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

*Are We Even Looking At The Same Bank As Management: A competitor hosted a recent conference call with the CFO of HDFC Bank (HDFCB.IN) [HDFCB] to give a post-quarter update. On the conference call, however, management instead decided to focus on numerous items not having to do with credit, the elephant in the room. HDFCB management has more than a tendency to put a completely unwarranted positive spin on nearly every aspect of its business  -  completely ignoring the medium-term challenges; and*Watch Your Credit: We calculate that net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which is quite worrisome – especially considering the challenges at HDFCB’s NBFC subsidiary, HDB Financial Services.  By our calculation, loss reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results.

*Are We Even Looking At The Same Bank As Management: A competitor hosted a recent conference call with the CFO of HDFC Bank (HDFCB.IN) [HDFCB] to give a post-quarter update. On the conference call, however, management instead decided to focus on numerous items not having to do with credit, the elephant in the room. HDFCB management has more than a tendency to put a completely unwarranted positive spin on nearly every aspect of its business  -  completely ignoring the medium-term challenges; and*Watch Your Credit: We calculate that net new NPLs actually increased INR 49.2 bn or 130.4% on an annualized basis which is quite worrisome – especially considering the challenges at HDFCB’s NBFC subsidiary, HDB Financial Services.  By our calculation, loss reserves are currently short by nearly INR 242 bn or nearly a half year of core operating results.

*Poor Result: Bank of Baroda (BOB.IN) [BOB] reported a FY 4Q21 loss of INR 10.5 bn, quite a reversal of fortune from the gains of INR 10.6 bn in FY 3Q21. Several factors drove BOB’s poor performance: a) net interest income declined INR 3.7 bn (5.0%) linked quarter driven by NIM expansion of 5 bp to 2.72% while the loan book only grew 0.2%; b) a loss provision increase of INR 1.5 bn (4.4%) despite further weakness in lending; an operating expense increase of INR 3.9 bn (7.3%) driven primarily by other costs which increased INR 3.1 bn (13.8%) – pushing BOB’s C/I ratio 3.2% higher to 63.2%; and the write-down of INR 33.1 bn in un-utilized DTAs; and*Poor Reserve Cover: Further, net new NPLs remain elevated at INR 13.5 bn or 11.2% annualized. Keep in mind, a bank with over 8% of NPLs is typically considered an insolvent institution. By our calculation, however, BOB’s reserves still remain light by INR 293 bn or nearly 12 quarters of pre-tax earnings.

*Poor Result: Bank of Baroda (BOB.IN) [BOB] reported a FY 4Q21 loss of INR 10.5 bn, quite a reversal of fortune from the gains of INR 10.6 bn in FY 3Q21. Several factors drove BOB’s poor performance: a) net interest income declined INR 3.7 bn (5.0%) linked quarter driven by NIM expansion of 5 bp to 2.72% while the loan book only grew 0.2%; b) a loss provision increase of INR 1.5 bn (4.4%) despite further weakness in lending; an operating expense increase of INR 3.9 bn (7.3%) driven primarily by other costs which increased INR 3.1 bn (13.8%) – pushing BOB’s C/I ratio 3.2% higher to 63.2%; and the write-down of INR 33.1 bn in un-utilized DTAs; and*Poor Reserve Cover: Further, net new NPLs remain elevated at INR 13.5 bn or 11.2% annualized. Keep in mind, a bank with over 8% of NPLs is typically considered an insolvent institution. By our calculation, however, BOB’s reserves still remain light by INR 293 bn or nearly 12 quarters of pre-tax earnings.

Bank of Baroda – No Light In This Tunnel

*Bad News On The Doorstep: IndiaBulls Housing Finance (IHFL.IN) [IndiaBulls] reported FY 4Q21 results of INR 2.8 bn, declining INR 531 mn (16.1%) linked quarter. The linked quarter weakness can be attributed to both: a) net interest income decline of INR 804 mn (10.5%) tracking a decline in both loans of 6.8% and NIM compression of 59 bp to 2.94%; and b) loss provision increase of INR 1.7 bn (120.9%); and   *Wrong Turn: Net new NPLs had increased INR 8.0 bn for the quarter for an annualized rate of increase of 159.3% - a complete about face from FY 3Q21’s decline of 11.3%. Reserves ae now frighteningly low, and we would suggest INR 30.2 bn or 9x stated PBT.

