IOB to raise Rs 2,000 cr via pref allotment

Indian Overseas Bank will raise close to Rs 1,980 crore by making preferential allotment to Government of India and Life Insurance Corporation of India.

IOB’s Committee of Directors for preferential issue of shares, on February 21, fixed Rs 97.82 (including premium of Rs 87.82) as the price for the allotment of equity shares on preferential basis to the GoI and LIC.

While GoI will be allotted up to 17,12,32,876 shares for its capital contribution of up to Rs 1,675 crore, LIC would be allotted up to 3,09,37,467 shares (5 per cent of pre-issue capital) for its capital contribution of up to Rs 302.63 crore.

IOB has said that the number of shares to be allotted to both Government of India and LIC and its various schemes will vary according to the capital contribution from GoI and LIC and its various schemes respectively within the amounts mentioned above.

SIDBI inks MoU with Indian Overseas Bank

Small Industries and Development Bank of India (SIDBI) today inked an MoU with Indian Overseas Bank to provide Rs 100-crore growth capital to micro, small and medium enterprises.

The MoU was inked between SIDBI Chairman and Managing Director, Mr S. Muhnot, and Indian Overseas Bank CMD, Mr M. Narendra, at a function here.

Mr Muhnot told presspersons that as per the understanding, SIDBI would provide a line of credit of Rs 100 crore to the city based bank for a period of seven years.

“...it will be given from the risk capital fund managed by SIDBI and the line of credit will be given as growth capital to deserving MSMEs.”

Mr Muhnot said that the move by SIDBI was to channelise the growth capital to a large number of MSMEs and hence it has decided to partner with select banks. MoU with Indian Overseas Bank was a first of its kind initiative, he said.

Asked whether SIDBI would have similar tie-ups with other banks, he replied in the affirmative but did not elaborate.

Mr Narendra said the bank would be offering this service to MSMEs present across the country through its branches.

Yields on govt bonds likely to ease this week

Yields on government securities are expected to ease in the coming week and will hover in the range of 8.3 per cent to 8.35 per cent for 10-year benchmark bonds, treasury officials of various banks have said.

“Yields are likely to be in the range of 8.3-8.35 per cent for the 10-year benchmark bonds this week, as liquidity issues are being addressed by the central bank through open market operations (OMOs),” Indian Overseas Bank General Manager (Treasury), Mr T.S. Srinivasan, told PTI.

On Friday, yields on the 10-year benchmark bond closed at 8.36 per cent, one basis point lower in comparison to the previous week.

OMOs, which are conducted by the RBI to infuse liquidity into the system through the buy-back of government securities, have been conducted frequently by the central bank in the last one month to ease pressure on the liquidity front.

The central bank has infused around Rs 33,300 crore into the system through OMOs in the last one month and is likely to infuse more in the future.

Mr Srinivasan further said that government spending would accelerate from January as the Budget nears, making the liquidity situation comfortable.

It is usually seen that departmental spending by various government agencies speeds up from January to expend money allocated in the Budget for the fiscal. Mr Srinivasan said the possibility of the government pledging some of its holdings in private companies to borrow more, as suggested by reports, would support this trend.

“There are reports suggesting that the government may pledge its holding in some of the private companies to borrow around Rs 50,000 crore from the market. If that happens, pressure on yields will further ease,” he said.

Earlier, market participants had anticipated that if government borrowing increases, yield rates will harden due to oversupply.

Another treasury official echoed a similar sentiment about the yields on government bonds.

“It should flatten out as the central bank is infusing liquidity through open market operations. Also, the regulations allowing a higher FII limit and some of the other measures should help in easing of the yields,” Corporation Bank General Manager (Treasury), Mr P. Rajaram Karanth, said, adding that yields on the 10-year G-Secs will be around 8.33 per cent next week.

He also said liquidity that has gone out of the system due to advance tax payouts would be pumped back in, which would ease the liquidity conditions going ahead.

IOB hikes BPLR rates by 50 basis points

CHENNAI: Public sector Indian Overseas Bank has raised Benchmark Prime Lending Rate ( BPLR) by 50 basis points with immediate effect.

