India Bond Impact (Fixed Income report): RBI purchases ‘ominous’ to another 9% bout

stewart, mena, SCOTT?!Though a late market rally on Friday has taken away the gleam of an easy short for Monday, short covering in the last hour may also add to those planning to cap the trading range with a few swats with the bat.

In bonds however, the easing of yields to 8.75% is not so certain either as RBI’s bond buying program was an even closer 8.69% in yield in the buying of nearly $1.5 bln yesterday. RBI rates are 1% lower by channel defined even though RBI charges a 50 bp spread on its MSP sales in the middle of the channel. the yields are closer to last weeks sales Auction by RBI which were at 8.94% and so the yields may move back to that near 9% mark again before the Rupee tops out.

Smart rally in the rupee though, again speedingup the trend to a big spike, leaving you with less doubt that it will return to lower marks sooner than later. consolidation above 51.50 levels near 51 would help people believing the rupee lost mire than it deserved. Remittancees likely to be heavier through 2012 were heavier only in geographies like MENA from our labor exports and not the managerial variety yet ( if it can be distinguished)

Inflation cannot get better, however China actually got it improved to 4.5% before it eased rates and put the brakes off, risk on stride into the Economy, lasting till December after throttling started in June itself.

INDIA Q2 GDP 6.9%, First Half GDP growth 7.3%

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A Q2 GDP growth in Services of 9.3% led by Transportation and Hotels  (Travel) growth of 9.9% (Q1: 13.5%) and Financial Services of 10.5% as well anchored expectations of growth in the future on Services itself. While industrial production was 3.2% in line with IIP estimates, construction was stable at 4.3% and Capital goods though lower still grew, manufacturing was a low 2.7% growth (Q1: 2.9%) and agriculture was not that far from the 3% mark either.

Interest rate environment is hardly going to get a reprieve in the stretched liquidity conditions as only money investments seem to be trending to output. The social services growth of 6.6% is also good and as spending in a challenged fisc environment barely going o budgeted lines, this is good for the welfare economy

Unfortunate noises on GST, DTC and now retail and aviation FDI show more challenges even as FDI for the first half has climbed to a comfortable $20 bln with state deficits unlikely to be met by service tax collections alone and government spending programs will now have a coordinated effort on increasing yields in the fixed income markets

Q4 growth will be more of the “shock and awe” variety with dull business in Q3 and Q4 a matter of fact. Top line sales in the US in Q4 (December) is a tough 3%and a similar crunch will travel American to India as well, unhindered by hitherto 20% topline growth beyond what could happen till here

Till now Corporate growth both in India and the USA was leading growth on the ground and while in the US it could have continued without growth in GDP in India loss in topline after mining contraction and basic inputs settle down would correspondingly now impact the Services growth where new orders have been drawing a blank since September, though India is still sitting on an expanding Services sector esp in Travel , Utilities and Financial Services and that could pull us past the magical 7% mark for the full year. Utilities ( not counted in Services in the GDP) grew by 9.8% in line with other travel and Finance, Insurance and real estate services

Q4 growth will be more of the “shock and awe” variety with dull business in Q3 and Q4 a matter of fact. Top line sales in the US in Q4 (December) is a tough 3%and a similar crunch will travel American to India as well, unhindered by hitherto 20% topline growth beyond what could happen till here

Revisions in the GDP basket have been made from this quarter, GDP deflator at 8.8% Cap Goods weighted to 17% from 31% and other changes driving Q@ 2010 to 8.4% from 8.9% else the Q2 2011 numbers would have been closer to 6% (6.4%, TV18)

Indian Private Banks : A global mid-market bonanza

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A sea change

The global credit markets are no longer a quest for safe haven nor are they any longer carrying any lesser risk premium than the equity markets. While global correlation stepped up in the last few months in equities, it has increeeasingly become tied at the bone to moves in the fixed income markets with terms like sovereign risk or spreads between sovereign and corporate risk making a good hot fudge and no business.

Opportunity for Indian Bankers

Indian Private sector banks have long struggled in the international arena but despite foreign competition in structured finance and leverage products and a norma regulator-local bank close relationship in USA and Europe have ventured out and established foreign branches in 5 continents. While the earlier propensity for choosing non resident indian customers for credit and deposit products , the current opportunities in Transaction banking globally and their comfortable liquidity position are the right fits for a global custom. While they will have to start out by buying foreign credit portfolios as customers are equally choosy in these uncertain conditions and the banks must choose quality credit.

