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

*Weakened Results: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 3Q21 results of INR 18.5 bn, declining INR 3.3 bn (15.2%) linked quarter. Results were challenged by two factors: a) an INR 2.3 bn (62.5%) increase in loss provisions which still appears light given the continued and accelerated breakdown in credit quality; and b) an INR 1.9 bn (9.2%) increase in costs led by a 14.0% increase in other operating expenses; 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 quarter of stated PBT.

*Weakened Results: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 3Q21 results of INR 18.5 bn, declining INR 3.3 bn (15.2%) linked quarter. Results were challenged by two factors: a) an INR 2.3 bn (62.5%) increase in loss provisions which still appears light given the continued and accelerated breakdown in credit quality; and b) an INR 1.9 bn (9.2%) increase in costs led by a 14.0% increase in other operating expenses; 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 quarter of stated PBT.

Kotak Mahindra Bank – Credit Falling Off Of A Cliff

*Absolutely No Reason To Report Profitability With This Balance Sheet: State Bank of India’s (SBIN.IN) [SBI] 30%-owned Yes Bank (YES.IN) [Yes] reported FY 3Q21 results of INR 1.6 bn, increasing INR 213 mn (16.5%) linked quarter.  However, when we exclude Yes’ interest recovery  of INR 5.4 bn during the period, core operating results amounted to a loss of INR 3.8 mn; and*Time To Sound The Alarm:  Even at such an elevated level of bad loans, Yes’ net new problem loan and net new NPL growth amounts to INR 115.1 bn and INR 22.8 bn, respectively, for annualized growth rates of 99.5% and 26%.By our calculation, reserves need to be buttressed  INR 863 bn or 234% of FY 3Q21 stated capital levels – or nearly 100 quarters of PBT based on the current period.   Yes’ Board approval to raise INR 100 bn in new equity seems futile given current capital needs. It’s probably fair to say that Yes is in more trouble today than it was when SBI stepped in for the rescue.

*Absolutely No Reason To Report Profitability With This Balance Sheet: State Bank of India’s (SBIN.IN) [SBI] 30%-owned Yes Bank (YES.IN) [Yes] reported FY 3Q21 results of INR 1.6 bn, increasing INR 213 mn (16.5%) linked quarter.  However, when we exclude Yes’ interest recovery  of INR 5.4 bn during the period, core operating results amounted to a loss of INR 3.8 mn; and*Time To Sound The Alarm:  Even at such an elevated level of bad loans, Yes’ net new problem loan and net new NPL growth amounts to INR 115.1 bn and INR 22.8 bn, respectively, for annualized growth rates of 99.5% and 26%.By our calculation, reserves need to be buttressed  INR 863 bn or 234% of FY 3Q21 stated capital levels – or nearly 100 quarters of PBT based on the current period.   Yes’ Board approval to raise INR 100 bn in new equity seems futile given current capital needs. It’s probably fair to say that Yes is in more trouble today than it was when SBI stepped in for the rescue. 

*Provision Unnecessarily Lowered: Bajaj Finance (BAF.IN) [Bajaj] posted FY 3Q21 results of INR 11.5 bn, improving INR 1.8 bn (18.8%) linked quarter.  FY 3Q21 results were driven primarily by an INR 4.0 bn (20.5%) drop in the loss provision, despite a 123.4% linked quarter increase in gross NPLs;  and*Credit Challenges Far From Over With: The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 23.0 bn at FY 3Q21 – increasing at 520% on an annualized basis. By our calculation, reserves need to increase INR 177 bn or nearly 8x  - representing nearly three years of PBT and over 50% of shareholder’s equity. Bajaj has actually lowered its loss provision guidance to between INR 59.25-59.75 bn for FY 2021 versus INR 60-63 bn earlier.

*Provision Unnecessarily Lowered: Bajaj Finance (BAF.IN) [Bajaj] posted FY 3Q21 results of INR 11.5 bn, improving INR 1.8 bn (18.8%) linked quarter.  FY 3Q21 results were driven primarily by an INR 4.0 bn (20.5%) drop in the loss provision, despite a 123.4% linked quarter increase in gross NPLs;  and*Credit Challenges Far From Over With: The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 23.0 bn at FY 3Q21 – increasing at 520% on an annualized basis. By our calculation, reserves need to increase INR 177 bn or nearly 8x  - representing nearly three years of PBT and over 50% of shareholder’s equity. Bajaj has actually lowered its loss provision guidance to between INR 59.25-59.75 bn for FY 2021 versus INR 60-63 bn earlier.

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.

