Indian Overseas Bank's net profit was dented by 74 per cent to Rs 102 crore for the third quarter of 2009-10 due to provisioning for bad debts, wage settlement and a fall in treasury profits compared with Rs 388 crore for the same period the previous year.
About Rs 1,000 crore of bad debts were added during the last nine months, of which Rs 444 crore was from infrastructure and educational institutions, Rs 165 crore from priority sector and Rs 200 crore each from trade finance and real estate sector.
According to the clarification by the Chairman and Managing Director of the Bank, the build up of bad debts was not a result of restructured assets. Of the total amount of Rs 8,200 crore restructured loans, only Rs 745 crore were bad loans, of which Rs 600 crore of assets would be upgraded to standard assets.
The recent mandate by the Reserve Bank of India to hike provisioning on bad debts to 70 per cent, has impacted IOB as it had to make additional provisioning of Rs 232 crore due to build up of bad debts. On treasury income, the bank earned only Rs 17 crore for Q3 of 2009-10 compared to Rs 382 crore for the same period last year. Pending finalisation of wage revision, a provision of Rs 88 crore was made towards wage arrears.
The bank expects to sell 15-20 per cent of bad debts to Asset Reconstruction Companies provided they get 60 per cent realisation of asset value so that the bank can cut down its provisioning on bad debts.
Advances grew by 11 per cent to Rs 79,408 crore and deposits posted a 14 per cent increase to Rs 1,06,429 crore as of December 31, 2009 from the previous year. Credit sanctioned but yet to be disbursed was Rs 15,000 crore, only Rs 5,000 crore has been disbursed in the last nine months.
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