India Financials – Extending Emergency Relief

HDFC Bank – Update Does Little To Quell Fears

HDFC Bank: Commendable Results but Technology Issues Remain

HDFC Bank – Credit Remains A Serious Challenge

Housing Development Finance Corp. – “Great Quarter Guys”

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

*Positive Spin: HDFC Bank (HDFCB.IN) {HDFCB] management held a call with a competitor, where a positive spin was placed on nearly every aspect of its business. HDFCB highlighted lending had reached pre-COVID-19 levels during December and is attributed to pent-up demand. Management also contends that its NIM should remain in the guided range of 4.0%-4.5% given the improving loan mix and the reduction in excess liquidity; and
*Credit Still Breaking Down Ex-Supreme Court Ruling: 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 – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. 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.

*Positive Spin: HDFC Bank (HDFCB.IN) {HDFCB] management held a call with a competitor, where a positive spin was placed on nearly every aspect of its business. HDFCB highlighted lending had reached pre-COVID-19 levels during December and is attributed to pent-up demand. Management also contends that its NIM should remain in the guided range of 4.0%-4.5% given the improving loan mix and the reduction in excess liquidity; and
*Credit Still Breaking Down Ex-Supreme Court Ruling: 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 – down from 2.4x in FY 3Q21. We would be more comfortable if HDFCB was a bit more aggressive with its provisions – especially during periods when volatile sources of fee revenues give HDFCB a gift to build reserves. 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.   

HDFC Bank – Story Appears Different From Reality