HDFC Bank Q2 23/24 Earnings Call Transcript

Quartr
Provided by Quartr
October 16, 2023

There are 6 speakers on the call.

Operator

Ladies and gentlemen, good evening and welcome to HDFC Bank Limited Q2 FY 'twenty four Earnings Conference Call on the financial results presented by the management of HDFC Bank. As a reminder, all participant lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank.

Operator

Thank you and over to you, sir.

Speaker 1

Okay. Thank you. Thank you, Neeraj. Good evening and a warm welcome to all the participants. Our MD and Mr.

Speaker 1

Sashid Jagdishan has joined us today to provide an overview of the business before we get into the quarterly results. Sashimi, over to you to get started, please.

Speaker 2

Thank you, Srini. Thank you for allowing me to steal your talk time. I'll keep it as brief as possible. This being the first results post the merger, I thought for sharing my thoughts. It's such a pleasure to connect with you all after a very long time.

Speaker 2

As you know, we just consummated 1 of the largest mergers in recent with seamless integration of people, process and systems. And that too without any external help, this showcases the power of our execution. The day 1 merged balance sheet was audited by the 31st August and the team disclosed this to the world at large around mid September. The presentation which they did to the analysts brought out some of the one offs on account of the debt funded liquid assets to meet the liquidity coverage ratio, the LCRS per banking norms. As you know, sometimes the assumptions and cash flows that an NBFC does is going to be is different from that what a bank would do.

Speaker 2

And so therefore, there was some amount of buildup of liquidity to be to meet those liquidity coverage ratio norms and also provide an extra cushion to take care of contingencies. As luck would have it, there was an incremental CRR, which was announced and this cushion came in extremely handy. Obviously, it came with a cost, which is approximately 25 basis points between the liquidity buildup and the ICRR impact. Adam Sreeney will talk about it more in detail in his call. The presentation also brought about the day 1 adjustments to equity, which was one of the asks of all you of this fraternity to to say what will be the day 1 equity and with all the adjustments that one would do on merger.

Speaker 2

I think a lot of people probably mistook some of them to be destroying or value the equity, but it's not. If you look at it deeply, and I'm sure most of you would have would realize that these are all accounting and timing differences, which means that these benefits will accrue over time from here on. A lot has been spoken about the non retail book of at SRAIL HDFC Limited. Surely, there was a bit of a spike, incremental spike in NPA in an account, which was standard, but had to be restructured. And as per the norms, when you restructured, even if it's a performing asset, it tags it gets tagged as an NPA.

Speaker 2

Yes, there could be some tail remaining from this book, which could slip into substandard in the future, but the impact to the overall bank's gross NPA will not be significant at all. In fact, I can categorically say that the bank will not incur any incremental costs or losses on the cut of this book into our P and L going forward. And this is something is because of the realizable value of The provisions that we have made is going to be adequate enough to cover some of the exposures that we have inherited. A lot of questions and question marks come about what are we planning to do on the construction finance. It is going to be extremely important.

Speaker 2

It's going to be an important part of our mortgage business. We have just absorbed the contours of this book. You will now start to see the construction finance book growing steadily from here on. And that will sort of help in building not only the top line, but also sum up the margins back. If you've seen the results, which has been released a couple of hours ago, I think it showcases the execution capability, which is what we are known for, which is what we have we spoken about as well and even demonstrated.

Speaker 2

Let's look at some of the key metrics. Look at the deposit accretion of 1.1 lakh crore. That translates on an apples to apples basis of a sequential growth of 5.3%, which if you analyze it, it's upwards of 20%, 21%. And mind you, this is almost 83% to 85% of that is retail. Now one would wonder and one probably one of the questions that you may have is what happened in June?

Speaker 2

Which I think we may have explained, but let me articulate slightly better is that when the liquidity cushion was being built on the other side, that that is in HDFC Limited, we decided that we will not roll over some of the large ticket deposits even for a few basis points as well. So we let some of them grow and that is marked. These outflows in the larger ticket deposits of the non retail deposits mask the outflow of the core momentum of the retail ones. So we are very sanguine and very confident that funding is never going to be an issue and you will see the kind of execution that we are capable of going forward as well. Look at the loan growth.

Speaker 2

We've also treated on an apple to apple basis 1 point lakh crore These are high quality assets, whether it is corporate, whether it is CRP, the commercial rule of the MSME book or the retail book is extremely high quality book where we're extremely comfortable from the quality of the book now and into the future. But look at the kind of sequential LappleTrap to growth rate at 4.9%, it's an annualized growth rate of 19.6 percent. So when you look at these two metrics, it's a very strong, very healthy numbers, which is what we have mentioned several times over that even on such a large scale that we would, the bank will have the energy to continue to grow at a pace that we have done in the past even on such a larger book. The NIMs. I think the presentation in the mid September called out that there will be was kind of an impact because of the liquidity cushion and the incremental CRR impact of about 25 basis points.

