India Morning Report: A tough hand dealt in the Financial Stability Report

Loan (Photo credit: LendingMemo)

The Interconnectedness of the Indian Banking system, might have become prioritised for a global caveat emptor learnt but the Indian system has much more downside from our desi PSU style profligacy in SME lending as haircuts on even 50% of that stressed portfolio would take the government out for a long walk in the woods. Delving a little more indepth into our favorite subject, most of the stressed portfolios in India Inc’s first stress tests were found to be in Infra, Mining and Cap goods sectors or our core Infrastructure series components and those would anyway need to be treated differently than Ordinary term loans . Such loans constitue 54% of the Stressed assets identified in the FSR.

However as the Financial Stability Report remarks, there is a fundamental risk to about 60% of the credit stock in the Banking system collapsing banks even as they have primarily not created a laconic lee side for the Ghat monsoons in interbank lending primarily one supposes thru traded CDLOs and real lending on larger accounts  than derivatives without a defined underlying as in the global case. The risk as highlighted in the FSR come from defaults in lending portfolios of Banks skewed to single corporates apparently among other details one has to study from the disregard of concentration risk by lenders with the 20% to single corporate and 25% i think for group key limits to be tightened and enforced duly.

India on the other hand has to grow the Securitisation pie  from here and where the Central Bank would be trying to control INR 1.7 Tln in repayments due till 2017-18 from the next fiscal onwards (FY15->2014-15) , India would indeed face an uphill task the markets would do well to ensure they have factored in. HDFC Bank too never got that approval for added FII investments even as Axis Bank application was cleared last week(to 62%).

Back to the mundane diary of the Indian markets for the day, Markets trade leaving the upside intact as shallow trades characterise the last trading session to 2014, much like last week’s record low of INR 740 Bln in the full day of equities and derivatives trading on the NSE and BSE and Cash volumes are likely to stay below INR 30 Bln (the last week low was INR 50 Bln) probably. US and European Markets are closed on New Years Day including Fixed income markets (at least in the USA) The other thing to highlight from the watchful Fiscal Stability Report is RBI’s worries on the Growth – Inflation dynamics not working out as WPI continues above 7%  which we led with sometime in November.

Net foreign inflows continue to sweeten the deal for India inc into 2014 with a 1.5% CAD (FSR score 1.7% and a FY14 achievement score target of under 3%) and the Fisc even if the virtual spending shutdown (as in the last 4 years) from January will soon find another yawning gap even if FY 2014 indeed perks up reasonably. Hopes of a stable post election scenario have almost been crossed out in case you did not notice in the New Year’s eve  celebrations and the infra pack, high on investment hopes and leadership from IDFC, and a deleveraging trio incl GMR Infra and JP Associates with the Relinfra people facing their first AAM Party audit

Apparently new year’s eve also sees an uptick in Tata Power and Reliance , which one doubts will last esp as Tata Motors is receiving its recognition only for its minute share of the TESCO-Trent JV like in fact here was such when Starbucks burst onto the subcontinent scene. The Starbucks venture is well-defined however, and the ware tastes well, drawing in big crowds in now 3(Three) cities in India

Redesigned logo used from 2011-present.
Redesigned logo used from 2011-present. (Photo credit: Wikipedia)

What probably did not get highlighted but was tried earlier by RBI, also needs to be monitored for results as Foreign Banks continue to skirt the Living Wills issues at Global HQ and continue to rethink their strategy with regard to entering India. Apparently Gross NPAs will start trickling down as we long suggested but Fitch and a few others are still hoping the PSU disaster will play out to bigger stakes and at a faster rate to make a return virtually impossible ( especially if larger Government injections are requird to keep them floating – KV Kamath). However, I would just depend on the investment recovery and the credit growth performance by Private Banks and probably PNB as Deposits finally outpace credit in the last bi monthly reports on the Banking sector in Calendar 2013 and the ICDR hopefully comes back to respectable levels without Banks having to constrain such new lending in India’s recovery phase

Also don’t take me to be a cynic but Torrent and Lupin’s timed leaks about Pharma’s assault on a generic version opportunity for Cymbalta may be better timed but is still probably a few months away from translating into Dollars and one fervently hope ( and cannot claim to otherwise yet concretise) that the generic provides an opportunity to us more than the cookie cutter $200-500 mln with or without first mover advantage.

