Silver Point

Thomas J. Monaco

Independent Insight Provider

Silver Point is a boutique research firm that focuses on the broader financial services sector, with a particular focus on troubled institutions globally. 

Asia Ex Japan

Equity Bottom-Up

*Not Fooling Anyone: HDFC Bank (HDFCB.IN) [HDFCB] released a nonsensical set of FY 2Q22 earnings results, despite exhibiting that the bottom-line improved INR 11.0 bn (14.3%) linked quarter. On an operating basis, core results aggregated INR 81.6 bn, up INR 10.3 bn (14.5%) over the period. Puzzling is the INR 75.1 bn (28.5%) increase in problem loans, and the INR 9.1 bn (18.8%) decline in loss provisions during FY 2Q22; and *Credit Disaster Continues:We calculate that net new NPLs actually increased a whopping INR 114.1 bn or 43.2%. By our calculation, reserves are massively short by nearly INR 371.3 bn or over year (and growing) of core operating results – despite the massive under-providing against credit this quarter which suggests that the provision shortfall is closer to two years of results.

*Not Fooling Anyone: HDFC Bank (HDFCB.IN) [HDFCB] released a nonsensical set of FY 2Q22 earnings results, despite exhibiting that the bottom-line improved INR 11.0 bn (14.3%) linked quarter. On an operating basis, core results aggregated INR 81.6 bn, up INR 10.3 bn (14.5%) over the period. Puzzling is the INR 75.1 bn (28.5%) increase in problem loans, and the INR 9.1 bn (18.8%) decline in loss provisions during FY 2Q22; and *Credit Disaster Continues:We calculate that net new NPLs actually increased a whopping INR 114.1 bn or 43.2%. By our calculation, reserves are massively short by nearly INR 371.3 bn or over year (and growing) of core operating results – despite the massive under-providing against credit this quarter which suggests that the provision shortfall is closer to two years of results.  

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

Aditya Birla Sun Life AMC / Equity Capital Markets

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Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders raised around US$369m via reducing their stake in the company’s Indian IPO. 
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ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL. ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.
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We have covered various aspects of the deal in our previous notes, <a href="https://www.smartkarma.com/insights/aditya-birla-sun-life-amc-pre-ipo-strong-profit-growth-but-it-s-losing-market-share" target="_blank" rel="noopener">Aditya Birla Sun Life AMC Pre-IPO - Strong profit growth but it’s losing market share</a> and <a href="https://www.smartkarma.com/insights/aditya-birla-sun-life-amc-ipo-at-a-slight-discount-but-there-s-no-compelling-reason-to-buy" target="_blank" rel="noopener">Aditya Birla Sun Life AMC IPO - At a Slight Discount but There’s No Compelling Reason to Buy</a>.
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In this note, we will talk about the deal dynamics.
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Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders raised around US$369m via reducing their stake in the company’s Indian IPO. 


ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL. ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.


We have covered various aspects of the deal in our previous notes, Aditya Birla Sun Life AMC Pre-IPO - Strong profit growth but it’s losing market share and Aditya Birla Sun Life AMC IPO - At a Slight Discount but There’s No Compelling Reason to Buy.


In this note, we will talk about the deal dynamics.


Aditya Birla Sun Life AMC IPO Trading - Tepid Demand

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 2Q22 ahead of its officially scheduled October 16, 2021 earnings release. The highlights were solely related to growth of lending and deposits; and*See No Evil: Nothing was discussed regarding HDFCB’s abysmal credit quality metrics from FY 1Q22, which likely will remain a true headache. At FY 1Q22, net new NPLs actually increased 153% on an annualized basis which is quite worrisome.  We would also be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 316 bn or nearly a year of operating results.

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 2Q22 ahead of its officially scheduled October 16, 2021 earnings release. The highlights were solely related to growth of lending and deposits; and*See No Evil: Nothing was discussed regarding HDFCB’s abysmal credit quality metrics from FY 1Q22, which likely will remain a true headache. At FY 1Q22, net new NPLs actually increased 153% on an annualized basis which is quite worrisome.  We would also be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 316 bn or nearly a year of operating results. 