Speaker 2

We had said that we will the core margins on a total asset basis on a pure arithmetic should be somewhere between 3.7% to 3.8%. So when you adjust for this 25 basis points, we are at the lower band of the 3 0.65, that's all right. I mean, that's something that we I'm sure with time, we will recoup some of the margins as we substitute the high cost bonds with deposits and the changing mix of our business loans mix more and more towards retail. Look at the return on assets. Despite that, I think the company maintained the return on assets around the 2% mark and ROE at the 16.2% mark.

Speaker 2

So the top line growth and the profitability has been intact and it is something that will only improve going forward. This being the Q1, we wanted to ensure that fabric of HDFC Limited's profits on mortgages is maintained, especially in retail mortgages. We wanted the teams to settle down and we wanted them to slowly but surely start to energize sells and galvanized the home loan retail disbursal momentum. We have mentioned in the early release that They did the highest ever retail mortgage loans of 170,000 in numbers and a INR 40,000 crores of disbursed is highest ever. This demonstrates that this is a start.

Speaker 2

This is a tip of the iceberg. It's just now a matter of time where we now will start to swept the franchise both the distribution and the customer franchise to take this forward. But what is going Exciting is when we launch our digital journeys for bundling products during this quarter. That will be incremental in terms of icing on the cake. So the innate strength of the institution to galvanize energy, to execute consistently even on a larger basis is what we have demonstrated year after year for 28 plus years.

Speaker 2

As one can see in the recent results, the bank is poised to silently deliver the core growth that you have just seen in this quarter, and I am very confident and sanguine that it will continue to do so quarter after quarter even on a larger scale, maintained the profitability in the range of 1.9% to 2.1% as in the past. So without much ado, I just wanted to tell you that we are extremely excited about this merger and we will slowly but surely demonstrate to the world that how we will execute the way we have done in the past. So over to you, Srini. Thank you so much.

Speaker 1

Okay. Thank you, Sashi, for those opening remarks. Now let's get on to the name. I want to start with the macro content context provided that it provided a good healthy tailwind in the quarter, right? We continue to see good domestic demand conditions and push from government through CapEx.

Speaker 1

You know well that the GST collections were healthy and We are very pleased with the results of the year. We are very pleased with the results of the year. We are very pleased with the results of the year. We are very pleased with the results of the year. We are very pleased with the results of the year.

Speaker 1

Abe kept its rate unchanged at 6.5. And as we look ahead, we see the environment is good for robust growth. Our estimate of the GDP growth for this year FY 'twenty four is 6.3%, which will demonstrate that it's one of the fastest growing economies in the world. Well, if you look at some of the key factors in the bank's growth journey, on the distribution footprint expansion, Branch network stands at 7,945 outlets as of branches as of September 30. Overall, there has been an increase of 14.46 branches over the last 12 months, including 85 branches in the quarter.

Speaker 1

In addition, we are operating over 400 branches of ASH Royal HDFC branches as under the bank banner now. And are progressively developing other banking product capabilities as we go through the year. Payment acceptance points currently at $4,900,000 and year on year growth 43% as adoption of the app builds momentum there. In the CRB, which runs the SME businesses. The rural business reach expanded to 1.85 lakh villages and is on track to go to the objectives of over 2 lakh villages in the near term.

Speaker 1

Bulwark Processing, you know that we started that was, vehemently a few quarters ago, is now offered in 4,544 branches, an increase of 53% over prior year. In the customer franchise building, we added 2,700,000 new liability relationships during the quarter. Our base customer base stands at 91,000,000, including those added on the merger. This provides the opportunity to further engage and deepen the customer relationships. In order to position this for greater engagement with those customers, we've added 16,000 people during the quarter.

Speaker 1

On cards, We issued 1,700,000 cards in the quarter, taking the total base to 18,800,000. The granularity on the deposit focus continues with total deposits currently at 21,700,000 crores grew by 1,100,000 quarter to quarter on a comparable basis, 5.3% sequentially. Term deposits have been the bedrock of this growth given the interest rate scenario and the customer preferences aggregated to LKK13.6 billion, registered healthy growth of 7.8% sequentially. Savings account deposits stands at 5,700,000 crores and grew by INR9,000 crores or 2% sequentially. Current account stands at INR2.5 lakhs growth and that's 18,000 crores over prior year.

Speaker 1

Retail of this current account constitutes 72% and grew by 3% sequentially. So we are focusing more and more on the retail current account as we go along because as the corporate or as the wholesale, our current account gets managed professionally through various treasury, the retail counter contract process, the biggest opportunity there. Overall, CASA deposits ended the quarter at INR8.2 lakh crores, resulting in a CASA ratio of 37.6%. This is after the impact coming from the merger, which came from HDFC Limited the time deposits that got added into our base. On the advances side, the gross advances at INR 23.5 lakh crores reflects a sequential momentum of about 4.9%.

