IOB cuts exposure to realty, bets on retail

Indian Overseas Bank (IOB), which is gearing up for its 75th anniversary, has sharply reduced its exposure in real estate and SEZs.

The bank’s foray into the commercial real estate sector was at the wrong time, which impacted its profitability, IOB chairman and managing director M Narendra told DNA, “We are doing commercial realty on a very selective basis.”

The bank has shifted focus to retail, where it has plenty of catching up to do. Although the share of retail has grown from 6% to 8%, Narendra said, “Given that the industry average is about 20%, we have good scope to grow our retail business.”

The bank, which had earlier got the Reserve Bank of India (RBI) approval to start a non-banking financial company, has now expanded the scope of the proposal and will resubmit it to the RBI for fresh approvals for a financial services subsidiary that will include capital market services, broking services among others.

In the fast-growing micro, small & medium enterprises (MSME) lending segment, IOB has matched the industry compound annual growth rate (CAGR) of 20%. Of an overall credit of about `98,000 crore, IOB’s MSME segment accounts for `13,162 crore. It recently won the Tamil Nadu state government award for MSME lending.

Infrastructure lending has improved to around 10% from 6% last year. “Last year, the bank’s growth itself was very less. This year, we have more than 28% business growth, while credit has grown around 27%,” said Narendra.

Three other sectors that IOB plans to focus on are education loans, especially in the south, super speciality hospitals and the hospitality industry in Tier II and Tier III cities like Jharkand and Chattisgarh.

Meanwhile, IOB has formulated a long-term plan to increase its current account saving account ratio from 30-31% to 35%. This will help stabilise net interest margin. Although net interest margin has improved from 2.98 to 3.27, “We feel that a 3% spread would be ideal,” said Narendra.

About other growth parameters Narendra said, “Our return on assets by year end will be 0.70 minimum, and return on equity will be of 15% plus.”

This will be up from 0.60 and 13%, respectively. By the end of this fiscal, IOB also expects net non-performing asset (NPA) to be 1 or lower, from the present 1.51; while gross NPA by year-end is expected to be below 3 from the present 3.26.

“Our long-term plan for three years is to double the business,” said Narendra, pointing out that credit had grown 26-27% and resources 20%.

“Our total business is almost nearing our target of Rs250,000 crore for this year (Rs225,000 crore on 31 December, 2010).

“For next year, we are waiting for the RBI Credit policy in May, which will project credit and resource growth. We will grow 5% higher than that.”