India Bank Earnings: A 20% rise in revenues for ICICI Bank, Asset quality upside not enough (Q2: FY2014)

English: Mukesh Ambani's house "Antilia&q...
English: Mukesh Ambani’s house “Antilia” in Mumbai. Deutsch: Antilia – das Haus des indischen Milliardärs Mukesh Ambani in Mumbai, Indien (Photo credit: Wikipedia)

ICICI Bank which has continued on a lower margin growth in retail to gain just 20% topline growth will still be growing at more than 20% a year. Net Profits also grew to scale as Domestic NIMs were a tremendous 3.65% and the International Book started growing again. India’s largest Private Bank in true banking paradigms neither government owned nor still counting down to respectable CASA despite having started as a division of a Project Finance Firm, it has beaten competition from HDFC Bank in many categories except in true reach and has a real corporate book and fails in comparison with HDFC Bank’s large retail share. It’s book is predominantly mortgages in retail and its lending practices imply a bigger concern on asset quality n that portfolio as well.

Investments are more than a quarter of the Gross Interest earned after the likely HTM transfers and booked losses and  with International ‘cash’ also being put to use. Fee Income was up 20% sequentially to INR 24 Bln and 15% up on half year over FY13 as the bank seemingly wins the war for customer yield while rearing up growth, a quick way to kill criticism of its retail lending practices that will sooner than later rear up but without a margin squeeze , does not get into ‘crisis mode’ again

Net was iNR 23.5 Bln and retail credit grew at 22% with the Corporate Book also growing at above 15%. September Banks’ non food credit has grown to 18% above the 13% rate most of FY13 and will this be a good momentum for the Bank’s continuing growth. ICICI’s under 20k ATMs (19500) are same as HDFC Bank and in almost unreachable urban areas across the spectrum of SEC income classes and provides a substantial part of its retail lending book in unsecured loans , a practice missing in private Sector Indian banks. Organic portfolio grew at 27% but the need to purchase retail portfolios is only going to grow. The bank will also need to scale up outside townships as one of the two active private sector players needed to contibute to rural reach as India battles a large more than 50% nbanked population and a changing welfare regime

It suffers from a just short of INR 100 Bln in restructured assets (including current disclosed pipeline ) by FY15 and will be a significant 3-4% of the Advances and will mostly be seen as heading to NPA than to normal assets after the two years except for one or two cases that will go back after the currency stabilises, the business model still safe

The ratio of Gross NPAs though down is another mind furrowing and disturbing biggie at over 3% and NPAs wmore than twice of rival HDFC Bank ut comfortably under 1%.  The banks’ leading growth as a multiple of GDP and thus growing at more than 15%, ICICI Bank’s  Loan growth will remain close to 20% for the growth cycle as Taper is postponed and India tries to regain a better growth clip

Lifestyle Champ ITC , here or there?

ITC improved EBITDA margins to 40% in the meantime on price realisations in Tobacco even as profits from Hotels halved and FMCG returned to successive second quarter of losses ( of INR 120 mln). Net Sales were INR 77 Bln , 33 Bln from cigarettes and INR 26 Bln from consumer staples

RIL loses buyback steam

What will also reach India Morning repots next week though just a quick plug here is that Mukesh Ambani’s firms have decided to extinguish existing Treasury stock of almost INR 500 Bln and will be discontinuing buybacks

India Morning Report: Markets consolidate to new 6350 range/top

Beijing subway
Beijing subway (Photo credit: doubleaf)


The IT correction of last week already got used into the 6200 mark as positive results keep positive momentum on global news for the Dollar backing off. As BGI (Blackrock) and Vanguard welcome back funds into Emerging markets US yields and Bond Funds may not get that much investor interest returning and markets like Korea and India should thus be beneficiaries in the ensuing inflows to ‘EMs’


Thus ‘uncomplexed’ the flow however is likely to still not be emboldened by the fears of an asset bubble in China as  further improvement of House prices by more than 15 and 16% in Beijing and Shanghai keeps China the easiest target for Hot money flows probably now getting more focus on to its fixed rate currency. Thus an unforeseen window for pressures n the currency though the currency-markets hedge is no longer holding and correlation between equities and currencies will be kept by the broader money flows of whatever magnitude


Metals are a good pick for Macquarie which is among the few doubling down on IT post results with the rupee at 61-62


