HDFC Bank Q3 23/24 Earnings Call Transcript

Quartr
Provided by Quartr
January 16, 2024

Key Takeaways

  • Advances stood at ₹24.7 trn as of December end, up 4.9% QoQ, driven by a 3.3% sequential rise in retail loans (mortgage disbursements +18% YoY) and 6.7% QoQ growth in the CRB business.
  • Total deposits reached ₹22.1 trn (+1.9% QoQ), with retail deposits up 2.9% and non‐retail down; the bank’s CASA ratio was 37.7%, supported by 3.2% growth in current accounts and 1.7% in savings.
  • Net revenues grew 25.8% YoY to ₹396 bn, with NII +23.9% at ₹285 bn and a stable NIM of 3.4%; profit before tax rose 19.8% to ₹194 bn and PAT jumped 33.5% to ₹164 bn, delivering a 3.1% RoA and 19.9% RoE.
  • Asset quality improved as the GNPA ratio eased to 1.26% (from 1.34%) and NNPA to 0.31%, with a slippage ratio of 26 bps, credit cost at 49 bps and a provision coverage ratio of 75%.
  • Distribution and customer franchise expanded with 146 new branches (total 8,091), 4.8 mn payment acceptance points (+25% YoY), presence in 210,000 villages and a customer base of 93 mn.
AI Generated. May Contain Errors.
Earnings Conference Call
HDFC Bank Q3 23/24
00:00 / 00:00

There are 6 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited's Q3 FY 'twenty four Earnings Conference Call on the financial results presented by the management of HDFC Bank Limited. 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, Neeraj. Good evening and a warm welcome to all the participants. There is an earnings presentation deck published on our website. Please refer to it as appropriate.

Speaker 1

As we get to it, in the meantime, let's cover a brief on the macroeconomic environment that operated during the quarter before we review the earnings. We continue to see healthy domestic activity As you know, the GST collections grew 13% year on year. Manufacturing and services PMI continue to remain in the expansionary zone. And the consumption side improved consumer demand driven by effective spending resulted in robust growth across various sectors. Our day effective rate unchanged at 6.5% and retained its stance and changed our withdrawal of accommodation and modestly reduced its inflation forecast in the second half of the year.

Speaker 1

As we look ahead, economic environment is poised for strong growth. India's year on year GDP growth for financial year 'twenty four is estimated at about 7% And for financial year 'twenty five, G2P growth rate is expected to be around 6.5%, continuing to be one of the fastest growing major economies in the world. Let's go through the key factors of the bank's growth journey. Advances can be referred to in Page 7 and 8. Growth advances are at RMB24,700,000,000 as of end December, reflecting the sequential momentum of RMB1,100,000,000 or 4.9%.

Speaker 1

Retail advances grew 3.3% quarter on quarter, primarily driven by strong performance in the mortgage business. Retail mortgage disbursements of $460,000,000,000 during the quarter, grew 18% over prior year. In the CRB business, It continued its strong momentum, registering quarter on quarter growth of 6.7%. First line segments, excluding non individual loans of UHGFC, grew 1.9% sequentially. Non individual loans of ESGFC aggregated to €0,990,000,000,000 as compared to $1,030,000,000,000 as of last quarter end.

Speaker 1

Focus on the granular deposit continues. Looking at Pages 7 and 9, Total deposits as of December end amounted to receive $22,100,000,000 primarily comprising of retail deposits, which is at 84% of total deposits. Retail deposits, which are the bedrock of the franchise, grew by over RMB 530,000,000,000 or 2.9% during the quarter, where non retail deposits reduced by receipt 118,000,000,000 quarter on quarter, resulting in total deposit growth of at least 411,000,000,000 of 1.9% during the quarter. Current account deposits ended the quarter at RMB 2,600,000,000, registering the growth of which is $80,000,000,000 or 3.2 percent sequentially or which is $280,000,000,000 12.3 percent over prior year. Savings deposits as of December end at received $5,800,000,000 grew to $99,000,000,000 or 1.7 sequentially and over received $440,000,000,000 or 8.3% year on year.

Speaker 1

Overall, Qatar reported tender per quarter had received $8,400,000,000 resulting in a CAFA ratio of 37.7%. Term deposits aggregated to be $13,800,000,000 at December end and grew by the least $232,000,000,000 or 1.7% during the quarter. On the distribution systems expansion, Referring to Page 10, it reflects our branch network, which stood at 8,091 outlets as of December end. Overall, there has been an increase of 908 branches over the last 12 months. During the quarter, we added 146 branches, which is at the rate of 1.6 tranches per day.

Speaker 1

Payment acceptance points are at 4,800,000 and year on year growth of 25% as adoption of the app's momentum. In CRB, our rural business reach expanded to 210,000 villages, a growth of 60,000 releases over last year. In the customer franchise building, we added 2,200,000 new customer loyalty relationships to redeployed and around 7,400,000 relationships so far in the current fiscal year. Our customer base stands at 93,000,000 customers. This provides an opportunity to further engage and deepen our relationships.

Speaker 1

In order to position us for greater engagement, we have added 31,000 employees over the last 12 months and 10,000 during the quarter. On cards, we issued 1,600,000 new cards in the quarter. Total cost base stands at $19,900,000 You'll see on Page 11, balance sheet remains resilient. LCR for the quarter was 110%, capital adequacy ratio was at 18.4%, share loan ratio at 16.8%. Let's start with net revenues on Pages 1213.

Speaker 1

Net revenues for the quarter were at RMB396,000,000,000 grew by 25.8% over prior year. Net interest income for the quarter, which is 72% of net revenues and and is at $285,000,000,000 grew by 23.9% over prior year. The core net interest margin for the quarter was at 3.4%. And on an interest earning asset basis, net interest margin for the quarter was at 3.6% both flat to prior quarter. Getting to the details of other income on Page 15, total other income was at RMB 111,000,000,000 Fees and commission income, which is almost close to twothree of the other income was at RMB69 1,000,000,000 and grew by 15% over prior year.

