​​97 everyday and counting ?

A casual conversation with a PSU bank officer a few days back highlighted the problem that the PSU banks are staring in their face. It's not NPAs. NPAs is a known devil. The other piece which goes unnoticed is the human resources, or rather the absence of them. The bank officer mentioned that around 120-125 employees are retiring every month from his bank and it is becoming almost impossible to drive business or even to maintain business.

PSU Banks have a market share of 75% of the total deposits and around 75% of the total advances. They have a large market share of an industry which is expected to grow at a rate of 15-20% per annum.

I checked about the problem of human resources at the PSU Banks.

As per a question answered by the Government of India in Rajya Sabha in March 2015, the total number of employees in PSU banks as on 31.12.2014 were 851,308. In an answer to another question during March 2015 in the Rajya Sabha, the Government submitted that around 25% of the employees of banks are expected to retire by 2020. This means that around 213,000 employees would retire during the period of 6 years (CY 2015- CY 2020). This is an average of 35,471 employees retiring every year or 97 employees retiring everyday (including Sunday) till 2020. RBI has termed 2010-2020 as the decade of retirement for the PSU banks.

A large number of these would be people having experience in the critical areas of project assessment, appraisal. Also, this number does not include people who would resign and move over to private organizations. Sure, the banks will try to fill up the ranks quickly but it is easier said than done. And the new joinees would lack the experience required to write loans and recover the ones already lent.

In the light of such a cocktail (large NPAs, weak balance sheets and absence of experienced people), it is very likely that public sector banks will cede large slices of market share to private players which includes private banks, small finance banks, MFIs, NBFCs, payment banks etc.

Disclaimer : No investment recommendation.

Infosys ​Limited - What happened to the ROCK STAR ?

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" Many shall be restored that now are fallen and many shall fall that now are in honor. "
                                                                                                                                                     - Horace

The poster boy of Indian corporate , the rock star of 90s, the company that gave hopes and wings (and jobs) to millions of Indians is going through a rough patch. Allegations have been leveled against severance pay given to the ex-CFO and some other ex-associates. Concerns have been raised about the high compensation package offered to the CEO, questions have been raised about the conflicts of interest and high valuations paid for acquisitions. Founders have raised concerns about corporate governance practices at the company. 

I read the transcript of the press conference and the investor call arranged by Infoys. The board is a highly distinguished one and they have tried to substantially explain each and every concern. They have taken cognizance of the concerns , have promised and taken steps to further strengthen the governance processes. I found those explanations as pretty reasonable. Of course, there are calls for more transparency and everything to be disclosed in the public domain, I do not belong to that camp. In my view, the board is very capable and sometimes in the larger interest, we should leave it to the collective wisdom of the board to decide what and how much to disclose.

Am I concerned about Infosys ? I am not.

Just like the life of a human being, the life of a company also goes through its own set of ebbs and flows. People learn and evolve, businesses learn and evolve and companies learn and evolve. I very strongly believe that just like the rock star status of the Infosys didn't remain forever, this rough patch too will not remain forever. "This too shall pass."

Coming to the investing part. It makes a lot of sense to look at companies that are going through some kind of trouble- Infosys at the moment is certainly one of them. I thought about the business of Infosys in the following ways :

Do I understand the business of Infosys ? No, I don't.

I appreciate the stellar role that technology companies have played in the past and will continue to play in the future. But I am not able to understand the business dynamics of Infosys. It doesn't mean anything about the technology companies, it doesn't mean anything about Infosys, it just means that I don't understand the business of Infosys.

Does it mean I will not invest in any technology company ? No

I would like to keep an open mind . I think I somewhat understand the high entry barriers around the search business of Google, I appreciate the design and thinking capabilities of Apple etc. but I don't understand a whole lot of technology companies. I would be open to investing in technology companies which I think I understand.

What is the most important thing in investing ?

 









As Mr Buffett teaches, the most important thing in investing is to understand your own circle of competence and the boundaries of it. Another equally important thing is to cultivate the discipline to remain within that circle.
 
 

And Mr Tom Watson Sr. shared his formula for success :  
“I’m no genius. I’m smart in spots—but I stay around those spots.”
                                                                                                  - Tom Watson Sr., Founder of IBM


 What is the valuation of Infosys ?

Doesn't matter. If something is not worth doing, it's not worth doing well.

Since I don't understand the business of Infosys, I have decided to give it a pass. I hope and believe that Infosys will be able to tide over this crisis quickly and regain its iconic status again.

Disclaimer : This is not an investment recommendation to buy or sell any company named in this post. These are thoughts of a rambling mind.