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)

India was in a banking crisis before 2020 and the impact of the current crisis is far worse than in most other countries. Quarterly data of banks reveals dramatic deterioration in credit metrics during March 2021.

India was in a banking crisis before 2020 and the impact of the current crisis is far worse than in most other countries. Quarterly data of banks reveals dramatic deterioration in credit metrics during March 2021. 

Specialist in Indian Banking and Economic Research

Hemindra Hazari

The Reserve Bank of India (RBI)’s decision to grant a 1-year <a href="https://ir.rblbank.com/pdfs/regulatory/ReappointmentofMDCEOMrVishwavirAhujaFinal2021.pdf" target="_blank" rel="noopener">extension</a> to  Vishwavir Ahuja, Chief Executive Officer (CEO), <a href="https://www.smartkarma.com/entities/rbl-bank-ltd" target="_blank" data-smartkarma-citation="entities:22856:1" rel="noopener">RBL Bank Ltd (RBK IN)</a> is similar to the 1-year extensions it provided to <a href="https://www.dcbbank.com/pdfs/BSENSEReAppointmentOfMDANDCEOApril2021.pdf" target="_blank" rel="noopener">Murali Natarajan</a>, CEO, <a href="https://www.smartkarma.com/entities/dcb-bank-ltd" target="_blank" data-smartkarma-citation="entities:1557:1" rel="noopener">Dcb Bank Ltd (DCBB IN)</a> and <a href="https://www.bseindia.com/xml-data/corpfiling/AttachHis/d8768272-3bd1-4d07-808b-43b725fcdc69.pdf" target="_blank" rel="noopener">Shyam Srinivasan</a>, CEO <a href="https://www.smartkarma.com/entities/federal-bank-ltd" target="_blank" data-smartkarma-citation="entities:11784:1" rel="noopener">Federal Bank (FB IN)</a>. In recent times, Udak Kotak, CEO-founder, <a href="https://www.smartkarma.com/entities/kotak-mahindra-bank-ltd" target="_blank" data-smartkarma-citation="entities:126:1" rel="noopener">Kotak Mahindra Bank (KMB IN)</a>(KMB) enjoys the unique distinction of getting a <a href="https://www.bseindia.com/xml-data/corpfiling/AttachLive/d5faa2b3-1886-42a9-af9d-960ff207a4ce.pdf" target="_blank" rel="noopener">3-year</a>  extension by the regulator, despite having been a CEO for over 15 years, contradicting RBI’s <a href="https://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=12078&amp;Mode=0" target="_blank" rel="noopener">policy</a>  regarding the maximum tenure for bank CEOs.There are three issues raised by RBI’s conduct. Firstly, the decision to favour Uday Kotak and KMB is plainly <a href="https://thewire.in/banking/uday-kotak-ceo-kotak-mahindra-bank-rbi" target="_blank" rel="noopener">partisan</a>, undermining the credibility of the banking regulator. Secondly, by granting three private bank CEOs only a 1-year extension, is the regulator indicating to the banks its displeasure with the existing CEOs and the need to find a replacement in the course of the year? Although the RBI granted Shyam Srinivasan a second 1-year extension last year, the Federal Bank board of directors has <a href="https://economictimes.indiatimes.com/industry/banking/finance/federal-bank-board-seeks-another-3-year-term-for-ceo/articleshow/81639243.cms?from=mdr" target="_blank" rel="noopener">sought</a>  a 3-year extension when his term ends on September 29, 2021, indicating that the bank has chosen not to read the regulator’s tea leaves – or that the RBI did not give any such indication to the bank to look for a successor. If the RBI were to approve a further term to Shyam Srinivasan, it would raise questions about the regulator’s competence; what was the justification for repeated 1-year extensions? Thirdly, RBI’s policy of renewing CEOs with 1-year tenures unnecessarily introduces uncertainty in a bank’s future strategy: the existing CEO and the bank can plan for only one year, as the RBI may insist on a replacement at the end of the year.   Such short-term planning, especially in the current environment of economic stress, can be disruptive to the bank and its stakeholders, and it is unfortunate that it is being caused by the regulator’s decision to approve only 1-year extensions, without any explanation to the public.The capital market plays an important role for private banks, and the regulator must either be more transparent in explaining its decisions or it should reconsider its policy of granting 1-year extensions even when the candidates are conforming to the regulator’s norms of age and tenure for the CEOs. It is tragic that the RBI’s credibility as an impartial regulator has reached a nadir. Latest developments -- the favoured treatment it has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only  one year -- take its credibility even lower.

The Reserve Bank of India (RBI)’s decision to grant a 1-year extension to  Vishwavir Ahuja, Chief Executive Officer (CEO), RBL Bank Ltd (RBK IN) is similar to the 1-year extensions it provided to Murali Natarajan, CEO, Dcb Bank Ltd (DCBB IN) and Shyam Srinivasan, CEO Federal Bank (FB IN). In recent times, Udak Kotak, CEO-founder, Kotak Mahindra Bank (KMB IN)(KMB) enjoys the unique distinction of getting a 3-year  extension by the regulator, despite having been a CEO for over 15 years, contradicting RBI’s policy  regarding the maximum tenure for bank CEOs.There are three issues raised by RBI’s conduct. Firstly, the decision to favour Uday Kotak and KMB is plainly partisan, undermining the credibility of the banking regulator. Secondly, by granting three private bank CEOs only a 1-year extension, is the regulator indicating to the banks its displeasure with the existing CEOs and the need to find a replacement in the course of the year? Although the RBI granted Shyam Srinivasan a second 1-year extension last year, the Federal Bank board of directors has sought  a 3-year extension when his term ends on September 29, 2021, indicating that the bank has chosen not to read the regulator’s tea leaves – or that the RBI did not give any such indication to the bank to look for a successor. If the RBI were to approve a further term to Shyam Srinivasan, it would raise questions about the regulator’s competence; what was the justification for repeated 1-year extensions? Thirdly, RBI’s policy of renewing CEOs with 1-year tenures unnecessarily introduces uncertainty in a bank’s future strategy: the existing CEO and the bank can plan for only one year, as the RBI may insist on a replacement at the end of the year.   Such short-term planning, especially in the current environment of economic stress, can be disruptive to the bank and its stakeholders, and it is unfortunate that it is being caused by the regulator’s decision to approve only 1-year extensions, without any explanation to the public.The capital market plays an important role for private banks, and the regulator must either be more transparent in explaining its decisions or it should reconsider its policy of granting 1-year extensions even when the candidates are conforming to the regulator’s norms of age and tenure for the CEOs. It is tragic that the RBI’s credibility as an impartial regulator has reached a nadir. Latest developments -- the favoured treatment it has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only  one year -- take its credibility even lower.

RBI’s 1-Year Extensions to Bank CEOs: Creating Uncertainty and Short-Termism

India Financials

Saumya Agarwal

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

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

India

Kotak Mahindra Bank Limited is a full service commercial bank. The Bank offers a wide range of products and services such as personal, commercial, and corporate banking services, including deposit accounts, loans, and investments. Kotak Mahindra Bank serves customers in India.

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Kotak Mahindra Bank (KMB IN)

India Banks – Still In Crisis?

India was in a banking crisis before 2020 and the current crisis is worse than in many other countries. Unlike most regions, India latest quarterly...

Daniel Tabbush

RBI’s 1-Year Extensions to Bank CEOs: Creating Uncertainty and Short-Termism

The favoured treatment RBI has meted to Uday Kotak, and its inability to comprehend the significance of its decision to renew CEO tenures for only ...

Hemindra Hazari

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

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

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