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I have pleasure in presenting your Bank’s Annual Report and financial statements for the year 2018-19. I would like to share with you the performance highlights of the Bank during the year as well as the outlook for the Bank going forward.
- Inflation: While CPI eased to 3.5% in fiscal 19 due to decline in food inflation, it is expected to increase.
- 10 year G-sec yields to stay at similar levels due to inflows by foreign portfolio investors and liquidity support on expectations of further rate cut.
- Rupee may weaken modestly with relatively low oil prices and dovish monetary policy in advanced economies.
- Exports growth at 8.6% in fiscal 2019 slowed compared with 10% in last year. Uptick in exports of engineering goods and chemicals and readymade garments.
- GDP growth likely to moderate to 5.9 - 6.1% in the fourth quarter of fiscal 2019.
Banking Sector Performance
- FY 19 credit growth touches double digits at 12%.
- PSBs lending to large corporates is muted due to capital constraints.
- Credit to industry grew by 7%, of which large industry grew by 8.2%, followed by medium industries 2.6% and micro and small by 0.7%. Under services growth of 18%, maximum growth was observed under NBFC with 29%. Personal loan segment contributed 16% growth, of which credit card 28.6%, housing 19% followed by 6% on vehicle loan.
- Bond yields have eased mainly because of the central bank’s bond purchases. Presently G-sec yield stands at 7.36% less than the 7.90% of Q1 18-19. Hence going forward, treasury earnings is slated to support operating profit growth to the PSBs.
Challenges & Way Forward
- Leveraging the global economic headwinds along with strong domestic demand and investment coupled with speedy resolution for bad assets will enable economic growth in general and banking sector in particular. The recovery rate for the 94 cases resolved through IBC by fiscal 2019 is 43% compare with 26.5% through other mechanisms. Recovery from NPA through IBC will enhance avenues for interest income.
- The implications of the US decision to end sanctions waiver to India on import of Iranian oil is expected to result in higher oil prices with the Rupee estimated to be under pressure and dollar outflows to increase as Iran has been one of India’s top suppliers of crude oil over the years. In 2018-19, 10.9% of India’s crude demands were met by imports from Iran. India imports 84% of its oil requirements and hence domestic prices are dependent on international market.
- Trade frictions between US and China remain a key monitorable.
Outlook for Banking Sector
The projected upward trajectory of the Banking sector is predicated on the reversal of two of the biggest challenges faced by the sector viz. asset quality and credit offtake. The Insolvency and Bankruptcy Code has been a game changer for the sector as it has shifted the balance of power from the borrower to the creditor and instilled credit discipline. For the banking sector, Gross NPAs are estimated to have declined 100 bps to around 10% by March 2019 from 11.5% at the end of fiscal 2018. Bank credit is expected to grow 14% in fiscal 2020 compared with 13% in Fiscal 2019 driven by strong growth in retail banking and services while corporate credit is expected to see a gradual pick-up. Recapitalisation of Public Sector Banks with some of them coming out of PCA is also expected to benefit the sector, as per CRISIL outlook.
- Business and Financial Performance Highlights of your Bank - 2018-19
- Total business stood at Rs. 3,74,530 crore as on 31st March 2019 as against Rs. 3,67,831 crore as on 31st March 2018
- Total deposits stood at Rs. 2,22,534 crore as on 31st March 2019 as against Rs. 2,16,832 crore as on 31st March 2018, by reducing high cost deposits and bulk deposits and increasing retail term deposits with a view to reduce the cost of funds and have a stable broad based deposit profile.
- Gross Advances stood at Rs.1,51,996 crore as on 31st March 2019, as against Rs. 1,50,999 crore as on 31st March 2018. The Bank has consciously rebalanced its credit portfolio with RAM’s (Retail, Agri and MSME) share of total domestic advances improving from 66.14% as on 31.03.2018 to 67.20% as on 31.03.2019.
- Operating Profit of the Bank increased by 38.71% to Rs. 5033.87 crore for the year ended 31.03.2019 as against Rs. 3629.08 crore for the year ended 31.03.2018. lOB’s operating profit of Rs.5033.87 cr is the highest in its history.
- Net Loss for the year ended 31.03.2019 decreased by 40.66% to Rs. 3737.88 crore as against Rs. 6299.49 crore for the year ended 31.03.2018 mainly due to provisions of Rs. 8772 crore made during the year.
- While Total Income for the year ended 31.03.2019 is Rs. 21838 crore as against Rs. 21662 crore for the year ended 31.03.2018, Interest Income stood at Rs. 17631 crore as against Rs. 17915 crore for the corresponding periods. Non Interest Income registered a growth of 12.28% and improved to Rs. 4206 crore for the year ended 31.03.2019 as against Rs. 3746 crore for the previous year.