The quantitative leverage in terms of Tier I Capital of 11.5% and Capital raitios of 18-20% for ICICI Bank and HDFC Bank would be wasted on Indian credit as quality borrowers are not available in the local market and public sector bnanks already carry nearly 66% of the share of business, ICICI Banka nd HDFC Bank contributing to a 30% share of Indian credit with Axis Bank

Though a much more detailed analysis is planned, this much is beyond doubt and not much in terms of options is available to Indian players, India’s tiered international access in banking and insurance having long created untenable costs in their being branded as risk averse and or market unfriendly in inter bank markets unnecessarily


The bitter pill for Indian Private Banks

India’s Forexonomics ensure that india’s capital and outward ambitions automatically make its best large cap efforts look like mid market plays for the global audience. A bitter pill to swallow but one India and I myself among others of mine and the next two generations have long resisted. The behemoth of an ICICI Bank or that of HDFC Bank, being from Asia have long been identified as new players in the global arena and because of risk parameters self defined, they are yet to use their international businesses to extend credit to international companies, not that many quality businesses would approach them for syndication either.

Having all the research time I need at my disposal though

Rupee Impact: ECB & FCCB, repayment due 2012/3

Indian rupee
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From a FC  article of two weeks vintage, it becomes clear that not all the $10 bln FCCB debt holders in India ( FC says $8.5 bln outstanding) including Power sector projects, Kingfisher and the others like GMR Infra will be lost when interest payments and outstanding debt eat into their profits as FCCB / ECB debt holders contemplate the sharp fall in the Rupee. From 52.4 right now  which is beyond the March 2009 lows, the rupee can probably not find a range till 55 with many caught  off guard by the pace at which rupee positions had to be liquidated in the market,. Lets hope SCB is also trading the new trend in profits since October 2011.

The 22% fall in the markets this year may see a further breach though the morning’s signs of trying the 4700 levels are encouraging for a falling only market trend. The ECB debt holders have already reported large 300-500 crore losses on their mark to market of Debt in the September quarter, but the silver lining is that players like Reliance Power have actually repaid $300 mln in October itself. The FCCB holders will be asking these companies to pay out on their ECB/FCCB in 2012 alongwith a host of other companies to the tune of $2 bln saving them the atrocities of the currency movement likely to continue in the future right now for the next 6 months given the surprise and the pace of the downward correction this month. Those at extreme risk are the corporates raising fresh “cheap” external debt in October to $2.36 bln incl. GSPC, Mundra Ports and IDFC.


FCCB vs ECB vs Rupee

The overall External Corporate Debt for Indian companies has grown to $30 bln in 2011 till date from just $10 bln last year in 2010 as per an ET report. Most of this addition is however on the short term side and many of the FCCBs which are 1/3 of the Dollar/Euro loan folio are due for conversion by 2012/201 when they will be called by lenders and if repaid as is likely in moist cases, they will not present a problem. The last crop of borrowers had a very different set  of objectives and the problem is unlikely to crop up again as not many envisage default or rollover and when given a chance will repay the loans to cut their losses as borrowing costs of 8-11% a full 200-300 basis points ahead of domestic costs get negated by he 15% adverrse movement in the exchange rate for the rupee (USDINR=X)

Some examples of smaller midcaps who issued high conversion price debt 5 years back like KSL, Sintex, Clearwater Capital for Kamat Hotels have been having much more limited success with resolving with either due repayment in May 2012 (KSL) or conversion approved by lender to 24.5% stake with promoter majority intact in Clearwater case and zenith and then Sintex expected to default after taking a 40 cr hit on earnings (INR 400 mln per GS analysis)


The problem is that 2 in 3 importers are not hedged on their position and likewise the small advantage is that IT companies unhedged on the Dollars earnings and Gems exporters who paid for their imports in Cash are going to add to cash profits to the extent of at least 10% of the 14% movement in the Rupee since July and veven more if the rupee tries to get to 55 quickly

The inflation impact of the rupee depreciation will be hard and fast with Oil holding steady , All in all an impact

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of more than 20% of earnings for those unable to liquidate the external debt on their balance sheets. But new borrowings have been short term heavy in 2011 and those will be purged by 2012 with a 20% of debt position at risk of loss on the interim results / FY2012. Infy has also degraded earnings despite the uptick claimed mostly by unhedged Mid caps and HCL Tech is a big loser as well, with hedging strategies turning upside down and Treasuries sitting on the old ones.

New Pension Fund Guidelines are subscriber friendly

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The PFRDA apparently, though the issuer is not clear from coverage, is coming out with new Pension fund guidelines. The new guidelines allow fund managers to promise guaranteed returns , principals at maturity or yields without having to promise a minimum 4.25% annuity. The Annuity is not readily understandable by the customer esp if it is a good return on his investment and the new guidelines take care of that. These are quite close to operationalizaton and the finall announcements must be for Jan or April 2012 onwards

Happy Thursdays! An inflation sun for everyone, and we’ve had too much sun please..

