Specialist in Indian Banking and Economic Research

Hemindra Hazari

Thematic (Sector/Industry)

<p>The capital markets continue to reward private sector banks with rich valuations, benefitting shareholders. But larger stakeholders such as bank customers are registering a steep increase in complaints to the banks’ ombudsman. <strong>For the year July 1, 2019 to June 30, 2020, customer <a href="https://www.rbi.org.in/Scripts/BS_PressReleaseDisplay.aspx?prid=51095" target="_blank" rel="noopener">complaints</a> (per branch and per 1,000 accounts) in the entire banking industry rose, but the complaint rate for private sector banks increased significantly, and remain higher than the industry.</strong> In FY2020 (July-June), while the disposal rate for complaints for the industry was 92.4%, it has been coming down from 96.5% in FY2018. It is likely that the Covid19 pandemic and the severe lockdown in India inconvenienced banking customers, resulting in a rise in industry complaints. It is also possible that since private sector banks are concentrated in urban India and have a younger customer age profile more familiar with digital operations their customers find it easier to file complaints digitally but, nevertheless, stakeholders should be concerned about the alarming rise in complaints for the much fancied private sector banks.  </p><p>It is unfortunate, though not surprising, that sell-side research regularly highlights the high CASA (current and saving account deposits), substantial fee income and other positive features of private sector banks, but steadfastly refuses to even acknowledge the growing customer complaints, which are a creditable documentation of customer dis-satisfaction with the banking services. </p><p><strong>Since few customers are motivated and informed enough to register a complaint, such complaints are the tip of the iceberg of customer dissatisfaction. In banking, customers by number are much larger stakeholders than shareholders, and when customer complaints report not just a sharp increase but also a rising trend, it needs to be highlighted by the sell-side, business media, credit rating agencies and the banking regulator.</strong></p><p><strong>Customer dis-satisfaction at the private sector banks is a highly relevant issue as the general perception is that customer service is superior to the government banks which this data contradicts. Furthermore, if banks such as HDFC Bank and Kotak Mahindra Bank continue to report higher customer complaints and since the customer profile is common to all new generation private sector banks there is a concern that their customers can shift to other private sector banks offering better customer service.</strong></p><p><strong>Pressure must be brought on senior management of banks to address this issue. Merely focusing on superior profitability enriching valuations, and ignoring the rise in customer complaints, can undermine any business model over the medium term, and shareholders need to take cognisance of such an important issue.</strong></p>

The capital markets continue to reward private sector banks with rich valuations, benefitting shareholders. But larger stakeholders such as bank customers are registering a steep increase in complaints to the banks’ ombudsman. For the year July 1, 2019 to June 30, 2020, customer complaints (per branch and per 1,000 accounts) in the entire banking industry rose, but the complaint rate for private sector banks increased significantly, and remain higher than the industry. In FY2020 (July-June), while the disposal rate for complaints for the industry was 92.4%, it has been coming down from 96.5% in FY2018. It is likely that the Covid19 pandemic and the severe lockdown in India inconvenienced banking customers, resulting in a rise in industry complaints. It is also possible that since private sector banks are concentrated in urban India and have a younger customer age profile more familiar with digital operations their customers find it easier to file complaints digitally but, nevertheless, stakeholders should be concerned about the alarming rise in complaints for the much fancied private sector banks.  It is unfortunate, though not surprising, that sell-side research regularly highlights the high CASA (current and saving account deposits), substantial fee income and other positive features of private sector banks, but steadfastly refuses to even acknowledge the growing customer complaints, which are a creditable documentation of customer dis-satisfaction with the banking services. Since few customers are motivated and informed enough to register a complaint, such complaints are the tip of the iceberg of customer dissatisfaction. In banking, customers by number are much larger stakeholders than shareholders, and when customer complaints report not just a sharp increase but also a rising trend, it needs to be highlighted by the sell-side, business media, credit rating agencies and the banking regulator.Customer dis-satisfaction at the private sector banks is a highly relevant issue as the general perception is that customer service is superior to the government banks which this data contradicts. Furthermore, if banks such as HDFC Bank and Kotak Mahindra Bank continue to report higher customer complaints and since the customer profile is common to all new generation private sector banks there is a concern that their customers can shift to other private sector banks offering better customer service.Pressure must be brought on senior management of banks to address this issue. Merely focusing on superior profitability enriching valuations, and ignoring the rise in customer complaints, can undermine any business model over the medium term, and shareholders need to take cognisance of such an important issue.

