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IOB Gross NPA at 20.48%, CAR in danger zone at 9.47 %: Result Analysis

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Indian Overseas Bank is in serious trouble, not because of the losses it is making, its just because of 20.48% of advances are gross NPA’s and its capital adequacy ratio (CAR) is below RBI stipulated 9.6% and stands at 9.47%
RBI has mandated the banks to maintain a minimum CAR of 9.6%, for which IOB has already breached. Even though according to the disclosure by the bank, the CAR would change to 10.37% after capital infusion of Rs 1551 Cr by first round of capital infusion by Govt. of India. It has also stated that their will be a second round of funding by Govt of India to the tune of Rs 1551 Cr again.10.37% is still a not good CAR to maintain for a bank like IOB as the NPA are very high. The bank has already raised Rs 261.94 Crs by Qualified Institutions Placement in the current quarter.
This is going to be crazy: at 20% Gross NPAs, 1 in 5 loans are bad! This bank better raise capital fast, because what it has will be wiped out with the losses.

  • Income from interest has gone down by 12.05% QoQ. and the losses are to the tune of 1450 Crs.
  • Advances declined by 5.37% and deposits by 5.85% QoQ.
  • Net interest margin is below 2%, currently at 1.87%.
  • Operating Margin has improved from 8.33% for Q1FY16 to 11.76% for Q1FY17.
  • Provisions have  increased by 2 times QoQ.
  • Reserves and share capital is down by 12.98% QoQ. which means they are using reserves for provisioning of their bad loans.
  • Gross NPA has increased by 12.86% from previous quarter and Net NPA by 10.98%

Indian Overseas Bank Q1FY17 Results
The results were declared post market hours. Stock closed at Rs 27.3.
Indian overseas Bank Q1FY17 Share Price Movement
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  • You are making the results look good. The correct way to analyze this bank is to understand that their Net Worth is Rs.12,520 crore and NPAs are Rs. 33,913 crore. Period.

  • naresh_nayak says:

    This situation is classified as a fight to keep confidence. A Indian PSU bank going down creates enormous confidence issues in the system with reverberating effects. The Government of India as the owner can sanction the entire Rs. 34,000 crore if need be to save the bank. That amount is nothing compared to the shaking of confidence that results from that one PSU bank going down. Its a poker game trying to understand the Government’s move and that is why probably private QIPs have participated in the raise. I think the Government will apportion capital slowly out of disinvestment proceeds and private investment demand will pick up from here as profit cycles may have bottomed out. FY18 is a great time to see private investment demand pick up.