Finally the details of the Macquarie report "The Last Bastion Falls" are available for the case of HDFC alerted in yesterday late afternoon's nes alerts. Macquarie's protestations of research may ell be comparable to current /industry standards of promoter and financial information acccess but the research report is the result of HDFC having adopted a practice as an Industry leader might, with due recourse to the management's judgement call. Hoever the information provided in the report could easily have been sharedby HDFC in an analyst groupinstead of being "discovered" bvy HDFC. 

The issue at hand in financial accounting terms is simple, while provisioning for standard assets, making capital avvailable against future losses is made by due modelling and expensed thru the P&L, when a new provisioning was requested by RBI on teaser loans, the institution exercised its judgment, made its stand public and passed due provisions without expensing them and held it against reserves of the institution.

Similarily, the institution has passed thru reserves Interest "expense" on Zero Coupon Bonds to raise monies for investing in HDFC Bank and the insurance JVs. In both cases the use of reserves is undeniably justified and the management has not had to pass any deviations to policy or contravene accounting standards The said analyst in question perhaps assumed the HDFC profits already discounted these provisions as ell and needs to just review those Earnings based forecasts here he has made the wrong assumptions

In both questions, HDFC's NIMS ill not suffer materially  even if the expenses are passed thru and as such are incomparable to questionable accounting practices adopted by Macquarie and other OECD based Financial institutions in the last decade with two financial crises in 2000 and 2008 a direct result

HDFC has clarified that current recognition of Income from subsidiaries has been compensated by the said policy as they only recognise dividends and not the subsidiary revenues and profits which will be part of its balance sheet under IFRS.  This treatement does advance the benefit of a new aaccounting standard but as HDFC has bee clear and unequivocal in the use of accounting policy it cannot be said to have deviated from conservative accounting standards or other such. However the question against the company owuld be that the impact on earnings was not clearly specified at the time of announcing the results as RoE and NIM calculations would have been different for us in folloing the company's financial performance.

That also goes to a comment on the Indian environment here such clarifications are alays issued after the event and being part of a clique in the know still matters more than your expertise and depth in the subject.  

 

Posted via email from The India Investment Post