IB Net Payout Yields Model

More Competition for Indian Banks

Interesting Bloomberg report on increasing competition for Indian banks not only for employees, but also the potential for new licenses to be issued by the government. The main thrust of the article is the potential implementation of 'gardening leave' which bans employees from working for a competitor for 6 months unless they pay a fine, but the more important aspect for the 2 Indian banks trading in the US, ICICI Bank (IBN) and HDFC Bank (HDB), are the new bank licenses to be issued by the Indian central bank.

Portfolio holding IBN is the main private bank in India and hence the market appears to follow their moves. They appear to already be facing high turnover with 15% of junior staff leaving last year. Not sure that's high enough to be overly disruptive, but the number could rise if more competition is let into the market. Those new banks will want the experience of the employees at IBN. From a business perspective, they'll likely focus efforts on attacking the 70% control of the market by state run banks.

Recently sold some IBN stock in our portfolios due to it's huge run the last couple of months. This Bloomberg article hints at potential reasons to sell the remaining stock. New licenses to be issued by the central bank could really heat up a sector that hasn't faced new entrants for 7 years now. IBN is the market leader and the Indian market can probably handle new entrants, but it's clearly something an investor needs to follow.


  • ICICI, led by Chief Executive Officer Chanda Kochhar, is bracing for more competition for talent as India’s central bank prepares to issue new bank licenses for the first time in more than seven years. Religare Enterprises Ltd., controlled by billionaire brothers Malvinder and Shivinder Mohan Singh, said in August it may apply for a permit. 
  • The rate of employee turnover among junior staff has almost doubled this year to about 15 percent as an expanding economy bolsters job prospects, the person said. ICICI’s board will review the plan to introduce gardening leave at a meeting later this month, according to the person. 
  • V. Vaidyanathan, who was CEO of ICICI Prudential Life Insurance, quit in July to join Future Capital Holdings Ltd. Sonjoy Chatterjee, an executive director at ICICI Bank, departed in April to join Goldman Sachs Group Inc. as a managing director and co-CEO for India.
  • The requirement for so-called gardening leave would apply to about 120 employees at the level of joint general manager or above, the person said, declining to be identified because the deliberations are private. ICICI has about 53,000 workers. 

Disclosure: Long IBN


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