Speaker 1

Retail advances grew 3.1% sequentially. CRB advances grew 9.7% sequentially. The wholesale segment grew, excluding the non individual loans of HCSD Limited grew 5.8% and the non individual loans of the HDFC Limited is now at 1 point 0.3 lakh growth compared to 1.09 as of the beginning of the quarter. We continue to pursue the technology and digital kind of a foray. Payza 2.0 currently has 3,000,000 registered users and handles the daily volume of 2.5 lakh transactions.

Speaker 1

SmartHub platform handles monthly transactions of INR 19,000 crores and provides monthly disbursals of extended. Express car loans brings in contributes almost 40% of our car volumes. SJFC Bank won the customer service, the AI driven channel platform serving contact centers nationwide, serving 30,000,000 engagements as interactions with 15,000,000 customers monthly through e mail, social care, WhatsApp and chat banking and phone banking services. Balance sheet remains resilient. Healthcare for the quarter was 121%, absorbing the 4 plus percentage points coming from the ICRR.

Speaker 1

Capital adequacy ratio is at 19.5% with CET1 at 17.3%. Let's get to the net revenues for the quarter, which were at INR38,093 crores grew by 33% over prior year. Net interest income for the quarter at INR 27,000 INR385 crores, which is 72% of net revenues, grew by 30% over prior year. The core net interest margin for the quarter was at 3.65% on total assets and 3.85% on interest earning assets after absorbing the debt from the cost for additional liquidity and merger management. The reported net income net interest margin for the quarter was 3.4% on total assets and 3.6% on interest earning assets.

Speaker 1

Getting to the details of other income. Total other income was INR10708 crores. Fees and commissions that constitutes 2 thirds or 65 percent of other income was at 6,936 crores and grew by 19.5% over prior year. Retail constitutes 92% of fees in commission, demonstrating the granularity of the fees and commission income. FX and derivatives income at INR1221 crores was higher by 12.8% compared to prior year.

Speaker 1

Net trading and mark to market income was INR10.41 crores for the quarter, Prior quarter was INR 5.52 crores and prior year was a negative INR 387 crores. Other miscellaneous income of INR 15.10 crores includes the recoveries from the turn off accounts and dividends from INR510 INR510 INR510 INR510 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR410 INR 2019 INR 2019 INR 2019 INR 2019 INR410 INR 700 INR 3.99 crores, represents the cost to income for the quarter of 30.4%. Our pre provision operating profit was at INR22,694 crores and represents around 8x of the total provision from a coverage point of view. Coming to the asset quality, the GNPA ratio was at 1.34% as compared to 1 point 41% on a pro form a as of July 1 that we mentioned. Out of the 1 point and last year, as you know, was 1.23%.

Speaker 1

Out of the 1.34% as of this quarter end, we have about 22 basis points, which are related to restructured accounts, which are restructured accounts in erstwhile Non Retail HDFC Limited, which are current and performing, but are being classified as NCA according to the Exane guidelines. Net NTA ratio was at 0.35%. The split ratio for the current quarter is at 32 basis points, about INR7,800 crores. During the quarter, we had recoveries and upgrades that were INR 4,500 crores at 22 basis points. Write offs in the quarter was about INR 3,250 to close approximately 17 basis points.

Speaker 1

There were no sale of MP accounts during the quarter. On the provision side, the total provisions reported were around INR 2,900 crores against INR 2,850 crores during the prior quarter and INR3,250 crores in the prior year. The core specific loan loss provision was around INR2,500 crores against INR2,700 crores in prior quarter. The provision coverage ratio was at 74%. At the end of current quarter, contingent and floating croresions were approximately INR 15,600 crores, General Troessions were INR 10,100 crores.

Speaker 1

Total Troessions comprising specific floating contingent in general were about 156 percent of gross non performing loans. This is in addition to securities held as collateral in several of the cases. Closing contingent and general provisions were about 1.09 percent of growth advances as of September end. Now coming to credit cost ratios, Total annualized credit cost ratio for the quarter was 49 basis points, prior quarter was 70 basis points and prior year was 87 basis points. Recoveries which are recorded as miscellaneous income amounted to 16 basis points of gross advances for the quarter at against 19 for the prior quarter.

Speaker 1

The total credit cost ratio net of recoveries was at 34 basis points in the current quarter compared to 51 basis points in the prior quarter 64 basis points in prior year. The profit before tax was INR 19,790 crores and grew by 39% over prior year. After INR 1,000 crores, write back of tax provisions no longer required consequently favorable appellate orders. Net profit after tax for the quarter was INR 15,976 crores, grew by 50% over prior years. Now few sentences on our subsidies before we get to a summary.

Speaker 1

FSP HDBFS is on an Indian basis. Disbursements at INR 14,150 crores were higher by 43% over prior year. Loan book at 78,000 gross grew 5.8% sequentially. Customer franchise grew to 13,600,000 customers with 6.3% additions during the quarter. Quality of the book continues to see sustained improvement with growth Stage 3 at 2.38 percent as of September against 4.88% prior year.

