Banks and NPAs

Banking is a slow growth, dull, boring, low margin business which has to be done in a very thorough manner. Well, that is exactly how we were taught in the 1980s when people like Homi Bilpodiwala and Yezdi Malegam were voices that mattered.

Yes we had people like Talwar of SBI and Goiporia (Dena and SBI) who set high standards.

RBI did a decent job – but I still think a lot should or could have been done. RBI has some stupid Leftist fetish that banks should be owned by the public or by the government. In fact when banks were nationalised by Indira Gandhi she wanted to control the money – and the good of the country was not at her heart. Surely.

She spun a story that if banks were held privately, they would:

  • lend only to friends and relatives
  • wealth would concentrate in a few hands
  • bankers would not do anything for the good of the country…..

Let us see what happened on nationalisation!

  • PSU banks have all the NPA
  • Psu banks have done concentrated lending
  • adverse choice/selection – the worst clients have gone to psu banks
  • rampant corruption which other than the regulator everybody seems to know

RBI still says that banks should be owned by the public at large or by the government. INSPITE OF THE FACT THAT THERE IS NO EVIDENCE THAT THIS WORKS.

Imagine I build a fantastic bank, and hold 55% in that bank. Suddenly RBI tells me that if I owned more than 10% THE BANK AND THE COUNTRY are at risk.

Funny? No. Idiotic.

So Uday Kotak, Deepak Parekh, Hindujas put in effort, reputation, people and build Kotak bank, Hdfc bank and Indusind bank. Now they have to give up their shares and perhaps sit on the board WATCHING THE PROFESSIONALS screw the balance sheet. Makes no sense RBI go get a life.

Bajaj, Cholamandalam, Sundaram Finance – run by the promoter families have done much better than the so called ‘Board’ run companies. Not wishing to name them but there are some amazingly shitty NBFC which leak from all sides.

Which is a better bank? A government owned bank (SBI) which has no employee who is bothered about the long term prospects of the bank (SBI Life insurance commission is a 20 page story I guess), or Kotak bank where Uday would love to leave a legacy and wealth for his family?

Idfc, Ilfs, Icici, Axis…..are Psu banks where he employees look better dressed than their counterparts in SBI, IOB, PNB…………..etc………….

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5 Responses to “Banks and NPAs”

  1. Subra,
    I am not sure why you say IDFC is PSU.
    As per latest SHP, President Of India owns 16.37% and LIC 1.65%. MF & FPI owns 50%. Rest is all owned by individuals.
    Request you to provide info on identifying a PSU.
    Thanks,
    Suresh

  2. Loved reading your posts.
    these insights have helped me largely in making financial decisions
    Keep up the great work!!!!

  3. Loved reading your post!!!
    your insights have helped me make great investment decision.
    Keep up the great work!!!

  4. Truly private banks are not possible in today’s age of Fiat Currency.

  5. @Suresh, Subra meant that the “practices” were similar to PSU banks. If you’ve been reading this blog, he has said many times that ICICI and Axis has all the trappings of a PSU, even if in paper, they are private. Reading the news these days, you can surely see they are as NPA-loan-givers as PNB, SBI, BOI….

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