YES Bank will likely bring back bigger and better position trades to the Banknifty which is right now sprawled between ‘PSU having been whacked too hard’ strategy and ‘Private banks being the only worth’ bidders who for some reason are getting shorted on ICICI Bank, the bank’s own dealers likely not to blame. ITC and ING Vysya will follow the lead of the banks as most select scrips in portfolios are not adding further positions otherwise except for further small window trades in the delta to the Top from here. Is more discussion on RWA arrangements in India possible because though instruments are merely traditional ones predominantly, Basel III treatment could possibly be more rigorous and Indian Banks are mostly getting a free ride except for the large move to NPAs which is limited to bad quality portfolios.  A Bank promoter for instance recently suggested he has only 3% Tier II Capital and 13-14% Tier I Capital which is true for this particular bank and showcases the thinking on Capital /Leverage in India and the potential for the banks to grow having come thus far in an untapped market and running at 3X the GDP in growth in lending if a little focus is maintained on bank governance


HDFC posted a perfect quarter except for the Bank dividend having already been distributed in the First quarter dipping the expected NII to a posted INR 18.14 Bln. The year on year growth is safe and sold loans constitute less than 10% of their outstanding book while still earning the bank 129 basis points. NIMs increase for the institution through the year and the first quarter’s 3.9% increased to 4.1% yesterday(as of September 2013)


The news of a fund crunch in Jet Airways or the CBI action thus far proceeding against KM Birla and other industrialists is likely to become the focus of the “Bad India, Dull India” news flow and may merit immediate policy action but overall market participants are well aware of the limitations of policy action from an outgoing government. FIPB was also postponed for day after tomorrow having approved INR 33 Bln worth almost a month ago.











Bank Results Season: HDFC Bank Q4 grows 30% PAT and Net Interest income

HDFC Akkrama!
HDFC Akkrama! (Photo credit: prajayogi)


Net interest income for the Indian Market leader in Private Banks rose to INR 43 B from INR 33 B 26% on year/year growth. As dividends from insurance have also started showing up regularly every two quarters consolidated PAT has been growing unbridled past our 30% watermark. PAT for Q4 ended up at INR 18.90 B, a substantial shoring up of business performance in the last six quarters when it began a series at a strong but smaller share of the indian market with INR 12.5 B quarterly profits and  INR 26B NII


A CASA of nearly 48% however with Advances at INR 2.4 Tln nearly not growing fast enough, deposits have closed in on the INR 3 Tln mark. Though its cost income efficiencies rival the most superior in the industry, the funding structure of the bank still shows up in a heavy 16.8% Capital Ratio in Basel I terms which would not get negatively impacted in the Basel 3 regime for Indian banks and an Advance / Deposit ratio near 85% and gross NPAs of less than 1%.


Though flash reports have not mentioned it yet, Fee income likely tracked more than INR 28.8B and the bank needs to attend to credit growth as a main objective and define trade credit /transaction banking and commercial lending separately going forward as also wealth vs traditional retail and loan product income in retail where new blood is likely to strike alongwith limited competition from indusind and kotak bank


The detailed exposition of year end results will appear in our traditional HDFC Bank vs ICICI Bank face off after the Chanda kochchar led bank’s results are announced.


India Morning Report: Global investors look to India after India Inc outperforms expectations

IDFC Project Equity
IDFC Project Equity (Photo credit: Wikipedia)

A quick re-rating of the F&O market in the early trades yesterday meant that writers of the 6000 call had a hurried exit from trades and very few have tried to cap the maarket already at 6100 or any other digits as the markets actually show signs of a breakout. The low volumes of MCX SX are perhaps an open invitation for the short club to try something faster and tighter in F&O trading on that exchange but with index trading not open yet, it is unlikely to have any impact and in this predominantly Asian leg of the bull tour, it is unlikely they will get past petty strategies to break up the trading interest up while 1 in 3 rating agencies have already fallen into the usual rut of calling for India’s derating showing up our lack of faith in India as another 90 days look set to pass without any execution bombs and those analysts and short side traders aree undoubtedly still just waiting for actual policy and roll out execution announcements which can then accordingly be belittled for giving them a leg to stan din the crowded room . Givcen that it is used by most large media as well, the tac has become almost respectable but is painfully obvious and can usually be shot down with larger negative consequences for purveyors like these rating agencies