Does Customer Satisfaction Matter to the Share Valuations of Private Sector Banks?

Smartkarma Research Team, Smartkarma

Smartkarma Research

Smartkarma Research Team

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

<p>In our next Webinar, we are excited to host Insight Provider <a href="https://www.smartkarma.com/profiles/hemindra-hazari" target="_blank" data-smartkarma-citation="accounts:941" rel="noopener">Hemindra Hazari</a>, who will discuss recent disclosures of Indian banks, whether for good, as in the case 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>, or ill, as in the case of <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a>, as well as issues of governance at <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> concerning the recent downgrade of the Chief Risk Officer.</p>
<h3>The webinar was hosted on Wednesday, 24 February 2021, 17:00 SGT/HKT.<a href="https://share.hsforms.com/1H9pFZOB-RF2J00kbvMmxcw2c5gj?zoom_webinar_id=86484085717" target="_blank" rel="noopener"></a>
</h3>
<p></p>
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<div>Or subscribe to listen on the go:</div>
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<div><iframe src="https://open.spotify.com/embed-podcast/episode/2ODz44bdXkXRtlpTT2pF5v" width="100%" height="232" frameborder="0" allowtransparency="true" allow="encrypted-media"></iframe></div>
<div></div>
<div>Hemindra Hazari is a SEBI-registered research analyst with over 25 years of experience in the Indian capital markets, specialising in banking and economy research. He has managerial experience in establishing profitable equities business, leading, and mentoring analysts. He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James, and Karvy Stock Broking, and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.</div>

In our next Webinar, we are excited to host Insight Provider Hemindra Hazari, who will discuss recent disclosures of Indian banks, whether for good, as in the case of Yes Bank (YES IN), or ill, as in the case of Axis Bank Ltd (AXSB IN), as well as issues of governance at HDFC Bank (HDFCB IN) concerning the recent downgrade of the Chief Risk Officer.
The webinar was hosted on Wednesday, 24 February 2021, 17:00 SGT/HKT.


Watch the session:


Or subscribe to listen on the go:



Hemindra Hazari is a SEBI-registered research analyst with over 25 years of experience in the Indian capital markets, specialising in banking and economy research. He has managerial experience in establishing profitable equities business, leading, and mentoring analysts. He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James, and Karvy Stock Broking, and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Smartkarma Webinar | Light & Shadow: Disclosures and Governance in Indian Banks

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

Brookfield India Real Estate Trust / Equity Capital Markets

<p><a href="https://www.smartkarma.com/entities/brookfield-india-real-estate-trust" target="_blank" data-smartkarma-citation="entities:31036:1" rel="noopener">Brookfield India Real Estate Trust (BIREIT IN)</a> (BREIT from hereon) raised around US$520m in its India IPO. </p>
<div>
<p>I’ve covered various aspects of the deal in my earlier notes:</p>
<ul>
<li>
<a href="https://www.smartkarma.com/insights/brookfields-india-real-estate-trust-pre-ipo-the-positives-provides-different-geographic-exposure" target="_blank" rel="noopener">Brookfields India Real Estate Trust Pre-IPO - The Positives- Provides Different Geographic Exposure </a>, </li>
<li> <a href="https://www.smartkarma.com/insights/brookfields-india-real-estate-trust-pre-ipo-the-negatives-asset-details-leave-questions-unanswered" target="_blank" rel="noopener">Brookfields India Real Estate Trust Pre-IPO- The Negatives- Asset Details Leave Questions Unanswered,</a>
</li>
<li><a href="https://www.smartkarma.com/insights/brookfields-india-real-estate-trust-pre-ipo-gurgaon-site-visit-takeaways" target="_blank" rel="noopener">Brookfields India Real Estate Trust Pre-IPO- Gurgaon Site Visit Takeaways, and</a></li>
<li><a href="https://www.smartkarma.com/insights/brookfields-india-real-estate-trust-ipo-not-very-convincing-but-the-yield-looks-tempting" target="_blank" rel="noopener">Brookfields India Real Estate Trust IPO - Not Very Convincing but the Yield Looks Tempting</a></li>
</ul>
</div>
<div>
<p>In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.</p>
</div>

Brookfield India Real Estate Trust (BIREIT IN) (BREIT from hereon) raised around US$520m in its India IPO. 

