Specialist in Indian Banking and Economic Research

Hemindra Hazari

<p><strong>Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was <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> ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India (SBIN IN)</a>-led consortium, including prominent names in private financial capital. <a href="https://www.linkedin.com/in/agraashish/?originalSubdomain=in" target="_blank" rel="noopener">Ashish Agarwal</a> , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  <a href="https://www.yesbank.in/about-us/our-team" target="_blank" rel="noopener">directors</a> to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes <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>, <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a>, <a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN), </a><a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a><a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener"> </a> and others, continues to employ an individual with such a track record. </strong></p><p><strong>While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities. </strong> </p><p><strong>Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.</strong></p>

Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was Yes Bank (YES IN) ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the State Bank Of India (SBIN IN)-led consortium, including prominent names in private financial capital. Ashish Agarwal , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  directors to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes Axis Bank Ltd (AXSB IN), Kotak Mahindra Bank (KMB IN), HDFC Limited (HDFC IN), ICICI Bank Ltd (ICICIBC IN)  and others, continues to employ an individual with such a track record. While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities.  Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.

Yes Bank’s New Owners Keep Overpaid Mismanagers in Place

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

Devyani International  / Equity Capital Markets

<div><p>Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, aims to raise around US$200m via its Indian IPO. The IPO will be a mix of primary and secondary shares. </p></div><div><p>DIL operates a chain of quick service restaurants (QSRs) in India. Its core business is to operate KFC, Pizza Hut and Costa Coffee in India. It operated 655 stores across 155 cities in India, as of Mar 2021. These include 264 KFC stores, 297 Pizza Hut stores and 44 Costa Coffee stores. It also operates stores in Nepal and Nigeria for KFC and Pizza Hut. In addition, it also runs its own brands Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India. Yum owns over 4% stake in the company.</p></div><div><p>We covered various aspects of the deal in our previous notes, <a href="https://www.smartkarma.com/insights/devyani-pre-ipo-might-not-do-another-burger-king-india-but-should-be-good" target="_blank" rel="noopener">Devyani Pre-IPO - Might not do another Burger King India but should be good</a> and <a href="https://www.smartkarma.com/insights/devyani-pre-ipo-peer-comparison-slots-in-neatly" target="_blank" rel="noopener">Devyani Pre-IPO - Peer Comparison - Slots in Neatly.</a></p></div><div><p>In this note we will talk about valuations.</p></div>

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, aims to raise around US$200m via its Indian IPO. The IPO will be a mix of primary and secondary shares. DIL operates a chain of quick service restaurants (QSRs) in India. Its core business is to operate KFC, Pizza Hut and Costa Coffee in India. It operated 655 stores across 155 cities in India, as of Mar 2021. These include 264 KFC stores, 297 Pizza Hut stores and 44 Costa Coffee stores. It also operates stores in Nepal and Nigeria for KFC and Pizza Hut. In addition, it also runs its own brands Vaango, Food Street, Masala Twist, Ile Bar, Amreli, and Ckrussh Juice Bar in India. Yum owns over 4% stake in the company.We covered various aspects of the deal in our previous notes, Devyani Pre-IPO - Might not do another Burger King India but should be good and Devyani Pre-IPO - Peer Comparison - Slots in Neatly.In this note we will talk about valuations.

Equity Bottom-Up

<p><strong><a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank Ltd (ICICIBC IN)</a> ’s 1QFY2022 results on July 24, 2021 highlight the need for shareholders to re-examine the bank’s retail asset strategy. ICICI Bank’s strategy was to focus on retail assets to compensate for the bulky poor-quality corporate assets that it had earlier emphasised. However, the broad economic slowdown even prior to the Covid-19 pandemic impacted all segments of the economy, and the pandemic dealt small and medium enterprises, and indeed the whole informal sector, a severe blow. A section of organised sector employees too lost their jobs or experienced pay cuts. All these developments affected retail assets of banks. Unlike <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> , which started shifting from retail assets, ICICI Bank surged ahead in retail lending even when retail asset profits declined in FY2021, and this strategy continued in 1QFY2022 despite a drastic fall in retail profits.</strong></p><p><strong>Apparently the board of directors has taken a view that the bank has to continue to grow the overall balance sheet despite the weak economic conditions, and that, since corporate credit remains weak, the only other avenue is to grow retail assets. It is precisely this strategy that shareholders need to review and debate with the management. The past two years’ data from both ICICI Bank and HDFC Bank reveal that, on account of deteriorating retail asset quality, the contribution of retail profits before tax (PBT) to overall PBT is declining, and in 1QFY2022 it has fallen steeply. From ICICI Bank’s surge in retail assets in FY2021 and 1QFY2022, it appears that the bank believes that the past two years’ data are an anomaly, and that retail asset quality will bounce back.</strong></p><p><strong>According to ICICI Bank, additions to gross NPAs are expected to be lower in 2QFY2022, and further improve in 2HFY2022. Given the state of the Indian economy, it may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to boost profitability.      </strong></p>

