IOB's M Narendra hopes to improve NIMs to 3% in FY13

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IOB's M Narendra hopes to improve NIMs to 3% in FY13

The Finance Ministry has given written assurance to Indian Overseas Bank (IOB) that its request for fresh capital infusion will be granted.

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Excerpts from Midcap Radar on CNBC-TV18 Watch the full show » ALSO READ See latest News about IOB See previous management interviews See what other Experts & Brokerages are saying about IOB IOB BSE | NSE 28/05/12 Are Mutual Funds betting on IOB?

The Finance Ministry has given written assurance to Indian Overseas Bank (IOB) that its request for fresh capital infusion will be granted. The public sector lender had sought Rs 4,016 crore from the government to fund its business growth for a three-year period, beginning 2011-12.

M Narendra, the chairman and managing director of Indian Overseas Bank tells CNBC-TV18 that it has received assurance from the government to help it maintain Tier-I capital of 8% by March-end 2012. At present, IOB's Tier-1 capital is at 7.2%.

Below is an edited transcript. Watch the accompanying video for more.

Q: What have you heard from the Finance Ministry? What kind of capital will you get and when?

A: It was talked about earlier but we have received a letter that the government is actually considering request for our capital and we had earlier indicated this particular amount and also the long-term three years requirement. We have an assurance from the government that they will give adequate capital to us to maintain Tier-1 at 8%.

Q: Are you expecting that by March 31 you will get Rs 1,400 crore?

A: Yes, maybe higher also. This was our expectation at that time given at a particular level of our particular business.

Q: What's your Tier-1 now?

A: Now it is around 7.02% as on September 30, without taking to the plough back of profits. By year-end, profit will be around 7.20%. We would like to maintain 8% minimum. Currently, the government shareholding is 66% after they give the capital last year. This year also, we are expecting similar support. In fact they have asked us that you can proceed with other arrangements. Only the amount that we indicated will be coming shortly and by March we will definitely have the government's support.

Q: Do we therefore assume that you will be able to improve your NIMs in FY13? You did 3.11% in the second quarter. What do you think will be your NIMs in the second half, more importantly next year because you will have this capital with you?

A: We have been following the system that the customers are given a little better interest rate so that we can have a better account with a better selection, so that our NIMs last September was around 2.86%. So this year we will be able to maintain that, but for 2012-13 we will be definitely expecting that on advance side and deposit side there will be reduction in the interest rate and also our CASA will go up.

So we will be able to maintain and bring back 2-3 plus of that 3.11%. That is our endeavor. Capital also is there and we will be looking for other support.

Q: What is your exposure to the Tamil Nadu SEB (State Electricity Boards) and any other SEBs? Do you expect your gross NPLs may increase in the current quarter that is the quarter under review Q3?

A: All these SEBs have taken a decision to increase the tariff. In fact, Tamil Nadu government also is increasing by April. They are servicing the account and we don't have any NPA in the Tamil Nadu government. Only in Haryana we had a request for restructuring which we have done. So there is no question of any account getting into NPA on that counter from us. But overall NPA is also under control.