PSU Banks - Are they value buys?
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URL: http://www.theequitydesk.com/forum/forum_posts.asp?TID=805
Printed Date: 05/Apr/2025 at 3:42pm
Topic: PSU Banks - Are they value buys?
Posted By: jassieotal
Subject: PSU Banks - Are they value buys?
Date Posted: 14/Mar/2007 at 5:09pm
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Hello All,
Can we discuss on the story of Bank of India. Why it is going down day after day? I don't think there is anything wrong with it fundamentally. I thought that 146 was a good support and it will be an asset to keep it in the portfolio. Any comments on that?
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Replies:
Posted By: s_praharaj
Date Posted: 14/Mar/2007 at 11:27pm
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Jassie,
Its not BOI alone which is going down.
All PSU Banks are going down.
The following developments are not in favour of PSU Banks, where 85% of income come from Interest alone..
1.CRR rate hike.
2.Deposit rate hike.
3. Stock market going down.
Due to CRR hike Banks have to keep more money with with RBI. In order to get more money, Banks are accepting deposit at a very high rate. Though banks are offering around 10% to public, bulk deposits for 1 year is accepted at even 11.2% today from Corporates. So banks have to hive off a lot of interest, which will have an adverse effect on profitability.
Banks have increased the lending rate also (PLR). But many of the existing Banks loan are on Fixed rate. They are not affected by the rise in PLR. Banks can not charge more intt on these loans. So Banks loose, till all the fixed intt loans are liquidate.
In the yearending The Banks have to make provision for all the securities which are marked to market. Since the stockmarket has gone down and the intt rate on Govt Bonds have increased, the Banks have to make provision for all the notional losses on securities (Shares and Bonds).
The net effect you can understand. The profitability will be greatly affected for PSU Banks. Effects will not be that severe in Q4-2007 but after that, it will be much more severe.
Further to that the PSU Banks are always in competition with each other, for increasing business. They want to show higher % of growth in deposits and advances. For acheiving this mostly they accept deposits at a higher rate of intt and give advances to corporates at lower rates.
No doubt all the above does not speak of a good future for PSU Banks.
Its high time that the top Mangament team of PSU Banks shouls realise that "Big is not better, better is always better." ------------- Shashi Praharaj |
Posted By: BubbleVision
Date Posted: 14/Mar/2007 at 11:38pm
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"Big is not better, better is always better."
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Excellent Shashi Ji....is Bank Nifty a "Sell" in your opinion? ------------- You can't make money if you are unwilling to lose...It's like willing to breathe in but not willing to breathe out. -- ED SEYKOTA ....Read Disclaimer! |
Posted By: s_praharaj
Date Posted: 14/Mar/2007 at 11:47pm
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Thanx Bubblevision,
All I can say is,I am not optimistic about the PSU Banks in the short term. ------------- Shashi Praharaj |
Posted By: xbox
Date Posted: 14/Mar/2007 at 6:15am
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Any consolidation among PSU Banks are only positive triggers for them otherwise private banks are best bets. ------------- Don't bet on pig after all bull & bear in circle. |
Posted By: Vivek Sukhani
Date Posted: 14/Mar/2007 at 9:36am
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The PSU Banks have some advantages as well. They have a wider reach when it comes to banking. Something like an allahabad Bank, is spread across the whole of calcutta, and most of the banking population of Calcutta have an account with Allahabad Bank. Similar is the case with other regional PSU banks. The advantage they hold is some very old and excellent association with some of the prime customers. Banks will never be a buy in good times. Its because the way business cycle works they are the first to get affected during the boom period. This has always been the case and in all likelihood will forever remain the case unless we have a change in the structure.
To be very candid, I started my career in stock markets with a banking stock called oriental bank of Commerce. Bought at average of 37 and disposed the same at an avergae of 250 odd levels more than 3 years back. Actually there were several in which I ventured including Vijaya, Union, BOI and SBBJ. And trust me prices were really pathetic then. Its during the period of hopelessness one should get into them. Something like a SBBJ, we managed to get it at 303 for a 100 Rs. paid up share and made more than 10 times and ate at least 3 dividends and the stock adjusted for dividend will become free with just one more dividend. The only banking stock which I am at a loss in at the moment is Allahabad bank, and that too quite nominal. I picked it up for yield but its stock market prices puzzle me sometimes. Actually, I try to get banking stocks, especially when their dividend yields adjusted for tax offers me a better return compared to time deposits. So when I got into Allahabad Bank, that was the case but subsequently the interest rates on TDs moved up and hence the prices have come down. Now I have got to recalculate my entry levels again.
Candidly speaking, I am not quite delighted with my banking experience at Private Banks. I beleive foreign banks a lot better when it comes to premium banking and for ordinary banking, PSU banks quite reasonable. So, the mix doesnt do justice to either. Its my personal opinion, and nothing to do with stock prices. So, applying buy what you see analogy I try to avoid them even though their fee based income is moving northwards. Reiterating again, its a personal opinion.
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Posted By: Mohan
Date Posted: 15/Mar/2007 at 12:48pm
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Vivek,
Please share what your holding period was for these stocks.
Thanks
------------- Be fearful when others are greedy and be greedy when others are fearful. |
Posted By: s_praharaj
Date Posted: 15/Mar/2007 at 12:05pm
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Vivek, Thank you very much for your opinion. As far as the reach is concerned, PSU Banks have a great reach and a very large customer base. But what about the quality of customer. This is more a social service than commercial Banking. If you analyse the customer base of PSU Banks, 80% customer contribute to 20% of deposit and 20% customer contribute to the 80% deposit. If you ask the knowledge level of PSU bank officers, it is probably the best. In private sector Bank, you get domain experts, not banking experts.A person who does automotive lending can not say a word about the rules for accepting deposit. But, the new generation youths do not prefer PSU Banks. They are tech savvy and wants to go to a tech savvy bank. So their preference is new age private sector Banks. The private sector Banks are doing many other things and also Banking. So the contribution of other income to total income is more, which insulates them to some extent from the vagaries of change in the Interest rate.PSU Banks are having less customer fancy and hence low PE. The dividend yield is quite high and so less risky during recession. Recently the prices also have come down by 20-40%, which is factored with the poor outlook due to recent developments. Till 2003, PSU Bank stocks were neglected due to Govt apathy and so the prices were abysmally low. Anybody who have purchased stocks of the big PSU Banks have multiplied their money.
But now things are different now. Getting a multibagger from the present PSU Banks, with the present outlook is no where in sight. Yes, dividend yield will be definitely high than other stocks, but we have to be satisfied with that for the time being. ------------- Shashi Praharaj |
Posted By: tigershark
Date Posted: 15/Mar/2007 at 6:20am
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ultimately in any stock investment finally it all boils down to RETURN ON EQUITY one does not have to do much research to show who hasdeliverd for their shareholders in the past and who will deliver in the future.again PATIENCE is the key word here. ------------- understanding both the power of compound return and the difficulty getting it is the heart and soul of understanding a lot of things |
Posted By: Vivek Sukhani
Date Posted: 16/Mar/2007 at 9:55am
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Well Shashi, I have always focussed on financials and nothing else. The only thing I understand is Financial statements and I am not by any yardstick a thematic investor. I totally share your point of view, the yield may remain high and prices may never move up. I also agree that there's no point in bottom hunting in them. To be very candid, the yields are still not very high to warrant an entry into them. The stocks should command an yield of 6.67% or more to warrant investment in a banking stock. This I have derived as (.10(1-.33))*100 where .10=TD rate and .33=Tax Rate.Add to that the margin of safety of a third of the assumed yield, it works out to .066*4/3 which equals .088, translating into 9 pecent approx.That to me will be the price when we should start to do bottom hunting in banking stocks. I seriously hope that they increase their dividends, else with constant dividends, the bottoming prices can be real bottom. I made a real blunder by picking up Allahabd bank in its FPO and although I am not deep in the red, but then I look back and realise it was a real piece of blunder.
Shashi, the problem I see is with time. When you have enough money you tend to squander it in stock markets. You buy stocks, without calculating the downside. We become sky-gazers in the name of fundamental analysts. I never bother about selling early for in my opinion markets will go up if everyone makes money.... but I feel like kicking myself for a wrong entry. Look at the charts of stocks for the period 2000-2003, and we will see what destruction means. Its not so long back as well that we should call it a thing of the past and forget it. Its really unfortunate that when stocks fall, they remember Asset Values, Dividend yields etc.