ICICI Bank Ltd (ICICIBC IN) ’s 1QFY2022 results on July 24, 2021 highlight the need for shareholders to re-examine the bank’s retail asset strategy. ICICI Bank’s strategy was to focus on retail assets to compensate for the bulky poor-quality corporate assets that it had earlier emphasised. However, the broad economic slowdown even prior to the Covid-19 pandemic impacted all segments of the economy, and the pandemic dealt small and medium enterprises, and indeed the whole informal sector, a severe blow. A section of organised sector employees too lost their jobs or experienced pay cuts. All these developments affected retail assets of banks. Unlike HDFC Bank (HDFCB IN) , which started shifting from retail assets, ICICI Bank surged ahead in retail lending even when retail asset profits declined in FY2021, and this strategy continued in 1QFY2022 despite a drastic fall in retail profits.Apparently the board of directors has taken a view that the bank has to continue to grow the overall balance sheet despite the weak economic conditions, and that, since corporate credit remains weak, the only other avenue is to grow retail assets. It is precisely this strategy that shareholders need to review and debate with the management. The past two years’ data from both ICICI Bank and HDFC Bank reveal that, on account of deteriorating retail asset quality, the contribution of retail profits before tax (PBT) to overall PBT is declining, and in 1QFY2022 it has fallen steeply. From ICICI Bank’s surge in retail assets in FY2021 and 1QFY2022, it appears that the bank believes that the past two years’ data are an anomaly, and that retail asset quality will bounce back.According to ICICI Bank, additions to gross NPAs are expected to be lower in 2QFY2022, and further improve in 2HFY2022. Given the state of the Indian economy, it may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to boost profitability.      

Cause for Alarm – ICICI Bank’s Burgeoning Retail Lending Vulnerable to the Economy

<div><p><a href="https://www.smartkarma.com/entities/zomato-media-pvt" target="_blank" data-smartkarma-citation="entities:28820:1" rel="noopener">Zomato (ZOM IN)</a> raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.</p></div><div>We have covered various aspects of the deal in our earlier notes  </div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-filings-lack-narrative-a-little-bit-of-history-helps" target="_blank" rel="noopener">Zomato Pre-IPO - Filings Lack Narrative, a Little Bit of History Helps, </a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-food-delivery-revenue-was-probably-up-16x" target="_blank" rel="noopener">Zomato Pre-IPO - Food Delivery Revenue Was Probably up 16x, and</a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-peer-comparison-listed-and-domestic" target="_blank" rel="noopener">Zomato Pre-IPO - Peer Comparison - Listed and Domestic</a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-ipo-strong-4q21-has-a-very-long-runway" target="_blank" rel="noopener">Zomato IPO - Strong 4Q21, Has a Very Long Runway</a></li>
</ul></div><div><p>In this note, we will talk about the updates and the trading dynamics.</p></div>

Zomato (ZOM IN) raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.We have covered various aspects of the deal in our earlier notes  
Zomato Pre-IPO - Filings Lack Narrative, a Little Bit of History Helps, 
Zomato Pre-IPO - Food Delivery Revenue Was Probably up 16x, and
Zomato Pre-IPO - Peer Comparison - Listed and Domestic
Zomato IPO - Strong 4Q21, Has a Very Long Runway
In this note, we will talk about the updates and the trading dynamics.

Zomato IPO Trading - Ample Demand for Unique Exposure

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

<p><em><strong>*Earnings Appear Overstated: </strong></em>Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and </p><p><em><strong>*Time To Man Up: </strong></em> The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.</p>

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and *Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.

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’s New Owners Keep Overpaid Mismanagers in Place

In Yes Bank’s fall, while Rana Kapoor was the main culprit, he was ably assisted by his handsomely paid favoured few in critical posts, some like...

Hemindra Hazari

Devyani Pre-IPO - Thoughts on Valuation

Devyani International Limited (DIL), Yum Brand’s largest franchisor in India, aims to raise around US$200m via its Indian IPO. The IPO will be a...

Sumeet Singh

Cause for Alarm – ICICI Bank’s Burgeoning Retail Lending Vulnerable to the Economy

It may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to...

Hemindra Hazari

Zomato IPO Trading - Ample Demand for Unique Exposure

Zomato (ZOM IN) raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.

Sumeet Singh

Bajaj Finance – Just BAFfling

BAJAJ FINANCE: Bajaj posted a QOQ FY 1Q22 results decline 25.6% driven by credit weakness in Consumer. Net new NPLs increased at 281% annualized...

Thomas J. Monaco

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