For years, Indian banks were pathetic stocks. All Indian Banks put together are not as big as the 10th largest largest bank in China. And there were multiple reasons for this.
But literally overnight, things are changing. October saw the resolution of the bad debt situation at Essar, with Arcelor Mittal stepping up, to pay 80 cents on the dollar. And in a sweet bonus, the problems at Uttam Galva were also sorted out as a precursor!
Just imagine the implications of this one news item. Essar was amongst the nastiest of NPAs, with little hope of being sorted out. Banks had made provisions for almost 80% of the outstandings to Essar. And instead of the normal scenario of writing off the balance 20%, they now get a cheque for 80% of the money! This effectively means, banks are getting Rs 42000 crores, while they were expecting to lose Rs 14,000 crore. This is a cool Rs 56,000 that goes straight to the bottom line. Secondly, that Rs 40.000 crore provisions can now be applied to other loans.
But this is where it gets even better - those other loans don't look nearly as unmanageable today as they did just a few months back. The new weapons in the hands of creditors are strong, and are now validated. It is just a question of time before they start giving results everywhere.
Things could become really interesting really fast with this sort of scenario playing out. Most analysts have no idea how much the provisions made by banks over the last 20 years are - in a quick sense, they are the difference between the Gross and Net NPA's. So if even 20% of the Gross NPAs get sorted out in a good resolution - where banks earn back good portion of outstanding, that is enough to completely wipe out India's NPA problem!
This isn't all that unfathomable today. If we get another 4-5 Essar style resolutions, Indian banks are home safe and dry.
And there are lot of companies where this is easily possible.
But even that may not be required. Just as this process was finishing, the Ruias realized that this time the game was serious - and offered to pay back entire Rs 54,000 crores. But that offer was rejected and they lost their crown jewels. You can be sure other promoters will not be as smug now - and they will be actively looking to bring back the crores from Switzerland and elsewhere, to retain their crown jewels.
This situation couldn't look better. And consider the recent selloff in the entire market, we now have a glorious opportunity to load up heavily.
I believe Indian banks are a screaming buy at this point.
This isn't just a PE re-rating story - this is a massive EPS upgradation story with provisions coming back to the bottom line. This is a de-clogging of credit growth as balance sheets of banks become stronger.
This could be the multi-bagger of the decade from here on. And in some cases, 3 figure multi-bagger. If India is going to do well, it is inconceivable that Indian banks don't do well.
But literally overnight, things are changing. October saw the resolution of the bad debt situation at Essar, with Arcelor Mittal stepping up, to pay 80 cents on the dollar. And in a sweet bonus, the problems at Uttam Galva were also sorted out as a precursor!
Just imagine the implications of this one news item. Essar was amongst the nastiest of NPAs, with little hope of being sorted out. Banks had made provisions for almost 80% of the outstandings to Essar. And instead of the normal scenario of writing off the balance 20%, they now get a cheque for 80% of the money! This effectively means, banks are getting Rs 42000 crores, while they were expecting to lose Rs 14,000 crore. This is a cool Rs 56,000 that goes straight to the bottom line. Secondly, that Rs 40.000 crore provisions can now be applied to other loans.
But this is where it gets even better - those other loans don't look nearly as unmanageable today as they did just a few months back. The new weapons in the hands of creditors are strong, and are now validated. It is just a question of time before they start giving results everywhere.
Things could become really interesting really fast with this sort of scenario playing out. Most analysts have no idea how much the provisions made by banks over the last 20 years are - in a quick sense, they are the difference between the Gross and Net NPA's. So if even 20% of the Gross NPAs get sorted out in a good resolution - where banks earn back good portion of outstanding, that is enough to completely wipe out India's NPA problem!
This isn't all that unfathomable today. If we get another 4-5 Essar style resolutions, Indian banks are home safe and dry.
And there are lot of companies where this is easily possible.
But even that may not be required. Just as this process was finishing, the Ruias realized that this time the game was serious - and offered to pay back entire Rs 54,000 crores. But that offer was rejected and they lost their crown jewels. You can be sure other promoters will not be as smug now - and they will be actively looking to bring back the crores from Switzerland and elsewhere, to retain their crown jewels.
This situation couldn't look better. And consider the recent selloff in the entire market, we now have a glorious opportunity to load up heavily.
I believe Indian banks are a screaming buy at this point.
This isn't just a PE re-rating story - this is a massive EPS upgradation story with provisions coming back to the bottom line. This is a de-clogging of credit growth as balance sheets of banks become stronger.
This could be the multi-bagger of the decade from here on. And in some cases, 3 figure multi-bagger. If India is going to do well, it is inconceivable that Indian banks don't do well.