Mohan , my holding period was quite less with an OBC. I bought it near the fag end of 2002 and disposed it off by mid 2004. Infact all of them( banking stocks) I bought near that period. Practically by end of 2005, I had washed off my hands from them. SBBJ was a lil bit older investment bought in mid 2002 and I am still holding it.
Regards,
Vivek
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Posted By: basant
Date Posted: 16/Mar/2007 at 10:32am
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This I have derived as (.10(1-.33))*100 where .10=TD rate and .33=Tax Rate.Add to that the margin of safety of a third of the assumed yield, it works out to .066*4/3 which equals .088, translating into 9 pecent approx
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Isn't that asking for too much. Expecting prices to drop so much means looking at these stocks at a price to book of maybe less then one. Dividends rising looks a bit bleak though.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 16/Mar/2007 at 10:40am
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I hope so basant....but then historically we make multibaggers by buying stocks as pathetic prices.... I beleive its the entry point thats most critical in our investment world. So, what we can do is set three entry levels
1.When Yield becomes equal to tax adjusted yield on TD. Which will translate into .066 in my example.
2.when yield takes into account margin of safety into calculation, meaning close to 9%.
3.When market capitalisation to total net assets fall below 1.Note, its the other name for Price to Book. Also, note, entry level 3 may come anywhere in order of entry. However, Entry level 2 will always lag behind entry level 1.Franky speaking, I avoid P to BV while working out my levels but I share with you totally, its a very important measure for a banking stock so tried to fit it into my calculations.
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Posted By: basant
Date Posted: 16/Mar/2007 at 10:54am
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but then historically we make multibaggers by buying stocks as pathetic prices.... I beleive its the entry point thats most critical in our investment world
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Have the purchase price be so attractive that even a mediocre sale gives good results. - Warren Buffet
I would try to post adjusted book value of all leading PSU Banks over the week end. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 16/Mar/2007 at 11:08am
| Would be an excellent service to us, Basant. I will look forward to that. Your comment on attractiveness of entry price was equally attractive. |
Posted By: kulman
Date Posted: 16/Mar/2007 at 11:16am
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Nice discussion going on here. Well done! BV=Book Value=(Basant+ Vivek) !!!
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Vivek Sukhani
Date Posted: 16/Mar/2007 at 11:47am
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Ya, its always a pleasure communicating with Basant. On any given day, its better than listening to CNBC and stuff like that. I have certain queries, Basant.
1.What is this adjusted Book Value.
2.What are provisioning norms for banks. When in school, I learnt that banks are the only entities allowed to maintain Secret Reserve.I will tell you why I am asking this silly question. Last qyarter's ICICI bank's result were quite good but then I was shocked to see the provision they made. In the same vein, Allahabad Bank has made a negative provision. All this makes me think that soemtimes these banking stocks are a bit too much of an enigma. For ICICI, was it the case of underprovsioning in the past or is that it is providing for the future. For Allahabad bank, is it they made over-provision in the past or are they underproviding in the present.
3.Do you assign any weightage to management of banks. I beleive, there's very limited role a management can play. they may come up with exotic deposit and lending structures but this is one space whjere aggression very seldom pays.Look at sub-prime mortgage damage being done in US. Thats a fact with any aggressive lender. So, I beleive its the conservative management which generally does well as far as banking stocks go.
Regards,
Vivek
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Posted By: kulman
Date Posted: 17/Mar/2007 at 12:05pm
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Vivek bhai please read this & post your comments/views:
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The banking business is no favorite of ours. When assets are twenty times equity - a common ratio in this industry - mistakes that involve only a small portion of assets can destroy a major portion of equity. And mistakes have been the rule rather than the exception at many major banks. Most have resulted from a managerial failing that we described last year when discussing the "institutional imperative:" the tendency of executives to mindlessly imitate the behavior of their peers, no matter how foolish it may be to do so. In their lending, many bankers played follow-the-leader with lemming-like zeal; now they are experiencing a lemming-like fate.
Because leverage of 20:1 magnifies the effects of managerial strengths and weaknesses, we have no interest in purchasing shares of a poorly-managed bank at a "cheap" price. Instead, our only interest is in buying into well-managed banks at fair prices. --- Warren Buffett Source: letter to shareholders 1990.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: Vivek Sukhani
Date Posted: 17/Mar/2007 at 1:01pm
| well, Kulman, me too small to comment upon the comment of the Big Man.However, I beleive that NPAs also have a cycle( relate it to managerial efficiency) . During economic expansion most of the banks appear well managed. It is when the downcycle starts, the agressive ones start to fumble. Remember, Global Trust bank and Centurion Bank when they were in a spot of bother. Also, think about IndusInd and Bank of Rajasthan. Also, Kulman, the banks do a lot of hush up stuff. So, you cannot take a blanket call based on capital Adequacy and stuff like that. Also, all this talk of fee based income and fund based income also trick me. The point is even the fee based income is very clyclical. Its when deals are happening in the business sphere the fee based income goes up but when they stop to take place, that pot also runs dry. Can you imagine what does 20:1 leverage implies. It implies if 5percent of your disbursements/advances/lending fail, you stand to erode your entire networth in case you decide to write them off. So, dont know Kulman, but I wont like to have a bank in my portfolio for long term, unless they offer me terrific value. Also, banking is also like stock market business.... you lever more to make a faster buck and end up a loser. The only thing I would say here is that, buy them if you see a lot of hidden wealth being stacked in them. That is the reason I will not sell off SBBJ even afetr having made 10 times. I find the PSU Banks' management to be quite reliable. Most of them are extremely conservative, something which suits the investors. |
Posted By: s_praharaj
Date Posted: 19/Mar/2007 at 12:59pm
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Vivek,
I thought I will update you with what I know.
The provioning by the Banks are governed by a set of rules, laid down by RBI. The rules are well definedand clear for different sectors and differenet security type.So the rules for provisioning are uniform across the Banks. Big banks can not take a view case wise as they have to take a overall view on provisioning as per norms laid down by RBI. About underprovisioning or over provsioning by commercial banks, yes to a limited extent it is possible. They can be done two days. Provisioning of loans are broadly based on Asset quality and security quality. In a few cases where qualitative analysis of security is to be done, it can be done both ways and depending upon that the provisions can be made. But the view Banks take should also be certified by Auditors. Again if you see, the Auditors are appointed by the Baks and also paid by them. Here to some extent Banks can influence the Auditors with their logic. The need is an independant panel of auditors by RBI, which can be assigned auditing by RBI. So the underprovisioning and overprovisioning are to be commented by the Auditiors. Sometimes auditors comment on their notes, which also helps to find about the real position.
Apart from the provisioning of the loan portfolio of Banks, the provisioning are also made for investments of the Banks in shares, Bonds and Govt Securities.Here the rules are not very clear and the Banks get some free hand for provisioning.
Due to this there is a underplay or overplay of provisioning by commercial banks.But they are not common occurences. But yes, it is possible and sometimes conceals the real profit. ------------- Shashi Praharaj |
Posted By: s_praharaj
Date Posted: 19/Mar/2007 at 1:10pm
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Vivek,
Again about your question on weightage of Management in Banks, if you ask me personlly, the PSU Banks are governed by the policies of RBI and Govt of India.The management of PSU Banks are more loyal in following Govt policies than the Govt itself. A dynamic chairman and ED, though dynamic can play their role to a limited extent. Moreover their tenure is also limited, less than two years in more than 90% of cases. But yes, if a conservative and result oriented chairman takes charge of the Bank, he can do wonders.Conservative means I mean profit orinted, who beleives in quality rather than quantity. Some PSU Banks are having such top management teams also but by and large most of them are business oriented, with a herd mentality and having an eye on quantity of business rather than the quality of business. ------------- Shashi Praharaj |
Posted By: basant
Date Posted: 19/Mar/2007 at 1:24pm
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The need is an independant panel of auditors by RBI, which can be assigned auditing by RBI. So the underprovisioning and overprovisioning are to be commented by the Auditiors. Sometimes auditors comment on their notes, which also helps to find about the real position.
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Very interesting. If that happens shall we see a gush of some fresh NPA's? But from I know NPA accounts are those that have not serviced their interest and loan repayments for two successive quarters. Can a Bank twist these data because they are so mechanical to spot.
Any specific PSU Banks that work like their private sector counterparts? ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: s_praharaj
Date Posted: 19/Mar/2007 at 2:27pm
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Basant,
What you tell is to classify it as NPA. That too after the repayment holiday.
