Because technically, it is an adjusting event based on subsequent events which confirm the state of affairs as of the reporting date. You can google subsequent events provision in google and understand it, pretty simple and important concept.
IMO accounting wise also and otherwise also it’s better they clear this out in Q2 itself so there is higher chances of good numbers in Q3 and Q4.
The way I have ben learning investing as a newbie, I believe in looking at the core banking performance and all the small things that eventually compound. Having said that, IDFC has been delivering on each of those compounding steps well (except for the CTI which slightly concerns me too). Further, only and only good processes yield great outcomes and VV has been communicating fervently the underwriting processes they follow etc.
Having said that, IMO the core business has been delivering good numbers. And as a Finance professional myself, I truly believe in over communicating and over provisioning (say SMA1 provisioning) than not do it (BTW over provisioning is conservative and not aggressive as someone mentioned above). Banking business is inherently always going to have credit risk and always some or the other sectors are always going to be hit, what matters is the credit cost expectations of the investors before they buy a bank stock, for me anything below 2% and 1% is great and at all times, in all scenarios as long as this number is being maintained, that’s good especially for small retail / MFI loans which are unsecured.
The only change in my expectations (again as someone else mentioned above) is that earlier everyone wanted a quick 3-5x in 3 years time frame and the reality is now that it may take 5 years or more to get there, so this is more about a long term game. As such, what needs to be tracked is long term processes, long term business matrices etc than worry about quarterly numbers. IMO great time to add if people have liquid cash and they are managing risk.
And yes, IDFC’s biggest risk (from a retail investor POV) would always be VV’s KMP risk as we are all betting on him (as any VC bets on the Founder more on the business).
PS: I am holding and biased!
Subsequent Events – Definition, Example, Types.
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