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

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.  

*Unnecessary Credit Leverage: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 2Q22 results of INR 20.3 bn, improving INR 3.9 bn (23.8%) linked quarter. Results were primarily driven by an INR 2.8 bn (39.8%) decline in loss provisions despite credit weakness; and*Credit Delta Less Intense, But Reserves Weak: By our calculation, we find that both net new stressed loans  amounted to an accelerating INR 5.5 bn at FY 2Q22 and aggregate an annualized growth rate of 26.1% - improving throughout the year. Given the weaker credit metrics and current weak reserve cover, we find that reserves at FY 2Q22 fall short by INR 61 bn - about three quarters of stated PBT.

*Unnecessary Credit Leverage: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 2Q22 results of INR 20.3 bn, improving INR 3.9 bn (23.8%) linked quarter. Results were primarily driven by an INR 2.8 bn (39.8%) decline in loss provisions despite credit weakness; and*Credit Delta Less Intense, But Reserves Weak: By our calculation, we find that both net new stressed loans  amounted to an accelerating INR 5.5 bn at FY 2Q22 and aggregate an annualized growth rate of 26.1% - improving throughout the year. Given the weaker credit metrics and current weak reserve cover, we find that reserves at FY 2Q22 fall short by INR 61 bn - about three quarters of stated PBT. 

Kotak Mahindra Bank – Watch Your Costs Too

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

LIC Housing Finance – No NCOs Whatsoever?

*Not Fooling Anyone: HDFC Bank (HDFCB.IN) [HDFCB] released a nonsensical set of FY 2Q22 earnings results, despite exhibiting that the bottom-line improved INR 11.0 bn (14.3%) linked quarter. On an operating basis, core results aggregated INR 81.6 bn, up INR 10.3 bn (14.5%) over the period. Puzzling is the INR 75.1 bn (28.5%) increase in problem loans, and the INR 9.1 bn (18.8%) decline in loss provisions during FY 2Q22; and *Credit Disaster Continues:We calculate that net new NPLs actually increased a whopping INR 114.1 bn or 43.2%. By our calculation, reserves are massively short by nearly INR 371.3 bn or over year (and growing) of core operating results – despite the massive under-providing against credit this quarter which suggests that the provision shortfall is closer to two years of results.

*Not Fooling Anyone: HDFC Bank (HDFCB.IN) [HDFCB] released a nonsensical set of FY 2Q22 earnings results, despite exhibiting that the bottom-line improved INR 11.0 bn (14.3%) linked quarter. On an operating basis, core results aggregated INR 81.6 bn, up INR 10.3 bn (14.5%) over the period. Puzzling is the INR 75.1 bn (28.5%) increase in problem loans, and the INR 9.1 bn (18.8%) decline in loss provisions during FY 2Q22; and *Credit Disaster Continues:We calculate that net new NPLs actually increased a whopping INR 114.1 bn or 43.2%. By our calculation, reserves are massively short by nearly INR 371.3 bn or over year (and growing) of core operating results – despite the massive under-providing against credit this quarter which suggests that the provision shortfall is closer to two years of results.  

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 2Q22 ahead of its officially scheduled October 16, 2021 earnings release. The highlights were solely related to growth of lending and deposits; and*See No Evil: Nothing was discussed regarding HDFCB’s abysmal credit quality metrics from FY 1Q22, which likely will remain a true headache. At FY 1Q22, net new NPLs actually increased 153% 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 316 bn or nearly a year of operating results.

*No Substance: HDFC Bank (HDFCB.IN) [HDFCB] provided an investor update for FY 2Q22 ahead of its officially scheduled October 16, 2021 earnings release. The highlights were solely related to growth of lending and deposits; and*See No Evil: Nothing was discussed regarding HDFCB’s abysmal credit quality metrics from FY 1Q22, which likely will remain a true headache. At FY 1Q22, net new NPLs actually increased 153% 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 316 bn or nearly a year of operating results. 

India

South Indian Bank Limited operates a network of banks in India.  The Group's banks provide a full range of banking, investment management, treasury, and lending services.

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South Indian Bank (SIB IN)

HDFC Ltd. – In the Land of The Blind

HDFC: HDFC reported a QOQ FY 2Q22 results increase of 35.5%, as management pulled on every earnings lever. Net new NPLs increased 51.1% annualized,...

Thomas J. Monaco

Kotak Mahindra Bank – Watch Your Costs Too

KOTAK MAHINDRA BANK: KMB reported a QOQ FY 2Q22 operating result increase of 12.1%, driven by an unnecessary 40% reduction in provisions. Stressed...

Thomas J. Monaco

LIC Housing Finance – No NCOs Whatsoever?

LIC HOUSING: LIC reported a QOQ FY 2Q22 bottom-line increase of 61.6%, driven by a loss provision cut. Oddly, LIC had zero NCOs and negative loan...

Thomas J. Monaco

HDFC Bank – Extending & Pretending

HDFC BANK: HDFCB released a nonsensical set of FY 2Q22 operating basis, which exhibited improvement of 14.5% QOQ. Puzzling is the 28.5% increase in...

Thomas J. Monaco

HDFC Bank – No Credit

HDFC BANK: HDFCB provided a balance sheet growth update for FY 2Q22. Nothing was discussed regarding HDFCB’s challenged credit quality nor its low...

Thomas J. Monaco

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