Indian Stock Market News, Equity Market and Sensex Today in India | Equitymaster

Helping You Build Wealth With Honest Research
Since 1996. Try Now

  • MyStocks

MEMBER'S LOGINX

     
Login Failure
   
     
   
     
 
 
 
(Please do not use this option on a public machine)
 
     
 
 
 
  Sign Up | Forgot Password?  

Most under rated risk to Indian banks
Wed, 8 Jun Pre-Open

If the 3 - 6 - 3 rule of banking would indeed be true, probably this crisis would not have hit Indian banks and we wouldn't have discussed it at length. The 3-6-3 rule describes how bankers would give 3% interest on depositors' accounts, lend the depositors money at 6% interest and then be off to playing golf at 3 pm. This alludes to how a bank's only form of business was lending out money at a higher rate than what it is paying out to its depositors. Does this require any talent? Most readers would reply in the negative. But in reality banks do more than plain vanilla lending and borrowing in recent times. That too amidst stiff competition. Hence acquisition and retention of talent is a major challenge for entities looking at growing its loan and deposit book or non fund businesses.

Gone are the days when borrowers and depositors approached banks for loans and deposits. More than 70% of loans and deposits today are 'sold' by banks and financial institutions. Managing the fund flows at a profitable rate therefore requires a growing and talented workforce. Any shortage of the same could be a critical hurdle to the sector's growth even if the savings and investment rate in the country remain amongst the best.

Close to 15% employees of public sector banks in India (over a lac employees) will be retiring by 2015. At least a fifth of them will be from senior and very senior positions like that of the CMD. The problem for now is restricted to the PSU entities given the higher average employee age versus private sector players. However, given that the PSU's control 70% of banking assets in India the problem is indeed not negligible.

Lateral hiring - only for IT majors?

Indian IT majors have been into lateral hiring since several years as the scope and complexity of their businesses have improved. This has paid off well for them given their pricing power against customers. Will that model suit Indian banks as well?

Currently in the PSU banks, talent acquisition at the junior level is only a small part of the overall crunch. Hiring people for senior positions will come at a heavy cost for the entities unless planned well in advance. Inability to pick leaders from within the organization will force the PSUs to hunt for talent from their private and foreign banking peers. However, the candidate may not turn out to be a good fit given the PSU's socialist approach to business. Two, the performance linked incentives may not work well with the limited pricing power and profitability that the PSUs have.

Will the entities stay profitable?

We believe that the government has to do more than infusing capital into PSU banks to ensure their growth. It is time the government gives them some degree of autonomy as well. This will help the entities customize their employee base and performance payments as per their specific requirements. Not only will this solve the problem of talent crunch but also ensure adequate growth, profitability and shareholder returns from these entities.

For information on how to pick stocks that have the potential to deliver big returns, download our special report now!

Read the latest Market Commentary


What else is happening in the markets today? Dig in...

Equitymaster requests your view! Post a comment on "Most under rated risk to Indian banks". Click here!

  

Stock Market Updates

J&K BANK Share Price Up by 8%; BSE BANKEX Index Up 2.8% (Today's Market)

Mar 3, 2021 03:35 PM

J&K BANK share price is trading up by 8% and its current market price is Rs 32. The BSE BANKEX is up by 2.8%. The top gainers in the BSE BANKEX Index are J&K BANK (up 7.6%) and RBL BANK (up 5.2%).

RELIANCE IND. Share Price Up by 5%; BSE OIL & GAS Index Up 1.3% (Today's Market)

Mar 3, 2021 03:27 PM

RELIANCE IND. share price is trading up by 5% and its current market price is Rs 2,216. The BSE OIL & GAS is up by 1.3%. The top gainers in the BSE OIL & GAS Index is RELIANCE IND. (up 5.1%). The top losers are PETRONET LNG (down 0.1%) and BPCL (down 0.4%).

AU SMALL FINANCE BANK at All Time High; BSE BANKEX Index Up 2.8% (Today's Market)

Mar 3, 2021 03:23 PM

AU SMALL FINANCE BANK share price has hit an all time high at Rs 1,224 (up 4.2%). The BSE BANKEX Index is up by 2.8%. Among the top gainers in the BSE BANKEX Index today are AU SMALL FINANCE BANK (up 4.2%) and KOTAK MAHINDRA BANK (up 3.0%).

REDINGTON Share Price Down by 5%; BSE 500 Index Up 1.9% (Today's Market)

Mar 3, 2021 03:13 PM

REDINGTON share price is trading down by 5% and its current market price is Rs 200. The BSE 500 is up by 1.9%. The top gainers in the BSE 500 Index are IFCI (up 19.9%) and IDBI BANK (up 12.1%). The top losers are REDINGTON (down 5.1%) and SYMPHONY (down 5.1%).

RBL BANK Share Price Up by 5%; BSE BANKEX Index Up 2.7% (Today's Market)

Mar 3, 2021 03:09 PM

RBL BANK share price is trading up by 5% and its current market price is Rs 249. The BSE BANKEX is up by 2.7%. The top gainers in the BSE BANKEX Index are RBL BANK (up 5.0%) and FEDERAL BANK (up 5.7%).

Sensex Trades Over 500 Points Higher; Dow Futures Up by 147 Points (Today's Market)

Mar 3, 2021 12:30 pm

BSE Sensex is trading up by 586 points, while the NSE Nifty is trading up by 190 points.

View More Indian Share Market News

Most Popular

It's the Beginning of a New Bull Phase in Smallcaps(Profit Hunter)

Feb 24, 2021

Last time the smallcap index crossed 19k a big correction followed. Here's what makes it different this time.

Make Rs 5,000 Per Day Trading the Market(Fast Profits Daily)

Feb 25, 2021

In this video, I'll show you how to get started on the path to daily trading profits.

I Believe the Investment of the Year Will Be...

Feb 19, 2021

In this episode, ace trader Brijesh Bhatia talks to us about the best investments of 2021, his profitable trading system, and much more.

The Hidden Tesla in My Great Indian Wealth Project(Profit Hunter)

Feb 23, 2021

An Indian company founded three decades ago in a garage caught my attention...

More

India's #1 Trader
Reveals His Secrets

Secret To Increasing Your Trading Profits Today
Get this Special Report,
The Secret to Increasing Your Trading Profits Today, Now!
We will never sell or rent your email id.
Please read our Terms

S&P BSE SENSEX


Mar 3, 2021 (Close)

MARKET STATS