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

*KMB’s Lack Of Credit Discussion Raises Eyebrows:On a competitor call, Kotak Mahindra Bank (KMB.IN) [KMB] management only spoke about the potential macro recovery with the ongoing COVID-19 vaccinations, and how well-prepared that the Indian financial sector is to address the current pandemic. It cited broadly stable NIMs with continued improvement in loan-to-deposit ratio, and held a discussion on loan growth;  and  *Credit Risks Substantially Increasing: While KMB’s metrics were not nearly as ugly as Yes Bank’s (YES.IN), KMB’s credit break is tracking the financial sector - which is not exhibiting any sign of recovery. By our calculation, we find that both net new NPLs and impaired loans increased excessively with annualized growth rates of 122.8% and 143.2%, respectively. Given the worsening of KMB’s credit metrics and current weak reserve cover, we find that reserves at FY 3Q21 fall short by INR 78 bn - about three quarters of stated PBT…for now.

*KMB’s Lack Of Credit Discussion Raises Eyebrows:On a competitor call, Kotak Mahindra Bank (KMB.IN) [KMB] management only spoke about the potential macro recovery with the ongoing COVID-19 vaccinations, and how well-prepared that the Indian financial sector is to address the current pandemic. It cited broadly stable NIMs with continued improvement in loan-to-deposit ratio, and held a discussion on loan growth;  and  *Credit Risks Substantially Increasing: While KMB’s metrics were not nearly as ugly as Yes Bank’s (YES.IN), KMB’s credit break is tracking the financial sector - which is not exhibiting any sign of recovery. By our calculation, we find that both net new NPLs and impaired loans increased excessively with annualized growth rates of 122.8% and 143.2%, respectively. Given the worsening of KMB’s credit metrics and current weak reserve cover, we find that reserves at FY 3Q21 fall short by INR 78 bn - about three quarters of stated PBT…for now. 

Kotak Mahindra Bank – Failing To Answer The Hard Questions

*Positive Spin: HDFC Bank (HDFCB.IN) {HDFCB] management held a call with a competitor, where a positive spin was placed on nearly every aspect of its business. HDFCB highlighted lending had reached pre-COVID-19 levels during December and is attributed to pent-up demand. Management also contends that its NIM should remain in the guided range of 4.0%-4.5% given the improving loan mix and the reduction in excess liquidity; and
*Credit Still Breaking Down Ex-Supreme Court Ruling: On an apples-to-apples basis, we find that HDFCB’s stated gross NPLs increased 18.1% linked quarter. Inclusive of NCOs of INR 34 bn, however, we calculate that net new NPLs actually increased INR 65 bn or 151% on an annualized basis. Provisions barely cover NCOs – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 328 bn or over a year of core operating results based on FY 3Q21 results.

*Positive Spin: HDFC Bank (HDFCB.IN) {HDFCB] management held a call with a competitor, where a positive spin was placed on nearly every aspect of its business. HDFCB highlighted lending had reached pre-COVID-19 levels during December and is attributed to pent-up demand. Management also contends that its NIM should remain in the guided range of 4.0%-4.5% given the improving loan mix and the reduction in excess liquidity; and
*Credit Still Breaking Down Ex-Supreme Court Ruling: On an apples-to-apples basis, we find that HDFCB’s stated gross NPLs increased 18.1% linked quarter. Inclusive of NCOs of INR 34 bn, however, we calculate that net new NPLs actually increased INR 65 bn or 151% on an annualized basis. Provisions barely cover NCOs – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. By our calculation, reserves are currently short by nearly INR 328 bn or over a year of core operating results based on FY 3Q21 results.   

HDFC Bank – Story Appears Different From Reality

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Thematic (Sector/Industry)

During last year it was not about intrinsic economic or bank health. There was a filter applied to the analysis. With its removal now, we believe that inherent malaise for India corporates will become clear again.

During last year it was not about intrinsic economic or bank health. There was a filter applied to the analysis. With its removal now, we believe that inherent malaise for India corporates will become clear again.

India Financials

Saumya Agarwal

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure due to multiple factors playing out such as Moratorium, the Supreme Court interim order and the Restructuring framework. How well placed are Indian Banks to ride the current stress cycle?

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

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

Aadhar Housing Finance Ltd / Equity Capital Markets

Aadhar Housing Finance (AHF) was the largest affordable housing finance company (HFC) in India, in terms of AUM as of Mar 2020. It plans to raise around US$1bn via selling a mix of primary and secondary shares in its India IPO. AHF is 98.72% owned by Blackstone.AHF is entirely retail-focussed, serving economically weaker and low-to-middle income customers. The average ticket size of its loans was INR0.85m, with an average loan-to-value of 56.73%, as of Sep 2020. 64.83% of its gross AUM consisted of loans to salaried customers, with the rest coming from self-employed customers, as of Sep 2020. AHF’s customer base has grown at 22.18% CAGR over FY18-20, while AUM grew at a CAGR of 19.79%. Total income growth outpaced AUM growth with a 30.85% CAGR over FY18-20.However, its disbursements have been falling and its AUM growth has slowed down over the past few years. In addition, its disclosures aren’t exactly the best.

Aadhar Housing Finance (AHF) was the largest affordable housing finance company (HFC) in India, in terms of AUM as of Mar 2020. It plans to raise around US$1bn via selling a mix of primary and secondary shares in its India IPO. AHF is 98.72% owned by Blackstone.AHF is entirely retail-focussed, serving economically weaker and low-to-middle income customers. The average ticket size of its loans was INR0.85m, with an average loan-to-value of 56.73%, as of Sep 2020. 64.83% of its gross AUM consisted of loans to salaried customers, with the rest coming from self-employed customers, as of Sep 2020. AHF’s customer base has grown at 22.18% CAGR over FY18-20, while AUM grew at a CAGR of 19.79%. Total income growth outpaced AUM growth with a 30.85% CAGR over FY18-20.However, its disbursements have been falling and its AUM growth has slowed down over the past few years. In addition, its disclosures aren’t exactly the best.

Aadhar Housing Finance Pre-IPO - Decent past Growth but Comes with Weird Disclosures

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)

Kotak Mahindra Bank – Failing To Answer The Hard Questions

KOTAK MAHINDRA BANK: On a recent call, KMB spoke of macro recovery. KMB’s is not exhibiting any sign of recovery as net new NPLs increased 122.8%.

Thomas J. Monaco

HDFC Bank – Story Appears Different From Reality

HDFC BANK: HDFCB recently put a positive spin on nearly every aspect of its business. However, credit quality and provision realities are far...

Thomas J. Monaco

India Banks – Remove The Filter

India's banks are not seeing a major decline in provisions like others. We wonder if inherent India corporate risk is now coming through more...

Daniel Tabbush

Indian Banks: How Well-Placed Are Indian Banks to Ride the Current Stress Cycle?

Indian Banks have built up huge ammunition of Covid related and contingent provisions even as the ‘Real’ NPA picture remains somewhat obscure . Can...

Saumya Agarwal

Aadhar Housing Finance Pre-IPO - Decent past Growth but Comes with Weird Disclosures

Aadhar Housing Finance, the largest affordable housing finance company, plans to raise around US$1bn via selling a mix of primary and secondary...

Sumeet Singh

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