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  #1  
Old 6th March 2008, 12:22 AM
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Default Banking Sector



Seems banking stocks are falling too much than the sensex...
Is it good time to pick any of these stocks...?

Is it not that the rate cut at end of the month will give a rally...?

Is it better to go for PSU banks or private banks...?

any recommendations plz
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  #2  
Old 6th March 2008, 09:18 AM
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Rate cuts seem a bit distant now.

Rising commodity prices are rising fast and this may not allow RBI to cut rates in the short term.

If you are looking at a medium term investment PSU banks would be a better choice. The valuations of PSU banks are attractive and rate cuts will also bring treasury gains.

For the long term, private banks are the better choice. Private banks are growing much faster than PSU banks and this trend will continue in the future too.
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  #3  
Old 6th March 2008, 02:15 PM
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Quote:
Originally Posted by Alchemist View Post
Rate cuts seem a bit distant now.

Rising commodity prices are rising fast and this may not allow RBI to cut rates in the short term.

If you are looking at a medium term investment PSU banks would be a better choice. The valuations of PSU banks are attractive and rate cuts will also bring treasury gains.

For the long term, private banks are the better choice. Private banks are growing much faster than PSU banks and this trend will continue in the future too.
If we just want to play the steep fall, how about BANKBEES (ETF available on NSE only). It has a mix of PSU & private banks. SBI, ICICI Bank, and HDFC Bank are the major components. More data from the NSE site with the Benchmark url as well.
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  #4  
Old 6th March 2008, 07:57 PM
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Originally Posted by vasa1 View Post
If we just want to play the steep fall, how about BANKBEES (ETF available on NSE only). It has a mix of PSU & private banks. SBI, ICICI Bank, and HDFC Bank are the major components. More data from the NSE site with the Benchmark url as well.
What exactly you want to play for - short-term gains?
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  #5  
Old 6th March 2008, 08:47 PM
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Originally Posted by Alchemist View Post
What exactly you want to play for - short-term gains?
Yes. For long term gains one may be better investing in specific scrips.
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  #6  
Old 12th March 2008, 03:34 PM
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This article is a good one and really frightening, if this is true I can smell trouble in coming months

http://www.business-standard.com/com...316569&chkFlg=

Important to note in this article is the Accounting standards
- Companies don't do mark to market for their Derivatives
- Which means they don't know whether it is making a loss or Profit.
- They also have liberty to carry them till 3 years and report them in yearly results much much down the line. This has to be reported immediately in other countries.

Also to note is
- the way indian banks have sold the derivatives to customers which don't understand them.
- ICICI already has a litigation. Why is always this bank in limelight for all the worse stuff! :-)

Last edited by man4urheart : 12th March 2008 at 03:44 PM.
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  #7  
Old 1st August 2008, 09:04 AM
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I have been waiting for an entry point in banking sector but it seems that the worse is still not over.

It is expected that the NPAs of the bank in this fiscal will be almost double of that of in the year 2007. ICICI bank has already reported 3.72% NPAs in this quarter compared to roughly 2% earlier.

Fortunately though, unsecured personal loans and credit card loans are just 1/6th of all loans for the banks while secured home loans and consumer loans form the 70-80% of total lending. Hence situation still may not be unmanageable for the banks.

Any specific targets in this sector anyone?
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  #8  
Old 23rd December 2010, 08:32 PM
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Default Banking Stocks

Would the bank stocks come out of the losses they are making off late? I hold shares of some banks like Dhanalakshmi, Bank of Maharashtra etc.
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  #9  
Old 15th June 2011, 12:12 PM
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Well in past few days banks have been coming up with proposal to raise funds via QIP.

Like first DCB then South Indian bank and yesterday I read one more bank.

Wanted to know how this news play in stock prices? Also how does it effect promoter holding especially in case of DCB where a foreign single entity holds 23-24% holding?

Does the promoter holding gets diluted or whether new shares are issued or are they pledged? What exactly happens?

And is it good for the stock ?
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  #10  
Old 15th June 2011, 01:40 PM
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Quote:
Originally Posted by magnet View Post
Well in past few days banks have been coming up with proposal to raise funds via QIP.

Like first DCB then South Indian bank and yesterday I read one more bank.

Wanted to know how this news play in stock prices? Also how does it effect promoter holding especially in case of DCB where a foreign single entity holds 23-24% holding?

Does the promoter holding gets diluted or whether new shares are issued or are they pledged? What exactly happens?

And is it good for the stock ?

QIP means either shares (or instruments convertible to shares) are issued to QIBs. So net effect should be to dilute promoter holding.

