State-owned Indian Overseas Bank (IOB) has announced plans to raise $500 million through external commercial borrowings as part of a strategic effort to bolster its resources. The Chennai-based lender intends to execute this borrowing in two equal tranches of $250 million each, utilizing the Reserve Bank of India’s (RBI) concessional swap facility. According to managing director Ajay Kumar Srivastava, the first tranche is expected to be raised within the coming weeks at a rate between 6% and 6.25%.
The decision to opt for a staggered mobilization of funds is aimed at ensuring cost-effectiveness. Mr. Srivastava explained that while there is consistent demand for credit, it is not practical to mobilize lendable resources in a single instance if they are to remain idle. This capital-raising initiative follows the bank’s earlier success in mobilizing $1.2 billion through foreign currency non-resident bank deposits (FCNR-B) via a dedicated RBI window, an amount the bank has already fully deployed.
The financial health of the lender appears to be on a positive trajectory, as evidenced by its second-quarter performance report released on Monday. The bank recorded a net profit of Rs 1,912 crore for the quarter, marking a substantial 56% increase compared to the Rs 1,226 crore reported in the same period last year. This growth was supported by a 26% rise in operating profit, which reached Rs 3,016 crore, alongside a similar increase in net interest income, which stood at Rs 3,867 crore.
Asset quality at the institution has also shown marked improvement. The bank’s gross non-performing assets decreased to 1.19% at the end of the second quarter, a significant improvement from the 1.83% reported a year earlier. Furthermore, the net interest margin for the quarter saw an uptick, rising 16 basis points to reach 3.37%. These metrics reflect a strengthening balance sheet as the bank navigates a competitive domestic banking environment.
Regarding its lending operations, the bank has seen its gross advances grow by 24.35% year-on-year to Rs 3.46 lakh crore by the end of September. Looking ahead, the institution is targeting a credit expansion of 20% to 21% for the current fiscal year. Mr. Srivastava noted that beyond the consistent demand from rural, agricultural, and MSME sectors, the bank maintains a robust corporate loan pipeline. In the first half of the fiscal year alone, the bank disbursed Rs 17,000 crore in corporate loans, with another Rs 20,000 crore currently in the pipeline. Management expects that approximately 80% to 90% of this pipeline will be disbursed by the end of the current financial year.
Although the RBI’s concessional facility for retail deposits was withdrawn on August 31, the regulatory latitude for funds mobilized through external commercial borrowings and overseas foreign currency routes remains available until the end of the year. This provides the bank with a window of opportunity to finalize its current fundraising objectives. As the bank prepares to deploy these upcoming funds, the combination of healthy profit margins and a clear credit growth strategy marks a pivotal phase in its fiscal year objectives.
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