X

Sign up for Equitymaster's free daily newsletter, The 5 Minute WrapUp and get access to our latest Multibagger guide (2017 Edition) on picking money-making stocks.

This is an entirely free service. No payments are to be made.


Download Now Subscribe to our free daily e-letter, The 5 Minute WrapUp and get this complimentary report.
We hate spam as much as you do. Check out our Privacy Policy and Terms Of Use.
Banks: Retailing dilemma - Views on News from Equitymaster
 
 
  • PRINT
  • E-MAIL
  • FEEDBACK
  • A  A  A
  • Aug 19, 2003

    Banks: Retailing dilemma

    Poor credit offtake growth is a concerning issue plaguing the minds of economists around the country. There is a considerable amount of liquidity in the market helping corporates to bargain their way through finer interest rates for their loans. The situation is no different in the fast growing retail segment, where consumers are able to arm twist banks in to giving them loans at a rates lower than those declared.

    But, why is low credit offtake a problem for the economy? For one, this indicates sluggish investment activity in the economy. This further means that growth over the long-term might stagnate at a point due to lower investments. Also, subdued credit offtake is indicative of the fact that banks have a lot of surplus funds that they eventually land up deploying in G-Secs. This, in turn, makes their (banks’) investments non-remunerative as G-Sec yields have been at all time lows for some time now.

    However, the dilemma for banks does not end here. The situation takes a graver turn when banks, in their aim of tapping the high-growth retail segment, are forced to give in to consumer demands of lower lending rates. For example, a housing loan that would ideally carry an interest rate of 9% for a period of 20 years can be obtained at 8% depending on the bargaining power of the consumer. In fact, banks are so desperate to expand their loan portfolio that they resort to unhealthy means to capture the market.

    Retail asset growth (YoY) in FY03
    Private sector % Growth Public sector % Growth
    UTI Bank 354 Corporation Bank 52
    ICICI Bank 200 Oriental Bank 57
    HDFC Bank 121 Canara Bank 93
    IDBI Bank 294 PNB 44

    In the Indian scenario, the boom in the retail segment is unprecedented and this in itself is a concern, as well as a boon. This growth in the retail segment signifies the emergence of a new consumer class that believes in spending more by way of borrowing. Since there are limited avenues of financing corporates in the current scenario, banks are going all out towards the retail segment. While this is good as far as growing the advances portfolio is concerned, one needs to understand that Indian banks, especially public sector banks are new at retail financing. Due to this, being aggressive in this segment will have its own drawbacks.

    Lending aggressively, without assessing the credit risk appropriately, may lead to unpleasant surprises later on. It is still too early to comment upon the likely levels of NPAs among retail portfolio of banks, and would be a naïve assumption that there may be no negative surprises going forward. While one may be enamoured by the aggressiveness of both private as well as public sector banks in the retail segment, we would advise investors to be cautious and invest only in those banking stocks that have sound fundamentals and a good track-record (resilient performance, even in bad times).

    To conclude, we would like to point out that it is not just important to view growth (in advances) in the banking industry, but also to view it from the perspective of quality of growth these banks are attaining.

     

     

    Equitymaster requests your view! Post a comment on "Banks: Retailing dilemma". Click here!

      
     

    More Views on News

    SBI: Asset Quality and Slow Credit Remain Achilles' Heel (Quarterly Results Update - Detailed)

    Aug 22, 2017

    State Bank of India (SBI) continues to battle sliding asset quality and sluggish credit growth.

    IDFC Bank: Strong Trading Income Shields Credit Slowdown (Quarterly Results Update - Detailed)

    Aug 10, 2017

    IDFC Bank is taking steps to address contracting NIMs and successfully transition in to a retail bank.

    ICICI Bank: Loan Slippages Trending Downwards (Quarterly Results Update - Detailed)

    Aug 10, 2017

    Asset quality will be the key thing to watch out for going forward.

    Should You Take SBI Chief's Advice and Load up on SBI Shares? (The 5 Minute Wrapup)

    Jul 6, 2017

    Does the stock score on the value versus price equation?

    AU Small Finance Bank Ltd. (IPO)

    Jun 27, 2017

    Should one subscribe to the IPO of AU Small Finance Bank Ltd?

    More Views on News

    Most Popular

    This Small Cap Can Drive Chinese Players Out of India (and Make a Fortune in the Process)(The 5 Minute Wrapup)

    Aug 17, 2017

    A small-cap Indian company with high-return potential and blue-chip-like stability is set to supplant the Chinese players in this niche segment.

    Dear PM Modi, India is Already Land of Self-Employed, and It Ain't Working(Vivek Kaul's Diary)

    Aug 21, 2017

    Most Indians who cannot find jobs, look at becoming self-employed.

    It's the Best Time to Buy IT Stocks(Daily Profit Hunter)

    Aug 16, 2017

    The IT Sector could be in an uptrend till February 2019. Are you prepared to ride the trend?

    5 Steps To Become Financially Independent(Outside View)

    Aug 16, 2017

    Ensure your financial Independence, and pledge to start the journey towards financial freedom today!

    Think Twice Before You Keep Money In A Savings Bank Account(Outside View)

    Aug 22, 2017

    Post demonetisation, a cut in bank savings deposits rates was in the offing.

    More
    Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
    Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

    LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA or Canada, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

    SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

    Equitymaster Agora Research Private Limited. 103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
    Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407
     

    Become A Smarter Investor In
    Just 5 Minutes

    Multibagger Stocks Guide 2017
    Get our special report, Multibagger Stocks Guide (2017 Edition) Now!
    We will never sell or rent your email id.
    Please read our Terms

    S&P BSE BANKEX


    Aug 24, 2017 11:18 AM

    S&P BSE BANKEX 5-YR ANALYSIS

    COMPARE COMPANY

    MARKET STATS