Hi Fellow Investors,
I wanted to share some of the behavioral aspects per my observation. These are particularly pronounced when the Corporates move from one stage to the next in their evolution of small to mid to large to mega cap.
CUB has been a small bank aspiring to be a big over the last decade. It takes a lot of pride on its heritage and origins and rightly so. However, there are few accidents that keep happening with the bank.
Cyber crime heist: where the hackers where possibly in Turkey/Bangladesh and HK. The amount of crime was not relevant but that it happened with CUB was. They managed to recover some and the rest was written off. It exposed CUB and its IT prepardness. CUB defended it by saying that it was the first of the private banks on automation and TCS was handling etc but that stuck to them. Subsequently, they had a keep defending the onslaught of Fintech on to their domain etc. So much so now it creates a seperate section on Investor Presentation to show the IT advancement and how it keeps pace with its peers.
Lesson: They did not communicate to the markets the action in good time and subsequently they have to keep doing catch up.
NPA divergence: This happened in 2019 and again in 2022. The defence has been feeble. The communication has been sub par on conference calls. What are they doing to prevent reoccurance – absent. Very soon they will keep defending this in each of the concalls.
Interest subvention refund from GoI: RBI as a regulator is perhapes for the first time asking detailed questions about the subsidy given by the GoI. It is asking for paper work. The conference call comments about the same have again been below par. Why did the lapse happen – no answer; what are you doing to prevent something like this to happen again? no answer? Does it happen in other cases? So here is a case the banks give subvention to the farmer and they have to claim it back from GoI. Why with all the IT infra would you not be able to log the cases correctly in the system? Clearly, it is not an IT enabled bank is the view many investors would take. CUB will keep defending it on concalls going forward.
What I am mentioning about CUB is perhaps what ails a lot of the private sector banks and PSU banks. It is likely that CUB was naive in bringing it out in the open. It is very likely that RBI as a regulator has started asking difficult questions to banks. It that is the case then a lot of carcusses would be found in Q4. GoI given its approach to stem the leakage in the subsidy system would have asked regulators to pull up their socks?
As corporates grow their approach to advising markets need to change to definitive and proactive. Trying to address questions like CUB did in 2010 in 2023 is not going to help the PE.
Disclosure: Holding since 2010 and continue to hold and now adding
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