IOB is under the Reserve Bank of India's prompt corrective action (PCA) regime because of its poor performance

The finance ministry is looking into loans worth Rs 3,000 crore that Indian Overseas BankBSE 1.57 % (IOB) paid out in the first half of this year. The bank's approval process is being checked to see if there was any wrongdoing involved, said two senior government officials who didn't want to be named.

"It is being discussed with the bank. There was a review meet and the bank is submitting its response," said one of the officials.

IOB is already under the Reserve Bank of India's prompt corrective action (PCA) regime because of its poor performance. The framework is invoked by the central bank when a lender crosses threshold limits on the capital to risk-weighted assets ratio (CRAR), net non-performing assets (NPAs) and return on assets (RoA).

IOB's CRAR at the end of June was 9.75 per cent and it posted a net loss of Rs 551 crore for the July-September quarter.


Another government official said there had been procedural lapses on some loans that seemed to have been made without the required committee approvals.

There was no response from the bank to a detailed email. Managing director and CEO R Koteeswaran said he wasn't aware of the matter.

IIOB is among six banks that need special focus to arrest bad loans, according to the finance ministry. The other four are Bank of India, IDBI, Bank of Maharashtra, UCO BankBSE 3.02 % and United Bank of IndiaBSE 3.72 %.

Gross NPAs at IOB rose Rs 2,973 crore or 15 per cent to Rs 19,424 crore at the end of September from the preceding quarter, according to the financial results of the bank. The gross NPA ratio of the bank was 11 per cent compared with 7.35 per cent a year ago. 

The government cancelled the appointments of eight chairmen and managing directors and 14 executive directors of state-run banks made by the previous administration after then Syndicate Bank chairman and managing director SK Jain was arrested by the Central Bureau of Investigation. He had allegedly accepted bribes of Rs 50 lakh to enhance the credit limit of some companies. The government had then separated the post of chairman and managing director and CEO in state-run banks. Koteeswaran was selected through a new selection process that was put in place and joined in December 2014.

Earlier this week, finance minister Arun Jaitley asked state-run banks to rid their balance sheets of bad loans and said the government was willing to take the necessary policy corrective measures to help them.

The finance minister recently reviewed the performance of state-run banks in the quarter to September. Gross NPAs of staterun banks rose 25.19 per cent to Rs 3.14 lakh crore in September from the year earlier. This constituted 5.64 per cent of total advances.