Silver Point

Thomas J. Monaco

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

Housing Development Finance Corporation / Equity Bottom-Up

Housing Development Finance Corporation (HDFC IN)

*All Good: Housing Development Finance Corp. (HDFC.IN) [HDFC] reported FY 2Q21 bottom-line results of INR 33.7 bn - increasing INR 3.8 bn (12.6%) linked quarter. From a core operating perspective, we note that HDFC came in at INR 32.0 bn, a whopping INR 15.5 bn (93.4%) increase over FY 1Q21.*Credit Risk Decelerating: The trend in annualized NCOs has declined, by our calculation, to 16 bp from 21 bp in the previous quarter. In addition, the level of net new NPLs has also decelerated to INR 3.6 bn or 14.2% on an annualized basis versus 46.6% in FY 1Q21. We would have preferred that HDFC remained more vigilant given the continued uncertainty with COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 68 bn or just over two quarters of core operating results; and*Positive Operating Jaws: . Key to core operating result performance was: a) net interest income improvement of INR 2.8 bn (8.3%) led by both linked quarter loan growth of 2.0% and NIM improvement of 17 bp to 2.75%; b) an INT 306 mn (7.7%) decline in operating expenses which pushed HDFC’s C/I ratio even lower by 160 bp to 9.2%.

*All Good: Housing Development Finance Corp. (HDFC.IN) [HDFC] reported FY 2Q21 bottom-line results of INR 33.7 bn - increasing INR 3.8 bn (12.6%) linked quarter. From a core operating perspective, we note that HDFC came in at INR 32.0 bn, a whopping INR 15.5 bn (93.4%) increase over FY 1Q21.*Credit Risk Decelerating: The trend in annualized NCOs has declined, by our calculation, to 16 bp from 21 bp in the previous quarter. In addition, the level of net new NPLs has also decelerated to INR 3.6 bn or 14.2% on an annualized basis versus 46.6% in FY 1Q21. We would have preferred that HDFC remained more vigilant given the continued uncertainty with COVID-19. As such, we still find that HDFC’s reserve still needs shoring up by another INR 68 bn or just over two quarters of core operating results; and*Positive Operating Jaws: . Key to core operating result performance was: a) net interest income improvement of INR 2.8 bn (8.3%) led by both linked quarter loan growth of 2.0% and NIM improvement of 17 bp to 2.75%; b) an INT 306 mn (7.7%) decline in operating expenses which pushed HDFC’s C/I ratio even lower by 160 bp to 9.2%.

Housing Development Finance Corp. – “Great Quarter Guys”

*Solid Number Appear Sustainable: Shriram Transport Finance (SHTF.IN) [Shriram] reported FY 2Q21 profits of INR 6.8 bn, increasing 113.9% linked quarter. Bottom-line improvement was attributed to two factors: 1) a net interest income improvement of INR 2.0 bn (11.0%) primarily as a result of NIM improvement - on the back of lower funding costs – of 61 bp to 7.24%; and 2) wouldn’t you know it, an INR 4.1 bn (38.4%) decline in loss provisions as net new NPL growth turned negative; and*Very Encouraging Credit Trends:  Most encouraging, and in contravention to sector trends that we have seen thus far, we note that Shriram’s level of net new NPLs linked quarter actually declined INR 2.2 bn or negative 10.0% on an annualized basis.

*Solid Number Appear Sustainable: Shriram Transport Finance (SHTF.IN) [Shriram] reported FY 2Q21 profits of INR 6.8 bn, increasing 113.9% linked quarter. Bottom-line improvement was attributed to two factors: 1) a net interest income improvement of INR 2.0 bn (11.0%) primarily as a result of NIM improvement - on the back of lower funding costs – of 61 bp to 7.24%; and 2) wouldn’t you know it, an INR 4.1 bn (38.4%) decline in loss provisions as net new NPL growth turned negative; and*Very Encouraging Credit Trends:  Most encouraging, and in contravention to sector trends that we have seen thus far, we note that Shriram’s level of net new NPLs linked quarter actually declined INR 2.2 bn or negative 10.0% on an annualized basis.

