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How to pick a Good Bank?
Banking is a very risky business where the inherent nature of the business is such that leverage is used to the extent of 5-10 times.
#Banking
Banking is a very risky business where the inherent nature of the business is such that leverage is used to the extent of 5-10 times.
#Banking
So it goes without saying that banks are expected to lend conservatively, do excellent underwriting and not miss the forest for the trees (meaning not missing balance sheet strength for just P&L. We all know of a bank who did things simply for P&L and ended up capital-starved).
So here is the checklist -
1. Lend Conservatively
Source - Q1FY20 concall
1. Lend Conservatively
Source - Q1FY20 concall
2. Excellent Underwriting Standards
Source - Q2FY14 concall
Source - Q2FY14 concall
3. Risk Discipline
Source - Q4FY16 concall
Source - Q4FY16 concall
4. Not missing the forest for the trees (meaning not missing balance sheet strength for just P&L )
Source - Q4FY19 concall
Source - Q4FY19 concall
5. Doesn’t debate its shortcomings, instead works hard on it
Source - Q4FY14 Concall
Source - Q4FY14 Concall
6. No Funny Accounting/Only Conservative Accounting
Source - Q2FY18 Concall
Source - Q2FY18 Concall
7. Strong Liability Franchise
CASA (low cost deposits) represented 32% of Kotak Mahindra Bank's total deposits in FY12 which increased to 56.2% in FY20! This helped them to lower cost of funds and grow the bank!
CASA (low cost deposits) represented 32% of Kotak Mahindra Bank's total deposits in FY12 which increased to 56.2% in FY20! This helped them to lower cost of funds and grow the bank!
8. Excellent level of Disclosures
Source - Q1FY17 concall
Source - Q1FY17 concall
9. Return of Capital > Return on Capital
Source - Q1FY18 concall
Source - Q1FY18 concall
10. Doing what is right for business
Source - Q3FY20 Concall
Source - Q3FY20 Concall
11. ALM (Asset Liability Management)
The bank should be very careful/diligent on its assets/liabilities management ( as well as the mismatch or the negative mismatch around it.)
Source - Q2FY19 concall
The bank should be very careful/diligent on its assets/liabilities management ( as well as the mismatch or the negative mismatch around it.)
Source - Q2FY19 concall
To conclude, Banks with strong underwriting practices and conservative managements will get stronger (Strong will get stronger). Also, Banks with high capital base (Tier 1 Ratio) will weather the storm relatively better.
Stocks mentioned above are not a recommendation.
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Stocks mentioned above are not a recommendation.
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