Based on the letter today some additions to previous discussion.
- It is not 700 bps, it is 800 bps points as mentioned in the letter, it is because 72.9 will reduce to 65.
- To improve ROA other than point 1, rest will come from freeing provisions
Right now GNPA provisions are 1.9% and ROA accounts for net income which obviously is post profit
But cost to income is based on operating income.
So ROA will have impact of both improvement in C/I and reduction in provisions.
The thing to monitor with this bank is provisioning. I think it will take 1 more year.
(I do not know if the bad loans are solely due to due Chennai floods or a mix but i don’t really care).
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The bank is valued highly because a lot of retailers or institutions want to buy a growth bank
where they can just buy and forget for 5-6 years and believe the bank will do not frauds and by its nature banking is immensely profitable in india as credit demand is very high here.
His PR and public interviews are some of the best i see from any CEOs
so one word answer is TRUST.
Otherwise Federal Bank or axis or any bank is better bet by numbers.
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