By Nikhil Kulkarni
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I feel like a college kid again ( My alma mater’s reports of PPOs and PPIs are heating the business papers this morning too) as the banking regulator in desh clarifies on Bloomberg that the Banking Regulation Act, voting rights of 15% for promoters and another legislation after that mean that new banks can possibly not make up time and set up shop before 2013. I’d say 2014.

Just what everyone knows already?

And I am sure if I was holding that IB job, that’s what would swing me everyday, that there is 3 years to go before it makes a big bank out of last month’s (August) guidelines and the sparse deal calendar would bother me ony till it bothered my employer. Which it does not.

However what would similarly break in the Bankers’ minds on credit desks would be the sweet realisation that the festive fortnight would not really bump up credit. It is kind of intuitive, As I get busy with really shopping and decorating the home and hearth and corporates basically get too busy computing any bonuses and holidays for their staff.

‘Coz thats the only reason that will fly for Oct. 21 credit figures and deposits to remain the same as Oct 7 highs at INR 40.81 Tln (40.85 Tln) in Loans and Advances and INR 56.19 Tln (56.24 Tln) Deposits, figures in brackets showing the Oct 7 high

Also PM Manmohan Singh’s appointment diary now looks like he is from India (huh!) and not big cousin China who can refuse to bankroll the crisis

Talking of Gamechangers, Cognizant related to its hyper growth with a seemingly 5th quarter ( It should be around 18th or 19th) with a 30% growth, Op Margins nearly 20% and Net Profits growing by 11% yoy despite the ground licking deals on offer. I thought the entire industry was out to do that as Outsourcing, but only Cognizant succeeds everytime. Now with a $1.6bln quarterly turnover, CTS can probably aspire publicly to beating TCS on Topline, Infosys a touch away for the Q4 itself

And you  would think HT! will forget talking abt the weekly inflation but we don’t. The morning’s

By Nikhil Kulkarni
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been too busy and the data released around 12 (IST)

Inflation has crawled on to the wires, but it has surely been burning the midnight oil, growing to Primary articles inflation of 12.08%, non food indices are down to 6.5% which is very encouraging, food from 11.43% to 12.2% (Finance Minister) and fuel at above 14%

Primary Articles seem to be ready for the structural chop as even US reports basic inputs going down by 10-20% in terms of costs (ISM)

India Earnings Season: IDBI Bank results, September 2011

IDBI Bank results


Though we have published in depth reports pursuant to the bank’s quarterly announcements earlier, we rather worry we may have the wrong end of the stick given IDBI’s 8% exposure to the Power sector loans and the historically high NPA rate moving from 1.25% to a higher 1.57% this quarter.


Bank increased profits 20% after relief from 70% PCR by RBI and CASA has improved to 19%


CASA is a low 19% with a lack of transformation mandate from the government for the bank. Its Advances are bigger than Axis with a book of INR 1.56 Tln or $31 bln (20% yoy)


NII tracked a stagnant 1122 crs or $224.4 mln and NIM fell 7bp to 2%, Cost of Funds a high 8.40% for its aggressive retail push supporting its higher cost structure model Expansion is already limited but the bank remains attractive to depositors and reach to good credit seekers remains a plus

Bank Results Season: HDFC Bank showcases awesome retail growth

An HDFC Bank Branch in Hyderabad
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With deposits increasing 9% over the June quarter and Savings accounts increasing 6% year n year of the total 18% growth in Deposits, HDFC Bank did well to run in to September end with a NIM of 4.1%. Advances have grown by 25% from September 2010, for Balance sheet size increase of 20% based on retail loans growth of 30%

The Bank has proved again that efficient management can still help it scale its mature management model as Net NPAs remained a low 0.2% of its Net Advances. and Capital Adequacy also remained at 16% and 11.5% for overall and Tier I based on the current Basel norms in India. India’ s breed of banks continue to grow on equity infusions than a hankering for Tier II capital and thus the bank sizes are inherently not comparable in size to those in China and the USA.

