INDIAN BANK - A Banking Phoenix

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Authors: Sanjib Dutta,
Senior Faculty Member,
ICMR (IBS Center for Management Research).

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The Revival

The official Indian Bank turnaround period was three years - 2000 to 2003. However, efforts started yielding fruit within the first year itself. The first ray of sunshine came in 2000-2001, when the bank posted its first operating profit of Rs 61.59 crore after years of losses. The turnaround finally happened, when Indian Bank posted its first net profit of Rs 33 crores in six years in 2001-2002. In fiscal 2002-2003, net profits increased by 468 percent to Rs 188 crores. (Refer Exhibit-III).

In the Business Standard Annual 'Banker of the Year Survey' in 2003, Indian Bank was ranked second on the growth parameter, no mean achievement for a bank which was in the throes of losses half a decade ago. The honor was not surprising, considering the fact that over 25 percent of Indian Bank's business since its inception had been done in the three year period between 2000 and 2003. (Out of the total business of Rs.40, 000 crore, Rs.11, 000 crore was brought in during the three-year period). There was also a considerable increase in deposits. Total global deposits increased to Rs.27,015.92 crore in 2002-2003 from Rs.24038.84 crore in 2001-2002.

(During the period of turnaround total global deposits had been increasing at a rate of around 10 percent per annum.) Operating profit recorded the highest ever growth rate of 92.17 per cent to Rs.590.25 crore during the same period. Net profit also zoomed to Rs.188.83 crore against Rs.33 crore in 2001-02. Although deposits increased, cost of deposits had come down from nearly 9 percent to about 7.5 percent during the restructuring period.

The computerization efforts also paid off, and by early 2003 almost 600 branches had been computerized, covering nearly 78 percent of the business. The bank had also considerably increased its ATM coverage in most of the prominent centers in the country. It had 47 online ATMs, which offered Any Branch Banking in 12 major cities across India.

By going on a loan recovery drive and exercising prudence in granting loans, the bank performed an admirable feat in reducing its gross NPA levels from a whopping 44 percent in 1999, to 12 percent in 2003. The net NPA also fell from around 16 percent to 6.15 percent during the same period. During the restructuring program, over Rs 600 crores of sticky loans were recovered.

Encouraged by the progress of the bank, the RBI had released a recapitalization amount of Rs 1300 crores in 2002. With the infusion of the recapitalization funds, Indian Bank managed to reach a CAR level of over 10 percent, which was slightly higher than the minimum acceptable level.

Commenting on the turnaround, Kumar said, "During the three years of the restructuring plan, the bank could achieve consistent growth in business and also sustain its turnaround due to initiation of various structural, operational and cost control measures. The bank has also worked on marketing and motivational strategies and strengthened its planning and monitoring systems."⁷ She further added, "We have been able to meet all the major parameters that the RBI and the Government had set before us. Throughout this period, the RBI and the Government watched us closely."⁸ (Refer to Exhibit-IV for a comparative analysis of Indian Bank's performance).

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7] "Indian Bank", Tamil Nadu: The Wonder State", Business Standard, August/September, 2003.
8] "Indian Bank plans IPO after July 2004", The Hindu Business Line, May 7, 2003.