But all NPS need not be provisioned. Only where security is not adequate, that amount is to be provisioned. Wherever security is in deposit or cash equivalent, there is no confusion. But when the security is machinery, stock, landed property etc, a realistic assessment is necessary, which sometimes helps in under provisioning or over provisioning.
But now with the vigil of RBI, its a little difficult.
------------- Shashi Praharaj |
Posted By: basant
Date Posted: 20/Mar/2007 at 6:14pm
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While the PSU Banking stocks have been written off I feel that they are coming to a point where buying them would have minimum downside risk. The table below indicates the adjusted book value of the Banking companies in Fy08. So even if interest rates were to harden from these point these banking stocks should not trade below their adjusted book value on a consistent basis. Any fall in the price of these stocks below their adjusted book value should be used to buy into them.
Source: ENAM Research Lower the price to adjusted Book Value greater the margin of safety. Since the growth in these PSU banks is erratic this is the best yardstick to use for these banks.
Now if it comes to evaluating http://www.theequitydesk.com/forum/forum_posts.asp?TID=277 - then we would need to apply the traditional PE method rather then the adjusted price to book method. That is because http://www.theequitydesk.com/forum/forum_posts.asp?TID=277 - is a growth stock and growth stocks are generally not evaluated on price to book basis. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 20/Mar/2007 at 6:52pm
Noted.
*SP=Shashi Praharaj
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: omshivaya
Date Posted: 20/Mar/2007 at 6:54pm
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Hey that S&P rating was a sixer! Excellent catch! ------------- The most important quality for an investor is temperament,not intellect.A temperament that neither derives great pleasure from being with the crowd nor against it |
Posted By: kulman
Date Posted: 20/Mar/2007 at 8:27am
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http://www.thehindubusinessline.com/2007/03/21/stories/2007032105090600.htm - Banks turn cautious on bulk deposits (source: BL)
In a bid to contain possible asset-liability mismatches, public sector banks (PSBs) have begun capping their bulk deposit acceptances. Bankers said that there was no Reserve Bank of India fiat on such capping. Most of the banks that have capped bulk deposits have done it voluntarily. The caps are in the range of 30-35 per cent of their net liabilities, they added. Vijaya Bank has already imposed such a cap. The Chairman and Managing Director, Mr Prakash P. Mallya, confirmed the development. "We have imposed a ceiling of 30 per cent on our bulk deposit intake," he said. Other banks are also expected to take identical steps soon. According to the bankers, the move was taken to contain any fallout in the event of premature redemption. Most of the bulk depositors are insurance companies, money market mutual funds, State Governments and large corporates. The bulk deposits mopped up were for tenures up to a year. These deposits were taken after an intense bidding match between all the banks. One large PSB, as a consequence, had upped the ante in this intensifying deposit rate skirmish, offering rates of up to 11.4 per cent on one-year bulk deposits. The bankers said that the chase for bulk deposits was also partly on account of the ambitious targets placed by some large banks. Two of the largest public sector banks, vying for the number one slot, were leading the pack for raising corporate bulk deposits. Both banks are trailing business figures of Rs 2.3 lakh crore for the current fiscal. Banks' preference for bulk deposits showed up in the RBI's weekly data. Between December 31 and March 2, aggregate deposits have gone up by Rs 1.04 lakh crore. Time deposits during the same period rose by over Rs 90,000 crore. The bankers said that the increase was mostly accounted for corporate bulk deposits. This also contributed the big jump in competitive bids at the weekly 91-day Treasury Bill auctions. Last week alone, the competitive bids made were over Rs 4,000 crore. Marginal cost impact Yet, few banks believe that bulk deposits will impact costs. "At best the cost increase will be marginal," a banker said. The cap imposed would take care of any impact on costs, according to the bankers. But not many banks have reached the 30 per cent ceiling. This means that the bulk deposits pursuit is unlikely to cease in the near future. Besides, the bankers said, PSBs have a large current and savings accounts (CASA) base. CASA accounts for about 40-45 per cent of the deposit of some of the large PSBs. Savings accounts cost only 3.5 per cent. Inclusive of administrative and reserve ratio costs, the average cost is still under four per cent, leaving the weighted average costs at 6.5 per cent, the bankers said. Besides, they added, in the event of any premature redemption of bulk deposits corporates would be entitled to only the rates prescribed for that particular spectrum, though this is exactly what banks fear. The flip side is that such a scenario would bring down the weighted costs. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: s_praharaj
Date Posted: 21/Mar/2007 at 1:27pm
The above price is mouthwatering. Very nice piece of analysis by Basant, Among all the above stocks, if price fall down to these level, they are definite a buy except Bank of Baroda. But I feel if SBI comes to 762, then why to see any other PSU Bank stock, SBI is best bet in that price. But in the short run pressure on profit will definitely be there. In my opinion Bank's profitability will not see any development till the interest rates aswell as CRR is lowered. I am not very positive about bank of Baroda because they have recently spent very heavily on advertisements, which will have effects on profitability. The quality of Assetsare also not very good. Kulmanji,I read thearticle posted by you.
The cap for bulk deposits if fixed is a very healthy development.
But I am not sure, how many will fix it and how many will follow it.
I know Mr Mallya of Vijaya Bank, he is a positive and practical person. He can fix a cap and followit for Vijaya Bank. But othersI doubt. Mr Mallya hasjoined Vijaya Bank recently. It will take a lot of time and efforts for him to improve that bank.
Somewhere in the report it isalso mentioned that the payout of more interest in bulk depositswill matginally affect the profitability. I don't agree with that.
Its my personal view point.
Thanx Kulmanji for the compliment.
------------- Shashi Praharaj |
Posted By: johnnybravo
Date Posted: 21/Mar/2007 at 6:07pm
Well I thought SBI, Bob,PNB and Canara bank are one of the better PSU banks. Should we be really reading into the advertisement expenses? After all adds are a way of increasing revenues. And I guess Bob is the only PSU bank which is quite aggressive in changing its 'babu' image.. |
Posted By: basant
Date Posted: 21/Mar/2007 at 8:14pm
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Thank you Mr. Praharaj but I do not think that we can get SBI at one times book - at least the historical evidence does not suggest that unless things go really bad and as we approach 2009 the banking sector reforms could be a possibility with lifting of foreign caps etc so maybe SBI's low could be nearer then what we think - that is my view but yes, the upsides would be interest rate determined. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 21/Mar/2007 at 10:54pm
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Shashi, with banking stocks, you always have to be on a watch....NIM, Interest rate outlook, call market rate,RBI's comments, CRR, SLR, Repo, reverse repo..... and in return of all these , you only become enlightened but not rich. So, its good for adding on to general knowledge but I have my doubts regarding they are a perennial hold.Also, I have very raraely seen a analysts getting right on a banking stock in the long run. Also, I beleive its wrong to trade a bank on the basis if its book value or P/E. A spurt in bad debts can alter the entire structure. If they are borrowing at 10 percent, and add to it their NIM spreads and administaration cost, I wonder what rates they are lending at. There's something wrong at the moment....how come overnight rates be so high..... how come we are taking it so easily. It reflects poor cash management on part of commercial banks. I wonder where all money is going????? If people are earning so much, why there is such a dearth of liquidity? Whatever I am talking may appear irrelevant for this thread but all I want to drive home the point is its wrong to value banks on such parameters like Book value and P/E. Its very imperative to get an insight about asset liability match. I beleive growth should mean more cash in the hands of people.... but then where has all the cash gone? Basant, kindly elucidate what do you mean by Adjusted Book Value?
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Posted By: manishdave
Date Posted: 21/Mar/2007 at 1:43am
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ABV is BV - Bad Debt.
Shashiji,
I understand point of low quality assets. but BoB spent money on advertisements? Isn't it money well spent? And well spent particularly for us if they advertised on CNBC.
SBI also has stakes in other banks. On negative point, I think SBI is the only bank that has pension obligation. Correct me if I ma wrong.
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Posted By: s_praharaj
Date Posted: 22/Mar/2007 at 12:12pm
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Manish,
BOB has spent a lot of money on advertisement last year, as they changed their logo. I don't think there is any impact of such a big spent on advt for BOB. This year it will have some effect on its profit. Moreover with increased deposit rate, this spending is a dampner.