The Board of Directors of the Bank at its meeting on December 3 approved the hike in Benchmark Prime Lending Rate by 50 basis points from 15 per cent to 15.50 per cent with immediate effect, Chennai-based Indian Overseas Bank said in a statement.

Source: EconomicTimes

Others to follow SBI in raising deposit rates

The country's largest bank, State Bank of India (SBI), which recently launched an aggressive deposit mobilisation scheme that offered 8.5 per cent for tenures of seven days to 180 days, has caught the competition off its guard, and other banks are now considering launching similar products.

The new deposit scheme from SBI, launched earlier this week, would be applicable to deposits of more than Rs 1 crore. SBI has waived the pre-withdrawal penalty after seven days to make the product attractive.

Private sector lender Federal Bank followed suit today, launching a fixed deposit scheme for retail customers that offers 9.50 per cent on a maturity period of 200 days. For one year, the rate offered is 9.75 per cent.

According to a senior SBI official, the bank's new product would enable it to take advantage of the arbitrage opportunity, as rates offered for other short-term instruments, like certificates of deposits, are higher. SBI also expects the product, which has no pre-withdrawal penalty, to compete with resources flowing to liquidity mutual fund schemes which offer 8.5 per cent to 9.25 per cent.

SBI is keen to tap surplus funds of corporate houses, which are now parked in other banks, for a lower rate.

“There is a probability that banks would offer higher rates on deposits, given the current liquidity scenario,” said M Narendra, chairman and managing director, Indian Overseas Bank. The Chennai-based lender is also planning to raise rates for one-year maturity by 25 basis points to 9.5 per cent.

A senior Union Bank of India official said banks may decide on increasing the short-term rate over the next seven-10 days.

Liquidity has become tight over the last few days, with banks borrowing more than at least Rs 1 lakh crore, daily, on average, from RBI's liquidity adjustment facility. On Wednesday, banks borrowed Rs 1.35 lakh crore, compared with Rs 1.31 lakh crore on Tuesday from the RBI window. The liquidity tightness is well above the central bank's comfort zone of Rs 50,000 crore.

Source: Business Standard

PSU banks want electricity boards to revise tariffs annually

MUMBAI, NOV 20:  Rising incidents of stressed assets in the power sector have prompted banks to ask for tariff revisions every year by the state electricity boards (SEBs), so that the business model remains viable.

“The SEBs have to increase their tariffs annually to pass on their increased cost to their end-users. Otherwise, the business model will be unviable,” Dena Bank executive director Mr A K Dutt told PTI here, adding the revision should be around 20 per cent annually.

In case of a possible debt recast for the SEBs, the public sector banks will ask for increasing the general level of efficiency, he added.

Currently, banks are worried about the advances extended to the SEBs of Tamil Nadu, Rajasthan, Uttar Pradesh, Bihar, Haryana, Madhya Pradesh and Punjab, which according to the rating agency Crisil, are the most vulnerable ones.

As per Crisil, losses of power distribution companies rose by 24 per cent to Rs 27,500 crore between 2006-07 and 2009-10 and it could rise to Rs 35,000-40,000 crore in 2010-11, mainly due to the problems the utilities are facing.

“Though we have some exposure to the Rajastan SEB, there is no request for debt-restructuring,” Mr Dutt said, adding the SEB has made some presentation to the Centre.

Recently, the second largest public sector lender Punjab National Bank, which had restructured Rs 2,500 crore of loans in the second quarter, said of this, Rs 1,800 crore were from the loan extended to the TNSEB

Another public sector bank, Indian Overseas Bank, too, said the bank is currently going slow in its lending to the power sector.

“We have less space to lend to the power sector, as the exposure to this segment is now at the mandated upper level. However, SEBs have to increase their efficiency and raise tariffs annually for any further lending from us,” IOB chairman and managing director Mr M Narendra said.

He also said, his bank has not received any request from any SEB for debt-restructuring.

Allahabad Bank freezes lending loans to power sector on increasing financial stress

MUMBAI: Financial stress to banks caused by the power industry increased with Bank of India set to restructure a quarter of its power loans and Allahabad Bank freezing lending to the sector whipsawed by losses at state distributors and hurdles to new plants.

Loans to Tamil Nadu Electricity Board and Rajasthan Electricity Board will be restructured - the tenor of the loans and interest payable will be changed - to avoid an imminent default and firewall banks from rising bad loans, senior bank officials said.