Speaker 1

Retail constitutes approximately 94% of lease income. FX and derivatives income of RMB12 1,000,000,000 was higher by 12% compared to prior year of RMB11 1,000,000,000 Net trading and mark to market income were at RMB15 1,000,000,000 for the quarter. Prior quarter was at about $10,000,000,000 Other miscellaneous income of the $15,000,000,000 includes recoveries from return of accounts and dividends from subsidies. Referring to Page 16 on operating expenses for the quarter, which were at $160,000,000,000 an increase of 28% over prior year. Cost to income ratio for the quarter was at 40.3%, cost to asset was at 1.9%.

Speaker 1

Coming to asset quality on pages 17 to 19, the GMP ratio was at 1.26% compared to 1.34% in prior quarters and 1.23% prior year. Out of the 1.26%, about 15 basis points are standard, but the core GMP ratio is at 1.11. However, these are included by us in NPA as one of the other facilities for the borrowers is in NPA. Net NPA ratio for the quarter was 0.31%, prior quarter was at 0.35%. The slippage ratio for the current quarter is at about RMB70 1,000,000,000 or 26 basis points, last quarter was at about RMB78 1,000,000,000.

Speaker 1

During the quarter, recoveries and upgrades were at $45,000,000,000 write offs in the quarter were at about 31,000,000,000 No sale of NPEA funds during the quarter. On the provision side, total provisions reported were around RUB 42,000,000,000 And excluding the contingent portion, it was rupees 30,000,000,000 as against rupees 29,000,000,000 during the prior quarter and it is 28,000,000,000 for the prior year. As I just mentioned, the total provisions in the current quarter included additional contingent provisions of approximately $12,000,000,000 and it is pertaining to investments in ARS on a floating basis. The fair value of these AIS is up by, let's say, dollars 5,000,000,000 but 100 percent provisions are being taken at book value. The core specific Loan loss provision for the quarter was around $26,000,000,000 as it was $25,000,000,000 in the prior quarter.

Speaker 1

The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately $154,000,000,000 general provisions were 105 billion. The total provisions comprising specific floating contingent and generals were about 159% of gross non performing loans. This is in addition to security held as collateral in several of the cases. In addition, the bank holds contingent provisions of at least $12,000,000,000 on a prudent basis towards AAF, as I just mentioned.

Speaker 1

Floating contingent and general provisions excluding that contingent portion on AAF where about 105 basis points of growth advances as of December end. Coming to credit cost ratio, the total annualized credit cost ratio for the quarter, excluding the contingent provisions I just referred, was at 49 basis points. Prior quarter was also at 49 basis points. Recoveries which are recorded as miscellaneous income amounted to 13 basis points of gross advances for the quarter as against 16 basis points for the prior quarter. The total credit cost ratio net of recoveries was at 35 basis points in the current quarter as compared to 34 basis points in the prior quarter.

Speaker 1

The profit before tax was at $194,000,000,000 grew by 19.8% over prior year After the release $15,000,000,000 of tax provisions no longer required, consequence of the favorable orders received, net profits After tax for the quarter was at $164,000,000,000 grew by 33.5% over prior year. Summaries of subsidies can be seen on pages 21 to 26 on HDB to cover on HTV. The quality of the book continues to see sustained improvement with a growth stage 3 of 2.25% as of December against 3.73% as of prior year end prior year. Approaching coverage on Stage 3 books stood at 68%. Gross profit tax for the quarter ended December increased to $6,400,000,000 against dollars 6,000,000,000 for the quarter ended September 30.

Speaker 1

ROA and ROE annualized for the quarter of December stood at 3.1% and 19.9%, respectively. Earnings per share for the quarter was at INR8.04 and book value per share stands at INR164.6. Now getting to HDFC 164.6. Now getting to HDFC Life on an iGAAP basis, the profit after tax for the quarter ended December was at RMB3,700,000,000 grew 16% year on year. India ended its value at RMB451,000,000,000 improved 20 20% compared to prior year.

Speaker 1

On AMC, quarterly average OEM at RMB5.5 billion grew 24 percent year on year. Profit after tax for the quarter amounted to RMB4.9 billion, the industry end year on year growth of 33%. Earnings per share for the quarter was at RMB22.9. SG and A on an IGAP basis, Profit after tax for the quarter ended December was at $1,300,000,000 business unit growth of 6% year on year, solvency ratio at 187% as of December end. HSL, our securities company, the total reported revenue for the quarter So total reported net profits for the quarter after tax was $2,300,000,000 as against $2,000,000,000 in Q2 'twenty three.

Speaker 1

Earnings per share in the quarter was it is 144, and book value per share stands at it is 12.53. On ESG, kicking up with our CSR commitment, the bank has undertaken multiple projects across India with the aim to address critical development issues such as sustainable livelihood, education, soil and water conservation and key ratings and awards are in Page 27 for reference. In summary, our results reflect robustness in growth across various parameters driven by employees passionately working with their customers to execute the business model. Because the Central Bank advances growth is sequentially of 4.9% and 2.9% sequential momentum in retail deposit growth. Loss after tax for the quarter increased by 33% versus prior year, then we have a return on asset in the quarter about 2% and return on equity of about 15.8%.

Speaker 1

Earnings per share reported in the quarter is at least 21.6 on a standalone bank level and it is 22.7 at the consolidated bank level. Book value per share on a standalone basis is at which is 556, and on a consolidated basis, it is at 576. With that, May I request the operator to open up the line for questions, please?