The bank increased PAT to a humongous INR 12 bln ( INR 1199 crores ) or $240 mln for a $1 bln runrate in FY2012 total Balance Sheet assets now exceed INR 3 Tln against INR 8 Tln for SBI and INR 2.5 Tln for ICICI Bank

Advances rose to Rs 189,917 crores or $38 bln and deposits outgrew past the $40 bln watermark More details would be apparent in our series after ICICI Bank results come out at the end of the month and HDFC bank results presentation is formally created/shared for the bank

Advances rose to Rs 189,917 crores or $38 bln and deposits outgrew past the $40 bln watermark Fee income was higher by 15% over 2010, at INR 983 crs comparing well with Q1’s 1100 crores. The year on year growth in Topline is the same as for Q1 and profits are up nearly 4% from June Other Income also grew more than 8% as Deposits grew 9% from June 2011 keeping the CASA healthy at 47.1% ( CASA had reached 49% last year)

Net Interest Income rose above expectations to cross INR 3000 crores rising less than 10% QOQ from June 2011 Loan provisions were 393 crores or $78 mln a mere 12% of the NII and the Cost Income Ratio was less than 49%

India Earnings Season: ING Vysya Bank uses the gap, Indusind builds on

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ING Vysya used the gap in under performing Q1 results to come back with a vengeance. The bank scored early with 20% yoy growth in NII to INR 304 crores or $61 mln after a slow Q1. Both ING and IndusInd improved over Q1 NIMs to 3.35% ING claims it is growing advances 5% higher than industy\ry rate, this year at 23% IndusInd outgrew ING with $84 mln in NII (INR 419 crores) and added $42 mln in Fee income (INR 212 crores)

ING’s centralisd Risk management makes it maintain 85% Provisional Coverage on its Loans compared to a high 70% target briefl introduced by RIBI last year to create a contingent facility foor rising bad debt ING Vysya maintains a CASA ratio in the 30s, coming down to 32% this quarter and under pressure for the rest of the high interest regime period. IndusInd on the other hand has joined hands in the Consumer Finance boost strategy claiming to have turned around its DB Credit card portfolio and adding fee income from reference income for HDFC home and car loans

IndusInd has also grown the TRansaction services feee basket this quarter smartly to keep its 30% growth circle, ING in the meantime has grown profits on a larger asset base from $20 mln in June to a 20% higher $23 mln or INR 1.15 bn this quarter Indus Ind net is almost double at INR 1.93 bln or $39 mln based on a higher contribution from fee lines and Transaction services 

Both banks have also tied down their Net NPAs to 0.31% in the quarter.  

IndusInd has an Advance book of INR 301 bln and is growing fee income by 30%(on year) comparing favorably with the larger network of Vysya in assets and outperforming on the new equations in Fee Income and Consumer Finance

Setting up the NBFC Banking Corporation Part II – The Infracos will find it tough but so will everyone else

Setting up the NBFC Banking Corporation Part II – The Infracos will find it tough but so will everyone else

The infracos, REC, PFC and even IRFC if you believe the Financial Express have been tempted to start a Banking crporation and the current RBI chief Duvvoori Subbarao has been very clearly discouraging them. making their ask tougher is the new norms for recognising NPAs in a 90 day timeframe though power companies with no exposure to SEBs may not face challenges on that count as much as all of them will be preoccupied with analysts reporting a 5-7% downgrade in earnings according to the new NPA norms. There is also my own limitations of understanding as SCB research mentions that current NBFC ops are a big no no for banking wannabes.

Nothing in the current regulations precludes new banks from maintaining their NBFCs , in fact as the CXOs of these new banks holding companies are likely to canvas with RBI to allow their existing branch networks to become banking branches and that may very much necessitate a couple of public clarifications by the regulator as these are extensive networks in retail and will be the main utilisation of bank funds from low cost deposits of these banks in the first instant necessitating a relook at single party and group exposure norms and making it infeasible for the new NBFC banking corporations to set up new branches rather than refashion existing distribution networks of their NBFCs

The new NPA norms may hit the three Auto finance cos too as NPAs in the NBFC sector will now exceed twice the 2-3% Gross rate in the establshed banks. Also the NPAs are only a tough start as maintaining a 12% adequacy is already causing the new candidate banks a notional loss of nearly a potential INR 80bln or $2 bln in RWA and thus more than $200mln in annual profits compared to existing banks.

Also RBI’s interest in keeping PSUs and infracos away may be due to their existing development charter based on which they can issue tax free infraco paper to retail investors and also raise low cost monies to a higher leverage as discussed last year in IFC norms at this repository

The Risk weighting of Power industry assets is also specially marked down for the registered infracos ahead of the new banking regulations

The task of taking the bank public in two years most nessarily will be an unfinished agenda item unless the bankers want to sell equity while still aloss making concern, esp if they set up new branch infrastructure in which case For 10 new branches only 2-3 need to be in the hinterland and can function with skeletal staffing and a working mobile payments platform. this is much like at their much maligned broker cousins and with investment next to existing HDFC Bank and other players likely to make more sense immediately and in the long run making more ATMs available to the road weary urban traveller across India’s well connected and telecom upgraded highways and rail lines. HDFC Bank manages very well with rural branches next to agri markets from its acquisition of failed banks of 1994 vintage and thru fresh investments it made in rich agri catchment areas in Punjab

