Specialist in Indian Banking and Economic Research

Hemindra Hazari

Equity Bottom-Up

<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> ’s 1QFY2022 results on July 24, 2021 highlight the need for shareholders to re-examine the bank’s retail asset strategy. ICICI Bank’s strategy was to focus on retail assets to compensate for the bulky poor-quality corporate assets that it had earlier emphasised. However, the broad economic slowdown even prior to the Covid-19 pandemic impacted all segments of the economy, and the pandemic dealt small and medium enterprises, and indeed the whole informal sector, a severe blow. A section of organised sector employees too lost their jobs or experienced pay cuts. All these developments affected retail assets of banks. Unlike <a href="https://www.smartkarma.com/entities/hdfc-bank-ltd-4b6b7a92-9087-468d-9dbe-ab169e77f014" target="_blank" data-smartkarma-citation="entities:558:1" rel="noopener">HDFC Bank (HDFCB IN)</a> , which started shifting from retail assets, ICICI Bank surged ahead in retail lending even when retail asset profits declined in FY2021, and this strategy continued in 1QFY2022 despite a drastic fall in retail profits.Apparently the board of directors has taken a view that the bank has to continue to grow the overall balance sheet despite the weak economic conditions, and that, since corporate credit remains weak, the only other avenue is to grow retail assets. It is precisely this strategy that shareholders need to review and debate with the management. The past two years’ data from both ICICI Bank and HDFC Bank reveal that, on account of deteriorating retail asset quality, the contribution of retail profits before tax (PBT) to overall PBT is declining, and in 1QFY2022 it has fallen steeply. From ICICI Bank’s surge in retail assets in FY2021 and 1QFY2022, it appears that the bank believes that the past two years’ data are an anomaly, and that retail asset quality will bounce back.According to ICICI Bank, additions to gross NPAs are expected to be lower in 2QFY2022, and further improve in 2HFY2022. Given the state of the Indian economy, it may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to boost profitability.

ICICI Bank Ltd (ICICIBC IN) ’s 1QFY2022 results on July 24, 2021 highlight the need for shareholders to re-examine the bank’s retail asset strategy. ICICI Bank’s strategy was to focus on retail assets to compensate for the bulky poor-quality corporate assets that it had earlier emphasised. However, the broad economic slowdown even prior to the Covid-19 pandemic impacted all segments of the economy, and the pandemic dealt small and medium enterprises, and indeed the whole informal sector, a severe blow. A section of organised sector employees too lost their jobs or experienced pay cuts. All these developments affected retail assets of banks. Unlike HDFC Bank (HDFCB IN) , which started shifting from retail assets, ICICI Bank surged ahead in retail lending even when retail asset profits declined in FY2021, and this strategy continued in 1QFY2022 despite a drastic fall in retail profits.Apparently the board of directors has taken a view that the bank has to continue to grow the overall balance sheet despite the weak economic conditions, and that, since corporate credit remains weak, the only other avenue is to grow retail assets. It is precisely this strategy that shareholders need to review and debate with the management. The past two years’ data from both ICICI Bank and HDFC Bank reveal that, on account of deteriorating retail asset quality, the contribution of retail profits before tax (PBT) to overall PBT is declining, and in 1QFY2022 it has fallen steeply. From ICICI Bank’s surge in retail assets in FY2021 and 1QFY2022, it appears that the bank believes that the past two years’ data are an anomaly, and that retail asset quality will bounce back.According to ICICI Bank, additions to gross NPAs are expected to be lower in 2QFY2022, and further improve in 2HFY2022. Given the state of the Indian economy, it may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to boost profitability.      

Cause for Alarm – ICICI Bank’s Burgeoning Retail Lending Vulnerable to the Economy

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

<div><a href="https://www.smartkarma.com/entities/zomato-media-pvt" target="_blank" data-smartkarma-citation="entities:28820:1" rel="noopener">Zomato (ZOM IN)</a> raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.</div><div>We have covered various aspects of the deal in our earlier notes  </div><div><ul style="list-style-type: disc;">
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-filings-lack-narrative-a-little-bit-of-history-helps" target="_blank" rel="noopener">Zomato Pre-IPO - Filings Lack Narrative, a Little Bit of History Helps, </a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-food-delivery-revenue-was-probably-up-16x" target="_blank" rel="noopener">Zomato Pre-IPO - Food Delivery Revenue Was Probably up 16x, and</a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-pre-ipo-peer-comparison-listed-and-domestic" target="_blank" rel="noopener">Zomato Pre-IPO - Peer Comparison - Listed and Domestic</a></li>
<li><a href="https://www.smartkarma.com/insights/zomato-ipo-strong-4q21-has-a-very-long-runway" target="_blank" rel="noopener">Zomato IPO - Strong 4Q21, Has a Very Long Runway</a></li>
</ul></div><div>In this note, we will talk about the updates and the trading dynamics.</div>

