Karnataka bank – private bank @ public sector valuation

Stock Opportunities Untested - but worth a good look
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With my limited knowledge about banks & investing, my perspectives on Ktk bank are:
Positives:

  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

Negetives:

  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

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