Speaker 1

The portion coverage of Stage 3 books stood at 68%. The product after tax for the quarter was INR 601 crores compared to INR 4.71 crores for prior year. The ROA and ROE annualized in the quarter was 3.2% and 19.6%, respectively. The earnings per share in the quarter in HDB was INR7.59 and the book value per share in HDB is at INR158. Getting to a few other subsidiaries, HDFC Life on an iGAAP basis, the cross asset tax the quarter ended September increased to INR377 crores compared to INR 326 crores for the prior year.

Speaker 1

In the HDFC AMC, again, this one on an India's basis, procs asset tax for the quarter amounted to 4.38 gross, registering the year on year growth of 20%. In SG and A year ago, this growth is on an IGAP basis because there are different standards. Profit after tax for the quarter ended at for the September quarter increased to INR 236 crores compared to INR177 crores in the prior year, registering a growth of 33%. Securities HSL has a network of 2,203 branches and the net profit after tax was INR 214 as against INR 191 for same time last year. I want to take the opportunity to provide a quick update on ESG.

Speaker 1

We further strengthened the integration of ESG and climate change risk assessment into our credit appraisal process for corporate borrowers. We also have finalized a sustainable finance framework to classify loans and advances as green, social and sustainable in alignment with International Capital Market Association principles. Now getting to a summary. Our results reflect robustness in growth after consummating the merger, 5.3 percent sequential momentum in deposit growth, 5.7% sequential momentum in retail deposit growth and advances growth of our sequential increase of 4.9%. Profit after tax for the quarter at INR 15,976 crores increased by 50% versus prior year.

Speaker 1

The consolidated profit after tax for the quarter is at it is INR16,811 crores, delivering return on assets in the quarter of about 2% and return on equity of about 16.2%. Earnings per share in the quarter is on a standalone basis is 21.1, it is 21.1 and at a consolidated bank level, is INR22.2. The book value per share on a standalone bank level is at INR 5.34 at the consolidated bank level is at 553. With that, may I request the operator to open up the line for questions, please?

Operator

Thank you very much. We will now begin the question and answer Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is

Speaker 3

from the line

Operator

of Marukar Janya from Nomura. Please go ahead.

Speaker 4

Yes, hello. Hi. My First question is on margins. So, of course, you've explained that it's the ICRR and the excess liquidity on limited book. But would there be any other adjustments in the NII while moving from in AS to in GAAP for HDFC, like for instance HDFC's NII in Q2 FY 'twenty 3 was around 45,000,000,000 yen 46,000,000,000, right?

Speaker 4

So would that be restated significantly under Ind GAAP?

Speaker 1

Manav, maybe we will have a session about what the Indian GAAP and India AS would be. There are several differences that happen. I'll give you for example, one important, there are several of them. On the non performing loan in India, we accrue for interest. In iGAAP, we don't accrue for interest if the loan is non performing.

Speaker 1

Here's an example. So there are several differences that happen. And so and the time has elapsed and the profile of the balance sheet including the interest rate structure in the balance sheet is

Speaker 3

[SPEAKER UNIDENTIFIED COMPANY REPRESENTATIVE:] There

Speaker 1

are different regulatory regime, different accounting standards, different regulatory regime and the composition of

Speaker 4

the balance sheet is different. Correct. But most of the margin decline from pro form a 3.7 to 3.4 is largely excess liquidity and ICRR

Speaker 1

See, the way you think about it is that the balance sheet is funded with debt, right? Where there is a level of additional borrowing that has been exercised and that is debt borrowing, right, that has come on. And this borrowing comes in at a cost that is north of 8% or so. So that's part of how there is a transition post the merger. As part of the merger management, we carried additional.

Speaker 1

One way to describe this is additional liquidity. But if you think about what is there, where does it reflect? It reflects in the cost of funds. So that's where the cost of funds is higher.

Speaker 4

Got it. Got it. Makes sense. And so my next question is on the tax rate. So given that There were favorable decisions and that's why the tax rate fell.

Speaker 4

Does it normalize to 25% next quarter or?

Speaker 1

Yes, there is this one time effect if you take or take it out, whatever is the normal tax rate. If you look at last quarter or the past year, we've been around that 25%, 24.9%, 25%, thereabouts, that's where we have been. Got it. So there's no difference from that, yes.

Speaker 4

Okay. And so just one last question. So do you see margins, how long would it take for margins to come back up to 3.6, 3.65, like 2 to 3 quarters, would the exit margin for FY 'twenty four be at that level or would it take longer?

Speaker 1

Yes. So, Bharat, I think, Sashi alluded to say that there are a few things, right? One is the utilization of this to a better mix of loan originations, particularly focused on the retail shift, is something that would bring this to a normal level over a period of time. Then there are other choices to make, But given that these are this funding is the longer term funding that we've chosen, part of the merger management, We need to get through building assets which are of that, but we use. Got it.

Speaker 4

Thanks. Thank you.

Speaker 1

Thank you.

Operator

Thank you. Next question is from the line of Kunal Shah from Citigroup. So firstly, maybe what Sashi I highlighted earlier that in terms of the rundown in the wholesale portfolio of erstwhile, let's say, is it more or less done? Or should we see it getting towards

Speaker 1

Kunal, if I request you to slightly come closer to mic and speak up, I can hear, but not as good.