I’ve covered various aspects of the deal in my earlier notes:


Brookfields India Real Estate Trust Pre-IPO - The Positives- Provides Different Geographic Exposure , 
 Brookfields India Real Estate Trust Pre-IPO- The Negatives- Asset Details Leave Questions Unanswered,

Brookfields India Real Estate Trust Pre-IPO- Gurgaon Site Visit Takeaways, and
Brookfields India Real Estate Trust IPO - Not Very Convincing but the Yield Looks Tempting



In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.


Brookfields India Real Estate Trust IPO Trading - Mixed Bag

Home First Finance / Equity Capital Markets

<div>
<p>Home First Finance (HFF), an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised around US$160m in its India IPO. It is backed by True North, GIC and Bessemer and has recently obtained an investment from Warburg Pincus as well.</p>
</div>
<div>
<p>I have covered various aspects of the deal in my earlier notes,  <a href="https://www.smartkarma.com/insights/home-first-finance-pre-ipo-riding-on-affordable-housing" target="_blank" rel="noopener">Home First Finance Pre-IPO - Riding on affordable housing</a>,  <a href="https://www.smartkarma.com/insights/home-first-finance-pre-ipo-earnings-not-showing-the-covid-strain-but-other-metrics-are" target="_blank" rel="noopener">Home First Finance Pre-IPO - Earnings not showing the COVID strain but other metrics are</a> and <a href="https://www.smartkarma.com/insights/home-first-finance-ipo-it-s-not-really-cheap-banking-on-momentum" target="_blank" rel="noopener">Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum</a>.</p>
<p>In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.</p>
</div>


Home First Finance (HFF), an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised around US$160m in its India IPO. It is backed by True North, GIC and Bessemer and has recently obtained an investment from Warburg Pincus as well.


I have covered various aspects of the deal in my earlier notes,  Home First Finance Pre-IPO - Riding on affordable housing,  Home First Finance Pre-IPO - Earnings not showing the COVID strain but other metrics are and Home First Finance IPO - It’s Not Really Cheap, Banking on Momentum.
In this note, I'll talk about deal updates and provide a table with implied valuations at different share price levels.


Home First Finance IPO Trading - Hot Space but Limited Discount

<p><strong>Despite reporting a 36% yoy fall in 3QFY2021 net profits and being </strong><a href="https://www.bloombergquint.com/quarterly-earnings/axis-bank-q3-results-net-profit-falls-36-on-higher-provisions" target="_blank" rel="noopener"><strong>below</strong></a><strong> consensus estimates, <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a> 's share price on January 28, 2021 closed 6% up, while the Nifty-50 declined by 1%. The strong and positive response to the bank’s results was surprising, as Axis Bank declined to voluntarily disclose its 30+ days past due loans, a critical indicator which the bank had disclosed in its 2QFY2021 results conference </strong><a href="https://www.axisbank.com/docs/default-source/call-transcript/q2fy21-earnings-call-transcript.pdf" target="_blank" rel="noopener"><strong>call</strong></a><strong>. The 30+ days past due loans serves as a benchmark to analysts to estimate future non-performing loans and incremental credit costs, especially at a time when past trends for credit costs may not hold on account of the unprecedented Covid-19 related lockdown, which severely curtailed economic activity.</strong><strong> </strong></p><p><strong>Even though 30+ day past loans is not a mandatory disclosure, once the senior management of a bank takes a decision to voluntarily disclose the indicator in a certain quarter, thereafter, from a transparency perspective, the bank would be well advised to continue to disclose the number. By failing to voluntarily disclose the 30+ day past due loans in the 3QFY2021, there would be a valid apprehension that the lack of disclosure is because of a sharp deterioration in the indicator, which the bank was uncomfortable in revealing to the market.</strong></p><p><strong>It is commendable that banks like <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> and <a href="https://www.smartkarma.com/entities/bank-of-baroda" target="_blank" data-smartkarma-citation="entities:545:1" rel="noopener">Bank Of Baroda (BOB IN)</a> (BOB), which reported 3QFY2021 results on January 27, voluntarily disclosed the 30+ days past due loans in their analyst presentation, despite the number revealing a significant deterioration in asset quality as compared with 2QFY2021. The equity market severely punished their share prices on January 28, with Yes Bank falling by 4% and BOB by 10% on January 28.</strong></p><p><strong>Participants in the capital market such as shareholders, business media and analysts need to publicly call out companies (in this case banks) which cease to voluntarily disclose critical data points that were earlier disclosed, as its sudden absence in all likelihood indicates a negative development which the company does not want to share with stakeholders. </strong></p>

