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

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a> ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the <a href="https://www.smartkarma.com/entities/state-bank-of-india" target="_blank" data-smartkarma-citation="entities:160:1" rel="noopener">State Bank Of India (SBIN IN)</a>-led consortium, including prominent names in private financial capital. <a href="https://www.linkedin.com/in/agraashish/?originalSubdomain=in" target="_blank" rel="noopener">Ashish Agarwal</a> , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  <a href="https://www.yesbank.in/about-us/our-team" target="_blank" rel="noopener">directors</a> to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes <a href="https://www.smartkarma.com/entities/axis-bank-ltd" target="_blank" data-smartkarma-citation="entities:768:1" rel="noopener">Axis Bank Ltd (AXSB IN)</a>, <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a>, <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><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><a href="https://www.smartkarma.com/entities/housing-development-finance-corporation" target="_blank" data-smartkarma-citation="entities:252:1" rel="noopener"> </a> and others, continues to employ an individual with such a track record. While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities.  Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.

Pay obscene salaries to a favoured few, completely out of sync with the already inflated salary structure in the industry, silently watch as they bring the bank to near collapse – this was Yes Bank (YES IN) ’s policy for senior management. It is not surprising that this was done under the earlier CEO, Rana Kapoor. The surprise is that the some of the grossly overpaid mismanagers were gracefully allowed to continue in their posts under the new owners, the State Bank Of India (SBIN IN)-led consortium, including prominent names in private financial capital. Ashish Agarwal , the current Head-Wholesale Banking and the former Chief Risk Officer (CRO), who was also in charge of corporate credit appraisal, earned a salary (including staggered bonus) of nearly Rs 72 mn in FY2018, significantly higher than peers who were managing much larger balance sheets. Agarwal, who played a critical role in appraising and approving dodgy credit, has been allowed by the new board of  directors to continue (like some of his senior colleagues) on a reduced remuneration. It is shocking that the new consortium of owners, which includes Axis Bank Ltd (AXSB IN), Kotak Mahindra Bank (KMB IN), HDFC Limited (HDFC IN), ICICI Bank Ltd (ICICIBC IN)  and others, continues to employ an individual with such a track record. While Rana Kapoor, the erstwhile CEO, was the main culprit, extravagantly paid individuals like Ashish Agarwal made their own contributions to the downfall of the bank by failing to raise stringent objections, complain directly to the banking regulator or resign from the bank. The attractive financial package that such individuals were rewarded with by a servile Nominations and Remuneration Committee compromised professionalism, and an incompetent/complicit Credit and Risk Management Committees failed in its oversight responsibilities.  Supposedly, the free market rewards superior performance and punishes non-performance, but this role of the free market appears to have bypassed Yes Bank and its new board of directors.

Yes Bank’s New Owners Keep Overpaid Mismanagers in Place

*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.

Despites the paeans of self-praise in annual reports, exposé after exposé by the media reveal the abysmal state of corporate governance in private financial capital. The latest in these revelations by ET Prime is how Yes Bank <a href="https://economictimes.indiatimes.com/prime/corporate-governance/cbi-files-avantha-entities-used-inr500-crore-yes-bank-loan-to-repay-edelweiss-ncds-abfl-loan/primearticleshow/84380524.cms" target="_blank" rel="noopener">disbursed</a> a Rs 5.12 bn loan to Oyster Buildwell, an Avantha (Thapar) group shell company which had less than Rs 50 mn in capital and negligible income at end December 2017/early January 2018. While the then founder-Chief Executive Officer (CEO), Rana Kapoor, has been rightly held responsible for the collapse of <a href="https://www.smartkarma.com/entities/yes-bank-ltd" target="_blank" data-smartkarma-citation="entities:767:1" rel="noopener">Yes Bank (YES IN)</a>  (subsequently revived by a State Bank of India-led group), and is currently a guest of the state, what has gone largely unnoticed is how members of the then board of directors were equally culpable and have gotten away scot free. More alarming is the case of <a href="https://www.linkedin.com/in/agraashish/?originalSubdomain=in" target="_blank" rel="noopener">Ashish Agarwal</a>, the Chief Risk Officer (CRO) and also responsible for corporate loans for more than a decade (March 2009 to May 2020), who appraised and approved all the dubious corporate loans (including Oyster Buildwell) which ultimately brought the bank to its knees: he was <a href="https://www.yesbank.in/media/press-releases/yes-bank-announces-appointment-of-mr-maheshwar-sahu-and-mr-anil-jagga-as-additional-directors" target="_blank" rel="noopener">rewarded</a> by the board of directors in January 2019 for his “track record” and put forward as a possible successor to Rana Kapoor, by elevating him to the post of executive director. When the Reserve Bank of India (RBI) rightly rejected his candidature, he continued in the all-important CRO post till May 2020, whereupon he was put in charge of wholesale and corporate lending. That an individual who approved a series of dubious high-risk corporate loans not only survived but was rewarded under the new ownership and management, when he should have been removed, is indicative of all that is wrong in private financial capital today and in Yes Bank in particular.  What is equally shocking is that the RBI's extreme leniency in its annual inspections of Yes Bank, when it reviewed large loans given to shell companies having marginal equity and income and dubious security provided by third parties, as revealed in the Oyster Buildwell case. Such loans -- euphemistically and mistakenly referred to by the current management as “asset backed financing” -- were in reality high-risk loans, which no experienced commercial banker should have undertaken.  It is on account of these rare media scoops that the public becomes aware of the brazen incompetence/complicity of the board of directors and key senior executives, and the negligence of the banking regulator in not taking action at the relevant time, thereby putting public deposits at risk.In Yes Bank’s case, stakeholders should demand accountability and punishment of the then board of directors (including independent directors) who were complicit, and key executives like the then CRO, who blindly condoned reckless lending and approved poor quality loans. The RBI belatedly acted by ending Kapoor’s term as CEO on January 31, 2019, even though Vishal Goyal, the UBS sell-side analyst, <a href="https://economictimes.indiatimes.com/markets/stocks/news/yes-bank-shares-fall-after-ubs-downgrades-the-lender-to-sell/articleshow/47996134.cms?from=mdr" target="_blank" rel="noopener">first</a>  highlighted concerns of poor quality loans in July 2015, and this analyst kept blowing the whistle from <a href="https://hemindrahazari.com/2020/03/10/how-independent-research-found-a-fatal-flaw-with-yes-bank/" target="_blank" rel="noopener">May 2017</a> onwards. This shows how lethargically the banking regulator responded, despite having access to all the inside information rightly denied to sell-side analysts. The Oyster Buildwell loan lucidly reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners of Yes Bank, as well as later by the new owners.

