Bank of India first public sector lender to break rising NPA jinx in FY18

New Delhi, May 29: Bank of India is the only listed public sector lender that has managed to reduce its non-performing assets (NPAs) in absolute terms in the 2018 financial year.
This was helped by increased recoveries of bad loans to the tune of Rs 11,417 crore in the fourth quarter FY18. Fall in net interest income and other income though led to a wider net loss of Rs 3,969 crore during the quarter.
The recoveries helped the fifth largest state-owned lender reduce its gross NPAs to Rs 62,328 crore as at the end of March, down by over Rs 1,900 crore, from Rs 64,249 crore in December 2017. Similarly, net NPAs reduced by Rs 7,910 crore to Rs 28,207 crore.
Bank of India’s gross and net NPAs at the end of March stood at 16.58 percent and 8.26 percent respectively, down from 16.93 percent and 10.29 percent in December 2017.
Indian Bank and Vijaya Bank are the only other two government banks to have reduced their NPA ratios. But the two banks, unlike in the case of Bank of India, have seen an increase in the NPAs in absolute terms.
“Recovery is the USP of this quarter…that is how we have reduced our NPAs. We are the only bank to reduce in the banking sector both in absolute and percentage terms…both gross and net NPAs…We started a collection center in every zone of the bank, looked at monitoring and progress, following up for prevention of further NPAs,” said Bank of India Chief Dinabandhu Mohapatra in the post-results announcement press conference.
Most of the recoveries have been in cash, and around Rs 9,200 crore was by invoking standby letter of credit (SBLC), and guarantees of defaulters. “The remaining about Rs 530 crore through SBLC is expected to be recovered in the first quarter,” he added.
SBLC is an irrevocable documentary commitment, separate from the sales contract, issued by the bank to a third-party beneficiary with a promise to pay on behalf of the originator.
In a recent interview, Mohapatra had laid out his turnaround strategy and expressed hope of coming out of the PCA or prompt corrective action imposed by the Reserve Bank of India (RBI) that restricted business and expansion.
Mohapatra said, “Growing with capital-light asset model is important for banks…We are going in the right direction and almost all accounts as per RBI guidelines have been taken care of…If you see the response from NCLT (National Company Law Tribunal), I am hopeful FY19 will be a good year for all banks.”
He plans to reduce the risky corporate business to 40 percent of the bank’s total loan book by March 2019 from the present 48 percent.
Bank of India’s risk-weighted assets (assets that require more capital to be set off against if there is a default) also reduced from Rs 3.47 lakh crore to Rs 3.17 lakh crore.
In the first quarter this fiscal, the successful sale of Bhushan Steel to Tata Steel under the insolvency process will help the bank fetch about Rs 500 crore, to aid its profits.
Bank of India’s total exposure to insolvency cases in the first and second list is about Rs 11,600 crore.
The resolution process in these cases may provide relief to not just Bank of India but other public sector banks.