Banking on banks


Well-Known Member
It is easy to look at the flood of bad news that has come in the banking space, and be scared. It is easy to worry about all the bad loans that are yet to be recognized. It is easy to see banks requiring a huge amount of capital infusions to even meet norms, let alone grow their businesses.

But in all of those things, there are a few things people aren't seeing.

- Banks are getting a lot of help from new laws that are being passed to make it tough for promoters to escape from their obligations, and to make it easy for banks to recover their money. Today, India has moved decisively away from the BIFR era into a Bankruptcy era. If you cannot honor your obligations, then the system is now geared to shut you down quickly and cleanly - not to help you survive and drag things along forever.

- Over the last decade or so, banks have made significant provisions for bad loans. And the new laws that are being passed today will be as applicable to these old bad loans as to fresh ones. So while people are worrying about fresh bad loan disclosures, not one person is thinking of the impact to bottom line when these old bad loans are pressurized to repay because of the new initiatives. That money has already been written off, and when it is repaid, it goes straight to bottom line.

- Promoters are today preparing to sell off assets, preparing to bring back money stashed away overseas, and in short, do whatever it takes to hold on to their companies. They know the writing is on the wall - if they don't pay, they lose their companies. Many of these steel, power, mining and other companies are real businesses - and if India is going to grow economically, these businesses are critical. No promoter is stupid enough to lose his company today, if there is any way he can avoid it.

- RBI has held off on lowering rates to some extent, because they want banks to make real efforts towards solving the problem. They don't want banks and borrowers to get a Get-Out-Of-Jail-Free card, because of lower rates. But as RBI gets a sense that banks and borrowers are making serious efforts to solve the problem, the RBI will step in to lower rates. Lower rates make it much easier to service debt obligations, and will help hugely.

- In any case, whichever way you see it, it is fair to say that all the bad news has been priced into Bank share prices. Even if there are fresh disclosures of bad loans, we are already worried about that, so we need to assume that share prices have already factored in those worries.

- If the Indian economy is going to perform well, and if India is going to grow, it is simply inconceivable that this can happen without banks participating strongly in the process, and without banks benefitting from the process. Unless you are writing off the long term economic story of India, you have to expect that banks will recover solidly from current levels.

- Most of the big banks today, like SBI and ICICI have made investments in subsidiaries in life and general insurance, which aren't yet making full contribution to the bottom line. We all know that India is massively under-insured, and even middle class and upper middle class Indians are under-insured! These businesses have nowhere to go but up. And whatever may be the current hiccups, these will all be resolved sooner or later. At some point these subsidiaries will be listed publicly, and the value in these subsidiaries will be unlocked.

- it is only in times of crisis that you will see big banks become multi-baggers. Those who invested in Citibank shares at $5 per share in 2008-09, have made 10x in just 8 years! But in general, it is better to be greedy when everyone else is afraid, and afraid when every one else is greedy!


Well-Known Member
I hope people saw this and acted on it. But if you didn't the situation is still not too bad.

Just today, ICICI sold off Rs 1600 crores of NPAs in Essar Steel to Edelweiss ARC. And this is just the start, this effort is going to get solid momentum.

JP Associates is selling more of its assets to Ultratech - getting rid of Rs 12,000 crore debt PLUS getting Rs 4200 crore cash inflow. This will see JPA debt fall from Rs 28,000 crore to below Rs 12,000 crore - which is a massive fall. Ultratech is much better positioned to take on this debt.

SDR is becoming a big weapon for banks - because they can takeover equity control of companies against debt, and then deal with it however they see fit. Managements are scrambling to avoid notices of SDR! Just 3 months back, banks were seeing SDR as ineffective - but today the picture has become diametrically opposite!

The beauty of these efforts is that even a 20% effort from corporates will have salutary impact on banks - because loans that were written off as NPAs long ago will now become viable. Provisions made long ago will flow directly to the bottom line.

Even major banks could be multi-baggers - in fact you can throw darts at the Bank Nifty, and pretty much any stock you pick will double in 12 months (if overall market doesn't crack badly because of any global weakness).


Well-Known Member
Again - hope people got onto Banks after last time at least. But if you didn't even now not too late. It is impossible to have solid economic growth without banks benefitting from it. And for all the hiccups in banks, believe me, unless they go bust, they will always win!

Just check out what happened to US banks - in 2008, the situation was as ugly as it could possibly get for US banks. But see where they are today - solid multi-baggers!

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