Operator

Thank you very much. We will now begin Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Marukhut Jania from

Speaker 1

Sir, I

Speaker 2

have 2 questions. Basically, the first one in general is on deposit growth. So in general, there's a lot of noise around RBI having a discussion with banks on LDRs, plus deposit growth has been very, very tight in November December irrespective of whether you had a discussion with RBI or not. So how do you view deposit growth and LCR from here on. If you could give us some sense, target or guidance on how LDR will stand out or what LDR are you looking at in FY 'twenty five?

Speaker 2

And a related question to that is that if deposit taking remains tight irrespective of the LDR debate, then what would you choose? Would you choose to offer higher rates compared to competition because your ask rate for deposits is on the higher side now or would you choose lower margins? If the deposit situation remains like this for, say, 2 quarters.

Speaker 1

Okay, yes. Thank you, Mark, Thank you for asking. If I missed anything, I'll come back. But let me start with your first one in terms of the deposits and the CD ratio itself, right? If you think about first of all, any conversations with the RBI is confidential and it is between the regulator and the bank.

Speaker 1

So we will not be able to talk about any individual conversations or anything else. So keep that to the side. But that's not your main point. Your main point is in terms of the rate of growth of deposits as well as on the CV ratio, given Veritas. So let's talk about that.

Speaker 1

Now on the deposits that you see, on the first thing on the deposits, I do want to mention that How we approached it here? At the overall level, our deposits grew by $411,000,000,000 At the overall level, our deposits was at that level, that will grow. Yes, I'm closer to the mic. I think from the reason we can't hear. So, dollars 411,000,000,000 that's the total growth that we had.

Speaker 1

Within that, if you see the retail deposit growth, dollars530,000,000,000 and 3.9% during the quarter. However, the non retail deposit reduced by INR 118 1,000,000,000,000 Again, very price sensitive. We chose not to participate and get the price thing up. And we wanted to focus more and more on So that's one. And if you think about the individual component of various deposits, we did talk about the current account growing at 3.2%.

Speaker 1

And within the current account, the retail current account constitutes 72% and has been growing 3.8% sequentially. And the savings account deposits, I will come back and talk about the savings as such, right? There is something on the savings, which is we need to see that, right, where you are seeing 2 things on savings. 1, given the rate where we are in peak, there is a preference for time deposit. 2, in terms of the spend, we are seeing good amount of spend that is happening from the customers.

Speaker 1

In our own base, you can see 18%, 30% spend from on the issuing side, on the acquiring side from a card standpoint of view. So people are spending. And one other measure we are strict, we look at it, I'll be getting out of card customers what is the balance that they have. If you look at the card ANR versus the deposits against it, almost 5.4x they have, right? That means for every 100 that I have as my card balance outstanding, I have 5.4x that in my deposit account in the bank.

Speaker 1

So there seems to be More spending room there to go. So that's one. And from a rate cycle point of view and how do you overcome that is to get more customers. I talked about 2,200,000 customers, 7.4 people and the kind of what we have. Now coming to the what does it all do from a deposit Yes.

Speaker 1

I'm here. So I'm taking you can't hear? Can you hear?

Operator

Can you hear us?

Speaker 1

Okay. I'll go ahead probably. You can hear me?

Operator

Yes, I can hear

Speaker 1

you fine. Yes, Malu, you're audible. So getting to our CD ratio as such, right, yes, the LDR, which is the CD ratio that you alluded to, It's maybe more than 110% as we close the quarter. Over a period of time, if you see in this quarter, How did we manage the balance sheet? We had €1,150,000,000 growth in loans, if you see.

Speaker 1

And we funded that to $4,111,000,000 on deposits. And you had investments going down by about $485,000,000,000 and cash and cash equivalent by about $96,000,000,000 So essentially, we funded that by The balance sheet somewhat coming not on the asset side. We got that self funded through some lower investments. That is what we're in the LCR ratio going down to a limit. So some of the securities came down and cash came down as the ICRR rundown on October.

Speaker 2

I'm unable to hear you.

Speaker 1

Nirup, can you hear?

Operator

Yes, sir. Sir, line for Maruk has dropped. We'll move to the next participant. Next question is from the line of Pranav from Bernstein. Please go ahead.

Speaker 1

Hey, good evening. Thanks for taking the question. Good evening. Hey, Jain, I think Question again later deposits, so one question. When you think about deposits this quarter, instead of say the $400,000,000,000 that you treated, if you had to double or triple that number, Which is the biggest constraint?

Speaker 1

Is it the LCR where everything is constrained? Or is it simply the cost of deposits? Or is it the lack of good lending Satish. Where are you seeing the biggest constraint? Yes.

Speaker 1

The biggest constraint is in the area of deposits, right? And if you look at what has happened in the system, very important to look at the liquidity in the system, How it has moved? If you see, it has been positive ever since Q1 'twenty. The system liquidity has been positive since Q1 'twenty. And now it has moved to a negative territory.

Speaker 1

All the way, If you look right now, it's the 1st quarter full quarter that Q3 that it is a negative 664,000,000,000 That's the negative situation in the quarter. System has gone down by. That's the average that you have seen. So it is the lack of liquidity in the system, rightfully so, if you look at how RBA is managed, There is no rate change that has happened, but the inflation that spiked 4 months ago, 5 months ago has been managed through liquidity constraints, right, through working on the liquidity side. That is what has happened on a temporary basis.

Speaker 1

But over quarter to quarter, this is happening, but it is coming after more than 3 years, three and a half years, right? We are seeing this liquidity on negative. It has been there. If you look at last 10 years, there have been several quarters in the past in 'thirteen or in 'fifteen 2013, 2015, where it has been negative. But this order of magnitude negative is very recent.

Speaker 1

In the last 3 months, it has become negative. So that deposit is an important ingredient that is the important constraint to grow, right? And we are at it. And within that, I will tell you, retail has been reasonable. We would have liked retail to do 50% more, 80% more than where we did.

