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

<ul>
<li>ICICI reported FY 3Q22 earnings of INR 61.9 bn, increasing INR 6.8 bn (12.4%) linked quarter, driven by net interest and fee improvement and a provision cut;  </li>
<li>Net new NPLs continued to increase 11.4% on an annualized basis at FY 3Q22 versus INR 44.1 bn 43.7% at FY 3Q21; and    </li>
<li>We find that ICICI is short on reserves to the tune of INR 116 bn or just over a half year of ICICI’s core operating result. </li>
</ul>


ICICI reported FY 3Q22 earnings of INR 61.9 bn, increasing INR 6.8 bn (12.4%) linked quarter, driven by net interest and fee improvement and a provision cut;  
Net new NPLs continued to increase 11.4% on an annualized basis at FY 3Q22 versus INR 44.1 bn 43.7% at FY 3Q21; and    
We find that ICICI is short on reserves to the tune of INR 116 bn or just over a half year of ICICI’s core operating result. 


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

*Mixed Bottom-line: State Bank of India (SBIN.IN) [SBI] reported FY 2Q22 results of INR 76.3 bn, improving INR 11.2 bn (17.3%) linked quarter. In fairness, this was a strange quarter, as the provision cut of INR 98.6 bn (98.1%) was unjustified – and not aligned with reality, enabling results to appear far better than they actually were. Effectively cutting loss provisions to zero when NPL coverage is abysmal in order to offset frontloaded pension costs is far from a prudent banking practice; and*Reserve Challenge Should Lead To Capital Raise: Surprisingly, we found that net new NPLs increased just INR 41.7 bn or 10.8% on an annualized basis, which is a far cry from the INR 193.2 bn or 65.9% annualized posted at FY 4Q21. Given the capital and remaining credit challenges, SBI must be better prepared to take additional losses. By our calculation, we find that SBI’s reserves are short INR 841 tn – over two years of pre-tax results or nearly 18% of SBI’s market-cap.

*Mixed Bottom-line: State Bank of India (SBIN.IN) [SBI] reported FY 2Q22 results of INR 76.3 bn, improving INR 11.2 bn (17.3%) linked quarter. In fairness, this was a strange quarter, as the provision cut of INR 98.6 bn (98.1%) was unjustified – and not aligned with reality, enabling results to appear far better than they actually were. Effectively cutting loss provisions to zero when NPL coverage is abysmal in order to offset frontloaded pension costs is far from a prudent banking practice; and*Reserve Challenge Should Lead To Capital Raise: Surprisingly, we found that net new NPLs increased just INR 41.7 bn or 10.8% on an annualized basis, which is a far cry from the INR 193.2 bn or 65.9% annualized posted at FY 4Q21. Given the capital and remaining credit challenges, SBI must be better prepared to take additional losses. By our calculation, we find that SBI’s reserves are short INR 841 tn – over two years of pre-tax results or nearly 18% of SBI’s market-cap.

State Bank of India – Not A Prudent Move

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.

*Ignoring Credit Deterioration, Results Improve: HDFC Ltd (HDFC.IN) [HDFC] reported FY 2Q22 results of INR 37.3 bn, increasing INR 9.8 bn (35.5%) linked quarter basis. HDFC witnessed positive operating jaws; a massive linked quarter increase in dividends; robust loan growth; a drop in loss provisions; and a lower tax rate. Nothing like pulling on every earnings lever to achieve the result you want; and*Credit Quality Worsens: Given the INR 3.8 bn in net recovery during FY 2Q22, net new NPLs accelerated to INR 22.1 bn and increased 51.1% on an annualized basis. We also find that HDFC’s reserve still needs shoring up by another INR 200 bn or over a year of PBT.  

*Unnecessary Credit Leverage: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 2Q22 results of INR 20.3 bn, improving INR 3.9 bn (23.8%) linked quarter. Results were primarily driven by an INR 2.8 bn (39.8%) decline in loss provisions despite credit weakness; and*Credit Delta Less Intense, But Reserves Weak: By our calculation, we find that both net new stressed loans  amounted to an accelerating INR 5.5 bn at FY 2Q22 and aggregate an annualized growth rate of 26.1% - improving throughout the year. Given the weaker credit metrics and current weak reserve cover, we find that reserves at FY 2Q22 fall short by INR 61 bn - about three quarters of stated PBT.

*Unnecessary Credit Leverage: Kotak Mahindra Bank (KMB.IN) [KMB] reported FY 2Q22 results of INR 20.3 bn, improving INR 3.9 bn (23.8%) linked quarter. Results were primarily driven by an INR 2.8 bn (39.8%) decline in loss provisions despite credit weakness; and*Credit Delta Less Intense, But Reserves Weak: By our calculation, we find that both net new stressed loans  amounted to an accelerating INR 5.5 bn at FY 2Q22 and aggregate an annualized growth rate of 26.1% - improving throughout the year. Given the weaker credit metrics and current weak reserve cover, we find that reserves at FY 2Q22 fall short by INR 61 bn - about three quarters of stated PBT. 

Kotak Mahindra Bank – Watch Your Costs Too

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

*Credibility Gap Continues To Widen: LIC Housing Finance (LICHF.IN) [LIC] reported FY 2Q22 bottom-line results of INR 2.5 bn, increasing INR 945 mn (61.6%) linked quarter. Results were simply odd, and driven by a loss provision cut of nearly INR 2.0 bn (23.4%) whilst problem loans continued to modestly tick higher. The oddness, in our view, came from now zero NCOs during FY 2Q22; and*Lack Of Clarity On Credit Delta: Despite the lack of NCOs, net new NPLs at LIC still increased 2.4% annualized versus 190.3% at FY 1Q21. By our calculation, LIC management ought to think about adding another INR 144 bn to the reserve.

LIC Housing Finance – No NCOs Whatsoever?

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)

ICICI Bank – Continued Improvement

ICICI BANK: ICICI FY 3Q22 earnings increased 12.4% QOQ driven by net interest income and fee improvement and a provision cut. ICICI is still short...

Thomas J. Monaco

State Bank of India – Not A Prudent Move

SBI: SBI reported a QOQ FY 2Q22 results increase of 17.3%. A provision cut of 98% was unjustified, only serving to offset frontloaded pension...

Thomas J. Monaco

HDFC Ltd. – In the Land of The Blind

HDFC: HDFC reported a QOQ FY 2Q22 results increase of 35.5%, as management pulled on every earnings lever. Net new NPLs increased 51.1% annualized,...

Thomas J. Monaco

Kotak Mahindra Bank – Watch Your Costs Too

KOTAK MAHINDRA BANK: KMB reported a QOQ FY 2Q22 operating result increase of 12.1%, driven by an unnecessary 40% reduction in provisions. Stressed...

Thomas J. Monaco

LIC Housing Finance – No NCOs Whatsoever?

LIC HOUSING: LIC reported a QOQ FY 2Q22 bottom-line increase of 61.6%, driven by a loss provision cut. Oddly, LIC had zero NCOs and negative loan...

Thomas J. Monaco

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