Indian Overseas Bank shares surge 3% on capital infusion of over Rs 4,500 crore by govt

Investors were quite upbeat on share price of state-owned Indian Overseas Bank (IOB), rising over 3% in early trade on Wednesday, in the wake of capital infusion of Rs 4,500 crore by the government in two tranche. IOB is one of the distressed banks with heavy gross non-performing assets (GNPA) in its balance sheet, suffering massive losses currently.

After touching intra-day high of Rs 18.30 per piece on Wednesday, the share price of IOB was trading at around Rs 17.90 per piece on the BSE which was gradually higher by 0.85% at 1231 hours.

On Tuesday, the bank informed exchanges that it has received an amount of Rs 388.94 crore on March 26, towards contribution of the central government in the preferential allotment of equity shares of the bank during financial year FY18, as of government’s investment.

IOB later mentioned about a capital infusion of Rs 4,132 crore by central government for fiscal year FY18, saying, “We wish to inform that the Bank has received an amount of Rs 4,132 crore on 27.03.2018 towards contribution of the Central government in the preferential allotment of equity shares (special Securities/ Bonds) of the Bank during the Financial Year 2017-18,
as government's investment.”

With this, IOB has received a total of Rs 4,520.94 crore of capital infusion from government.

This brought a great relief to IOB confronting stressed assets. As of December 30, 2017, the bank’s gross NPA stood at Rs 33,266.88 crore, down from gross NPAs of Rs 34,708.59 crore in Q2FY18 and Rs 34,502.13 crore in Q3FY17.

In percentage terms, gross NPA stands at 21.95% in Q3FY18 compared to 22.73% in Q2FY18 and 22.42% in Q3FY17.

Although gross NPAs eased down in Q3FY18, the bank continued to report net loss of Rs 971.17 crore, which was lower compared to net loss of Rs 1,222.50 crore in Q2FY18, however, higher compared to net loss of Rs 554.44 crore in the corresponding period of previous year. 

Recently, IOB proposed to utilize the balance in its share premium account as of March 2017 of Rs 7,650.06 crore, to set off its accumulated losses as on March 2017, of Rs 6,978.94 crore, so as to present a true and fair view of the bank’s financial position.

Section 17(2) of the Banking Regulation Act, 1949 permits banks to appropriate any sum from the reserve fund or the share premium account.