Indian Overseas Bank Expects to Recover Rs.2330 Crore from MTNL in 2-3 Quarters

Indian Overseas Bank (IOB) is optimistic about resolving the defaulted loan of MTNL (Mahanagar Telephone Nigam Limited), a state-owned telecom company, within the next two to three quarters. Ajay Kumar Srivastava, the bank’s Managing Director and CEO, mentioned that the bank expects to recover the defaulted loan as soon as the resolution process is completed.

“We plan to collect the outstanding amount once the issue is resolved, which we believe will happen in the next two to three quarters,” Srivastava stated.

Impact of MTNL’s Loan Default on Indian Overseas Bank’s Performance

In the January-March quarter, Indian Overseas Bank experienced a significant rise in its loan slippages, mainly due to MTNL’s loan default. According to the bank’s investor presentation, the total slippages for the fourth quarter of fiscal year 2025 amounted to Rs 2,756 crore. This was a sharp increase compared to Rs 329 crore in the same quarter the previous year and Rs 284 crore in the previous quarter.

Out of the total slippages, a large portion of Rs 2,330 crore came from the MTNL account, while the remaining amount was from other corporate slippages.

MTNL’s Loan Default Details

MTNL recently disclosed in a regulatory filing that it had defaulted on bank loans worth Rs 8,346.24 crore, which were borrowed from seven public sector banks. The total debt obligations of the struggling telecom company reached Rs 33,568 crore as of March 31, 2025.

The loan defaults occurred between August 2024 and February 2025. The loans included amounts from several banks, such as Rs 2,374.49 crore from Indian Overseas Bank, Rs 3,633.42 crore from Union Bank of India, and smaller amounts from other banks, including Bank of India, Punjab National Bank, State Bank of India, and UCO Bank. Click here to check Bank Wise Defaults by MTNL.

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Indian Overseas Bank’s Provision for MTNL’s Loan Default

To address the MTNL default, Indian Overseas Bank has already set aside a full provision for the loan amount from the reserves available on their balance sheet. Srivastava explained that any funds recovered from the resolution of this loan will be reflected in the bank’s profit and loss statement, contributing positively to the bank’s financial results.

Outlook on Bank’s Margins and Impact of RBI’s Rate Cuts

Srivastava also discussed the potential impact of future interest rate cuts by the Reserve Bank of India (RBI) on the bank’s margins. He mentioned that while there may be some pressure on margins due to rate cuts, Indian Overseas Bank expects to maintain a margin of around 3.5%. The worst-case scenario could involve a slight impact of 10 to 15 basis points.

Many market experts believe that the RBI may continue to cut rates in the upcoming Monetary Policy Committee (MPC) reviews to support economic growth, especially with inflation cooling down and global trade uncertainties, such as tariffs imposed by the U.S., affecting the economy.

On April 9, 2025, the RBI reduced the key repo rate by 25 basis points for the second time in a row, citing a stable inflation outlook and moderate growth. The central bank also shifted its policy stance from “neutral” to “accommodative” to encourage economic growth.