Yes, you are right, SBI has pension provision. But that hardly matters for SBI, as right from the beginning they have this and their pension fund is also hefty enough to take care of that.Other PSU Banks also provide pension options for those who have opted for it and those who have joined after 1998. Pension burden is a very big burden for all Banks and because of that IBA is not agreeing to give a second option to their employees. ------------- Shashi Praharaj |
Posted By: manishdave
Date Posted: 22/Mar/2007 at 6:15am
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Shashiji,
In long run how can they be competitive if they have this huge built in cost. If business is not doing good, they can give VRS and cut cost but pension cost is built in and out of control. America Auto companies are suffering of this. For example GM/Ford has disadvantage of $3000 coz of pension plans which were promised in past. They can not even down size the business coz then small business has to pay for pension and cost may be 4000/car.
Pension could create big trouble down the road even though it may take decade(S).
On positive side SBI has huge real estate(They wont sell them though). I read few years back that value of chairperson's bunglow in Bombay was 300Cr. Now may be 1000Cr. Shouldn't they sell it and give Chairperson buglow that costs 10-20Cr?
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Posted By: basant
Date Posted: 22/Mar/2007 at 8:59am
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I read few years back that value of chairperson's bunglow in Bombay was 300Cr. Now may be 1000Cr. Shouldn't they sell it and give Chairperson buglow that costs 10-20Cr?
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Manish I wish Indian banks worked with such thought and logic. The operative word here is "wish".
It seems rather funny but I have always seen a SBI chairman be in office for a few months - and then retires.I doubt what decisions he is able to take as chairman?
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 25/Mar/2007 at 10:21pm
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http://www.businesstimes.com.sg/sub/news/story/0,4574,228437,00.html? - Dated banking system slows growth
State and local banks unable to compete with foreign banks Hundreds of bank branches can be found in India's capital, nestled behind metal grates in concrete buildings and tucked down alleyways off busy thoroughfares. Many of the offices are jockeying for attention with battered signs and offers of high rates for deposits and low-rate loans.
India's drive to become a global economic powerhouse faces a huge roadblock in its inefficient, largely state-controlled financial system, analysts said. Two-thirds of India's banking business is conducted through less than 5 per cent of its branches, and its growing corporate sector has headed overseas for financial advice and loans. Consultants at McKinsey estimate that some US$48 billion could be added to India's annual gross domestic product (GDP), bringing its growth rate on par with China's, if India's financial system were made more productive. Powerful bank unions and politics, though, are making that impossible, and the issue will come to a head in the next few weeks: An umbrella group of nine bank unions is calling for a nationwide strike at the end of this month to protest a litany of complaints, including pressure to merge. India's banking system has its roots in sometimes centuries-old regional banks that spread through acquisitions and as their customers migrated. The major banks were nationalised in 1969 amid promises of lending to rural areas and secure jobs, especially for the underclasses. The legacy of banks as tools for social reform, though, is colliding with India's accelerating economic growth. An estimated 70 per cent of Indian citizens are still not part of the banking system, while bureaucracy and inefficiencies are leaching benefits from faster growing parts of the economy, said political leaders and economists.
'We need a further deepening and widening through a reform of our banking and financial system,' Prime Minister Manmohan Singh recently told executives at a conference in Delhi, 'so that the underlying potential of savings and resources can be mobilised and deployed efficiently.' Making changes, though, is proving difficult and slow. Despite India's big and rapidly growing middle class, and the global ambitions of its corporate sector, its banks remain tiny and their focus local. Only one, the State Bank of India, numbered among the world's top 250 banking companies ranked by assets, comes in at No 83, according to data from American Banker. In contrast, there are four Chinese banks in the top 35. An attempt to lower the government's stake in public banks from 51 to 33 per cent and to allow them to merge with each other has been met with staunch resistance from the 750,000 public bank employees, who have strong unions. As the country's fast-growing corporate sector takes off, the banks are being left behind. None of the multibillion-dollar cross-border deals that Indian companies have undertaken in recent months have relied on a state bank. Instead, companies are turning to Wall Street firms and global commercial banks. Foreign private banks are also knocking on the door, hoping to lure high earners from the country that this year became Asia's biggest home of billionaires, knocking Japan from the top spot. Ultimately, state and local banks may not be able to compete, leaving the country with a two-tiered system, with the largest companies and richest individuals putting their money elsewhere, the gloomiest critics said. Suggestions for fixing the system include lifting lending requirements to direct assets from small businesses to the more profitable corporate sector, allowing more foreign ownership of Indian banks, and reducing state ownership in the banking system. Right now, the largely state-dominated banking system funnels about 70 per cent of the net savings of the economy into government and state-owned enterprises, and finances a huge budget deficit, about 9 per cent of GDP, McKinsey said. Making changes necessary and reducing the government's dependence on these funds would require huge changes in the way that India thinks about its banking system, from a solution to social ills to an independent capitalist industry. 'If there ever was a time that India can afford to make some of those changes, it is now,' said Diana Farrell, director of the McKinsey Global Institute. The statement is 'not a prediction, but a plea', she added. The government's insistence on holding a controlling stake in the country's biggest banks is 'what's holding up growth at the moment', said Amit Tandon, managing director with Fitch Ratings in Mumbai, and a former head of investment banking operations at ICICI Bank, one of India's largest private banks. Private banks, which make up less than a quarter of India's financial system, consistently outperform their government peers. While all of the State Bank of India branches now have computers, less than half of these can communicate with each other. Customers who make a deposit at one branch wait 10 to 15 days before being able to receive it at another. The State Bank of India, the largest government-controlled bank, has 9,000 branches, 1,000 more than the global financial giant Citigroup and its subsidiary CitiFinancial together, and some 205,500 employees. Managers said they are not concerned about new competition from foreign banks. 'People have faith in the bank and the service is there,' said a manager in the Delhi branch. - NYT ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: manishdave
Date Posted: 25/Mar/2007 at 6:48am
Oh! So they have expensive guest house!
 But if - sorry when PSU banking goes into trouble, one should buy. Our GOVT will come with fatwa that any deposit less than Rs. 100,000 or more than 1,000,000 can be kept only with PSU bank.
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Posted By: manishdave
Date Posted: 25/Mar/2007 at 7:07am
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Kulmanji,
This arlicle is harsh reality. But at the same time it is opp for HDFC/ICICI/Yes Bank. They don't need to fight for mkt share with each other for years to come.
Mention of Chinese banks is not true picture. They have less no. of banks, bigger economy and no private banks. But besides size even our psu banks are better their Chinese counterparts.
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Posted By: kulman
Date Posted: 26/Mar/2007 at 9:49am
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http://www.dnaindia.com/report.asp?newsid=1087238 - http://www.dnaindia.com/report.asp?newsid=1087238 - Higher interest rates are expected to increase bad loans of banks in the retail and agriculture segments. Loans given out by banks on which either the interest or the instalment on principal remains unpaid for more than 90 days are classified as non-performing assets (NPAs) or bad loans. A recent report by Merrill Lynch expects gross NPAs to increase 16% by financial year 2008. However, the report said, gross NPAs as a percentage of loans are not expected to rise significantly. Currently retail lending by banks (both private sector and public) stands at 20% of their total loans. Robin Roy, principal consultant at PricewaterhouseCoopers, said the economy’s 9% growth rate coupled with inflationary pressures and higher interest rates would impact home-loan borrowers. “This will lead to incapability to repay on time. Moreover, national income levels are not growing as sharply as credit growth is, which would, over the longer term, give rise to the build-up of inferior quality loan portfolios,” he said. The quality of loan portfolios often mirror the impacted cash flows of borrowers, which in turn is an indication of a heat up in speculative sectors such as real estate and capital markets, the security against which banks would have lent, He expects NPAs to rise in personal loans and credit card receivables as well. “Asset-based retail loans could swell by a percentage point if repayments structures are not managed properly,” Bankers said any fresh increase in interest rates could have significant impact in terms of bad loans. “Home loan borrowers will definitely find it difficult to repay in case there is a further hike in the interest rate,” said Aseem Dhru, executive vice-president head of business banking with HDFC Bank. Rana Kapoor, chairman and managing director, YES Bank, concurs. He said retail assets are the most vulnerable to rate hikes. Kapoor believes banks will have to come up with a proper pricing policy on the retail side to curtail the growth of NPAs in years to come. Credit Suisse analysts Aditya Singhania, Sanjay Jain and Anand Swaminathan, in a review report of the banking sector last week said: “We expect delinquencies to rise from current levels, but remain well below historical levels of 3.5-4.5% of opening loans. We also expect loan loss provisions to rise significantly (1.5% of average loans in FY3/08E), driven by higher delinquency and higher standard asset provisions”. “Gross and net NPAs should also rise, but remain low,” they added. Housing loans have increased and comprise about 43% of retail loans following strong growth in the last two years. Personal loans constitute about 28%. “NPAs by way of home loans and personal loans will add 150-200 basis points to the gross NPA levels,” said an official of Bank of Rajasthan. Gross NPA levels which were about 15% in 1990s have dropped down to about 2-3% in case of public sector banks and about 3-4% in case of private sector banks. In the 1990s banks’ saw a rise in their NPA levels mainly due to defaulting in sectors like steel, chemicals and textiles. However, over the past few years NPA levels for banks have come down steadily. “We had a tough time getting down our total gross NPA in 1990s been 15% which have dropped down to less than 3% today. At that time, sectors like cement and textile were defaulting heavily. Over the years, due to better delivery and monitory systems, we have seen a decline in the NPA levels,” said an SBI official. However, he feels that with increasing borrowing costs today, might lead to an increase in delinquencies. ------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: s_praharaj
Date Posted: 27/Mar/2007 at 3:53pm
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Manish,
The PSU Banks are operating under a lot of constraints. They can't do things independantly,even though business considerations compels them. Giving VRS to excess employees is a political decission, and it has too many ramifications. In earlier VRS, I observed, many good officers went in VRS and took job elsewhere, and the Banks lost a lot of talent. They left the Bank, because they got a hefty VRS package. In normal circumstanes, without VRS, they would have preferred to stay with the Bank.