Shriram Transport Finance – Frightening Glory

*In-Line Results: Bajaj Finance (BAF.IN) [Bajaj] reported FY 2Q21 results of INR 9.6 bn - essentially in-line with FY 1Q21 results. While in line on a linked quarter basis, we do note improvement in the NIM by 70 bp to 9.9% which drove the INR 1.1 bn (3.3%) increase in net interest income;*Credit Risk Increasing: On a linked quarter basis, we found that gross NPAs actually declined INR 5.2 bn (26.9%)  - primarily on account of FY 2Q21 NCOs of INR 20.5 bn which appear to have accelerated again. Credit remains weak with net new NPAs of INR 15.3 or an alarming 434.1% annualized increase. Loss reserves also remain light in the neighbourhood of INR 66.4 bn by our calculation or over five quarter of pre-tax results; and*Lowered Guidance: For AUM, Bajaj expects AUM growth during FY 2021 of just between 6%-7% - well below previous guidance of 10-12%. Several other headwinds over the near-term are also worrisome, including: 1) the elevated payment-bounce rate; and 2) the lack of clarity surrounding the flexi loan book.

*In-Line Results: Bajaj Finance (BAF.IN) [Bajaj] reported FY 2Q21 results of INR 9.6 bn - essentially in-line with FY 1Q21 results. While in line on a linked quarter basis, we do note improvement in the NIM by 70 bp to 9.9% which drove the INR 1.1 bn (3.3%) increase in net interest income;*Credit Risk Increasing: On a linked quarter basis, we found that gross NPAs actually declined INR 5.2 bn (26.9%)  - primarily on account of FY 2Q21 NCOs of INR 20.5 bn which appear to have accelerated again. Credit remains weak with net new NPAs of INR 15.3 or an alarming 434.1% annualized increase. Loss reserves also remain light in the neighbourhood of INR 66.4 bn by our calculation or over five quarter of pre-tax results; and*Lowered Guidance: For AUM, Bajaj expects AUM growth during FY 2021 of just between 6%-7% - well below previous guidance of 10-12%. Several other headwinds over the near-term are also worrisome, including: 1) the elevated payment-bounce rate; and 2) the lack of clarity surrounding the flexi loan book.

*CRISIL Upgrade Of YES: CRISIL (formerly Credit Rating Information Services of India Limited) [SPGI. US] recently upgraded the rating on Yes Bank’s (YES.IN) [YES] INR 200 bn in certificates of deposit (CDs) by one notch to A2+ from A2.  According to CRISIL, the upgrade reflects an improvement in the funding and liquidity profile of YES, with a gradual increase in its deposit base as well as the resent sizeable capital raise;*SBI’s Outlook Improves: Subsequent to the YES capital raise, State Bank of India’s (SBIN.IN) [SBI] stake in YES has now been reduced to from 48% to 30%. In addition, YES’stress loans have essentially been cut on half from 64% to 38%. The likelihood that SBI will have to increase its involvement in YES has significantly diminished – and the CRISIL upgrade confirms this view; and *Sector Proxy: SBI is an excellent proxy for the improvement in the Indian financial sector. SBI is managing its balance sheet well by proactively making provisions, and has one of the highest provisions on total stressed loans.

*CRISIL Upgrade Of YES: CRISIL (formerly Credit Rating Information Services of India Limited) [SPGI. US] recently upgraded the rating on Yes Bank’s (YES.IN) [YES] INR 200 bn in certificates of deposit (CDs) by one notch to A2+ from A2.  According to CRISIL, the upgrade reflects an improvement in the funding and liquidity profile of YES, with a gradual increase in its deposit base as well as the resent sizeable capital raise;*SBI’s Outlook Improves: Subsequent to the YES capital raise, State Bank of India’s (SBIN.IN) [SBI] stake in YES has now been reduced to from 48% to 30%. In addition, YES’stress loans have essentially been cut on half from 64% to 38%. The likelihood that SBI will have to increase its involvement in YES has significantly diminished – and the CRISIL upgrade confirms this view; and *Sector Proxy: SBI is an excellent proxy for the improvement in the Indian financial sector. SBI is managing its balance sheet well by proactively making provisions, and has one of the highest provisions on total stressed loans. 

