New Chief of Bank With Worst India Bad Debt Seeks Turnaround

(Bloomberg) -- The new head of Indian Overseas Bank says he plans to get a grip on the bank’s bad-loan problems as he embarks on a series of cost-cutting measures.

The Chennai-based lender, which has the country’s highest bad-debt ratio, has closed more than 20 of its 3,000-plus branches this year and has identified more to be shut, Chief Executive Officer R Subramaniakumar said in an interview last week, about two months after taking office.

He signaled his intention to restore the fortunes of a state-owned bank that was left without a CEO for almost a year after former head R. Koteeswaran retired on June 30, 2016, a period during which bad debt soared and loan growth sputtered. The government only named Subramaniakumar as CEO in May, after various legal processes delayed the appointment, for a term that ends in June 2019.

“You will see a much stronger bank before I step down,” the 58-year-old said, noting he has about two years before his retirement.

Indian Overseas Bank’s shares have dropped 11 percent in the past year, while the S&P BSE 500 Index gained 20 percent. It closed 1.4 percent lower at 24.95 rupees on Thursday.

Souring corporate loans drove the firm’s bad-debt ratio to 22.4 percent as of March 31, versus 17.4 percent a year earlier and an average of 9.6 percent for the banking system, central bank data show. Indian Overseas Bank reported five straight quarters of losses through March as its outstanding loans fell to 1.57 trillion rupees ($24 billion) from 1.7 trillion rupees a year earlier, exchange filings show.

In another cost-saving measure, the bank has automated the entire loan process for its retail customers from application through to the disbursal of the funds, the CEO said. The firm is building up its portfolio of housing credit and loans made with gold as collateral at a fast pace, according to Subramaniakumar.

To resolve bad loans, the new chief said he’s deployed more than 720 bank officials in 48 groups across the country to focus fully on recoveries. Technology will play a role as the bank develops a smartphone app that provides officers with daily prompts to take action against delinquent borrowers, he said.

The bank is also trying to get the tax department to share details of defaulters’ income and assets so that it can be verified against disclosures by delinquent borrowers. This allows the lender to move at a quicker pace to assess their ability to repay and to liquidate the account if necessary.

Subramaniakumar’s moves will be scrutinized closely by the Reserve Bank of India, which has placed Indian Overseas Bank in a so-called Prompt Corrective Action plan. That allows the central bank to take remedial measures including requiring the lender’s owners to bring in fresh capital, curbing branch openings, limiting management compensation and freezing hires. Under the plan, Indian Overseas Bank is trying to make better use of available resources, Subramaniakumar said, without providing further details.

The lender intends to take advantage of the RBI’s directive to use insolvency courts to resolve the outstanding 2 trillion rupees of loans held by 12 big delinquent borrowers. Moving these accounts, which represent more than a fifth of Indian Overseas Bank’s 345 billion rupees of soured debt, into the bankruptcy courts will help to improve asset quality, Subramaniakumar said.

The bad-loan woes faced by the 80-year-old bank is an illustration of the nationwide problem curbing credit growth at Indian lenders and the expansion of Asia’s third-largest economy. Getting rid of the soured credit is crucial to Prime Minister Narendra Modi’s plans to revive investment in the country and add jobs before elections in 2019.

To contact the reporters on this story: Ganesh Nagarajan in Chennai at gnagarajan1@bloomberg.net, Anto Antony in Mumbai at aantony1@bloomberg.net.

To contact the editors responsible for this story: Marcus Wright at mwright115@bloomberg.net, Darren Boey, Unni Krishnan