IOB to use share premium money to offset losses

CHENNAI: State-run Indian Overseas Bank (IOB) has announced its plans to set off its accumulated losses with funds from its share premium account.

In a release late on Monday, IOB said it intends using Rs 7,650 crore in its share premium account to write off its accumulated losses worth Rs 6,978.94 crore. The decision, approved by the bank board last week, will now be put to vote at an extraordinary general meeting (EGM) on January 30.

"The Bank proposes to utilise the balance in its share premium account as at 31.03.2017 of Rs 7650.06 crore to set off its accumulated losses on that date of Rs 6978.94 crore so as to present a true and fair view of the financial position of the Bank," the statement said.

"Necessary approvals have been obtained. The Bank is convening an extraordinary general meeting on 30.01.2018 for the purpose of obtaining the approval of the shareholders for the proposal," it added.

According to IOB, the bank is only setting off its losses to strengthen its balance sheet and and not writing these off .

"The proposed utilisation of share premium account to set off accumulated losses is a balance sheet neutral action. Book value of shares, Bank's net worth, equity capital structure and shareholding pattern will all remain unchanged," it said.

"No reduction in the paid-up share capital of the Bank Ais contemplated in the proposal . Capital adequacy ratios will not be impacted thereby."

IOB has recently been brought under the Reserve Bank of India (RBI)'s prompt corrective action (PCA) framework which forces banks to increase recoveries of bad loans, reduce risky loans and strengthen their capital base, among other measures, in order to improve their balance sheet position .

The RBI has brought 11 state-run banks, including IOB, IDBI Bank, Allahabad Bank, Central Bank of India, UCO Bank and Bank under the PCA owing to their weak financial health caused by the huge accumulation of non performing assets (NPAs), or Abad loans.