SBI Cards & Payment Services / Equity Bottom-Up

<div><a href="https://www.smartkarma.com/entities/sbi-cards-payment-services-limited" target="_blank" data-smartkarma-citation="entities:28662:1" rel="noopener">SBI Cards (SBICARD IN)</a> is India's second largest credit card issuer with a market share of 18.7% in terms of number of cards outstanding. SBI Cards is a subsidiary of <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>, India’s largest commercial bank, and has Carlyle as its second largest share holder.</div><div>The stock made a tepid debut in the market in Mar 2020, owing to the timing being closely aligned with the COVID-19 onslaught. Its now trading above its listing price, and its operations are normalising. Furthermore, its largest competitor and the market leader in credit cards, <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> was recently barred by the banking regulator from issuing credit cards.</div>

SBI Cards (SBICARD IN) is India's second largest credit card issuer with a market share of 18.7% in terms of number of cards outstanding. SBI Cards is a subsidiary of State Bank Of India (SBIN IN), India’s largest commercial bank, and has Carlyle as its second largest share holder.The stock made a tepid debut in the market in Mar 2020, owing to the timing being closely aligned with the COVID-19 onslaught. Its now trading above its listing price, and its operations are normalising. Furthermore, its largest competitor and the market leader in credit cards, HDFC Bank (HDFCB IN) was recently barred by the banking regulator from issuing credit cards.

2021 High Conviction - SBI Cards & Payments - Multiple Tailwinds, Including Biggest Peers Recent Ban

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Despite <a href="https://www.smartkarma.com/entities/icici-prudential-life-insurance" target="_blank" data-smartkarma-citation="entities:23608:1" rel="noopener">ICICI Prudential Life Insurance (IPRU IN)</a> (IPru Life) reporting improvement in long-term persistency ratios, there are worrying examples of brazen mis-selling of life insurance policies by the company through its corporate agent, Angel Financial Advisors and even its parent, <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>. The cases of two 21-year old customers reveal the state of underwriting at IPru Life: <a href="https://youtu.be/Qjyb0jYyouo" target="_blank" rel="noopener">Sachin Khilari</a> (the first of three policies mis-sold to him commenced in October 2014) in Sangli district, Maharashtra and <a href="https://youtu.be/K15zslPNMpI" target="_blank" rel="noopener">Krishnapal Singh Chauhan</a> (who was sold his first policy in February 2019 and a further 10 in 12 months) in Banswara, Rajasthan, both highlighted by <a href="http://www.insuranceangels.in/" target="_blank" rel="noopener">Insurance Angels</a>. These cases illustrate the mis-selling of policies by violation of rules; non-compliance with anti-money laundering (AML) to determine source of funds of the policy holder; non-verification of income of customers; alleged <a href="https://twitter.com/insuranceangel/status/1333003681592205313?s=20" target="_blank" rel="noopener">forging</a>  of the signatures of policy holders; inflating of policy holders’ income on the forms; and the sale of multiple policies to an individual, where the collective premium exceeds the annual income of the policyholder. Each customer in a financial services company has a unique customer id where her/his Know Your Customer (KYC) protocols, proof of individual income and financial products sold are mapped. When multiple policies are sold by an insurance company to a single individual, it would show up on the customer’s profile. Prior to approving any further policies the underwriting team would examine whether the customer’s income can service the insurance premiums, and approve the sale. What is extremely alarming in these mis-selling cases is that when additional policies were sold to both Khilari and Chauhan, where the collective annual premiums were more than their annual incomes, the underwriters were readily approving the policies without verifying their income. Such professional misconduct completely exposes the underwriting system at IPru Life. The Insurance Regulatory and Development Authority of India (IRDAI), the regulator, and stakeholders in the company need to critically evaluate how such cases are bypassing IPru Life’s underwriting system.With such poor underwriting and basic protocol systems it is no surprise that ICICI Bank, IPru Life’s parent, has discontinued selling traditional life insurance policies for the last couple of years, even those of its subsidiary where senior ICICI Bank officials are deputed as CEOs. Anup Bagchi, executive director, ICICI Bank and non-executive director (nominated by ICICI Bank), ICICI Prudential Life Insurance, has gone on <a href="https://www.icicibank.com/managed-assets/docs/investor/quarterly-financial-results/2021/ICICI-Bank-Transcript-for-Analyst-Call-held-on-Oct-31-2020.pdf" target="_blank" rel="noopener">record</a> on his apprehension that the low long-term persistency ratios in the industry could have an adverse impact on their own bank customers. That a parent company which has firm control on senior executive management at its subsidiary declines to sell the subsidiary’s traditional life insurance products, as it cannot ensure near 100% long-term persistency ratio, speaks volume of IPru Life’s capabilities.It is time stakeholders and the regulator look beyond the neat and tidy persistency ratios and closely evaluate individual customer mis-selling complaints to understand how life insurance is actually mis-sold on the ground to unsuspecting customers and how underwriting is done by companies like IPru Life.