If the QIP is implemented with a clear plan to use the funds for future growth, then QIP will be good for the stock in the long-term.

However if a QIP fails the stock may be hammered.
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  #11  
Old 17th June 2011, 09:55 AM
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Originally Posted by sudhashbahu View Post
QIP means either shares (or instruments convertible to shares) are issued to QIBs. So net effect should be to dilute promoter holding.

If the QIP is implemented with a clear plan to use the funds for future growth, then QIP will be good for the stock in the long-term.
QIP does dilute equity of a company and thus reduces promoters' stake.

Whether a QIP is good or bad also depends on the price at which the QIP is done.

When a company manages to issue shares at an overvalued price, it is good for the existing shareholders. That is why overvalued IPOs are so good for the promoters .

If the shares are issued at a low valuation, it is negative for the existing shareholders.

SEBI's regulations put a floor to the price at which a QIP can be done and thus a QIP never happens at a steep discount to the market price.

Coming back to the banking sector, it is difficult to say in general whether a QIP is good or bad for banks.

There is no doubt that banks are consistently growing in India, but growth achieved by diluting equity adds no value.

The banks that grow without diluting equity are the best ones as they add value to the current equity.

Investors, especially those who have invested in banks, should give more weight to metrics like ROE, eps and less weight to revenues and PAT.
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  #12  
Old 18th July 2011, 03:35 PM
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Default RBI directive on "Inclusive" Banking

RBI has issued a circular that mandates rural branches for private banks: link.

As a matter of principle I find this directive un-constitutional. Private Banks are businesses meant to generate profit. Rural development is the governments job that they may choose to delegate to PSU banks. Why mandate rural branches? If they are profitablle, private banks will open branches without RBI having to tell them so.

If the RBI is serious about rural banking it should provide incentives to private banks instead of directives.
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  #13  
Old 25th December 2011, 10:07 PM
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A brewing crisis. A must read article.

A brewing banking crisis - Views - livemint.com
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  #14  
Old 25th December 2011, 11:04 PM
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Originally Posted by Prudent_Investor View Post
A brewing crisis. A must read article.

A brewing banking crisis - Views - livemint.com
There are crises brewing all around us.

Inflation crisis, slowing growth crisis, power sector crises, airline industry crisis, oil sector crisis, banking NPAs crisis, corporates' external debt crisis, current account deficit crisis, fiscal deficit crisis, currency crisis etc.

Add to that economic crisis in the Europe.

Should we expect a "perfect storm"?
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  #15  
Old 25th December 2011, 11:24 PM
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Originally Posted by Alchemist View Post
Should we expect a "perfect storm"?
Markets have an uncanny knack of going against the consensus. 4 years back around this time markets were 20000+ and everyone was anticipating a super 2008 which turned out to be the worst nightmare.

This time round, with all these negativity everywhere, still people are shopping, dining, traveling and celebrating a grand Christmas as we speak.

Like all gloomy days, this shall pass too. Maybe there will be glitches here and there but we will trudge along to a better tomorrow. The idea is to invest wisely so that we appear much stronger and healthier when dawn arrives.
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  #16  
Old 9th February 2012, 11:18 PM
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NPA, a multi-headed monster.
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  #17  
Old 8th May 2012, 07:25 PM
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The sector has started witnessing the fall.

An Ok result shares get down 6-10%. Almost good above expected result, still share falls 3-4%.

And a slightest negative news stock gets a toss of 12%.

I plan to start investing in banking mutual fund in one portfolio and averaging in another where I already have 10000 worth investment.
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  #18  
Old 9th May 2012, 08:39 PM
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Quote:
Originally Posted by magnet View Post
The sector has started witnessing the fall.

An Ok result shares get down 6-10%. Almost good above expected result, still share falls 3-4%.

And a slightest negative news stock gets a toss of 12%.

I plan to start investing in banking mutual fund in one portfolio and averaging in another where I already have 10000 worth investment.
You are missing the fine print

Why does a HDFC Bank command 4 times P/B even in this kind of market ?

Asset Quality. And you can deliver consistent 30%+ profit growth for last 16 quarters only when you have the best asset quality among all banks in India.

PSU banks have pathetic asset quality marked by their rising gross NPAs and net NPAs.

Do not just look into results, delve deeper. Banking sector needs much deeper understanding than simply ratios.
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  #19  
Old 27th July 2012, 06:44 PM
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PNB and Union bank results came today.

ICICI on contrary showed reduction in gross NPA,whereas for UNION it went to almost 3.1%. Similarly PNB NPA have increased significantly.

