Karnataka bank – private bank @ public sector valuation

(sachit) #82

Thanks for pointing out the correction

(GSrikan) #83

If I remember it right, Mr Vijay Kedia mentioned on TV said that he sold it for buying something else (he might have used it to buy kokuyo & dredging Corp) and he would buy ktk bank in future. That said he may buy it only if the execution by Management improves. If he fears there might be more Gitanjali gems kind of fraud exposures hidden he would have sold out fully this quarter. We will come to know about that in Mar 2018 SHP anyway.

Overall economy is clearly bouncing back. I expect banks should grow at substantial pace for next few years in benign economic environment.

Disc: invested (substantial part of PF)
Avg price: 150
Don’t have much knowledge in banking. Invested based on perceived cheapness & perceived change in attitude of management since last few years.

(Saravanan B) #84

Don’t bet based on others conviction. Read their annual reports and build your own conviction. There might be a lot of different opinions. Rely on your data.

(..pd..) #85

Didn’t entire banking sector changed since the last annual reports of all the banks? Nevertheless, that’s a sweet advice.

Why he sold - he mentioned in this during his TIA Chennai talk.

(GSrikan) #86

Hi Parth, can you elaborate on what he mentioned abt Karnataka bank in TIA meet? Thanks.

Hi Saravanan, thanks for the advice. I did as much research I could. But I have to rely up to certain extent on the huge experience of investors like Mr Kedia.

(sta) #87

Hi. Could some one point out what is different about this bank. Other banks of same size also have similar exposure is everybody betting on Mr kedia

(Vilas D'Souza) #88

In my opinion it is imperative to do self study and not depend on what some big investors are doing. Borrowed ideas sans conviction doesn’t work most times. My friend had guts to buy Intellect Design after big bull sold and the stock doubled. One famed guy kept shouting about Hawkins and he sold out when his followers were buying.

(GSrikan) #89

We may be veering of from the actual purpose of the thread here. Still i would like to post one last post on borrowed conviction. Borrowed confiction is difficult to implement when stock price keeps falling( or rising too). But if you stick with one strategy of Mr Pabrai, the borrowed conviction can be success formula too. But in US, the big investors need to disclose their holdings periodically, which makes Mr Pabrai’s strategy more easier to implement. In India too, I believe it can be implemented with reasonable effort.


(Vilas D'Souza) #90

Yes… conviction matters, whether borrowed or self. We can’t be buying everything that every big investor buys. An investor needs to understand the stock thoroughly or leave it to luck then.

Coming back to Karnataka Bank, the unknown is the size n scale of unrecognized NPAs. All banks except HDFC, Kotak etc are having this challenge.

(GSrikan) #91

With my limited knowledge about banks & investing, my perspectives on Ktk bank are:

  1. the branch network growth is phenominal in last few 5 yrs (if i remember right they have grown from 400 to 800 in last years; considering its a 100 yrs old branch, we can sense that they are hungry for growth)

  2. they have set themselves a vision which is very ambitious;

  3. they hired an external reputed (not sure how good they are with banking) consultant (BCG) to fill in their knowledge gap

  4. they have setup high level committee to review weekly progress of transformation initiatives

  5. special teams for monitoring of bad and would be bad accounts & recovery of npas

  6. the current CMD has plans for making most of the employees as more of sales ppl (my guess is to sell retail loans, insurance, MF products) by freeing them up from regular banking activities; this he wants to achieve by making customers use technology (online banking, apps etc) for regular banking activities

  7. focusing on high rated corporates for corporate loans; too much focus on crowded retail segment is not good idea according to my opinion

  8. the valuation is close to psu banks


  1. the big banks are growing at 30% even at this bad economic conditions and having less than 1% nnpas; ktk bank is comparing its growth with industry average growth
  2. the Nnpas have not come down much in last few years from 4%
  3. provisioning is barely enough in these days of 50 to 60% min haircuts and 100% haircut in case of frauds; exposure to geetanjali gems upto 2014 indicates lack of robust systems
  4. even after establishing investor relationship cell, no assurance announcement regarding geetanjali exposure or pnb fraud exposure; not very sure that more frauds are covered up or not
  5. in Twitter, i see some complaints of unnecessary illegal charges for basic money transfers
  6. CASA growth is slow; pretty much stagnated
  7. the old mindset & lax culture of employees will be difficult to change

Sorry abt not being detailed enough with numbers; these are my top the mind observations

(Vilas D'Souza) #92

You’ve summed it up really well, we need to look beyond numbers too to understand the story.