Operator

Yes. Yes. Sorry, now if is better. So I was just saying whether this is a rundown in wholesale portfolio, is it largely done? Because earlier we thought that it can come down to 80,000,000 INR 1,000 crores from 1 Let3, but I think in the opening remarks, you said like it should largely be done and now we should see the growth coming through in the construction finance portfolio.

Speaker 1

That is the kind of a direction. If you think about it, it has got 3 components. One component is to do with the construction finance, which from a bank positioning and strategic to strategically to feed into the retail, We want to grow this portfolio, right? We have the risk assessment framework. We want to grow within that framework that we have.

Speaker 1

The second component of the book is the LRG book, Lee Sinke. That book is also a growth oriented book and will be assessed and grown. The 3rd component is a small component of a corporate loan book that will be as of the part of the overall exposure to various corporates that we have and we'll take a decision about what is the overall exposure. Yes, the direction what Sashi alluded to is on the construction finance and it deeply applies to LRD2, but all of this in the context of overall exposure to corporates that we have.

Operator

Sure. Got that. And secondly, in terms of other income, was there any one off maybe pertaining to iGUIP transitioning for HDFC or this is like now the overall fee income trajectory which we should see and there is no one off in this line item now?

Speaker 1

So the fee income that you saw which is 6,900 and whatever, INR 6,936 crores. Yes, that is the normal level of fees. And if you look at how we have in the past The fee, which is 65% of the other income is the fees, right? And this fee line has got multiple from asset origination fees to liability product fees to payment transaction type fees to wholesale banking fees to third party distribution fees. There are seasonality up and down.

Speaker 1

It happens because there are certain quarters where we see for various considerations. It could be tax consideration for origination consideration, it goes up or down. But when you look at it over a period of time historically, this has been in the mid to high teens, right? That's where the fee component has moved. And that's where I will tell you to look at it.

Speaker 1

If you look historically, that's the range at which, This total, if it was 19.5%. Again, corporate reported the seasonality, but when you look at a year, 2 years, In the past, it's mid to high teens.

Operator

Thank you. And just Kunal Shah, sorry to interrupt you.

Speaker 3

Yes, sure.

Operator

May I

Speaker 5

please

Operator

hand the queue again? Thank you. Next question is from the line of Parag Thakkar from Annual Wealth. Please go ahead.

Speaker 1

Hello, Anadu?

Operator

Yes.

Speaker 1

Yes, Prahlad, yes. So first of all, I would like to congratulate the entire team for bringing especially in a quarter when it was a merger quarter. And we had this one time ICRR hit plus the liquidity hit. So I am very, very happy with the performance. So first of all, I would like to congratulate you all.

Speaker 1

And second, Let me say that 1.9% to 2.1% arrow is possible. The growth rate above 15% So, 17% to 18% of the monetization is also possible, right? Bharat, firstly, thank you. Thank you for the recognition, and we appreciate. These are the things that keeps us charged and ensures that we drive to the best potential both the target has to offer and the people here are capable of delivering.

Speaker 1

Thank you for those compliments. Now getting to the question that you asked in terms of the growth rate, see, more than thinking about the forward looking Growth rate. Well, growth rate is underpinned on 2 things. 1, market rate of growth. Typically, in the past, we have seen the market rate of growth anywhere from 10% to 12%.

Speaker 1

Depending on the year, You will see that the nominal rate of GDP times 1 or 1.1, 10% to 12% is what you will see. And what we have always endeavored and that is what historically we have delivered is a premium on that, right, 5%, 6% where about the premium on the market rate of growth is what we delivered. That is where the market share gains come from that additional growth rate over the market that we do. And so now take this to what is the time of a market share gain. If you see over a period of 3, 5 years, if you see, it's about 400 basis points or thereabouts market share gain.

Speaker 1

Either side of the balance sheet. That's a similar side of market share gain. And when you gain that, currently, if you look at the recent times, The share in the market market share gains is faster than what it was 5 years ago, meaning the larger distribution And the bigger the scale, the opportunity space for gaining more market share is available, and that is what in the recent times that we have done. So that's I want to leave the thought process there. This is how we think and that's how we are capacitized to drive.

Speaker 1

Thanks, Sala. We have opened around 2,200 plants in last 2 years. So when they start showing productivity, Your OpEx to set ratio should come down, right, logically because they will become more productive now In terms of gathering deposits as well as advances? Yes, yes, yes. It will come over time, But as we keep adding more and more new branches, one way is the other.

Speaker 1

But if you look at 2 years ago branches, Very important that you touched upon if you look at what we opened about 2 years ago and look at that cohort and when we look at that cohort of branches about how they are performing, right? Our model shows that it should breakeven in 2 years' time. And about 90 plus%, slightly above 90% of the branches have broken even in about 20, 21 months. We have another 10% of the branches to breakeven. And when that does the average of call it 22 to 24 months breakeven.

