There are so many listed banks that it is not funny. Sadly most of them have the same (not even similar, same!) business model. Open more branches, appoint relationship managers, do third party sales – mutual funds, life insurance, real estate,…etc.

Hopefully the interest rate spreads will make some money, the 3rd party products will make some money..and the bank will be profitable. This is not a bad strategy so let us see what works.

Banks can be further split into Private sector and Public sector banks. In case of public sector banks:

– look at the quality of assets: I look at it in a very simple way. Catch hold of a couple of ‘brokers’ and ask them if you wanted a loan at what price could he get it for you (shocked? I hope not). If he tells you D bank will give at 3%…and E bank will give it at 7%…you know both banks are corrupt. That is all.

– if the quality of assets is a question mark, really doing a fundamental analysis is of no use, unless if you are taking a trading position.

-a psu bank for me is just for taking a trading position. This could be a 6 months position, but just a trading position, NEVER an investment position. When you are just considering buying a psu bank stock somebody will whisper ‘Xys paid ….for a board seat’…pushing me back by another 10 years. I have traded many times in Idbi bank…but Idbi bank as an investment?

IDBI bank has a book value of Rs. 117, has a low p/e, and a dividend yield of 4.3% – mouthwatering numbers, and a good buy, right?

Not so sure. It could go up from 88 to 120 for sure, but do remember that they had lent Rs. 600 crores to Kingfisher? Why would a bank with such a small networth- Rs. 15,000 crores or thereabouts lend to the airline industry at all ? And that too Rs. 600 crores?

Now if I were to recast the P&L and B/s of Idbi bank…my ratios could be different.

Now let us look at City Union Bank, Axis Bank and Hdfc bank. Clearly if you are a small investor you should be in Hdfc bank – quality of assets is the best. It has high quality assets lent out to high quality customers.

In City Union Bank the quality of customers is still suspect – and there is too much dependence on the transport sector (Shriram group as a whole is still a truck financing group – they have one of the oldest Mutual fund companies lying as  a shell).

Axis bank has good promising numbers and is available at a lower price than Hdfc bank. The shareholding is of course by UTI…but not sure how the Enam merger will pan out. Asset quality not much of a worry, but this company’s ability to read, understand and prepare for the risks on its books is suspect. Also Enam is a merchant banker..and therefore transaction oriented rather than long term relationship oriented. How will all this pan out………is a question worth asking.