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

*Alleging Questionable Lending: On December 14, 2020, Australian news agency International Media Corporation’s Scams Breaking reported that Axis Bank (AXSB.IN) [Axis] etc. has provided loans to the questionable SREI Infrastructure and Finance Limited (SREI.IN) [SREI] to the tune of INR 440.0 bn without any due diligence and verification of end use of the loan amount; and*Axis Position: Axis has stated that “the report is grossly inaccurate and baseless insofar as Axis Bank Limited’s outstanding to SREI entities or underwriting practices and processes are concerned." Provided Axis is correct in its assertion, we’d anticipate the organization taking legal action against International Media Corporation in Australia.

*Alleging Questionable Lending: On December 14, 2020, Australian news agency International Media Corporation’s Scams Breaking reported that Axis Bank (AXSB.IN) [Axis] etc. has provided loans to the questionable SREI Infrastructure and Finance Limited (SREI.IN) [SREI] to the tune of INR 440.0 bn without any due diligence and verification of end use of the loan amount; and*Axis Position: Axis has stated that “the report is grossly inaccurate and baseless insofar as Axis Bank Limited’s outstanding to SREI entities or underwriting practices and processes are concerned." Provided Axis is correct in its assertion, we’d anticipate the organization taking legal action against International Media Corporation in Australia.

*Management Call Doesn’t Allay Fears: FY 2Q21 results were significantly driven a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics.  We find that reserves were light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap. The recent virtual call held by a competitor unfortunately did not allay our concern; and*Other Items Discussed: State Bank of India (SBIN.IN) [SBI] did reiterate its guidance for problem loan formation (slippages and restructuring) at 2.5% of loans outstanding in FY21. While SBI’s CET 1 ratio stood at 10.5% as of FY 2Q21,our calculated loss reserve shortfall would suggest that SBI has further wood to chop in this area.In addition, SBI is confident that it will be able to enhance its digital platform YONO into a more robust and scalable platform.

*Management Call Doesn’t Allay Fears: FY 2Q21 results were significantly driven a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics.  We find that reserves were light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap. The recent virtual call held by a competitor unfortunately did not allay our concern; and*Other Items Discussed: State Bank of India (SBIN.IN) [SBI] did reiterate its guidance for problem loan formation (slippages and restructuring) at 2.5% of loans outstanding in FY21. While SBI’s CET 1 ratio stood at 10.5% as of FY 2Q21,our calculated loss reserve shortfall would suggest that SBI has further wood to chop in this area.In addition, SBI is confident that it will be able to enhance its digital platform YONO into a more robust and scalable platform.

State Bank of India – Reserve Shortfall Needs To Be Addressed

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

<a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">YES Bank's (YES IN)</a> US$-bond hit par-value recently. Par is plenty for investors. Having delivered 20 price points in return since our Buy recommendation, pre-rescue in February, Smartkarma readers should be satiated with this above average return. Upside is now much less likely, although temporarily pricing slightly over par could occur during the next few months. As such, we move to Underweight YES Bank’s 3 ¾% coupon Nov. 2023 maturity bond, from Overweight on a relative value basis.We put YES Bank’s recent bond outperformance down to a combination of a broad risk asset rally and positive news flow plus the lack of negative news regarding the recovery of the institution. The Reserve Bank of India’s take-over of <a href="https://www.smartkarma.com/entities/lakshmi-vilas-bank-ltd" target="_blank" data-smartkarma-citation="entities:17552:1" rel="noopener">Lakshmi Vilas Bank (LVB IN)</a> has both removed the spotlight from YES Bank and reminded investors that this entity was rescued.Delivery on management’s restructuring goals remains to be seen while headwinds build for India, post-COVID-19. As such, with less than two-years to maturity and spreads at less than one-half their levels of one-year ago, now is not the time to jump in. We believe it is time to lighten allocation to this security and reposition elsewhere.

YES Bank's (YES IN) US$-bond hit par-value recently. Par is plenty for investors. Having delivered 20 price points in return since our Buy recommendation, pre-rescue in February, Smartkarma readers should be satiated with this above average return. Upside is now much less likely, although temporarily pricing slightly over par could occur during the next few months. As such, we move to Underweight YES Bank’s 3 ¾% coupon Nov. 2023 maturity bond, from Overweight on a relative value basis.We put YES Bank’s recent bond outperformance down to a combination of a broad risk asset rally and positive news flow plus the lack of negative news regarding the recovery of the institution. The Reserve Bank of India’s take-over of Lakshmi Vilas Bank (LVB IN) has both removed the spotlight from YES Bank and reminded investors that this entity was rescued.Delivery on management’s restructuring goals remains to be seen while headwinds build for India, post-COVID-19. As such, with less than two-years to maturity and spreads at less than one-half their levels of one-year ago, now is not the time to jump in. We believe it is time to lighten allocation to this security and reposition elsewhere. 

YES Bank: Par Is Plenty- Move to Underweight

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

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

Axis Bank – Denying Evil

AXIS BANK: Allegations Of Exorbitant Lending To The Questionable SREI Without Verification Lead To Aggressive Denials Of Wrongdoing By Axis.

Thomas J. Monaco

State Bank of India – Reserve Shortfall Needs To Be Addressed

STATE BANK OF INDIA: Recent Call Suggests No Real Progress On Significant Reserve Shortfall, And That Another Capital Raise Not Out Of Question

Thomas J. Monaco

YES Bank: Par Is Plenty- Move to Underweight

Despite incredibly poor asset quality, goals that are years from being realized and liquidity which remains well overstated, YES Bank’s US$-bond...

Hank Calenti, CFA

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

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