Pension is no doubt a big burden for the Banks. For SBI it is not a very big burden, because it is there right from its inception. The pension fund is existing for more than a century and big enough to take care of the burden. I don't think there is any risk to SBI for pensions.
As far as PSU Banks are concerned, all the employees joined after 1997-98 are compulsorily enrolled for pensions. Those who opted for pensions during 1997-98 will get pensions. Only those who have not opted for pensions in 97-98 are now demanding pension, as the interest rate has come down substantially. Its definitely a big burden for the PSU Banks, and Govt is also well aware and not agreeing to the request. If the pension is at all given, that will be given with so many riders, which will
be a win-win situation for both the unions and Banks.
I read both the articles posted by Kulmanji. Both the articles are excellent and the problems envisaged by the author are genuine. It speaks grimly about the PSU Banks and its future. But we have to accept the things as it is. We can not deny the services rendered by the PSU Banks in the social and economic development of our country. Yes, recent policies of RBI and Finance ministry put the PSU Banks in a critical position.
so, considering from an investment point of view, the future does not look rosy for PSU Banks.As an investor, we have a lot of choices and we have to take our decissions. ------------- Shashi Praharaj |
Posted By: Vivek Sukhani
Date Posted: 27/Mar/2007 at 4:21pm
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I sometimes wonder, how come they are borrowing at such high rates???? Also Shashi, all talks of interest rates moderating appears wishful thinking....is inflation getting quieter.... its not... so rates will conitune its northwardly march..... even if India Inc. is earning and so are its people yet we are in a situation where the real growth is not taking place at all.... just tell me whats the point in growing at 9% with inflation at 6.5 percent....whats the fun?????? I beleive the first take should be to moderate inflation....even if some growth be sacrificed for that....just imagine borrowing at 10 p.c. lending at 15 p.c. ....this imply that the borrowers return must exceed 15 p.c. for him to make any sense to borrow....now take a pause, how long and what business offers you such returns over a long period of time...I beleive something's terribly wrong, and one need not be a rocket scientist to figure that out at all.... Just work out the impact of rates on Housing and Auto sectors.....very very negative. I am not trying to paint any gloomy picture here I beleive because of our small size when it comes to loan market vis-a-vis developed countries.... even a small setback can hit us very very hard. I dont know what that tipping point of interest rate will be.... but that we are approaching there is becoming obvious. Cash is the biggest casulaty of inflation and all banks deal in is cash...
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Posted By: kulman
Date Posted: 08/Apr/2007 at 12:10pm
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http://www.livemint.com/2007/04/06231859/Publicsector-banks-want-to-be.html - Public-sector banks want to be in public eye
When Union Bank of India (UBI) started advertising on television—this was a first in the bank’s 88-year history —it did so in style, picking the third edition of popular gameshow Kaun Banega Crorepati on Star Plus, and the ICC Cricket World Cup (although that didn’t end well for India and Indian advertisers). “We wanted to make our brand more relevant to the youth and these two events seemed appropriate for that,” says M. V. Nair, chairman, UBI.
UBI isn’t alone; of late, several public sector banks have embarked on ambitious and expensive advertising campaigns. Their reasons for doing so include centenary celebrations, the desire to compete with marketing-savvy private and foreign banks for a slice of the retail market, or a combination of the two.
Media owners and advertising agencies aren’t complaining: UBI hired Mudra Group to do its advertising; the bank’s annual ad-spends are likely to go up from Rs25 crore in 2006-07 to Rs50 crore in 2007-08.
Bank of India, which celebrated its centenary recently, hired O&M, one of India’s best-known advertising agencies, to create a campaign that appeared in print and on radio and television. According to a senior executive at Bank of India, who does not wish to be identified, the bank spent around Rs20 crore on the exercise. Data provided by AdEx India, a division of TAM Media Research that tracks advertising, shows that the volume of advertising by public-sector banks on TV increased 33% in 2006 (over 2005); in print, it increased 62%. Executives in the banking and advertising industry believe advertising volumes, and consequently spends, will rise this year too. For most public-sector banks, completing 100 years is an opportunity to effect an image makeover. “Our centenary year was the prefect opportunity for us to relaunch the brand,” says D. Krishnamurthy, general manager, retail banking, Bank of India. “Our new ad-campaign has gone a long way in creating visibility and improving our brand perception.” Bank of India, Indian Bank and Corporation Bank turned 100 recently, while Bank of Baroda, and Punjab & Sindh Bank will reach this milestone next year.
UBI’s Nair says it is important to reinvent the brand for younger customers. “The youth account for over 55% of our population. We can’t afford to lose out,” he says. “Though public-sector banks have been around for a while, their biggest challenge today is to reach out to the youth,” says Jude Fernandes, executive director, Mudra Group.
Relaunching bank brands or changing brand perceptions can work, as the experience of Bank of Baroda(BoB) shows. In its first 97 years of existence, the Mumbai-headquartered bank built up a customer base of 25 million. Then, in the following two years, 2005 and 2006, it added four million more. The bank’s general manager, human resource and marketing, Dipankar Mookerjee, thinks its recent advertising campaign featuring Indian cricket team’s captain Rahul Dravid, has a lot to do with that. “Cricket being the single-largest craze in the country, we roped in Rahul Dravid as our ambassador. We thought it would help us connect better with our consumers and it did,” says Mookerjee. The bank had set aside close to Rs29 crore for its rebranding exercise of which Rs1 crore went in endorsement fee to Dravid. The buzz in the advertising circles is that the bank is likely to spend around Rs100 crore around its centenary celebrations, coming up in 2008.
Public-sector banks can spend as much as they want to on advertising now without getting an approval from the country’s finance ministry (all government-owned banks effectively report to the ministry). “Now, it is up to a bank’s board to take the final call on its ad budget,” says H.N. Sinor, chairman, Indian Banks’ Association. Last year, four of the top five banks by ad-spends in the print media were from the public sector.
Public-sector banks believe they have to change to survive and compete in the thriving banking business. Private banks, both Indian and foreign, have always been savvy marketeers and big-ticket advertisers. According to an AdEx analysis, private banks spent more than their public-sector counterparts even in 2005 and 2006. In 2006, for instance, while public-sector banks spent Rs100 crore on TV advertising, private banks spent more than Rs180 crore. “The scenario is likely to further hot up with the entry of players like Barclays and Deutsche Bank in the retail banking space,” says a top executive of an advertising agency.
Banks that don’t focus on their brand communication run the risk of losing out, says Mookerjee: “With the advent of technology, the decision (to choose a certain bank) is no longer based on factors like its location. The decision is driven by the banks’ brand perception.” He claims that BoB decided to undertake a serious brand-building exercise after seeing a substantial drop (from 5% to 3.75%) in its market share between 2000 and 2005.
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While some arguments would be acceptable from these PSBs, I strongly object to huge Advt spending by PSU Oil marketing companies when their balance sheets are bleeding with losses from subsidies/inefficiencies.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: kulman
Date Posted: 08/Apr/2007 at 8:33am
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There is an interesting article: http://www.financialexpress.com/fe_full_story.php?content_id=159848 - Celebrating Indian banking (source: fe)
Some excerpts.....