IndoStar Capital Finance / Equity Bottom-Up

*Terrible Quarter Likely To Be Repeated: IndoStar Capital Finance (INDOSTAR.IN) [IndoStar] reported a FY 4Q20 loss of INR 4.2bn against a profit of INR 3 mn in FY 3Q20. Three factors drove the poor results: a) an INR 5.1 bn (461%) increase in loss provisions linked quarter reflecting painfully weaker credit quality; b) an INR 459 mn (24.8%) decline in net interest income as NIMs and loans contracted 120 bp to 6.20% and INR 5.3 bn (5.2%), respectively; and c) higher OPEX of INR 73 mn (9.9%); and * Credit Risk Increasing/Reserve Cover Decreasing: Despite the absolute decline, gross NPLs tot total loans actually increased 10 bp to 4.5% as the loan portfolio contracted INR 5.3 bn (5.2%) over the period likely resultant of the high level of NCOs. We find that the level of net new NPLs increased INR 6.1 bn or a whopping 544% if we annualize the result – the highest level in India that we have tracked to date.  The woefully inadequate cover on gross NPLs of 20.4% at FY 3Q20 declined 40 bp to 20.0%.

*Terrible Quarter Likely To Be Repeated: IndoStar Capital Finance (INDOSTAR.IN) [IndoStar] reported a FY 4Q20 loss of INR 4.2bn against a profit of INR 3 mn in FY 3Q20. Three factors drove the poor results: a) an INR 5.1 bn (461%) increase in loss provisions linked quarter reflecting painfully weaker credit quality; b) an INR 459 mn (24.8%) decline in net interest income as NIMs and loans contracted 120 bp to 6.20% and INR 5.3 bn (5.2%), respectively; and c) higher OPEX of INR 73 mn (9.9%); and * Credit Risk Increasing/Reserve Cover Decreasing: Despite the absolute decline, gross NPLs tot total loans actually increased 10 bp to 4.5% as the loan portfolio contracted INR 5.3 bn (5.2%) over the period likely resultant of the high level of NCOs. We find that the level of net new NPLs increased INR 6.1 bn or a whopping 544% if we annualize the result – the highest level in India that we have tracked to date.  The woefully inadequate cover on gross NPLs of 20.4% at FY 3Q20 declined 40 bp to 20.0%. 

India

Bank of India, through its subsidiaries, provides corporate, commercial, personal banking, retail, rural, and development banking.  The Group specializes its services towards corporate and medium businesses, in addition to upmarket retail customers.

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Bank Of India (BOI IN)

Housing Development Finance Corp. – “Great Quarter Guys”

HOUSING DEVELOPMENT FINANCE CORP: Positive Operating Jaws Were Just An Outgrowth Of This Well Oiled Machine. Credit Risk Too Substantially...

Thomas J. Monaco

Shriram Transport Finance – Frightening Glory

SHRIRAM TRANSPORT FINANCE: Shriram Is Exhibiting Early Signs of Positive Credit Deltas, And Likely Exits This COVID Crisis Earlier Than Peer.

Thomas J. Monaco

Bajaj Finance – Removing The Lipstick

BAJAJ FINANCE: Results Would Suggest That Credit Portfolio Risk Has Significantly Deteriorated, and That Reserves Need Buttressing By Over Five...

Thomas J. Monaco

State Bank of India – YES We Can

*CRISIL Upgrade Of YES: CRISIL (formerly Credit Rating Information Services of India Limited) [SPGI. US] recently upgraded the rating on Yes Bank’s...

Thomas J. Monaco

IndoStar Capital Finance - Betelgeuse

*Terrible Quarter Likely To Be Repeated: IndoStar Capital Finance (INDOSTAR.IN) [IndoStar] reported a FY 4Q20 loss of INR 4.2bn against a profit of...

Thomas J. Monaco

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