Specialist in Indian Banking and Economic Research

Hemindra Hazari

Is a Securities & Exchange Board of India (SEBI) registered research analyst with over 25 years experience in the Indian capital markets with a specialization in banking and economy research and has managerial experience of establishing profitable equities business, leading and mentoring analysts.  He has worked with prominent foreign and domestic capital market firms such as UBS, Societe Generale, HSBC, ASK Raymond James  and Karvy Stock  Broking and is a regular guest on business media channels and is respected for his non-consensus view on stocks and the market.

Sell-Side Analysts’ Blind Faith in IndusInd Bank Need Not Blind Investors

By Deferring Tax, HDFC Bank Inflates Current Profits at the Cost of Future Profits

Yes Bank’s Hike in Deferred Tax Assets: Short-Sighted Policy

Thematic (Sector/Industry)

<p><strong>While the market is commending banks like ICICI and Axis Bank for cleaning up their balance sheets with aggressive loan loss provisions, what is being ignored is the role played by net deferred tax assets (DTA) in partly neutralising the impact of the provisions. DTA is being widely used across the banking industry to inflate current profits and defer the accounting charge to future years. While the creation of DTA is allowed in accounting standards, in the opinion of this writer it is not a prudent practice as it merely defers the inevitable charge to profits. It is time investors paid more attention to this intangible asset, and the regulator modified norms to stipulate a reversal of DTA in the short-term. The practice is rampant in the banking industry, as this study of 8 prominent banks reveals, and it is being used to inflate current profits while giving an impression that the balance sheets are finally being cleaned.</strong></p>

While the market is commending banks like ICICI and Axis Bank for cleaning up their balance sheets with aggressive loan loss provisions, what is being ignored is the role played by net deferred tax assets (DTA) in partly neutralising the impact of the provisions. DTA is being widely used across the banking industry to inflate current profits and defer the accounting charge to future years. While the creation of DTA is allowed in accounting standards, in the opinion of this writer it is not a prudent practice as it merely defers the inevitable charge to profits. It is time investors paid more attention to this intangible asset, and the regulator modified norms to stipulate a reversal of DTA in the short-term. The practice is rampant in the banking industry, as this study of 8 prominent banks reveals, and it is being used to inflate current profits while giving an impression that the balance sheets are finally being cleaned.

The Deferred Tax Bomb