Despite reporting a 36% yoy fall in 3QFY2021 net profits and being below consensus estimates, Axis Bank Ltd (AXSB IN) 's share price on January 28, 2021 closed 6% up, while the Nifty-50 declined by 1%. The strong and positive response to the bank’s results was surprising, as Axis Bank declined to voluntarily disclose its 30+ days past due loans, a critical indicator which the bank had disclosed in its 2QFY2021 results conference call. The 30+ days past due loans serves as a benchmark to analysts to estimate future non-performing loans and incremental credit costs, especially at a time when past trends for credit costs may not hold on account of the unprecedented Covid-19 related lockdown, which severely curtailed economic activity. Even though 30+ day past loans is not a mandatory disclosure, once the senior management of a bank takes a decision to voluntarily disclose the indicator in a certain quarter, thereafter, from a transparency perspective, the bank would be well advised to continue to disclose the number. By failing to voluntarily disclose the 30+ day past due loans in the 3QFY2021, there would be a valid apprehension that the lack of disclosure is because of a sharp deterioration in the indicator, which the bank was uncomfortable in revealing to the market.It is commendable that banks like Yes Bank (YES IN) and Bank Of Baroda (BOB IN) (BOB), which reported 3QFY2021 results on January 27, voluntarily disclosed the 30+ days past due loans in their analyst presentation, despite the number revealing a significant deterioration in asset quality as compared with 2QFY2021. The equity market severely punished their share prices on January 28, with Yes Bank falling by 4% and BOB by 10% on January 28.Participants in the capital market such as shareholders, business media and analysts need to publicly call out companies (in this case banks) which cease to voluntarily disclose critical data points that were earlier disclosed, as its sudden absence in all likelihood indicates a negative development which the company does not want to share with stakeholders. 

Axis Bank Stops Sharing 30+ Days Past Due Data: When Sudden Silence Tells a Tale

India

Axis Bank Limited provides a full range of banking services throughout India. The Group's activities include retail banking, investment management, merchant banking, treasury and NRI services, cash and credit management services, and ATM facilities.

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Axis Bank Ltd (AXSB IN)

Smartkarma Webinar | Light & Shadow: Disclosures and Governance in Indian Banks

On 24 Feb, 5PM SGT, join us as we discuss with Hemindra Hazari on Indian banks, including differing disclosures in Yes Bank and Axis Bank, as well...

Smartkarma Research

Brookfields India Real Estate Trust IPO Trading - Mixed Bag

Brookfield India Real Estate Trust (BIREIT IN) raised around US$520m in its India IPO. In this note, I'll talk about deal updates and provide a...

Sumeet Singh

Home First Finance IPO Trading - Hot Space but Limited Discount

Home First Finance, an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised around US$160m...

Sumeet Singh

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Does Customer Satisfaction Matter to the Share Valuations of Private Sector Banks?

That customer grievances are growing is of less importance when shareholders are being rewarded today. But the durability of a business depends on...

Hemindra Hazari

Smartkarma Webinar | Light & Shadow: Disclosures and Governance in Indian Banks

On 24 Feb, 5PM SGT, join us as we discuss with Hemindra Hazari on Indian banks, including differing disclosures in Yes Bank and Axis Bank, as well...

Smartkarma Research

Brookfields India Real Estate Trust IPO Trading - Mixed Bag

Brookfield India Real Estate Trust (BIREIT IN) raised around US$520m in its India IPO. In this note, I'll talk about deal updates and provide a...

Sumeet Singh

Home First Finance IPO Trading - Hot Space but Limited Discount

Home First Finance, an affordable housing finance company targeting first time home buyers in low and middle-income groups, raised around US$160m...

Sumeet Singh

Axis Bank Stops Sharing 30+ Days Past Due Data: When Sudden Silence Tells a Tale

When a bank, after earlier disclosing an indicator, fails to disclose it in future, it alerts stakeholders to the fact that it may be hiding a...

Hemindra Hazari