All finance company shares are up and in the sky. With p/e ratios in the 30s and even in the 90s.

Let us ask ourselves some basic questions.

What will really happen if Tata, Birla, LnT, Shriram group, Religare, Indiainfoline and a couple of others do get a banking license?

To start off, there will be a scramble for people – from the existing banks. So those people especially those in their late 40s will benefit. The places from where they will be picked are of course the PSU banks, and the existing private sector banks like ICICI, HDFC, Kotak… they will be the first beneficiaries (i mean the employees!). This will also cause the salaries to go up, as well as improve the level of service that one gets from the older banks.

All these banks will open zillion of branches, set up ATMs – so the real estate prices will go up. If you are a landlord, rejoice.

Many jobs at the entry level will be created – especially at the marketing end.

People MAY move their accounts to the new banks, and thus improve the ratios in the older banks…

Will the shareholder benefit?

I know not.

There is only – one and only – company which has made a good impression on the shareholder. This group has a fantastic shareholder treatment and is thus a big wealth creator….

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  1. HDFC is a great money maker. The current valuations make it one of the most expensive stocks in the finance sector. One bad quater n I am in 😛

  2. I believe, HDFC wont be able to show the same kind of consistency it has shown in last decade. Their service is no way different from other banks. Banking will be the next power/telecom sector.

  3. In future we might see like ‘enter into M&M bank and go away with Scorpio or Open a bank a/c with TATA bank and get a nano free or get into Shriram bank and drive away a Truck’.

    The new licenses could change BFSI space. While in short term, there could be demand for employees but in the long term, with increased manpower this space could see lot of competition and perhaps downward or stagnation in salaries.

    The banking sector in India is a saturated market and am not sure whether they end up grabbing the existing customers hurting the other banks or help the economy through new jobs and funding opportunties. If it is former, it is time to sell ICICI, HDFC and AXIS banking stocks.

    History suggests that new licenses in Telecom and aviation brought in good results to the private players and customers in general but brought in death knell to PSU entities like BSNL/MTNL or AIR INDIA or Indian Airlines. Get ready to imagine the fate of SBI/CANARA/BOB and host of other PSU Banks.

  4. ha ha ha krish. When a regulator is present, HE WILL NEVER EVER LET the old order change. IRDA, SEBI, etc TRIED their best to let the old order remain. Even now IRDA’s swing towards the biggest player is strong. RBI will allow a little bit of tinkering – but a dramatic 12% interest on SB accounts will NEVER be allowed…par kya karen?

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