I am planning to invest in the banking sector and looking at a few banks, Yes Bank and Andhra Bank in particular. The investment period would be 1-2 years, and maybe longer depending on the performance of the stocks.
Please suggest which one of these banks would be a better option to invest considering the future growth.
"Yes Bank has an exposure of Rs120 crore to Deccan Chronicle Holdings, Kapoor said, adding that the bank has recovered Rs 50 crore in the last two months through sale of assets. "The account still remains standard, however, it could become an NPA in the December quarter," Kapoor said.
Whenever you act on news and views from others it is very difficult to remain invested and make long term money.
Try to go through the Annual Reports and company conference calls to understand a business, it's key strength and weaknesses.
With the strong management, improving traction in CASA and broad based lending (shift towards more retail assets) the bank would do good. Also they will never dilute the book cheaply as compared to other random private banks.
Develop your own conviction and take every news report for information purpose only.
ET Now: Give us a sense of your asset quality. What are the main stress sectors? While your NPAs have decreased, is there still a danger of fresh slippages this quarter?
Rajat Monga: We see only one account slip this quarter. In terms of the recent trends, this quarter has been clearly better as far as slippages are concerned. However, we are a little bit exposed to one particular midsize account, which is not yet into a slippage category, but we believe there is a reasonably threat for it to slip. So we have been taking some pre-emptive provisioning. We have taken about Rs 45 crore provisioning in this quarter just to pre-empt any further situation development on this particular account. So our asset quality is carrying that. However, in terms of the delinquency position, this quarter has been very encouraging.
ET Now: Anything on Deccan Chronicle,is it an NPA account for you? What options would you have now to recover the money?
Rajat Monga: Our net exposure, net of provisioning, is about Rs 65 crore and we have more than this amount of collateral that is still exclusively available to us. However, there is sometimes a legal process, sometimes a bilateral process that we have to undergo. So overall, on a bad day we should have already provided for 80% of the expected loss on this account. Therefore, we are now reasonably comfortable about the situation in this account.
I feel either the stock has a technical problem (one or more big players have been forced to liquidate their positions in this stock) or there is some fundamental reason for this fall which we don't know or are ignoring.
See post #7 by magnet.
There are some other issues with the bank besides its high cost of funds.
- As per the article, 18.2% of its loan book consists of "other loans" and we don't know what these other loans are.
- As per the article, the bank is highly leveraged compared to other private banks.
- The bank's risk-weighted assets to advances ratio is very high. In other words the bank has more exposure to riskier segments of the economy.
- The biggest concern, according to the article, is the bank's non-fund based exposure. These items are off balance sheet and thus are overlooked when economic conditions are favorable.
An article on off balance sheet exposure of private banks (2011):
Some of the concerns in the article are no longer applicable while other have always been there.
Also the article seems to be written with the intention of being as negative as possible
On the one hand it says,
"Generally, the corporate book also helps in driving higher fee income and thereby a healthy total income for a bank"
whereas at another point it says
"In the first quarter of this fiscal, other income grew by an astounding 75%, helping profit take a 34%year on year leap.Shorn of that number, the bottomline would have been more or less flat."
which is totally condradictory.
Also though I have not looked at the numbers during that period, looking at today's results, it seems like the article is using quarter-to-quarters fluctuations to portay it as a trend (ROA, NIM)
I do not have exposure to Yes Bank, but I am keen converting some older PSU bank holding to private banks including Yes Bank at the right price. I am waiting because I felt PSU banks might recover more if there is a turnaround. But if private banks crack a lot, it might be a good time to make the switch.