New Delhi: Indian Overseas Bank will approach Reserve Bank of India for withdrawal of PCA (prompt corrective action) framework once it starts making net profits even though the lender has already met the key criteria of below 6 percent net NPA to be out of the restrictions, IOB MD & CEO Karnam Sekar has said.
The longest-serving PCA bank has drawn up aggressive business plans on its focus areas — Retail, Agri and MSMEs where it is looking at higher disbursement targets and may tap market if there is a need for capital on the regulatory front.
The government recently infused Rs 4,360 crore in the bank. The bank is not part of any merger scheme announced by the government last year.
“We hope to make a net profit from this quarter (January-March) onwards and then we will approach government and RBI for PCA withdrawal. We have a below 6 percent net NPA already and we want to observe it for more quarter to prove that it is sustainable,” Sekar told IANS in an interview.
As of December 2019 quarter, the bank’s Net NPA fell to 5.81 percent. PCA withdrawal benchmark mandates below 6 percent Net NPA. IOB reported a standalone loss of Rs 6,075.49 crore for the quarter ended December 31 as provisions jump three times.
The public sector lender had posted a loss of Rs 346.02 crore in the same period last year. He said the bank does not currently need either regulatory or growth capital but may tap the market if there is a need.
“We may fall short slightly on CRAR including the countercyclical buffer. After we hopefully make profits in this quarter the capital adequacy ratio will be comfortable. We don’t need growth capital also since our plans are not very aggressive immediately. If at all we need, we will go for Tier 1 or Tier 2 capital from the market”, the CEO said.
Capital to Risk (Weighted) Assets Ratio (CRAR) is also known as Capital adequacy Ratio, the ratio of a bank’s capital to its risk. IOB is in PCA for the last 5 years, longest stay for any commercial bank under PCA because of heavy exposure in corporate loans bringing huge NPAs. The government so far has infused about Rs 8000 crore capital.
“We will not go big in the corporate sector because of our high NPAs. We will have overall 1.5-2 percent loans of overall loan book not beyond it incorporate portfolio. We will try to focus on MSME and retail loans. Across our 3000 branches, we have an MSME portfolio of Rs 31000 crore, we want to increase it to at least Rs 50,000 crore over the next two years. Its a portfolio we will nurture and grow as a strategy. The bank has an overall portfolio of a little over Rs 1 lakh crore in RAM portfolio”, Sekar said.
He said the bank is trying to bring corporate slippage to zero and RAM portfolio slippage to 2 percent from the 4 percent earlier, then additional provisioning will reduce. IOB’s NPA’s provision coverage ratio is 86 percent now and net NPA is Rs 7,000 crore in absolute amount.
On its net profit possibilities, the CEO said, “We are making an operating profit in the range of Rs 800 crore each quarter. We are recovering about Rs 200 crore each quarter from written-off accounts, which directly adds to the operating profit which is Rs 3000 crore operating profit annually”.
As per IOB’s strategy to post a profit, he said, “Last several years the bank had to make huge provisions on credit which have led to an accumulated provision of Rs 43,000 crore. Not that the entire provision needed to be written off or to be absorbed, as and when we recover NPAs some of them will be plowed back which will be straight addition to operating profit”.
