Specialist in Indian Banking and Economic Research

Hemindra Hazari

Thematic (Sector/Industry)

The integrity of audits in private sector banks and non-bank financial companies (including housing finance) has received a major boost, while large global and domestic audit firms have been dealt a body blow by the Reserve Bank of India’s <a href="https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI258A67AD30976F44929FA2AB2B41DC805D.PDF" target="_blank" rel="noopener">new</a> guidelines for the appointment of statutory auditors for the commercial banks and NBFCs. In future the executive and founder-management of private sector financial intermediaries will find it more difficult to exert influence on their statutory auditors. 
Henceforth, all the audit firm affiliates which were treated as separate entities, but under the same network, will be treated as a single entity. It was common practice for one entity in the audit firm group to be awarded the audit while other entities in the group were given lucrative assignments while simultaneously issuing a “no conflict of interest certificate.” Such an arrangement compromised the entire edifice of audit, and there were no disclosures. The new system entails providing such disclosures to the RBI prior to getting the regulator’s approval.
Till FY2019, global audit firms had a stranglehold on the market of large private sector banks. But their negligent conduct, bordering on complicity, in major corporate frauds in India and abroad has led to a valid rethink regarding their capabilities. Accordingly, the regulator’s guidelines released on April 27, 2021 will curtail their business in the Indian financial sector.

The integrity of audits in private sector banks and non-bank financial companies (including housing finance) has received a major boost, while large global and domestic audit firms have been dealt a body blow by the Reserve Bank of India’s new guidelines for the appointment of statutory auditors for the commercial banks and NBFCs. In future the executive and founder-management of private sector financial intermediaries will find it more difficult to exert influence on their statutory auditors. 
Henceforth, all the audit firm affiliates which were treated as separate entities, but under the same network, will be treated as a single entity. It was common practice for one entity in the audit firm group to be awarded the audit while other entities in the group were given lucrative assignments while simultaneously issuing a “no conflict of interest certificate.” Such an arrangement compromised the entire edifice of audit, and there were no disclosures. The new system entails providing such disclosures to the RBI prior to getting the regulator’s approval.
Till FY2019, global audit firms had a stranglehold on the market of large private sector banks. But their negligent conduct, bordering on complicity, in major corporate frauds in India and abroad has led to a valid rethink regarding their capabilities. Accordingly, the regulator’s guidelines released on April 27, 2021 will curtail their business in the Indian financial sector.

RBI Norms - Audit Giants Can’t Continue Their Cosy Arrangements with Private Banks and NBFCs

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

PowerGrid Infrastructure Inves / Equity Capital Markets

POWERGRID Infrastructure Investment Trust (PGIT) aims to raise around US$1bn in its India IPO. PGIT is an investment trust setup to own transmission assets of its sponsor Power Grid Corporation of India Limited (PGCIL). PGCIL is a central public sector enterprise which has been listed since 2007. PGIT will initially own five assets with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 Megavolt amperes (MVA) of aggregate transformation capacity, as of Sep 2020, across five states in India. The total valuation of the assets was INR105bn (US$1.4bn) as of Sep 2020. These assets were awarded to PGCIL on a  build-own-operate-maintain (BOOM) basis. Therefore, the assets are operated under a long 35 years service agreement with largely pre-fixed revenue based on availability. In that sense, they will provide stable returns. However, its revenue terms are structured in such a way that its yield will continue to decline, while its sponsor’s government ownership will mean that it's unlikely to diversify away from transmission assets with declining yield.Our previous coverage of the IPO:<ul><li dir="ltr" aria-level="1"><a href="https://www.smartkarma.com/insights/powergrid-invit-pre-ipo-always-going-to-be-tricky-with-a-declining-yield" target="_blank" rel="noopener">POWERGRID InvIT Pre-IPO - Always going to be tricky with a declining yield</a></li></ul>

POWERGRID Infrastructure Investment Trust (PGIT) aims to raise around US$1bn in its India IPO. PGIT is an investment trust setup to own transmission assets of its sponsor Power Grid Corporation of India Limited (PGCIL). PGCIL is a central public sector enterprise which has been listed since 2007. PGIT will initially own five assets with a total network of 11 power transmission lines of approximately 3,698.59 ckm and three substations having 6,630 Megavolt amperes (MVA) of aggregate transformation capacity, as of Sep 2020, across five states in India. The total valuation of the assets was INR105bn (US$1.4bn) as of Sep 2020. These assets were awarded to PGCIL on a  build-own-operate-maintain (BOOM) basis. Therefore, the assets are operated under a long 35 years service agreement with largely pre-fixed revenue based on availability. In that sense, they will provide stable returns. However, its revenue terms are structured in such a way that its yield will continue to decline, while its sponsor’s government ownership will mean that it's unlikely to diversify away from transmission assets with declining yield.Our previous coverage of the IPO:POWERGRID InvIT Pre-IPO - Always going to be tricky with a declining yield

POWERGRID InvIT IPO - Assets Are Fine, Declining Yield Is Not

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

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

*Improved Operating Performance: ICICI Bank (ICICIBC.IN/IBN.US) [ICICI] reported FY 4Q21 earnings of INR 44.0 bn, decreasing INR 5.4 bn (10.9%) linked quarter. Excluding gains, FY 4Q21 core operating results increased INR 2.5 bn (6.5%) over the same period. In our view, ICICI’s results were of higher quality than last quarter; and*Credit Improvement Coming: With NCOs of INR 42.2 bn, we find that net new NPLs actually continued to increase - up INR 34.9 bn or at a decelerated pace of 33.1% on an annualized basis. With credit quality continuing to breakdown at ICICI and virtually every financial institution in India, we find that ICICI – like its competitors, is still short on reserves to the tune of INR 229 bn or four quarters of PBT.

