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Hyderabad, Feb 17 () Indian Overseas Bank (IOB), whichhas been in the red for the last four-and-a-half years, ismulling to raise funds through a Follow-on Public Offering(FPO) next year, a senior official of the state-owned lendersaid here on Monday. Ajay Kumar Srivastava, Executive Director IOB, said thatthe FPO idea was still "at the drawing board level" and theBoard would take a decision on the quantum of funds to beraised and the percentage of stake to be diluted. The centre holds nearly 95 per cent stake while LIC hasthree per cent and others-two per cent in the bank, which iscurrently under the Prompt Corrective Action (PCA) frameworkof the Reserve Bank.Raising money from public is on the cards. We plan to doit in the second or third quarter. We will go to the marketwith FPO.First we have to go to our Board, we have to go to RBIand SEBI also ( for necessary approvals). It is on the drawing board, but nothing has beenconcretised. But it is in our action for next year, he toldreporters at a press conference here. The centre recently increased IOB's authorized capitalfrom Rs 10,000 crore to Rs 25,000 crore.The Government also infused Rs 4,360 crore capital intothe bank.He said the Chennai-based lender is in the process ofimproving its performance in terms of controlling Non-performing Assets (NPA) and Net Interest Margin (NIM). The banks NIM is currently at about 1.94 per cent and isexpected to touch two per cent during the current quarter."It would take another three of four quarters to touchthe three per cent-NIM... We will prefer to go for FPO afterwe come out of PCA, he said.The Reserve Bank of India's PCA framework, which intendsto nurse financially weak banks back to health, restrictslending and expansion of lenders. Srivastava said going forward the focus of the creditwould more for MSMEs and wants to be recognized as "MSME-focused bank".He said currently the exposure to the sector is Rs 31,000crore and efforts are on to take it Rs 50,000 crore in thenext 18-24 months.IOB also classified 200 of its branches as "MSME-focused". GDK APRAPR APR

Indian Overseas Bank mulls FPO next fiscal

<div class="KonaFilter image-container display-table float_right"><div><div class="image on-image">Bloomberg TVScott Mather</div></div></div>PIMCO's Scott Mather thinks <a href="http://www.businessinsider.com/category/negative-interest-rates">negative interest rates</a> are part of the problem, not the solution, for central banks. In recent weeks the topic of negative interest rates has been at the top of mind for investors and economists anywhere and everywhere.Federal Reserve chair Janet Yellen, for example, <a href="http://www.businessinsider.com/janet-yellen-on-negative-interest-rates-2016-2">has fielded a number of questions</a> on the topic from lawmakers this week. Meanwhile, Sweden's Riksbank <a href="http://www.businessinsider.com/riksbank-interest-rate-cut-05-very-costly-for-the-national-economy-2016-2">cut rates to -0.5% on Thursday</a>. And The Wall Street Journal's Mike Bird <a href="http://blogs.wsj.com/moneybeat/2016/01/29/over-a-fifth-of-global-gdp-is-now-covered-by-a-central-bank-with-negative-rates/">reported</a> that following the Bank of Japan's move to take one of its deposit rates into negative territory about one-fifth of global GDP is covered by negative rates. But as Mather writes, the problem is that negative rates disproportionately impact banks rather than serving as a boost to the economy. This has led to there being little evidence that dis-incentivizing saving is inducing spending or investment in the real economy. (The most basic theoretical argument for negative rates is that if you make it so unattractive for banks to park money at the central bank they would do something else with it. Like lend it.)Additionally, the new negative interest rate environment - now affectionately known as NIRP in markets circles - is creating far more anxieties about the future of markets and banking than any positive outcomes. <a href="https://www.pimco.com/insights/viewpoints/viewpoints/negative-interest-rate-policies-may-be-part-of-the-problem">Here's Mather</a> (all emphasis ours):Although it is difficult to know the counterfactual because this is such an unprecedented situation, it appears that NIRP has not been especially impactful in lifting growth or inflation, or in lifting expectations about future growth or inflation. Instead, it seems that financial markets increasingly view these experimental moves as desperate and consequently damaging to financial and economic stability.At a minimum, NIRP is a contributing factor to the financial market volatility of the past few months. And contrary to current central bank dogma, NIRP is possibly one of the major catalysts behind the tightening in global financial conditions. While NIRP undoubtedly helps lower government bond yields, which in isolation represents a loosening of financial conditions, it may be causing the opposite effect on overall financial conditions: widening of credit and equity risk premiums, increased volatility and reduced credit availability from a more stressed bank system. So here's the thing: banks are getting crunched by negative interest rates. Or as Izabella Kaminska at <a href="http://ftalphaville.ft.com/2016/02/11/2153052/eurodollorous-carnage-as-banks-meet-nnim/">The Financial Times wrote Wednesday</a>, banks now must prepare for an era of negative net interest margin. Net interest margin (NIM), which is a measure of how much more banks earn from their than assets than they pay out on their liabilities, is a closely-watched measure of basically how well (or not) a bank is doing. NIM going up and things are good. NIM going down and things are bad. So negative NIM is bad. <div class="KonaFilter image-container display-table float_left"><div><div class="image">Strategas Research PartnersCredit conditions are tightening and it could slow down hiring.</div></div></div>And while you might say, "So what?!" the problem is that if banks get crunched, then credit conditions throughout the economy - think car loans, small business loans, and so on - are going to get tighter. <a href="http://www.businessinsider.com/sloos-report-q4-2015-2016-2">Indications are that this is happening already</a>.Kaminska <a href="http://ftalphaville.ft.com/2016/02/11/2153052/eurodollorous-carnage-as-banks-meet-nnim/">writes</a>, "Negative rates are and remain an inevitable precursor to <a href="http://ftalphaville.ft.com/2012/07/31/1102191/negative-rates-as-a-precursor-to-the-death-of-banking/" target="_blank" title="Negative rates as a precursor to the death of banking - FT Alphaville">the death of the banking model</a> (which includes fintech). Or at least to the realisation that protecting economic par value for investors is really really hard if you favour rent extraction investments over ones in productivity."And the takeaway here is that if you're a corporate that favors things like buybacks over investing in equipment - or if you're an independent investor that favors financial assets over something like real estate - then eventually the game sort of ends. This is part of the "spread" idea that <a href="http://www.businessinsider.com/ray-dalio-on-market-cycle-2014-12">Ray Dalio talks about</a>: as we reach the end of a debt (read: financialization) cycle in a capitalist economy, the amount of return that you can get from additional investment in similar products declines. Think about bond yields falling. As George Pearkes at Bespoke Investment Group <a href="https://twitter.com/georgepearkes/status/697771051128877056">noted Thursday</a>, the only way you're going to get a positive return on US bonds at these levels is if we see a recession and the price of everything falls. Said another way, markets are positioning for a return of capital more than a return on capital. And that's when the whole project goes off the rails. <div class="margin-top"> <h3>NOW WATCH: <a href="http://www.businessinsider.com/blind-pizza-taste-test-major-chains-pizza-hut-dominos-papa-johns-2016-2">We did a blind taste test of Pizza Hut, Domino's, and Papa John's pizza - here's the verdict</a></h3> <div> <div> <div class="ooyala-video-player" data-video-autoplay="false" data-video-id="5tN2JvMDE6eQgYeyETzdfeY7tLS-xlWX" data-player-variable="ooyalapopvideo" id="ooyalaplayer_popvideo" style="width:1280px;height:720px"></div> </div> </div> </div>

