Indian Overseas Bank Q1 Result, Loss Rs 1,450.50 crore

Chennai-based Indian Overseas Bank (IOB) reported a Rs.1,450.50 crore loss for the quarter ended 30 June after a fifth of its advances turned bad. The bank reported a net profit of Rs.14.76 crore a year ago.

Gross non-performing assets (NPAs) as a ratio of gross advances were 20.48% at the end of June, higher than the 17.4% reported three months earlier. This is the highest gross NPA ratio reported by an Indian lender in 13 years. Dena Bank reported a gross NPA ratio of 21.82% in September 2002, which came down to 20.7% in December 2002. IDBI Bank reported a 29.9% gross NPA ratio in December 2003, according to Capitaline data.

IOB’s bad loans ratio has been deteriorating for a while now. On 5 October 2015, the banking regulator called for corrective action at the bank to check bad loans, improve internal controls and consolidate its business activities. The move came after the bank’s gross bad loans ratio widened to 11% of its gross advances at the end of the September 2015 quarter.

In absolute terms, gross NPAs at the end of the June this year were Rs.33,913 crore, up nearly 13% from Rs.30,048.63 crore at the end of March. After providing for bad loans, the bank’s net NPA ratio was still elevated at 13.97% at the end of the June quarter.

The bank set aside Rs.2137.81 crore as provisions for bad loans for the June quarter, lower than Rs.2,666.16 crore during January to March. The bank made provisions worthRs.663.57 crore a year ago. The bank also used Rs.170 crore out of its countercyclical buffer against bad assets, it said in the notes to its profit and loss account. Countercylical buffer is money set aside during profitable years which can be used in leaner times.

Net interest income, or the difference between interest earned on loans and that spent on deposits, fell 6.3% from a year ago to Rs.1,245.07 crore. Non-interest income rose 22% to Rs.653 crore.

IOB’s capital adequacy ratio dropped to 9.47%, below the Reserve Bank of India limit of 9.625% in the quarter. The capital adequacy number a year ago was at 9.75%. But the bank said if the Rs.1,551 crore capital infusion from the government was included, its capital adequacy ratio would increase to 10.37%.