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

*ChallengesMount: HDFC Ltd (HDFC.IN) [HDFC] reported FY 1Q22 results of INR 30.0 bn, decreasing INR 1.8 bn (5.6%) on a linked quarter basis. However, core operating results came in at INR 24.7 bn, declining INR 2.7 bn (9.9%) over the same period – despite net interest income improving INR 819 mn  (2.0%) off of a 20 bp NIM improvement to 3.70% and managed loan growth of 0.2%; and*Credit Quality Worsens: Given the INR 5.0 bn in NCOs during FY 1Q22, net new NPLs accelerated to INR 19.0 bn and increased 65.5% on an annualized basis versus INR 3.6 bn or 14.2% on an annualized basis in FY 1Q21. We would have preferred that HDFC be even more vigilant given the continued growing uncertainty of COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 83 bn or over three quarters of core operating results.

*ChallengesMount: HDFC Ltd (HDFC.IN) [HDFC] reported FY 1Q22 results of INR 30.0 bn, decreasing INR 1.8 bn (5.6%) on a linked quarter basis. However, core operating results came in at INR 24.7 bn, declining INR 2.7 bn (9.9%) over the same period – despite net interest income improving INR 819 mn  (2.0%) off of a 20 bp NIM improvement to 3.70% and managed loan growth of 0.2%; and*Credit Quality Worsens: Given the INR 5.0 bn in NCOs during FY 1Q22, net new NPLs accelerated to INR 19.0 bn and increased 65.5% on an annualized basis versus INR 3.6 bn or 14.2% on an annualized basis in FY 1Q21. We would have preferred that HDFC be even more vigilant given the continued growing uncertainty of COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 83 bn or over three quarters of core operating results. 

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released another disappointing set of results, as its FY 1Q22 bottom-line result declined another INR 4.6 bn (5.6%) to INR 77.3 bn on a linked quarter basis. The earnings disappointment came from a net interest income decline, a loss provision increase, and fee revenue weakness; and*Credit Challenged Still: We calculate that net new NPLs actually increased a whopping INR 57.6 bn or 152.8% on an annualized basis – accelerating from the INR 49.2 bn or 130.4% increase posted in FY 4Q20. By our calculation, reserves are massively short by nearly INR 316 bn or nearly an entire year of core operating results.

*Earnings Miss: HDFC Bank (HDFCB.IN) [HDFCB] released another disappointing set of results, as its FY 1Q22 bottom-line result declined another INR 4.6 bn (5.6%) to INR 77.3 bn on a linked quarter basis. The earnings disappointment came from a net interest income decline, a loss provision increase, and fee revenue weakness; and*Credit Challenged Still: We calculate that net new NPLs actually increased a whopping INR 57.6 bn or 152.8% on an annualized basis – accelerating from the INR 49.2 bn or 130.4% increase posted in FY 4Q20. By our calculation, reserves are massively short by nearly INR 316 bn or nearly an entire year of core operating results. 

HDFC Bank – Is This Really India’s Best Bank?

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 1Q22 ahead of its official scheduled July 17, 2021 earnings release. Many of the highlights related to growth of lending and deposits; and*Where Have All The Flowers Gone: Nothing was discussed regarding HDFCB’s abysmal credit quality nor its quite suspect insider transaction with HDFC ERGO General Insurance (ERGO). For FY 4Q21, net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which is quite worrisome.  We would also be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results.

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 1Q22 ahead of its official scheduled July 17, 2021 earnings release. Many of the highlights related to growth of lending and deposits; and*Where Have All The Flowers Gone: Nothing was discussed regarding HDFCB’s abysmal credit quality nor its quite suspect insider transaction with HDFC ERGO General Insurance (ERGO). For FY 4Q21, net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which is quite worrisome.  We would also be more comfortable if HDFCB was a bit more aggressive with its provisions. By our calculation, reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results. 

Thematic (Sector/Industry)

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

*Not So Stable: According to the Reserve Bank of India (RBI), gross NPLS are not anticipated to be as bad as originally believed. In addition, the RBI retains its cautious outlook on MSME credit risk; and
* Rose Colored Glasses: As we have highlighted in numerous individual Indian bank notes, credit quality continued to deteriorate at an accelerated pace prior to the second wave of COVID-19. While many financials are already considered technically insolvent, the reality is that there has been absolutely no let up in the breakdown of credit quality.

Reserve Bank Of India – FSR Is Very Unrealistic

*Extending The Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19. ECGLS was subsequently expanded in November 2020 to include 26 additional stressed sectors. In its latest attempt at forbearance, the Indian government just expanded its ECLGS from INR 3 tn to INR 4.5 tn; and *Kick That Can: Banks have already on-lent INR 2.7 tn under the ECLGS, and this recent announcement should further allow India to kick the can of stressed loans down the road. We remind the Indian government that if you’re extending, you are pretending.  That said, net new NPL growth should still accelerate through FYE 2022 given what appears to government crisis mismanagement which should extend the duration of the second COVID-19.

*Extending The Emergency Funding Plan: The Emergency Credit Line Guarantee Scheme (ECLGS) for Indian SMEs was launched in May 2020 under the Indian government’s ‘Atmanirbhar’ or self-sufficiency package in order to help offset the weakened economic conditions resultant of COVID-19. ECGLS was subsequently expanded in November 2020 to include 26 additional stressed sectors. In its latest attempt at forbearance, the Indian government just expanded its ECLGS from INR 3 tn to INR 4.5 tn; and *Kick That Can: Banks have already on-lent INR 2.7 tn under the ECLGS, and this recent announcement should further allow India to kick the can of stressed loans down the road. We remind the Indian government that if you’re extending, you are pretending.  That said, net new NPL growth should still accelerate through FYE 2022 given what appears to government crisis mismanagement which should extend the duration of the second COVID-19.

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 (ADR) (HDB US)

HDFC Ltd – Just Getting Worse

HDFC: HDFC reported FY 1Q22 QOQ core result decline of 9.9%. Net new NPLs increased 65.5% annualized basis; HDFC’s reserve needs shoring up INR 83...

Thomas J. Monaco

HDFC Bank – Is This Really India’s Best Bank?

HDFC Bank: HDFCB QOQ results declined 5.6% due to a net interest income and fee revenue along with a loss provision increase. Reserves appear...

Thomas J. Monaco

HDFC Bank – Spigots Are Now Off

HDFC BANK: HDFCB provided an investor update for FY 1Q22 ahead of its official scheduled July 17, 2021 earnings release. Highlights related to...

Thomas J. Monaco

Reserve Bank Of India – FSR Is Very Unrealistic

RESERVE BANK OF INDIA: According to the RBI, NPLS are not anticipated to be as bad. This couldn't be further from the truth. NPLs continue to...

Thomas J. Monaco

India Financials – Plop Plop Fizz Fizz

INDIA FINANCIALS: ECLGS was launched in May 2020 to offset poor economic conditions. ECGLS has again been expanded from INR 3 tn to INR 4.5 tn....

Thomas J. Monaco

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)