*Bad News On The Doorstep: IndiaBulls Housing Finance (IHFL.IN) [IndiaBulls] reported FY 4Q21 results of INR 2.8 bn, declining INR 531 mn (16.1%) linked quarter. The linked quarter weakness can be attributed to both: a) net interest income decline of INR 804 mn (10.5%) tracking a decline in both loans of 6.8% and NIM compression of 59 bp to 2.94%; and b) loss provision increase of INR 1.7 bn (120.9%); and   *Wrong Turn: Net new NPLs had increased INR 8.0 bn for the quarter for an annualized rate of increase of 159.3% - a complete about face from FY 3Q21’s decline of 11.3%. Reserves ae now frighteningly low, and we would suggest INR 30.2 bn or 9x stated PBT. 

IndiaBulls Housing Finance – A Turn For The Worse

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

*Results Highly Reliant On Gains: Canara Bank (CBK.IN) [Canara] reported bottom-line results of INR 10.1 bn for FY 4Q21, improving INR 6.0 bn (85.5%) linked quarter. Results were driven one factor alone: am INR 9.3 bn (21.8%) increase in various sundry gains - securities, F/X, et al. As awe calculate, these various low quality items and gains amounted to INR 48.9 bn during FY 4Q21 or nearly 5x Canara’s stated bottom-line result; and  * Credit Leads To Solvency Concerns: Given the INR 27.3 bn in NCO, we calculate that annualized net new NPLs amount to 21.7%. We remain highly concerned about Canara’s credit outlook, given the concentrations of SMA loans, ‘BBB’ and below corporate, and MSME loans; and poor collection efficiency.  By our calculation, Canara’s loan loss reserve falls short by INR 674.0 bn or by 180.2% - representing 115% of Canara’s equity base and implying a lack of solvency.

Canara Bank – India’s Trash Compactor

*Another Unwarranted Provision Reduction: Federal Bank’s (FB.IN) results were likely managed, as it posted FY 4Q21 bottom-line result of INR 4.8 bn – improving INR 737 mn (18.2%) linked quarter. One factor, which was simply ridiculous, given the state of Federal Bank’s balance sheet, drove the improvement – aggressively cutting loss provisions again; and*Reserve Cover Is Shallow: Net new problem loans increased INR 8.4 bn or 78.4% on an annualized basis – dangerously accelerating over FY 3Q21. We remain discouraged that management hasn’t taken the opportunity to more aggressively address the risk sitting pon balance sheet. In fact, we find that reserve cover is increasingly light by close to INR 84.5 bn (versus being short INR 50.0 bn just a quarter ago) – nearly 20 years of core operating performance.

*Another Unwarranted Provision Reduction: Federal Bank’s (FB.IN) results were likely managed, as it posted FY 4Q21 bottom-line result of INR 4.8 bn – improving INR 737 mn (18.2%) linked quarter. One factor, which was simply ridiculous, given the state of Federal Bank’s balance sheet, drove the improvement – aggressively cutting loss provisions again; and*Reserve Cover Is Shallow: Net new problem loans increased INR 8.4 bn or 78.4% on an annualized basis – dangerously accelerating over FY 3Q21. We remain discouraged that management hasn’t taken the opportunity to more aggressively address the risk sitting pon balance sheet. In fact, we find that reserve cover is increasingly light by close to INR 84.5 bn (versus being short INR 50.0 bn just a quarter ago) – nearly 20 years of core operating performance.    

Federal Bank – A Five Year Hole Has Developed

India

Indian Overseas Bank operates some 1,429 banking branches in India, as well as six branches in overseas locations.  The Group's banks provide loan and deposit schemes, Internet banking, and a full range of banking services.

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Indian Overseas Bank (IOB IN)

HDFC Bank – Rose Colored Glasses

HDFC BANK: A competitor hosted a recent conference call with HDFCB. It chose to focus on numerous items not having to do with credit. The longer...

Thomas J. Monaco

Bank of Baroda – No Light In This Tunnel

BANK OF BARODA: BOB reported a FY 4Q21 loss of INR 10.5 bn. Net new NPLs remain elevated at 11.2% annualized. BOB’s reserves still remain light by...

Thomas J. Monaco

IndiaBulls Housing Finance – A Turn For The Worse

INDIABULLS HOUSING FINANCE: IndiaBulls reported a QOQ FY 4Q21 results decline of 16.1% due to a net interest income decline and loss provision...

Thomas J. Monaco

Canara Bank – India’s Trash Compactor

CANARA BANK: Canara reported QOQ bottom-line improvement of 85.5%, reliant on gains. Net new NPLs amount to 21.7%, but its reserve shortfall...

Thomas J. Monaco

Federal Bank – A Five Year Hole Has Developed

FEDERAL BANK: FB's FY 4Q21 bottom-line QOQ result improved 18.2% due to an unwarranted provision cut. Net new NPLs accelerated 78.4% QOQ, while ...

Thomas J. Monaco

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