Poor performance in view, Indian Overseas Bank to get half of allocated capital

NEW DELHI: Walking the talk on performance-based capital infusion in public sector banks, the government has decided to disburse only half of Rs 3,101 crore it allocated for Indian Overseas Bank, the second biggest beneficiary of the recent capital infusion programme.

Earlier this month when the finance ministry had announced Rs 22,915 crore capital to 13 state-run banks, it had noted that 25 per cent of this amount will be disbursed based on performance parameters including greater efficiency, growth of both credit and deposits, and reduction in the cost of operations.

A senior finance ministry official said an exception has been made in case of Indian Overseas Bank (IOB) and that assessment is on for other banks as well, which may not get capital in full unless they prove their financial performance. The move is expected to push weak banks towards merger if they are not able to raise capital through market offers.

"Banks have been told that going forward capital infusion programme will be increasingly linked to financial performance. Those unable to meet the set criteria will have to look at other options," the official told ET.
IOB is one of the weakest lenders among all public sector banks (PSBs), and had posted a net loss ofRs 2,898 crore for 2015-16. Its net nonperforming assets ( NPA) were 11.9 per cent of the total Rs 19,213 crore at end-March. The bank is currently headless and the search is on for managing director and CEO. A detailed email sent to IOB did not elicit any response as of press time Thursday.

In a report, rating agency Moody’s had noted that capital infusion is positive for weaker banks such as IOB and Central Bank of India, which received a higher share of capital allocation as a proportion of their share capital.

Last week, the finance ministry in an interaction with chief financial officers (CFOs) of all PSBs had asked them to come up with detailed plans on raising capital through public offerings, bonds and sale of non-core assets.

Bankers had raised concerns over some stringent norms that include recoveries on written-off assets. As per MoF data, PSBs have written off Rs 59,547 crore in the year ended March. IOB had written off Rs 2,578 crore during the period.