Asset Allocation & Fund Positioning, Copley Fund Research

Steven Holden

Asset Allocation & Fund Positioning

Copley Fund Research

Copley Fund Research provide research and data on asset allocation among Global and Emerging Market equity funds.  The analysis details absolute and relative positioning across countries, sectors and industries together with highly granular data on single stock and single fund allocations.  The data is updated monthly with time series going back to January 2011.

Global Research - Analysis of 165 prominent Global equity funds, combined AUM $335bn
GEM Research - Analysis of 127 prominent global EM equity funds, combined AUM $250bn

Asset Allocation - Global and GEM Equity

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Allocations in the Financials sector have broken below the decade long range.  In their place are increased exposures in Technology and Consumer Discretionary companies.  At the moment, allocations within the sector are consolidating, with Asia Ex-Japan funds actively increasing weights, but still remaining a long way below previous levels. In this analysis, we look at the mechanics of the downturn, identifying the countries and stocks hardest hit.  We then look at the extent to which Financials stocks have consolidated and moved towards the early stages of a recovery.

Asia Ex-Japan Financials.  Slowly Regaining the Faith.

<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> posted strong results for 4QFY2021 with standalone net profits up 260% yoy, but 11% down qoq to Rs 44 bn. While the analyst consensus and the capital market may view the results as a positive, investors need to monitor the bank’s focus on mortgages, which it has used to drive asset growth. As compared with the industry, ICICI Bank has accelerated its mortgages from 3QFY2021, and this has further spurted in 4QFY2021. Within mortgages, the loan against property portfolio needs to be carefully monitored, as such loans can result in higher losses when there is a downturn. Although mortgages are secured, the asset value can plummet when lenders sell the security to realise the loan.  It is interesting to observe that, while <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> is de-emphasising retail loans, ICICI Bank still continues to aggressively grow retail. Like HDFC Bank, however, it has continue to increase its net deferred taxes (DTA), thereby inflating its net profits.

ICICI Bank Ltd (ICICIBC IN) posted strong results for 4QFY2021 with standalone net profits up 260% yoy, but 11% down qoq to Rs 44 bn. While the analyst consensus and the capital market may view the results as a positive, investors need to monitor the bank’s focus on mortgages, which it has used to drive asset growth. As compared with the industry, ICICI Bank has accelerated its mortgages from 3QFY2021, and this has further spurted in 4QFY2021. Within mortgages, the loan against property portfolio needs to be carefully monitored, as such loans can result in higher losses when there is a downturn. Although mortgages are secured, the asset value can plummet when lenders sell the security to realise the loan.  It is interesting to observe that, while HDFC Bank (HDFCB IN) is de-emphasising retail loans, ICICI Bank still continues to aggressively grow retail. Like HDFC Bank, however, it has continue to increase its net deferred taxes (DTA), thereby inflating its net profits.  

ICICI Bank: Go Corporate-Heavy in a Corporate Slump, Retail-Heavy in a Pandemic

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.

Price Gauge
52-week Range	0.00 - 0.00
Market Cap (USDm)	0.00
P/E	0.00
Dividend (Yield)	0.00

HDFC Bank (HDFCB IN)

RBI Norms - Audit Giants Can’t Continue Their Cosy Arrangements with Private Banks and NBFCs

The integrity of audits in banks & NBFCs has received a major boost, while global audit firms have been dealt a body blow by the RBI’s new...

Hemindra Hazari

POWERGRID InvIT IPO - Assets Are Fine, Declining Yield Is Not

POWERGRID Infrastructure Investment Trust aims to raise around US$1bn in its India IPO. PGIT is an investment trust setup to own transmission...

Sumeet Singh

ICICI Bank – Much Better

ICICI BANK: ICICI reported a 6.5% linked quarter improvement in FY 4Q21 operating results. Credit weakness is still there, but the breakdown in net...

Thomas J. Monaco

Asia Ex-Japan Financials. Slowly Regaining the Faith.

Active Asia Ex-Japan managers move back in to the Financials sector after a period of heavy rotation, however allocations remain well below...

Steven Holden

ICICI Bank: Go Corporate-Heavy in a Corporate Slump, Retail-Heavy in a Pandemic

While ICICI Bank’s results are impressive, its growing emphasis on retail, especially at a time when the pandemic is expected to engulf retail,...

Hemindra Hazari

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)