Every investor (including yours truly) makes the mistake of focussing on only the headline numbers and ignoring the underlying transformation. Taking lack of profit to be lack of numbers is akin to thinking that tip of iceberg represents entirity of the ice mass.
https://twitter.com/leading_nowhere/status/1426852894280622091
It is also a bit risky to assume that one cannot make money from high risk creditors. If that were the case, then companies like Bajaj finance would not exist. No, what is needed is the ability to price the risk properly.
2.5% credit costs on 9% incremental NIMs is easily absorbed. The underwriting quality is not reflected in credit costs, it's reflected in incremental credit costs adjusted NIMs.
Don't get me wrong, i do understand the importance of corporate banking and all the synergistic benefits it brings. It's just that banks need to lend in proportion of their net worth. So small banks can only lend to small corporates. Which is what an SME is.
Also a bank is not a static picture, much like any company it's a dynamic movie. Risks taken on have to be adjusted as per cost of funds. This is why building casa franchise is hardest and one of most imp part of building a successful bank. Kotak did it. Hdfc did it.
And now, IDFC first is doing it. The biggest mistake an investor can make is to simply extrapolate the past into the future without trying to understand that the causal factors behind the past differ materially from the causal factors of the future.
One thing I wholeheartedly agree to, is forget banks, in all companies numbers have to match narrative. The key insight of the investor is to figure out which numbers are worth tracking and are fundamental to a company vs others that are emergent.
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