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

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.

*Another Awful Result: Punjab National Bank (PNB.IN) [PNB] reported FY 4Q21 net income of INR 5.9 bn, increasing INR 803 mn  (15.9%) linked quarter. Excluding the gains in the consecutive quarters, PNB’s core operating results would have been a negative INR 3.9 bn in FY 4Q21 and negative INR 7.4 bn in FY 3Q21. Not good, but operating losses did moderately decline – or did they? Bizarrely, as gross stated NPLs increased 10.5% linked quarter, PNB in its infinite wisdom decided to cut loss provisions INR 7.5 bn (13.7%) linked quarter which was substantially additive to what appears to be an overstated bottom-line; and*Accelerating Credit Risk Leads to Technical Insolvency: Inclusive of the INR 68 bn NCO, we find that PNB’s level of net new NPLs actually increased INR 167 bn or 70.7% on an annualized basis. While we have very little confidence in PNB’s reporting of problem assets at this stage, we take their word for current NPLs and find that loss reserves are now light by at minimum of INR 1.1 bn  - or approximately 124% of stated book value. This is without accounting for the delayed or backlog provisions associated fraud accounts and ageing provisions.  

* Flummoxed: A competitor hosted a virtual conference with the management of the State Bank of India (SBIN.IN) [SBI]. To say the call was a disappointment would be an understatement. Nothing meaningful was stated on credit quality, and for some reason management is “comfortable” with capital; and *Reserve Challenges Should Lead To LARGE Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap.

* Flummoxed: A competitor hosted a virtual conference with the management of the State Bank of India (SBIN.IN) [SBI]. To say the call was a disappointment would be an understatement. Nothing meaningful was stated on credit quality, and for some reason management is “comfortable” with capital; and *Reserve Challenges Should Lead To LARGE Capital Raise: Net new NPLs increased INR 193.2 bn or 65.9% on an annualized versus – accelerating over the awful FY 3Q21 result of INR 145.7 bn and 41.6%.  These figures are quite troublesome - even for an Indian SOE bank. Given the capital challenges even prior to the Yes Bank (YES.IN) risk, SBI needs to prepare for additional losses. By our calculation, we find that SBI’s reserves are short INR 1.2 tn - nearly four years of pre-tax results or 61% of market-cap. 

State Bank of India – Lights On, No One Home

*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

India

Indian Overseas Bank is a major public sector bank that provides a comprehensive range of banking products and services, including various deposit accounts, loan products like home, vehicle, and agricultural loans, as well as debit and credit cards, and internet and mobile banking. It also offers NRI accounts, mutual funds, insurance products, and merchant banking services. The bank was founded in 1937 and is headquartered in Chennai, India.

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Indian Overseas Bank (IOB IN)

Punjab National Bank – Cipher

PUNJAB NATIONAL BANK: PNB's operating results were a negative INR 3.9 bn in FY 4Q21. Bizarrely, as gross stated NPLs increased 10.5% linked...

Thomas J. Monaco

State Bank of India – Lights On, No One Home

STATE BANK OF INDIA: A competitor hosted a disappointing call with management. By our calculation, we find that SBI’s reserves are short INR 1.2 tn...

Thomas J. Monaco

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

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