That is not necessarily extra burden on existing NBFCs as ong as they understand the importance of safe capital investments than leveraging too fast too soon as the guidelines have indicated for the way forward

Setting up the NBFC Banking Corporation – Comprehending India’s new Banks policy

Reserve Bank of India Lucknow
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india’s new Banks are likely to have 25% branches in the rural regions, 40% promoter holding, a listing within 2 years and a FII cap of 49% for the first five years before being granted the freedom to sell the excess promoter stake that will no doubt hinder capitalisation for the first few years, and tak eon the interested FIIs to the extent of 74% as for other banks. Not a roster of choices the NBFCs wanting to be banks would have chosen.

So why is it that LIC Housing, L&T finance and M&M and Shriram Transport are interested in seriously becoming a bank holding company as per the new regulations. Apart from sacrificing their interests in broking and real estate that are more than 10% of revenues ruling out Religare and Indiabulls, the new banks will hold higher capital at 12% and hold all their interests tied together in Financial Services in a single holding cvompany, apparently from the point of view of preserving Capital. Of course, Real estate exposure will finally be allowed indirectly as and when LIC Housing and Infra Cos are permitted to egt abanking license but then even L&T Finance is hoping forr a nod for inorganic growth to kickstart its banking foray and that in itself may turn out to be a pipe dream despite its stakes in City Union Bank and Federal Bank.

However, the cases for Auto finance companies of Shriram and M&M may seem t be the most germaine and with substantial global bank interest in India, there may yet be a JV of interest with the 49% holding model allowing FIIs to explore the Indian territory rather than jump in with 100% WOS models with unlimited branch licences and retail expansion for banks holding more than 0.25% of banking assets of the country.

Then again, that is an exploration the right dealmaker in the right place can just about broach to a prospect. more likely would be a staid NOHC set up by these corprations and by LIC HSG to tie up their current Auto/Home finance companies and then set up aberand new bank limited to a NW of Rs 5 bn or more translating to a RWA of Rs 200 bln or $5bln in its first 5 years for every multple of 500 crores it brings in along with its FII partners ( at a debt equity of 5:1, and presumably with a higher tier I weightage in the first 5 years)

This will then serve a s a base for expansion and transfer of existing profitability from the NBFC portfolios may again have to be navigated with the regulator handholding them every step of the way. The ROE targets of global banks are just 12-13% now and these banks being an emerging market proponent with M&M having even an international presence int he more interesting EMs and planning for more would be under pressure to deliver much more

The Indian Credit Cards Business (Post Crisis)

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Those of you who slept through Independence Day weekend should go oevr the “Foreign Banks in India: Looking cheerful again” profile for banks in August . Also RBI’s data on Credit Cards outstanding was released on the weekend and we updated thus:

(HT)Spending through credit cards rose by 30% year-on-year to Rs22,128 crore during the April-June quarter of 2011-12 against Rs16,948 crore last year, according to data released by the Reserve Bank of India (RBI). Spending through debit or ATM cards, increased by 45% year-on-year to Rs11,691  crore during the April-June quarter compared to Rs8,065 crore last year.

Though Spending is up to $5.5 bln in the quarter the $22 bln annual rate is a mere 1-1.5% of the Indian GDP depending on what estimate of GDP you work with, the growth of 20% inline with GDP growth of 9% till March 2011

Number of outstanding cards was down, banks announcing aggressive strategies in August only in terms of HDFC Bank adding new customers to 25% of the mix up from 10% last year and Axis growing to more than half a million cards (690k) depending on existing bank customers) Citi is going to be making a fresh start in retail cards (unsecured loans) and HSBC may also start slowly yet only in Personal Loans and select card segments HSBC retail’ slosses in India have been surprising wesp with the PIL product. Meanwhile debit cards have grown to 25.40 million or approximately 1/3rd of the mobile phone enabled population.

