There are so many listed banks that it is not funny. Sadly most of them have the same (not even similar, same!) business model. Open more branches, appoint relationship managers, do third party sales – mutual funds, life insurance, real estate,…etc.

Hopefully the interest rate spreads will make some money, the 3rd party products will make some money..and the bank will be profitable. This is not a bad strategy so let us see what works.

Banks can be further split into Private sector and Public sector banks. In case of public sector banks:

– look at the quality of assets: I look at it in a very simple way. Catch hold of a couple of ‘brokers’ and ask them if you wanted a loan at what price could he get it for you (shocked? I hope not). If he tells you D bank will give at 3%…and E bank will give it at 7%…you know both banks are corrupt. That is all.

– if the quality of assets is a question mark, really doing a fundamental analysis is of no use, unless if you are taking a trading position.

-a psu bank for me is just for taking a trading position. This could be a 6 months position, but just a trading position, NEVER an investment position. When you are just considering buying a psu bank stock somebody will whisper ‘Xys paid ….for a board seat’…pushing me back by another 10 years. I have traded many times in Idbi bank…but Idbi bank as an investment?

IDBI bank has a book value of Rs. 117, has a low p/e, and a dividend yield of 4.3% – mouthwatering numbers, and a good buy, right?

Not so sure. It could go up from 88 to 120 for sure, but do remember that they had lent Rs. 600 crores to Kingfisher? Why would a bank with such a small networth- Rs. 15,000 crores or thereabouts lend to the airline industry at all ? And that too Rs. 600 crores?

Now if I were to recast the P&L and B/s of Idbi bank…my ratios could be different.

Now let us look at City Union Bank, Axis Bank and Hdfc bank. Clearly if you are a small investor you should be in Hdfc bank – quality of assets is the best. It has high quality assets lent out to high quality customers.

In City Union Bank the quality of customers is still suspect – and there is too much dependence on the transport sector (Shriram group as a whole is still a truck financing group – they have one of the oldest Mutual fund companies lying as  a shell).

Axis bank has good promising numbers and is available at a lower price than Hdfc bank. The shareholding is of course by UTI…but not sure how the Enam merger will pan out. Asset quality not much of a worry, but this company’s ability to read, understand and prepare for the risks on its books is suspect. Also Enam is a merchant banker..and therefore transaction oriented rather than long term relationship oriented. How will all this pan out………is a question worth asking.

 

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  1. As a share holder of City Union Bank (CUB), I would like to point out the following.

    1) Shriram group neither owns nor is a promoter of CUB. They have only 1.01% stake in the bank.

    2)CUB has no significant advances to transport sector. I think you are mixing up Shriram transport and CUB. Both are completely different entities.

    3)If quality of customers is suspect, how come NPA is at 0.44% with 77% PCR.

    4)ROE -25%, NIM-3.4%, ROA-1.71%: one of the best in banking space

    5)Oldest private sector bank in the country. Has not skipped the dividend once in the last 107 years. I don’t know which company in India has such an unbroken profitability and dividend record.

    6)Implemented CBS in 2002 in partnership with TCS; way ahead of many other banks in India.

    7)Topline growing at 28% and bottomline @ 31% for the last 5 years when the business environment has been tough.

    8)Most share holder friendly bank.

    Disclosure: I’m a shareholder of CUB

  2. As a share holder of City Union Bank (CUB), I would like to point out the following.

    Shriram group neither owns nor is a promoter of CUB. They have only 1.01% stake in the bank.

    CUB has no significant advances to transport sector. I think you are mixing up Shriram transport and CUB. Both are completely different entities.

    If quality of customers is suspect, how come NPA is at 0.44% with 77% PCR.

    ROE -25%, NIM-3.4%, ROA-1.71%: one of the best in banking space

    Oldest private sector bank in the country. Has not skipped the dividend once in the last 107 years. I don’t know which company in India has such an unbroken profitability and dividend record.

    Implemented CBS in 2002 in partnership with TCS; way ahead of many other banks in India.

    Topline growing at 28% and bottomline @ 31% for the last 5 years when the business environment has been tough.

    Most share holder friendly bank.

    Disclosure: I’m a shareholder of CUB

  3. 107 years to reach a market cap of Rs. 2300 crores? 15 years to reach a market cap of Rs. 140,000 crores for Hdfc bank. That is why the p/e is higher for Hdfc bank. It is considered to be risky to be a small bank…..as very few analysts track it, and also the ability to spread risk is lesser. Not sure, but I also thought that it was the Shriram group which promoted CUB…and I LOST MONEY IN SRIRAM MUTUAL FUND..:-) bias, you see…

  4. no take on any bank. only Hdfc bank..have been an original shareholder..plus bought at 40 on listing. Have sold and bought back in between. Hold a small quantity of Kotak bank…have traded sbi, icici, etc. but NOW not a great sector at least i think so…

  5. First time totally confused with the post, Only understood ” if the quality of assets is a question mark, really doing a fundamental analysis is of no use”

    If i may ask, what are you trying to convey, I just need to understand.

  6. Even i am an original shareholder of HDFC / HDFC Bank. IT has given great returns over the last 15 years or so. Consistent dividend paying company too.

  7. it seems that only hdfc mfs have more favorites than hdfc bank in financial sector. or is it due to some regulations?

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