Which are the Public sector midcap banks on which one should have an eye excluding biggies like SBI and Canara out of the list?
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  #20  
Old 27th July 2012, 07:13 PM
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Quote:
Originally Posted by magnet View Post
PNB and Union bank results came today.

ICICI on contrary showed reduction in gross NPA.whereas for UNION it went to almost 3.1%.Similarly PNB NPA have increased significantly.

WHich are the Public sector midcap banks on which one should have an eye excluding biggies like SBI and canara out of the list?
There is good opportunity in banks like ING Vysya, Yes Bank as well as the large caps Axis, ICICI Bank and of course HDFC ( see my last post above )

It will be prudent to steer clear of the PSU Banks as they will bear the maximum losses from restructuring and bad loans.
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  #21  
Old 27th July 2012, 07:25 PM
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Quote:
Originally Posted by magnet View Post
PNB and Union bank results came today.

ICICI on contrary showed reduction in gross NPA,whereas for UNION it went to almost 3.1%. Similarly PNB NPA have increased significantly.

Which are the Public sector midcap banks on which one should have an eye excluding biggies like SBI and Canara out of the list?
Public sector banks are sitting on a lot of "potentially" bad loans.

Be careful with them.

Public sector banks - Loans turning bad - Moneylife Personal Finance site and magazine

ICICI is doing better because it worked hard to repair its balance sheet after 2008 and exited/scaled down many of its high-risk businesses like credit cards.
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  #22  
Old 27th July 2012, 09:53 PM
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So bottonline is stick to private..

Today only HDFC bank surpass SBI in terms of market cap.
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  #23  
Old 27th August 2012, 11:57 PM
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Today I exited from the banking sector mutual fund of uti.

Though reason was different as I was trying to change broker and uti was saying signature mismatch and all I said better I sell and reinvest via new broker. My return was 11% with almost 10 months investment but that will go further low to almost 9.5% once exit load and charges sets in excluding tax on income bracket.

But I guess I made right decision as already all big nationalized banks like canara, union, pnb are testing new yearly lows. Also within 2 session even BOB will test those level.

And HDFC bank and other private banks testing new highs.
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  #24  
Old 26th November 2012, 03:30 AM
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Hi All,

I previously had some exposure to ICICI Bank. But this year I sold my shares around 940 range.

Now again thinking to entering the banking sector. Which one would be the better bet?

My current options are ICICI again or HDFC Bank. which you guys feel better bet?
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  #25  
Old 26th November 2012, 11:26 AM
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Basic question:

Is banking sector too cyclical one?

If yes, at which phase would the banking stock's prices will be at lower level?
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  #26  
Old 27th November 2012, 04:46 AM
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Originally Posted by paran View Post
Is banking sector too cyclical one?

If yes, at which phase would the banking stock's prices will be at lower level?
To some extent all businesses are cyclical and get influenced by business cycles in the economy.

Some industries like capital goods are closely linked to investment cycle (business cycle) of the economy.

Others like sugar industry are linked to supply and demand of crops.

Banking industry does get affected by business cycles, but the effect on individual banks can vary greatly depending on the quality of their assets.

Banks have extremely high financial leverage and thus even a small increase in bad loans can lead to a significant erosion of the equity of the bank.

e.g. If a bank has a debt:equity ratio of 9:1 and 2% of its loans are fully written-off, its book value will go down by 20%,

That is why PSU bank stocks have been beaten down so badly in the last 2 years, whereas banks such as HDFC Bank are trading at all time highs.

The asset quality of PSU banks is lower than that of most private sector banks and thus investors are worried about the future of these banks.

Just compare charts of PSU banks like Bank of India and Indian Overseas Bank with HDFC Bank and you will notice the difference.

If India's economy regains its growth momentum, PSU bank stocks will start moving up from current levels and will easily outperform private bank stocks.

If economic conditions in the west and within India deteriorate further, PSU banks will have serious NPA problems and their stocks will fall even further.

You will first have to decide where the economy is going and then pick your banking stocks depending on your future outlook.
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  #27  
Old 14th January 2013, 09:20 AM
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Two things I wanted to know.

One regarding PSU's.Government giving finance up to 12000 crores to them but still not a big run up seen in them. Why?And which one must keep his eye on. My earlier view was Dena Bank but it already had run up from 42+ to 100+.

Second which bank looks more exciting for take over.
1:: Lakshmi Vilas Bank
2:: DCB
3:: South Indian Bank
4:: Dhanlaxmi Bank
5:::Karnataka Bank
6:: Karur Vysya Bank

Also are chances of NBFC who gets banking license to take these banks or some private player like Axis or ICICI will come in.
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  #28  
Old 14th January 2013, 09:38 AM
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Quote:
Originally Posted by magnet View Post
One regarding PSU's.Government giving finance up to 12000 crores to them but still not a big run up seen in them. Why?
Why should these banks run up?