The growth has been 2.4 mln debit cards in May and June alone

Other tidbits:

Alongwith affordable housing segments in the next budget, banks have been extending Swabhimaan (in the public sector banks) initiative largely thru mobile banking to reach larger rural populaions and that will also be a payment interface /mechanism for the users sooner than later

Q3 will probably be an important spend season on both Credit and Debit Cards, Debit Cards though in numbers 10X the business are reponsible for only 1/3 rd of the payments hru the Card mechanisms at POS terminals and online. Cheque clearing systems in India deliver Rs 101 tln in transactions annually wih April 2011 posting Rs 8.66 Tln by cheques, 17% thru the Mumbai region and another 15% thru Delhi Online Transaction systems of NEFT, NECS, RECS (Ahd, Blr, Kol, Chn) and others have become equal in weight of late. The June data for cheques has gone done to INR 7.39 tln as per release now, aaveraging INR 8.02 tln per month of the quarter from 10.87 cheques each of the three months

Deposits oas of June 2011 grew 18% yeasr on year in Indian Commercial Banks to INR 2.8 Tln while Advances grew at nearly 20% despie rate hikes



More Data is being sought for this report/analysis

Bank results Season: An excess provision for a working weekend SBI Q1 2012

Investors are fickle. After a $5 mln PAT performance to welcome the new Chairman Pratip Chaudhuri,

Please visit and nod to the author..

SBI has actually grown to $395 mln quarter on quarter in Net Profits. Consolidated Net profits have even grown to more than $625 mln but the earnings report was pushed to the weekend and most reports and Friday trading did not seem to be expecting this much profit, concentrating on the year on year fall from INR 33 bln to INR25 bln this year this quarter. The 46% drop in focus is a misnomer as Pension Liabilities and Loan Loss provisions policy has already been updated in Q4 2011 and with INR7.5 bln in provisions just for pension liabilities to continue till December 2011, the rest is easily expressed by the Loan Loss provisions SBI never made in the earlier years before the accepting of the modified RBI policy in Q4

Of note however is the increase in bad loans, Gross NPAs rising to 3.52% for the bank a full point ahead of ICICI Bank which is also 33% in Assets with SBI holding a book of INR 7.9 tln in advances, a GROWTH OF INR 1.6 TLN or 70% of ICICI Bank’s Advances. A Bloomberg (Bloom’bg) list puts the public sector behemoth at #69 in the World’s biggest lenders and probably in the Top 10 in Corporate Loans gone bad. Since Calendar 2010 SBI has stepped up its rates 11 times, using its NIM cushion to proportionately reward short term deposits in retail and catch up with Money market yields. Industry wide 45 day deposits are 33% lower yielding at near 4% while the MSR in the inter bank market has moved to 9.25%

Industry expected banks to put up more fee income on the table to catch up with revenue losses but SBI stuck to the tried and tested with a 35% jump in revenues to INR390 bln Net Income for the Quarter nearly $10 bln for a single quarter from INR 300 bln in the year ago quarter. Toplines at most banks dropped or grew modestly. RBI has agreed publicly also that the high interest rate scenario engenders a disproportionately higher risk of bad loans but the interest rate hikes have moe to come as commodities have not settled down yet to being down the inflation to a stable rate

Despite the low Tier I core Capital at 7.6%, the bank has not been able to set up a proposal to encourage the GOI to invest upto its mandated 55% in a rights issue or the bank.. Meanwhile the bank is raising International Capital. SBI’s NIM shot up to 3.89% in Domestic Advances and 3.62% overall from a 3.33% Domestic and 3.16% overall in the preceding March quarter ( almost 106 bps above ICICI Bank) Interest Income on Advances in fact grew 36% but investors are likely to be slow to heed the same on Monday as markets continue their xit spiral, Portfolio investment exiting the country as opportunities run out in the widely acknowledged fairly priced/overvalued market in Asia The growth in Advances was a health 18.73% just above the Industry growth rate of 18% while the PLR increases of 185 bps year on year made up for the extraordinary rise. However QOQ incrreases interest Income also up 12% with Advances growing from March by 2.x% NII is up more than 20% sequentially

Staff xpenses remain the most part of Operating expense increases as a Wage revision is charged continually. The counter cyclical provisions esp for contingencies ( black swan events) are another Rs 550 crores or INR 5.5 bln. Advances to Large Corporates stand at INR 1.15 tln for the bank and the Retail book is INR 1.65 tln SME, Agri and International Advances are a Trillion each too. The Banks NII is up to INR 97 bln or $2,5 bln up from INR 81 bln in the March quarter nearly 25% QoQ from $2 bln

Icici Bank, Festival of South Asia, Toronto
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Predilections – Casing the results season for fly by night investors

Securities and Exchange Board of India
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The latest in FII troubles for India Inc is that the $1-2 bln odd that has come in has been found to be patterned on coming results season for a play starting 30-40 days before results announcement and exiting 3-5 days before results. ICICI Bank is a case in point today for example. But then the SEBI investigation will yield more pertinent data.

