Indian Overseas Bank (IOB) rose almost 9% today in the morning trades to Rs.25.20 and continues to trade amongst the top five gainers on the BSE. Its 52-week high is at Rs.32.25 and low is at Rs.21.50.

The market is happy with the aggressive way in which IOB has initiated plans to tackle its NPAs. Wanting to truly make a fresh start, the Bank plans to use the balance available in the share premium account amounting to Rs.7,650 crore as at 31.3.2017 to write off accumulated losses of the bank aggregating to Rs.6,979 crore.

As at 30th Sept 2017, 22.73% or one-fifth of the Bank’s loans have gone bad and it had posted a loss of Rs.1222 crore.

With this, IOB might actually set off a precedent of using the share premium account to set off losses and might see other banks follow suit too.

The debate is whether or not RBI will allow this as IOB will have to seek approval from the regulator too. It has called for an EGM on 30th Jan.

Share premium account money, as per the Company’s Act can be used for issue of bonus shares, buyback of securities, providing for premium payable on redemption of preference shares or debentures and expenses relating to issue of shares or debentures and expenses.