"Pick battles big
enough to matter, small enough to win"
—Jonathan Kozol (American, 1936)
Word
for the day
Peradventure (n)
Chance, doubt, or uncertainty.
Malice
towards none
'K' is a popular word not
only in Pakistan but in UP also:
Khan (Azam)
Khap (Jat and Yadav)
Khaat (Congress farm loan
waiver)
Kashi (BJP)
Kanshi (BSP)
First random thought this morning
The UP elections have begun with Farm loan waiver (Cong) and free
smart phone (SP).
The competition will intensify as BJP and BSP join the fray in
next few weeks.
The voters will have really tough choices to make this time!
Bank on banking - 2
The following five issues in
particular have impacted the investors' sentiments insofar as PSBs are
concerned.
(1) FCNR redemption: Potentially US$24bn redemption of
FCNR deposits received from NRIs in 2013 is due between September and December
2016. It is feared that the redemption may cause material pressure on banks'
liquidity & credit growth and may cause high volatility in currency and
debt market.
In
my view, all these fears are mostly unfounded. These appear premised on the
fallacy that Indian banks and banking regulator are highly inefficient and are
even unable to foresee 3months forward!
I
do not subscribe to this notion and therefore not worried at all about this
event. (More on this tomorrow)
(2) Underreported NPAs: The asset quality review
mandated by RBI may have taken care of a large part of this problem. My
discussions with many bankers and their auditors suggest that in many cases
material over provisioning has been made.
In
my view, though in the current economic environment one cannot rule out new
accounts slipping into red, the problem from hereafter should be a normal
business proposition and not a catastrophe.
(3) Capital inadequacy: This is a serious problem at
this point in time, but certainly not incapacitating. Many PSBs need material
capital infusion to meet the Basel III norms in next 2-3years.
In
my view, they should have no problem in raising fresh capital from government
or public, provided they are in a position to deploy this capital profitably.
This could be a chicken-egg story in the short term, but in medium term it
should not be. Those who are profitable get the capital, and those who are not
get acquired by big brothers.
(4) Competition from private banks: This is a serious
issue and needs to be adequately factored in investment decisions.
I
believe, given the dominant market share of PSBs and vastly underpenetrated
market, the large five PSBs could survive profitably and grow for next one
decades at the least. I am not inclined to look beyond these five for my
portfolio.
(5) Credit growth: This is normal business cycle issue
and not a structural one. In my view, the credit growth is bottoming and should
begin to pick up in next 3-4 quarters.
I would share my views about these
issues in detail, over next few days.
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