Industry

‘Use of share premium funds to post fair picture of balance sheet’

Will have no material impact on capital adequacy: IOB CEO

Indian Overseas Bank’s (IOB) decision to dip into its share premium account to set off accumulated losses is aimed at bringing out a “fair, true and clearer picture” of the balance sheet, asserted its MD and CEO R. Subramaniakumar.

Addressing the media on Monday, he said the move would not have any material impact either on the bank’s shareholding structure or the capital adequacy ratio. “In fact, it could shorten the time-limit for making any dividend,” he added.

He said the bank was within the rules in exercising this option. In this context, he pointed out that Section 17 (2) of the Banking Regulation Act, 1949 provided for the use of the share premium account. It reads thus: “Where a banking company appropriates any sum or sums from the reserve fund or the share premium account, it shall, within twenty-one days from the date of such appropriation, report the fact to the Reserve Bank, explaining the circumstances relating to such appropriation...”

“We have clear cut support of the law in doing this,” he said. The bank has convened an extraordinary general body meeting later this month to get shareholders’ nod for the proposal, he said. “Our commitment as a bank to various stakeholders remains.”

‘Not linked to PCA’

The government holds a little more than 82% shares and the LIC, 9%, he said. To a question, he said the move had nothing to do with the RBI-initiated prompt corrective action or the proposed capital infusion by the Centre. He said the bank was on course vis-a-vis its turnaround plan. Reduction in NPAs, bringing down fresh slippages and control over cost of deposits formed the fulcrum of this strategy, he added.

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Printable version | May 25, 2020 2:45:35 PM | https://www.thehindu.com/business/Industry/use-of-share-premium-funds-to-post-fair-picture-of-balance-sheet/article22398658.ece

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