Banks and investing

Over the last week,while i was in the market last sunday and this weekend while i am reading some financial magazines, i  am starting to come around to a theory of investing with banks.

One can look at banks in two ways
1. Which banks to invest in, which means which banks we should buy shares of.
2. Which banks to park your funds in, which means which banks you should open your FDs in.


lets take each of these separately.

1. Which Banks to Invest In
The moral here is to invest in those scrips which will give you higher appreciation, lower risk . Those banks which are continuing to grow month on month, Qon Q, YoY. One can find such banks quite easily by doing fundamental analysis. Some of these banks are HDFC bank , SBI and the likes.
One can be sure that in an uptrend , these will continue to perform, and in a downtrend these will be impacted less negatively! Or as my dad says " Family Jewels"


2. Which banks to Park your Funds in

These should be with the same logic , those banks which will give you higher returns on the money that you invest in them, Fixed Deposits and Savings bank rates.
Now Savings bank rates are common across all banks, the RBI has started talking about deregularizing this, if that happens life is going to get very very interesting for a lot of banks.
Fixed deposit rates are deregulated. Depending on the banks requirement of funds, these banks will come in and offer differential FD rates. Usually the banks which are in top tier- SBI, HDFC, AXIS etc will offer lower FD rates, because they have a very strong pull on their customers. Because of these lower rates, their cost of funds is lower and because of this, they make a lot of profit- Which is the exact reason why they for part of the first point of "which banks to invest in".

So it is better to keep on the lookout for banks which offer a differential rate in the market- consistently higher and open an FD or a savings account with them. This will help us get higher investment income on our fixed portfolio.

If you look at the scanned image on the right-

you can clearly see the interest rate differentials. eg DCB offering upto 8.25% ( 8.75% for Sr citizens) on a two year deposit. This is a clear 1 % differential vs the other banks.

Now if you use this technique , compound the benefit of investing over a period of 20 yrs for Rs 100.000, one can earn an additional 82.697 Rs or for 30 yrs , an amount of 2,62,297 Rs.

Not bad for clarity of thought!!

I know i am planning to open up an account in  DCB. In fact as you can see from the picture below- have already identified , where the bank is :)

One needs to identify areas where one can benefit more. Remember, you need to manage your finances actively than passively.!

Happy Investing
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