Specialist in Indian Banking and Economic Research

Hemindra Hazari

This analyst’s <a href="https://hemindrahazari.com/2021/09/24/deafening-silence-from-media-and-sell-side-on-hdfc-banks-processing-fee-scandal/" target="_blank" rel="noopener">research</a> note on September 24, 2021 highlighted <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a>’s disturbing practice of extracting ‘processing fees’ from prospective customers who applied for loans using false/fabricated documents. Following this, the media finally woke up (<a href="https://www.livemint.com/industry/banking/hdfc-bank-didn-t-flag-forgery-whistleblower-11632939515803.html?utm_source=share&amp;utm_medium=social&amp;utm_campaign=share_via_web" target="_blank" rel="noopener">here</a> and <a href="https://www.bloombergquint.com/business/the-curious-case-of-hdfc-banks-penalties-on-fraudulent-loan-applications" target="_blank" rel="noopener">here</a>) from their self-induced slumber. HDFC Bank was forced to issue a <a href="https://timesofindia.indiatimes.com/business/india-business/no-fee-refund-for-fraud-loan-applications-hdfc-bank/articleshow/86695841.cms" target="_blank" rel="noopener">media statement</a>  on October 1, 2021 wherein it justified levying processing fees, citing the additional due diligence required when loan applicants submitted “discrepant/suspected documents”. HDFC Bank also claimed that the bank filed police complaints in a “number of cases” where the processing cost was levied.  The bank also explicitly stated that the fees were not for closing the case. There are some issues with HDFC Bank’s clarification to the media:<ol style="list-style-type: lower-roman;">
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The statement by HDFC Bank has not been published as a <a href="https://www.hdfcbank.com/personal/about-us/news-room/press-release" target="_blank" rel="noopener">press release</a>, nor has it been informed to the stock exchanges, which would have been the proper procedure. It has been given to select media agencies and to those analysts who have specifically requested it. This is unfortunate, as it is an important clarification, which required that it be publicly disclosed.
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<li>Most Indian banks do not levy fees for rejecting a loan application where false documentation has been detected.  It is also unlikely that a person who was not a customer of the bank would voluntarily agree to pay a processing fee to a bank which has rejected his/her loan application.</li>
<li>There is no specific mention in HDFC Bank’s statement to the effect that Income Tax authorities had been informed in cases where fake Permanent Account cards (PAN) and dual PAN were submitted by prospective customers applying for a loan. The bank has specifically mentioned that internal and industry databases were updated and the police were informed.</li>
<li>HDFC Bank had earlier informed this analyst that it had recently stopped levying processing fees for false documentation. If the bank’s practice was legitimate and conformed to the law why did it discontinue the practice soon after the whistle blower raised these allegations?</li>
</ol>These questions can only be answered by a thorough investigation by the Reserve Bank of India (RBI) and by the Income Tax authorities to determine whether HDFC Bank was indulging in unfair practices, and whether loan applicants who were not HDFC Bank customers were voluntarily paying the “processing fees”.It is important for the regulator and for stakeholders to examine HDFC Bank’s significant fee income and the practices and policies that are driving it. HDFC Bank should not suffer the fate that befell <a href="https://www.smartkarma.com/entities/wells-fargo-co" target="_blank" data-smartkarma-citation="entities:232:1" rel="noopener">Wells Fargo &amp; Co (WFC US)</a>.

This analyst’s research note on September 24, 2021 highlighted HDFC Bank (HDFCB IN)’s disturbing practice of extracting ‘processing fees’ from prospective customers who applied for loans using false/fabricated documents. Following this, the media finally woke up (here and here) from their self-induced slumber. HDFC Bank was forced to issue a media statement  on October 1, 2021 wherein it justified levying processing fees, citing the additional due diligence required when loan applicants submitted “discrepant/suspected documents”. HDFC Bank also claimed that the bank filed police complaints in a “number of cases” where the processing cost was levied.  The bank also explicitly stated that the fees were not for closing the case. There are some issues with HDFC Bank’s clarification to the media:

The statement by HDFC Bank has not been published as a press release, nor has it been informed to the stock exchanges, which would have been the proper procedure. It has been given to select media agencies and to those analysts who have specifically requested it. This is unfortunate, as it is an important clarification, which required that it be publicly disclosed.

