India Financials

Saumya Agarwal

Thematic (Sector/Industry)

The Monetary Policy Committee (MPC) of the RBI, in its June meeting, has kept the policy rates unchanged and decided to continue with the accommodative monetary stance, till the time needed. It has also expanded the scope of the Resolution 2.0 framework for the MSME and individual borrowers impacted by the Covid. Both these decisions are favorable and should help mitigate the stress of the small borrowers

The Monetary Policy Committee (MPC) of the RBI, in its June meeting, has kept the policy rates unchanged and decided to continue with the accommodative monetary stance, till the time needed. It has also expanded the scope of the Resolution 2.0 framework for the MSME and individual borrowers impacted by the Covid. Both these decisions are favorable and should help mitigate the stress of the small borrowers

The RBI Radar: Soft Borrowing Costs + Widened Scope of Resolution, to Boost Recovery

Alpha-Centric ESG Research

Kyle Rudden

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in <a href="https://www.smartkarma.com/insights/bitcoin-on-balance-sheets-indirect-crypto-exposure-considerations-for-crypto-leery-esg-investors" target="_blank" data-smartkarma-citation="insights:52207" rel="noopener">Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors</a>. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates <a href="https://www.smartkarma.com/entities/bitcoin-usd" target="_blank" data-smartkarma-citation="entities:25895:1" rel="noopener">Bitcoin (XBT)</a>'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

More and more, companies are using cryptocurrency (especially Bitcoin) as part of their corporate treasury management strategies, discussed in Bitcoin on Balance Sheets: Indirect Crypto Exposure Considerations for Crypto-Leery ESG Investors. That trend is behind the topic of this report.Greater mainstream corporate and institutional use of Bitcoin is driving the growth in demand for cryptocurrency custody services, and banks around the world are rushing to fill that demand. It is a logical and relatively safe foray into the cryptocurrency space, albeit not without some risk.For ESG investors wishing to avoid direct or indirect cryptocurrency exposure, perhaps due to their views on crypto's wretched Environmental footprint, the banks herein will have significant indirect crypto exposure. However, I personally find it hard to be categorically bearish on this theme.Whilst the theme in the first Insight (holding Bitcoin on balance sheets) represents real risk, this is different. It could be argued that crypto custody perpetuates Bitcoin (XBT)'s climate impacts, thus is a bad thing. Perhaps, from a purely idealistic ESG viewpoint, that is partially true.However, the connection from custody service to carbon emissions is so far removed, and the risks associated with entering the crypto custody space are so comparatively minimal, that the opinion on this theme should be "neutral" at worst, and definitely not across-the-board "negative."But really, that is for each investor to decide, because the crypto/ESG issue is highly subjective.

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Financials Credit Analyst

Hank Calenti, CFA

CreditContinuum

Credit

Executive Summary: Two charts and two trade ideas:<ol>
<li>
<a href="https://www.smartkarma.com/entities/canara-bank" target="_blank" data-smartkarma-citation="entities:543:1" rel="noopener">Canara Bank's (CBK IN)</a> 3 7/8% coupon 2024 bond is a clear outlier relative to peer banks. The bank’s US$-debt curve may be too steep. If investors were truly concerned regarding the viability of the firm, then its credit curve would be inverted. This may represent an investment opportunity.</li>
<li>
<a href="https://www.smartkarma.com/entities/icici-bank-ltd" target="_blank" data-smartkarma-citation="entities:547:1" rel="noopener">ICICI Bank's (ICICIBC IN)</a> 2027 bond is tight to Export Import Bank of India’s theoretical 2027 note. Our preference is the 2026 maturity ICICI note.</li>
</ol>

Executive Summary: Two charts and two trade ideas:

Canara Bank's (CBK IN) 3 7/8% coupon 2024 bond is a clear outlier relative to peer banks. The bank’s US$-debt curve may be too steep. If investors were truly concerned regarding the viability of the firm, then its credit curve would be inverted. This may represent an investment opportunity.

ICICI Bank's (ICICIBC IN) 2027 bond is tight to Export Import Bank of India’s theoretical 2027 note. Our preference is the 2026 maturity ICICI note.


India-Headquartered Bank Relative Value in 2 Charts

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Executive Summary:  A slightly declining US interest rate yield curve aided in driving credit spreads tighter during the month of May while Asia’s bank credit market conditions remained largely positive, despite the recent flare-up in Covid-19 cases across the region. Global market liquidity metrics continued to push investors into risk assets and Asia’s bank debt benefitted from concerns in other parts of the market.Asia’s Tier 2 bonds slightly outperformed Additional Tier 1 (AT1) bonds during May. Both bank debt capital components generated positive total returns during the month. Given five-year effective durations, Asia's AT1 bonds have generated slightly positive total returns year-to-date while Tier 2 notes lag. As with April, Asia’s (x-Japan) US$-denominated bank bond performance diverged by duration during the month of May. Shorter-duration bonds outperformed and, for the most part, longer duration notes underperformed in Option Adjusted Spread terms.Longer duration, high BB rated bonds led spread widening over the month. These bonds were also predominantly Basel III debt capital securities. Unlike in April, there was a mixture of low and high spread bonds amongst underperformers. This suggests greater investor differentiation, via credit fundamentals, in longer duration notes.

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

A year into the pandemic, Indian Banks have emerged with better-than- expected Gross NPA levels and huge Covid buffers at end  FY21.  With India's vaccination coverage at ~200 million or ~15% of total population and a sustained decline in daily count of fresh infections, many of the uncertainties are  receding. A downward bias on credit costs is now increasingly likely, and should augur well for Banks.

A year into the pandemic, Indian Banks have emerged with better-than- expected Gross NPA levels and huge Covid buffers at end  FY21.  With India's vaccination coverage at ~200 million or ~15% of total population and a sustained decline in daily count of fresh infections, many of the uncertainties are  receding. A downward bias on credit costs is now increasingly likely, and should augur well for Banks.

Indian Banks- Downward Bias on Credit Costs, as Uncertainties Recede

India

ICICI Bank Limited operates as a bank. The Bank offers saving accounts, loans, debit, credit cards, insurance, investments, mortgages, and online banking services. ICICI Bank serves customers worldwide.

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ICICI Bank Ltd (ICICIBC IN)

The RBI Radar: Soft Borrowing Costs + Widened Scope of Resolution, to Boost Recovery

The RBI decision to continue with the accommodative monetary stance and expanding the scope of Resolution, for MSME and individual borrowers,...

Saumya Agarwal

Banks on the Bitcoin Bandwagon: Cashing in Through Crypto Custody Services

Bitcoin holdings by issuers and investors is driving crypto custody demand. Big banks are stepping. A big opportunity, but some ESG investors might...

Kyle Rudden

India-Headquartered Bank Relative Value in 2 Charts

Two charts and two relative value trade ideas. Canara Bank’s 2024 bond looks oversold while ICICI’s 2027 note looks overbought

Hank Calenti, CFA

Bank Credit Compass: Asia Tier 2 and Short Duration Notes Sit in the Sweet Spot

Asia’s Tier 2 notes slightly outperformed AT1 in May. Shorter-duration bonds outperformed although there was greater differentiation in longer...

Hank Calenti, CFA

Indian Banks- Downward Bias on Credit Costs, as Uncertainties Recede

Indian Banks have braved the first wave well and built huge Covid related provisions. With many of the uncertainties receding, there is a downward...

Saumya Agarwal

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