Sensing a subdued growth in its overseas businesses, Chennai-headquartered public sector lender - Indian Overseas Bank (IOB) - is planning to sell its stake in Malaysian joint venture (JV) soon, a top banking source told The Pioneer on Wednesday.
“The lender took a joint venture route in Malaysia some years ago to strengthening its footprint and was expecting good business in the region. But it could not do well as it was expecting from this overseas operation in particular. Therefore, it is expected to exit from the JV shortly,” the source said. When contacted about the development, a senior official, however, declined to comment on this matter.
In mid-2008, the JV proposal was initiated, and in April 2010 the Malaysian Central Bank had awarded license to three leading State-run Indian banks - Bank of Baroda (BoB), IOB and Andhra Bank to set up a joint venture commercial banking subsidiary in that country. IOB along with two other public sector banks had joined the Malaysian JV through India International Bank (Malaysia) Berhad or IIBM which was a locally-incorporated full-fledged commercial bank. As far as stake breakup is concerned, IIBM had formed the JV with these 3 Government-owned lenders - BoB with 40 per cent stake, IOB 35 per cent and Andhra Bank 25 per cent. IOB has been present in Malaysia through a representative office since 2006.
IOB, which was looking at strengthening its footprint in Malaysia, grabbed the opportunity then when Punjab National Bank (PNB) had opted out of the proposed JV. At present, all the three banks also have also their presence in Malaysia through representative offices or branches.
It has been observed that banking industry is undergoing bad phases for last over a decade or so due to pile-up of bad loans, low credit off-take and insufficient capital in the sector. “At this crucial juncture of revival of banking sector, some overseas operations, though not all of them, have been badly hit in most of the Indian banks present there. It does not make any sense for Indian banks to continue the JV if the bank is not comfortable with the high capital requirements,” said a banker on anonymity.
Recently, at least five public sector lenders had reported gross non-performing assets (NPA) ratios or ratio of bad loans to total loans of over 15 per cent. Indian Overseas Bank’s gross NPA ratio was reported the highest with 22.42 per cent, followed by UCO Bank 17.18 per cent, United Bank of India 15.98 per cent, IDBI Bank 15.16 per cent and Bank of Maharashtra 15.08 per cent, according to global rating agency Care’s analysis.
The shares of IOB ended at around `28 on National Stock Exchange, up by 3.36 per cent on Wednesday. IOB has over 3,700 domestic branches in the country and 13 overseas branches which are currently operational in the country and abroad, offering the banking services to its customers.