Along with information technology, banking is definitely one sector where we are ahead of China. China may have bigger banks, but the sector has too many skeletons in its closets, too many questionable loans on its books. There isn’t even a credible statistic of how many banks China has: the estimates range from 30,000 to 42,000. Together they hold $205 billion in non-performing loans, or 13% of all loans, according to the government’s own optimistic estimate (Private estimates range up to 40%).
Five major criteria are used to compare performance of banks: Growth, Credit Quality, Strength and Soundness, Profitability and Efficiency/ Productivity. Each criterion is broken up into six sub-criteria. For instance, the sub-criteria selected-after careful thought-to measure Efficiency are Business per employee, Profit per employee, Spread/Total assets, Commission and Fees/Total Assets, Profit per branch, Operating expenses/Total Assets.
------------- Life can only be understood backwards—but it must be lived forwards |
Posted By: s_praharaj
Date Posted: 20/Apr/2007 at 10:13pm
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In PSU banks, one can look at only PNB and Canara Bank. But this is a trying time for all the Banks. The margins are clearly diminishing. As per today's report inflation is still more than 6%. We do not know what RBI is going to do on 24/04/2007, though all indications are there that the CRR will be untouched.
Banks are still accepting deposits are higher rate. One good development is that the Banks have become very cautious about their profitability. Loans at reduced rate of intt, waiving of service charges, waiving of commission on LC/BGs, looking for other sources of profit like insurance and depositories are the things, the top management of Banks are now discussing. With all this, I feel this is not the right time to enter the stocks of PSU Banks. Even the profit of FY 06-07 may be vary good, but one should not be lured by the result to enter into the stocks of PSU Banks. There are a lot of uncertainities ahead, which will directly affect the profit. For complying with the Basel-II norms, the PSU Banks have been told to raise additional capital. Many PSU Banks have reached the threshold limit of 49% public shareholding, which means that they can not go to the public for raising fresh capital unless the govt shareholding limit is reduced to less than 50%. This is not possible now as the left will oppose it. The other alternative is ro raise debt capital through Bonds. Now to raise this capital, Banks have to pay a very high rate of intt, which will eat away its profits. There are so many other issues, which are sending disturbing signal now about the sustainability of the profits for PSU Banks. For identifying good PSU Banks, in the present context, along with financials, the following points also bear a lot of importance. 1. Low gross and net NPAs.
2. Less public shareholding.
3.Minimum bulk deposits.
4.Higher CASA deposits. ------------- Shashi Praharaj |
Posted By: basant
Date Posted: 20/Apr/2007 at 10:58pm
Thanks for all that info. I was disturbed to see PC use these banks as a part of his vote bank politics. heard that he is making lending to minorities a part of priority sector lending.Vote ke liye kuch bhi karega
Now does money have a religion too?  ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kulman
Date Posted: 16/May/2007 at 10:56pm
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http://www.businesstimes.com.sg/sub/storyprintfriendly/0,4582,234179,00.html? - State Bank seeks acquisitions before competition hots up
Bank chief says it will be nowhere if Chinese banks enter the market
(MUMBAI) State Bank of India, the nation's biggest, wants to grow through acquisitions before global rivals including Industrial & Commercial Bank of China are allowed to buy local lenders, chairman Om Prakash Bhatt said. 'If ICBC comes to India, State Bank will be nowhere,' Mr Bhatt said in Kolkata last week. State Bank wants government approval to merge with seven units to add 50 per cent more branches and boost lending. While State Bank extends one in six loans in India and controls almost a quarter of Indian banking assets, it only ranks 69th globally. ICBC, based in Beijing, is worth more than the entire Indian banking sector seven months after it sold shares in the world's biggest public offering. Finance Minister P Chidambaram has said that banks must merge to cut costs before overseas financial services firms are allowed to add branches and clients by taking control of private banks in 2009. Citigroup, HSBC Holdings and Standard Chartered are now restricted to a combined 163 branches in India, a fraction of State Bank's 9,400 outlets. 'We will do (buy banks) if allowed to do so,' Mr Bhatt said. 'We need service and products, they (overseas banks) have to get a network, service and products.' Before China opened up its banking sector in 2006, the government pumped US$400 billion into banks to clear bad debts and permitted US$44 billion of stock sales. Citigroup, HSBC and Royal Bank of Scotland Group have all acquired stakes in Chinese banks, helping them set up credit card, consumer finance and lending businesses to compete on a global scale. Demand for banking services in China and India, home to a combined 2.4 billion people, or a third of the world's population, is soaring as companies and individuals borrow to sustain the two fastest-growing major economies. China's US$2.5 trillion economy grew 10.7 per cent in the year ended December, surpassing an expected 9.2 per cent expansion in India for the year ended March 31. State Bank on May 12 reported fourth-quarter profit increased by 75 per cent. Net income rose to 14.93 billion rupees (S$555 million) in the three months ended March 31, compared with 8.53 billion rupees a year earlier. Banks in India benefited from a 28 per cent loan growth in the year to March, following 35 per cent average annual expansion in the previous two years. State Bank, which accounts for 15.5 per cent of all loans in India, also gained from raising lending rates. State Bank shares have gained 6.7 per cent over the past six months. State Bank owns 100 per cent of four of its seven associate banks; State Bank of Hyderabad, State Bank of Indore, State Bank of Saurashtra and State Bank of Patiala. It owns 75 per cent stakes in State Bank of Bikaner & Jaipur and State Bank of Travancore and 92.33 per cent of State Bank of Mysore. Mr Bhatt said the government may merge the associate banks into a single competitor, or allow them to sell shares and then merge with State Bank. The seven banks held assets of 1.4 trillion rupees as of March 2004, according to State Bank's website. State Bank has assets of less than US$156 billion, compared with Citigroup's assets of about US$1.9 trillion. India's banking sector had about US$676 billion of assets as of March 2006, compared with China's US$5.7 trillion. Almost all sectors of Indian economy need more funds to grow. ICICI Bank chief executive K V Kamath estimates an investment pipeline of US$500 billion is required for infrastructure and manufacturing projects over the next three years. Tata Steel and Hindalco Industries needed to borrow from overseas banks to fund a combined US$18 billion of acquisitions this year. ICICI Bank on April 28 said it plans to sell 200 billion rupees of shares to meet growing demand for funds. ICICI Bank, India's biggest bank by market value, formally acquired Sangli Bank last month to gain 186 branches and access to prosperous farmers in the west of the country. - Bloomberg |
Posted By: deveshkayal
Date Posted: 02/Jan/2008 at 9:54am
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Canara Bank-Dena Bank Merger finally. Canara Bank MD said on NDTV that they are looking to acquire banks which have high exposure to western and north-western region. ------------- "You don't need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beat the guy with a 130 IQ. Rationality is essential"- Warren Buffett |
Posted By: Vivek Sukhani
Date Posted: 03/Jan/2008 at 5:02pm
| When it comes to banking, for people who dont want to avail of needless facilities and those who know how to price those facilities, PSU banks are excellent. Among PSU banks, Canara as well as Corporation is one of the best. I have no clue as to their balance sheet strength something which allahabad has, but the banking experience is quite good. |
Posted By: rakeshmehta48
Date Posted: 02/Jun/2008 at 5:02pm
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Vivek
Any views on PS Banks. Many of these are available below book value with reasonably good dividend yield, like
Andhra Bank: BV 77, MP 74, Div 4
Allahabad : BV 117, MP 80, Div 3
Syndicate : BV 77, MP 67, Div 2.80
Canara : BV 236, MP 212, Div 8
------------- Fund Management is Most Important |
Posted By: basant
Date Posted: 02/Jun/2008 at 5:23pm
Case of cheap stocks becoming cheaper. Ever since I started understanding banks the PSU boys were cheap and the private banks were costly. SBI was cheap since 1993 and HDFC Bank costly from 1995! ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 02/Jun/2008 at 6:08pm
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Andhra, allahabad, Canara, corporation I will go for. Will wait for SBBJ and SBT to become more freely available.
Banks as stocks shall be bought during depression. I have made a ten bagger in oriental in no time. My dad is standing on a 15bagger in case of SBBJ and SBT and is now making almost a third by way of yield on his investment price.
However, it has all been a case of timing.
