EXECUTIVE SUMMARY. Under the threat of being pulled up for contempt of court by the Supreme Court of India, the Reserve Bank of India (RBI) finally disclosed the confidential inspection reports, called Risk Assessment Reports, of some banks requested under the Right to Information Act (RTI), 2005. The reports, though dated (from FY2013 till FY2015), provide a valuable insight into the actual working of banks, at times in contrast to the management’s commentary to shareholders at that time. In the case of Axis Bank, the divergence of views of the management and the banking supervisor is evident. Many in the sell-side and business media tend to regard management’s commentary with reverence, and these supposed sentinels regurgitate the same to their clients and the public without the rigour of critical evaluation. The now public disclosures of the RARs of banks is a rude wake-up call to these watchpersons to thoroughly scrutinize and challenge audited accounts and management commentary. Media reports cite that Axis Bank may be considering a US$ 1.3 bn equity issue, and although a new CEO has taken charge, investors may well want to exercise caution regarding management commentary in light of the RARs that have been made public.
Academic studies have proved the commercial viability of research by taking it from the lofty towers of academia to the lowlands of the trading floor.
as the HDFC Bank RBI divergence story shows, the huge number of analysts and journalists deliberately ignored and continue to be oblivious to a story that is staring at them in their face and it is in this void that independent research can flourish and prosper.
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"It would have been a shocker if RBI would have approved the merger. I am surprised RBI did not announce its decision earlier as the entity was in the news for the wrong reasons,” asserts research analyst Hemindra Hazari.
“In the current faltering economy, the bank is unlikely to increase its net interest margin and its fees to compensate for the expected higher credit costs and if it is unable to continue with its earlier strategy, shareholders should expect a decline in its profitability," Hazari wrote in a note