Banking Business

What fascinates me about Banking is the very much nature of the underlying money business which necessitates its forever existence. While the Software Companies did not exist 100 years before, the Pager Companies do not exist anymore. However, Banks existed 300 years before and will be there 300 years after as well.

So investing in Banking Business is a good idea. However, its also one of the most riskiest business. With Capital Adequacy @ 12%, Banks need a Capital of only Rs.12 for say giving loan of Rs.100, to take a very simplified example. This means, if this loan goes bad, the entire Capital & much more is wiped out.

I am watching 2011 for Banks. My interest in Banking Investments started with Yes Bank coming up with IPO @ Rs.45 in 2004. 2010 was supposed to be the Year that RBI was to open up the Banking Industry though its delayed. Now in Q1 or Q2 of 2011, we expect that RBI will release the final guidelines & give few licenses to new banks. This may result in some M&A in the Banking space. On the other hand, I expect Central Bank to continue the liquidity tightening measures, which means pressure on bank margins.

Regards, Rohit