Indian Overseas Bank loss in Q3 widens on bad loans

CHENNAI: Indian Overseas Bank saw its losses widen to Rs 1,425 crore for the third-quarter as the Chennai-based lender set aside more money to cover bad loans.
The public-sector bank had seen a loss of Rs 516.03 crore for the same quarter last year. With the bank’s gross NPAs at an uncomfortable 12.64%, IOB increased its provision for loan losses by 60% to Rs 1,896.06 crores compared with the same period last year.Sequentially IOB has increased its provision for bad loans by 21.7%.
After IOB saw second-quarter gross NPAs at 11%, the Reserve Bank of India (RBI) pulled up the bank for failure to check bad loans and criticized its risk management system. The regulator has directed the bank to reduce the number of bad loans on its books, put in place more stringent credit-quality checks and not payout dividends or enter new lines of business till its asset quality improves.
The state-owned bank saw third-quarter income dip 3% to 6445.78 crores as the IOB paid out more interest on its deposits than it made on its loans. Gross NPAs for the third quarter rose 56.3% to Rs 22,672.40 crore year-over-year and 16.7% sequentially.
In October, RBI had directed the bank to engage in a prompt corrective action (PCA) framework - the bank was asked to look into its capital to risk weighted assets ratio (CRAR), net NPAs and Return on Assets (RoA).
Global rating agency lowered the credit rating of IOB to 'BB-' last September 30 to reflect the weaknesses in its credit history. "Government's capital infusions for the next 12-18 months will be an important lifeline for public-sector banks. Many of the banks have a reduced ability to generate internal capital, largely because of the pressure on asset quality in the past few years. The weakening asset quality has resulted in lower net interest margins and higher credit costs," S&P said in a research report.
Shares of Indian Overseas Bank were down 5.2% and closed at Rs 23.70 on the BSE.