Overall Picture
Banks have very high linkage to the overall macroeconomic environment, and have very standard practices across the globe (can be compared with global peers on different ratios). This being a very important sector, is very tightly controlled and highly regulated.
One key unique feature of the industry is that here equal emphasis is given to the balance sheet (along with Income statements).
Asset Liability Mix
The asset side of the balance sheet mainly consists of Loans and Advances (~60%) and Investments (~27%). Most of these investments are into G-Secs (meeting the SLR requirements), and very little investments in other assets.
On the liabilities front, bulk of it is from the customer deposits (~75%).
Competition
More than 75% of the loans are from Public sector banks, with SBI group alone having a 25% share. Private banks have only 25% of the market now, but are growing rapidly.
Market
India has amongst the lowest Loan/Deposit ratio in the world. And total loans are still ~50% of the GDP. Also, consumer loans are just 10% of the GDP, so there is a tremendous opportunity for growth.
A large chunk of household savings flow to Bank Deposits - more than 50%. Good opportunities in Wealth Management, and Insurance - private banks are well positioned to capitalize on these.
Historical growth rate has been high at 12-20%, and this seems sustainable for another decade. Penetration level has improved considerably, though still much below global standards. NPLs have continued to drift down.
Financial Services Opportunities
1. Brokerages
2. Wealth Management
3. Life Insurance
Key factors affecting Stocks
Banks have very high linkage to the overall macroeconomic environment, and have very standard practices across the globe (can be compared with global peers on different ratios). This being a very important sector, is very tightly controlled and highly regulated.
One key unique feature of the industry is that here equal emphasis is given to the balance sheet (along with Income statements).
Asset Liability Mix
The asset side of the balance sheet mainly consists of Loans and Advances (~60%) and Investments (~27%). Most of these investments are into G-Secs (meeting the SLR requirements), and very little investments in other assets.
On the liabilities front, bulk of it is from the customer deposits (~75%).
Competition
More than 75% of the loans are from Public sector banks, with SBI group alone having a 25% share. Private banks have only 25% of the market now, but are growing rapidly.
Market
India has amongst the lowest Loan/Deposit ratio in the world. And total loans are still ~50% of the GDP. Also, consumer loans are just 10% of the GDP, so there is a tremendous opportunity for growth.
A large chunk of household savings flow to Bank Deposits - more than 50%. Good opportunities in Wealth Management, and Insurance - private banks are well positioned to capitalize on these.
Historical growth rate has been high at 12-20%, and this seems sustainable for another decade. Penetration level has improved considerably, though still much below global standards. NPLs have continued to drift down.
Financial Services Opportunities
1. Brokerages
2. Wealth Management
3. Life Insurance
Key factors affecting Stocks
- Loan Growth: Slowing down recently, from 30%+ levels in 2007 to ~17-18% now.
- Earnings: Major contributors are Growth and Portfolio Gains (in falling rates scenario)
- Interest Rates: Meaningful -ve correlation between stock prices and interest rates. However, key is the distinguish whether low rates are due to liquidity (positive for economy) or lack of loan demand (negative).
- Asset Quality: This factor is quite passive, and is talked about only in cases of sharp asset deterioration
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