I went thru IDFC and Capital first VP thread early today am. Almost couple of hundred posts dating back to 2016. treasure trove of how retail investors get carried away by sweeping generalisations and Halo effect around storied names like Dr Lal and now VV. Few truths … however unpleasant they are to our ears are as follows
“We are almost done with all the provisions …and from next qtr it’s business as usual” …This statement from multiple MGMT commentary from 2018…has become the standard ingredient in their qtrly presentation.
“The new bank will NOT have any legacy infra loans …it will have a clean slate …” biggest joke played on retail investors …qtr after qtr …same story …just replace the name of the stressed account from x to y .
3…VV is a star …honest ethical etc…yeah yeah .we have all heard that million times .But my respect for a CEO comes down when even after 15 months he isn’t able to stop this provisioning cycle. One should read the interview he gave along with Dr Lall n Jan 2019 wherein he clearly mentioned that a thorough due diligence of all accounts are done and they are starting on a clean slate ( “don’t anticipate any incremental provisions.the existing provisions are adequate”) .This is the biggest story spun .
IDFC is the next HDFC…no comments
Dr Lal is an institution builder
Story tellers have always been able to make investors suspend their own judgement and fall for smooth talk . of course even I have fallen for this glib talkers … But the whole point of this thread is to figure out how to make decisions based on facts and not on stories
I agree with what you say on Rajiv Lall. He has created a right mess after the bank was formed by investing in NCD’s of companies like DHFL, RelCap etc. If you see most of the provisions after the merger with CapitalF are from these NCD investments rather than from the infra book, so at the time of the merger what was said about the infra book being well provisioned for wasn’t incorrect. Secondly how can one fault VV for not cleaning up the books fast enough when every quarter there is a new issue?? Should VV have made provisions for say Vodafone in Dec 2018 itself?
The point I’m trying to make is … Don’t assume just because the supreme leader VV has told “all junk provided for”… Don’t take him at facevalue . He is as clueless as you and me … just that he is able to peddle this nonsense better than u and me . And he of course is clearly biased to keep making such statements.
I am not expecting him to provide for 'Voda’esqe black swan events ( knowledgeable people would disagree though!) …but expected him to come clean with a roadmap to get rid of toxic dump he had inherited .
And u shouldn’t fool investors today by showing Capital First stories …how I grew it to x/ y etc etc . Even today he doesn’t take as much ownership of past issues ( continue to talk about them as legacy problems) …you know what …once u r n the driver’s seat for almost 15 months …there is NO such thing called legacy. It’s jolly well your problem my friend
Ok so RelCap, DHFL and Vodafone have been responsible for 95% of the provisions in the last 5 quarters if you ignore the DTA adjustment for the tax rate change in the Sep quarter. Were any of these known in Dec 2018? Secondly he provided for DHFL and RelCap in Mar and June as soon as the the issues became clear and much before any of the other banks with exposure. What else could he have done?
The problem is such that he could provision only as and when he is certain of the issues in the companies. Let’s say IDFC has exposure to a infra company that’s AAA rated and is repaying promptly. He cannot simply provision for it just because it is an infrastructure account. He has to be certain that it is an NPA which depends on the timing. He’s unlucky to some extent that some bad account is cropping up every quarter which he could not foresee at the time of merger. Given a chance he would have definitely loved to start off with a clean slate. But these are definitely legacy issues and is nowhere related to his retail story. One can conclude that he’s inherited low quality loans for a quick bank license.
Most of the damage hasn’t happened from the loan book but infact the NCD book all of which were AAA/AA at the time of investment. Agree with the rest of your points. VV’s CapF book and new retail loans are doing very well and his 5 year targets are being exceeded on every point be it CASA/ Retail Book/ NIM’s etc. If the Voda issue is sorted out on Monday (SC Hearing) then we can possibly expect a 1500-1700cr writeback next Q.
My friend …I wish we all had such simple escape options in life by telling … it’s bad luck / didn’t anticipate to be this bad etc. the infra stress was evident from 2016/2017 … Dhfl from 2018.
