Dear Stakeholders,
It is my privilege to share with you some overall developments in the
economy, the Indian Banking sector and also the performance of Indian Overseas Bank (IOB)
during the financial year 2023-24.
Global Economy
FY24 saw the global economy recovering steadily from a near stagflation
scenario and the economic fallout from continuing geopolitical conflicts. In order to
ensure that inflation is reigned in, major central banks increased interest rates to
restore price stability. With the intervention of the central banks, the inflation rate in
many economies around the globe declined more swiftly than expected resulting in a small
rebound of economic activity. However, continuing geopolitical conflicts and resulting
supply side or commodity trade disruptions may still pose risks for a full economic
recovery in the short term.
Taking into consideration these prevailing global economic conditions,
the International Monetary Fund (IMF) predicts the global economy to grow at 3.2 percent
during 2024 and 2025, which is around the same pace as in 2023. A slight acceleration for
advanced economies - where growth is expected to
rise from 1.6 percent in 2023 to 1.7 percent in 2024 and 1.8 percent in
2025, will be offset by a modest slowdown in emerging markets and developing economies
from 4.3 percent in 2023 to 4.2 percent in both 2024 and 2025.
Indian Economy
The performance of major macroeconomic indicators of the Indian economy
has reflected its resiliency and stability during the financial year 2023-24. The Indian
economy has grown by 8.4% in the third quarter (Q3) of 2023-24 and the Second Advance
Estimates (SAE) has pegged the real GDP growth of India to be at 7.6 % for the year
2023-24. Major contributors in this growth have been the construction sector and
manufacturing sector. The Indian economy has also shown significant traction in attracting
increased foreign investments and thereby India became a most favoured investment
destination for most of the leading FIIs. FY24 fortified India's position globally as one
of the fastest-growing economies in the world.
The CPI inflation stayed within the RBI's tolerance range of 4 to 6 %
except in July and August 2023. The Retail inflation eased marginally to 4.83% in April
2024, and it is projected by Reserve Bank of India to be at 4.5% for the current financial
year.
The Government of India has continued its support for Infrastructure
development, modernising transport, communication, and core services, boosting
manufacturing through 'Make in India' and PLI initiatives as also focusing on Inclusive
and sustainable Development as the country moves towards the Vision of "Viksit
Bharat" by 2047 and the commitment to meet 'Net Zero' by 2070.
The Reserve Bank of India has projected the real GDP growth of India
for the year 2024-25 at 7.0 per cent with Q1:2024-25 at 7.1 per cent; Q2 at 6.9 per cent;
Q3 at 7.0 per cent; and Q4 at 7.0 per cent which shows that the risks are evenly balanced
and that there is a good runway for economic prosperity.
The International Monetary Fund (IMF) has revised its forecast for
India's economy, by 30 basis points to 6.8 % growth in FY25 citing buoyant domestic demand
as compared with the earlier estimated figure of 6.5%, announced in January 2024.
Indian Banking Scenario
The Banking sector in India showed a very strong performance during the
financial year 2023-24. The Credit offtake of the banking industry (SCBs) rose by 16.3%
year on year (excluding the HDFC merger) for the fortnight ended March 22, 2024. The
Deposits in the Banking system too grew by 12.87 % (excluding the HDFC merger) during the
same period.
The key financial indicators of Public Sector Banks have seen a robust
all-round improvement. The Credit and Deposits have grown by 13.5% and 10.1 %
respectively. All 12 PSBs increased their business volume by a staggering 23.5 lakh crore
(11.6%) during the financial year 2023-24. The cumulative net profit of all the 12 PSBs
have increased by 34.9% to Rs.1,41,203 Crore during FY 2023-24 as against Rs.1,04,649
Crore earned during FY 2022-23.
The Asset Quality management also saw a very creditable improvement.
The GNPA and NNPA ratios of PSBs further improved to 3.47% and 0.76% on 31.03.2024 as
against 4.97% and 1.24% respectively on 31.03.2023. The Capital adequacy ratio for PSBs,
on an average, was being maintained at a comfortable level of 15.53%, in spite of the
increase in risk weights in personal and NBFC finance, that was stipulated by RBI during
the course of the year.
Performance of Indian Overseas Bank during the financial year 2023-24
Against the backdrop of the strong performance shown by the Banking
industry in India, Indian Overseas Bank also continued to march strongly ahead with a
robust growth in various key financial parameters relating to Business, profitability,
asset quality, capital adequacy and provision coverage ratio, most of which have been
above industry average. Thereby, the Bank has been consistently making its mark in the
comity of the Public Sector Banks and is mostly in the top quartile or the top half in
most parameters. Your Bank crossed the Rs.5 Lakh Crore Business Mix during the year, which
is a key milestone in the Bank's history. The Bank's operating Profit and Net profit have
increased by 13.83% and 26.54% respectively as on 31.03.2024 while the Bank's Net Interest
Margin (NIM) improved by 35 bps to 3.28 % as of March 2024 as against 2.93% as of March
2023.
Going forward
Amidst tight liquidity conditions and sluggish growth in CASA and
Retail term deposits, Banks have been witnessing a war for deposits resulting in increased
deposit interest rates and thereby a decrease in margins. The average Net Interest Margin
(NIM) of both public sector banks and leading 7 private sector banks have seen a reduction
by 2 bps and 25 bps respectively in the last fiscal.
Low-cost deposit mobilisation will therefore be a challenge for banks
in these tight liquidity conditions. However, IOB has put in place a diversified deposits
strategy which should help it meet this challenge in a holistic manner while also keeping
the growth levers going. The same was very ably demonstrated by the Bank through its
ability to improve its CASA ratio and not placing reliance on high-cost deposits in FY24,
when most banks saw a decline in their CASA ratio and a significant spurt in their bulk
deposits.
Overall, the outlook of the Indian Banking system remains positive, and
it should be able to maintain its growth trajectory on the back of the remarkable India
growth story, the strong domestic demand, and a good regulatory system. IOB is an
important player in the Indian Banking system, and it should be able to continue to
seamlessly tap into the huge growth opportunity that is happening in the country today.
For this, it has put in place forward looking strategies and is also streamlining many of
its processes and technology aspects to be able to grow faster in a healthy fashion.
Dedicated and highly skilled manpower of your Bank are the assets who
will be able to convert the opportunities into sustained business and improved
performance.
I take this opportunity to thank all our stakeholders, including our
esteemed customers, for their continued support and trust in your Bank. I wish to place on
record my appreciation to all employees, for their dedication and hard work in helping the
bank post such wonderful results and also achieve the landmark milestone of crossing Rs.5
lakh crore business. I have full faith in our employees that they will continue to strive
for and achieve greater milestones. I express my
sincere thanks to the Government of India, Reserve Bank of India,
Overseas Regulators where the bank is having operations, SEBI and other regulators for
their support and guidance to the bank. I wish to place on record my thanks to all Board
members for their guidance and valuable inputs.
I am confident that in the days ahead, your bank will emerge as the
preferred bank, connecting generations by providing the best banking solutions physically
and digitally. The Bank remains committed to serve various sections of society and all our
customers in the best possible manner, while supporting all the Govt's initiatives for the
progress of our great Nation.
Srinivasan Sridhar
Non-Executive Chairman