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Chennai-based Indian Overseas Bank (IOB), which made a whopping Rs 892 crore provisioning for bad loans, said provisioning was due and the management took a decision to clean up the balance sheet.
"This is an intentional aberration. We have cleaned up the balance sheet and corrected it. The Rs 3,000-crore addition to NPA was on top of Rs 2,600 crore additions in the first quarter," said ADM Chavali, executive director of the bank, indicating that most of the large corporate accounts have now been identified as NPA and have been provided for.
The high credit growth period of FY12 and FY13 has resulted in rise in NPA, said Chavali, who joined the bank in January 2012. The bank has now decided not to go for large corporate lending and the focus is on retail, agriculture and small and medium enterprises. Due to this cautious approach, loan growth remained muted, which grew by three per cent year-on-year.
The lender is also cutting down its bulk deposits, which were as high as 39 per cent in March 2011. As on September-end, bulk deposits consists 21 per cent of total deposits, which is still high among peers. The aim is to reduce the proportion of bulk deposit to 15 per cent by March.
According to Chavali, things can only improve from here on and bank will recoup its losses during the remaining two quarters.
"We will definitely reverse the MTM (mark-to-market) losses on bond portfolio as yields have started softening. In addition, as the economy is picking up credit growth will also follow. With asset quality issues are almost over, gross NPA could come down to 6.5 per cent by March-end from 7.35 per cent now," said Chavali, adding that if the bank is able to make healthy provisions, net NPA ratio will come down to 5 per cent from 5.17 per cent now and provision coverage ratio will improve.
IOB is one of the seven banks where the chairman and managing director's post is vacant as the present government has cancelled all the prospective appointments that were finalised by the previous government. IOB is vacant since August after its CMD M Narendra retired on July 31.
"In the first quarter, we had made a profit of Rs 272 crore and the loss is Rs 245 crore this time. For the full year, the bank will be recording profit as the worst is over," said Chavali, who is retiring on Friday and did not want to leave the clean-up job to the next chairman - a trend common among public sector banks.