"We have received requests from one or two state electricity boards and we are looking into it," said Bank of India Executive Director BA Prabhakar. BoI has lent Rs 8,000 crore to various state boards. "We have yet not restructured. No one has defaulted yet."

The country's financial system is under stress because of mounting losses at state distribution companies and thwarted project clearances. Some projects, such as East Coast Energy - in which Goldman Sachs and General Atlantic are stakeholders, are stuck half way because of local protests.

Subsidised tariffs have pushed power distribution companies to the brink of collapse with losses soaring last fiscal by 45% to an estimated Rs 40,000 crore.

Allahabad Bank, which has lent more than Rs 13,600 crore to utilities and distributors, has stopped lending to the sector.

"In the past six months, we have not sanctioned a single fresh loan. Till things are clearer ... we don't want to go into this area," Allahabad Bank CMD JP Dua said.

Dena Bank and Indian Overseas Bank are also considering to restructure loans to the power sector. Punjab National Bank restructured Rs 2,500 crore of loans to power companies last quarter.

Source: EconomicTimes

Banks start waiving prepayment penalty

Initially reluctant to waive the prepayment penalty on floating rate retail loans, banks have now started to fall in line with the regulator’s advice. The Reserve Bank of India (RBI) had questioned the necessity of levying charges that penalise borrowers repaying their loans before the maturity period.

State Bank of India (SBI), which earlier waived the prepayment penalty for new customers, has now extended the benefit to existing customers. Bank of India, Indian Bank and United Bank of India have also waived the prepayment penalty, and a few other public sector banks may follow suit.

“If the regulator ultimately wants it, we need to fall in line. The prepayment penalty is not an avenue for bankers to make money, but a mechanism to recover costs due to mismatch in assets and liabilities. If RBI feels we have to do away with that, as bankers we will have to find a way to recover the cost,” said K R Kamath, chairman and managing director, Punjab National Bank.

OWE DEAR! Prepayment penalty on home loans
Lender	Penalty (%)
State Bank of India	Nil
ICICI Bank	2-4
Punjab National Bank	2
Bank of Baroda	2
Bank of India	Nil
Axis Bank	Nil
Union Bank of India	2
Standard Chartered Bank	2.5
United Bank of India	Nil
Source: Banks

Bankers said when long-term loans were offered to borrowers, lenders raised long-term deposits to match their assets and liabilities. So, when the loans are pre-paid, banks continue to have long-term deposits on their books, leading to a mismatch.

“Banks have already agreed, but they are not issuing the guideline (to their branches) that you cannot charge prepayment penalty. We are not clear why banks charge the prepayment penalty,” said K C Chakrabarty, deputy governor, RBI.

“RBI has asked for the views of IBA (Indian Banks’ Association) on this. We are working on it...It will happen in the next couple of weeks,” said M D Mallya, chairman and managing director, Bank of Baroda, and chairman, IBA.

“We have waived the prepayment charges on floating rate loans, ahead of the industry. For fixed rate loans, there is still a prepayment charge,” said Pratip Chaudhuri, chairman, SBI. Bank of India has also stopped charging the prepayment penalty on floating rate retail loans, while Indian Bank has waived these charges for both fixed, as well as floating rate advances. “Our view is our interest rates should be so competitive that the customer should always stay with us,” said T M Bhasin, chairman and managing director, Indian Bank.

M Narendra, chairman and managing director, Indian Overseas Bank, said the lender did not levy prepayment charges on small-ticket loans. It would also waive such charges on big-ticket loans if the regulator wishes so. “I don’t think it is a very big issue. In fact, it may benefit public sector banks, since our pricing is competitive, transparent and there are no hidden charges,” said M G Sanghvi, executive director, Bank of Maharashtra.

Source: Business Standard

BoB expects Rs 775-cr capital infusion

Bank of Baroda is expecting a capital infusion of Rs 775 crore from the Government this year. This would bring the Government shareholding in the public-sector bank to about 58 per cent, said Mr M.D. Mallya, Chairman and Managing Director, Bank of Baroda, on the sidelines of Bancon 2011 on Sunday.

