Specialist in Indian Banking and Economic Research

Hemindra Hazari

In a little-publicised step, the Securities and Exchange Board of India (SEBI) has directed the first 1,000 companies by market capitalisation on the Indian bourses to disclose voluminous information in their <a href="https://www.sebi.gov.in/media/press-releases/may-2021/sebi-issues-circular-on-business-responsibility-and-sustainability-reporting-by-listed-entities-_50097.html" target="_blank" rel="noopener">business responsibility and sustainability</a> reporting. For FY2022 this is voluntary, but from FY2023 it is to be mandatory. This largely non-financial data may provide significant insights into large cap companies’ impact on the welfare of stakeholders (communities, employees, customers and channel partners) and the environment.Since 2012 the SEBI had mandated the disclosure of a Business Responsibility Report containing Environment, Social and Governance (ESG) parameters; however, the data was not standardised. The recent SEBI directive will standardise the data, facilitating its aggregation and its comparison across companies and industries. Even though they may not appear to be directly relevant to shareholders, these disclosures will shed light on how other stakeholders’ concerns are being addressed; and that can be relevant to the shareholders as well over the medium term. For the private sector banking and financial intermediaries, this data will reveal the near absence of trade unionism amongst their employees, and the high turnover of staff, especially at the lower levels. This turnover at the branches engaged in retail banking appears to be on account of ambitious sales targets set by the management. Such issues have typically been ignored by institutional investors, and indeed they often applaud such a policy, as it restrict wages and delivers higher profits.The disclosures stipulated by SEBI will also cover how the communities, customers, channel partners and employees view the company. Will this mean that companies will not be able to focus solely on shareholder interest, but will also have to pay attention to stakeholders’ concerns? In some cases, anti-corporate campaigners (representing workers, project-affected communities, or consumers) may find in such reports revelations that are embarrassing to the firm.The media and sell-side research have not reacted to these new requirements, as the disclosures are mainly non-financial. However, analysing and aggregating the data will provide valuable insights into companies and industries. In future, the cost of compliance for companies will increase. They will have to create separate departments, or outsource the function, in order to manage the voluminous data. It yet has to be seen how far the corporate sector cooperates, and the quality of the data provided. Nevertheless the step is likely to be helpful for understanding some aspects of the dynamics of corporate businesses in India.

In a little-publicised step, the Securities and Exchange Board of India (SEBI) has directed the first 1,000 companies by market capitalisation on the Indian bourses to disclose voluminous information in their business responsibility and sustainability reporting. For FY2022 this is voluntary, but from FY2023 it is to be mandatory. This largely non-financial data may provide significant insights into large cap companies’ impact on the welfare of stakeholders (communities, employees, customers and channel partners) and the environment.Since 2012 the SEBI had mandated the disclosure of a Business Responsibility Report containing Environment, Social and Governance (ESG) parameters; however, the data was not standardised. The recent SEBI directive will standardise the data, facilitating its aggregation and its comparison across companies and industries. Even though they may not appear to be directly relevant to shareholders, these disclosures will shed light on how other stakeholders’ concerns are being addressed; and that can be relevant to the shareholders as well over the medium term. For the private sector banking and financial intermediaries, this data will reveal the near absence of trade unionism amongst their employees, and the high turnover of staff, especially at the lower levels. This turnover at the branches engaged in retail banking appears to be on account of ambitious sales targets set by the management. Such issues have typically been ignored by institutional investors, and indeed they often applaud such a policy, as it restrict wages and delivers higher profits.The disclosures stipulated by SEBI will also cover how the communities, customers, channel partners and employees view the company. Will this mean that companies will not be able to focus solely on shareholder interest, but will also have to pay attention to stakeholders’ concerns? In some cases, anti-corporate campaigners (representing workers, project-affected communities, or consumers) may find in such reports revelations that are embarrassing to the firm.The media and sell-side research have not reacted to these new requirements, as the disclosures are mainly non-financial. However, analysing and aggregating the data will provide valuable insights into companies and industries. In future, the cost of compliance for companies will increase. They will have to create separate departments, or outsource the function, in order to manage the voluminous data. It yet has to be seen how far the corporate sector cooperates, and the quality of the data provided. Nevertheless the step is likely to be helpful for understanding some aspects of the dynamics of corporate businesses in India.

