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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Choosing a bank-- a 1% difference.

I think this is an important factor in our financial plan for multiple reasons.

In todays world our banks are becoming more and more automated and less personal. I mean how many people recognize us in the banks we bank in? I remember i used to go with my grandfather to the bank when i was small and everyone knew him! He was retired but everyone gave him respect and spoke to him, welcomed him at the bank.

Now when i go- no one recognizes me-- I mean i am some sort of preffered customer-- but who cares? Not the bank. The only person who recognizes me is the relationship manager.

So whats my point?

1. In todays world the services of one bank to another are hardly different-- I mean everyone offers a credit card, online banking and ATMs upto a certain value are free anyways- we should choose a bank that caters to us-- aligns with us-- their customer.

We can see some changes that are happening-- ICICI banks advertisement are to this point only-- Khayal aapka ( though my experience has never been good with them).

2. The smaller banks also value your money and actually give you a higher interest rates on your FDs versus the bigger banks who have a lot of money already. One case in point is below

HDFC banks gives you a deposit rate of 6.5%  for a tenure of 1 yr 17 days- 2 yrs and DCB gives a 7.5% from 18 months to 3 yrs or 7% for a 1 yr to 18 months..--- thats like a 1% difference!!

Big banks will never give you larger rates because they have the leverage and they think they provide you with better service ( I still am not able to see how)

Somebanks are trying to differentiate themselves- ICICIbank has some special offers if you use their netbanking-- interesting changes are happening in the marketplace.

So- please evaluate where one is comfortable-- one that will value your business.

Evaluate your options... dont settle for less!

Happy investing

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