Tuesday, January 6, 2015

Past follies: Indian Bank

Indian bank was another pick from back in early 2010. This bank had ridiculously low NPAs and the market valuation did not reflect the quality of the financials - classical value trap!

Learning:

  • Bank asset quality is something that very difficult to judge as the loans seem great until they stop paying!
  • Public sector banks are consistently valued below "private" banks as they have a propensity to drive up their NPAs - I have made a note of staying far away from something that is owned 81% by the government.
  • In the Dec 2009 filings only 2.24% of the company was owned by larger than 1% holders by 2 funds. Which basically means that no professional investors were large in the company to protest if something bad happens - Should always look our for larger holders
  • ROE at the time was wonderful - and nothing seemed to be the issue with the quality of the management. Testament to this is the fact that lending per employee has gone from 2.59 Cr to 6.29 Cr. Branches have increased 37% since Mar 2009 with no increase in employees. Overall management I think the management is doing somethings right as well.

Bottom line on this one is that PSUs should be looked at very carefully and the shareholder list is very important as well.