ICICI Bank has lost its mandate

ICICI Bank Q1 net up 21 pct | Financial Services, Reuters

India’s No.2 lender, on Saturday beat forecast with a 20.6 percent rise in net profit helped by higher trading income.

zyakaira notes: Axis Bank and SBI results were superlative in comparison, even Kotak did a nice job. Despite assurances, Chanda Kochchar’s stamp of return to old ways of significant bank intervention in all subsidoary businesses like investment banking and private equity and conservative underwriting practices along with slow moves in rural infrastructure and micro credit would mean a very slow H2 2009 and H1 2010. The current freeze in personal lines will continue to impact spread as well.

Net Interest Income is Down, and the bank is artificially holding Interest rates at ransom? Provisions are up almost 33% and NPAs are up to 2.33% from 1.81% – a result of malpractices across operations, cabalization and induction of criminals in its personal lines. I would like to think I’m being logical and not just posting a rant. Also, ICICI Bank considerably weakens India’s competitive position vis-a-vis MNC players and even the bellwether stock HDFC Bank which is otherwise only serving the small shopkeeper community instead of planning any rural distribution.

HDFC Bank results this week have been spectacular with a Net Profit growth of 30% compared to a meagre 21% for ICICI Bank. As insiders would say, ICICI Bank has lost itself in the melee they called growth but as markets would make obvious, ICICI Bank misused its mandate and has shown the potential to ignore any sensible advice from any quarter and proceed much like a drunk junk trawler on the high seas than like a responsible corporate leader.

HDFC Bank NIM is 4.1% compared to just 2% for ICICI Bank, even though they are not aggressively courting suspect business anymore. Deepak Parekh is retiring and Aditya Puri has spent 15 odd years at the helm of the bank but HDFC Bank has stayed with SME business and not ever been in the same league as ICICI after it outgrew its initial discipline and rigor in the mid 90s. ICICI’s CASA at 30.9% is a cause of concern for the bank agast 45% for HDFC Bank the only worthy direct competitor. But now, ICICI Bank is likely to lose the ball to PSBs like SBI after their consolidation exercise and even Axis Bank. HDFC Bank Net Income increased 25% while fees and commission helped Non Interest Income increase by 75.9% HDFC Bank (1416 branches in 550 cities) Balance sheet has increased to INR 186115 Crs ($3.8 billion) and Retail lines are 58% of the overall advances with CAR at 15%

ICICI, which grew loans by a third in the past few years by boosting retail, personal loans and credits, has changed tack to concentrate on the safer corporate and housing loans. India bank loan growth has slid to 16 percent in June from nearly double that in the year to March 2008 as demand for credit fell in a slowing economy.

Having backed these two banks earlier in my career, it has been excruciating to watch them take the nation down in the last few years and hopefully, the PSBs and the Yes Banks would obviate the need for these megaliths much like we outgrew Indian Financial institutions in the mid 90s..

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SBI, PNB results

State Bank of India and Punjab National Bank both effectively proved size does matter. Their growth absorbed a growth in deposit rates ( 38% for SBI) effectively absorbing the stimulus and passing on rates by RBI unlike their MNC and private bank counterparts that have ‘managed’ their deposit rate cost by instantly cutting rates early and then keeping credit down, almost artificially probably as they waited to be sold off for pennies by the head offices. I am almost sad and apologetic at sounding like a parochial small trader / farmer but the facts on ground are now out for everyone to see.

 State Bank of India’s quarterly profits grew 42% and restructured loans upwards of Rs 11000 Crs in time. While ICICI plans a paltry Rs 1500 Cr restructuring while NPAs kept rising at the private sector banks and are expected to rise further into the 3%+ zone, PNB and SBI NPAs are controlled and have fallen consequent to the restructuring. SBI has also managed to attract huge deposits in this period reflecting higher confidence in the behemoth ( also true for PNB) while Income from advances has grown at a lower 23%. Net Interest Income had earlier grown in FY09 to Rs 17000 CR ( USD $3.4 billion) while Consolidated Net Income climbed by 33% to INR 23000 Crs ( $460 million – $480 million at current FX rate ) beating the Bloomberg survey by 20%

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Indian Banking Businesses – Whither growth?

I wonder how any bank with a brand like Yes or Kotak can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC. They do have some presence now in London.
 
Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seamlessly extended to the rest of the world. It remains to be seen if that home brewn recipe of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?
 
All the PSB scrips remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank. But sooner than later the investing denizens will realize our SME status in the global market and unlike China, here Private Enterprise is free to make its own market rules, which is not something we have made good use of till now.
 
