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Indian Overseas Bank (IOB) has hit upon a novel idea to strengthen its balance sheet and clear its accumulated losses.
Its board approved a plan to utilise the ₹7,650-crore balance available in the share premium account to write off its accumulated losses of about ₹6,979 crore as on March 31, 2017.
The bank said the move was to present a true and fair view of the financial position of the bank and to take the same into account during the current financial year.
“It is an unusual move by any bank so far. The idea is to strengthen the balance sheet of the bank as we are taking so many initiatives for turnaround of the bank. As the results of our efforts will start flowing from this year, our balance sheet also needs strengthening,” R Subramaniakumar, Managing Director & Chief Executive Officer of IOB, told BusinessLine .
He said: “We have cash premium, which is positive, and we have accumulated losses, which is negative. If I try to set off both, my net worth remains the same and nothing else will change. So, anybody looking at our balance sheet will not have a negative view now as investors were getting disturbed with the accumulated losses earlier.
“The Banking Regulation Act’s Section 3 and Section 7 — if we take both together — permit the bank to carry out such set-offs. An RBI circular of 2006 also allows this move.”
The bank has secured multiple approvals for this exercise, which is meant to wipe out the accumulated losses.
An extraordinary general meeting of the shareholders of the bank will be held at Chennai on January 30 to obtain shareholders’ approval.
As of September 30, 2017, the bank’s net NPA (absolute) stood at ₹18,950 crore, down from ₹20,166 crore in the June quarter, and ₹20,765 crore from the September quarter of 2016-17.
The net NPA ratio stood at 13.88 per cent, down from 14.97 per cent in the preceding quarter, and 14.30 per cent in the year-ago period.
The bank has been under the RBI’s Prompt Corrective Action framework since the September 2015 quarter.
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