However the disconnect between investors, foreign brokerages and domestic traders only joints shows up mercilessly as a red flashing risk factor with domestic traders sticking to corporate governance unfriendly scrips and sectors like fertiliser and sugar before policy announcement or choosing unknown branding successes like Sintex (‘pani ki tankiyan jinme jang nahi lagta’) for shorts on a stable market suitably gaining strength for a small pre budget week rally

This rally has a new keeper

Bajaj FinCos (Bajaj Finance and Bajaj FinServ-insco) came into favor largely yesterday as the banks’ tandem with infracos which will lead the new rise of the indian indices has largely been lost with Indian banks ramping up on the strength of the domestic market and their robust balance sheets which will be of use to foreign investors. Infracos led by IDFC have seemingly won a few more partisan traders to their side in this current rally on its trading strengths and while ICICI Bank and IDFC will both rise, PMEAC and RBI favored NBFCs like M&M and Bajaj are more likely to be important investments for the fund hungry infracos and their new leg up post budget.

Budget announcements have come into play but after the unlikeliness of DTC and GST rollouts has already been debated and the futility of unassigning another INR 100 bln odd to infrastructure and prioritising sub sectors is argued out , mostly there is just a wish that PC succeeds in billing down the fisc and the government borrowing in the coming fiscal.

India’s equity friendly outlook carries the day

India remains the only big market ready for a rally and global equities get ready for a sharp cut. The first two months of the quarter substantially shored up business volumes and profits at Hedge funds, PE companies (?? we are as much mystified by it ) and Big 4 investment banks . The global Bank rally being another three month away is probably the reason why this cut could become sharper as UK recession and US tempering down of growth at near 2% GDP levels demonise stable markets. The early global moves in the euro give it one high Six flags slide to come down in and Flash PMIs today from Europe, underlining their inability to survive with 20% lower budgets, tough love for banking and devaluation by the yen esp as competition in Capital Goods exports is considered.

It’s sorry, Indian coffee trades down

Currency wars having been a no show given every FM’s need to follow in the steps of Japan’s Abe sooner than later, Indian currency continues to resist strength on silly excuses woven into the fabric of markets structure as Exports like Coffee suffer a double whammy from India in volumes as production is more than 20% lower and value as indian coffee quality has apparently not registered favor with quality international buyers. Meanwhile Asian coffee offers hope to Indian exporters as Mustard, palmolein (Crude Palm Oil imports) and Onions fall 20%, 33% and 20% respectively to allow CPI and food inflation barometers to cool down or at least not ratchet up the fiscal bill for India Inc. Government borrowing is in control and yields have held at 7.8% desspite the small cut and the unlikely prospects of a cut in the next 6 months

INDIA MORNING REPORT: A Bid on the State Bank results, are Coal and Steel indeed back?

Tata Steel which pushed out another round of poor results struggling in its European pick up is ready to open new capacities for production in 2014 in Odisha and Steel may indeed pick up though not a fast ramp up with China struggling ( Open tomorrow after New Year festivities) and Domestic Auto production for one will also be out of the woods within this fiscal as low rates trickle down and consumption spending remains a norm for the younger demographic india enjoys.

New Auto capacities in Sanand and in Tamil Nadu (Ford) as well as continuing growth in Gurgaon and Manesar will lend strength to India’s consolidation auto saales while the increasing cars on the road strike another discord of insufficient highways by 2014 or 2015 and int he meantime the fiscal strength discussion between MSA and Chidu may well be more important for active wholesale Investors to watch and may careen or tank up FII flows as appropriate.

The ratings companies could have grown their franchise but have faltered in the politically opportune moments and are not likely to partner up with Indian banks and corporates in the given plop of bird produce that India begets in their global schema, leading one to wonder in cogent terms if they will indeed survive into the next decade as ratingcos.

But that is so inadroitly expressed even I just know it is a valid hypothesis for trendatchers that RatingCos are likely redundant and center of the ne fallout before 2020 in the Financial world as it tries to come out of the 2008 crisis and bad RoE math that strikes its every rich yielding FICC and Equity trading businesses and even conservative and High yield lending and issuance.

The Bank nifty will likely run up a good score without going 3-Cliff on expectations of better improving resuults if SBI delivers on expectations and does not do another Q4 washout of expectations as India’s largest bank, having presumably cleaned its augean stables and dealt with pension liabilities and in possession of a clean retail portfoliosince they strated building it up 6 quarters ago.

