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

*Credibility Gap Widens: LIC Housing Finance (LICHF.IN) [LIC] reported FY 1Q22 bottom-line results of INR 1.5 bn, declining INR 2.5 bn (61.5%) linked quarter. Negative operating jaws, were the culprit, as costs increased INR 469 mn (21.1%) whilst revenues declined INR 2.6 bn (16.7%); and*Very Negative Credit Delta: Despite the limited NCOs, net new NPLs at LIC still skyrocketed INR 44.7 bn or 190.3% on an annualized basis linked quarter significantly accelerating from a very high INR 12.6 bn (62.0%) during FY 4Q21. By our calculation, if the large blip in credit continues, LIC management ought to think about adding another INR 158 bn to the reserve – which amounts to 78% of stated equity at just 50% cover of NPLs.

*Credibility Gap Widens: LIC Housing Finance (LICHF.IN) [LIC] reported FY 1Q22 bottom-line results of INR 1.5 bn, declining INR 2.5 bn (61.5%) linked quarter. Negative operating jaws, were the culprit, as costs increased INR 469 mn (21.1%) whilst revenues declined INR 2.6 bn (16.7%); and*Very Negative Credit Delta: Despite the limited NCOs, net new NPLs at LIC still skyrocketed INR 44.7 bn or 190.3% on an annualized basis linked quarter significantly accelerating from a very high INR 12.6 bn (62.0%) during FY 4Q21. By our calculation, if the large blip in credit continues, LIC management ought to think about adding another INR 158 bn to the reserve – which amounts to 78% of stated equity at just 50% cover of NPLs.

LIC Housing Finance – Unmitigated Disaster

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and *Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.

*Earnings Appear Overstated: Bajaj Finance (BAF.IN) [Bajaj] posted FY 1Q22 results of INR 10.2 bn, declining INR 3.4 bn (25.6%) linked quarter driven by weakness in Consumer Financing. The loss provision increase of INR 5.2 bn (42.2%), which - despite the growth - still did not keep up with the pace of stated NPA growth; and *Time To Man Up:  The day of reckoning is coming for Bajaj as net new NPLs amounted to INR 193 bn at FY 1Q22 – increasing at 281.3% on an annualized basis. By our calculation, reserves (much of the portfolio is weak consumer credits) need to increase INR 157 bn - representing nearly three years of PBT and over 50% of shareholder’s equity. In other words, Bajaj needs to man up and start reporting losses – this is a troubled financial institution.

*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?

*Results Down, Credibility Continues To Decrease: L&amp;T Finance Holdings (LTFH.IN) [LTFH] reported FY 1Q22 bottom-line results of 1.8 bn, declining INR 890 mn (33.3%) linked quarter. Results were weaker across the board;  and  *Accelerating Negative Credit Delta: Inclusive of NCOs of INR 8.5 bn or 3.62% annualized total loans, we note that net new NPLs skyrocketed INR 12.0 bn or increasing an eye popping 106.7% on an annualized basis during the period. By our calculation, if the large blip in credit continues, LTFH  management ought to think about adding another INR 69 bn plus to the reserve. A hit this large represents over seven years of PBT or 6.3x average equity.

*Results Down, Credibility Continues To Decrease: L&amp;T Finance Holdings (LTFH.IN) [LTFH] reported FY 1Q22 bottom-line results of 1.8 bn, declining INR 890 mn (33.3%) linked quarter. Results were weaker across the board;  and  *Accelerating Negative Credit Delta: Inclusive of NCOs of INR 8.5 bn or 3.62% annualized total loans, we note that net new NPLs skyrocketed INR 12.0 bn or increasing an eye popping 106.7% on an annualized basis during the period. By our calculation, if the large blip in credit continues, LTFH  management ought to think about adding another INR 69 bn plus to the reserve. A hit this large represents over seven years of PBT or 6.3x average equity.  

