Capital adequacy to fall below 8% post fund infusion: IOB

M Narendra, chairman, IOB, said that post capital infusion, government holding in the bank will increase from 69 percent to 74 percent and bank's capital adequacy will slightly fall below eight percent.     

The government plans to infuse Rs 1,000 crore in IOB via subscription to preferential issue. However, the bank's capital requirement stands at Rs 1,500 crore.
Also read: SKS Microfinance falls as IRDA slaps fine Below is the edited transcript of his interview to CNBC-TV18. Q: In your result, you made provisions of Rs 811 crore for slippages and later added Rs 1,000 crore. Will the same be repeated in Q4 as well?
 
A: We are trying to lower our slippages in the fourth quarter compared to last quarter. Overall, we like to improve our provision coverage and we will examine what is required for the improvement, like some provision requirement on account of CDR or restructures as the net percentage value. In the last quarter we provided 0.75 percent but we need to it on incremental basis.     Q: If you postpone any of the restructuring to the April quarter, then you have to provide 5 percent because the new rule kicks in. Therefore, we understand that there will be many restructuring cases in the current quarter. Your profit stands at Rs 100 crore. If you provide even Rs 100 crore more in terms of provisioning, you will report loss. Is that a possible scenario for fourth quarter?
A: No, never. We have already provided 2.75 percent. Five percent has to be provided in stages. Our bank restructured portfolio is performing and has been 95-96 percent. Even on cumulative basis, our defaults are not more than 5-6 percent. 
Secondly, one year after the restructure compliance, there is also a provision that one has to shift it to the standard status. We have not done anything on this front, maybe around Rs 7,000-8,000 crore will be shifted out of the restructure. We will therefore automatically benefit if RBI guidelines comes in force from this quarter itself.    Q: When will that Rs 7,000-8,000 crore be transferred into standard assets and reflect in P&L?  
A: The Reserve Bank has only provided draft guidelines on restructuring portfolio and final guidelines are expected before March. Once the RBI communicate the guidelines and those who have complied with the restructured terms of at least one year will get upgraded to the status in this quarter itself.  Q: How much will be the increased restructured assets in the current quarter? You have half the quarter behind. Do you have some idea in terms of people who have made request?
A: In the beginning of the year we indicated to our analysts that we will have restructured assets of Rs 6,500 crore for full year, but we had done around Rs 3,800 crore. Our future restructure will be much lower. In this quarter there will be restructuring in terms of CDR, which is yet to be finalized and these cannot be more than Rs 1,000 crore at the moment.     Q: Your preferential issue is close to around Rs 1,000 crore from the government, you requested for Rs 1,500 crore. How will it affect your return ratios and capital adequacy after infusion and will you put a request in the next fiscal year for balance capital infusion?
A: Government's shareholding will increase from 69 percent to around 74 percent. Our capital requirement was Rs 1,500 crore.  By that time, our tier I would have been more than 8 percent. Currently, for the Basel II, we have 7.33 percent without taking into account our profit. Suppose we arrive at that, we maybe slightly below 8 percent. To that extent, the Basel II to Basel III requirement of tier I will be lower. However, we are always helpful to the government and they are likely to consider some more capital to some banks including IOB in the first quarter of the next Q1 of FY13-14 also. So we may get some capital. Q: What is your current capital adequacy in this case? Even after the infusion you will be south of 8 in tier 1. What is your current tier 1?
A: Current tier 1 is around 7.33 percent, excluding profit, so it may come up to around 7.75 percent, just below 8 percent and we may cover it.