Even though PSU banks have been rerated 40% down in the Banknifty the current strength in banking from 12400 is contingent on State Bank being in the green and ready to take off from atleast 2080 levels and the results need to build up from the current 2250 levels to atleast 2400 to let the others with good and bad results of the wuarter convince the maarket of the Fiscal and FY14 performance potential especially at BOB , PNB and All Bank. Axis ICICI and HDFC Bank should have no problems maintaining current levels


Foreign Banks in India: The HSBC RBS Private Banking Sale

ABN Amro Bank in Dubai
Image via Wikipedia

RBS had committed to HSBC towards the sale of all its 31 branches and 100 retail / wealth staff to HSBC. It is yet questionable if HSBC could have absorbed all 1800 staff which continues to operate as ABN AMRO in the country since License transfers are a throny issue that from the point of view of the regulator should not have risen as the occasion to sell in each case is in question.

Since the deal signing in 2009/2010 when ANZ lost to the HSBC bid in India and Malaysia, there has been speculation peculiar to the Indian regulator’s national requirements. None of the speculated objections have yet been resolved, additionally with RBS and ABN planning to come back to the country RBI has taken a harder stance on this apparent tomfoolery with buying and selling branches and networks . Among the first nonsensical results of immediate interest to RBI would have been the multiplicity of licences for the acquiring bank and the lack of branch approvals for HSBC once it as acquiring bank had surrendered the second licence per law with RBS. Even before the assumed non-event (buyers/sellers) though RBI has now found itself troubled by the fact that RBS wll continue to live in the country in isolation as also ANZ ( in its TV appearance by CEO Mike Smith on Bankers’ Trust – B-UTV) plans to remain only in institutional business in India. ANZ, ICBC have one branch each in the new avatar, the most planned by RBS in its new role as a exclusively wholesale player in the country.

Media reports make it clear that RBI has made a unitary objection on the sale – that of the 32% priority lending commitment which precludes any option without retail branches and in factas the new charter sugggests, new branches in Tier 5 and 6 town.

Priority sector requirements are not new and all the 32 license holders in the country manage the same lending requirement without their own branches in the rural hinterland. Obviously those wholesale approaches are not the objective of the Priority sector lending regulation.

Global evidence of parochial regulation

India’s own ICICI Bank is curtailing international deposits in most geographies as local regulators want such deposits to be ringfenced for local disbursals. This instance is unlikely to be an isolated one and a ringfenced national structure is already mandated for most banks but expensive to execute. The Indian regulator per force is under pressure to clarify  and safeguard India’s interests in terms of adequate capital for local operations which has been found wanting by banks as they feel strained by restrictive voting and limitation on branch licenses among others, as also their inability to compete with Indian majors in retail footprint

The Original Sale

RBS sold the ABN AMRO business it acquired in the country while keeping the Global Banking and Markets Divisions along with the Global Transaction Services it acquired from ABN AMRO headed by Meera Sanyal.

BS of July 03, 2010

RBS’ retail and commercial banking businesses in India house portfolios with a gross asset value of $1.8 billion(nearly Rs 8,400 crore) and have 1.1 million customer relationships, served by over 1,800 staff through

31 branches currently.

According to the terms of the agreement, 90 per cent of any credit losses incurred on RBS’ unsecured lending portfolio in the two years subsequent to the deal’s completion will be deducted from the $95-million premium to be paid over the tangible net asset value of the businesses.


This was later deemed to be a portfolio sale and RBS was not allowed to transfer licenses as the banks were not incorporated in India and were only branches owned by foreign parents The Stanchart offer for the same sale was considerably lower as it expected the regulatory run-ins to be discounted. ANZ that had earlier sold off its business to Stanchart in 2001 and ABN have planned a return to India in 2011 and again received licenses while being welcomed by their core consituency of customers in retail, do not expect to go beyond Transaction services and Capital Markets/Fixed Income / Syndicate lending

Other thorny issues still remaining to be sorted out thus the picture that emerges is the following :

1. Each branch still requires explicit RBI approval and none of the 32 players have been forthcoming in unitarily capitalising the India subsidiary for its leverage commitments as currently we all go by Internal Risk management approaches that count on a single Asia Pacific Balance sheet to sell loans to India corporates esp as the competitive advantae for us in Foreign banks is in arranging cheaper ECB loans and FC denominated swaps

2. Licenses being conditional to Priority sector lending apart , there needs to be dialogue between banks and the local regulator with the Indian operation commiting that it has the authority and the reach to complete all its India commitments and RBI observations. For example Swaps create unseemly leverage and banks do not resolve the same as per their own internal risk management where approvakls are already received?