To keep growing, government banks need capital infusion every few years and government provides it to them.

It is normal business for the banks.
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  #29  
Old 14th January 2013, 11:56 AM
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Quote:
Originally Posted by Alchemist View Post
Why should these banks run up?

To keep growing, government banks need capital infusion every few years and government provides it to them.

It is normal business for the banks.
Not run up but hardly any rally was also seen. .
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  #30  
Old 14th January 2013, 01:01 PM
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Quote:
Originally Posted by magnet View Post
Two things I wanted to know.

One regarding PSU's.Government giving finance up to 12000 crores to them but still not a big run up seen in them. Why?And which one must keep his eye on. My earlier view was Dena Bank but it already had run up from 42+ to 100+.

Second which bank looks more exciting for take over.
1:: Lakshmi Vilas Bank
2:: DCB
3:: South Indian Bank
4:: Dhanlaxmi Bank
5:::Karnataka Bank
6:: Karur Vysya Bank

Also are chances of NBFC who gets banking license to take these banks or some private player like Axis or ICICI will come in.
The catalyst for mergers in the banking sector has always been the RBI itself where it has been forced to find suitors for certain banks.

There is only one reason why a NBFC would want to merge with a bank, for CASA.

Now which bank will get merged is very difficult to predict,whether it will be the black sheep where the RBI intervenes for a merger or a voluntary union, where one of the better quality smaller banks and NBFC's come together, only time will tell.

I own Bajaj Finance, Chola Finance, Mahindra Finance and Shriram City Union Finance from the NBFC space.
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  #31  
Old 14th January 2013, 01:12 PM
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Originally Posted by magnet View Post
Not run up but hardly any rally was also seen. .
For the capital infusion itself to be a trigger for a big rally,the amount probably would have had to be significantly higher than the amount that the Government has allocated, this capital is barely enough for them to keep their head above water.
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  #32  
Old 5th July 2013, 09:37 PM
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I was just going through some posts where Alchemist mentioned valuation wise Dena bank and Vijaya bank have turned cheaper.

I wanted to know how good is Allahabad Bank.

I hold 7 shares and just received 6 rupees per share dividend though my buy price is 145.

I plan to bring my average cost price around 100 by this month end. But I don't plan to sell this stock any soon.
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Old 26th July 2013, 10:42 AM
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Crisil says 1/3 rd of the companies that it tracks may find it difficult to service their debt this year.

Quote:
Ratings agency Crisil has sounded an alarm on the deteriorating health of corporate India. A third of the 11,500 companies it rates may not be in a position to service debt this fiscal as the Reserve Bank of India's liquidity tightening to shore up the rupee stretches payment cycles, it said.
Crisil sounds the debt knell for India Inc; numerous downgrades likely - The Economic Times

That doesn't mean 1/3 rd of the companies are going to default. The report just says 1/3 rd of the companies will find it difficult to refinance their debt because of tight liquidity conditions.

Also Crisils expects bank's gross NPAs to go up from 3.3% to 4%.

The report can be found here:

News Releases
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  #34  
Old 27th July 2013, 09:42 AM
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I dont know but now I am feeling enticed to buy banks stocks.

I have investment in Allahabad Bank, SBI, BOB, HDFC BANK, ICICI,Indus Ind Bank,YES bank,DCB Karnataka Bank,Dhanlaxmi Bank,Federal across 4 folios (Except SBI ,YES BANK ,DCB, HDFC BANK ,ICICI and Karnataka other holdings were hardly 1000 rupee investment for further buying in downtrend.)

I don't know but I am feeling enticed towards Canara Bank, Dena ,Federal and further increase my stake in DCB because of good results.

I know investing too much in one sector is really a not wise decision. But so far banks have given me the best results in folio and even if not they are better in dividend paying than other stocks of my folio.

I am just confused which are the banks on which I must concentrate.

PSU entice me because of its decent dividend sharing record.
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  #35  
Old 27th July 2013, 04:42 PM
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PSU Banks generally perform when there is a clear 3-4 year window for growth,they need positive tailwinds to perform,with the RBI squeezing liquidity there will be more pressure on smaller PSU banks,most of these banks are very low on their capital adequacy and with BASEL III they will face more pressure,while this will hit them hard it could also mean that we should hit the bottom in terms of asset quality over the next 2-3 quarters,right now PSU banks can give smaller trading moves,but if election results throw in some surprise than they could actually have a 3-4 year kind of sectoral move where returns could be 3-5 times on some(not all) of the PSU Banks from their lows.

