Indian Overseas Bank (IOB) might miss its target to become the fifth-largest bank in the country, with a total business of Rs 5 lakh crore by 2014, due to slowdown in the economy, IOB’s Chairman and Managing Director M Narendra tells T E Narasimhan. Edited excerpts:
How is IOB’s performance, given the current economic scenario?
As on date, our business is at Rs 3,40,486 crore, a 62 per cent growth compared to the January business of Rs 2,10,347 crore. Advances and deposits grew by 72 per cent and 54 per cent, respectively.
Earlier, you had set a target of Rs 5 lakh crore by 2014 and said IOB would be the fifth- largest bank. Are you on track?
We may not achieve (the target) by 2014 due to a slowdown in the economy. However, it is possible in 2015.
What are the measures you have taken to achieve this target?
The first measure is branch expansion. Earlier, we were opening around 300-400 branches a year. In the next two years, it will be 500-600 branches a year. Besides, 1,300 ultra-small branches have the potential to be converted as full-fledged branches.
Most of the expansion will be at states, where we have low penetration. For instance, the northeast.
As far as opportunities go, so far, IOB was not giving thrust to retail credit. But over the next two years, it will one of our thrust areas. The target is Rs 40,000 crore, compared to Rs 19,000 crore now.
The main challenge is human resources. In the past two years, the bank has recruited 7,500 people and in 2012-13, another 4,000 people will be recruited, in the age group of 20-21. In the next couple of years, some of them will become branch heads. So, keeping them ready is the key challenge.
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A new HR committee, including outside experts, has been formed to look at the issue.
Financial inclusion is another challenge. It requires major investments in capacity building — technology, business correspondents and others.
What kind of capital do you require to achieve your targets and, what are the measures are you taking to mobilise the money?
As the economy improves, volume and margin will also improve. Currently, they are moderated and capital flow on account of profit is lower.
The bank has been building its network substantially in the past. As we go from Basel II to Basel III, in the first two years we can manage with the available profit and only from the third year onwards would we require money.
IOB made an internal study and it was estimated Rs 10,000 crore capital is required up to 2018-19. The money will be raised from the government, through QIP (qualified institutional placement), rights issue, and preferential allotment.
Recently, IOB received a letter from the government saying it would infuse Rs 1,500 crore. The board has approved to raise Rs 800 crore by way of tier-I (perpetual) bonds in one or more tranches. In the next 6-12 months, it will look at FPO (follow on public offer). Now, our book value is less than 1-1.5 per cent. We are waiting this to improve.
You also had a plan for MTN (medium-term note)...
Earlier we had raised $1 billion in two tranches, which got good response. We are now working on a new offer document to raise up to $2 billion over the next two years. The offer document will be ready by January 2013.
For every $500 million we raise, our overseas credit will increase by around Rs 2,500 crore to Rs 3,000 crore. Currently, our overseas credit is around Rs 35,000 crore.
How are you planning to expand overseas operations? Are any joint ventures (JVs) on the lines of India International Bank (Malaysia), which is a JV between Bank of Baroda, IOB and Andhra Bank, on the cards?
We are planning to form a JV with the Union Bank to enter Mongolia. We will also expand our own branches overseas. In the next five years, 10 branches will be opened in Seoul (South Korea), Thailand and other places where we operate now.