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Posted By: jain208
Date Posted: 02/Jun/2008 at 6:40pm
PSU banks have been cheaper because of various factors like govt. interference, etc. But still SBI has been a 5-bagger since Jan 2003, not taking into account the dividends, and thats not bad at all. ------------- ======================================= The more it changes, the more it’s the same thing. |
Posted By: basant
Date Posted: 02/Jun/2008 at 7:23pm
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That is less then what the sensex has delivered since 2003. ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: jain208
Date Posted: 02/Jun/2008 at 7:39pm
Not exactly. Sensex has grown around 4.7 times, without dividends, in the same period. 01/01/2003 02/06/2008 Returns Sensex 3390 16063 373% SBI 284.6 1394.85 390% + dividends Please correct me if the data is wrong, or I have missed something here. Abhishek. ------------- ======================================= The more it changes, the more it’s the same thing. |
Posted By: basant
Date Posted: 02/Jun/2008 at 7:57pm
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I was speaking from raw memory! But a stock suffers from systemic and unsystemic risk whereas an index suffers only from systemic risk so for that unsystemic risk we need significantly higher incremnental returns. There are several MNC stocks that perform well during a bearish phase because no one sells them - but over a period of time they have underperformed and destroyed wealth (through opportunity loss).
You can add a 2%*5years dividend yield to SBI to get the result but overall that was a risk not worth taking!
I like playing for big gains and hence consider opportunity cost as the biggest yardstick to investments!
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Vivek Sukhani
Date Posted: 03/Jun/2008 at 4:52pm
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Allahabad's IPO came in 2003 at 10 rupees. Its still a 8 bagger. the stock by this time would have become free by way of dividends.
Dad bought State bank of bikaner and jaipur at 281+brokerage in 2002. the stock has already fetched us more than 400 bucks as dividend and is standing at 4400.
Punjab national bank's issue came at 48. Today its nearly 470 and has climbed upto 720.
I personally bought oriental Bank at 33. And got rid of a major part at above 300.
Vijaya, union, Bank of india.....I made 3-4 times in each one of them before selling them off for other stocks.
Dont know for others, but my personal career in investments have been built on PSU stocks.
-------------------------------------------------------
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Posted By: Vivek Sukhani
Date Posted: 25/Nov/2008 at 4:57pm
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I believe we are at the cusp where PSU banks should be looked at as emerging opportunities.
My choice among them , not necessarily in the same order will be:
Corporation
Canara
Bank of Baroda
Bank of India
Indian
Allahabad
Andhra
What do members feel about these banks? ------------- Jai Guru!!! |
Posted By: kvinodhan
Date Posted: 17/Jan/2009 at 8:34am
| Do you agree with the view that next phase of bull run would happen in the PSU banking stocks....How would you judge a stock like Bank of Maha or Vijaya bank which give a dividend yeild of about 10-13% .......Do you think they have a potential to become a multibagger in the next run with the talk of amalgamation of banks.... |
Posted By: Hitesh Shah
Date Posted: 17/Jan/2009 at 9:38am
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There shouldn't be a problem with either. At CMP both give decent dividend, although maybe slightly lower than the figures provided. Both are majorly owned by the GoI and not by state governments. Whether you'll be lucky with a "multi-bagger" is harder to say. Such stocks are for those (self included) who want relative safety (and tax-free income) in equities for at least 30-40% of their equity portfolio. And looking at their past stock-price performance, I've been told that Vijaya Bank has a higher chance of doubling from CMP than Bank of Maharashtra! No time-frames were provided! ------------- |
Posted By: basant
Date Posted: 17/Jan/2009 at 10:10am
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Vijaya Bank is at the same level it was several years back. Banks seldom become multibaggers except in the long run.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: nav_1996
Date Posted: 18/Jan/2009 at 1:55pm
| Why is Corporation bank selling so cheap (0.6 BV)? They have reasonable fee based income also (may be because of LIC tie up). |
Posted By: Hitesh Shah
Date Posted: 24/Jan/2009 at 6:52pm
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Any idea why Can Bank (-14.64%) and OBC (-8.13%) got a pasting? Can Bank saw a Q3 rise in NPAs.
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Posted By: basant
Date Posted: 24/Jan/2009 at 7:36pm
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Typical case of a) Cheap stocks becoming cheaper b) Dividend yields increasing.
On a serious note it is the loan book which is tilted in favour of SME and real estate. Many of these PSU Banks do not disclose loan books and that is not an easy way to analyse bank stocks.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kvinodhan
Date Posted: 25/Jan/2009 at 11:03pm
| Can bank got a pasting bcoz they made a provision of 10% on exposure of about 400 corer on Dahbol Project...so even though they posted ok results this qtr they got hammered |
Posted By: basant
Date Posted: 25/Jan/2009 at 6:09am
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Most of the PSU Banks are lending to smaller businesses and in a downturn it is the smaller guy who gets crushed. AMongst the PSU I would look at just PNB and SBI (if buying PSU Banks was a compulsion) else our own "expensive" HDFC Bank is far better then these! ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: Shikari_Shambu
Date Posted: 26/Jan/2009 at 1:28pm
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PSU Banks will be huge beneficiaries of the Pay Commission amounts flowing into them, increasing CASA and reducing cost of funds. This, together with reducing interest rates resulting in increase of value of their Bond portfolio, general perception of reduced risk in PSU Bank deposits, near knock down valuations and excellent dividend yield, make a great investment case in these Banks for the next 2 years or so. |
Posted By: basant
Date Posted: 26/Jan/2009 at 3:05pm
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What about the increase in wage costs because of the Pay commisiion? ------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: kumardiwesh
Date Posted: 26/Jan/2009 at 4:41pm
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I also heard they have huge pension liabilities. ------------- "History does not tell you the probability of future financial things happening" - Warren Buffett |
Posted By: Shikari_Shambu
Date Posted: 26/Jan/2009 at 10:49pm
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IMO, much of that and more are in valuations. You wouldn't have 5 PE and 05-0.7 Book and 7-10% dividend yield if there are no negatives. I don't think any stock (or group of stocks) is/are untouchable forever. At a price, almost every stock is worth investing. I had listed the positives that PSU Banks will have over next 2 years. Things are looking as if they will get better for them. My opinion is that anyone with 10-15 stocks in their portfolio would do well to have 1-2 PSU Banks in their portfolio. |
Posted By: 1234
Date Posted: 27/Jan/2009 at 8:15pm
| pay commission was for central govt. employees, not for psu bank employees. |
Posted By: nav_1996
Date Posted: 27/Jan/2009 at 9:36am
| As I understand SBI does not have pension liability. |
Posted By: manishdave
Date Posted: 27/Jan/2009 at 9:44am
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There is a report in BS that says there is 12k cr shortfall in pension liability of PSU banks. |
Posted By: CHINKI
Date Posted: 07/Feb/2009 at 9:03am
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http://www.business-standard.com/india/news/bad-debtsstate-owned-banks-under-check/00/18/348347/ - Bad debts of state-owned banks under check
Percentagewise NPAs have come down as PSBs mopped up good quantity of deposits during last few months. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: CHINKI
Date Posted: 24/Feb/2009 at 9:45am
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http://www.livemint.com/2009/02/24230850/Nationalization-return-of-eco.html?h=B - Nationalization: return of economic heresy
So does it mean that the mixed economy is not such a bad thing after all? One way of denying that is to say that the capitalism in the West is not free-market capitalism at all and we should root for a more immaculate, laissez-faire variety. That’s a lot like the communists saying you shouldn’t judge communism by the Soviet Union, but by the pure communism of the far-off future. Actually existing capitalism is a very different animal. Surely what is being questioned is not capitalism per se, but merely the unregulated, neo-liberal variety that developed over the last 30 years? Maybe all that we need to do is return to capitalism with checks and balances. But we are on dangerous ground here. Someone may well turn around tomorrow and say that if we can have a social democratic variety of capitalism, what’s wrong with having socialism with market characteristics? ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: Hitesh Shah
Date Posted: 25/Feb/2009 at 4:45pm
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I agree with Roubini that at least C***b*nk should be nationalised and straightened out. Otherwise, it's a menace on the loose.
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Posted By: Hitesh Shah
Date Posted: 03/Mar/2009 at 10:27pm
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State Bank of India is at its 52-week low! Syndicate Bank is at its lowest since Jan 2005! It lost ~36% in the last seven trading sessions (63.45 to 40.80 on the NSE)? Any idea what's wrong here? ------------- |
Posted By: rapidriser
Date Posted: 03/Mar/2009 at 6:10am
| It probably means that the market's fears of rising NPAs and slowdown in lending are coming true. Most banks will have to reveal their hidden dud loans at the financial year end. The insiders will know of the extent of damage before it becomes public knowledge. Also the unexpected rise in treasury yields is going to hit the paper profits of most banks, especially the PSUs. |
Posted By: CHINKI
Date Posted: 03/Mar/2009 at 8:36am
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Many analysts have recommended for PSU banks for short terms and Private Banks for the long terms.
