Specialist in Indian Banking and Economic Research

Hemindra Hazari

Rising net deferred tax assets (DTA) in a scenario of stagnant and depressed net profits is not a healthy sign as current years’ net profits get enhanced while sometime in the future the net DTA will get reversed impacting future net earnings. This trend is visible in Axis Bank and ICICI Bank and investors must exercise caution in interpreting financial statements on the future trajectory of earnings.Deferred tax assets and deferred tax liabilities are created on account of the difference…

Rising net deferred tax assets (DTA) in a scenario of stagnant and depressed net profits is not a healthy sign as current years’ net profits get enhanced while sometime in the future the net DTA will get reversed impacting future net earnings. This trend is visible in Axis Bank and ICICI Bank and investors must exercise caution in interpreting financial statements on the future trajectory of earnings.Deferred tax assets and deferred tax liabilities are created on account of the difference…

Rising Deferred Tax Asset - Not a Healthy Sign

Credibility issues have plagued Yes Bank’s asset quality disclosures in the earlier (year ending March 31, 2016) annual report, added to these concerns is a top heavy organisational structure with significant expansions and contractions in the “top management” category in the last 2 years without any explanation in the annual report. Contradictory data on its human capital have been presented in the bank’s latest (year ending March 31, 2017) annual report which raises more questions about the veracity of the data, the management presents to its stakeholders. Investors, therefore, have to exercise caution when analysing data in Yes Bank’s annual reports.

Credibility issues have plagued Yes Bank’s asset quality disclosures in the earlier (year ending March 31, 2016) annual report, added to these concerns is a top heavy organisational structure with significant expansions and contractions in the “top management” category in the last 2 years without any explanation in the annual report. Contradictory data on its human capital have been presented in the bank’s latest (year ending March 31, 2017) annual report which raises more questions about the veracity of the data, the management presents to its stakeholders. Investors, therefore, have to exercise caution when analysing data in Yes Bank’s annual reports.

Yes Bank - Top Heavy Swings in Organisational Structure

IndusInd Bank’s quarter ended March 31, 2017 (4QFY2017) was impacted by a “one-off” exposure to a company whose cement operations is in the process of being acquired by a top-rated company. While sell-side analysts regard it as a blip in the secular positive outlook on the bank, they are failing to appreciate that such a transaction is a reflection on the bank’s corporate credit underwriting and risk management. The obsession to report higher fees to command premium stock market valuation may be compelling banks to undertake such transactions which prudent banks may not consider. IndusInd Bank’s premium valuation currently reflects its superior asset quality and earnings growth but in the light of this disclosure, investors may need to reexamine the bank’s risk appetite.

IndusInd Bank’s quarter ended March 31, 2017 (4QFY2017) was impacted by a “one-off” exposure to a company whose cement operations is in the process of being acquired by a top-rated company. While sell-side analysts regard it as a blip in the secular positive outlook on the bank, they are failing to appreciate that such a transaction is a reflection on the bank’s corporate credit underwriting and risk management. The obsession to report higher fees to command premium stock market valuation may be compelling banks to undertake such transactions which prudent banks may not consider. IndusInd Bank’s premium valuation currently reflects its superior asset quality and earnings growth but in the light of this disclosure, investors may need to reexamine the bank’s risk appetite.

IndusInd Bank - Is the One-Off Exposure a Reflection of Its Risk Managment?

Research and consultancy, Tabbush Report

Daniel Tabbush

Research and consultancy

Tabbush Report

We provide research and consultancy on Asian banks. Our focus is on what we call “Asian bank research, without the noise.” We are interested in the most critical swing-factors for banks, the NPL and credit cycle, and where we believe there is a gap between perception and reality. We often focus on the less studied components of bank financial statements.  Our research is highly thematic, sometimes examining unlisted banks and companies as a window on mainstream banks. 

Being independent allows us to look at smaller banks, often overlooked by others. Analysis of BIS bank guidelines in the context of Asia, is also a focal point, while we also analyze global banks operating in the region. We use what we believe is the most comprehensive, reliable financials database, SNL Financial. S&P Capital IQ augments our database, with corporate data and CEIC, with economics. 

Asian bank research, without the noise.

Equity Bottom-Up

While the market may have liked the HDFC Bank numbers, to us the figures show that there is indeed inherent weakness coming through. The third largest bank in India just reported staggering growth in its total impairment costs. While net profit numbers were only slightly dented by the surge in impairment costs, there are increasingly signs that this overly-adored-bank may not be super-bank at all.HDFC Bank – Unconsolidated total impairment costs (INRm)<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/024/781/original/daniel%20tab1.png?1492948217" class="editor-image img-responsive" data-smartkarma-image-id="24781"></figure><div class="content-caption">Source: SNL Financial</div>HDFC Bank saw its total…

While the market may have liked the HDFC Bank numbers, to us the figures show that there is indeed inherent weakness coming through. The third largest bank in India just reported staggering growth in its total impairment costs. While net profit numbers were only slightly dented by the surge in impairment costs, there are increasingly signs that this overly-adored-bank may not be super-bank at all.HDFC Bank – Unconsolidated total impairment costs (INRm)Source: SNL FinancialHDFC Bank saw its total…

Thematic (Sector/Industry)

The Reserve Bank of India (RBI) just announced that banks will need to take higher provisions than the prescribed rates. Perhaps it would be easier just to raise the prescribed rates, but in any case, the concern is clear: provisions are inadequate; many companies are weak; credit risk is higher than expected. Specifically, the RBI circular advises banks to raise provisions for loans in stressed sectors. Interestingly, the RBI is now requiring this to be formally reviewed quarterly by banks, and…

The Reserve Bank of India (RBI) just announced that banks will need to take higher provisions than the prescribed rates. Perhaps it would be easier just to raise the prescribed rates, but in any case, the concern is clear: provisions are inadequate; many companies are weak; credit risk is higher than expected. Specifically, the RBI circular advises banks to raise provisions for loans in stressed sectors. Interestingly, the RBI is now requiring this to be formally reviewed quarterly by banks, and…

India's Banks to Raise Provision Expenses – Mandated

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)

Rising Deferred Tax Asset - Not a Healthy Sign

Rising net deferred tax assets (DTA) in a scenario of stagnant and depressed net profits is not a healthy sign as current years’ net profits get...

Hemindra Hazari

Yes Bank - Top Heavy Swings in Organisational Structure

Credibility issues have plagued Yes Bank’s asset quality disclosures in the earlier (year ending March 31, 2016) annual report, added to these...

Hemindra Hazari

IndusInd Bank - Is the One-Off Exposure a Reflection of Its Risk Managment?

IndusInd Bank’s quarter ended March 31, 2017 (4QFY2017) was impacted by a “one-off” exposure to a company whose cement operations is in the process...

Hemindra Hazari

HDFC Bank: 138% Higher Provision Costs

While the market may have liked the HDFC Bank numbers, to us the figures show that there is indeed inherent weakness coming through. The third...

Daniel Tabbush

India's Banks to Raise Provision Expenses – Mandated

The Reserve Bank of India (RBI) just announced that banks will need to take higher provisions than the prescribed rates. Perhaps it would be easier...

Daniel Tabbush

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