Govt to infuse Rs 4,360 crore in Indian Overseas Bank; stock jumps over 6%

State-owned Indian Overseas Bank (IOB) on Friday said the government would infuse Rs 4,360 crore into the lender. In an exchange filing, the bank said it will get a fresh capital infusion from the government in the current financial year to meet regulatory requirements. Following the announcement, IOB stock rose more than 14 per cent in intraday trade.

"The bank has received sanction from Government of India for release of Rs 4,360 crore towards contribution of the central government in the preferential allotment of equity shares (Special Securities / Bonds) of the bank during the financial year 2019-20 as government's investment," IOB said in a filing to the Bombay Stock Exchange.

Recently, IOB Managing Director and Chief Executive Officer Karnam Sekar had said that capital infusion from the government would help the public sector bank get out of RBI's prompt corrective action (PCA) framework. He was also hopeful the bank would report net profit in March 2020.

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During the second quarter ended September 30, 2019, IOB's net loss widened to Rs 2,253.64 crore on account of rise in operating expenses as well as provisions. The Chennai-headquartered bank provided Rs 2,996.04 crore for provisioning and contingencies during September quarter of this fiscal, versus Rs 2,016.60 crore in the year-ago quarter.

Currently, four public sector lenders, namely IOB, Central Bank of India, UCO Bank and United Bank of India, are under RBI's PCA framework, which puts several restrictions on them. These limitations are related to lending, management compensation and directors' fees. In August, the government had announced capital infusion of Rs 10,800 crore into these four banks, with IOB getting the highest amount of Rs 3,800 crore. The fresh fund infusion is Rs 560 crore higher than the proposed investment.

Also Read: Allahabad Bank share price rises up to 11% after govt approves capital infusion of Rs 2,153 crore

Buoyed by fund infusion, shares of Indian Overseas Bank rose as much as 14.10 per cent to touch an intraday high of Rs 12.85 apiece on the BSE after opening higher at Rs 11.70 against previous close level of Rs 11.26. The stock closed Friday's trade at Rs 11.99, up 6.48 per cent. In contrast, the BSE Sensex settled 411 points, or 1 per cent, higher at 41,575.

In a similar trend, IOB shares ended 5.31 per cent higher at Rs 11.90 per cent on the National Stock Exchange (NSE). The scrip opened higher at Rs 11.80 and touched a day's high of Rs 12.85 apiece.

In a separate development, the government allotted Rs 2,153 crore to Allahabad Bank, the bank said in a filing to the exchanges. Boosted by the development, share price of Allahabad Bank rose as much as 11 per cent to Rs 19.7 compared to the previous close of Rs 17.75 on BSE.

Edited by Chitranjan Kumar