He always had the option of parcelling out the junk book and exit with a frenzy … exit with a sense of urgency and exit as of his life is dependent on that . All I’m saying is … he was a bit too casual ( as technically he didn’t originate those junk loans) . he was clued on to building the casa franchise , opening retail branches … basically all the right things …
Can’t help recalling the famous dialogue from this awesome movie Margin Call …loosely based on crisis situation of 2008.
[John Tuld ]: So, what you’re telling me, is that the music is about to stop, and we’re going to be left holding the biggest bag of odorous excrement ever assembled in the history of capitalism.
[Peter Sullivan ]Sir, I not sure that I would put it that way, but let me clarify using your analogy. What this model shows is the music, so to speak, just slowing. If the music were to stop, as you put it, then this model wouldn’t even be close to that scenario. It would be considerably worse.
[John Tuld …The CEO states … Let me tell you something, Mr. Sullivan. Do you care to know why I’m in this chair with you all? I mean, why I earn the big bucks.
[Peter Sullivan ]Yes.
[John Tuld ]: I’m here for one reason and one reason alone. I’m here to guess what the music might do a week, a month, a year from now. That’s it. Nothing more. And standing here tonight, I’m afraid that I don’t hear - a - thing. Just… silence.
And this is what VV failed to do . he is a good operations guy …but fails miserably on evaluating the changing landscape .i rest my case .
Please go see the liquidity in the NCD market and then comment on exiting these investments. In theory everything sounds easy but in real life its not always the case. He has brought down the infra/corporate book by 15k crores in the last year so where it was possibly it has been done.
If I see the video he guides 400 to 500 crore of retail npa’s per qtr ie 2000 crore per year on 50k loan book it’s 4% right. Am I doing anything wrong here?.. also he says 200 cr wholesale. That means atleast 600 cr provisions per qtr , looks pretty big to me.
What happens when Capital Adequacy Ratio(CAR) goes below the regulatory requirement (which I presume is 9% in India)? What is the impact on shareholders? How can a bank fix this issue?
I find quite a few attractive graphs in the investor presentations claiming the positives. Digging a little deeper, I can see that CAR is actually on a downward trajectory and has moved from 16.5% to 13.28%. Yes Bank is currently struggling to raise capital to maintain its CAR and it looks like the terms and quality of deal are not very encouraging. I hope IDFC would not reach that level.
In the interviews VV seems very confident of raising further capital. Would it not dilute value for existing shareholders?
Considering the upheaval of last few years in banking sector and the helping hand of IBC, it is almost certain that well run banks will see better days in the ensuing quarters. IDFC first seems to have got off to a good start. If VV does not make adequate provisions now, these would not be viewed kindly, once he has exhausted his honeymoon period, which seems to be more or less over with this quarter. Hopefully we will see a better result in Q4.
Just a hypothetical workout from the interview given to cnbc awaz.
March 2021
Total advances - 110000
Retail - 70000
Wholesale - 40000
Gross NPA- 5998( considering stressed book turns NPA in worst case scenario)
Net NPA - 3218 ( 51% already taken and no further provisioning required for another one year)
Gross NPA percentage wise- 5.4%
Net NpA - 2.5%
These are all worst case scenarios considering no recovery takes place. And to add to the worry is vodafone idea. Which i dont think will default.
Now Net interest income would be 4.5% of total advances i.e 4950 crore yearly
Since cost to income is on higher side. Lets consider it to be 75%.
Total profit would come around 1200 crore or more from march 2022.
Is it sufficient to increase book value… No…
But as said by vaidyanathan, a 25 perc compounding from there on will be phenomenal amd no looking back… But banking is not that easy i guess…
Good things in the presentation :
As u see the retail book, they have not increased MSME as new npa will merge from their only. Msme are under severe stress, and makes a big chunk of restructured portfolio.
They have increased only consumer lending exorbitantly.
They are following a set strategy and performing on it in a tough environment.
CRAR comfortable to grow th advanves atleast another 30000 crore from here including provisions.
Bad thing:
They have not delved any information on restructured assets.
