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Are India’s New-Gen Banks the Snapdeal of Indian Banking?

February 23, 2017

Yesterday India’s e-retailer Snapdeal admitted that its business model was unviable.  Growth at breakneck speed, with scant regard for RoCE metrics, was clearly unviable.   India’s new-gen banks like Yes Bank, IndusInd and RBL have been growing at breakneck speeds.  We have been always skeptical about the ability of a financing institution to grow at crazy speeds (particularly during the early part of an organisation’s life when the credit assessment systems and processes are not fully in place and an organisation’s ability to instill credit assessment skills across its network are suspect).  Dishing out a loan is one of the easiest tasks known to man.  Recovering a loan from from the operational cash flows of a borrower is a less enviable task.

So are Yes Bank, IndusInd Bank and RBL the Snapdeal of Indian Banking? We don’t have an answer.  But investors would do well to remember that a banking institution can hide the fact that it is swimming naked for a longer period of time than a non-financing organisation such as Snapdeal.  Various artifices are available to a bank to hide  its poor asset quality that are not available to a manufacturing company.  Officially Lehman Brothers went bankrupt on the 15th of September 2008.   Its true date of bankruptcy was sometime in late 2005/early 2006.


From → Credit Analysis

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