Indian Overseas Bank shares skid 3% on RBI move

Shares of Indian Overseas Bank fell by nearly 3 per cent following the RBI announcing restrictions on the firm and taking “prompt corrective action” with the view to improve internal processes to deal with mounting non— performing assets.

The stock lost 2.27 per cent to Rs. 36.50 on BSE.

At NSE, shares of the company declined by 2.93 per cent to Rs. 36.35.

“The RBI has initiated a prompt corrective action on the bank and that this action will not have any material impact on the growth prospects or performance of the bank,” IOB had said in a regulatory filing yesterday.

The RBI has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) framework, in terms of three parameters —— capital to risk weighted assets ratio (CRAR), net NPA and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.

Gross NPA of the bank rose to 9.40 per cent for the quarter ended June 30.

IOB’s gross non—performing assets rose to 8.30 per cent at the end of March 31, from 4.84 per cent a year ago, according to the provisional RBI data taking into account domestic operations of banks.


Source : Thehindubusinessline

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HDFC mobilises Rs. 10,400 cr; NCDs, warrants list at big premium

In two highly successful offerings, mortgage giant HDFC Ltd has raised Rs. 5,000 crore from low— cost non convertible debentures (NCDs) and a further amount of about Rs. 5,400 crore would come in from warrants, both of which got listed with a huge premium today.

“Total amount we have received is Rs. 5,051 crore, including Rs. 5,000 crore from the NCD and Rs. 51 crore is the face value of the warrants, which on conversion will get us an additional Rs. 5,384 crore,” HDFC Vice Chairman and CEO Keki Mistry told reporters here.

Mistry said money raised through NCD issue will be deployed for regular lending purposes while the conversion of warrants will beef—up the capital, which is currently at “reasonably comfortable” levels in the future.

“The advantage of this instrument is that it gives us the ability to generate money today and generate capital at a future date,” Mistry said, adding that the need for capital can be necessitated due to a variety of reasons including balance sheet growth and also maintaining its stake in HDFC Bank.

The NCDs were offered at a coupon rate of 1.43 per cent, but were trading at 8.54 per cent in the debut trade today.

Similarly, the warrants generated total volumes of over three crore in the first day of trade on the BSE and the NSE.

As against the issue price of Rs. 14, the warrants were listed at a discovered price of Rs. 146.05 and closed at the upper circuit of 10 per cent at Rs. 160.65 at the two bourses.

The warrants also generated huge unsatisfied demand as they were locked in upper circuit.

Mistry said the NCD issue, which saw sale of 5,000 secured NCDs of the face value of Rs. 1 crore each, comes at a coupon of 1.43 per cent.

It issued 3.65 crore warrants at Rs. 14 per warrant, and the warrant holder has the right to exchange one warrant for one equity share of the company in the next three years at a pre—agreed price of Rs. 1,475.

The conversion price of Rs. 1,475 is a 25 per cent premium over the floor price as on September 30, determined by a formula announced by SEBI, he said.

Assuming all the warrant holders convert into equity, the dilution in the stock will not be over 2.2 per cent, he said.

Both the NCDs as well as the warrants were issued to qualified institutional buyers domestically, the company said, adding that the NCDs have been listed on both BSE and NSE.

HDFC’s scrip closed 0.17 per cent higher at Rs. 1,258.10 apiece on the BSE, as against a 0.55 per cent gains in the benchmark.


Source : Thehindubusinessline

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Bank of Maharashtra to raise Rs. 394 cr via pref shares to Govt

Bank of Maharashtra today said it has received shareholders’ approval to raise Rs. 394 crore by issuing 10.51 crore equity shares on preferential basis to the government.

“We have obtained the approval of shareholders for raising equity capital of the bank through preferential issue of 10,51,50,787 equity shares of the face value of Rs. 10 each at an issue price of Rs. 37.47 per share, including premium of Rs. 27.47 per share to the government aggregating to Rs. 394 crore,” the bank said in a statement.

The approval was given at the extraordinary general meeting of the shareholders of the bank today.

Post this issuance, the government’s holding in the bank would increase to 81.61 per cent from the existing 79.80 per cent.