Speaker 1

So we are all following a scripted model in terms of how they deliver. We are confident that all of them starts to pay back sooner, but we continue to add branches, right? That's why when you see is part of the cost in the credit opportunity, credit cost as you heard is at about 49 basis points. And if you look back, What is how does where does it revert to mean? At what level does it revert to mean at some point in time?

Speaker 1

Call it 80, 90 basis points are in the pre mortgage book. We would have said that it is 90, 100 basis points is the mean. Where it can reverse over a period of time whenever it normalizes, the line conditions normalize. Maybe with the margin, it is more closer to the 80 basis point or something reversion to mean. But the point to mention to you is that for every 10 basis points of credit cost opportunity that we take from a timing point of view, right, within the return framework, ROA framework, we take this opportunity on a timing to invest.

Speaker 1

It's about 1% to 2% of cost to income that gets invested there. And so that is what and we are trying to say as we make those investments, we start to pay back. So we can now look at those ones which are more than 2 years old and those cohorts are performing well. And we're now starting to look at the last 12 months cohorts and we will keep tracking them as we go. So just one last Because everybody is concerned, we were now that you have better deposits on both of 1 lakh crore, I think that concern is gone.

Speaker 1

But in last quarter, everybody was concerned about how we will fund. And as Mr. Sashin pointed out in the beginning that We are not concerned about the funding part now. But going ahead, so for example, we have Credila, we have stake in HCB Financial Services. Anywhere, I think we are mandated to list, right, by FY 'twenty five.

Speaker 1

And that will also unlock some value. And of course, That is provided some funding also. So just can you just throw some light on direction of monetizing the stakes in various entities which we have In order to fund our growth, because that much pressure will be lesser on the deposit everything, right? Yes. Your points are well taken and Appropriate timing, those will be considered before AAGES, but of course, at the right kind of value.

Speaker 1

Your thought process are right. And From a timing point of view and from a consideration point of view, it will all depend upon the appropriate valuation.

Operator

Thank you.

Speaker 1

Thanks. Thank you. Thank you.

Operator

A request to all the participants, please restrict to 2 questions per participant. If time permits, Please come back in the question queue for a follow-up question. Next question is from the line of Atul Mehta from

Speaker 1

So I have just one simple question. In terms of the

Speaker 3

non detailed NPA for HDFC Limited, how much

Speaker 1

of this was unanticipated at

Speaker 3

the time of the merger and How much of it is in terms of already anticipated and built for in the swap ratio that we had? Maybe if you can throw some color on that. Thank you, Okay. Yes.

Speaker 1

If you look at the book and look at the book over a period of for 6 quarters at least now. It has been on a decline, right, which is this book has been assessed from a bank risk assessment perspective and it has been there has been a degrowth that has been happening. So Go back to the June 'twenty two quarter, it was flat. And then from then on, there was a minus 4% or a 5%, then a minus 6% and -7% and so on and the recent quarter is a -6%. So the risk assessment we want that book, Sashiv mentioned that we want to grow the book.

Speaker 1

But before you grow the book, you have to assess in terms of the exposure for kind of facility and so on, so that you're balancing the risk over a period of time. And that's what has happened. And we are at a stage where we feel comfortable with the quality of the book that we see now with the provisions of approximately what we described, the provision coverage ratio of 74, or the contingent provisions we have 66 basis points, All in and it's all post merger, it's not just pre merger, in conquest wealth. And we are looking at a book that is strongly positioned.

Speaker 3

All right. Got it. So just one clarification on the same point. Did any of in terms of the incremental stress come as a surprise to the internal management, like to the bank management or this was something that you had already anticipated while you had worked out the numbers at the time of the merger?

Speaker 1

The risk assessment is a dynamic risk That is why on every quarter basis, you see certain things slipped and certain things recover and upgrades. And it is a continuous process. What is true at a point in time is not true at every point in time. It keeps changing.

Speaker 3

Right. Got it, sir. Thank you and all the best. Thanks. Thank you.

Operator

Thank you. Next question is from the line of Suresh Ganapati from Macquarie. Please go ahead.

Speaker 5

Yes, hi. Just two questions. One is, Sachin said 83% to 85% of that 1,100,000,000,000 is retail deposits, right? So it's about INR85,000 crores is what you mobilized out of 1,100,000,000,000, is that right?

Speaker 1

That is right, 83% is 18.

Speaker 5

Yes. So seeing it is INR 85,000 crores, which is the effective number, Absolute, what would be the Basel III LCR quarter on quarter addition? The reason why I'm asking is last quarter it was INR66,000 crores. I want a like for like quarter on quarter addition for the Basel III retail deposits because this number seems to be very different from this 85,000 crores. Is it possible to share that number?

Speaker 1

I don't have it off hand. We look at it in share, but Suresh, just to say that The Basel classification is different, right? And there are different factors that apply in that classification. So there is no one for one mapping. The point I'm trying to say is that the retail, which is the branch managed deposits that we have, It's not one for one retail definition as per Vasu.

