Specialist in Indian Banking and Economic Research

Hemindra Hazari

Despites the paeans of self-praise in annual reports, exposé after exposé by the media reveal the abysmal state of corporate governance in private financial capital. The latest in these revelations by ET Prime is how Yes Bank <a href="https://economictimes.indiatimes.com/prime/corporate-governance/cbi-files-avantha-entities-used-inr500-crore-yes-bank-loan-to-repay-edelweiss-ncds-abfl-loan/primearticleshow/84380524.cms" target="_blank" rel="noopener">disbursed</a> a Rs 5.12 bn loan to Oyster Buildwell, an Avantha (Thapar) group shell company which had less than Rs 50 mn in capital and negligible income at end December 2017/early January 2018. While the then founder-Chief Executive Officer (CEO), Rana Kapoor, has been rightly held responsible for the collapse of <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a>  (subsequently revived by a State Bank of India-led group), and is currently a guest of the state, what has gone largely unnoticed is how members of the then board of directors were equally culpable and have gotten away scot free. More alarming is the case of <a href="https://www.linkedin.com/in/agraashish/?originalSubdomain=in" target="_blank" rel="noopener">Ashish Agarwal</a>, the Chief Risk Officer (CRO) and also responsible for corporate loans for more than a decade (March 2009 to May 2020), who appraised and approved all the dubious corporate loans (including Oyster Buildwell) which ultimately brought the bank to its knees: he was <a href="https://www.yesbank.in/media/press-releases/yes-bank-announces-appointment-of-mr-maheshwar-sahu-and-mr-anil-jagga-as-additional-directors" target="_blank" rel="noopener">rewarded</a> by the board of directors in January 2019 for his “track record” and put forward as a possible successor to Rana Kapoor, by elevating him to the post of executive director. When the Reserve Bank of India (RBI) rightly rejected his candidature, he continued in the all-important CRO post till May 2020, whereupon he was put in charge of wholesale and corporate lending. That an individual who approved a series of dubious high-risk corporate loans not only survived but was rewarded under the new ownership and management, when he should have been removed, is indicative of all that is wrong in private financial capital today and in Yes Bank in particular.  What is equally shocking is that the RBI's extreme leniency in its annual inspections of Yes Bank, when it reviewed large loans given to shell companies having marginal equity and income and dubious security provided by third parties, as revealed in the Oyster Buildwell case. Such loans -- euphemistically and mistakenly referred to by the current management as “asset backed financing” -- were in reality high-risk loans, which no experienced commercial banker should have undertaken.  It is on account of these rare media scoops that the public becomes aware of the brazen incompetence/complicity of the board of directors and key senior executives, and the negligence of the banking regulator in not taking action at the relevant time, thereby putting public deposits at risk.In Yes Bank’s case, stakeholders should demand accountability and punishment of the then board of directors (including independent directors) who were complicit, and key executives like the then CRO, who blindly condoned reckless lending and approved poor quality loans. The RBI belatedly acted by ending Kapoor’s term as CEO on January 31, 2019, even though Vishal Goyal, the UBS sell-side analyst, <a href="https://economictimes.indiatimes.com/markets/stocks/news/yes-bank-shares-fall-after-ubs-downgrades-the-lender-to-sell/articleshow/47996134.cms?from=mdr" target="_blank" rel="noopener">first</a>  highlighted concerns of poor quality loans in July 2015, and this analyst kept blowing the whistle from <a href="https://hemindrahazari.com/2020/03/10/how-independent-research-found-a-fatal-flaw-with-yes-bank/" target="_blank" rel="noopener">May 2017</a> onwards. This shows how lethargically the banking regulator responded, despite having access to all the inside information rightly denied to sell-side analysts. The Oyster Buildwell loan lucidly reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners of Yes Bank, as well as later by the new owners.

