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The committee has recommended a range of norms, more prominent of which are those on NPA
recognition and on standard provisioning. Among NBFCs under coverage, prima facie there
seems to be no material impact on HDFC Ltd and IDFC. The provision impact on PFC is about
2.2% of existing networth.
RBI- Key recommendations of the Working Group on NBFC sector
The tier I capital requirement will be 12% to be achieved in three years for all registered deposit
taking and non deposit taking NBFCs. Note, as per current regulations, the total capital adequacy
ratio (Tier I + Tier II) is 15%.
Asset classification and provisioning norms similar to banks to be brought in phased manner for
NBFCs. Note, this implies NBFCs will have to likely comply with 90 day norm for bad debt
recognition and may be required to make standard asset provisioning. (40bps as required by
banks).
Accounting norms applicable to banks may be applied to NBFCs.
Government owned entities that qualify as NBFCs may comply with the regulatory framework
applicable to NBFCs at the earliest.
Board approved limits for bank’s exposure to real estate may be made applicable for the bank
group as a whole, where there is an NBFC in the group.
The risk weights for NBFCs that are not sponsored by banks or that do not have any bank as part
of the group may be raised to 150% for capital market exposures (CME) and 125% for
Commercial Real Estate (CRE) exposures. In case of bank sponsored NBFCs, the risk weights
for CME and CRE may be the same as specified for banks.
HDFC Limited- No material impact
Note, HDFC is governed by National Housing Bank (NHB) guidelines. However, if the above
mentioned provisions become applicable for HDFC, we believe the impact will likely not be
material.
The tier I was 12.2% as of June 2011 (total CAR of 13.8%). Note, HDFC Limited had issued
warrants which are due for conversion in August 2012 (FY13). Given this, we believe HDFC
appears comfortable with respect to capital adequacy.
The CRE exposure was about Rs 280bn (24% of loan book) as of March 2011.
The non performing loans (NPLs) based on 90 day overdue basis were 0.83% of loans and were
0.55% on 180 day over due basis. As regards standard asset provisioning, HDFC appears
comfortable on the existing loan book. Further, HDFC provides about 40bps on an incremental
basis annually (FY11).
At the current price, the core mortgage business of HDFC Limited (HDFC IN, Buy) trades at
about 4.0x FY13F BV.
IDFC - No material impact
The tier I was about 21.5% as of June 2011 (total CAR at 24% as of June 2011).
The cumulative standard asset provision carried by IDFC was about 1.6% of standard assets as
of March 2011.On an annualised basis, IDFC provided about 70bps on incremental
disbursements in FY11. Accordingly, IDFC appears to be placed comfortable with respect to
standard provisioning norms.
IDFC recognises NPLs on 180 day over due basis compared to the 90 day NPL recognition
norms applicable to banks (which will likely apply to NBFCs as per the draft recommendations).
However, at this point, we are unable to quantify the impact of the same. Note, the reported gross
non performing assets were 0.2% and net NPAs were 0.1% as of June 2011.
IDFC being an infrastructure finance company (IFC) follows exposure norms as required under
RBI’s guidelines for IFCs. As per IFC norms, the exposure to a single project and a single
business group is 25% and 40% respectively of the IFC’s net owned funds. However, as per
banking norms, the exposure ceiling limit is 15% of capital funds in case of a single borrower
(additional 5% provided the additional credit exposure is on account of extension of credit to
infrastructure projects) and 40% in case of a borrower group (additional 10% for infrastructure
projects).
At the current price, IDFC (IDFC IN, Buy) trades at 1.6x FY12F BV and 11.7x FY12F earnings.
PFC-Standard asset provision requirement about 2.2% of existing networth
The total CAR was 18.9% as of June 2011.
Assuming a 40bps standard provisioning (as required by banks), the provision requirement works
out to about Rs 4.2bn for PFC (40bps on loan book of about Rs 1041bn) as of June 2011. The
impact of the one time provision is about 2.2% of June 2011 networth or Rs 3 per share (14% of
FY12F net profit). On a recurring basis, the standard provision charge is about 8bps on RoA
(about 3% of RoA).
According to management, PFC recognises NPLs on 180 day over due basis compared to the 90
day NPL recognition norms applicable to banks. At this point, we are unable to quantify the
impact of the same. Note, the reported gross NPLs were 0.23% and net NPLs were 0.2% as of
June 2011.
