Sunday, January 16, 2011
How banks made money while investors lost - in India
There has been a lot of bashing of banks in the United States over the last three years when the US taxpayer saved banks while the employees of the banks made billions in bonuses. There wasn't a lot of bashing on banks in India though and in November 2010 the bank index climbed to all time high. Sadly though, there were companies and their investors who got punished (I wanted to use a different word but was afraid of getting sued) by a lot of private banks between 2007-2009. Here are two examples that I would like to provide:
, the derivative contracts the company had entered into with the help of Axis Bank and Yes Bank backfired. The banks started asking for losses on derivatives
but the company refused to pay up and went for suits in Madras high court against both the banks. The banks won the case and now the company has to pay a total sum of 109.48 Crores. Did you read that figure? The company's total profits between 2001-2007 was INR 61.79 Crore. Even if we assume that the company will keep its earning power and will make double the profits between 2008-2015 (prices in India double every 10 years), the company will have to pay almost 90% of its profits in these years as compensation of losses on derivative contracts. The company has already paid these banks over the last three years and the total liability has come down to INR 84.12 Crores in the latest quarter.
Labels:
Banks,
Sector Analysis
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