Despite ICICI Prudential Life Insurance (IPRU IN) (IPru Life) reporting improvement in long-term persistency ratios, there are worrying examples of brazen mis-selling of life insurance policies by the company through its corporate agent, Angel Financial Advisors and even its parent, ICICI Bank Ltd (ICICIBC IN). The cases of two 21-year old customers reveal the state of underwriting at IPru Life: Sachin Khilari (the first of three policies mis-sold to him commenced in October 2014) in Sangli district, Maharashtra and Krishnapal Singh Chauhan (who was sold his first policy in February 2019 and a further 10 in 12 months) in Banswara, Rajasthan, both highlighted by Insurance Angels. These cases illustrate the mis-selling of policies by violation of rules; non-compliance with anti-money laundering (AML) to determine source of funds of the policy holder; non-verification of income of customers; alleged forging  of the signatures of policy holders; inflating of policy holders’ income on the forms; and the sale of multiple policies to an individual, where the collective premium exceeds the annual income of the policyholder. Each customer in a financial services company has a unique customer id where her/his Know Your Customer (KYC) protocols, proof of individual income and financial products sold are mapped. When multiple policies are sold by an insurance company to a single individual, it would show up on the customer’s profile. Prior to approving any further policies the underwriting team would examine whether the customer’s income can service the insurance premiums, and approve the sale. What is extremely alarming in these mis-selling cases is that when additional policies were sold to both Khilari and Chauhan, where the collective annual premiums were more than their annual incomes, the underwriters were readily approving the policies without verifying their income. Such professional misconduct completely exposes the underwriting system at IPru Life. The Insurance Regulatory and Development Authority of India (IRDAI), the regulator, and stakeholders in the company need to critically evaluate how such cases are bypassing IPru Life’s underwriting system.With such poor underwriting and basic protocol systems it is no surprise that ICICI Bank, IPru Life’s parent, has discontinued selling traditional life insurance policies for the last couple of years, even those of its subsidiary where senior ICICI Bank officials are deputed as CEOs. Anup Bagchi, executive director, ICICI Bank and non-executive director (nominated by ICICI Bank), ICICI Prudential Life Insurance, has gone on record on his apprehension that the low long-term persistency ratios in the industry could have an adverse impact on their own bank customers. That a parent company which has firm control on senior executive management at its subsidiary declines to sell the subsidiary’s traditional life insurance products, as it cannot ensure near 100% long-term persistency ratio, speaks volume of IPru Life’s capabilities.It is time stakeholders and the regulator look beyond the neat and tidy persistency ratios and closely evaluate individual customer mis-selling complaints to understand how life insurance is actually mis-sold on the ground to unsuspecting customers and how underwriting is done by companies like IPru Life.

Brazen Mis-Selling by IPru Life: When Even the Parent Keeps a Distance, Something Surely Stinks

India

HDFC Standard Life Insurance Company Limited is a life insurance firm. The Company offers protection, pension, savings and investment, and children's and women's plans to individuals. HDFC Standard Life Insurance serves customers in India and United Arab Emirates.

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

HDFC Life Insurance (HDFCLIFE IN)

Kotak Mahindra Bank – Credit Falling Off Of A Cliff

KOTAK MAHINDRA BANK: KMB reported FY 3Q21 linked quarter results decline of 15.2%, driven primarily by a 62.5% increase in provisions which still...

Thomas J. Monaco

State Bank of India – On The Hook

STATE BANK OF INDIA: Yes Bank reported FY 3Q21 core operating losses INR 3.8 mn. Net new problem loan annualized growth rate of 99.5% and reserve...

Thomas J. Monaco

Bajaj Finance – Credit Disaster

BAJAJ FINANCE: BAF FY 3Q21 results increased 18.8% linked quarter, driven by a 20.5% drop in provisions despite a 123.4% increase in NPLs. We...

Thomas J. Monaco

2021 High Conviction - SBI Cards & Payments - Multiple Tailwinds, Including Biggest Peers Recent Ban

SBI Cards is India's second largest credit card issuer with a market share of 18.7%. SBI Cards is a subsidiary of State Bank Of India (SBIN IN)...

Sumeet Singh

Brazen Mis-Selling by IPru Life: When Even the Parent Keeps a Distance, Something Surely Stinks

Stakeholders need to look beyond the persistency ratios and evaluate individual customer mis-selling complaints to evaluate the state of...

Hemindra Hazari

Price Gauge

52-week Range

Market Cap (USDm)

P/E

Dividend (Yield)