Despites the paeans of self-praise in annual reports, exposé after exposé by the media reveal the abysmal state of corporate governance in private financial capital. The latest in these revelations by ET Prime is how Yes Bank disbursed a Rs 5.12 bn loan to Oyster Buildwell, an Avantha (Thapar) group shell company which had less than Rs 50 mn in capital and negligible income at end December 2017/early January 2018. While the then founder-Chief Executive Officer (CEO), Rana Kapoor, has been rightly held responsible for the collapse of Yes Bank (YES IN)  (subsequently revived by a State Bank of India-led group), and is currently a guest of the state, what has gone largely unnoticed is how members of the then board of directors were equally culpable and have gotten away scot free. More alarming is the case of Ashish Agarwal, the Chief Risk Officer (CRO) and also responsible for corporate loans for more than a decade (March 2009 to May 2020), who appraised and approved all the dubious corporate loans (including Oyster Buildwell) which ultimately brought the bank to its knees: he was rewarded by the board of directors in January 2019 for his “track record” and put forward as a possible successor to Rana Kapoor, by elevating him to the post of executive director. When the Reserve Bank of India (RBI) rightly rejected his candidature, he continued in the all-important CRO post till May 2020, whereupon he was put in charge of wholesale and corporate lending. That an individual who approved a series of dubious high-risk corporate loans not only survived but was rewarded under the new ownership and management, when he should have been removed, is indicative of all that is wrong in private financial capital today and in Yes Bank in particular.  What is equally shocking is that the RBI's extreme leniency in its annual inspections of Yes Bank, when it reviewed large loans given to shell companies having marginal equity and income and dubious security provided by third parties, as revealed in the Oyster Buildwell case. Such loans -- euphemistically and mistakenly referred to by the current management as “asset backed financing” -- were in reality high-risk loans, which no experienced commercial banker should have undertaken.  It is on account of these rare media scoops that the public becomes aware of the brazen incompetence/complicity of the board of directors and key senior executives, and the negligence of the banking regulator in not taking action at the relevant time, thereby putting public deposits at risk.In Yes Bank’s case, stakeholders should demand accountability and punishment of the then board of directors (including independent directors) who were complicit, and key executives like the then CRO, who blindly condoned reckless lending and approved poor quality loans. The RBI belatedly acted by ending Kapoor’s term as CEO on January 31, 2019, even though Vishal Goyal, the UBS sell-side analyst, first  highlighted concerns of poor quality loans in July 2015, and this analyst kept blowing the whistle from May 2017 onwards. This shows how lethargically the banking regulator responded, despite having access to all the inside information rightly denied to sell-side analysts. The Oyster Buildwell loan lucidly reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners of Yes Bank, as well as later by the new owners. 

Yes Bank: Why Are the Culpable Still in Place Despite New Ownership?

*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

India

YES BANK Limited provides banking services. The Bank offers deposits, personal loans, e-banking, trade finance, corporate, and business banking services. YES BANK serves the food and agribusiness, life sciences, healthcare, biotechnology, telecommunications, media, information technology, and infrastructure development industries in India.

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Yes Bank (YES IN)

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

Yes Bank’s New Owners Keep Overpaid Mismanagers in Place

In Yes Bank’s fall, while Rana Kapoor was the main culprit, he was ably assisted by his handsomely paid favoured few in critical posts, some like...

Hemindra Hazari

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

Yes Bank: Why Are the Culpable Still in Place Despite New Ownership?

The Oyster Buildwell loan reveals how all prudent norms of lending were thrown to the winds, and how the then CRO was rewarded by the then owners...

Hemindra Hazari

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

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