CHENNAI: Indian Overseas Bank (IOB)’s plan to utilise funds in its share premium account to set off accumulated losses will help it project the true financial position of the bank, the public-sector lender said here on Monday.
IOB has Rs 7,650.06 crore as balance in its share premium account as on March 31, 2017, which will be used to set off accumulated losses of Rs 6,978.94 crore.
The move, according to IOB’s chairman and managing director R Subramaniakumar, will not alter the liability, change the position of assets, or tweak shareholding. The net worth, too, won’t change, he added.
Subramaniakumar said necessary approvals have been obtained and that the bank will convene an extraordinary general meeting on January 30 to obtain shareholders’ approval for the proposal.
Reacting to media reports that this may become a precedent for other PSU banks to pare losses in this fashion, the CMD pointed out that IOB’s move need not be construed as a write-off.
Explaining the provision for using share premium account to set off accumulated losses, an IOB statement said, “Section 17(2) of The Banking Regulation Act, 1949 permits banks to appropriate any sum from the reserve fund or the share premium account.”
According to IOB, the rights of shareholders are not prejudicially affected by this procedure. Projecting the true financial position will also benefit shareholders as their holding will yield better results and value, it noted.
The bank also expects the proposal to put the lender in a better position to achieve its turnaround plans in a time-bound manner.