Speaker 1

But it is the wholesale, if you see, not just lack of growth, it's a degrowth in the non retail on the deposit side. That is where it is very price sensitive. We chose not to participate in the price as much as possible. We have avoided that, so that we can consume some liquidity that we have and at the same time make progress on the asset side. But that can't continue for long.

Speaker 1

As you know, LDR ratio is at 110 something. So we do need deposits to be kicking in for the loans to be operating. That also answers what Mark was asking, very similar thing that you're asking. Yes, we do need the deposits to be coming in. Thank

Operator

you. Next question is from the line of Suresh Ganapathy from Macquarie Research. Please

Speaker 1

Yes. Sriniv, so just to understand what is going to drive your margins in the future? Because if I look at it this quarter, you have sold off INR 50,000 crores, your LCR is at 110%, you can't go below that. There is no excess liquidity assets at 110% LCR, right, and funding costs may remain elevated. Suneer, Cheng, I want to go from 3.4 to 3.7.

Speaker 1

Incremental FAFSA mobilization is getting to be a challenge. So on term deposit growth is high, so HDFC Limited borrowings are sitting there at 7.5%. Your deposit growth is finding difficult to meet your own loan growth requirements. When are you going to replace the HDFC limited liability? So, amidst all these challenges, What will drive your margin, say, from 3.4 to 3.7, say, over the course of next 18 to 24 months?

Speaker 1

Will it be yield on loan? Because it doesn't look like it can go through cost of funds. That's the first question. And if you can elaborate the movement in margins, some indication as to what Could be the components and how are you going to manage the HDFC Limited liability replacement with deposits? Point number 1.

Speaker 1

And the second thing is 1500 branches doesn't look like it's happening this year because we have only opened 290 branches sorry, 270 this year. So going to fall short of 1500 basis target by a wide margin. What is the thought process there? Over to you, Srini. Okay.

Speaker 1

Yes, thank you. I'll take the second one first to stop it from a branches point of view. Yes, there are There is more than 500, 550 branches in the pipeline as we close the quarter. And We are targeting somewhere maybe 800 to 1,000 branches or so, right? If we do 1,000 branches, it will be good.

Speaker 1

There is more than 500, 550 branches are in the pipeline. So that's something on the branches. 1500 is not something that will happen by March, right? 1,000 is something that is possible. But at this time, we are having about 500 plus in the pipeline.

Speaker 1

That's 570,000,000 more precise, in the pipeline. The second aspect of it is in terms of your levers for margin and the deposit as such at total level. If you look at the mix of products that we are having, the mix of products, one of the important lever with the retail mix to be enhanced, right? Retail mix has been continuously coming down, and that is something that will help us to go. And of late, in the recent times, if you see, we haven't had that kind of a Market rate of growth on the unsecured assets.

Speaker 1

Actually, our personal loan has been growing 2% to 3% over the last 2 quarters. So we do have opportunity stays there. That's part of our credit kind of a process where periodically, we calibrate up and down. And now we believe that the overall credit, both from an NPA point of view and credit cost point of view, are at a benign state. And so whatever testing and other things may do, we are positioned to have a good growth there.

Speaker 1

That's 1. Retail asset growth, particularly the non mortgage retail asset where there is a yield that needs to come up. And the mortgage is another big opportunity that we have, Both existing customers where we have almost 4,800,000 pre approved prequalified database to go through, which we have done in our existing base who are eligible that we are making offers and talking about it. And also 5,600,000 customers who already have somewhere we are targeting them. So that in terms of the retail mix needs to go up, that is an answer for the margin.

Speaker 1

And to some extent, that picks up on the or a year, right? So that's just an important mix of growth. That's not what we have seen in recent times. In recent times, the wholesale growth has been overwhelming the retail loan growth. We do need to reverse that.

Speaker 1

That's part of the process in terms of what we are going through. Now getting to what are the other levers, which you also mentioned, but there are headwinds on that, right, copper ratio. We are at 37.7. Even before merger, we were 42. Over a long period of time, these are 42, 43 data points.

Speaker 1

We are constant of getting the CASA ratio back up. There are 2 aspects to the CASA ratio. 1 is The customer spending will abate at some point in time. And the second thing is that we are getting new customers. That is why It is important to get new customers, 2,200,000 new customer, loyalty relationships were brought in in this quarter, 7,400,000 over the 9 month period.

Speaker 1

It is important to bring new customers and get them to a maturity. So that is an important thing that we are working on to get that from a CAFA ratio to go back up. And also, we are at the rate cycle. The rates haven't moved for several quarters now. And by all accounts, we are at the peak of the rate cycle.

Speaker 1

And the deposit repricing that needs to happen in a quarter or so should be done because the rate cycle started in May 20 2. And then the CASA should be back to its normal growth, right? So that's something on the CASA ratio. We do we are waiting environmentally pursuing that to come. The other aspect that you said, borrowings, whether the borrowings can how do you replace the borrowings with deposits?

Speaker 1

Yes, 8% of our fund of our balance sheet was borrowings. Now it is 22 21% is borrowings. We don't need to change that from a to deposit fund. But one other aspect that we have started to pursue even in this quarter is that the borrowing power can continue as borrowing. So we we got INR 7,500 crores of long term affordable housing bonds that we have, infrastructure bonds that we issued in this quarter.

Speaker 1

The economics of that are like a deposit, not like a copper deposit but like a time deposit, right? Slightly better than a time deposit because you argue with the PSLC cost and you because it's affordable housing is stacked against it. We do have almost INR1 1,000,000,000,000 of affordable housing in our assets table that we can stack to. The DGS, the deposit insurance cost is obviated. And so there are some benefits that come.

Speaker 1

So it It equates to slightly better than a time deposit at the overall level. But that doesn't mean we do need CASA, but there are other opportunities on the borrowings too. Okay. And just one final question on cost. Srinhee, you guys have said you will bring down from 40% to 35% over the course of next 5 years.

