Banking on the potential of banking and finance

The banking-and-finance sector has never been free from media coverage. The current times are no different. Whether it is the NPA concerns of public-sector banks or the liquidity crunch faced by NBFCs, the sector has been passing through a tumultuous phase. Amidst all this, however, quality stocks in the sector have continued to bring returns to the investor. Aditya Birla SL Banking & Financial Services Fund, which manages over Rs 1,600 crore, is a top-rated fund in its category. We speak to the fund managers of this fund to get an idea about how they pick stocks and what has made their fund virtually immune to the turmoil in the sector. How do you pick banking stocks for your fund? Running a bank is always an interplay between attracting low-cost deposits, a diversified loan book and strong risk management. Each of these constitutes a strong competitive moat and emanates from organisational culture, which is very difficult to build. Hence, our large allocations are to banks which have a strong deposit franchise, diversified loan books, and an ability to cross-sell and effectively manage the risks. Our smaller allocations are to play some specific themes - regional banks/small-finance banks or banks focused on SMEs or purely corporate banks. What attracts you to an NBFC? NBFCs are generally strong asset franchise. They may not enjoy the borrowing-cost advantage that banks can boast of but they can be nimble-footed and reach sections of population that are traditionally ignored/unbanked. A dominant product category, an ability to appraise informal/self-employed customer segment, better ability to collect receivables, an ability to reach customers faster and in