The other priority and now a key priority is of course our spreading into the hinterland as we strengthen distribution and support the microcredit revolution and the farmers. This spread would require immediate action by the banks as the government has al but given the keys to the treasury for the banks to lend and spend and while Corporate credit may be lukewarm, the hinterland beckons.
 
Last but not the least, the banks are key to the Indian consumer treasure now that it is all about lifestyle and disposable spending. While unsecured credit would not be remunerative, as we cannot go beyond the current systemized and sometimes too painfully detailed back office ops required to support the credit.
 
As a banker I probably wonder why the boom did not last, but then nothing lasts forever and as far as emerging markets are concerned , it remains a s good as it gets as Class B towns and Metros keep growing incessantly and people continue to spend on retail, lifestyle and entertainment. Infrastructure financing will attract the big bucks and the retail lifestyle spending will grow as fast as ever within the next 12 months, the magic being in access and prompt delivery by the banks.
 
Predictions: Interest rates are headed lower and Treasuries are going to be fatter and richer but still incomparable to the riches in the global markets
 
[Category India]
[Tags India infrastructure, Banking, Bank stocks, Wealth, Retail Lifestyle, Amitonomics, Lifestyle Economy, India, Economy, Finance]
 
Amit Mittal
mittalster@gmail.com
 
Amit Mittal
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MD, Advantage Research Pvt Ltd
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YES BANK – What plans?

Finally, the cat is out of the bag. Yes Bank albeit a little late or cautious, has decided to step into the Institutional market. It will be asking investors to pick up a $250m QIP stake to shore up its capital. In the meantime, as reported earlier, they have also put on hold their diversification and market development plans on the board for the last 2 years now as they get into some serious consolidation in its core banking business. They have a good sleeping brand and their recent cost cutting efforts would also bear fruit. However, their focus on SME business might change now as the current ticket size is very unremunerative for them. There was some recent murmur when Rabobank announced its plans to enter the country directly, but that is a non-starter since Yes Bank would not go for the stake sale by Rabobank without making sure the house is in order as a deeper recession is equally likely in the next 12 months.  

Yes would need a little serious selling with big ticket business while continuing to present simple and generous options for retail and SME customers. Their non presence in asset management and broking would hardly raise any eyebrows as the business entirely survives on institutional volumes and even a Kotakstreet and a sharekhan are essentially struggling with their current “low” period. 

I wonder how any bank with a brand like Yes can today crack open the expat market which has a few relatively unknown niche players ( Geojit, recently acquired by HSBC) It would need key leadership experience to realise a valid entry point. One option however, at the barest minimum requirement, is to go for a PSB or a local bank in UK and Australia or the Middle east. That requires capital but any other option leaves you with a performance like ICICI Bank which has managed only rep offices in all its overseas expansion and have not been able to generate the required trust without a retail presence on the ground, leaving the field seemingly open for players like ING and HSBC. 

Regulatory level liaison with developed markets would sadly continue to maintain the respectable disconnect that exists as emerging markets can barely acknowledge their requirements of the day as they are seemingly extended to the rest of the world. It remains to be seen if that home brewn recipee of the Basel and BoE would ever land in some drifting current and be taken care of. A way must be found for India to spare the cash and show their value in the developed world and invest in these international markets before much more will come out to bear on market shares of all the players. This is not to belittle current efforts from either side but I didn’t see it on the agenda in these last few years at work. It is never too late to start?

The scrip remains a good buy in Indian exchanges and I look forward to even more QIP issuance from YES Bank.  

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Tweets from the Market – July 24, 2009

Do remember to validate picks at http://socialpicks.com/zyaadakairaada/portfolio $AMZN is down 8% as we speak

Facebook at 77 million visitors, Amazon 64 m, Craigslist at 47 m, WordPress at 26m and Twitter at 20m compared to Goog at 157m in June09

about 2 hours ago from TweetDeck

So $AMZN makes $1.75 bn per month from 64 million visitors

5 minutes ago from TweetDeck

That is more than $27 from every single visitor! $AMZN

3 minutes ago from TweetDeck

If Twitter made 10% of that they would have sales of $54million to start with ( based on June comscore)

2 minutes ago from TweetDeck

China’s new loans may surge to a record 11 trillion renminbi ($1.6 trillion) this year as the government refrains from tightening lending rules to protect economic growth

just now from Tweetdeck

Goldman /Blankfein paid a 23% return on the govt’s TARP investment, paying $1.1 billion for the warrantshalf a minute ago from TweetDeck
Also Buffet sold a third of his stake in Moody’sjust now from Tweetdeck