Most Indian banks do not levy fees for rejecting a loan application where false documentation has been detected.  It is also unlikely that a person who was not a customer of the bank would voluntarily agree to pay a processing fee to a bank which has rejected his/her loan application.
There is no specific mention in HDFC Bank’s statement to the effect that Income Tax authorities had been informed in cases where fake Permanent Account cards (PAN) and dual PAN were submitted by prospective customers applying for a loan. The bank has specifically mentioned that internal and industry databases were updated and the police were informed.
HDFC Bank had earlier informed this analyst that it had recently stopped levying processing fees for false documentation. If the bank’s practice was legitimate and conformed to the law why did it discontinue the practice soon after the whistle blower raised these allegations?
These questions can only be answered by a thorough investigation by the Reserve Bank of India (RBI) and by the Income Tax authorities to determine whether HDFC Bank was indulging in unfair practices, and whether loan applicants who were not HDFC Bank customers were voluntarily paying the “processing fees”.It is important for the regulator and for stakeholders to examine HDFC Bank’s significant fee income and the practices and policies that are driving it. HDFC Bank should not suffer the fate that befell Wells Fargo &amp; Co (WFC US).

The Mystery of Why Rejected Applicants Paid HDFC Bank ‘Processing Fees’

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders aim to raise around US$369m via reducing their stake in the company’s Indian IPO. ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL.ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.ABSL enjoys a strong brand name in the country. However, unlike other AMC’s it lacks a strong parent, i.e. a bank for it to piggyback on its network. Therefore, the company has lagged its larger peers in terms of equity AUM exposure, which flows down to it having lower profitability as well.We have covered various aspects of the deal in our previous note, <a href="https://www.smartkarma.com/insights/aditya-birla-sun-life-amc-pre-ipo-strong-profit-growth-but-it-s-losing-market-share" target="_blank" rel="noopener">Aditya Birla Sun Life AMC Pre-IPO - Strong profit growth but it’s losing market share</a>.In this note, we will talk about valuations.

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders aim to raise around US$369m via reducing their stake in the company’s Indian IPO. ABSL is the largest non-bank affiliated asset management company (AMC) in India by quarterly average assets under management (QAAUM) and the fourth largest AMC in India. according to CRISIL.ABSL managed total AUM of INR2.9tn across mutual funds, portfolio management services, offshore and real estate offerings, as of Jun 21.ABSL enjoys a strong brand name in the country. However, unlike other AMC’s it lacks a strong parent, i.e. a bank for it to piggyback on its network. Therefore, the company has lagged its larger peers in terms of equity AUM exposure, which flows down to it having lower profitability as well.We have covered various aspects of the deal in our previous note, Aditya Birla Sun Life AMC Pre-IPO - Strong profit growth but it’s losing market share.In this note, we will talk about valuations.  

Aditya Birla Sun Life AMC IPO - At a Slight Discount but There’s No Compelling Reason to Buy

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (HDFCB IN)

HDFC Bank – Extending & Pretending

HDFC BANK: HDFCB released a nonsensical set of FY 2Q22 operating basis, which exhibited improvement of 14.5% QOQ. Puzzling is the 28.5% increase in...

Thomas J. Monaco

Aditya Birla Sun Life AMC IPO Trading - Tepid Demand

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders raised around US$369m via reducing their stake in the company’s Indian IPO.

Sumeet Singh

HDFC Bank – No Credit

HDFC BANK: HDFCB provided a balance sheet growth update for FY 2Q22. Nothing was discussed regarding HDFCB’s challenged credit quality nor its low...

Thomas J. Monaco

The Mystery of Why Rejected Applicants Paid HDFC Bank ‘Processing Fees’

If the bank’s practice was legitimate and conformed to the law why did it discontinue the practice soon after the whistle blower raised these...

Hemindra Hazari

Aditya Birla Sun Life AMC IPO - At a Slight Discount but There’s No Compelling Reason to Buy

Aditya Birla Sun Life Asset Management Company’s (ABSL) shareholders aim to raise around US$369m via reducing their stake in the company’s Indian IPO.

Sumeet Singh

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