- Total Expenditure declined by 6.82% from Rs. 18033 crore for the year ended 31.03.2018 to Rs. 16804 crore for the year ended 31.03.2019.
- Gross NPA as at 31st March 2019 is at Rs. 33398 crore with ratio of 21.97% as against Rs. 38180 crore with ratio of 25.28% as on 31st March 2018. GNPA reduced by 331 bps from 25.28% as at March ‘18 to 21.97% as at March ‘19.
- Net NPA is Rs. 14368 crore with ratio of 10.81% on 31.03.2019 as against Rs. 20,400 crore with ratio at 15.33% as on 31.03.2018. NNPA reduced by 275 bps from 13.56% as at March ‘18 to 10.81% as at March ‘19.
- On the Recovery front, the Bank has performed well by clocking recovery of around Rs. 14669 crore for FY 2018-19 as against Rs. 15496 crore for FY 2017-18.
- The Bank was able to improve CASA ratio to 38.30% (Domestic 38.72%) as on 31.03.2019 as against 36.75%(Domestic 37.43%) as on 31.03.2018.
- Provision Coverage Ratio has improved to 71.39% as on 31.03.2019 from 59.45% a year back.
- Cost to Income Ratio is 46.93% for the year ended 31.03.2019 as against 60.61% for the year ended 31.03.2018, which is the measure of efficiency.
- Non Interest Income to Total Income improved by 196 bps from 17.30% for FY 2017-18 to 19.26% for FY 2018-19
- NIM stood at 2.08% for the year ended 31.03.2019.
- Average Cost of Deposit is 5.39% for the year ended 31.03.2019 as against 5.49% for the year ended 31.03.2018.
- Highest operational efficiency
“Productivity is always the result of a commitment to excellence, intelligent planning and focused effort”
The Bank with 9,435 touch points (3280 branches, 3450 ATM & 2705 IOB Mitras) showcased better operational efficiency measured in terms of operating profit. During the 82 years of its banking operations, the Bank benchmarked highest operating profit to the tune of Rs.5034 crores for FY 18-19, with business mix of Rs.3,74,530 crores. The number of loss incurring branches has reduced from 21.95% in FY15 to 4.79% in FY19.
The outcome of the turnaround initiatives taken by the Bank on top line asset diversification and liability management is reflected in the P&L of the Bank.
Focused approach on diversifying the assets with thrust on Retail, Agri & MSME portfolio enabled the Bank to improve the RAM share in domestic advances from 58.74% in March’17 to 67.20% in March’19. This rebalancing effort along with capital conservation and risk mitigant measures like limiting the exposure to stressed sector within the threshold, lending to AAA rated borrowers and government guaranteed accounts, concentration of low risk weight assets portfolio like jewel and housing loan segments helped the Bank to substantially reduce the risk weight assets from Rs. 1,69,148 crore in FY 17 to Rs. 1,22,585 crore in FY 19, while the average credit moved around Rs.1,63,451 crores. The RWA to Advances ratio declined from 107.89% to 80.65% and credit risk weight assets to advance ratio from 88.44% to 62.41% for FY 19 over FY 17.
Bank increased the customer base by adding 49762 Current A/c customers and 19,05,816 Savings A/c customers with higher CASA, from 28.72% in Mar’16 to 38.30% in Mar’19 thereby reducing the cost of deposits from 7.11% to 5.39% during the corresponding period.
Under Asset Quality management, the Bank showed quarter wise consistent improvement in reducing the GNPA & NNPA and upgraded the provision coverage ratio from 53.63% in FY 17 to 71. 39% in FY19. Automation of NPA administration like non discriminatory and non discretionary OTS settlement, close monitoring of SMA accounts and identifying the early warning signal accounts helped the Bank to contain fresh slippages and improved the NPA recovery.
The Bank’s administrative expenses are well contained through rationalization of branches & ATMs, concept of rent audit, space audit and cleanliness audit enabled reduction of rent and improved the ambience. Bank consistently augmented the avenues of other income through fee based income and recovery from written off accounts.
Fee Based Income is one of the major revenue drivers in the current banking environment. Our Bank has made various efforts to improve the fee income by a focused approach and it is noteworthy to mention that for the FY 2018-19 our Bank earned a Fee Based income of Rs.1426 crores which is 33.92% of Non-interest Income.
These turnaround initiatives have enabled the Bank to attain highest operational efficiency reflecting the improvement in cost to income ratio from 57.37% in FY 17 to 46.93% in FY 19. With this benchmark operating profit and speedy recovery from NCLT resolution accounts, the Bank is on target to achieve positive ROA.