China’s state construction giant raised a $7.3 billion in IPO4 minutes ago from TweetDeck

(Green Shoots?) Both American Express (AXP) and Capitol One (COF) reported earnings that were quite weak (seekingalpha dot com)2 minutes ago from TweetDeck
$CIT looks in line to become smaller, selling its comml business and most likely losing its aviation lending and rail finance biz profitablyhalf a minute ago&nbs
p;from TweetDeck
BTW, we continue to be short on both $AXP and $COF and bullish on the market ( same as before act. results came out @zyakairahalf a minute ago from TweetDeck

<-> twitter @blrmoneytalkz

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More Capital for Reliance ADA Grp

At its RNRL and Reliance Capital AGMs today, Anil Ambani announced new Capital raising plans for its Insurance and Infrastructure companies including the Western Freeway Sealink, utilizing the current buoyancy in the markets to “unlock value” Thus efforts continue to overcome challenges to RNRL from the new legal action by customers and Government for actioning RIL PSC (Production Share Contracts)
 
Reliance ADA Grp made plans public for spending Rs 10000 Crores ($2b) to add 20MT pa capacity in Cement making apart from reiterating its earlier plans for Insurance ( That would be a large 1000 cr, $200m issue before QIP). Reliance also announced that it would be diversifying into Investment Banking later this year. They have recently floated a Domestic Investor focussed Private Equity fund and will obviously learn from previous aborted ventures of Rel Capital when it was more a shared concern of the two brothers as also a direct support line for Grand Ambani plans
 
In related news, Yes Bank has also organized a $250 m QIP while, IDFC has added 40K ESOPs to its capital and IFCI has acquired Rs 300 cr ( $60m of MCX from the software team at FTIL) The iron is hot, and ADA has always been the more financially literate and savvy teams.
 
 
[Tags India, India Infrastructure, IPOs, Infrastructure, Indian Economy, Reliance ADA, Anil Ambani]

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Another ICICI alumnus adds $500 million

Renuka Ramnath raises multiples | Reuters PE

A private equity fund launched by the former chief of Indias ICICI Venture plans to raise about $500 million, the Economic Times newspaper reported on Monday.Renuka Ramnaths firm, Multiples, has already received financial commitments of $150 million to $200 million from some partners, the paper said, citing the chief executive of an unidentified private equity firm.The commitments are in the process of being formalised and the first tranche of the fund could be in place in less than two months, it said.Ramnath could not be immediately reached for comment.”She plans to raise a shade less than $500 million … her primary targets are pension funds, fund-of-funds and a select group of high net-worth individuals and is looking at 50:50 domestic/international investments ratio,” the paper quoted an unidentified private equity investor as saying.

via Indian PE fund to raise about $500 mln – report| Industries| Financial Services| Reuters.

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New $500m fund from ICICI Venture

ICICI Bank plays with ICICI Venture Fund | VCCircle

zyakaira notes: You heard it here earlier as well, ICICI Bank is getting more M&A mandates instead of ISEC and now VC as well, for its distribution and allied credit strengths..it’s a much different stress and they might be a curious animal in the next 12-18 months, better to invest with SBI and JPM

Amidst a series of departures of senior officials, India’s leading private equity firm ICICI Venture Funds Management Co. Ltd is in the process of launching a relatively smaller Rs 1,000 crore real estate fund, according to two sources close to the development. The plan for the scaled down real estate fund comes at a time when the firm is facing hurdles in raising commitments from investors for some of the fund initiatives it announced earlier which included a $1-1.5 billion real estate fund.The firm, which manages more than $2 billion currently, had been in the news with its long time MD and Chief Executive Renuka Ramnath quitting in April. Ramnath was replaced by banker Vishakha Mulye, who was till then an Executive Director of ICICI Lombard General Insurance Company.The change at the top deck of ICICI Venture has reportedly raised concerns among many investors – mainly foreign – and that is considered one of the reasons for the firm’s plans to launch a smaller fund.The fund plans to mobilise 90% of the target corpus from domestic investors, both institutional and high-networth individuals HNIs, sources told VCCircle. Most PE firm have been raising capital abroad, while ICICI Venture is turning to domestic investors so that it canuse ICICI Bank’s distribution muscle to reach out to the local investors.

via As Top Execs Move Out, ICICI Venture Plans A New Smaller Fund | VCCircle.

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Was India ever impacted by the recession?

India’s huge market potential – Was it ever impacted by the recession? What do you think? J P Morgan recently appointed a senior ICICI Bank officer as MD and is launching retail/wealth operations

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