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

Thematic (Sector/Industry)

*Cutting Your Nose To Spite Your Face: Despite the favorable Reserve Bank of India (RBI) ruling and the clarity that it may bring to bank classification of NPLs and interest charges, the fact is that Indian financial sector credit quality remains amongst the worst in Asia and globally. In fact, we would go as far to state that the breakdown in net new NPLs remains by far the worst in the world at well over 100% annualized growth at FY 3Q21. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those woes to the woodpile of Indian NPLs; and*Killing Me Softly: Following the Supreme Court decision on extending the compound interest relief to loansin excess of INR 20 mn and lifting of standstill on NPL classifications, the RBI has added insult to injury by notifying lenders that they will bear the impact of the compound interest waiver, without any visibility on whether or not this waiver will be reimbursed by or shared with the government. Non-bank Financial Companies (NBFC) have large borrowing from banks and could – as a result of the RBI’s utter incompetence – become net beneficiaries of this new guideline.

*Cutting Your Nose To Spite Your Face: Despite the favorable Reserve Bank of India (RBI) ruling and the clarity that it may bring to bank classification of NPLs and interest charges, the fact is that Indian financial sector credit quality remains amongst the worst in Asia and globally. In fact, we would go as far to state that the breakdown in net new NPLs remains by far the worst in the world at well over 100% annualized growth at FY 3Q21. Given the now increased interest pressure on those corporates which were given waivers, it is all but assured that we can add those woes to the woodpile of Indian NPLs; and*Killing Me Softly: Following the Supreme Court decision on extending the compound interest relief to loansin excess of INR 20 mn and lifting of standstill on NPL classifications, the RBI has added insult to injury by notifying lenders that they will bear the impact of the compound interest waiver, without any visibility on whether or not this waiver will be reimbursed by or shared with the government. Non-bank Financial Companies (NBFC) have large borrowing from banks and could – as a result of the RBI’s utter incompetence – become net beneficiaries of this new guideline.

Reserve Bank of India – Thanks For Nothing

India Financials

Saumya Agarwal

In quite an innovative move, the Government of India amended the Insolvency and Bankruptcy code (IBC) 2016, by promulgating an ordinance to provide pre-packaged resolution for micro, small and medium Enterprises (MSME’s). The move is expected to create a win-win situation for the MSME debtor and creditor alike. Banks with sizeable exposure to the MSME segment and/or  higher stress in the segment stand to benefit the most , from this amendment.

In quite an innovative move, the Government of India amended the Insolvency and Bankruptcy code (IBC) 2016, by promulgating an ordinance to provide pre-packaged resolution for micro, small and medium Enterprises (MSME’s). The move is expected to create a win-win situation for the MSME debtor and creditor alike. Banks with sizeable exposure to the MSME segment and/or  higher stress in the segment stand to benefit the most , from this amendment. 

The ‘Pre-Pack’ Scheme for MSME: Which Banks Have the Most Stressed MSME Portfolio ?

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

*AGM Leads To More Questions Than Answers: At its recent annual general meeting (AGM), DBS Group Holdings (DBS.SP) [DBS] highlighted several back to the future mainland China strategies and tried to justify its truly dumb acquisition in India. The management team didn’t do itself any favors; and *Another Fine Mess You’ve Gotten Us Into: CEO Gupta was completely put back on his heals and left defending its acquisition of Lakshmi Vilas Bank (LVB). Shareholders raised fundamental concerns over financial losses and LVB’s impact on DBS' bottom-line. In our view, without some form of ring-fencing of LVB’s challenged assets it is unclear how this transaction would NOT have a negative material impact on DBS’ earnings and capital ratios over the near-term.

*AGM Leads To More Questions Than Answers: At its recent annual general meeting (AGM), DBS Group Holdings (DBS.SP) [DBS] highlighted several back to the future mainland China strategies and tried to justify its truly dumb acquisition in India. The management team didn’t do itself any favors; and *Another Fine Mess You’ve Gotten Us Into: CEO Gupta was completely put back on his heals and left defending its acquisition of Lakshmi Vilas Bank (LVB). Shareholders raised fundamental concerns over financial losses and LVB’s impact on DBS' bottom-line. In our view, without some form of ring-fencing of LVB’s challenged assets it is unclear how this transaction would NOT have a negative material impact on DBS’ earnings and capital ratios over the near-term. 

DBS Group Holdings – Quickly Losing Credibility

India

State Bank of India provides a wide range of banking and financial services to corporate, institutional, commercial, agricultural, industrial and individual customers throughout India.  The Bank also provides international banking to its Indian customers and has operations in other countries.

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State Bank Of India (SBIN IN)

Reserve Bank of India – Thanks For Nothing

RESERVE BANK OF INDIA: Following the Supreme Court decision, the RBI has added insult to injury by telling the banks to bear the impact of the...

Thomas J. Monaco

The ‘Pre-Pack’ Scheme for MSME: Which Banks Have the Most Stressed MSME Portfolio ?

The Government has amended the IBC code 2016 to provide pre-packaged resolution for MSME's. Banks with sizeable exposure to MSME and /or the...

Saumya Agarwal

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

DBS Group Holdings – Quickly Losing Credibility

DBS GROUP HOLDINGS: At its recent AGM, DBS highlighted several back to the future mainland China strategies and tried to justify its acquisition in...

Thomas J. Monaco

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