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Indian Overseas Bank |
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Executive Summary |
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| Business | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
IOB was formed in 1937 founded by Shri.M.Ct.M.Chidambaram Chettiar. The Bank has been a leader in certain areas like starting foreign branches, providing loans to small industry and agriculture and offering personal loans. The bank was nationalized in 1969 after which the business grew 220 times, with the number of branches increasing to over 1400. The bank has overseas branches in Singapore, Hong Kong, Seoul and Sri Lanka. IOB was made autonomous in 1997. Shri R.V. Shastri, a Post-Graduate in Economics, is the Chairman and Managing Director of the Bank. He has more than 30 years of banking experience. Shri. Shastri has been with IOB since 1996.Shri S.C. Gupta, the Executive Director, is a Post-Graduate in Commerce and a Certified Associate of Indian Institute of Bankers. He has over 30 years of experience in the field of banking. |
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| Industry Scenario | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The banking
industry is mainly categorized into three segments. The new private sector banks, the old
private sector banks and the public sector banks (PSBs). The PSBs are the traditional
bankers and their main asset is the reach they have in terms of the no:of branches. These
PSBs cater to a large cross section of customers. State Bank of India (SBI) is the largest
bank amongst the PSBs. However, in terms of
efficiency of service and facilities provided, the new private sector banks are way ahead.
More and more customers today give importance to service even though it costs them a
little more. HDFC Bank, Global Trust Bank and ICICI Bank are among the top private sector
banks. |
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| Financials | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| IOB has
a profitability track record of nearly five years. Of the total advances, 86.82% are
Standard Assets (FY2000). The bank's exposure to any single industry is not more than 8%.
The investments to the extent of 90.96% are marked to market as on 31.03.2000 as against
75% required by RBI. IOB has an ISO 9001 certificate for its Computer Policy and
Planning Department. During FY2000, the deposits went up by 10.97% to Rs.24318 crore.
The advances during the same period went up from Rs.101117 crore to Rs.11573 crore. The Bank has extended loans to the following industries with the exposure to each industry not being more than 8%: Textiles (3%), All Engineering (2.19%), Chemicals, Dyes and Paints (2.42%), Iron and Steel (1.26%), Electricity Generation & transmission (1.64%), Metal and Metal products (0.71%), Tobacco and Tobacco products (0.58%). The net NPAs, as a percentage of net advances, have reduced from 8.65% in FY96 to 7.65% in FY2000. The export credit target as specified by RBI is 12% of the total advances. In FY2000, the Bank's export credit was Rs.988.23 crore, constituting 9.29% of net credit. The priority sector advances in FY2000 were Rs.3675.22 crore, which is 44.86% of net credit as against the stipulated RBI norm of 40%. IOB's Capital Adequacy Ratio (CAR) as on 30th March, 2000 was 9.15% as against the stipulated 8%. This minimum stipulation has been increased to 9% with effect from FY2001.
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| Project Analysis | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
IOB is coming out with the public issue (1) to augment the capital base to meet the future capital adequacy requirements (2) to increase the long-term resources of the bank (3) to get the shares listed on the stock exchanges and (4) to meet the expenses of the issue. |
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| Critical Success Factors | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| The bank has
taken up a profit maximization campaign by (a) improving the share of non-interest income
through gold banking, DD shoppes and other fee based services. IOB also plans to improve
the treasury operations and minimize its operating costs. Major strengths of the bank is its experience of over 60 years. The Bank has 40 regional offices with over 1419 branches and 219 extension counters. |
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| Competitive Position | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| While
compared to private sector banks, IOB has a clear edge in terms of its network. However,
within the section of PSBs, IOB needs to improve a lot. |
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| Market Scenario | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
The primary market sentiment is down presently. The banking stocks do not have high trading volumes. HDFC Bank has a trading volume of around 160 lakhs as compared to UTI Bank, which has trading volumes of 20 lakhs. Its worse with PSBs. Syndicate Bank's trading volume is just 1.56 lakhs. Bank stocks generally appreciate only in the medium term. |
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| Recommendation | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Banking
stocks were in the limelight. Public sector banks have the kind of reach and branch
network which private sector banks cannot hope for in the near future. Also the bad days
of social banking are a thing of the past and with balance sheets cleaned up, the public
sector banks can lay accent on profitability. Some of the recent issues are an indication
of this. IOB’s share price is also likely to witness uptrend in the medium-term. This
scrip, being at par, can be safely considered both for short-term profits and for the
medium term as an exposure to an economy tracking stock.
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