Despites the paeans of self-praise in annual reports, exposé after exposé by the media reveal the abysmal state of corporate governance in private financial capital. The latest in these revelations by ET Prime is how Yes Bank disbursed a Rs 5.12 bn loan to Oyster Buildwell, an Avantha (Thapar) group shell company which had less than Rs 50 mn in capital and negligible income at end December 2017/early January 2018. While the then founder-Chief Executive Officer (CEO), Rana Kapoor, has been rightly held responsible for the collapse of Yes Bank (YES IN)  (subsequently revived by a State Bank of India-led group), and is currently a guest of the state, what has gone largely unnoticed is how members of the then board of directors were equally culpable and have gotten away scot free. More alarming is the case of Ashish Agarwal, the Chief Risk Officer (CRO) and also responsible for corporate loans for more than a decade (March 2009 to May 2020), who appraised and approved all the dubious corporate loans (including Oyster Buildwell) which ultimately brought the bank to its knees: he was rewarded by the board of directors in January 2019 for his “track record” and put forward as a possible successor to Rana Kapoor, by elevating him to the post of executive director. When the Reserve Bank of India (RBI) rightly rejected his candidature, he continued in the all-important CRO post till May 2020, whereupon he was put in charge of wholesale and corporate lending. That an individual who approved a series of dubious high-risk corporate loans not only survived but was rewarded under the new ownership and management, when he should have been removed, is indicative of all that is wrong in private financial capital today and in Yes Bank in particular.  What is equally shocking is that the RBI's extreme leniency in its annual inspections of Yes Bank, when it reviewed large loans given to shell companies having marginal equity and income and dubious security provided by third parties, as revealed in the Oyster Buildwell case. Such loans -- euphemistically and mistakenly referred to by the current management as “asset backed financing” -- were in reality high-risk loans, which no experienced commercial banker should have undertaken.  It is on account of these rare media scoops that the public becomes aware of the brazen incompetence/complicity of the board of directors and key senior executives, and the negligence of the banking regulator in not taking action at the relevant time, thereby putting public deposits at risk.In Yes Bank’s case, stakeholders should demand accountability and punishment of the then board of directors (including independent directors) who were complicit, and key executives like the then CRO, who blindly condoned reckless lending and approved poor quality loans. The RBI belatedly acted by ending Kapoor’s term as CEO on January 31, 2019, even though Vishal Goyal, the UBS sell-side analyst, first  highlighted concerns of poor quality loans in July 2015, and this analyst kept blowing the whistle from May 2017 onwards. This shows how lethargically the banking regulator responded, despite having access to all the inside information rightly denied to sell-side analysts. The Oyster Buildwell loan lucidly reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners of Yes Bank, as well as later by the new owners. 

Yes Bank: Why Are the Culpable Still in Place Despite New Ownership?

External broker reports(aggregated public sources), SMC Global

SMC Online

External broker reports(aggregated public sources)

Equity Bottom-Up

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non-interest income and stable cost-to-income ratio.
The core fee income of the bank has jumped 74% on low base, but the second covid wave and consequent lockdowns in various part of the country caused sharp decline in core fee income on sequential basis.
Net interest margin for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank's NIM came in this low. Total advances rose 14.4% y-o-y to Rs 11.5 lakh crore, of which retail loans were up 9.3% y-o-y to Rs 4.58 lakh crore. Similarly, commercial and rural banking loans were up 25% from a year ago to Rs 3.86 lakh crore. The bank also said wholesale loans were up 10% y-o-y to Rs 3.14 lakh crore. Total deposits of the bank grew 13.2% y-o-y to Rs 13.4 lakh crore. CASA deposits grew by 28.1% y-o-y with savings account deposits at Rs 4.2 lakh crore and current account deposits at Rs 1.85 lakh crore.
<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non-interest income and stable cost-to-income ratio.
The core fee income of the bank has jumped 74% on low base, but the second covid wave and consequent lockdowns in various part of the country caused sharp decline in core fee income on sequential basis.
Net interest margin for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank's NIM came in this low. Total advances rose 14.4% y-o-y to Rs 11.5 lakh crore, of which retail loans were up 9.3% y-o-y to Rs 4.58 lakh crore. Similarly, commercial and rural banking loans were up 25% from a year ago to Rs 3.86 lakh crore. The bank also said wholesale loans were up 10% y-o-y to Rs 3.14 lakh crore. Total deposits of the bank grew 13.2% y-o-y to Rs 13.4 lakh crore. CASA deposits grew by 28.1% y-o-y with savings account deposits at Rs 4.2 lakh crore and current account deposits at Rs 1.85 lakh crore.
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HDFC Bank Q1 Net Profit up 16.1 Per Cent to Rs 7,729.64 Crore

External broker reports(aggregated public sources), ICICI Securities Ltd

ICICI Securities Limited

About the stock: HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. The bank has maintained superior return ratios compared to its peers resulting in premium valuations.<ul><li>Largest private sector bank with loan book of over | 11 lakh crore</li><li>Consistent performance with +4% NIM and +15% RoE in past many years</li></ul><div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