Continuous improvement in all business parameters constantly despite constraints for the last 3 years enabled the Bank to achieve this milestone. The Bank is on course to sustain and even improve its performance to bring value to all stake holders in FY 20.
As you are aware the Bank has been working towards the goal of turnaround in the last two years by addressing various structural issues and evolving strategies to improve the financials. The outcomes of the steps taken by the Bank towards this end are detailed below :
Further, the Bank has taken several other positive steps in the course of implementing its Turnaround Strategy including the following : Stabilisation of Technology
- Technology platform is stabilized by active in house help desk team and taking over of critical functional areas from vendors.
- STP established with all critical areas, unified GL for all domestic operations.
- Entire bank brought under Finacle including overseas centres.
- Strong MIS with analytical tool established.
- Bank’s sustained efforts towards digitalization have earned it laurels
- Customer grievance redressal mechanism introduced with total automation has been acknowledged as best practice among the PSBs.
- Introduced policies in all areas and ensured timely renewal of those policies.
- Institutionalized reforms by regular review at board level.
- Risk Management has been strengthened with constant and continuous review through various Executive level and Board Committees as well as oversight by Board.
- Established Global ALCO, Global Compliance, Global credit monitoring review and Global internal control review.
- Compliance function is monitored through automated tool.
- Chief Compliance officers report to Executive Director and effectively participate in policy clearance and governance meetings including PCA.
- The compliance function is reviewed regularly by the Board
- Risk Based Audit/concurrent audit is conducted through standardized software. Management audit has been revamped and is conducted for each department at central office with specific time line along with risk based template.
- Off-site surveillance unit established
- Concurrent functional audit and information security audit introduced at data center
- Entire FOREX operation centralized and monitored through concurrent audit system.
- OCAS (Offsite Control And Surveillance) established which generates alerts. Manuals introduced for audit.
- Credit Monitoring Department established at Zonal Offices. The team also correlates various audit reports like CO Inspection Report, Legal Audit, Long Form Audit Report, Stock Audit etc for credit related observations.
- Early warning signal is monitored through a strong template based online portal wherein the transaction related signals are captured automatically.
- SMA accounts are allotted to every employee at branch for follow up and recovery and a special online color coded portal introduced, which is updated on a daily basis.
- Governance and monitoring system introduced for review of EWS (Early Warning Signal) and red flagging alert.
- Introduced 11 risk rating models as against the earlier 4 models operating in the Bank.
- Reduced the credit and operational risk by automating end-to-end digitalisation of loans under MSME and Agriculture up to Rs.10 lakhs and retail with risk scoring model for retail and risk rating model for MSME and agriculture
- Bank complied with minimum regulatory capital requirement and leverage ratio after the capital infusion by the Government of India.
- State of art Security Operation Centre (SOC) established and correlation rules are continuously defined and updated.
- Appointed Security Integrator and ensured independence of CISO
- Specialist officers are recruited for Information Security and Information System audit.
Initiatives on Top Line & Bottom Line Growth
- Bank is rebalancing the liability side by focusing more on CASA and Retail Term Deposits and reducing the bulk and high cost deposits. As such Cost of Deposits declined.
- 85% of the branches are having more than Rs.10 crore business mix. Introduction of new deposit products like IOB Saral, IOB Suvidha, IOB Eighty Plus etc. has enabled Retail Term Deposit growth.
- Improved Net Interest Income with increase of RAM and reduction of high risk corporate loan.
- Improved the percentage share of non-interest income to total income, with consistent performance under fee based income and realization from technically written off NPA account.
- Increased the share of RAM in the overall credit portfolio by exiting high risk corporates.
- Contained exposure to stressed sector continuously.
- Created large pool of credit and forex trained manpower.
- Operating profit has improved without much expansion in topline growth.
- The efficiency metric of cost to income ratio has reduced considerably.
- The Bank had 772 loss incurring branches in March 2014 which was one of the immediate effects of rapid branch expansion. The continuous follow up from the administrative layers and efforts taken at the branch level has helped to reduce the number of loss incurring branches from 772 branches in March 2014 to 157 branches in March 2019. Higher thrust on Retail and MSME lending is laid down to improve the yield level apart from diversification of the risk. The Bank would continue to focus closely on the loss incurring branches towards reporting a profitable trend.
- Bank reduced RWA by Rebalancing of advances portfolio by focusing on RAM, offloaded advances by way of selling higher risk weighted advances through IBPC, capturing available mitigants (financial collateral, margin etc.) for all accounts in the account master and elimination of the expired LCs/LGs.