3. Banks may feel stretched by the current requirements to commit 12 new branches in a year as are automatically approved with the 32 foreign banks surviving on 320 branches for their nearly double digit share in Indian banking assets and having avoided the changeover to WOS formats suggested in 2005 with INR 3 bln capital minimum . That this capital would have to satisfy basel and RBI norms on CAR locally queers the pitch for effective pricing for these banks and also in terms of global business sructures where entire regions operate on economics of large volumes that they will have to independently build in India.

4. The banks do remain commited to growing in India, HSBC for example and till recently Citi heavily recruiting in the country in retail and wholesale. Banks remain the preferred stock recriter of MBAs led by Foreign banks in India

5. A roadmap for ringfencing national operations has not been committed by BCBS ( Basel Committee) and banks have already calendarised ramp up of Capital per new standards till as late as 2016 (Ph II) and 2019 in view of the adverse strains on their global operations

6. Foreign banks have not been able to get RBI’s specific approvals for any request for voting rights beyond the current limitation of 15% though there is no such limitation on purchase of individual stakes by the banks. HSBC had earlier planned to stay with Axis Bank as partner but had to make do with the solitary ILFS Investmart purchase

7. New private banks are allowed FDI of 49% for 5 years and changes on voting limitations may be made in the Banking Regulation act as per demands. Many in pvt sector insurance also await allowing of increase of JV partners’ equity expected to be approved to 49% since the last 6 years but still hanging fire based on reform to holding limits acrossindustry per se

8. The impression of RBI as an archaic regulator somehow persists in the global bank offices as of last count in terms of capital commitments to India operations being recounted as Comfort letters provided proved to be of no later consequence for the banks

9. Even with local subsidiaries, RBI feels that Foreign banks commitment to the country is volatile with over 16% contraction in credit in 2009 and 8% in 2008 after reaching a so called “dominant” position in market share in 2007

RBI paper on Foreign Banks (2005) suggested a WOS structure be mandatory now for 0.25% of national banking assets or mor ein share (IIFL – RBI  paper )

HSBC global locations
Image via Wikipedia

Foreign Banks in India: Losing the premium mark in Delhi, Bombay

ABN Amro Bank in Dubai
Image via Wikipedia

Though Bangalore remains buoyant and probably by extension Calcutta and Hyderabad, I would posit that Metropolitan megatrons of Delhi and Bombay have quit on Foreign bank custom esp after the derivatives market wound down and limits on Swaps created business in Credit warned by RBI in June. Of course at both StanC and HSBC CIB business has grown Even Indian Banks have pointed to recent growth (HDFC Bank) coming from Tier II and Tier II towns ( which would be towns of 1- 5 lacs pop)

Stanchart produces $9 mln lower CB results

The India business of SCB and that of HSBC talked of static consumer banking income and/or loan book sizes. Asia’s GBP 6.8 bln ($10 bln) EBITDA for HSBC and $3.1 bln for StanC boasted of almost 80% Hongkong contributions in the profits for HSBC and the largest 25% for StanC with India coming in at $451mln (Op Profits) for HSBC and $378 mln for StanC. SCB extrapolates INdia GDP at 7.7% and 8.3% for the next 2 years.

SCB Op Proft or EBITDA is down 39% for the HY over the same period last year as income dipped 12% in India. Consumer Banking ex India grew at a fast clip for SCB and is $404 mln fo China , a relatively new piece of growth for the bank

For both banks markets in Hongkong, Singapore, Korea, Malaysia/Thailand and Indonesia, have delievred extreme growth on the runrate normally ascribed to a secular Indian banking market

India business will grow to $1 bln in Op Profits for HSBC by 2013 Hongkong business for SCB matched the groups overall growth in NII as China renminbi business grew on the islands of Hongkong for both the banks  with the India  CEO for HSBC Stuart Davis cautious in lending over growing NPAs

SCB’s deposits grew by 9% for the 6 months ended June 2010 Operating exepnses  in CB grew to $174 mln at a faster clip with continuing investments by the bank Op profit from India at $44 mln speaks volumes about the bank’s challenges in their largest market so far

