IOB enters JV to recover bad loans

Chennai-based Indian Overseas Bank (IOB) has entered into a joint venture (JV) with a private financial company to start a new asset reconstruction company (ARC) to recover bad loans. The bank and its partner have approached the Reserve Bank of India for licence.

Speaking to Business Standard, IOB Chairman and Managing Director S A Bhatt said the new company is likely to start operations in 2-3 months. Two or three public sector banks and high networth individuals (HNIs) are likely to participate in the venture. Initial capital for the company will be around Rs 210 crore, Bhatt said.

The private financial company will hold 51 per cent stake in the new company, while HNIs will hold 15 per cent, IOB as the sponsor bank 10 per cent, while the rest will be employees of financial companies and other partners, including the public sector bank. The company will be based in Mumbai and V P Shetty, ex-chairman, IDBI Bank, is likely to head it, Bhatt added.

The new company will be the second of its kind in the country. As of now, only one ARC is operational "" Asset Reconstruction Company of India Ltd (ARCIL), which is promoted by ICICI Bank, State Bank of India and IDBI.

Bank of India, Allahabad Bank and Indian Bank have now become shareholders of ARCIL, which is sponsored by UTI-I, with 49 per cent stake. The other shareholder in ARCIL is insurance giant Life Insurance Corporation of India.

IOB's income on investments was up 36 per cent to Rs 593.81 crore for the third quarter ended December 31, 2007, from Rs 436.20 crore a year earlier.

Reserves, excluding revaluation reserves, increased 32 per cent to Rs 3,327.59 crore from Rs 2,510.16 crore. Gross NPA dropped 8 per cent to Rs 1,021.37 crore from Rs 1,121.61 crore earlier. NPA levels at the end of the December 2007 quarter stood at 0.36 per cent (0.48 per cent).