Indian Overseas Bank - Turn around story or Further Wealth Destroyer

I was looking for some contrarian bets.
I have been researching companies for some good picks where I have margin of safety.
to be honest, I didn’t find any with limited time of hard work as I am a full time IT professional…

I am studying IOB and have a tracking position.
This Post is to clear my questions

Life time HIGH is 194 Rs
Face Value : 10
Current price around 23.50
Stock is trading below Book value of 34.

What’s interesting

  1. Bank Recently sold its one of its NPA to Edelweiss

  2. Recent Management interview brings in some confidence.

What are the initiatives taken to address NPAs accounted for by corporates?

About 52 per cent of NPAs are in the corporate segment with majority of them in the consortium accounts. We have an exposure in 10 of the 12 large NPA accounts recently announced by the RBI for resolution under reference to NCLT. The 10 accounts constitute one-fifth (about 20 per cent) of our NPAs. Here we see a timely resolution which is expected to take place — in 180 days or 270 days. Most of these accounts are asset-based. So, we are confident of recovery. Further, having identified these accounts as NPAs, we hold sufficient provisions for their accounts.

  1. on Top of that Recent government announcement on merging PSU or pumping liquidity will be positive for this bank.

  2. This bank is not generating any operational loss…

  3. I have below questions.

Since Government is accelerating the NCLT process and when the bank offloads all the NPA’s
I think this bank should Turn around over the period of 2 years…
Do you agree with me ???

No wonder this bank is a major wealth destroyer but now its provides a margin of Safety as it is trading way below its book value and backed by government.
Do you Agree ??

I haven’t covered any financials here as nothing is much laudable about financials expect the NCLT process which should help the bank to recover the majority of its bad loans

I want to understand from senior boarders if my thought process is correct.
and throw some light on my little analysis.

I am invested in this company and would like to add more after I get more confidence based on my research.

My major questions is when all NPA’s are offloaded to Asset restructuring companies or through NCLT process isn’t this bank should turnaround ? Please provide some thoughts.


Look at the problem in a different perspective -

  1. What is the size of the loan book and compare that to the market capitalization.
  2. How many employees does the bank have? Bank going bust is not a likely scenario (yet) under India’s semi socialist economy. If employees are to be protected at least until the next election year, what are the chances of bank going bust ? Pretty near zero.
  3. So, if bankruptcy is taken out of the equation, then what remains is, assume you are HDFC or ICICI bank and want to acquire IOB, what would you look for?
    1. Loan book - same as #1 above, but how much is recoverable or turnable into good loans
    2 level of technology adopted by the bank. THis one is easy for you ( or me ) to figure out. Just walk into as many branches as you can, try and open a FD, or ask for account opening , any service…and see how fast they are able to provide the service you ask for. Ok…I’ve done this myself :slight_smile: .
  4. Most important…how much of negativity is already priced in already ? I’d say pretty much most, if not all of it. Can it go down another 10% ? Sure, it can. Can it go up 50% from here. Sure!
  5. Now what’s the risk reward ratio here? 1:4? 1:5? I’d take 1:2 too, so your decision now.

But thanks for bringing this up- this has been on my radar for a long while too!


This is an interesting proposition. I also have been quite attracted to the idea that if you catch the PSU banks at the bottom, there is a good probability that they would turn out to be multibaggers in couple of years. But the red flags raised in my analysis have prevented me from going beyond tracking position in any PSU Bank, except Vijaya Bank.

First, what is the bottom? IOB definitely gives an idea from the technical chart that it has formed a bottom around 20. But the problem is unless NPA issues are cleared in a meaningful way, it may languish there for years which would be a very high opportunity cost. Bank recapitalisation is important, but what is more important is that the bank generates profits in a sustainable way in future, which current PSU bank managements may not be capable of.

