1. At a Glance – A Turnaround So Dramatic It Looks Fictional
There are turnarounds.
Then there are public sector bank turnarounds.
And then there is Indian Overseas Bank.
A bank that was inside PCA in 2015, drowning in bad loans, dependent on government recapitalization, and widely treated as a relic of old Indian banking, has now posted FY26 profit of ₹5,208 crore, up 56.16%, with Gross NPA collapsing to 1.42%, Net NPA to 0.21%, and Provision Coverage touching 97.5%.
Read that again.
A bank once associated with stress now reports recoveries 2.95 times annual slippages.
That ratio alone tells a story.
Recoveries are outrunning damage.
That is not survival.
That is operating control.
And yet the stock trades around 13 times earnings with price-to-book around 1.8, while several PSU peers trade at lower multiples but without this kind of acceleration in profitability.
Interesting.
Very interesting.
The detective in me sees three things happening at once.
First, a clean-up story has turned into a growth story.
Second, a growth story may now be turning into a capital efficiency story.
Third, the market may still be pricing it partly like an old PSU bank and partly like a recovering institution.
That valuation confusion is where stories often begin.
Q4 itself was not ordinary.
Net profit rose 43.2% YoY to ₹1,505 crore.
Advances grew 24.16%.
Deposits rose 18.03%.
Retail, Agri and MSME credit expanded strongly.
ROE touched 21.94%.
ROA rose to 1.32%.
Capital adequacy jumped to 19.78%.
And while many banks currently talk growth, IOB is doing something rarer.
Growing while reducing risk.
That usually gets noticed.
Question for readers:
How often do you see a bank grow advances 24% while reducing GNPA to 1.42%?
Usually one side breaks.
Here both improved.
That deserves investigation.
Even the old criticism — that IOB depended too much on recoveries and write-backs — is becoming harder to use when core NII is up, margins are holding around 3.25%-3.35%, and RAM lending has become structural.
Management, to its credit, appears to have walked much of what it said in earlier concalls.
Q3 call promised:
- sustain NIM 3.3-3.4
- recoveries above ₹4,000 crore trajectory
- further GNPA reduction
- capital comfort despite growth
Q4 results?
Mostly delivered.
That matters.
Because in banking, management commentary is often poetry.
Delivery is prose.
And investors should always prefer prose.
But this is still a PSU bank.
And PSU banks carry questions:
Can margins hold?
Can growth stay profitable?
Can government dilution alter dynamics?
Can overseas stressed assets stay contained?
Can the market award premium multiples?
Those questions make the story alive.
Because if everything were obvious, there would be no debate.
And where there is no debate, there is no mispricing.
2. Introduction – The Comeback Nobody Wanted To Believe
Indian Overseas Bank has spent the past decade doing something deeply unglamorous.
Repair.
Repairing capital.
Repairing asset quality.
Repairing credibility.
Repairing reputation.
Markets love disruption.
But fortunes are often made in repair.
The bank’s evolution since FY22 looks almost suspiciously clean.
GNPA:
9.82% to 1.42%
NNPA:
2.65% to 0.21%
CRAR:
13.83% to 19.78%
Profit:
₹1,710 crore in FY22 to ₹5,208 crore in FY26.
That is not incremental improvement.
That is institutional rehabilitation.
And unlike some banks where profit rises because credit costs collapse once, here operating profit also rose.
That matters.
Because one can slash provisions only once.
But one can compound operating franchise for years.
Even the balance sheet now looks less like a rescue case and more like an expanding franchise:
Total assets:
₹4.73 lakh crore.
Deposits:
₹3.68 lakh crore.
Advances:
₹3.10 lakh crore.
Business:
₹6.79 lakh crore.
That is scale.
And scale in banking can be terrifyingly powerful when asset quality behaves.
What makes this interesting is management has not chased reckless corporate credit for growth optics.
Instead RAM has become engine.
Retail.
Agri.
MSME.
Boring?
Yes.
Profitable?
Potentially very.
Safe?
Safer than lending 6% money to giant corporates and pretending skill.
There’s some dry humour in banking.
Sometimes refusing bad loans is the best lending strategy.
Imagine that.
Still, not everything smells of roses.
There are tax notices.
Government still owns 92.44%.
Overseas NPAs remain ugly.
No dividend yet.
Contingent liabilities remain large.
The auditor in me raises an eyebrow.
The detective keeps reading.
Maybe you should too.
3. Business Model – WTF Do They Even Do?
People think banks take deposits and give loans.
That is like saying airlines move people.
Technically true.
Meaninglessly incomplete.
IOB today is really doing three businesses:
Deposit franchise machine
Low-cost deposits remain raw material.
CASA nearly 41%.
That is not trivial.
Cheap liabilities are banking oxygen.
RAM-led lending machine
Retail + Agriculture + MSME dominates.
This is management saying:
“We prefer thousands of smaller risks over a few giant