- Bank had closed/merged 248 Branches/offices with a view to improve efficiency in operations, reduce the operational expenditure and ensure optimum utilization of human resources.
- Under ATMs rationalization plan 903 Opex Model ATMs under the Managed Service (MS) model (as on 31.03.2018) were converted to CAPEX /closed due to low hits. Due to this, dependency on vendors has been minimized
- Expenditure Control includes renegotiation of Rent and surrender of excess space in Branches, Shifting of Branches to premises with lesser rent, reduction in lighting expenses by sourcing of electricity from non-conventional sources like Solar power & usage of energy efficient electricity products, Vehicle expenses were reduced, reduction in issuer charges (Charges payable by IOB to other Banks for our customers using our debit cards in other Bank ATMs), introduction of green pin, reduction in Visa switching fee.
- Strong NPA data base with appropriate analytical tools integrated with CBS.
- Entire OTS process has been automated for standardized compliance of non-discretionary and non-discriminatory OTS policy of the bank. This doubled the number of OTS settlements in the current year over the previous year.
- NPA slippage has been continuously reduced and at present recovery achieved is substantially higher than slippages
- GNPA and NNPA is consistently reducing since Q2 of ‘18 (except Q4 ‘18 due to RBI revised guidelines on restructured accounts).
- Retail GNPA of IOB is one of the least among PSBs
- The Bank’s ESPS issue of upto 18.24 crore equity shares at a discounted price of Rs. 11.90 was fully subscribed and a grand success, which is an indicator of the commitment and confidence in the Bank by its employees. In this process the Bank augmented its capital funds to the extent of Rs. 260.47 crores. IOB has scripted history by becoming the first Public Sector Bank to record 100% subscription to ESPS.
- Bank had issued Basel III Tier II Bonds aggregating Rs. 300 crore to shore up its Tier II capital.
- The realization from Sale of Non-Core Assets is Rs. 76.87 crores which improved the CRAR by 6 bps
- Government of India infused capital to the extent of Rs. 5963 crore (Rs. 2157 crore in July ‘18 and Rs.3806 crore in February ‘19).
- The Bank has launched “Bank on Wheels” in 14 districts spread across Tamilnadu, Kerala and Vijayawada Region. This facility will enable the public especially Senior Citizens to conveniently avail of doorstep banking facility available at identified locations of the Bank’s lead districts. Account services such as account opening, enrolment of customers in social security scheme, passbook printing and other financial inclusion activities is being offered.
- Integrated Online processing of MSME Mudra Loans upto Rs.10 lakhs end-to-end from application to documentation stage reducing the Turn Around Time for processing.
- End to end CTS Solution developed in-house which will result in substantial savings to the Bank.
- Implementation of EASE parameters in Internet and Mobile Banking for enhancing customer service and delivery.
- BHIM IOBUPI is the application launched by the Bank using Unified Payment Interface. Registration grew from 8.11 lakh to 28.50 lakh, transactions have surged to new heights touching 110.56 lakh in March 2019.
- Bank has launched Bharat Bill Payment System (BBps), an integrated bill payment system, which offers interoperable bill payment service to customers online. Bank has extended BBPS facility for Corporate Users through Net Banking.
- ease : Features added to Internet Banking and Mobile Banking to facilitate customers to send their request for various services. Four Regional languages, in addition to English and Hindi have been added in Mobile Banking.
- IOB-pay: The in-house developed integrated online payment gateway platform offers fee payments, merchant payments, donations for charitable institutions etc. More than 100 Institutions have been registered in this application. IOB has implemented its online payment system IOBPAY in the website of Tamil Nadu Hindu Religious & Charitable Endowments Department (https://tnhrce.gov.in) for collection of various receipts of temples such as Online Donations, Annadhanam etc. Similar arrangement has also been entered into with directorate of Medical services for various types of collection through digital mode.
- Bank has completed necessary certification for NCMC (National Common Mobility Card) as an Issuer and IOB is the first Bank which has been certified on International platform with multiple CVN functionality (NFC).
- On boarding of the new technology platform psbloansin59minutes.com implemented in the Bank using Analytics facilitating MSME customers in line with Government of India Initiatives
- The internet banking registrations grew from 15.52 lakh to 19.25 lakh while mobile banking registrations grew by 241% from 6.62 lakh customer to 16 lakh customers. New user interface of mobile banking application with flavour of four additional languages was accepted well by the customers.
- Nine additional features were added in Internet Banking. The mobile banking platform, “IOB-Mobile”, has been upgraded to have a youthful look and feel with enhanced features.
- The “IOB-Nanban” application has rich features for customers including downloading of Interest Certificates.
