Friday, October 19, 2012

Why Bank of Maharashtra is Going Nowhere Even in a Bull Market?

Market has been surging in September & October, even Bank Nifty has surged, but Mahabank scrip is not going practically anywhere. The reasons are many. Despite a reasonable Q1, no one expects Bank of Maharashtra (BSE: 532525, NSE: MAHABANK) to outperform in the long term.

Despite a 78-year old history, the Mumbai based public sector bank remains one of the smallest listed banks in the country, which in itself proves that it still hasn’t got its long-term priorities right.

Though the bank comes out with new initiatives occasionally, none have proved to deliver a breakout for the lender. A case in point is Mahabank’s recent aping of a move by SBI - of offering 30-year housing loans.

While the country’s largest bank may have the kind of resilience to offer such extended-term loans, it is highly doubtful whether a tiny bank like Maha can take on such long-term risky assets.

It is noteworthy that except for Mahabank, no other public or private bank, nor housing finance experts like HDFC or LIC Housing Finance are offering this SBI-like scheme.

Their logic is simple. These loans can only be offered to youngsters in their early to mid twenties, as beyond that the tenure will cross their retirement age. Most among such a young target group now find it difficult to make the upfront margin or customer’s share required for a housing loan. That is precisely what has made the average age of home loan customers in India nearer to 35-40.

Secondly, most home loan customers are already uncomfortable with repayment periods above 15 years, and are not opting for the already available 20-year tenure. And ever since RBI removed pre-payment penalties, home loan customers are using every extraordinary revenue like bonuses, or stock options, to wind up home loans much earlier than the tenure.

Thirdly, the purported aim of trimming of the EMI size, due to a 30 year loan, is too small to make it a decisive attraction for customers. This is because vis-à-vis a 15-year tenure, the interest costs are much higher here.

Similar is the case with the recently launched Maha Super Car Loan Scheme, by which the bank is trying to be more attractive like private sector banks, but by taking on more risks for itself. It is moving away from the  highly-secure and higher-margin traditional auto loan model followed by most public sector banks, and trying the newer low-security low-margin model.

The problems with this model are obvious - it is no SBI for such a move to make a big difference to its numbers nor is it an HDFC Bank to enforce strict repayments.
With these kind of lacklustre or even myopic policy making, there is no wonder why Bank of Maharashtra is where it is now. It is high time that the bank’s promoter, Government of India, takes a close look at Mahabank’s underperformance and revamp the management.

The bank has also been faring poorly on the transparency front, with it vehemently opposing an RTI application to know how the BoM Employee Welfare Trust works, before being humbled by the Central Information Commissioner who ruled that all the details of the Trust be divulged as it works on public taxpayer money.

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