Explained: Why Indian Overseas Bank shares jumped over 10% today
At 12:50 pm, shares of IOB were trading over 10 per cent higher on the Bombay Stock Exchange at Rs 29.73 apiece.
In Short
- IOB shares surge sharply on CARE Ratings' positive assessment
- Fresh A1+ rating for proposed deposits; stable outlook maintained
- Strong government ownership and funding support boost IOB's outlook
Indian Overseas Bank (IOB) shares surged sharply during Friday's trading session, rising over 12 per cent in early trade.
At 12:50 pm, shares of IOB were trading 10.32 per cent higher on the Bombay Stock Exchange at Rs 29.73 apiece.
This bullish momentum was attributed to a significant development involving CARE Ratings, which assigned a fresh rating of CARE A1+ (A One Plus) to IOB's proposed certificate of deposits amounting to Rs 10,000 crore.
Furthermore, the bank's existing ratings for its two Tier II bond facilities were upheld, with a stable outlook.
CARE Ratings emphasised that these assessments consider IOB's substantial government ownership and its consistent funding support.
The bank's well-established track record of operations, particularly its strong presence in southern India, comfortable capitalization levels, diversified advances portfolio, and a deposit base featuring a robust current account savings account (CASA) component, were also taken into account.
While IOB has demonstrated an improved asset quality over recent years, CARE Ratings acknowledged that moderate asset quality remains a constraint. “Although the bank’s earnings profile has seen considerable improvement in the last two years ended March 31, 2023, as against the earlier years, the level of profitability continues to be moderate," Care Ratings said.
CARE also highlighted that a significant portion of IOB's top 20 individual borrowers are government-owned entities and highly-rated corporate accounts, constituting about 141% of the net worth and 18.82% of gross advances.
It may be noted that the bank was placed under prompt corrective action (PCA) in October 2015 due to elevated net NPAs and losses recorded in FY15. Since then, IOB has been proactively raising equity, primarily from the government, to reinforce capital adequacy in alignment with regulatory requirements. Notably, IOB successfully exited the PCA framework in September 2021.
In Q1FY24, IOB reported a profit after tax (PAT) of Rs 500 crore on a total income of Rs 6,227 crore, compared to a PAT of Rs 392 crore on a total income of Rs 5,028 crore in Q1FY23.
“CARE Ratings expects the bank to remain profitable in the medium term, with credit costs remaining moderate in line with the industry," it said.