Newly Mandated Disclosures for India’s Top Corporates May Yield a Gold Mine of Information

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Capital Markets

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The Government of India (GoI) aims to raise up to US$560m via selling a 1.9% stake in <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>. This won’t be the first selldown by GoI as it has been reducing its stake since 2019.
We have covered the past primary raising by the company in<a href="https://www.smartkarma.com/compose/insight/51718/Axis%20Bank%20Placement%20-%20Jumping%20the%20Queue" target="_blank" rel="noopener"> Axis Bank Placement - Jumping the Queue</a> and <a href="https://www.smartkarma.com/insights/axis-bank-placement-early-look-looking-to-raise-us-2bn" target="_blank" rel="noopener">Axis Bank Placement - Early Look - Looking to Raise US$2bn</a>. 
Most of the past deals in the name have done well, although the most recent one that didn’t do too well, was the earlier SUUTI linked selldown.
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The Government of India (GoI) aims to raise up to US$560m via selling a 1.9% stake in Axis Bank Ltd (AXSB IN). This won’t be the first selldown by GoI as it has been reducing its stake since 2019.
We have covered the past primary raising by the company in Axis Bank Placement - Jumping the Queue and Axis Bank Placement - Early Look - Looking to Raise US$2bn. 
Most of the past deals in the name have done well, although the most recent one that didn’t do too well, was the earlier SUUTI linked selldown.


Axis Bank Placement - Well Flagged, past Deals Have Done Well

Thematic (Sector/Industry)

The integrity of audits in private sector banks and non-bank financial companies (including housing finance) has received a major boost, while large global and domestic audit firms have been dealt a body blow by the Reserve Bank of India’s <a href="https://rbidocs.rbi.org.in/rdocs/notification/PDFs/NOTI258A67AD30976F44929FA2AB2B41DC805D.PDF" target="_blank" rel="noopener">new</a> guidelines for the appointment of statutory auditors for the commercial banks and NBFCs. In future the executive and founder-management of private sector financial intermediaries will find it more difficult to exert influence on their statutory auditors. 
Henceforth, all the audit firm affiliates which were treated as separate entities, but under the same network, will be treated as a single entity. It was common practice for one entity in the audit firm group to be awarded the audit while other entities in the group were given lucrative assignments while simultaneously issuing a “no conflict of interest certificate.” Such an arrangement compromised the entire edifice of audit, and there were no disclosures. The new system entails providing such disclosures to the RBI prior to getting the regulator’s approval.
Till FY2019, global audit firms had a stranglehold on the market of large private sector banks. But their negligent conduct, bordering on complicity, in major corporate frauds in India and abroad has led to a valid rethink regarding their capabilities. Accordingly, the regulator’s guidelines released on April 27, 2021 will curtail their business in the Indian financial sector.

The integrity of audits in private sector banks and non-bank financial companies (including housing finance) has received a major boost, while large global and domestic audit firms have been dealt a body blow by the Reserve Bank of India’s new guidelines for the appointment of statutory auditors for the commercial banks and NBFCs. In future the executive and founder-management of private sector financial intermediaries will find it more difficult to exert influence on their statutory auditors. 
Henceforth, all the audit firm affiliates which were treated as separate entities, but under the same network, will be treated as a single entity. It was common practice for one entity in the audit firm group to be awarded the audit while other entities in the group were given lucrative assignments while simultaneously issuing a “no conflict of interest certificate.” Such an arrangement compromised the entire edifice of audit, and there were no disclosures. The new system entails providing such disclosures to the RBI prior to getting the regulator’s approval.
Till FY2019, global audit firms had a stranglehold on the market of large private sector banks. But their negligent conduct, bordering on complicity, in major corporate frauds in India and abroad has led to a valid rethink regarding their capabilities. Accordingly, the regulator’s guidelines released on April 27, 2021 will curtail their business in the Indian financial sector.

