Insolvency proceedings against 10 firms address a fifth of IOB’s bad loans, says MD

Indian Overseas Bank (IOB) has initiated insolvency proceedings against 10 large corporate borrowers, bringing a fifth of its gross bad loans under the resolution process, managing director and chief executive officer R. Subramaniakumar said.

These 10 accounts are among 12 large defaulters named by the Reserve Bank of India (RBI) on 13 June for immediate commencement of insolvency proceedings before the National Company Law Tribunal (NCLT). The accounts make up more than 21% of IOB’s over Rs35,000-crore gross non-performing assets (NPAs), Subramaniakumar said in an interview to Mint.

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Most of these accounts have adequate provision coverage of 38-40% and, hence, are not expected to impact bank’s balance sheet substantially, he said. “As per RBI guidelines, I have to provide 50% in three quarters. I will have to provide 10% incrementally, which otherwise could have come due to ageing of these accounts,” he said. “(The additional provision is) taken into the consideration in the (bank’s) turnaround strategy,” he added.

For cases referred to NCLT, RBI has directed 50% provisioning against secured exposures and 100% against unsecured exposures. Banks can spread them over three quarters starting July-September quarter.

These 10 accounts also contribute to nearly half of its corporate NPA book, he said. Nearly all of IOB’s exposure to these 10 accounts is fund-based, he added.

RBI placed the Chennai-based lender under its prompt corrective action (PCA) programme on 5 October 2015 because of a rise in bad loans. PCA entails banks to step up recoveries of bad loans, reduce risky loans, strengthen capital base and restrict branch expansion, among other measures in order to improve the health of the balance sheet.

As part of its plan to improve asset quality, for large accounts other than the 10 cases, IOB has evaluated each case for a possible resolution using RBI’s various restructuring schemes, Subramaniakumar said. IOB has also started outreach programmes to resolve bad loans from its retail, agriculture and small and medium enterprise portfolios.

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Recovery is top priority for the bank, he said. It has set a target of increasing recoveries by at least 25% in the current fiscal. In fiscal 2017, IOB recovered over Rs8,700 crore from bad loan accounts.

With 22.39% gross NPA at end of March 2017, IOB tops the list of 21 public sector banks in terms of gross NPAs. However, Subramaniakumar said this has to be seen from the context of slowing credit growth because the number is a part of the loan book. The bank is focusing more on non-corporate loans now.

First Published: Tue, Jul 18 2017. 12 17 AM IST

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