The bank, which has got a nod from the Reserve Bank of India to postpone the finalisation of its 1998-99 balance sheet beyond June, is expected to announce its results on July 28 when its board meets in Chennai.

According to sources, the bank is likely to post a net loss of over Rs 500 crore. "It could go up even further. But the management may refrain from making provisions towards wage revision, etc as a higher net loss may create a crisis of confidence among depositors," sources close to the bank said. RBI has been kept informed about the development.

A poor recovery rate and growing non-performing assets (NPAs) are the key reasons behind the huge net losses of the bank. In 1996-97, it had posted a net loss of Rs389.09 crore which came down substantially to Rs 301.50 crore in 1997-98.

Between fiscal 1996 and 1998, the bank's accumulated losses stood at Rs 2,026.99 crore. "It would now shoot beyond Rs 2,500 crore, wiping out the net worth of the bank," sources said. The Centre has injected Rs 1,850 crore into the bank's equity over the last two years. Its capital adequacy ratio stood at 1.41 per cent in March 1998, of which tier-I capital accounts for 0.71 per cent and tier-II 0.70 per cent.

"The trend (of lowering net losses) could not be continued as NPAs have been going up. The bank will have to make provisions towards some bad assets in Singapore. Besides, it will have to bear the brunt of the low NAV of one mutual fund scheme on Indbank MF," sources pointed out. Its net NPAs stood at 26.01 per cent in March 1999. "There have been further slippages. To make the matter worse for the bank, the recovery drive slackened last year," sources said.

The Indian Bank management, led by new chairman TS Raghavan whotook over in December last year, is believed to be in favour of cleaning the balance sheet by making higher provisions towards NPAs. In fiscal 1998, it had made a provision of Rs 129.21 crore towards NPAs. "With NPAs going up and the recovery drive losing momentum, the bank is plunging deeper into the red," sources pointed out.

Up to March 1998, the bank had filed 1,520 cases at various debt recovery tribunals (DRTs) for recovering Rs 1,803.79 crore. Trade union sources said that 15 sticky loans of the bank account for over Rs 1,500 crore worth of bad debt. "Unless the legal system is changed it is difficult to recover these loans speedily. Besides, politics are playing a key role in the recovery process," Indian Bank insiders said.

Senior bank analysts singled out lack of credit growth and consequently lower interest income as the main factors for the bank's poor performance. "With virtually no credit growth, the bank's interest income has been stagnant. Unless it goes for credit expansion, it will bedifficult for the bank to bounce back into the black," one analyst said.

A cross-section of bank employees, when contacted by The Financial Express, said that its deposit growth has been in tune with the industry average and it has also been able to get rid of its high-cost certificates of deposit, bringing down the cost of funds. However, the top management has failed in pushing the advance growth, they said.

Insight

Alternatives needed

Indian Bank belongs in the too big to fail category. That does not however mean that the only solution lies in continuous infusion of capital from the government as that will only address the symptoms and not the disease. Other options should be considered. This could include pushing the bank towards scaling down its operations and perhaps adopting narrow banking practices, as recommended by some experts.

-- Aaron Chaze