IOB may sell Rs 100 crore bad loans in FY08

Chennai-based Indian Overseas Bank is planning to sell around Rs 100 crore worth of stressed assets to asset re-construction companies in the current financial year.

This will help the bank reduce its net non-performing assets to net advances ratio around 0.50 per cent by the end of FY08 from 0.75 per cent as on September 30, G Narayanan, executive director, said.

"We will start discussion with some of the asset re-construction companies to sell Rs 50-100 crore worth non-performing assets in the current financial year," Narayanan said.

The net interest margin of the bank is under pressure due to high interest rates offered on deposits at the beginning of the year. Though the bank has shed about 25-30 per cent of its high cost deposits, its impact will not be felt in the current financial year, as it comes with a lag, Narayanan said.

"Hence margins may slightly come down, may be by a few basis points," he said. Indian Overseas Bank had a net interest margin of around 3.5 per cent in April-June.

The bank, which is no longer accepting high cost deposits, expects its share of low cost deposits to rise. "Current and savings account deposits constitute 43 per cent of total deposits (as on September 30), which may further rise during the remaining part of FY08," he said.

Despite the banking industry experiencing lower credit offtake this year, compared with the recent past, this state-run bank is optimistic of meeting its targeted 22-25 per cent growth in 2007-08.

"We would be reaching about 65-70 per cent of our target by the end of the current quarter (October-December). Hence we should not be having any problem to meet our full year target of Rs 57,000 crore," Narayanan said.

Deposits are expected to post on-year growth of 24-25 per cent in 2007-08 to reach Rs 82,000 crore. "We will cross total business mix of Rs 140,000 crore in the current financial year, as envisaged earlier," he said.

Narayanan has ruled out any fund raising plan in the current financial year, as Indian Overseas Bank has a comfortable capital adequacy ratio of more than 13 per cent.

"Even after providing for Basel-II requirement, our capital adequacy ratio will be around 11 per cent. Hence, we will not need to infuse any funds in the current financial year," Narayanan said.

The bank, with presence in seven countries, has to comply with the new Basel-II norms by March 31. The bank is also planning to open new branches in Vietnam and Australia, Narayanan added.