The bank is looking at opening over 400 branches in the country, taking the total domestic branch network to over 4,000 branches.

Bank of Baroda also plans to open five or six subsidiaries in the East African region in countries such as Uganda, Botswana and Tanzania. The bank recently entered into a joint venture with Indian Overseas Bank and Andhra Bank to enter Malaysia, and the three banks have invested about Rs 300 crore in this venture.

“We have also obtained a licence for Australia, and we plan to open a branch there by March 2012,” said Mr Mallya.

Indian Bank scraps plan to rope in partner for mutual fund business

Explores optionsof merging mutual fund asset management company with itself.

State-run lender Indian Bank has scrapped its plan to rope in a strategic partner for its mutual fund business because of uncertain macroeconomic environment and subdued market sentiments, Chairman and Managing Director T M Bhasin said on Saturday.

“It is not a right time to enter the mutual fund market. So, we are deliberately keeping a low profile,” Bhasin told Business Standard on the sidelines of BANCON 2011, an annual banking event jointly organised by Indian Banks’ Association and Indian Overseas Bank.

Indian Bank was earlier in talks with three overseas players for a strategic partnership in its mutual fund arm. The deal was expected to be signed by October and the lender expected to commence operations jointly from December.

“For the time being we will lie low in mutual fund. We may revisit our plan once the market improves. At least this financial year nothing will happen,” Bhasin said.

Indian Bank Mutual Fund through its asset management company Indfund Management was managing 12 close-ended schemes.

Nine schemes out of this were redeemed on maturity, while the rest three were transferred to Tata Mutual Fund on November 2001. The bank's mutual fund arm has not launched new schemes ever since.

The bank is also exploring options of merging the mutual fund asset management company with itself.

Bhasin said the bank had also decided to close all the 60 offices of Indbank Merchant Banking Services, a wholly-owned subsidiary of the bank offering merchant banking, advisory and broking services. The company will now operate from Indian Bank’s branches and pay a concessional rent to the bank.

“This will help us in earning revenues and help them in cutting expenses on rent. We will have around 200 counters of Indbank Merchant Banking Services across our branches in major cities,” Bhasin said.

He added the bank's housing finance arm will also be merged soon.

Source: Business Standard

IOB Q2 net up 0.63% at Rs 207.46 cr

Mumbai: Public sector lender Indian Overseas Bank (IOB) has posted a marginal jump of 0.63 per cent in net profit to Rs 207.46 crore for the second quarter ended September 30.

The bank had posted a net profit of Rs 206.15 crore in the July-September quarter of 2010.

The total income of the Chennai-based lender during the quarter rose to Rs 4,822.56 crore, from Rs 3,074.74 crore in the same quarter last fiscal, IOB said in a filing to the BSE.

Net interest income during the quarter rose by 32.43 per cent to Rs 1,266.39 crore from Rs 956.30 crore in the second quarter of FY'11, it said.

During the first six months of the current fiscal, IOB's net profit rose 1.6 per cent to Rs 413.04 crore from Rs 406.59 crore, it added.

The bank's total income rose to Rs 9,146.63 crore from Rs 5,957.12 crore in the same period of 2010-11.

Source: Financial Express

Axis Bank to start Sri Lanka operations

COLOMBO: India's No.3 private lender Axis Bank has been granted a banking licence in Sri Lanka and will start operations at its first branch this week, the island nation's central bank said on Wednesday.

Central Bank Governor Ajith Nivard confirmed Axis Bank is the fifth Indian bank licensed to operate in Sri Lanka.

"They are starting on Friday and they will do all banking business. Initially they will open one branch and then they will have to make an application for anything they will want," Cabraal told Reuters.

The bank posted a net profit growth of 27 percent to 9.4 billion Indian rupees ($191.2 million) in the June quarter.

Axis Bank is the fifth Indian bank to enter Sri Lanka, hoping to catch a piece of the growing economy after the end of a three-decade civil war in 2009. The State Bank of India, Indian Bank , ICICI Bank , and Indian Overseas Bank are already in Sri Lanka.

Earlier this year, Indian Bank opened a branch in Sri Lanka's northern city of Jaffna, in the former war zone, aiming to get a piece of the growing post-war reconstruction lending pie.

Source: EconomicTimes