The reasons being, in the short terms PSU banks will score over Priavate Banks in credit growth, loan growth, yield in treasuries and slow growth of NPAs as these PSU banks were not aggressive in retail and housing loans. ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: tverma
Date Posted: 05/Mar/2009 at 10:12pm
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but why private banks in the long term..one of the reasons for hammering of icici n axis has been d high NPAs..n d expectation that they are gonna rise even further in the future.. fail to understand why private banks would outscore public banks in the long term..please clarify.. |
Posted By: Hitesh Shah
Date Posted: 05/Mar/2009 at 10:18pm
One possible reason is that the government of the day has a say in the functioning of public banks. They are made to lend for social causes, write off loans to farmers, etc., etc., etc. ------------- |
Posted By: CHINKI
Date Posted: 05/Mar/2009 at 11:50pm
Once the situation changes, Private/Foreign Banks will be back to the driver seat and will do well in credit, deposits growth, profit generation and so on. So it is time to get into PSBs for short term and Private Banks for the long term (ofcours this is as per the analysts. You know the fate of their predictions). ------------- TOUGH TIMES NEVER LAST, BUT TOUGH PEOPLE DO |
Posted By: prabhakarkudva
Date Posted: 05/Mar/2009 at 10:46am
| Is it a good time to start accumulating a banking index for the next 4-5 years?? Every second bank you pick up seems cheap. |
Posted By: Hitesh Shah
Date Posted: 05/Mar/2009 at 10:52am
Only thing I don't like about the bank ETFs is that the spread is often wide. But otherwise, you can't go too wrong in nibbling now. ------------- |
Posted By: barla
Date Posted: 07/Mar/2009 at 7:47am
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PSU Banks seem to be very cheap. Indian Overseas Bank had crossed 220. It is now at 40. Dividend is at 3.25. So present dividend yield is almost 8-9%. The quaterly figures so far point to the dividend ratio being maintained. But then why has it gone to such a ratio. I mean buying PSB stock looks better than getting into an FD! Or is there something we are missing. Maybe the huge treasury gains on account of the fall in interest rates should have pushed the profits of PSBs but has not. Does anyone have any idea how the profits of treasury gains are accounted. I was told that it is mark to market. Maybe the guidlines provide that the gains must be spread over a period of time, just like the lossed.
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Posted By: kannanravi1
Date Posted: 08/Mar/2009 at 9:26pm
Anything specifically against Canara? They have a superb netwrok (next only to SBI)..also whats your take on Macmillan? Ever looked at them? ------------- kannan |
Posted By: equity analyst
Date Posted: 08/Mar/2009 at 10:20am
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well icici bank becomes a good but at 220 odd levels at least for a possible bounce back to 300 odd levels.
------------- "Markets are the places where two types of people meet up in the morning: those with experience and those with money. Towards the end of the day, they exchange their assets and go home." |
Posted By: stockaddict
Date Posted: 08/Mar/2009 at 11:26am
Which Bank ETFs are available and which one is the best? Does the ETF work like a MF holding a portfolio of bank shares and in that case benefit from dividend announced by the banks?
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Posted By: Hitesh Shah
Date Posted: 08/Mar/2009 at 11:31am
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I think there are more than one. The oldest I think is called BANKBEES and is traded on the NSE. There's also PSUBNKBEES. If you log on to nseindia.com you will get details on the composition. I think Reliance also has a bank ETF but I'm not sure. Exchange Traded Funds ETFs Launched on NSE
 http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=KOTAKGOLD&series=EQ&flag=0 - KOTAKGOLD http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=GOLDSHARE&series=EQ&flag=0 - GOLDSHARE http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=GOLDBEES&series=EQ&flag=0 - GOLDBEES http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=KOTAKPSUBK&series=EQ&flag=0 - KOTAKPSUBK http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=RELGOLD&series=EQ&flag=0 - RELGOLD http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=QGOLDHALF&series=EQ&flag=0 - QUANTUMGOLD http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=RELBANK&series=EQ&flag=0 - RELBANK http://nseindia.com/marketinfo/equities/quotesearch.jsp?companyname=QNIFTY&series=EQ&flag=0 - QNIFTY And if you look in "corporate actions" some have declared dividend but nothing to get really excited about. Main point here, is to buy low and sell high if the market mood swings permit 
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Posted By: prabhakarkudva
Date Posted: 08/Mar/2009 at 11:32am
| There are not many available. I was talking about Benchmark mutual fund's BANKBEES.It can be bought/sold in open market and the costs involved are very low compared to normal mutual funds. |
Posted By: basant
Date Posted: 11/Mar/2009 at 5:34pm
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The Big Bear has opened shorts in bank of india and has a target price of Rs 40. It is currently trading at Rs 180!
He says that SBI can come down to Rs 400 and all PSU and private Banking stocks will be demolished beyond recognition.
No view on HDFC bank. Incidentally he was abuyer in HDFC bank in the late 90's post listing.
Note: This news is not confirmed as I have no access to their contract notes.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: chimak10
Date Posted: 11/Mar/2009 at 5:57pm
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basant bhai your network of khabrilals is impressive.
BTW why is papa bear so bearish...........are some big BADELALs defaulting on their loans. |
Posted By: Vivek Sukhani
Date Posted: 11/Mar/2009 at 6:02pm
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If Bank of India goes to 40, the Sensex will crash to levels not seen in last 15 years......
Bank of India has declared an interim of 3 coins a ticket, and is a wonderful bank to bank with. ------------- Jai Guru!!! |
Posted By: basant
Date Posted: 11/Mar/2009 at 6:11pm
He expects large scale defaults to blow up the banking space .
My thoughts are that a Bank that trades at 0.75 times book can soon become expensive at 1.5 times Book if there is an incremental loan book damage of 5% of gross advances.
CMP - Rs 75
Book value - Rs 100
Price to Book 0.75 times
Increemntalk loan book damage 5%
Leverage - 10 times
Damage to Book Value or Networth - 50%
Adjusted Book Value - Rs 50
Price to Book 1.5 times.
For a Bank stock the composition of the loan book is most important then any of the other financial parameters.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |
Posted By: BGKGURU
Date Posted: 11/Mar/2009 at 6:52pm
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Dear Basantji
I appreciate that you have good netwoprk but i request that plz write with your views in detail,because if boi comes to 40 and sbi-400 than sensex will touch 4000 and hdfc bank will come down 300 and titan-200,are u going to sell both tommorow? ------------- Respect the Markets and do MAKE mistakes, but see to it that you can afford to stay in the markets even after the mistake-RJ |
Posted By: chimak10
Date Posted: 11/Mar/2009 at 7:09pm
| i am just glad i got some info which otherwise i wouldn't get. |
Posted By: Hitesh Shah
Date Posted: 11/Mar/2009 at 8:40pm
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Whoever this guy is, he seems to be the bade baap of all bears and makes our favourite Shankar Sharma seem like an optimist!
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Posted By: arunshah2k
Date Posted: 11/Mar/2009 at 8:55pm
I need to start learning on how to do shorts in market. Enought of bulls for time being. BTW, Shankar is nowadays comparatively optimistic. He is not that negative. Accordiing to him, while 21K may be long long away, there would be many bear rallies that one can plan around for next couple of years. |
Posted By: arunshah2k
Date Posted: 11/Mar/2009 at 9:12pm
I expect the defaults to happen slowly. Do we expect major defaults reflecting from end of March results. |
Posted By: BGKGURU
Date Posted: 11/Mar/2009 at 9:47pm
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basantji kindly reply ------------- Respect the Markets and do MAKE mistakes, but see to it that you can afford to stay in the markets even after the mistake-RJ |
Posted By: Hitesh Shah
Date Posted: 11/Mar/2009 at 10:25pm
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I think with the elections in mind, powerful factors are at play. Those with networks will do their best to move sentiment. The code of conduct may effectively rule out positive noises or moves from the sarkar, leaving the playground wide open for the bear lobby.
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Posted By: basant
Date Posted: 11/Mar/2009 at 7:19am
I am personally grappling with this question and you could say that I am yet to form any opinion.
------------- 'The Thoughtful Investor: A Journey to Financial Freedom Through Stock Market Investing' - A Book on Equity Investing especially for Indian Investors. Book your copy now: www.thethoughtfulinvestor.in |