The key over here is never get too comfortable and get out when you make money as when the cycle turns all your returns can vanish and you could even end up with losses.

Also dividends that these PSU banks give are at a huge cost to shareholders as the same capital is ploughed bank by the government back into the bank at a discount to the book value further eroding returns.

There is no easy answer,you'll have to track every PSU bank,look at their respective capital adequacy, NPA's, CASA, ROA, Earnings Variance, Cost to Income, ALM's, Credit Deposit Ratios, dilution, dividends etc. and narrow down your list of candidates.

This is a huge problem and so most people choose SBI or one of the larger 3-4 banks like BOB, PNB or Canara Bank.

Others who like low priced stocks pick Dena, UCO etc.

Alternatively, Private Banks are a much better option as they have proved that they can manage the down cycles better and whenever the up cycle comes,they have more capital and thus will have a better chance of benefiting from positive tailwinds in the economy.

Banks need to raise capital as raw material for their business and private banks can get the capital on favorable terms (2.5-4 times book value) which maximizes returns for the shareholders plus they also have fee income generated which supplements loan growth enhancing profit growth.
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  #36  
Old 27th July 2013, 07:51 PM
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PSU entice me because of their decent dividend sharing record.
Dividends from financial firms don't mean much, especially when their asset quality is being questioned.

An almost-bankrupt financial firm, whose liabilities are much greater than its assets can also pay a dividend.

A large proportion of assets of financial firms are liquid and can be converted to cash at any time.

Even if a bank is all set to file for bankruptcy after a week, it can sell its liquid assets today and raise a large amount of cash.

GTB was paying dividends till 2002 and became officially bankrupt in 2004.

It wasn't that GTB was a healthy bank in 2002 and in next 2 years, it suddenly turned sick.

Even in 2002, the bank was as good as bankrupt, yet the management still wanted to distribute generous dividends.

Believe it or not, but RBI asked GTB to reduce dividend in 2002 because RBI knew that the bank was going to face serious problems if it continued to distribute precious cash as dividends.

The Hindu Business Line : RBI asks Global Trust Bank to cut dividend to 5 pc

In hindsight, even that 5% dividend looks excessive.

A stock should be bought for dividends only if the dividends are sustainable in the long-term.

In case of most PSU banks, the dividends don't seem sustainable and that is why these stocks are trading at such attractive dividend yields.

Quote:
Originally Posted by kris_mar View Post
Banks need to raise capital as raw material for their business and private banks can get the capital on favorable terms (2.5-4 times book value) which maximizes returns for the shareholders plus they also have fee income generated which supplements loan growth enhancing profit growth.
Good point.
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  #37  
Old 31st July 2013, 11:53 AM
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Andha Bank has dropped another bomb today.

The Gross NPAs have gone up from Rs 3714 to 4748 crore in just 3 months.

That's an increase more than Rs 1000 crore in 3 months.

Net NPAs have increased from Rs 2409 crore to Rs 3212 crore.

The bank had a networth of Rs 8441 crore at the end of FY 2013.

The rate at which NPAs are increasing for some of these PSU banks is very alarming.
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  #38  
Old 31st July 2013, 12:54 PM
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I was thinking to add in SBI in my portfolio at the current price.

Keeping in mind that this is good price for long term portfolio. ( Rs @1690).

After seeing Andhra Bank NPA, It's really alarming.

USD vs. INR is more alarming to me too. If it keeps going up most of the banks will suffer badly too.

On top of that we have elections soon in next year.

Now confused whether start putting money slowly or just wait and watch for more clarity.

Happy Investing!
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  #39  
Old 1st August 2013, 07:30 AM
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SanBhai Let me know if you buy any bank stocks
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Old 1st August 2013, 12:27 PM
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SanBhai Let me know if you buy any bank stocks
Ram ji, at this movement I am only looking at SBI .

When it had broken Rs 1800 level then straight target should be below Rs 1600 (around Rs 1575). From there it might bounce.

If still unable to hold 1575 level then I would not touch it until below Rs 1000. (More precise Rs. 960).

Below Rs 1000 buying is the best price for SBI for long term without any risk. I know it needs a lot of patience to see that price. Or might not come.

But that is we speculate and analyze after viewing chart.

We have to take a bit risk and wait for the price around Rs 1575-90.

Bottom line is at this movement, SBI has not taken any support so avoid to accumulate.

Happy Investing!
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