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

SBI (State Bank of India) / Equity Bottom-Up

*Results Supported By Premature Provision Cut: State Bank of India (SBIN.IN) [SBI] reported FY 2Q21 results of INR 45.7 bn, increasing INR 3.8 bn (9.2%) linked quarter. Results were even better when we exclude the FY 1Q21 exceptional gain of INR 15.4 bn – increasing INR 19.2 bn or 72.6% linked quarter. Results were driven by three factors: a) net interest income improvement of INR 15.4 bn (5.8%) due primarily to NIM improvement of 8 bp to 2.96%; b) a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics; and c) non-interest income improvement of INR 5.7 bn (7.2%); and* Credit Risk and Weak Cover: By our calculation, we find net new NPL growth of INR 144.0 bn or 44.4% on an annualized basis and that the annualized NCO rate of 66 bp – which are quite troublesome even for an SOE bank. We also find that reserves are light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap.

*Results Supported By Premature Provision Cut: State Bank of India (SBIN.IN) [SBI] reported FY 2Q21 results of INR 45.7 bn, increasing INR 3.8 bn (9.2%) linked quarter. Results were even better when we exclude the FY 1Q21 exceptional gain of INR 15.4 bn – increasing INR 19.2 bn or 72.6% linked quarter. Results were driven by three factors: a) net interest income improvement of INR 15.4 bn (5.8%) due primarily to NIM improvement of 8 bp to 2.96%; b) a loan loss provision decline of INR 18.1 bn (16.0%) despite much weaker credit metrics; and c) non-interest income improvement of INR 5.7 bn (7.2%); and* Credit Risk and Weak Cover: By our calculation, we find net new NPL growth of INR 144.0 bn or 44.4% on an annualized basis and that the annualized NCO rate of 66 bp – which are quite troublesome even for an SOE bank. We also find that reserves are light in the neighborbood of INR 1.1 tn  - nearly four years of pre-tax results or 61% of market-cap. 

State Bank of India – Credit Continues To Fall Off A Cliff

*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.

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.

Thematic (Sector/Industry)

There have been several false starts. There were times when many presumed the bad loan cycle was about to end. It could have been with the PSU bank recap plan. It could have been with a new government budget. It could have been with new guidelines on stressed assets. But the reality is that without fundamental relief to debtors, without improving economic growth,  credit metrics should continue to deteriorate. Now at 3Q20 it is once again clear, that there is as yet, no relief in sight.

There have been several false starts. There were times when many presumed the bad loan cycle was about to end. It could have been with the PSU bank recap plan. It could have been with a new government budget. It could have been with new guidelines on stressed assets. But the reality is that without fundamental relief to debtors, without improving economic growth,  credit metrics should continue to deteriorate. Now at 3Q20 it is once again clear, that there is as yet, no relief in sight.

Specialist in Indian Banking and Economic Research

Hemindra Hazari

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the capital market.  The cause for concern is the BJP’s promise to the UP electorate to waive off all farm loans and provide fresh loans at zero per cent interest. Media, capital market analysts and prominent bankers have jumped on the bandwagon of moral hazard, ruining the loan payment discipline amongst farmers and apprehensions that the sacrosanct fiscal deficit may be breached as a consequence of such ‘populist’ policies. The BJP electoral promise raises some issues which need to be explored further on whether the central government has the fiscal space to provide for a total farm waiver and whether the criticism of moral hazard is credible.

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the capital market.  The cause for concern is the BJP’s promise to the UP electorate to waive off all farm loans and provide fresh loans at zero per cent interest. Media, capital market analysts and prominent bankers have jumped on the bandwagon of moral hazard, ruining the loan payment discipline amongst farmers and apprehensions that the sacrosanct fiscal deficit may be breached as a consequence of such ‘populist’ policies. The BJP electoral promise raises some issues which need to be explored further on whether the central government has the fiscal space to provide for a total farm waiver and whether the criticism of moral hazard is credible.

U.P. Loan Waiver: 'Populist' or a Necessity?

The collapse of lending in India remains well in place in January where annual growth is running at an anemic 3.3%. This is the same as in December last year, and lower than in November. To us, it does not feel like India is anywhere near a post-demonetization boom in credit, as some are expecting. The reality is that companies will see more stress, economic growth will worsen, and banks will face greater NPLs. India – Credit growth (% ch YoY)<figure class="editor-figure mceNonEditable"><img src="https://static-prod.smartkarma.com/images/media/000/022/174/original/daniel%201.png?1488984550" class="editor-image img-responsive" data-smartkarma-image-id="22174"></figure><div class="content-caption">Source: CEIC</div>What may be more of a surprise is that…

The collapse of lending in India remains well in place in January where annual growth is running at an anemic 3.3%. This is the same as in December last year, and lower than in November. To us, it does not feel like India is anywhere near a post-demonetization boom in credit, as some are expecting. The reality is that companies will see more stress, economic growth will worsen, and banks will face greater NPLs. India – Credit growth (% ch YoY)Source: CEICWhat may be more of a surprise is that…

India's Lending Is Still Painfully Low in January

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)

State Bank of India – Credit Continues To Fall Off A Cliff

STATE BANK OF INDIA: Costs Increasing, Credit Deteriorating, Reserve Cover Declining. This Is A Recipe For A Massive Capital Raise.

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

India Banks – No End in Sight

There have been several false starts. There were times when many presumed the bad loan cycle was about to end. It could have been with the PSU bank...

Daniel Tabbush

U.P. Loan Waiver: 'Populist' or a Necessity?

Post the Bharatiya Janata Party’s (BJP) decisive victory in the Uttar Pradesh (UP) state elections, alarm bells have commenced tolling in the...

Hemindra Hazari

India's Lending Is Still Painfully Low in January

The collapse of lending in India remains well in place in January where annual growth is running at an anemic 3.3%. This is the same as in December...

Daniel Tabbush

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