Here is a discussion on KTK bank with several inputs. Though good to have different perspectives, please take all these with a pinch of salt and do your own analysis.

(nowin) #94

I believe when you invest in a stock , if possible look from a customers prespective. For a bank , individual (retail) customers matter a lot. Just visit a karnataka bank branch , check the website. Compare it with website of industry leaders or compare it with yes bank. Then decide whether you would really like to have an account with karnataka bank? Is the website really customer friendly ? Most of your answers will get answered.
If you check the twitter handle , you will get a feel how customer focused they are.

I may be sounding foolish ,but if customer touch points are not good , merely increasing branches wont help. Without customer focus ,its tough to grow.

Disclosure - Not invested

(Saravanan B) #95

It’s a matter of conviction. Let us see what will happen in the next 3-5 years. I am not a firm believer in short term contraction.

(GSrikan) #96

Here is the video of Mr Vijay Kedia’s interview as part of Bloomeberg’s “Alpha Moguls”.

He mentions the reason for selling part of Karnataka bank.

He feels, the end of NPA rising is not over yet and could continue for few more quarters. He sold it as it is liquid stock and bought Everest industries.

It will be interesting to see the next SHP of Ktk bank, we will come to know he has sold out entirely or still kept his 1.18% stake.

The next quarter results, we will come to know whether there will be degradation in NPA scenario. If NNPA improves, it will be game changer.

(Saravanan B) #97

Banking and steel stocks are never for faint hearted. I would recommend users to understand the economics of business than relying on a marquee investor. I am not claiming not to believe Kedia. Each investor have their own requirements and risk appetite. It is advisable to rely on your conviction than borrowed conviction.

In my view, I can see most people are taking about Kedia but have not done their homework on why the banks will or will not improve?

Last but not least, it is of paramount importance to the readers to bring in concrete arguments and logic about a particular scrip than discussing about someone’s SHP.

(Saravanan B) #98

I am making a strong claim that if the public banks are not revived there is not capex for Indian growth story. We have no other option than to regulate. With this process, private banks will be a huge beneficiary. Banks are in severe contraction phase. It will test people’s patience but those who have a long term view of 5 years can stick to their conviction.

Tip: Private banks earn through fee based services. It is only public banks which will fund infrastructure projects. In this blood bath, the good banks are also punished.

(GSrikan) #99

Again I am going to post some broad points based on my observations:

  1. there is certainly a broad trend of private banks taking away market share from psu banks. This has been happening since hdfc bank is established and will continue in future. But this transfer should happen gradually. The current situation is bit scary. All the money they got through recapitalization will be going into provisions for frauds and more n more NPAs which have been so far under the garb of restructured accounts. Once recapitalization amount is done with, PSU s are back to a situation where they can not lend. The private banks can service only 35-40% of economy from current 30%. With 60% of economy deprived of lending, the economy in doldrums, which will damage Pvt banks too. So, market share shift to Pvt banks has to happen gradually. So, I believe, the current hidden NPAs are big, which is possible, then they could threaten economy, Pvt banks n psu banks.
  2. the current asset turn over is still about 70%. So, capex pick up still going to take time to materialise until unless the economy, damaged by demand disruptiom caused by demonetization, Gst, rapidly recovers. This could happen.
  3. the small Pvt bankers have to compete with mercurial nbfcs in retail credit growth and big banks for good rated corporate lending. That’s why bank management plays crucial role here. We will have to see in future, how ktk bank competes.
  4. from a news report, it seems overall credit to deposit ratio has bounced back to pre demon levels of 70%+. This is a good news for banks. This is caused by moderation of deposit growth and decent growth of lending.

The hidden NPAs seem to be one major threat for now.

When an investor with credible track record disposes of his stake, it is better for the small investor to recheck his whole thesis again. In that process of rechecking the thesis, one important input would be the reason for Marquee investor’s exit.

So, i feel, there is nothing wrong in tracking the SHP & Marquee investor’s reasons for exit for right purpose.

It is heard (no evidence available though) that even Mohnish Pabrai enquired around for finding reasons for sudden fall in KRBL’s share price.

Disc: invested
I don’t have much knowledge in banking

(GSrikan) #100

Nice report on individual banks. There is a separate section for Karnataka Bank too (pretty positive one).

We need to keenly watch whether the trend of reducing GNPA, NNPA & restructured accounts, continues or not in next few quarter results.

Disc: Invested

(..pd..) #101

Analysis is of KTK bank while the management details is of South Indian Bank.