Zomato (ZOM IN) raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.We have covered various aspects of the deal in our earlier notes  
Zomato Pre-IPO - Filings Lack Narrative, a Little Bit of History Helps, 
Zomato Pre-IPO - Food Delivery Revenue Was Probably up 16x, and
Zomato Pre-IPO - Peer Comparison - Listed and Domestic
Zomato IPO - Strong 4Q21, Has a Very Long Runway
In this note, we will talk about the updates and the trading dynamics.

Zomato IPO Trading - Ample Demand for Unique Exposure

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

*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?

External broker reports(aggregated public sources), SMC Global

SMC Online

External broker reports(aggregated public sources)

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non-interest income and stable cost-to-income ratio.
The core fee income of the bank has jumped 74% on low base, but the second covid wave and consequent lockdowns in various part of the country caused sharp decline in core fee income on sequential basis.
Net interest margin for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank's NIM came in this low. Total advances rose 14.4% y-o-y to Rs 11.5 lakh crore, of which retail loans were up 9.3% y-o-y to Rs 4.58 lakh crore. Similarly, commercial and rural banking loans were up 25% from a year ago to Rs 3.86 lakh crore. The bank also said wholesale loans were up 10% y-o-y to Rs 3.14 lakh crore. Total deposits of the bank grew 13.2% y-o-y to Rs 13.4 lakh crore. CASA deposits grew by 28.1% y-o-y with savings account deposits at Rs 4.2 lakh crore and current account deposits at Rs 1.85 lakh crore.
<div class="content-highlight">Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.</div>

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non-interest income and stable cost-to-income ratio.
The core fee income of the bank has jumped 74% on low base, but the second covid wave and consequent lockdowns in various part of the country caused sharp decline in core fee income on sequential basis.
Net interest margin for the bank came in at 4.1 per cent. This was only the third time since the beginning of FY17 that the bank's NIM came in this low. Total advances rose 14.4% y-o-y to Rs 11.5 lakh crore, of which retail loans were up 9.3% y-o-y to Rs 4.58 lakh crore. Similarly, commercial and rural banking loans were up 25% from a year ago to Rs 3.86 lakh crore. The bank also said wholesale loans were up 10% y-o-y to Rs 3.14 lakh crore. Total deposits of the bank grew 13.2% y-o-y to Rs 13.4 lakh crore. CASA deposits grew by 28.1% y-o-y with savings account deposits at Rs 4.2 lakh crore and current account deposits at Rs 1.85 lakh crore.
Content is external broker report sourced from online content aggregator through publicly available sources and is displayed below for general informational purposes only. Refer full disclaimer below.

HDFC Bank Q1 Net Profit up 16.1 Per Cent to Rs 7,729.64 Crore

India

HDFC Bank Ltd. offers a wide range of services to the global corporate sector. The Bank provides corporate banking and custodial services and is active in the treasury and capital markets. HDFC also markets project advisory services and capital market products such as Global Deposit Receipts, Euro currency loans, and Euro currency bonds.

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HDFC Bank (HDFCB IN)

Cause for Alarm – ICICI Bank’s Burgeoning Retail Lending Vulnerable to the Economy

It may be more prudent for ICICI Bank to curtail its asset growth, de-emphasise retail loans and focus on treasury and select corporate credit to...

Hemindra Hazari

Zomato IPO Trading - Ample Demand for Unique Exposure

Zomato (ZOM IN) raised US$1.3bn in its India IPO, making it the the largest listing in India from the technology sector.

Sumeet Singh

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

HDFC Bank Q1 Net Profit up 16.1 Per Cent to Rs 7,729.64 Crore

HDFC Bank has posted 16% growth in net profit to Rs 7729.64 crore in the quarter ended June 2021 (Q1FY2022), driven by strong growth in non...

SMC Online

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