Efforts to cut bad loans to come out of PCA framework: Indian Overseas Bank

IOB, which is under the Reserve Bank of India's PCA framework, had last posted profit in June 2016

Indian Overseas Bank (IOB) is taking various measures to reduce its bad loans so as to come out of the RBI's prompt corrective action framework and its one-time settlement strategy has paid dividend in recoveries of bad loans, the state-run bank said in the annual report for 2019-20.

The Chennai-based lender had returned to black, registering a net profit of Rs 144 crore in the January-March quarter of the fiscal ended March 2020, after a hiatus of 18 quarters.

IOB, which is under the Reserve Bank of India's prompt corrective action (PCA) framework, had last posted profit in June 2016.

 

During the period under review (2019-20), the bank has realised that at the field level, one of the best recovery tools that has received very well is the special one-time settlement (OTS) scheme, IOB said in the annual report.

"Bank is making various dynamic efforts in reducing the NPA (non-performing assets) stock with the intention of early exit from PCA. Though the core objective in NPA recovery is recovery of the entire contractual dues without any hit on the profit front," it said.

The lender said it had to shift the strategy for NPA recovery by other means including compromise settlements apart from taking other legal measures as a resort due to various factors.

Under this scheme, the bank has raised the discretionary powers of its regional, zonal and central offices to take up high value NPA resolution.

"The scheme has received excellent response as envisaged at the field level. During 2019-20 there was a total resolution in around 69,200 accounts involving Rs 3,400 crore under OTS mechanism," said the lender.

Besides, the bank has also introduced the online version of OTS with the check-box approach. Borrowers can submit their OTS applications online and the same is getting escalated to the next layer according to the discretionary powers for OTS sanctions, it added.

"Though, it (online OTS) is yet to pick-up significantly, a beginning is made and we have advised the branches to give more awareness to the NPA borrowers," IOB said.

Further, the bank also conducted mega pan India e-auctions for the properties possessed under SARFAESI Act till March 2020 every month and bank was able to put e-auction of 3,167 properties since July 2019.

"444 properties were sold fetching Rs 263 crore under e-auction in FY20. Due to initiation of e-auction procedure under SARFAESI, the same had paved the way in resulting in OTS, upgradation and full closure of NPA accounts."

There was a resolution in 1,290 accounts involving Rs 695 crore due to initiation of SARFAESI action. In order to bring more buyers, the bank conducted SARFAESI property fares, it added.

IOB brought down its gross NPAs or bad loans to 14.78 per cent of the gross advances at end of March 2020 from 21.97 per cent by year ago same period. Net NPAs also fell to 5.44 per cent from 10.81 per cent by March 2019.

In value terms, the gross NPAs were cut to Rs 19,913 crore as against Rs 33,398 crore. While, the value of net bad loans reduced to Rs 6,603 crore from Rs 14,368 crore.

The net NPA percentage of the bank as on 31st March 2020 is brought down below PCA threshold, IOB said.

During FY20, the bank has not done any recruitment due to PCA, it added. Bank's staff strength stood at 24,857 by the end of March 2020.

PCR (provision coverage ratio) of the bank has improved substantially as at end March 2020 from 71.39 per cent to 86.94 per cent, one of the highest in industry. As a result, bank could register a net profit to the tune of Rs 144 crore for Q4FY2019-20, it said.

"We had made the year 2019-20 as the Year of Resurgence for our bank. We have attacked the NPAs in a big way and increased the advances in capital-light assets and improved CASA (current account savings account) significantly. These efforts have culminated into the profits posted in Q4 2019-20 after a gap of 18 quarters," said Karnam Sekar, Managing Director & Chief Executive Officer of the bank in the annual report.

Sekar retired from the bank on June 30, 2020.