L&T Finance Holdings – Struggling To Survive

Specialist in Indian Banking and Economic Research

Hemindra Hazari

There is a surprising change in the public profiles of the Chief Executive Officers (CEOs) of India’s first and second largest private sector banks, <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> and <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> . What are the implications?Both Sashidhar Jagdishan and Sandeep Bakshi stepped into the shoes of high-profile predecessors: the iconic Aditya Puri is credited with the US$ 100 bn plus valuation of HDFC Bank, while Chanda Kochhar continued to build on the ICICI Bank franchise; she was later sacked in disgrace over a conflict of interest.  For better or worse, the ‘brands’ of the respective banks became closely identified with Puri and Kochhar. As compared with their high profile predecessors, Jagdishan and Bakshi maintain a low media profile, while attempting to change the culture, the very DNA of their organizations. At the same time, they are trying to meet the street’s high expectations regarding growth and asset quality.Bakshi took charge at ICICI Bank on October 15, 2018, and has remained virtually invisible, unlike his predecessor, who constantly figured in the media. He has preferred to remain mute and let the ICICI Bank share price do the talking. Atypically by ICICI Bank standards, even when the bank made undisputed gains in business (e.g., the increase in its credit card market share by spends), it has declined to make any public statement or provide access and publicity to its achievement. One rarely finds any formal media interview with Bakshi since he took charge as the CEO. During the bank’s results call, he provides a brief introduction and thereafter allows his concerned heads to elaborate on the bank’s performance. Such a demeanour by a senior ICICI Bank executive is welcome but also highly abnormal in the leadership history of this institution.This analyst has covered ICICI Bank (including the erstwhile ICICI) for nearly 23 years. For nearly two decades, under the leadership of KV Kamath and subsequently Chanda Kochhar, the institution declined to interact with him on account of his critical <a href="https://hemindrahazari.com/1999/01/07/icici-preference-capital-included-in-tier-1-capital/" target="_blank" rel="noopener">reports</a>. The erstwhile ICICI leaders who transitioned to the bank and the coterie surrounding them were noted for their arrogance and intolerance towards any criticism levelled at the institution. It was therefore surprising that ICICI Bank reinitiated contact with this analyst after a gap of nearly 20 years, soon after Bakshi took charge as CEO. This is all the more surprising as it was this analyst who had exposed Sandeep Bakshi’s shameful conduct in <a href="https://hemindrahazari.com/2018/06/22/is-sandeep-bakhshi-fit-and-proper-to-be-coo-of-icici-bank/" target="_blank" rel="noopener">authorising</a>  a false criminal complaint against a whistle blower when he was CEO, ICICI Prudential Life Insurance. (That false complaint had led to the innocent Nitin Balchandani being in jail for 30 days; he was subsequently released by the Rajasthan High Court for lack of evidence.)Like other banking analysts, this analyst had interacted with Jagdishan since he was the Chief Financial Officer (CFO), HDFC Bank. In the course of those interactions, Jagdishan came across as a straight-talking individual who did not duck or sidestep critical questions and issues and was candid enough to admit to the bank’s mistakes and shortcoming. This analyst published many reports (<a href="https://hemindrahazari.com/2019/12/09/hdfc-banks-digital-disaster-no-recovery-plan/" target="_blank" rel="noopener">here</a>, <a href="https://hemindrahazari.com/2020/02/11/can-a-director-of-hdfc-bank-comment-on-bank-matters-in-his-personal-capacity/" target="_blank" rel="noopener">here</a> and <a href="https://hemindrahazari.com/2020/12/28/hdfc-bank-honey-i-shrunk-the-chief-risk-officer/" target="_blank" rel="noopener">here</a>) sharply critical of HDFC Bank and atleast one after Jagdishan took charge. Even though Jagdishan disagreed with some of these views, he continued to engage with this analyst. This is most unlike the conduct of HDFC Bank’s parent, <a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener">HDFC Limited (HDFC IN)</a>, whose veteran leadership is respected, but cannot tolerate the slightest criticism, and declines to reply to any queries from this analyst since a critical <a href="https://hemindrahazari.com/2018/04/19/more-transparency-was-expected-from-hdfc-regarding-its-reliance-naval-exposure/" target="_blank" rel="noopener">report</a> was released.In corporate India, reared on leader worship, it is rare for CEOs to publicly accept mistakes and apologise, as they believe it would diminish their public image. It is even rarer for them to tolerate criticism and the instinct of many ‘revered corporate icons’ is to boycott critics, both as a punishment and to serve as a warning to any other potential dissenters. For all the sermons they preach on corporate governance, in reality public listed companies are treated like their personal fiefdoms, and their authority is unchallenged by pliant boards of directors, obedient business journalists and tame sell-side analysts.It is therefore refreshing to note the apparent decision of Jagdishan and Bakshi to maintain low public visibility, at least for the time being, and for both to tolerate critics and continue to engage with them. Jagdishan has even acknowledged and publicly apologised for HDFC Bank’s failings. Reportedly, the new leaderships at both banks are attempting to change the culture of their respective organisations in a way that will ultimately benefit all stakeholders, including customers and employees, while doing their business in a low profile manner.To date, the stock market has rewarded Bakshi and penalised Jagdishan, perhaps because investors have some concerns that the latter’s more humane approach may disrupt the ruthlessly efficient business model built by Aditya Puri. However, this analyst believes that in both institutions the new leadership may eventually prove rewarding to investors. Rather than base the bank’s brand on a celebrity CEO, it is preferable to base it on solid and stable systems.