PIMCO: Negative interest rates are the problem, not the solution

There has been news of the use of a new method to lend rate calculation, but apparently, this is going to squeeze banks' <keyword id="6548026" type="ORGANIZATION" weightage="100" keywordseo="net-interest-margin">net interest margin</keyword> (<keyword id="173910" type="ORGANIZATION" weightage="100" keywordseo="NIM">NIM</keyword>), depress interest income and hit their profits. This is expected to happen especially to banks with a high concentration of corporate loans. 
 
Analysts said that NIMs of banks could fall by as much as 10 to 30 basis points as they get adjusted to a new interest rate regime with public sector banks. They would be bearing the impact of the squeeze because they depend so much on corporate loans. The basis point in question is 0.01 percentage points. 
 Banks will be using marginal cost of funds to price lending rates. <keyword id="30067" type="ORGANIZATION" weightage="100" keywordseo="RBI">RBI</keyword> Governor <keyword id="6358908" type="PERSON" weightage="100" keywordseo="Raghuram-Rajan">Raghuram Rajan</keyword> said that the central bank would be releasing final guidelines within weeks so that the transmission of RBI’s policy actions since January can be quick. 
 
The banks that have larger floating rate pools are supposed to be affected more by this change; Axis Bank, Yes Bank, ICICI Bank, SBI, Bank of Baroda and PNB are amongst the banks expected to be impacted. The impact will be more severe in the coming six months as banks with a big 
floating rate corporate book would be adjusting with the new system. 
 
"However some private sector banks like Kotak Mahindra, IndusInd and HDFC Bank which have a high concentration of fixed rate retail loans will be least impacted," Rajiv Mehta, analyst at India Infoline, told ET. 
 
To calculate interest rates, the so-called marginal costs of the funding method will be using incremental cost of funds. To state simply, banks will now have to use the changed deposit rates as a benchmark while calculating lending rates. Earlier, base rates were arrived at by calculating the weighted average cost of deposits. 
 
Since January, the benchmark repo rate has been reduced by 125 basis points by RBI. A report by Crisil on Tuesday stated 10 major banks have seen a drop in the average lending rate by only 58 basis points. 
 
By adjusting their lending rates to lower the deposit rates, banks are likely to lose about 15,000 crore in interest income, as per Daljeet Singh Kohli, director and head research at India Nivesh Securities. "Small public sector banks like Dena Bank, Corporation and Indian Overseas will be hit more because they will have to reduce their base rate in line with the cost of new deposits," Kohli told ET. 
 
<a href="http://anilnotes.com/wp-content/uploads//2011/04/5f5615d6be6a251e94c97f723c5afefb.jpg">Image source</a>

You Searched For "NIM" and got 3 results

Indian Overseas Bank mulls FPO next fiscal

PTI

PIMCO: Negative interest rates are the problem, not the solution

Myles Udland

New lending rate norm expected to hit SBI, Axis, PNB & likes

BI India Bureau

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