India Financials

Saumya Agarwal

Thematic (Sector/Industry)

A year into the pandemic, Indian Banks have emerged with better-than- expected Gross NPA levels and huge Covid buffers at end  FY21.  With India's vaccination coverage at ~200 million or ~15% of total population and a sustained decline in daily count of fresh infections, many of the uncertainties are  receding. A downward bias on credit costs is now increasingly likely, and should augur well for Banks.

A year into the pandemic, Indian Banks have emerged with better-than- expected Gross NPA levels and huge Covid buffers at end  FY21.  With India's vaccination coverage at ~200 million or ~15% of total population and a sustained decline in daily count of fresh infections, many of the uncertainties are  receding. A downward bias on credit costs is now increasingly likely, and should augur well for Banks.

Indian Banks- Downward Bias on Credit Costs, as Uncertainties Recede

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

*Bottom-line Overstated And Of Poor Quality: State Bank of India (SBIN.IN) [SBI] reported FY 4Q21 results of INR 61.3 bn, declining INR 0.5 bn (0.8%) linked quarter. Despite the loss provision increase of INR 7.2 bn (6.7%); this is not nearly enough given the continued credit stress. SBI’s fee revenues grew INR 61.6 bn (10.5%) linked quarter, likely attributed to non-core gains which should not be repeatable going forward; and*Reserve Challenge Should Lead To Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap.

*Bottom-line Overstated And Of Poor Quality: State Bank of India (SBIN.IN) [SBI] reported FY 4Q21 results of INR 61.3 bn, declining INR 0.5 bn (0.8%) linked quarter. Despite the loss provision increase of INR 7.2 bn (6.7%); this is not nearly enough given the continued credit stress. SBI’s fee revenues grew INR 61.6 bn (10.5%) linked quarter, likely attributed to non-core gains which should not be repeatable going forward; and*Reserve Challenge Should Lead To Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap. 

State Bank of India – No Let Up On Credit

Indiabulls Housing Finance / Equity Bottom-Up

*Bad News On The Doorstep: IndiaBulls Housing Finance (IHFL.IN) [IndiaBulls] reported FY 4Q21 results of INR 2.8 bn, declining INR 531 mn (16.1%) linked quarter. The linked quarter weakness can be attributed to both: a) net interest income decline of INR 804 mn (10.5%) tracking a decline in both loans of 6.8% and NIM compression of 59 bp to 2.94%; and b) loss provision increase of INR 1.7 bn (120.9%); and   *Wrong Turn: Net new NPLs had increased INR 8.0 bn for the quarter for an annualized rate of increase of 159.3% - a complete about face from FY 3Q21’s decline of 11.3%. Reserves ae now frighteningly low, and we would suggest INR 30.2 bn or 9x stated PBT.

*Bad News On The Doorstep: IndiaBulls Housing Finance (IHFL.IN) [IndiaBulls] reported FY 4Q21 results of INR 2.8 bn, declining INR 531 mn (16.1%) linked quarter. The linked quarter weakness can be attributed to both: a) net interest income decline of INR 804 mn (10.5%) tracking a decline in both loans of 6.8% and NIM compression of 59 bp to 2.94%; and b) loss provision increase of INR 1.7 bn (120.9%); and   *Wrong Turn: Net new NPLs had increased INR 8.0 bn for the quarter for an annualized rate of increase of 159.3% - a complete about face from FY 3Q21’s decline of 11.3%. Reserves ae now frighteningly low, and we would suggest INR 30.2 bn or 9x stated PBT. 

IndiaBulls Housing Finance – A Turn For The Worse

State Bank of India (SBI), India’s largest Bank, reported its Q4FY21 results today. Despite a mammoth loan book accounting for ~22% of the banking sector loans, SBI reported an improvement in asset quality, on an incremental q-o-q basis. This was marked by lower fresh slippages and a decline in the Overdue book. However, Agriculture continued to be its most stressed segment, a trend common to all PSU banks.While FY21 Net profits posted a robust jump, aided by moderate growth in revenue and lower credit costs,  YONO, its fintech platform has scaled up well, largely inline with management guidance.

State Bank of India (SBI), India’s largest Bank, reported its Q4FY21 results today. Despite a mammoth loan book accounting for ~22% of the banking sector loans, SBI reported an improvement in asset quality, on an incremental q-o-q basis. This was marked by lower fresh slippages and a decline in the Overdue book. However, Agriculture continued to be its most stressed segment, a trend common to all PSU banks.While FY21 Net profits posted a robust jump, aided by moderate growth in revenue and lower credit costs,  YONO, its fintech platform has scaled up well, largely inline with management guidance.

SBI Q4FY21: Lower Slippages and Smaller Overdue Loans on an Incremental Basis + YONO Scales up Well

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

Canara Bank – India’s Trash Compactor

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)

Indian Banks- Downward Bias on Credit Costs, as Uncertainties Recede

Indian Banks have braved the first wave well and built huge Covid related provisions. With many of the uncertainties receding, there is a downward...

Saumya Agarwal

State Bank of India – No Let Up On Credit

STATE BANK OF INDIA: SBI reported a QOQ FY 4Q21 results decline of 0.8% - supported by gains. Net new NPLs accelerated to 65.9% from 41.6%. SBI...

Thomas J. Monaco

IndiaBulls Housing Finance – A Turn For The Worse

INDIABULLS HOUSING FINANCE: IndiaBulls reported a QOQ FY 4Q21 results decline of 16.1% due to a net interest income decline and loss provision...

Thomas J. Monaco

SBI Q4FY21: Lower Slippages and Smaller Overdue Loans on an Incremental Basis + YONO Scales up Well

Asset quality metrics of SBI, India's largest bank by advances, has improved on an incremental basis. Even its Fintech platform YONO has scaled up...

Saumya Agarwal

Canara Bank – India’s Trash Compactor

CANARA BANK: Canara reported QOQ bottom-line improvement of 85.5%, reliant on gains. Net new NPLs amount to 21.7%, but its reserve shortfall...

Thomas J. Monaco

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