I wouldn’t necessarily agree. Considering some NBFC’S like Chola, Bajaj Finance , Mas financial and Armaan Financial have created immense value. What matters is the underwriting quality of a bank or a financial institution. Yes; banks have control over their liabilities, but most of them barring a hdfc, kotak or CUB haven’t been able to take advantage of this. On an average banks are better, but considering the last entire cycle it hasn’t been the case. Any financial institution which has been prudent enough in their lending standards have a long runnway for growth. Just depends on the category they’re catering to and the risk assessment of the management (which is quite subjective, one of the major reasons why i shied away from yes bank and indusind). Better stick with a prudent and careful capital allocator in financials whether it is a bank or an Nbfc.
Disc- own Bajaj finance, Maha scooters, Dcb Bank, Canfin,Chola, Hdfc Bank and Kotak Bank
Yes agreeed and all these institutions had a long journey since inception… There must be few people trusted them in initial years.
Idfc first is poor on all parameters i agree… But the guy ia doing all right things as of now.
They dont have branches ATM cards POS… They lag in all parameters as of now but may catch up.
I agree with abhishek ji to be prudent as it is our hard earned money with which we are trusting a managemnet… Best strategy will be to add in small quantities quarter after quarter if results are improving
Disclosure… Invested and can be biased
Bank has been opting for higher yielding retail assets aggressively - not necessarily a good thing considering that macro will remain weak for 2-3 quarters at least and retail pain may kick in, higher credit costs will keep ROA low (currently at 0.24%)
Forbearances will be required for telecom exposures, they will stay current but will negotiate
Tax benefits will clearly have a positive impact, and some green shoots will appear after next quarter results - but would probably be a relief rally given the above two points
Disc - Short on IDFCFB in my long-short portfolio (long KVB, Kotak and L&TFH to compensate this short)
Capital first was a ailing company when VV came on board and he made it profitable. May be he took few decisions in ICICI earlier that did not work very well. Because of his aggressive nature he was able to bring shape to CAPF and eventually CAPF share holders were benefitted with the merger
He came on few well known channels and made it very clear that CAPF wants to be a bank. I remember Sriram deal got cancelled because of not getting the valuation CAPF wanted. They got through with IDFC Bank. the whole of this process took more than 15 - 18 Months.
Now coming to quality of management, I agree that VV has to prove again and changes are visible as per the recent Sep 2019 results. My thought is his aggressiveness should not be compared with unethical practices (RBL, Yes Bank and DHFL). If it was there, it should have come out by now since he is in the industry for over 2 decade now. Appreciate your views
Disc : I am invested since CAPF time (2014). Not a buy / sell recommendation
I am also not saying that he is unethical or a fraud or anything like that. I am just saying that being aggressive in the banking business may (again let me repeat, may and not will) lead to problems down the line.
The examples you have mentioned of RBL, Yes Bank, DHFL etc… look at their main protagonists. Did they just pop up from nowhere in the last 2-3 years? No, they were in the system and considered extremely successful for many many years. Before the roof fell on their heads! (Again, here I would not put RBL in this list, but Yes and DHFL definitely).
It seems he is working on bottom of the pyramid. Good workout but it should not be announced outside because some other person enter before you enter into that field.
Main thing in this one is collection efficiency of Bank matters in compared with lending.
Time is such today that HDFC Bank is being idolized and Mr Aditya Puri being praised for his prudence at a time when other banks were hungry for bulk advances. Today every bank is keen on having a bigger retail book. Isn’t it a good idea to start betting on corporate loans now (a time when no bank is keen on doing it?). If $5 trillion India were to become a reality (not saying it will or won’t, just an assumption), isn’t it a good time to focus on wholesale lending?
@adk228 I believe the difficult part is to do a precise credit risk assessment for these large corporates and ensure enough diversification to not end up like a Yes Bank (when talking about corporate lending).
Yes true, I agree with you. Ultimately I feel, this difficult journey of credit assessment needs to be successfully traversed by some bank/a group of banks. The one who does it earlier, will get an edge.
No better way to understand the market. There is huge untapped market at the bottom of the pyramid as taxi drivers, small shopkeepers, tea shops, barber shops, mobile vendors etc do not have the courage to approach a bank for a loan as they are afraid of being laughed at and politely sent out. Vaidyanathan will certainly do well if he spends time regularly, in talking to customers.
It is a business of collection actually. One does not make money until last installment is collected. But I think people at the bottom of the pyramid are the most honest ones.
Loan against deposit can be a good idea for these type of customers and at the same time daily interest collection through its POS machines can be used. Mr. V has been outstanding but the real retail business is done by the bank employees and after going to some stores where Bajaj and IDFC’s people are present, one can easily see how active Bajaj fellow is and how non interested IDFC fellow is. Its just my observation. Banking is all about knowing risk. As there have been many studies that the smaller loan to poor people are less prone to default. IDFC at this point of time with a lot of room to grow should disburse these types of loan.
Disc: Holding.