RBI Norms - Audit Giants Can’t Continue Their Cosy Arrangements with Private Banks and NBFCs

India Financials

Saumya Agarwal

Equity Bottom-Up

Axis Bank, India’s third largest private sector bank by advances, reported a manifold increase in FY21 net profit driven by a pick-up in revenue drivers and a decline in credit costs. However, NPA’s in the Corporate and SME segment continue to weigh down on the asset quality, despite higher write-offs and moderation in fresh slippages.

Axis Bank, India’s third largest private sector bank by advances, reported a manifold increase in FY21 net profit driven by a pick-up in revenue drivers and a decline in credit costs. However, NPA’s in the Corporate and SME segment continue to weigh down on the asset quality, despite higher write-offs and moderation in fresh slippages. 

Axis Bank Q4FY21 Results – Corporate and SME Asset Quality in Focus

<a href="https://www.smartkarma.com/entities/citigroup-inc" target="_blank" data-smartkarma-citation="entities:279:1" rel="noopener">Citigroup Inc (C US)</a>’s decision to <a href="https://www.citigroup.com/citi/investor/data/qer121.pdf?ieNocache=351" target="_blank" rel="noopener">withdraw</a>  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from <a href="https://rbidocs.rbi.org.in/rdocs/PressRelease/PDFs/IEPR936SC1113.pdf" target="_blank" rel="noopener">2013</a>  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.

Citigroup Inc (C US)’s decision to withdraw  from consumer banking in 13 geographies, including India, and focus instead on corporate/institutional banking, is a lesson in missed opportunities, at least in the case of India. Citi India was the pioneer in consumer banking, in products such as mortgages and credit cards, but it flourished when there were only government banks. The post-1991 entry of the new private banks in India which concentrated on the retail and corporate customers of foreign banks, and the post-Lehman crisis in 2008, heralded the decline of foreign banks in India. The present market capitalisation of the new private banks, and their significant footfall in retail banking in India, highlight the missed opportunity by foreign banks like Citi. The Reserve Bank of India (RBI) provided the foreign banks an opportunity from 2013  to set up Indian subsidiaries which could unfetter their network shackles and expand their branches, which is necessary for consumer banking, but the foreign banks preferred not to get tied down by the other regulatory and social commitments. Instead they focused on hiring direct sales agents to grow their consumer book. Although Citi developed a premium retail clientele franchise, the lack of a broader retail network and intense competition impeded their growth in retail. They preferred to remain focused on the corporate portfolio where, using their global balance sheet, creating structured products and handling treasury and foreign exchange transactions, they managed a lucrative business. Citi’s 5% market share in credit cards remains the jewel in its retail consumer franchise in India, and its monthly credit card spends per customer are at the top of the league, and close to HDFC Bank. Many players are eyeing Citibank’s market share in credit cards and it remains to be seen whether Citi offloads it on a standalone basis, or sells it with its other retail franchise in India, or sells all 13 geographies to a global player.   

India

Axis Bank Limited provides a full range of banking services throughout India. The Group's activities include retail banking, investment management, merchant banking, treasury and NRI services, cash and credit management services, and ATM facilities.

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Axis Bank Ltd (AXSB IN)

Newly Mandated Disclosures for India’s Top Corporates May Yield a Gold Mine of Information

It is true that the explosion of ESG funds worldwide has not so far resulted in an improvement in ESG itself, but at least SEBI’s move may provide...

Hemindra Hazari

Axis Bank Placement - Well Flagged, past Deals Have Done Well

The Government of India (GoI) aims to raise up to US$560m via selling a 1.9% stake in Axis Bank Ltd (AXSB IN). This won’t be the first selldown by...

Sumeet Singh

RBI Norms - Audit Giants Can’t Continue Their Cosy Arrangements with Private Banks and NBFCs

The integrity of audits in banks & NBFCs has received a major boost, while global audit firms have been dealt a body blow by the RBI’s new...

Hemindra Hazari

Axis Bank Q4FY21 Results – Corporate and SME Asset Quality in Focus

Axis Bank reported a manifold increase in net profit in FY21. However, asset quality of the Corporate and SME book continues to be stressed and is...

Saumya Agarwal

While Citi Slept

Citi's decision to withdraw from consumer banking in 13 geographies, including India, and focus on corp./institutional banking, is a lesson in...

Hemindra Hazari

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