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Some key lessons from the book “ of long term value & wealth creation” on valuing Finance companies( Banks & NBFCs)
Key valuation metrics in finance companies are:
1) RoA and
2) RoE.
RoA is a function of how/what:
a) are the cost of liabilities of Bank
b) effficiency of ALM mngmn
Key valuation metrics in finance companies are:
1) RoA and
2) RoE.
RoA is a function of how/what:
a) are the cost of liabilities of Bank
b) effficiency of ALM mngmn
c) Efficiency of Asset Book( Yield and quality of Asset Book)
RoE is an important parameter. Companies doing equity dilution on a regular basis will never create a higher ROCE and will be laggard in wealth creation. But Banks are exception, since the raw material is capital.
RoE is an important parameter. Companies doing equity dilution on a regular basis will never create a higher ROCE and will be laggard in wealth creation. But Banks are exception, since the raw material is capital.
However, if a bank or NBFC is able to generate RoE above 15 to 20 perc continuously and sustainably, frequent equity dilution is not required.
My take:
The cheapest deposit franchise are PSU Banks with sufficient liquidity to manage ALM. NIM of PSU banks are improving each quart
My take:
The cheapest deposit franchise are PSU Banks with sufficient liquidity to manage ALM. NIM of PSU banks are improving each quart
due to low cost of deposits amongst the peers. Though gross NPA raises doubts on quality of assets but Higher provisioning provides comfort.
As far as ROE is concerned banks have been consistently diluting equity to raise capital for growth & provisioning due to higher NPAs
As far as ROE is concerned banks have been consistently diluting equity to raise capital for growth & provisioning due to higher NPAs
But there is always light at the end of the tunnel.
Some PSU banks are doing an operating profit (PPOP)equal to their market cap.
Indian bank credit growth is at the lowest and everyone seems to be upbeat on Indian economic cycle turning around.
Some PSU banks are doing an operating profit (PPOP)equal to their market cap.
Indian bank credit growth is at the lowest and everyone seems to be upbeat on Indian economic cycle turning around.
Banks making operating profit(PPOP) equal to market cap will start generating higher RoEs is my wild guess.
Disc:
Thread is not as an employee of Bank but as an individual learning the valuation metrics.
@ashokpathak1604 #psubankshaslotofvalue #privatisationisnotsolution
Disc:
Thread is not as an employee of Bank but as an individual learning the valuation metrics.
@ashokpathak1604 #psubankshaslotofvalue #privatisationisnotsolution