FII clubbing is a deletirious feature they have not even tried to curb, and we face it when live in the trading room everyday. In fact some good practices ground in the same gentlemen’s club kind of action may be resisted more by market “operators a” and set up many an unequal battle in the ring but WITH RETAIL UNWILLING TO SPONSOR ANY KIND OF INVESTING RIGHT NOW, the markets are a transparent cornucopia of malfeasance from hawkish clubs where in trading it becomes dfficult to discern any line between a good trade and bad trade except when you can take cash to the bank.

Thus when FIIs get together for an idea arbitrage opp, it sticks out like a sore thumb

Managing credit growth in Asia

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Global banks are planning cut-downs slashing salaries and staff to gain back lost ground as revenue take a dive in 2011(

Interest rates rise in India on the other hand is creating another bag of worries for banks like HSBC whose demand is very much dependent on prevailing rates vs a vis their offering. Public demand for credit in India however has been shored up by NBFC loan demand(up 56%) and that is personal loans(unsecured, 17%) as public sector banks hold on to larger market shares in the domestic market. 

As of June 17,  when outstanding balances rose to 42 lakh crores ( a dip from an even higher 44 lakh crores in May) and deposits grew to 54 lakhs crores ( 56 lakh crores as of May) the incremental credit deposit ratio had come down to 44% from 88% in March, implying that banks would now be more conservative in the CD ratios even as higher rate deposits interest payous do not mean any significant dent in Net Interest Margins.

With Credit growth at 21% and closer to 22% for the quarter, Banks are set for a surprise showing in the quarter. However HSBC and Stanchart would continue a slower, tougher and less profitable showing along with other MNC banks for their urban 10% market share as swapped credit ratios were higher than 25-26 in relation to their Net worth in March

NBFCs are being used as intermediaries as 30% of NBFC loans get securitiesed by banks and realtors make a bee line for NBFC loans that come at a similar cost in the higher interest rate regime when compared to any bank offers if were still available to real estate. 

SBI avers credit growth

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The 20% target espoused by Managing Director, Krishna Kumar in Prateek Choudhary’s new regime augurs well for the Indian financial Services majors as a whole. Also new regulations on Foreign banks seem to have set them off again rather than bring a Welcome board to their workplace, means the Indian Duo and public monopoly of SBI will thrive in the coming credit tick.

Q2 onwards should be particulary good for credit growth and this pronouncement probably means aw welcome crowd necxt month as Q1 FY 2012 continues with the other mandated restructuring /apportioned NPL charges and the Minimum Stability fund provisions over the 56% limit not made by the bank earlier.

Citi starts flying again

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With its book crossing INR 1 Trillion in 2011, (having stayed asround there since 2006) Citi has restarted the expected growth from Indian Markets scoring an increase of well over 78%. The Bank scored an uptick of 65% to INR 1454 Crs ($363.5 mln) with 35% and 33% increases in Corporate assets and SME assets/ NPLs seem to be getting back in ccontrol for the remaining Citi operaions at 1.2%.

Predilections: Is it the individual than the Company?

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ADA group s a whole with its umbrella of companies move together as one company, while Reliance, having burnt its hands in oil flares tries to become a diversified conglomerate to represent India of the future . Both Groups ADA Reliance and Reliance continue to be expected to roll the markets and no individual earnings performances and valuations may matter to strategy and Capital raising teams at both companies.

They continue to look for the personal licence to muddy over their Sports, Financial Services investment for the Hydrocarbon major and the incessant hunger for Capital for Infra projects under Power and Telecom retail for the other group. Reliance Capital itself remains pressured as a subsidiary to such ambitions before new bank licences try to enforce an independence on the same .

A little more Capitalist as anyone would want a promoter to be but still, serious analysis would probably show up the deficiency of this mass correlation for internal investors and outside in hangers on to theIndia story who look to the return of Relaince as the proxy investment for India

Sunil Godhwani, Chairman and Managing Director...
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  • Predilections: PSUs represent the mass of the resource economy (
  • Predilections: If you still mind shorting the market.. (
  • Predilections – Our Faulty towers series ( Factoring the Indian Markets by beast ) (
  • Predilections: How about senseless shorting? (
  • Indian stocks slump 1.7%, led by Reliance shares (

Banking NIMs ( S&P proffers its opinion not rating)

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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.

Predilections – Our Faulty towers series ( Factoring the Indian Markets by beast )

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There are a lot of reasons we are having deeper cuts in the market daily, a 5% whipsaw on either side becoming very common. One of the first predilections we isolated was the NBFC trader and watcher ons angst with the constant over performancefrom the Financial sector.

Very frankly, almost half of our GDP coul d easily belong to Bankss and Financial Services and half of the remaining to other seervices stories, so our Bombay Club predeliction for manufacturing is still subservient to a largely bear or frustrated trader audience thence the whipsaws.