Stanchart doubles Offshore WB, HSBC builds fee income worth $375mln

HSBC relied entirely on the CIB business to produce profits, wth $393 mln from Investment Banking and Loan income doubled to $78 mln as the business staying with the bank would be amenable to cross product business and insensitive to rate increases, being a part of the corporate’s business to banks and not the relationship as lead bank still in many cases. The Advances for HSBC are a mere $4.2 bln on its total loan book of $6.1 bln or INR 25000 Crores

StanC doubled its offshore income from Wholesale Banking to $185 mln but operating income (Topline is static for H1 2011 at$760 mln over $770 mln in the second half of 2010 WB assets grew in India by 10% and India remains an important market to break open for both the Emerging markets dominant banks


Even with 15000 new jobs in Asia,  India is unlikely to be a big growth market for HSBC, SCB stepping in to wean away the common DNA as HSBC drags on consolidating RBS business and looks to India and China out of their Top 5 businesses. all in Emerging MArkets like Mexico, Singapore and Malaysia

StanC’s India costs have been growing due to the extra hiring planned for the India business where HSBC will be managing 300 new ABN AMRO staffers in Bangalore alone StanC also delivered a much healthier cost income ratio globally

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The Hongkong and Shanghai Banking Corporation ...
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Banking NIMs ( S&P proffers its opinion not rating)

An HDFC Bank Branch in Hyderabad
Image via Wikipedia

Rating agencies globally and in the Barney Frank / Chris Dodd shadow seemed to have become more about running ahead of the curve and putting their own house in order coming out with last weeks warnings on the Big4 in banking and warning and degrading the peripherals and Euro /US Treasuries from Moody’s to Fitch. However judging from the timing, S&P is not in a hurry as in the case of the report on Indian Banking, it is diversifying into knowledge based analysis of its coverage of the Indian Banking super sector.

Key Facts according to the S&P Data

3.08 average NIMs ( presumably weighed down by the 70% PSB bank assets) in 2011 ans 2.92 at its peak in 2007. Also an average of 2.7% NPAs expected in FY2012.

A shadow of doubt on the Data

Before tackling the opinion for its repercussions if any on the banking superstructure, and the sectoral performance, the first thing one needs to point out is that public data on banking balance sheets and the restriction of the universe to active banks with more than INR 20000 crores in assets ( $5 bln ) one would find that the NIMs in India were more in line with those in the US in 2007 at 3.4-3.7%.

Also one can see that NPA definitions are likely to be different with S&P and their release to the media like all things rare and beautiful, are short on words and ignorant of their non standing in the arena. Even borokers have been circulating reports on banking NIMs for 3 weeks now , and someone like me could have reported what they are presenting on demand/per mandate, just from public dat.

Also, not to be a persevering niggle in a deserving foot, S&P are already minor fry outside indices and should not have bothered with a big bang sector when they invite being discredited, seeing as they have also not started being proactive about ratings in the region/ even Emerging Markets as a constituency

The take on the future

What S&P have attempted however, would be more creditable in terms of the effort and more analytical insights for your nd my business are possible only if the methodology is shared on the same. Till then, a margin compression of 50-60 bps for the sector can be easily negated by the global players with a 10% share of assets in the country who have trouble maintaining their margins across their smaller branch base; it can be negated by more than 100 bps compressions in SBI that would continue to maintain extra provisions of $250 mln each quarter; it would be negated on the positive side by those like HDFC Bank, YES and Kotak because of increases in their corporate credit offtake even as YES goes out of the way to ramp up deposit rates ( it is ready to take savings rate to 6% and more in line with bank policy) . S&P thus would be happy to take home the result from just ICICI Bank and none else. PSE banks would either follow SBI’s lead in increasing Money market deposit rates to bring equity and grow Deposits to add to the CDR balance, while traditional bank directors would coninue to balance the arguments with the historically low CD Ratios in the Indian Banking System. Even with a size of $2.5 tln in assets Credit deposit ratio in India has been as low as 30% in the 70s just moving to 60% now ( ET op ed of 09/06/2011)

However the NIM compression has likely been not compensated for credit growth as a growth market like India can still deliver 20% credit growth and take the NIM compression to negligible levels. As this is more rudimentary as a rebuttal, you ar einvited to post me for more suave copy.

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