Speaker 1

I know it's a long journey, the fact that we're opening over a number of branches. Can we get to see some benefit, not quantifying, but some benefit in that reduction next year, FY 'twenty five. At least there has to be a journey in that 500 basis point reduction, right? So We were at 40 points, I don't know, 4 last quarter and we are at 40.2 or something like that hard, I mean, around the same range. Do you think it can really come down in the next 1 year or so?

Speaker 1

Yes. Sorry, thanks. I lost it. Yes. We are with you Suresh on that.

Speaker 1

Yes, we do expect normally well, we don't give a forward looking outlook. But on cost to income, we always said that we want to take it down to the mid-30s and that we will progressively take it down and not just towards the back end, but there should be an expectation that cost and income should be improving. And it is a function of certain efficiencies through better digital offering. That's one several things that are in the pipeline on technology rationalization should is one. That is a good statement that should count for it.

Speaker 1

And the second thing is that as we work on some of these margins, which is both the asset mix, the CASA mix and the borrowings mix moving towards deposit. As we work towards that, the numerator is also an important contributor to get to that. Okay. Thank you so much. Thank you.

Operator

Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Speaker 3

Yes. Thanks. Good evening, Sheeny. Two, three questions. Number 1, the whole debate between LDR and LCR.

Speaker 3

For you as a management team, what is it that you're focusing on? I know you've put out certain strategy for LDR, but right now the LCR has kind of come off to 110. As the previous participant pointed out, 110%, Clearly, there's not really much room for it to go down. So what really is a key number to focus on for you all?

Speaker 1

Okay. Listen, both are important. It's like you need to walk and chew gum, right? You need to do both, which means LCR, we have said before that we'd like to operate between 110 to 120. We were at several quarters, 113, 114, 115, thereabouts.

Speaker 1

Then for a quarter, we went up, and then we consumed as we see in this quarter we have consumed, right? So it is important around that level to keep that level of cushion to some extent, right? That's one on the LDR. LDR is important, right? We do want to ensure that the mix of funding moves more towards deposits.

Speaker 1

So LDR is important from that sense. And if you see, currently 110. Then if you look at where can this go, where can this LDR go? You know that if you look at our LDR prior to merger, it's very important, right? So recent discussion that is developing.

Speaker 1

Prior to merger, our LDR was at 85, right? Then now it's at 110. And if you can remove the merger effect of the assets and the deposits on this, the LDR is more like 89, right? And if you look at our historical range of what the bank has operated LDR over a a long period of time, around that 85%, 87%, that kind of a range, that's where we operated historically, if you think about our LDR. That's where we operated.

Speaker 1

So the and today, if you suppose the merger effect, it's about 89%. So essentially, the LDR is a function of what has happened on the merger. It's about 2 quarters run on the merger, which I think we have run through 2 quarters. And we do have a kind of a path where we do want to replace borrowings with deposits and grow further loans with the deposits. That's the kind of a thought process.

Speaker 1

And so you should expect that the LDR to go down progressively over several quarters to come. Yes. The reason why I asked this Question also, Srini, is

Speaker 3

because we've bottomed out in NCR as in it can't really go down any further. NDR is clearly elevated. So clearly loan growth outlook and the visibility thereon is looking a little difficult given the environment that we are in. So what do we prioritize, growth or margins? If we prioritize growth, then clearly the loan growth has to come off or for us to starting and bringing these ratios to a more acceptable range?

Speaker 3

Or if you have the growth in margin, will it take some out because you have to offer or maybe increase the deposit rates further? So how are you starting to balance P2.

Speaker 1

Okay. So I do want to one thing mentioned, right? We are not caught up on we are not into one level of rate of growth as such, right? If you look at our rate of growth, there are sometimes we are slower, sometimes we are faster. But all we have done is that over A period of time, we have always doubled in every 4, 5 years.

Speaker 1

That's what we have done, right? Quarter or even a year can be different, but over a period of time, that is what we have done. So growth is not something that we are cost of goods saying this is the rate of growth that we want. Over a period of time, we want to because that's the investment we have done. We need to harvest returns on this.

Speaker 1

So We are focused on returns. So that takes you to the margin, right? We focus on margin or growth. We certainly do not want growth for the sake of growth. If you look at our wholesale growth, we had 1.9% in the quarter.

Speaker 1

Enough demand was there. There were several banks undercutting and taking, and we let that move on, right? We don't need to be participating. If it does not give returns, we don't want to be there. And so that's something that we are focused on.

Speaker 1

We want to do the products that are going to give us the return. Now on the margin, very important that you talked about the margin. Margin is important, but the first passing It's about the return. What does it gain from an overall ROA point of view? That's the first part.

Speaker 1

Then it comes because When you do a product pricing or a product choice to do to a customer, you're looking at returns more than the margins as such. Margins, to the extent that the mix appropriately gets calibrated, the margins. For us, we have never had this margin conversation because our mix has been predominantly retail, and the retail rate of growth over a decade, if Q3 has always outstripped wholesale. So there is there was not a necessity. There was no conversation about any margin because it comes with a hefty margin, And it comes with the credit cost also.

Speaker 1

And our credit cost is at a very benign state of sub-fifty basis points right now. And if you look at our credit cost Adjusted for the mortgages, you will see that the mortgage is because of the denominator and the low loss rate. The credit cost, what is the mean on the credit cost? 170, 80 basis points, that's the mean. And pre mortgage merger, 100, 110 basis points.

Speaker 1

So what's the what due to the mix change that has impacted the margin, that has come through in the credit cost line. So certainly, we are focused on profitable growth. That is I hope that answers you in some manner that we are trying to seek.

