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01 October 2010

Perils of being an MBA - 1

The biggest problem of being an MBA is that you become too cynical when it comes to advertisements and business news.
Take for instance the latest ad of IDBI Bank. There is a cute ad of an elephant and a kid playing together and the tag line informs us that IDBI Bank has removed the account opening fees for Current Accounts and Savings account since the organization values relationship and customer should not pay to build relationship with the bank.
"Isn't it a great gesture?" asks my wife "No fees for opening a Savings account. Can't we open an account?"
"And the ad is very cute" she follows up as an afterthought.
This is where my MBA Brain kicks in.
Big Deal ! I think. A very good way of using emotional ad to lure customers to put in their money. A bank removing account opening fees for CASA (Current Account Savings Account) can only mean that it is finding it difficult to get new customers. That it is advertising now means that probably their loan portfolio is expanding and they do not have enough low cost funds to fund the loan. Normally the low cost funds for a bank are provided by CASA. IDBI Banks ad for CASA can only mean two things. One, their loan portfolio is increasing and two they are funding the same by high cost funds like FDs and stuff. This can only mean that their spread
(NIM - Net Interest Margin) is narrowing and this will sooner or later reflect in the Stock Price.
So (I continue thinking), it is better to sell of the share of IDBI Bank now. It has had a nice little run up and let me make the profit and get out of this share..
In the meantime, my wife has gone to the web and had already downloaded the account opening forms...

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