Chennai-based Indian Overseas Bank (IOB) has faced turbulent times due to a soaring bad loan situation a year ago and was placed under the Reserve Bank of India’s prompt corrective action measure. In an interview, R. Subramaniakumar, MD and CEO, Indian Overseas Bank, asserts that the worst phase is behind it and that the bank is now ‘under post-care’. He goes on to elaborate on how the bank is tackling the challenges. Excerpts from the interview:
How is the health of IOB now?
We are improving. Just to understand the intensity of it, originally the bank was in ICCU. Now, it is out of ICU and has come to the post-care ward. Correcting the system required enormous systemic changes. When we came down, it was like coming down from the 10th floor to first in the lift. Now, we have to walk up through the stairs. This needs tremendous energy and effort.
What led to the alarming situation?
Multiple changes had taken place in the bank over the last two-three years. We were not in a position to take up too many changes simultaneously. On the one hand, we were migrating to the core banking platform, which had put pressure on branches.
On the other, economic conditions and exposure to stressed sectors had added to our woes. Our traditional strength has been lending to the MSME (micro, small and medium enterprises) sector. But we had moved away from that to take the opportunity arising out of other sectors such as infrastructure, like any other bank, and got hurt in the process.
How is the NPA (non-performing assets) position?
Our NPA is at over ₹35,000 crore. Out of this, there is now visibility on the stressed accounts which have been referred to NCLT (National Company Law Tribunal) by the RBI. We have to wait for the outcome.
In the first 12 accounts referred, our exposure is ₹7,000 crore. In the second set of 18 accounts referred, our exposure is ₹3,000 crore. Even if we have to take some haircut, there is some visibility on recovery. The remaining ₹25,000 crore related to smaller accounts for which we are using routes such as SARFAESI Act. For instance, there was a misconception among our staff that machinery cannot be taken over.
We have cleared that. While we have to wait for our audited results for the second quarter in terms of slippages, all I can say is the process of containing slippages and focusing on recovery is working well
Exposure to corporates in terms of stressed assets seems to be one of the problems. How are you tackling it?
One of the structural issues that we have identified is knowledge gap at the field level and at the time of delivery. Over the last quarter, we have created 13 large corporate branches across India which would be directly reporting to the corporate office.
Headed by an assistant general manager and assisted by chartered accountants and financial analysts, all big corporate accounts and stressed accounts are placed in these branches for sanctions. We have cut two layers of reporting. Through this, the turnaround time for proposals which need closer attention gets shortened. We are also addressing the issue of creating a knowledge pool at every location. Our risk management team is now studying corporate sectors on a continuous basis rather than once a quarter or half year.
They update the credit team on forward-looking sectors as also stressed sectors. We are looking towards sustainable and quality growth. And, we are making efforts to institutionalise the process through the board.
How have these measures helped?
It is yielding results. We have shrunk our advances from ₹1.72 lakh crore to ₹1.53 lakh crore, as of September, pre-audit figures. We did this over the last one year and two quarters. We are moving away from high-risk weightage sectors (such as iron and steel) to lower-risk weightage assets (such as highly-rated firms and government-guaranteed accounts).
We are also able to attractively price the accounts for lower risk weightage assets in a more aggressive way than before. For example, our MCLR (marginal cost of fund-based lending rate) has come down to 8.4% from 9.6%. [Our] CASA (current account, savings account) [stands at] at 35-36% when compared to 23-24% three years ago.
How do you compensate for exiting high risk accounts?
While it is difficult to entirely replace them, what we are focusing is on quality credit growth. We are focusing on MSME, agriculture and retail sectors and gold loans. In the retail sector, we have made the entire loan process automated. We are also aiming to replicate the same for the MSME segment. We are looking at a loan mix of 40% to corporates and remaining 60% to MSME, retail and other segments.
What is your view on recapitalisation and the government move to appoint a panel to look into bank mergers?
Recapitalisation would definitely help us and improve our credit growth. We are looking for finer details to emerge. On consolidation, so far there has been no dialogue with us. As of now, we are confident of standing on our own and working towards a turnaround by 2018-19.