At the current price, PFC (POWF IN, Buy) trades at 0.9x FY12F BV and 6.0x FY12F earnings
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
The committee has recommended a range of norms, more prominent of which are those on NPA
recognition and on standard provisioning. Among NBFCs under coverage, prima facie there
seems to be no material impact on HDFC Ltd and IDFC. The provision impact on PFC is about
2.2% of existing networth.
RBI- Key recommendations of the Working Group on NBFC sector
The tier I capital requirement will be 12% to be achieved in three years for all registered deposit
taking and non deposit taking NBFCs. Note, as per current regulations, the total capital adequacy
ratio (Tier I + Tier II) is 15%.
Asset classification and provisioning norms similar to banks to be brought in phased manner for
NBFCs. Note, this implies NBFCs will have to likely comply with 90 day norm for bad debt
recognition and may be required to make standard asset provisioning. (40bps as required by
banks).
Accounting norms applicable to banks may be applied to NBFCs.
Government owned entities that qualify as NBFCs may comply with the regulatory framework
applicable to NBFCs at the earliest.
Board approved limits for bank’s exposure to real estate may be made applicable for the bank
group as a whole, where there is an NBFC in the group.
The risk weights for NBFCs that are not sponsored by banks or that do not have any bank as part
of the group may be raised to 150% for capital market exposures (CME) and 125% for
Commercial Real Estate (CRE) exposures. In case of bank sponsored NBFCs, the risk weights
for CME and CRE may be the same as specified for banks.
HDFC Limited- No material impact
Note, HDFC is governed by National Housing Bank (NHB) guidelines. However, if the above
mentioned provisions become applicable for HDFC, we believe the impact will likely not be
material.
The tier I was 12.2% as of June 2011 (total CAR of 13.8%). Note, HDFC Limited had issued
warrants which are due for conversion in August 2012 (FY13). Given this, we believe HDFC
appears comfortable with respect to capital adequacy.
The CRE exposure was about Rs 280bn (24% of loan book) as of March 2011.
The non performing loans (NPLs) based on 90 day overdue basis were 0.83% of loans and were
0.55% on 180 day over due basis. As regards standard asset provisioning, HDFC appears
comfortable on the existing loan book. Further, HDFC provides about 40bps on an incremental
basis annually (FY11).
At the current price, the core mortgage business of HDFC Limited (HDFC IN, Buy) trades at
about 4.0x FY13F BV.
IDFC - No material impact
The tier I was about 21.5% as of June 2011 (total CAR at 24% as of June 2011).
The cumulative standard asset provision carried by IDFC was about 1.6% of standard assets as
of March 2011.On an annualised basis, IDFC provided about 70bps on incremental
disbursements in FY11. Accordingly, IDFC appears to be placed comfortable with respect to
standard provisioning norms.
IDFC recognises NPLs on 180 day over due basis compared to the 90 day NPL recognition
norms applicable to banks (which will likely apply to NBFCs as per the draft recommendations).
However, at this point, we are unable to quantify the impact of the same. Note, the reported gross
non performing assets were 0.2% and net NPAs were 0.1% as of June 2011.
IDFC being an infrastructure finance company (IFC) follows exposure norms as required under
RBI’s guidelines for IFCs. As per IFC norms, the exposure to a single project and a single
business group is 25% and 40% respectively of the IFC’s net owned funds. However, as per
banking norms, the exposure ceiling limit is 15% of capital funds in case of a single borrower
(additional 5% provided the additional credit exposure is on account of extension of credit to
infrastructure projects) and 40% in case of a borrower group (additional 10% for infrastructure
projects).
At the current price, IDFC (IDFC IN, Buy) trades at 1.6x FY12F BV and 11.7x FY12F earnings.
PFC-Standard asset provision requirement about 2.2% of existing networth
The total CAR was 18.9% as of June 2011.
Assuming a 40bps standard provisioning (as required by banks), the provision requirement works
out to about Rs 4.2bn for PFC (40bps on loan book of about Rs 1041bn) as of June 2011. The
impact of the one time provision is about 2.2% of June 2011 networth or Rs 3 per share (14% of
FY12F net profit). On a recurring basis, the standard provision charge is about 8bps on RoA
(about 3% of RoA).
According to management, PFC recognises NPLs on 180 day over due basis compared to the 90
day NPL recognition norms applicable to banks. At this point, we are unable to quantify the
impact of the same. Note, the reported gross NPLs were 0.23% and net NPLs were 0.2% as of
June 2011.
At the current price, PFC (POWF IN, Buy) trades at 0.9x FY12F BV and 6.0x FY12F earnings
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