Speaker 3

Yes. Two small questions. The branches, you said this year maybe 1,000. So is this a new trajectory that we're looking at? Or we'll go back to 15,000,000 for the following years?

Speaker 1

See, again, I'll tell you one other constraint that we are also working through on the branches. With this URC. This URC is something that is required, right? The mix between the unbanked rural center and so on, selecting that Availability, what is that URC that is available so that we are able to get that mix appropriately, right? So there is a targeted percentage with a regulatory target on URC.

Speaker 1

That is more. Internally, we would do, but we need to have that mix between the URC and the non URC so that we can grow progressively across in a balanced manner within their regulatory approvals, right? That is what it is. So if you look at whether we go back to 1500, I think Sashi has alluded to that over a period of time, we do want to get to the 13,000, 14,000 type of branches, not just for the sake of branches. It is the geographical presence that we can have so we can tap into the pockets of both the deposit and lending opportunity in that area.

Speaker 1

So it's not just deposit, deposits and also the lending opportunity in the area. So we would be there, But there is no hard kind of we're not going to push ahead with only one number. But currently, this is what we have seen.

Speaker 3

Yes. To be very generous with your time, just a small question on the intra bonds. So you raised some money in the last quarter, I think INR 7,500 crores. Do you have eligible assets even sitting on the balance sheet against which you can keep raising these intra bonds and how much would that be?

Speaker 1

We have eligible assets close to INR1 1,000,000,000,000, as I mentioned. So that's part of the way, which is it can have qualification in the sense that you may have PSL benefits because you will take it off the top line to the extent that you're able to tag the bond and and affordable housing. And you will get the other benefits that I mentioned, but the cost on the PSLC or the deposit insurance, those things are obviated. But still, any day, you need Casa. But to the extent that there are time deposits, this economics is better than even slightly better than the time deposits due to this.

Speaker 1

Yes, there are enough asset room, is that the question? Do you have enough assets on the asset side to face off against

Speaker 3

Thank you so much, Srini. Thank you.

Operator

Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go

Speaker 4

ahead. Yes. Hi, Suneet. So given that overall liquidity straight plus the deposit traction all said and done this quarter has not been very encouraging. So when do we See, in terms of tweaking the rates, given that now at least the repo rates have sustained, would we ever look at raising deposit rates beyond 7.2 just to make sure that we are on our target to get the deposits and at least sustain the growth momentum even on the asset side.

Speaker 4

So will there be a thought? No doubt, you have earlier said that we will look at branch expansion that's going pretty slow. Even terms of like activation of the field force still not that great response. So at what time do we look at tweaking the rates just to ensure the deposit direction is what we were envisaging earlier.

Speaker 1

Okay. Deposit pricing is not a tool that we are having in our sales and relationship process, which means it is not a driver. The conversation would never go to say, I'm the best price to deposits come here. It's not a conversation because that's how If you look at some of the comparative pricing on our deposits with our peers, we are more or less in that line, right? With our top peers, That's the kind of a pricing that we are positioned in.

Speaker 1

We're not trying to differentiate on the pricing. We're trying to differentiate on other offering features. That's one on that. 2nd, in terms of the market share, you touched upon the growth rate and the market share. I do want to allude to say that We do believe that on an incremental basis 18%, 20% market share, we do Gardener, right?

Speaker 1

That's part of the Whatever is the size that we have got, whatever is the level at which we are growing, we continue to maintain the superior rate of growth to the market, gaining market share on an incremental basis, getting that in the high teens to continue drive of Increase your market share. Rates are not at play. We are not and that is part of the reason Whatever, nonretail deposits, we grew by 3.3% in this quarter.

Speaker 4

Yes. Okay. And secondly, with to take write back. So last time when there was a write back, you indicated that maybe it might not repeat and should see it normalizing towards 25% what percent, but that benefit is still continuing. So if you can highlight in terms of Is it expected to continue?

Speaker 4

What is leading actually leading to this kind of or maybe a lower tax rate, I would say? Or maybe this is like the investment gains, which have been there. It's on that count, if you can just highlight that, yes.

Speaker 1

The tax benefits that we booked in are a consequence of 2 things. 1, there were certain favorable orders received relating to EHDFC limited past assessments. So that's 1. And 2, there were some favorable orders received relating to the bank for the past years. So that is based on those assessments.

Speaker 1

We have determined that the promotions are no longer required. That's and depends on time to time. And there is no such kind of a routine timing that I can predict when these orders come and when we get done. But yes, these are episodic from that change. We receive favorable orders, we assess and we take it.

Speaker 1

And in this quarter, we have hired 2 of them like that.

Speaker 4

Okay. So all orders which have been received, which have been favorable, they are more or less accounted for now and then it's been in interest bearing.

Speaker 1

Got it.

Speaker 4

Okay. And lastly, if you can highlight in terms of the maturity of the borrowing, HDFC Limited borrowing over next 1 year, which is falling due, okay? And any quarter we would see any kind of a volatility in debt maturity?

Speaker 1

Maturity profile is 20,000,000,000, there's no big maturity at least over the last 2 to 4 quarters, which is evenly there. There's not a spike of A $1,000,000,000,000 going away in a quarter or half a $1,000,000,000,000 going away in a quarter, that kind of profile. And I think annually, we do publish the profile of those and we should soon get the feedback,

Operator

Next question is from the line of Chintan Joshi from Bernstein. Please go ahead.

Speaker 3

Hi, thank you. Can you hear me?

Speaker 1

Yes, Chintan. Hi, go ahead. Yes.

Speaker 5

Hi, Shruti. So can I go back to the LD ratio discussion? What I'm hearing from you is that it does need to come down, but also growth will remain intact. So I'm trying to square this circle. How like the only way lending ratio improves is if you grow deposits faster than lending.