Last week, eight public sector banks, including SBI, Punjab National Bank and Bank of Baroda, had allotted equity shares on preferential basis to the government against capital infusion of Rs. 13,955 crore.


Source : Thehindubusinessline

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Bank of Baroda investigating Rs 350-crore bill discounting fraud

India's second largest lender Bank of Baroda is investigating a bill discounting fraud running into Rs 350 crore.

The listed bank, which has suspended a senior official after it stumbled upon the irregularities in its Ahmedabad operations, will soon have to decide whether to provide the amount in the September-end earnings number.

A senior official of the government-owned institution told ET that the matter has been reported to the Reserve Bank of India. "There is a suspected fraud. An internal probe is on. If the money cannot be recovered, the bank will have to take a hit... An established company is involved, but I'm not in a position to disclose the name... We sensed something was wrong when a few bills bounced," said the person who declined to share details as an investigation is underway.

It is understood that one of the bank's offices in Ahmedabad ended up discounting bills against which the underlying trade transactions were fake or non-existent.

In typical bill discounting transactions, a bank buys the bill before it is due and credits the amount (after deducting certain discounting charge) to the customer's account. It's a facility that sellers and exporters avail of from banks to obtain finance. A fraud is perpetrated when typically a buyer and seller, acting in connivance, win the bank's confidence by carrying out a string of regular transactions where the buyer (either local or overseas) agrees to honour the payment. As these come across as normal trade transactions, the bank agrees to raise the bill discounting limit. After a default — when a buyer fails to pay up — the seller comes up with explanations like product defect or cash crunch faced by the buyer for non-payment.

Once the bank is convinced, the seller makes a new shipment, discounts a new bill and uses the proceeds to repay the bank for the previous transaction. As this is repeated for a few more shipments, the amount increases due to the interest cost.

While the specific modus operandi in the Bank of Baroda fraud is still unclear, it is possible that the customer concerned — which, according to a banker in Ahmedabad, is a textile company — had used a similar ploy.

Such frauds surface as increasingly larger amounts and frequent discounting evoke the bank's suspicion.

In recent times, the facilities offered by many banks for working capital have increasingly been misused by borrowers facing cash flow stress — in particular, the trade bills discounting facilities offered by banks has been a source of frequent 'kite flying' (without actual trade transactions) for funds generation by borrowers.

"At some point when the amount becomes too large to handle, the parties abruptly discontinue. Since in several cases, these are in the nature of unsecured finance, a bank may be left with no choice but to absorb the losses," said another banker.



Source : Economic Times

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RBI starts prompt corrective action on IOB to deal with NPAs

RBI has taken "prompt corrective action" on state-run Indian Overseas Bank (IOB) with the view to improve internal processes to deal with mounting non-performing assets.

"The RBI has initiated a prompt corrective action on the bank and that this action will not have any material impact on the growth prospects or performance of the bank," IOB said in a filing on BSE.

The RBI has specified certain regulatory trigger points, as a part of prompt corrective action (PCA) framework, in terms of three parameters -- capital to risk weighted assets ratio (CRAR), net NPA and Return on Assets (RoA), for initiation of certain structured and discretionary actions in respect of banks hitting such trigger points.

Gross NPA of the bank rose to 9.40 per cent for the quarter ended June.

IOB's gross non-performing assets rose to 8.30 per cent at the end of March 2015 from 4.84 per cent a year ago, according to the provisional RBI data taking into account domestic operations of banks.

"The directions given by the RBI are for improving the internal control of the bank and for the purpose of consolidation of the activities of the bank," it said.

As per the PCA framework the bank is required to undertake special drive to reduce NPAs and contain generation of fresh NPAs; review loan policy and take steps to strengthen credit appraisal skills and follow-up of advances.

Besides, the bank has to put in place proper credit-risk management policies; reduce loan concentration; restrictions in entering new lines of business, making dividend payments and increasing its stake in subsidiaries.

Last year, global rating agency Standard & Poor's (S&P) has cut long-term issuer rating for IOB from "BBB-" to "BB+" on sharp deterioration in the asset quality.

In a similar move, another rating firm Moody's too downgraded the rating of the bank.

Moody's warned that IOB's reserves and capital provide a narrow buffer against potential losses.



Source : Economic Times

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