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Feb 05, 2012, 01.59 PM IST
Chennai-based Indian Overseas Bank (IOB) aims to check its rising level of non-performing assets that caused its shares to underperform the benchmark BSE-Bankex by a wide margin. In the last one year, IOB shares have fallen 31%, compared to a 3.5% decline in the Bankex.
After reporting a weak set of numbers for the December quarter, IOB is hopeful that the current quarter will be a much better one, led by better recovery of bad loans, and also fewer loans going bad.
“IOB shares fell at a faster pace on concern of asset quality. The bank is grappling to manage its asset quality. After the Q3 results followed by the management’s assurance to improve asset quality, we are in a wait-and-watch mode,” said Vaibhav Agrawal, banking analyst from Angel broking. The brokerage has an “accumulate (at dip)” rating on the stock.
Moneycontrol.com’s Saikat Das caught up with the bank’s chairman and managing director M Narendra, during his visit in Mumbai. Narendra is confident of recovering at least Rs 500 crore during the current quarter.
Below are edited excerpts:
Q. What is the status of your proposed capital infusion plan?
A. We are likely to get capital from the government. The bank has already taken enabling steps in this regard. We are going to have a meeting with the government on March 21. We have sought for Rs 1,650 crore. They have assured us of their capital support.
Q. What is your outlook on interest rates?
A. The Reserve Bank of India’s 50 basis points reduction in cash reserve ratio will give some benefits to banks in terms of cost of funds. It will release additional money (Rs 32,000 crore) into the system. As you go forward the twin benefits will come with cuts in CRR cut and reference rates as well.
Once the rate of inflation achieves 7% by March-end, there is a case for reducing the cost of deposits. There will be moderation in deposit rates from April-June onwards. Side by side, it (the benefit of low cost deposits) will be passed on to lenders by reducing the base rate.
Q. How do you plan to manage your asset quality?
A. Restructuring assets per se are not going to be a problem. In this category, majority (97%) are standard advances. In terms of slippages also, we are on expected lines. Due to the implementation of system generated non-performing assets (NPAs), we have added Rs 498 crore to slippages in Q3. We have already completed the process of system generated NPAs. For this, we have made Rs 263 crore provisions for smaller accounts covering 70% of slippages.
Recovery has been very good. Our bank has seen a recovery of Rs 843 crore already. In the coming quarter, we will do at least a minimum of Rs 500 crore more. Next year (FY13) recovery will be higher and slippage will be lower. It will add up to our gross profit.
All our NPAs are covered by solid securities. We are likely to keep (gross) NPAs below Rs 4,000 crore. In Q3, they were at Rs 3,972 crore. Going forward, we do not expect any ugly surprise on the NPA front.
Q. Can you tell us something about your CASA (current account saving account) growth?
A. When interest rates were rising, a lot people moved to term deposits. It was reflected when my retail term deposits rose 18.74% (year-on-year) in Q3. Savings account growth was at 10% while CASA grew by 22%. We have opened 19 lakh savings accounts. We expect to attain 25-30 lakh savings accounts by the fiscal year end. For our existing branches, the share of CASA to total deposits stands at 27%. My endeavour is to take it to at least 30% by March-end.
We want to reduce the dependence on wholesale deposits. In the fourth quarter, I will be moderating wholesale deposits. Currently, it forms around 25-28% of our deposit book. We will also push credit growth while raising short term deposits. Cost of deposits is currently in the range 6.5-7%.
Q. What is your guidance for loan growth and net interest margin (NIM) in FY12?
A. We would maintain NIM at 2.90% in FY12. In Q3, it was at 2.74%. We are looking at an annual credit growth of 22% in FY12. We do not want to grow our book aggressively. However, Q3 loan growth was at 32.38% on lower base.
Q. How do you propose to grow your book?
A. We are focusing on mid corporates including SME credit and agriculture as well as retail trade loans. We plan to open 16 mid corporate and eight large corporate branches in FY12. We have already opened five mid and one large corporate branches. The remaining will be SME branches.
We have recently launched a product christened as IOB Express Credit. If an existing mid corporate customer gets bunch orders and needs fast credit; an IOB branch head can sanction additional 50% of sanction limits immediately with an IOB express card. For example, if such a customer gets order for Rs 50,000 crore and his sanction limit is Rs 15,000 crore. He can avail Rs 7,500 crore additional loans in the IOB express card.
We have embarked on non-commercial gold loans. So far, our existing gold loan portfolio stands at nearly Rs 2,000 crore. We aim to build a gold loan book of around Rs 5,000 crore by FY12.
Q. How is IOB’s liquidity situation?
A. We have adequate liquidity. We have around 28% SLR (statutory liquidity Ratio or the percentage of a bank’s total deposits to be kept in government bonds and other forms) as against the mandatory 24%. We can comfortably meet our liquidity requirement from the RBI’s repo auction by pledging excess SLR bonds.
Q. How do you plan to regain investor confidence?
A. Quite a lot of investors are long term investors. IOB has maximum number of individual investors who have been holding our shares for a long time. We have given 50% dividend last year compared to the rate of 30-35% in earlier years. This year too we are planning a dividend.
Our stock price has improved recently. Based on the current (quarterly) results the market has realized that we have a good policy of providing NPAs, restructured account, standard advances and all that. Our non-performing asset levels are relatively lower, even though there has been a small sequential rise. We have made higher provisions against all our NPAs. We hope, share prices will start increasing now.
Tags: Indian Overseas Bank , Vaibhav Agrawal, Angel broking, chairman and managing director , M Narendra, interest rates, asset quality, CASA , current account saving account, net interest margin , investor confidence, Saikat Das
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