Speaker 5

Is that what we should expect by FY 'twenty side? And the pace of that, if you can talk about, Do you have some target in mind? Or do you look at market conditions and do your best? How should we think about this?

Speaker 1

No, good. Thank you. But one thing I do want to mention is that the growth rate Sustainability of the growth rate is not irrespective of what the CD ratio is. CD ratio has to improve, right? As I mentioned, Typically, we have been in that mid-80s to high-80s.

Speaker 1

The merger took it to where it is today, past 100. And over a period of time, we do need to bring it down. So we can't keep the CV ratio to be growing all the time. That's not a proposition that we are envisaging. So that takes the second part of What you asked in terms of the deposit growth and how we should think about the rate of growth.

Speaker 1

Yes, we do envisage that the deposit rate of growth should outpace the loan rate of growth. And for the CV ratio to progressively come in and for the economics to work, the deposit rate of growth should be at least 300, 400 basis points higher than the loan growth. Only then the economics will work better. So yes, that is the kind of part of

Speaker 5

the business. So the other question I have is on borrowings and debt securities. If I look at HDFC limited balance sheet as of FY 'twenty three, there was about $1,700,000,000,000 that was going to mature over the next year as of FY 'twenty three. However, we have not seen that mature, if anything, borrowings have gone higher today than the pro form a combined FY 'twenty three balance sheets. Is this what was the thinking behind it?

Speaker 5

Because One way of looking at this is there was an opportunity to reduce borrowing, but it was not taken because there was profitable lending growth out there. Is that the way you thought about it? Or if you

Speaker 1

can explain, that thinking would be helpful. Okay. See, in this time period, now 2 quarters have gone by after the merger. And the borrowings have remained or actually gone up in this quarter by almost INR209 billion, it has gone up. Out of it, about INR 7,500 is infra bonds, which economics work well.

Speaker 1

We have taken that. The rest are either market borrowings or other specialty related action. So it's only one item, which is the infrabond, which is the borrowing as such that has gone up. The rest are market related activities, which are there, right, in that borrowing. The other aspect of it is that should you expect this to go down As the maturity, I think another person was asking about the maturity itself over the next several quarters.

Speaker 1

Yes, there are maturities coming. And as we envisage to the extent that economics work, we will have a similar replacement. If not, it has to be replaced by deposits. And that is part of how the rate of growth of deposits need to outpace the loan growth. Otherwise, we will not be able to keep up with the loan rate of growth.

Speaker 5

Understood. And finally, on the CRB business, which is growing really fast, what is the overall lending yield of the CRB loan book, so that we can understand what is the mix impact on the overall lending yield from the CRB given that it's going so fast?

Speaker 1

Okay. See, the CRB yield comes in about between 9% to 11% depending on product. There are certain products that go above that. There are certain products which are around that is in offline. But on average, it's slightly above 9% type of yield at an aggregate level.

Speaker 1

But there are several products, as you know, within the CRB segment from Business Banking to Emerging Corporates to Agriculture loans to SLI loans to the commercial vehicle and so on and so forth. So we'll be we'll take a different price point. But on an aggregate average, if you look at it, it's not at 9%. So it

Speaker 5

is in line with the overall group lending yields. It's not above The average of the balance sheet, it is in line with it.

Speaker 1

It's a good assumption. Yes, it is not above the average. It is at that level.

Operator

Thank you. Next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Speaker 1

Hi, good evening and thanks for the opportunity. Ashwin, 2, 3 quick questions. One is on the Bandhan Bank state sale that has happened in this quarter. So if you can quantify the gains on this Same. How much has flown in this quarter from that?

Speaker 1

Yes. See, I talked about that It's a CML, it's a CML, it's a CML, it's $15,000,000,000 or so on the overall I mentioned. So not necessarily I won't talk about any individual particular item, right? But from an overall point of view, I did talk about the mark to market and the trading treasury investment portfolio income, 14.7, 15, right, which is there, Right. So that is included in the total, but you are not like giving the Yes.

Speaker 1

Okay. And secondly, on the Credella, Have you booked the deals in this quarter or it will come in 4Q like how are we looking at that? Okay. Look, Kedila, nothing has been booked in the December quarter. We are waiting for regulatory clearance before the transactions can close.

Speaker 1

So we are working through or the potential purchaser is working through certain things to provide. And we are hopeful to close soon, but there is no particular concrete time that I can give, right? They have to go through Approval process before it can conclude. Okay. And lastly on the contingent provisions, this quarter we have made Hi, Kolendra.

Speaker 1

The outgrowth of contingent, so any particular levels you want to reach or is this like the flowback of the excess gain that we are having right now that we are Using that, so any thoughts around how do we look at this contingent provision number? Okay. See, the contingent portion that we build in the quarter, which is 12,200,000,000. We attributed on a prudent basis towards the UAF, right? There is a RDA regulation to account for and look at various in a specific manner.

Speaker 1

So we took that chance to say, on a prudent basis, we need to provide. And so we did more than the carrying book value, but we made 100% portion on a permanent basis. So again, we evaluate this quarter to quarter, Okay. That's the process. That's a legitimate process to look at it quarter to quarter.

Speaker 1

There is no such targeted level of build or release that we have. We will assist it every quarter end 30 year of every year end. Right. Okay. Thanks so much, Suneet.

Speaker 1

Thanks a lot.

Operator

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

Speaker 5

Yes. Hi. Good evening, Suneel. Thanks for the opportunity. So one question is on Sorry, the antiquated loans, so after this RBI Circular on risk weighted assets and also just the nudge that has been happening on India as well.

Speaker 5

What is your approach? So Part 1, what is your approach to unsecured loans, especially personal loans, will that slow down? If yes, when you were talking earlier about bringing up yield on non mortgage retail assets, how does that affect that strategy? And second on NBFC, Again, what's the approach? Will you limit the percentage mix or will you sort of limit the absolute So how do you plan to move ahead?

