Indian Overseas Bank (IOB), which has been under the Reserve Bank of India’s prompt corrective action (PCA) since October 2015, is now out of the woods, says Karnam Sekar, MD and CEO. He strongly feels that the regulator may not have second thoughts on taking the bank out of the PCA as it has diligently undertaken course correction to ensure that it is not in breach of any of the risk thresholds. The ‘landmine’ of non-performing assets (NPAs) in the public sector bank has now been converted into a ‘goldmine’ due to aggressive provisioning over the last few quarters, emphasised Sekar in an interview with BusinessLine. The bank now has to only dig (undertake recovery) so that it can write-back the provisions to bolster the bottomline every year, he added. In an interesting twist of fate, the Sri Venkateswara Agricultural University (Tirupati) graduate will retire on June 30 from the very bank that handed him his first job appointment letter as Probationary Officer (PO) in 1983. Sekar, however, started his 37-year long banking career with State Bank of India in the same year. Excerpts:

Your bank is back on the profitability path. So, when will you come out of the PCA framework?

There are four parameters in the PCA framework – leverage, asset quality (net NPAs), profitability and capital (capital to risk-weighted assets ratio). Now, on all four we are there (no longer in breach of the PCA thresholds). We posted a net profit in the last quarter (January to March 2020) after 18 quarters. We are sanguine that we will again establish our credentials (in the April to June 2020 quarter) as we have done in the March 2020 quarter. So, with that we can represent to the RBI (to be taken out of PCA). The regulator also may not have second thoughts. It is a process, and is a only matter of time (before the Bank comes out of PCA). Otherwise, I think, IOB is out of the woods. We will write to them (RBI) in due course (about being taken out of PCA).

What agenda did you set for IOB after July 1, 2019?

After the amalgamation of Dena Bank (where Sekar was MD and CEO for about six months till March-end 2019) with Bank of Baroda, I was posted as an officer on special duty and whole-time director at IOB for three months till June-end 2020. After I took up the reins of IOB on July 1, 2019, we set a clear agenda for the three quarters (beginning July 1) till March 31, 2020.

In the first quarter we go to the government and get capital. In the second quarter we reduce net NPAs to less than 6 per cent. And in the third quarter we make profit. So, the government infused capital (₹4,360 crore on January 3), which helped us achieve the (regulatory) capital ratios. In the December 2019 quarter, we were able to bring down net NPAs to below 6 per cent (5.81 per cent). And in the March quarter, we were able to make profit (₹144 crore).

How did you tackle NPAs?

So, when I came to the bank, we were sitting on a landmine of NPAs. For a balance-sheet size of ₹1.30-lakh crore of advances, we had NPAs of almost ₹45,000-50,000 crore. Some were fully provided, some were partly provided. So, we were sitting on a landmine. After making provisions quarter after quarter, we have achieved a provision coverage ratio of 87 per cent as on March-end 2020 (71 per cent as at March-end 2019). So, now I feel that we are sitting on a goldmine, not landmine. We dig it (make recoveries) and take it (add to the bottomline). Out of the provision of ₹40,000 crore, which is sitting on the balance sheet of the bank, if we take ₹1,500 to ₹2,000 crore (via recoveries) every year, that will be pure profit. So, this is the task now.

We took a few steps to revamp (the loan recovery in) the bank. First, the Asset Recovery Management Branches were given due importance and they started contributing in a big way in resolving the NPAs. Second, we started auctioning properties charged to us in a big way on a monthly basis. Once this process started, the borrowers became alert and they came and regularised the loans. So, that way some NPAs have come down. The third thing we did is that we brought in a policy on one-time settlement (OTS), which is non-discretionary. So, the board approved policy in this regard has also helped in settling many accounts via OTS. And the fourth thing is that wherever possible, we have done sales to asset reconstruction companies. All these things have given us good results and NPA recovery started picking up. People (employees) also got the “yes, we can do” confidence. Net NPA, which was at almost 11 per cent when I took charge, is now at 5.44 per cent. I am confident that IOB will become a very strong bank in due course.

What message would you like to give to the new-generation bankers?

Banking is a commonsensical business. Planning should be followed by perfect execution. The planning is done by many people, but the key to success in any assignment is execution. Don’t ever have grand plans. Have small plans and execute them. Take small bites, chew them and digest them. This will help people and institutions to sustain and thrive over a longer period.

Published on June 29, 2020

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