Retiring the legacy book is the easier part of managing cost of funds. The tougher part is when legacy levers are all used up and one still has to pay higher interest on SA to keep CASA at 48%+. Real CASA strength is when the bank does not incentivize customers through higher rates, yet customers park their savings with the bank. Like an HDFC Bank, Kotak Bank or an ICICI Bank today.

The lending rates are determined by competitive forces, a customer would rather go with a large bank at 8% rather than go with a mid sized bank at 8.25%. Lending is a spread game for the most part, a 0.5% differential is huge on the cost of funds side as the lending rates are fixed by market forces. This 0.5% difference is what translates into higher NII and eventually the ROA. The last leg of 0.5% is not easy to make up.

In such a situation, to grow the lending book (without lower spread) banks with higher COF will have to look at segments where the customer is willing to put up a higher spread. Else in every quarterly conf call analysts will ask management about lower NIM’s and why HDFC Bank has higher NIM at lower NPA. This perennial treadmill forces banks into mistakes over a period of time as every management wants higher market cap and the best CEO award - which is usually given for aggressive growth and not for managing risk well. Customers put up higher spreads only when they do not have better alternatives, this is where risk gets introduced incrementally over time. Eventually a bad cycle for such a customer segment comes in and NPA’s start spiking.

It’s a slippery slope for mid sized banks if they have aspirations of become a large one. Some South India based NBFC/banks have good asset quality only because they don’t have aspirations of becoming a Top 5 bank. They are happy to run their own race but their valuation multiple suffers due to this. It is a trade off that every financial institution needs to reconcile and execute well on over time.

Going by VV’s persona and statements, he has high growth aspirations. This is what gets the market wary about over the top statements. Market generally loves confidence from the management, but with banks it introduces a bit of worry too

Management in the Q1 conf call said that the acquisition cost of PS movies is lower than whatever is being reported in Media. Hence , I am assuming it may be slightly lower than 25 cr. Also, it includes both PS-1 and PS-2. There are total 60 songs in 5 languages. Can someone help me to understand when will this cost hit the PNL account. Will it be spread across multiple quarters or in the quarter in which music is released. I believe management said the latter , but just wanted to reconfirm.

ITC exits from lifestyle retailing business

Sunteck accumulated a multiple land parcel in a number of excellent locations at a period when every real estate company was struggling. The only company to accomplish this during the COVID time, and their execution skills are excellent. Moreover, the management is expecting that some of the luxury inventory will be sold soon.