There is a surprising change in the public profiles of the Chief Executive Officers (CEOs) of India’s first and second largest private sector banks, HDFC Bank (HDFCB IN) and ICICI Bank Ltd (ICICIBC IN) . What are the implications?Both Sashidhar Jagdishan and Sandeep Bakshi stepped into the shoes of high-profile predecessors: the iconic Aditya Puri is credited with the US$ 100 bn plus valuation of HDFC Bank, while Chanda Kochhar continued to build on the ICICI Bank franchise; she was later sacked in disgrace over a conflict of interest.  For better or worse, the ‘brands’ of the respective banks became closely identified with Puri and Kochhar. As compared with their high profile predecessors, Jagdishan and Bakshi maintain a low media profile, while attempting to change the culture, the very DNA of their organizations. At the same time, they are trying to meet the street’s high expectations regarding growth and asset quality.Bakshi took charge at ICICI Bank on October 15, 2018, and has remained virtually invisible, unlike his predecessor, who constantly figured in the media. He has preferred to remain mute and let the ICICI Bank share price do the talking. Atypically by ICICI Bank standards, even when the bank made undisputed gains in business (e.g., the increase in its credit card market share by spends), it has declined to make any public statement or provide access and publicity to its achievement. One rarely finds any formal media interview with Bakshi since he took charge as the CEO. During the bank’s results call, he provides a brief introduction and thereafter allows his concerned heads to elaborate on the bank’s performance. Such a demeanour by a senior ICICI Bank executive is welcome but also highly abnormal in the leadership history of this institution.This analyst has covered ICICI Bank (including the erstwhile ICICI) for nearly 23 years. For nearly two decades, under the leadership of KV Kamath and subsequently Chanda Kochhar, the institution declined to interact with him on account of his critical reports. The erstwhile ICICI leaders who transitioned to the bank and the coterie surrounding them were noted for their arrogance and intolerance towards any criticism levelled at the institution. It was therefore surprising that ICICI Bank reinitiated contact with this analyst after a gap of nearly 20 years, soon after Bakshi took charge as CEO. This is all the more surprising as it was this analyst who had exposed Sandeep Bakshi’s shameful conduct in authorising  a false criminal complaint against a whistle blower when he was CEO, ICICI Prudential Life Insurance. (That false complaint had led to the innocent Nitin Balchandani being in jail for 30 days; he was subsequently released by the Rajasthan High Court for lack of evidence.)Like other banking analysts, this analyst had interacted with Jagdishan since he was the Chief Financial Officer (CFO), HDFC Bank. In the course of those interactions, Jagdishan came across as a straight-talking individual who did not duck or sidestep critical questions and issues and was candid enough to admit to the bank’s mistakes and shortcoming. This analyst published many reports (here, here and here) sharply critical of HDFC Bank and atleast one after Jagdishan took charge. Even though Jagdishan disagreed with some of these views, he continued to engage with this analyst. This is most unlike the conduct of HDFC Bank’s parent, HDFC Limited (HDFC IN), whose veteran leadership is respected, but cannot tolerate the slightest criticism, and declines to reply to any queries from this analyst since a critical report was released.In corporate India, reared on leader worship, it is rare for CEOs to publicly accept mistakes and apologise, as they believe it would diminish their public image. It is even rarer for them to tolerate criticism and the instinct of many ‘revered corporate icons’ is to boycott critics, both as a punishment and to serve as a warning to any other potential dissenters. For all the sermons they preach on corporate governance, in reality public listed companies are treated like their personal fiefdoms, and their authority is unchallenged by pliant boards of directors, obedient business journalists and tame sell-side analysts.It is therefore refreshing to note the apparent decision of Jagdishan and Bakshi to maintain low public visibility, at least for the time being, and for both to tolerate critics and continue to engage with them. Jagdishan has even acknowledged and publicly apologised for HDFC Bank’s failings. Reportedly, the new leaderships at both banks are attempting to change the culture of their respective organisations in a way that will ultimately benefit all stakeholders, including customers and employees, while doing their business in a low profile manner.To date, the stock market has rewarded Bakshi and penalised Jagdishan, perhaps because investors have some concerns that the latter’s more humane approach may disrupt the ruthlessly efficient business model built by Aditya Puri. However, this analyst believes that in both institutions the new leadership may eventually prove rewarding to investors. Rather than base the bank’s brand on a celebrity CEO, it is preferable to base it on solid and stable systems.

Less News Is Good News: Surprising Change in the Public Profiles of HDFC Bank and ICICI Bank CEOs

India

iShares MSCI India Index ETF is an exchange-traded fund registered in Singapore. The Fund seeks to provide investment results that, before expenses, closely correspond to the performance of the MSCI India Index. The Fund invests all or substantially all of its assets in shares comprising the MSCI India Index in substantially the same weightings as constituted in the underlying index.

iShares MSCI India Index ETF (INDIA SP)

LIC Housing Finance – Unmitigated Disaster

LIC HOUSING: LIC's FY 1Q22 bottom-line results declined 61.5% linked quarter due to negative operating jaws. Net new NPLs skyrocketed 190.3%...

Thomas J. Monaco

Bajaj Finance – Just BAFfling

BAJAJ FINANCE: Bajaj posted a QOQ FY 1Q22 results decline 25.6% driven by credit weakness in Consumer. Net new NPLs increased at 281% annualized...

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

L&T Finance Holdings – Struggling To Survive

L&T Finance Holdings: LTFH reported FY 1Q22 bottom-line declined 33.3% QOQ. Results were weak across the board. LTFH's reserve is short INR 69 bn...

Thomas J. Monaco

Less News Is Good News: Surprising Change in the Public Profiles of HDFC Bank and ICICI Bank CEOs

Both Jagdishan and Bakshi are implementing changes for the long haul. Rather than base the bank’s brand on a celebrity CEO, it is preferable to...

Hemindra Hazari