About the stock: HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. The bank has maintained superior return ratios compared to its peers resulting in premium valuations.Largest private sector bank with loan book of over | 11 lakh croreConsistent performance with +4% NIM and +15% RoE in past many yearsContent is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HDFC Bank: Pandemic Hits Quarter; Geared to Push Recovery Ahead

External broker reports(aggregated public sources), Axis Direct

Axis Direct

We maintain BUY with a revised target price of Rs 1,720 derived using the SOTP method (core bank at 3.5xFY23 ABV + Subsidiaries value Rs 48/-).<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

We maintain BUY with a revised target price of Rs 1,720 derived using the SOTP method (core bank at 3.5xFY23 ABV + Subsidiaries value Rs 48/-).Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

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

<div><a href="https://www.smartkarma.com/entities/paytm-mobile-solutions-pvt-ltd" target="_blank" data-smartkarma-citation="entities:26149:1" rel="noopener">Paytm (PAYTM IN)</a> plans to raise around US$2.2bn via selling a mix of primary and secondary shares in its India IPO. The company is backed by <a href="https://www.smartkarma.com/entities/ant-group-co-ltd" target="_blank" data-smartkarma-citation="entities:24240:1" rel="noopener">Ant Financial Services Group (6688 HK)</a> (<a href="https://www.smartkarma.com/entities/alibaba-group-holding-ltd" target="_blank" data-smartkarma-citation="entities:787:1" rel="noopener">Alibaba Group (BABA US)</a>), <a href="https://www.smartkarma.com/entities/softbank-group-corp" target="_blank" data-smartkarma-citation="entities:315:1" rel="noopener">Softbank Group (9984 JP)</a> and counts <a href="https://www.smartkarma.com/entities/berkshire-hathaway-inc-cl-a" target="_blank" data-smartkarma-citation="entities:1044:1" rel="noopener">Berkshire Hathaway Inc Cl A (BRK/A US)</a> among its investors.</div><div>
Paytm offers payment services, commerce and cloud services, and financial services to 333m consumers and over 21m merchants, as of Mar 21. It offers consumers a wide selection of payment options on the Paytm app. It also offers merchants solutions that allow them to accept payments, acquire and retain consumers, improve their business operations and access financial services.
We covered the company's background and positive aspects of the deal in our earlier note, <a href="https://www.smartkarma.com/insights/paytm-one-97-pre-ipo-the-positives-will-be-one-of-india-s-largest-ipos" target="_blank" rel="noopener">Paytm (One 97) Pre-IPO - The Positives - Will Be One of India’s Largest IPOs</a>.
In this note, we will talk about the not so flattering aspects of the deal.
</div>

Paytm (PAYTM IN) plans to raise around US$2.2bn via selling a mix of primary and secondary shares in its India IPO. The company is backed by Ant Financial Services Group (6688 HK) (Alibaba Group (BABA US)), Softbank Group (9984 JP) and counts Berkshire Hathaway Inc Cl A (BRK/A US) among its investors.
Paytm offers payment services, commerce and cloud services, and financial services to 333m consumers and over 21m merchants, as of Mar 21. It offers consumers a wide selection of payment options on the Paytm app. It also offers merchants solutions that allow them to accept payments, acquire and retain consumers, improve their business operations and access financial services.
We covered the company's background and positive aspects of the deal in our earlier note, Paytm (One 97) Pre-IPO - The Positives - Will Be One of India’s Largest IPOs.
In this note, we will talk about the not so flattering aspects of the deal.


Paytm (One 97) Pre-IPO - The Negatives - Asking Valuations a Long Shot

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)

Yes Bank: Why Are the Culpable Still in Place Despite New Ownership?

The Oyster Buildwell loan reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners...

Hemindra Hazari

HDFC Bank Q1 Net Profit up 16.1 Per Cent to Rs 7,729.64 Crore

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non...

SMC Online

HDFC Bank: Pandemic Hits Quarter; Geared to Push Recovery Ahead

HDFC Bank is a leading private sector bank with consistent growth and operational performance over various cycles. The bank has maintained superior...

ICICI Securities Limited

HDFC Bank: Operational Metrics Moderate

We maintain BUY with a revised target price of Rs 1,720 derived using the SOTP method (core bank at 3.5xFY23 ABV + Subsidiaries value Rs 48/-).

Axis Direct

Paytm (One 97) Pre-IPO - The Negatives - Asking Valuations a Long Shot

Paytm (PAYTM IN) plans to raise around US$2.2bn via its India IPO. The company is backed by Ant (6688 HK) (Baba (BABA US)), Softbank (9984 JP) and...

Sumeet Singh

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