cent. In January this year, it received a capital infusion of Rs 4,360 crore which was sanctioned by the Centre in December. With this infusion, the bank’s capital adequacy ratio stands at 10.43%.
The focus of the Chennai-based lender has primarily been to step up recovery. And, it did recover substantially to the tune of Rs 7,085 crore, up significantly from Rs.3,723 crore in the same quarter a year ago. Fresh slippages notwithstanding, its blinkered horse-like focus on the recovery front appears to be yielding results.
The recovery focus must have taken a fair amount of the bank’s management width. It is no surprise then that the total business of the bank has come down in terms of absolute numbers. Total deposits and advances, too, have dropped in absolute terms. As is the case, when the bank is on a mission mode to recover, business development often takes a secondary importance.
The immediate job before the bank, nevertheless, is to quickly get out of the PCA net of the Reserve Bank of India. The government's intention to merge 10 PSU banks into four has further put pressure on IOB to clean up its books fast so as to be able to compete on an even-footing in a consolidated banking environment.
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