If everything goes according to RBI’s plan, then very soon we would have the names of new banks to bank with. Only hindrance to announcement of winners’ names could be Election Commission’s Model Code of Conduct for political parties. This code restricts existing government from making any announcements that can influence voters in coming elections, scheduled to take place between 7th April 2014 and 12th May 2014.
The committee under former RBI governor Bimal Jalan has already submitted its final recommendations and by now, (and most probably) RBI Governor would have clear knowledge about who is getting the banking license. But before public declaration of results, RBI is expected to take approvals from Election Commission to stay within the legal boundations of Model Code of Conduct.
So before RBI announces it, I am trying to make an educated guess about who all are going to get the banking licenses.
And my guesses are:
L&T Financial Holdings
Aditya Birla Nuvo
I am not very sure about Indian Post getting the license. And that is even though I want it to get it. Reason for the same is that though everyone in this under-banked country is focusing on 150,000+ post offices which Indian Post has, the fact remains that most of these customer touch points are not in very usable condition. Another factor which might play against Indian Post is that this time, licenses were supposed to be granted to private players. And Indian Post is hardly private. 🙂
And if you do believe in concept of insider information then just have look at below graph. It shows share price movement of few of the above mentioned names in last one month. Do you feel that somebody, somewhere knows something? 🙂 🙂
|Banking Hopefuls : Share Price Movement in last One Month|
So what do you think? Who will get the license this time?
Speculating on names, huh? 🙂
Don't worry about the new banks . Whoever wins will take at least 2 years to get off the ground . This would mean a time lag of around 12 years from the last licences issued to Yes Bank & Kotak bank . The new banks will have a significant disadvantage of scale vs the well established private banks like HDFC., Axis , Kotak , Indusind etc .
Added to this are NPA provisioning norms , CAR , SLR / CRR requirements , priority secor lending etc which will drive down ROEs. Hence it is better to stick to old private sector banks such as CUB , KVB or the newer ones which are fast growing like Axis , Yes , IndusInd , Kotak .
What do you think? Will any of the mentioned names get the license?
You have made some valid points James. One should not be overwhelmed with the glamour of new banking licenses. Banking is a complex business and its only after five years that one can really understand as to where the new banks are headed.
I don't know what's so great about getting a bank license. If we remove survival bias, we may recollect quite a few private banks that went down under… GTB, United Western… and many co-op banks. Many banks are teetering with NPAs, some disclosed, some not… PSUs as well as private sector.
One of the most significant reason for bank margins being high is the low cost (ie, interest rate) of raw materials (ie, money borrowed) vs the higher lending rate due to capital starvation of customers.
Three things can change the high margins enjoyed by banks: cost of borrowing increasing, customers' demand for funds reducing, NPAs increasing. We are already seeing the third one in play, maybe one or both the remaining also can come in play. Remember the 1990s?
Finance is a cyclical industry, we have been “enjoying” the up cycle so long that we have forgotten that there would be a down cycle as well.
As far as the names are concerned, I think you missed the guys that can manage any license, the guys you can place most reliance on 🙂 The only other high probability is IDFC. Indian Post may or may not get a license just now since there has been no allocation of funds for them in the Union Budget… maybe after the elections.