A Dominos foods , even though services was isolated by such a trader group in the market i believe, and thus also the aviation and the hotels story backers whio somehow cannot co exist with the banks and financial servicesp plays esp as in the branded domain, these sectors have just not enough going fo rthem compared to financials.

All our chosen Export hits also thus gravitate to the SME segments with mid cap Auto and Healthcare stories. A big gap nonetheless

Bank Results Season: SBI follows up on provisions

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After OP Bhatt left Pratip Chaudhuri has taken no time in utilising the change-over to mark a new baseline for the bank’s further performance measurement as it remains the star of the Indian Big league. With unending discussions on provisions the bank has raised provisions by more than $275 million or INR 1100 crores to INR 33 bln bringing profits to NEAR ZERO for the quarter. A Sales growth of 19.9% in NII shows that Credit growth tapering off will no longer be compensated by low rate marketing and on retail mortgages also all excess provision requirements have been adhered to to be on the policy makers side. The counter cyclical provision has also been created for India’s “TBTF” effort at INR 2320 crores. Operating profits for the quarter were higher at $1.5 bln or INR 6000 crs.

The bank has high Net NPAs dropping by a few bp to 1.63% Its rights issue has been deferred and a standalone provision exceeds $1 bln despite CAR being a precarious 11.9% and the government continues to look for a way out of commiting $3 bln required to maintain its stake in a rights offer and increase in the bank’s equity

meanwhile upstream energy companies have also been chosen to bear the rising OIL bill increasing their contribution to 39% (proposed)

The bank’s NII is INR 80.6 bln and is likely looking to sustain its margins in the high rate regime, the changeover to a less aggressive marketing and a more compliant spread under P Chaudhuri. The standalone NII is an increase of 20% over yoy Q4 2010

A lot of good results have thus been temporarily ignored as the SBI catch up sinks in. Operating expenses only grew 13.67% year on year. NIMs in fact improved more than 25% from 2.66% to 3.32% for FY 2011 year on year. The Tax paid out will get them write backs as the provisions for pensions are expensed in the subsequent quarters

ON the whole the SBI effort has been an improvement but the bank is now going to start with following the letter of the law to the hilt as the first 3 quarters had already given it good profits and a

Economic development in India
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 new chairman is at the helm

The public bank conundrum – Canara Bank shows up a red tailed monkey?

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Profits seem below expectations at Rs 899 Crs or $225 mln esp as the expectation was a good 10% on the upside for NII, the Bank delivering less than $250 million even at 40 to the dollar, NIMs comparing with global peers in a far more unleveraged structure and NPAs rising despite spreads being almost static across the sector, the slow bear downhill is fast looking to break the ice in the lake..Welcome to bouts of snow in midday heat

And the markets are bothered by a 2G investigation proceeding logically

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Where in investors’ faith in our Capital markets is likely to suffer no end that 5 Bail pleas rejected as breaking news is worth a market breakdown , I would have thought the market should react positively showing strengths of controls and investor forebearance in a 5 Trillion decision of Comm 2G Spectrum, which has been the economy’s nbiggest revenue earner

India Earnings Season: Another Score for YES!

Yes Bank
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 India’s crème de la crème again got a pleasant surprise per their expectations as YES Bank continued increasing its presence in retail with bigger and better CASA scores now comparable with Indusind (27% CASA) and ING Vysya Bank(with ultra retail focused franchises purchased from Vysya)

The bank scored $84 million in Net interest income, 40% higher than last Q4’s $62 million and profits have cruised to $50 million after an equally resounding growth to $35 million last year. The numbers ( NII 349 Crs and NPAT 200 Crs ) are well ahead of expectations and the bank will be key to corporates harnessing the global emerging markets and more important the big Super India – super growth storyline, still intact after recessions and slow growth demons

We’ll keep adding as details come out

It also seems ET is finally responding to competition and results from YES got a much erudite response after things have been sharply upped by us and mint (Tamal Bandhopadhya) in Banking: Here’s the ET insider

With deposit growth coming in higher as against loan growth, the credit-to-deposit ratio declined 400 bps sequentially to 75%.

However, owing to repricing of loans and hike in lending, the bank’s net interest margin ( NIM) — a measure of the difference between the costs of funds and the rate at which loans are priced — remained flat at 2.8%. Going ahead, with a low CASA ratio and the spectre of rising interest rates, there could be pressure on the bank to maintain its margins.

Currently, CASA (which is a low-cost deposit route) constitutes only 10.3% of total deposits. That may be boosted with the bank adding 65 new branches during the year.

Also as a later post suggests YES Bank detractors might like to get its borrowing rates in focus after Rabobank leaves town

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