If you run scenario analysis, it is totally conceivable that after 20 years PSU bank universe may have a total marketshare of 20%. In that case, only some would survive and prosper and many would fall in the way. So if one wants to bet in the PSU banking space, the right bets may be SBI and few others like Vijaya Bank and Indian Bank who have worked hard on the NPA front and not laggards like IOB. Even the market share of PSU Banks would be different pre-crisis and post-crisis.

NCLT, ARC and bank recapitalisation are not the solutions. The solution is changing of work culture and management culture of the PSU banks which would create shareholder wealth and is far more difficult to execute. It would be very difficult for them to compete with the likes of Yes Bank on the corporate side and Bajaj Finance on the consumer side.

Lets remember that couple of decades back Hindustan Motors and MTNL were market leaders with substantial competitive advantage but linear extrapolations are rarely successful.

Disclosure: Have a strong moral view that Government should limit its role to creation and management of regulatory framework of a business and should never enter into or run a business, which creates conflict of interest and results in destruction of tax payer money. On the contrary, hold a substantial position at Vijaya Bank with the expectation that it may be among the first ones to come out of the mess.


Came across this article, I could not understand much. Can you please dissect in simpler terms. Gist I got was only the few, bigger names will survive.

I had a position in this bank and held it for more than a year before selling it for no profit no loss.

How bank can grow business?

  1. By CASA accounts, which is a cheap source of money to lend for interest to loan takers. So would you open an savings account in IOB? I won’t.

  2. By extending loans to borrowers. So how much capital IOB has to lend? Not much.

In a nutshell, Govt is not going to distribute the recapitalization bonds proportionately to the assets of the bank. The cash infusion will be related to the performance of the bank and winners will receive relatively more fund than laggards and the laggards may be compelled to merge with the better managed ones. But, as the fine prints of the capital infusion plan is not available on public domain, it is difficult to take a call.

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Few points…
I think merging is only possible with positive balance sheet.

If a bad bank is merged with one it will also impact the good one and I doubt if the target bank shareholders will agree for this… Given it’s all government driven , may be possible.

I’m not sure if this will all clear up before elections… may be or may not be.

There has been rumuros floating around that IOB will get merged with Indian bank … I think it won’t be possible unless one quarter results are positive for IOB in the best interest of all stakeholders…

The only way forward for IOB is to make the balance sheet clean… I think MD and CEO is talking the same.

It is confirmed that the banks which will be merged will be at a similar condition. No bad bank will get undue advantage of merging with a good one and vice versa.

It was recently announced.

Small PSU banks best avoided. Only sector I consistently lost money despite cheapness.

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I can confirm by experience don’t invest in PSU banks … there is a huge value migration from public to private banks .

I doubt if this bank will ever come out of its NPA mess

Rather book losses and put in good quality banks like HDFC , KOTAK, RBL

disc : I’m invested in above private banks . My views can definitely be based .
But my experience is real :blush:.

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Excellent results so far upto Q3 FY23.

Use 12ft .io to jump pay wall to see guidance for FY23

16122022071714_Indian_Overseas_Bank (2) (1).pdf (128.7 KB)

Management has delivered so far in FY23

  • We aim to achieve a 25% year-on-year rise in net profit every quarter this fiscal. (On track)
  • Gnpa will reduce below 8%. (Almost below 8% from 10%)
  • Credit to Deposit will be 62% by end of fiscal
  • Nims to maintain around 2.65%

Book value has jumped from ₹12 to ₹14.97. ROA has improved to 0.73 from 0.6. I think lenders will do well in the near term and there are still legs to this story. It will reach Roa of 1.0 before it starts reversing. Largest holding and from lower levels.

A shoutout to @Worldlywiseinvestors for aptly teaching valuation frameworks for financials. Although he wouldn’t invest in public sector himself, I have learnt a lot from SOIC

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The bank’s committee, known as ALCO, has decided to increase the base interest rate by 0.35 percentage points (bps) starting from November 15, 2023. The new base interest rate will be 9.45%, and this rate will be in effect until they review it again. So, if you have a loan or deposit with this bank, the interest you earn or pay might change because of this rate increase.

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