Speaker 5

Okay. Fine. And last question is You know the synergy itself, right? I mean, of course, these are very early days. We have seen pickup slight pickup in mortgage growth.

Speaker 5

And also what Your subsidiary reported numbers and apparently the counter share has gone to 70% in your bank branches HDFC Life. So just wanted to understand on the qualitative aspect, what are the things which where you have already started seeing, not in terms of price, is it quantifiable, but better traction? It could be anything like cross selling of loans or products, anything that you can give us would be great.

Speaker 1

Suresh, we are focused on a few things, right? One, there are subsidies and we work very closely. The engagement level has gone up significantly before the merger and certainly after the merger. And one is about the sales process itself, right, in terms of so a customer comes in into a branch and works with an RMR. And R and D is a customer for various sales processes.

Speaker 1

The sales support has significantly enhanced, in terms of making the product features and the product kind of a dynamic much more articulated to the customer. So That is the process and not only when you go into one of the metro regions, you would find that it is such a top notch. But the process has to be broad based across the country, which has begun very well. That's one, right, in terms of getting that. The second is also getting the closing it out from an immediate turnaround time point of view.

Speaker 1

That has also been a great deal of a focus to ensure that Customer doesn't need to wait to get the product consummated. We are able to turn around quite fast. That gives enormous confidence to the Orange to pitch a product to a customer because we know that it gets the turnaround time is pretty soon, pretty fast and the product will be in the hands of the customer that we could consume it. So there have been some of these qualitative or kind of a relationship process that has enhanced and it will pay results as

Speaker 5

we go along. Okay. Thank you.

Speaker 1

Thank you.

Operator

Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.

Speaker 3

Yes. Good evening. Thanks for taking my questions. So the first one is, can you just quantify the LCR now on a merged basis? And also how much of the HDFC limited deposits were retail as per the LCR's classification?

Speaker 3

If you can share that number, it will be useful.

Speaker 1

I did give out the LCR was at the margin 121% after absorbing the ICRR for most of the quarter. Your second aspect of the question was to do with the retail component

Speaker 3

of the HDFC Limited deposits that came in?

Speaker 1

I think the retail conference was slightly above 2%. It's merged into the total organization. There is no particular special tracking that we look at to say this is SCOC Limited and this is SCOC Bank kind of thing, it's all part of

Speaker 3

Got it. And in terms of conversion of HDFC limited loans From the current PLR to RepoLinked, what percentage has been done? And yes, what's the progress on that?

Speaker 1

Abhishek, all of that has been done, right? And it's available for the customers who are in the bank. Already a bank customer could view it In the system on the screen, when you log in, you will see. But yes, it has been done.

Speaker 3

So I think you had a December deadline for it, right? So we should be like the entire book would be on repo now or by December anyway it would be on repo, The mortgage Yes,

Speaker 1

no, it is. And the December deadline is for various customer communication and customer assertion and so on and so forth, which we are working through various alternatives to accomplish.

Speaker 3

Okay. And Srini, just finally, as the

Operator

Okay, sure. Thank you. A request to all the participants, please restrict to 2 questions per participant. The next question is from the line of Rajeev Patak from GC Holdings. Please go ahead.

Speaker 3

Yes, hi. So I think in the opening remarks, you alluded to like a 25 that's hit on the margins because of the ICRR and the excess liquidity. So So you would have taken approximately, say, INR900 crores a quarter of this hit. So now this will from next quarter start getting normalized, right? So next quarter should be tracking a median of 3.85% and then maybe inch up to 4% over the next 3, 4 quarters?

Speaker 3

And on the loan growth, do you Think 4.5%, 5% quarterly run rate is possible going forward?

Speaker 1

Rajiv, we don't give forward looking guidance in terms of what we will grow, but We can point to past and give the kind of how we have done and how we are capacitized to repeat what we have done. But in terms of the margin that you talked about, we did allude to that there is an impact due to the merger management and thereby funding certain liquidity requirement to transition income and it has been debt funded and so it's not a short term debt funded to enter and exit. And so that it will take some time. And then, Sashi alluded to that in terms of how we go into it in the form of better mix, higher yielding retail products to grow. And I also mentioned about that and which is how we will approach to get that.

Speaker 1

Okay. Thank you. Thank you.

Operator

Next question is from the line of Saurabh Kumar from JPMorgan. Please go ahead.

Speaker 1

Hi, Suneet. Good evening. Sir, just on this LCR, so the excess liquidity that you are

Operator

Your voice is not coming clear.

Speaker 3

Is it better now?

Operator

No, it's still the same. Can you please speak a little louder?

Speaker 5

Yes, sir. For the excess liquidity that you're referring to, sir, this will be a different

Speaker 1

Sorry, we lost you, man. If you come back again, we'll hear you.

Operator

Hello? Ladies and gentlemen, at your audio show. We'll move on to the next question. The next question is from the line of Piran Engineer from CLSA. Please go ahead.

Speaker 3

Yes. Hi. Good evening and thanks for taking my question. So firstly, could you quantify what your SLR ratio is as of quarter end?

