FY20 a dividend year; Will exit PCA, says Indian Overseas Bank CEO

Indian Overseas Bank (IOB), which is currently under the central bank’s Prompt Corrective Action (PCA) framework, has been through challenging times.
R Subramaniakumar, MD and CEO, Indian Overseas Bank. (Photo: EPS)
R Subramaniakumar, MD and CEO, Indian Overseas Bank. (Photo: EPS)

Indian Overseas Bank (IOB), which is currently under the central bank’s Prompt Corrective Action (PCA) framework, has been through challenging times. After battling increasing bad loans, and weak credit growth, the bank is likely to post profits in the June quarter and exit the PCA framework by the end of 2019, says R Subramaniakumar, MD and CEO, IOB, in an interview with Sunitha Natti.

Can you walk us through the bank’s turnaround strategy?
After I took charge in 2017, we identified 5-6 focus areas. The first was cost of resources, especially the liability side. The bank’s high-cost deposits and bulk deposits were to the tune of Rs 82,000 crore, which we brought down. But we didn’t reduce total deposits, which at their peak stood at Rs 2.3 lakh crore and continued to hover around Rs 2.18 lakh crore as on December 2018. We increased retail term deposits, which helped improve CASA from 23-24 per cent a few years ago to 38 per cent now. The CASA composition of deposits has changed, and this has a direct bearing on our overall cost of deposits, which was as high as 7.62 per cent, but was reduced to 5.47 per cent in December 2018. By realigning our deposit portfolio we reduced the cost of deposits, but at the same time increased the number of customers. 

What about the asset-side rebalance? 
The composition of corporate loans was high, so we re-aligned our credit portfolio by reducing high-risk corporate advances, and concentrating on low-risk RAM—retail, agri and MSME segments. So risk-weights reduced from 112 per cent to 83-84 per cent. While retail advances grew over 30 per cent, agri and MSMEs, which were registering a de-growth, clocked in net growth in the December quarter. RAM growth reduced our risk weights and improved yield on advances. Earlier, we never used to participate in government-guaranteed accounts, which we have started. Large loan exposure is still a no-no, and since we are shying away from big-ticket accounts, the focus will be on mid-corporate and RAM. 

Is profitability round the corner? 
We’ve identified loss-making branches. In March 2015, 742 branches were loss-making, it’s now down to 157. This unit-based profit will achieve a turnaround. Our cost-to-income ratio—a parameter for efficiency—which was as high as over 50 per cent in February 2016, is lowered to 46 per cent now. In the past few quarters, our operating profit was consumed by provisions, which will fall and not be as high as Rs 1,800 crore per quarter. Q4 of FY19 will be the last quarter that we are making large provisions, and the June quarter can see a net profit. 

Slippages in the past four quarters were less than Rs 5,000 crore, so we are containing slippages. The impact of the turnaround strategy will start from Q1 of FY20. Our plan is to get out of PCA by Q3, aided by loan recoveries from NCLT, which looks promising. In all, we have about Rs 18,000 crore worth accounts at NCLT, but only Rs 11,800 crore worth are admitted. For FY19, we recovered Rs 6,700 crore, which will reduce NPAs of around Rs 35,000 crore. Having created net profit from June quarter, based on past performance, FY20 is going to be a dividend year, as efforts taken by the team in the last 2.5 years start to pay off.

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