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

*Pre-release Says Nothing About Capital And Credit: Bajaj Finance (BAF.IN) [Bajaj] released a FY 4Q21 balance sheet update, ahead of its scheduled earnings update. Key highlights were limited to: AUM growth; new customer acquisition; and deposit growth; 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 during 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.

*Pre-release Says Nothing About Capital And Credit: Bajaj Finance (BAF.IN) [Bajaj] released a FY 4Q21 balance sheet update, ahead of its scheduled earnings update. Key highlights were limited to: AUM growth; new customer acquisition; and deposit growth; 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 during 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.

*Positive Spin Still Off From Organizational Reality: HDFC Bank (HDFCB.IN) [HDFCB] released a FY 4Q21 balance sheet update, two weeks ahead of its scheduled financial results announcement on April 17, 2020. HDFCB tried to place a positive spin on its lending and deposit share gain update; and *Back to Reality: 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. 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. An update on credit would have been more helpful.

*Positive Spin Still Off From Organizational Reality: HDFC Bank (HDFCB.IN) [HDFCB] released a FY 4Q21 balance sheet update, two weeks ahead of its scheduled financial results announcement on April 17, 2020. HDFCB tried to place a positive spin on its lending and deposit share gain update; and *Back to Reality: 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. 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. An update on credit would have been more helpful.    

HDFC Bank – Update Does Little To Quell Fears

Thematic (Sector/Industry)

*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; and *Another Three Months: Recently, the Indian government announced that it will be extending the ECLGS window for three additional months through June 2021, allowing the local banks to provide collateral-free loans to a wider scope of sectors. The additional sectors include: hospitality, travel &amp; tourism, leisure and sports.

*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; and *Another Three Months: Recently, the Indian government announced that it will be extending the ECLGS window for three additional months through June 2021, allowing the local banks to provide collateral-free loans to a wider scope of sectors. The additional sectors include: hospitality, travel &amp; tourism, leisure and sports.

India Financials – Extending Emergency Relief

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.

*Can Kicked Less Far: On March 23, 2021, the Supreme Court in a final ruling  rejected pleas for a complete waiver of interest on loans under moratorium; ; and*Good News For Banks Is Still Bad News: Despite the favorable RBI Supreme Court ruling, Indian financial sector credit quality remains amongst the worst in Asia and globally. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those to the woodpile of Indian NPLs. Massive capital raises need to occur within the sector.  

Reserve Bank of India – Heads You Win, Tails I Lose

*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

India

iShares MSCI India ETF is an exchange-traded fund incorporated in the USA. The ETF seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI India Index.

iShares MSCI India ETF (INDA US)

Bajaj Finance – Who’s Kidding Whom?

BAJAJ FINANCE: Bajaj gave a FY 4Q21 update on AUM; customer acquisition; and deposit growth. No disclosure on how it will deal with India's worst...

Thomas J. Monaco

HDFC Bank – Update Does Little To Quell Fears

HDFC BANK: HDFCB released a FY 4Q21 balance sheet update. HDFCB tried to place a positive spin on its lending and deposit share gain update....

Thomas J. Monaco

India Financials – Extending Emergency Relief

INDIA FINANCIALS: The Indian government announced that it will be extending the ECLGS window for three additional months, allowing the local banks...

Thomas J. Monaco

Reserve Bank of India – Heads You Win, Tails I Lose

RESERVE BANK OF INDIA: The Supreme Court rejected pleas for a complete waiver of interest on loans under moratorium. Nevertheless, the Indian...

Thomas J. Monaco

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