Speaker 1

What is it?

Operator

SLR. SLR. SLR.

Speaker 1

No, we don't say what it is, but we can tell you we carry more than what is So that is a mandatory SLR of 18%. We carry more than that. That's part of the That's not something that we talk about.

Speaker 3

Okay, okay. Fair enough. And so just actually on the branch opening, just wanted to understand, Last two quarters have been a bit weaker than expected. Why is it that branch opening is always back ended?

Speaker 1

Very important and good. See, what happens in the branch process, So it's very important you asked a very important thing, right? For opening up a branch, There are a few things that go into it. One is our marketing team. 2nd is our credit analytics team can see geography in the country to determine our presence and Sonata Bank's presence in the vicinity and maps it with the potential, potential not just of deposits, but potential of even advances.

Speaker 1

There is a third, marketing looks at what is our market share. That means you look at our distribution market share is about 4.5 which means our branches are 4.5 percent of country's branches, close to getting to be close to 5% to 4.5% of country's branches and our deposit market share is slightly above 10. So we have a 2x of distribution to deposit market share. So we look at to see where we are more where we are less and what is the vicinity of the catchment area where we can get the deposit concentration into our bank. So this analysis is done.

Speaker 1

And then there are 2 other constituents that enter at this stage. One is our infrastructure team that tries to scout around to see is there a property available? Our credit analytics both from liability and asset analytics have given something. Our marketing is proposing a particular location to go for it. Infrastructure team will come and say whether they can get it or not get it because that's the availability, which is the We just have to constrain.

Speaker 1

So I'm able to articulate that. It is not about we know where we want to open the branches. It is The right kind of property of the brand space that is availability that is a constraint. Now once that is done, we enter our legal to ensure that the landlord who's leasing the property to us is that the title and is appropriately there so that we keep up our image that it is a property that somebody is appropriately owning and we are able to use it. So these are several of these that go in.

Speaker 1

And when we go through this process and get there, it gets to bunch up in the second half and the first half is that's what we have seen over the last 2 years that we have seen too, right? As much as we would like it to be even through the year, There are other constraints of availability and that makes it tough for us to get there. And this is a machine, as you know, that's right. It's opening not 120% machine that needs done. And so when we are opening the 500 branches in a quarter, the preparation and the legwork for that is a pretty long Lead into getting there.

Speaker 3

Okay. Okay. Thanks for the elaborate answer. Just lastly, in terms of personal loans, last Couple of quarters, especially this quarter has been a slowdown. Just wanted to understand how much of it is deliberate versus market led competition?

Speaker 1

I believe the market is quite good and underpenetrated. We have enormous I think the preapproved base, have you published that in the May month also where our preapproved personal loan base is to be high and the demand is quite good, so no question about that. In terms of the growth rate, we have about 15.5 percent year on year growth rate. We expect that it has been in the sometimes it's been in the 20s, sometimes it has been in the high teens, but in the recent times, it has been in that 15%, 16% range. But we are confident that this is a strategic growth area for us and the more customers we bring in and more they go through the seasoning process and monitoring process, We get the Canvas even more opened up for an opportunity on personal loan.

Speaker 3

Got it. Got it. Okay. Thank you so much and wish you all the best.

Speaker 1

Thank you very much. Appreciate it.

Operator

Thank you. Next question is from the line of Manish Shukla from Access Capital. Please go ahead.

Speaker 3

Yes. Good evening and thank you for the opportunity. Shrini, you acquired about 6.35 lakh is from HDFC Limited. What will be the average cost of those liabilities? That includes the borrowing you're talking about.

Speaker 3

Yes, borrowing plus the policy About SEK 6.35 lakh crore.

Speaker 1

Manish, I will direct you to what we have published. The cost of funds is up by about 80 basis points at an aggregate level. Most of that is driven through the incoming. You'll be able to see that, right? We'll be able to deduce and work it out.

Speaker 1

We have published the cost of funds at an annual rate.

Speaker 3

Understood. And of these liabilities, roughly, if you can give an approximation of the maturity over either next 6 months or 12 months, if you have it? What proportion of these liabilities will mature?

Speaker 1

That also I think HSA Limited has published as of

Speaker 3

No, no, we have it as of March, but during June quarter, they added significant amount of liabilities, so which is why I wanted to know as of June. We have the data for March.

Speaker 1

Longer term, Manish, yes.

Speaker 3

Okay, understood. All right, those were my questions. Thank you.

Speaker 1

Thank you very much, Manish.

Operator

Thank you very much. Ladies and gentlemen, we have come to an end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

Speaker 1

Okay. Thank you, Umer. We appreciate all the participants dialing in today and spending time with us. We are available through the week or through the next Whenever you all need any other clarifications we can provide, we'd be happy to do. You know the context of our Investor Relations team,

Operator

Thank you very much. On behalf of HDFC with Citibank Limited. That concludes this conference. Thank you for joining us. You may now disconnect your lines.

Operator

Thank you.

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Earnings Conference Call
HDFC Bank Q2 23/24
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