VP CHINTAN BAITHAK GOA 2017: Anant Jain: Better Banking

Please find herewith attached a presentation I made at The Goa 2017 meet. The presentation is on a Swedish bank called ‘‘Svenska Handelsbanken’’ a 145 year old bank and its unique business model which helped it come out stronger post Financial Crisis.

Better Banking.pptx (395.0 KB)


Hi Anant,

This is a treasure and thanks for your valuable insights on an ‘outsider’ bank.

Just curious to know whether are there any Indian bank(s) that would fit/follow such model?
Boring, decentralised, no focus on returns but asset quality, don’t lend to NBFCs but creditworthy customers, etc

I dont think there is a bank in India which has similar operational characteristics for that matter it will be difficult to find in RoW as well. To begin with India as an economy is at a different stage than the matured Nordic economies also one needs to factor in the ethos of general Nordic people which is more socialistic in approach.
The application to Banking in India is not necessarily to have a model which is similar to Handelsbanken but to see if a bank is following the basic principles of lending. As an individual investor understanding a Banking business is difficult and a lot of times one needs to assess it from management talk since the truth of balance sheet is a few years away. Whenever banks move away from these basic principles I keep on making a note and if possible question the management in conf calls/AGMs to understand the reason for deviation. To quote a few examples:
a) RBL bank seems to have a high exposure to MFIs. Clearly to me it is a worrisome sign. Personally I have been extremely uncomfortable with the lending risks in MFI industry so anybody who lends to that industry loses a few mental nuggets.
b) ICICI bank has a shrinking foreign balance sheet and that is a +ve even though the headline loan book growth number will say otherwise. These guys should have never had a large foreign exposure.
c) Kotak Mahindra bank buys a stake in MCX, RBL bank buys a stake in some MFI, all these are -ves in my mind. They are running a high growth bank with decent RoEs and raising capital every now and then why do they have to get into non core business. During the time of stress the only buyers would be for Govt Securities most of these investments will be sold at below par value.

Just one last point:

There is a great amount of focus on quality of returns over a longer period of time. The bank is not concerned with growth/stock returns.

Dicl. Invested in some of the stocks that I have written above and the above is not a recommendation.


This is an excellent presentation that helped me learn how ‘back to basics’ banking is the most thriving even in this age and in developed economies.

Some of the things I learnt are:

  1. Banking (both asset and liability) is local. A bank can survive with no marketing, no advertising and only word-of-mouth! Branch banking survives even in the age of digital, so to speak.

  2. The branch banks are micro banks in spirit. The central office is more a service organization than command center to these branches

  3. Treasury is not-for-profit! I still cannot grapple that!

  4. The incentive alignment is really long term and on a common goal of ROE > local peer group and same bonus across the organization

  5. CEO sits at front desk many times in a year.

  6. The goal is common across everyone (RoE) and achieved via better customer satisfaction and lower cost. I thought the edge is in its simplicity; everyone understands it and in the same way.

Warm regards,


Good presentation.

Regarding RBL, Yes, MFI is surely a risky business but I think RBL is doing it in a smart way:

  • Their total MFI book is only around 12% - not very large
  • Their idea of providing for 1.5-2% provisioning for such loans to take care of tail risks is a good one and shows that they understand the risks well.
  • Their point on having a well diversified geographical MFI book is also spot on, most of these single state MFI businesses will likely go under at some point as the political risks are too high.

When you are a small bank with a weaker retail footprint and higher cost of funds as compared to giants like HDFC and ICICI, you have to go after the higher yielding space in an intelligent and prudent way which is what RBL seems to be doing.

@ricky76 In an ideal case I would not like to have a bank take an exposure to any other lending institute for the reasons of controlling their underwriting. Incase of RBL if you look they have a direct exposure to Micro loan through their BC model and they again have an exposure to MFIs (In totality they call this as Micro Banking portfolio). Along with this they have also invested in an MFI (in this or in last FY) also the additional provisioning/additional buffer was only thought of in this quarter prertty much post facto. The best way to deal with a risky loan is to not give it instead of having a larger yield and then cushioning it with better provisioning.

Now all the above in no way means that RBL bank is not a good bank (or a bad bank), and I think V Ahuja is a very fine banker it is just that I as an investor would have preferred them not doing a few of the above things. Further I as an investor never liked the MFI industry and so it is difficult for me to appreciate the same when a bank does this.

Discl. I have a 10%+ allocation in RBL bank and my views can be biased.

Anant- good point, agree with you that banks taking exposure to a MFI exposes them to black box risks. Would be good to probe on the rationale behind this during their next call.

My view on risk though is different, what matters most in banking ( and investing for that matter) is not avoiding risk but focusing on risk adjusted returns. Good bankers understand the risks involved and price it accordingly. Of course, some risks are simply not worth taking in which case the banks step aside as HDFC did with project financing right from the start.

Banking history shows that some banks get it right, some don’t.

Both Kotak and Indusind have done a great job with risky and cyclical CV loans not so Shriram transport, similarly Bajaj finance has built a great business around unsecured consumer loans while ICICI completely screwed up with this in 2006/07.

In the US , Goldman has been known as a fantastic risk manger navigating the eighties unscathed while dealing in junk bond loans, Latin American derivatives and such, Citi has blown up doing the same multiple times.

My point is that a banking CEO is first and foremost a risk manager. Good ones manage risk well, the lousy ones screw up.

I believe that MFI can generate good risk adjusted returns in the hands of the right banker, let’s see how Ahuja deals with this.

Also vested in RBL.


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