- ”IOB Sahayak” was launched for staff to follow up with NPA borrowers and for tracking the performance of the staff in such follow up.
- Awards and Accolades won by IOB:
Some of the awards that the Bank has achieved in validation of its improved performance are as follows :
- Vigilance Excellence Award 2018
The Central Vigilance Commission has awarded our Bank with “Vigilance Innovation Award” with an Excellent Grade for various initiatives taken in the Bank such as
- REAP System for automated retail loan processing.
- IOB Sahayak app
- An internal portal for whistle blower
- Online tracking of complaints
- Real time reporting of RVO’s branch visit and compliance reports
The award was presented to our MD & CEO and CVO by our Hon’ble President of India in the presence of CVC and VCs at Vigyan Bhavan, New Delhi on 31.10.2018.
- Enhanced Access & service Excellence (EAsE) Awards
In January 2018, Government and Public Sector Banks(PSBs) jointly committed to and launched a common PSB Reforms Agenda for “Enhanced Access & Service Excellence (EASE) “, comprising 30 Action Points across the following six themes:
1. Customer Responsiveness
2. Responsible Banking
3. Credit Off-take
4. PSBs as Udyami Mitras for MSMEs
5. Deepening Financial Inclusion & Digitalization
6. Developing Personnel for Brand PSB
Progress of PSBs on the Reforms EASE Agenda has been rigorously tracked through a first of its kind EASE Reforms Index by Boston Consulting Group (BCG) in consultancy with DFS/ IBA. The EASE Reforms Index measures PSB performance on 140 metrics against respective benchmarks and offers a mechanism for continuous improvement through transparent reporting on forward-looking PSB reform priorities.
I am pleased to inform you that Indian Overseas Bank (IOB) has been awarded
1. Winner for “Reforms Excellence” among all Public Sector Banks
2. Winner for theme “Deepening Financial Inclusion and Digitalization”
Honorable Union Minister for Finance & Corporate Affairs Shri. Arun Jaitley gave away the awards at the event organized by IBA at Delhi on 28.02.2019 and the awards were received by MD & CEO Shri R Subramaniakumar and ED Shri. Ajay Kumar Srivastava.
I would also like to make a mention that our Centralized Standardized Public Grievance Redressal System (SPGRS) has been identified as one out of 8 Best Practices among PSBs at the Event’s presentation.
Overall, IOB ranked at 7th Place with 66.7 score as on December 2018 over March ‘18 amongst 21 PSBs.
Our Bank has further improved the rank to 5th place with a score of 75 as on March 2019.
- Best use of Data and Analytics for Business Outcome Award
Our Bank has been adjudged the ‘WINNER’ in the category of the Best Use of Data and Analytics for Business Outcome amongst Medium Banks by Indian Banks’ Association in the IBA Banking Technology Conference, Expo & Awards 2019 held in Mumbai on 20th February 2019.
The Bank’s focus will continue to be on the following :
- Ensuring a stable operating environment.
- Maintaining a robust policy framework & establishing various business verticals to reduce NPA and increase the RAM share of credit.
- Conserve capital & reduce risk weight to protect interest income and to meet the provision requirement.
- Build brand image and improve brand IOB recall value with improved customer service and enhanced digital based dispensation.
- Establishing an organisation with consistent business growth, with strong internal controls coupled with robust systems & procedure powered by technology.
- Institutionalise the corporate strategy with Board oversight and build strong compliance culture, supported by appropriate policies and procedures.
- Implement good HR practices with fair & transparent policies and automate the HR management functions. Build knowledgeable work force with appropriate continuous training and clear career path & succession planning.
- Introduce differentiated business strategy leveraging the Bank’s strength for profitable business enhancements and implement end to end automation including Straight Through Processing of delivery, documentation and monitoring
- Establishing an independent robust risk management set up supported by appropriate tools, manpower etc and to create risk assessment culture in the Bank.
- Upgrade the touch points (both branch and alternative delivery channels) for efficient & consistent delivery of service and to make every unit as a profitable unit.
It is with a sense of accomplishment and pride that I look back on my tenure as MD & CEO of the Bank as the time to hand over the baton draws near. I take this opportunity to thank the members of the Board who have given generously of their time and expertise, the Government of India and the Reserve Bank of India for their valuable support and guidance. I thank all our valued shareholders and customers for their continued support and trust. I also place on record my appreciation for the dedication and commitment of our staff members which has enabled the Bank to go from strength to strength especially when the going was tough. It has been a significant learning curve for us all. “The future belongs to those who prepare for it today.”
With warm regards,
Managing Director & Chief Executive Officer