Speaker 5

Okay. Yes. Let's look at the retail unsecured that you alluded to. The Retail Unsecured is extremely profitable

Speaker 1

product, and we like it. And it has to go through our credit filter. And we've been in that for a long time and one of the best scorecards we believe we have that. If you look at the delinquency profile on that, it's fantastic. The delinquency profile, the NPA profile is better than a secured book that we have.

Speaker 1

So we like it. There are times it gets calibrated up and down, and we are confident of growing the And let me tell you one important thing on that unsecured as such. Pre merger, on the retail book, our unsecured component was 41%. Post merger, it is about 22%. So if anything, we created more kind of a runway for a faster growth.

Speaker 1

But when we say faster growth, we are not talking about something that is 25%, 30% thereabouts kind of rate of growth. For us, faster growth is to go into high teens That's what we have had in the past. That's why I'm more than telling you what we will do. I'm trying to tell you what we have done. And we think that, that is what we will do rather than do something new about it.

Speaker 1

So we have enough headroom, enough runway and opportunity on that is extremely profitable product. So that's something to keep in mind on the market. NBFC, I think our approach to NBSP has always been 1. For TSL ending, we do want that. For corporate houses, right, part of various NBHD is affiliated to corporate houses, something that we work with because that's a much broader relationship across the corporate group that we have.

Speaker 1

So that's quite profitable, and we like it, and we worked through that. One thing that I do want to mention is that, yes, the risk rates did do add in terms of the capital that is required for it. In respect to all that, we look at the profitability. They are quite highly profitable at the enhanced risk rate, both ROA and ROE that you see, and we'd like to go with that.

Speaker 5

So there will be no sort of approach to limit the, let's say, percentage of overall exposure to NGSV in light of whatever numbers have come from the regulator or caution, let's say, that has come?

Speaker 1

Correct. The way to think about it is that where it is to be directed lending, which is priority sector, is number one preference, right? And by the way, some of our NBFCs are government sponsored NBFCs, right? So and they are not into consumer lending at all. And so I do want to distinguish, of course, the circular does not distinguish between different categories of NBFCs.

Speaker 1

So our NBFC does not necessarily need to be lending only to consumers or of segmentation which is lower than the bank segmentation for lending. No. NBFCs are also government sponsored, government linked NBFCs are there, where we have a good relationship with them.

Speaker 5

Okay. And just another one on the Cross sell, at the time of the model, you were talking about how you benefit from cross selling your products to the customers who are coming into the fold, how do we track that and when do we start seeing those cross sell benefits either in terms of higher retail CEO can you start disclosing some sort of cross sell metrics. So how do we track whether that's really accruing or it's taking time?

Speaker 1

Very good, but thanks. You touched upon that. I'll touch you I'll give you one, and I'll tell you the 3 things that we will start to publish and show to you. One is that we said we want savings accounts, right? That's one because we want to offer the bank not just a mortgage product.

Speaker 1

So if you look at 1 month, the last month of December, right, we in October, we showed to the broader world in terms of how various digital approach that we have taken to offering this bundling of products. Savings account is an important part of that product suite that we offer. Among the disbursors that we have, in 1 month, if you take 40,000 plus disbursors, 30 disbursors because I'm not counting for the disbursals which are on board, right, 2nd installment, 3rd installment, leave that to the site. On the first disbursals that have happened in the month, in December, roughly half of is existing to bank and new to bank, half of is bank. Among that, us, which is the new to bank, almost 65% of them we have penetrated with the savings deposit.

Speaker 1

So So it's done with the 68% penetration to start with, right? I'm talking about the December we are where we are. And that penetration comes with the deposit balance, at least 1 to 2 months of EMI, which is INR 30,000 to INR 35,000 on an average we have taken from the customer base where we are open. So we will publish these. So one is savings account as a product and what is the penetration on that.

Speaker 1

That's number 1. And I gave you an example of 60% of new to bank. First, this growth was we have And we want to take it to 90, 95, 99. We'll keep tracking and reporting that. The second one is the credit cards.

Speaker 1

We're just beginning on that one. We will report on that as a product in terms of how we are offering credit cards internally. The third is consumer durable. Consumer durable, again, one is the offer. The second one is the drawdown because the customer will not we will make that offer on the consumer durable.

Speaker 1

The customer will drawdown a month or a quarter or 6 months later as the house is ready for the person to move in and do. So and then over a period of time, we will bring in the Other products, insurance also is something that we will start to disclose to see the penetration level of insurance. The things like the DMAT accounts and the mutual funds and those sort of things. Over a period of time, we will come with that. But there are 9 products that we will come up with, out of which 3 are digitally enabled.

Speaker 1

The rest will be soon and we will start to report them and show to you.

Speaker 5

Sure. Thanks. We will really help to get some more granularity because

Speaker 1

Thank you. We'll put up a page or 2 from next Simon, we'll have

Speaker 5

that. Sure. Thank you.

Operator

Thank you. Next question is from the line of Anand Bhavnani from White Hawk Capital. Please go ahead.

Speaker 1

Thank you for the opportunity. I have a question on the consumer behavior. This is more to do with seeing a revolvement on credit card being much lower than pre COVID levels. Similarly, on the current on the savings account side, the growth rate is weak. So Can one surmise that because of good apps available on mobile devices, consumers are now being very Active and not giving into the inertia on both the asset side, the credit card, they are not revolving, they are just taking personal loan or something.

Speaker 1

And similarly on the liability side, that's not the consumer side, moving away their deposits to an account where they are getting 7%, 8%, whereas So, Liang, you mentioned 3.5%. So, have you done any behavior in advances on both asset as well as liability side to see how across the broad spectrum of your customers, is there any data to prove through these Yes, I think. See, in terms of the customers, you touched upon the revolver. Thank you for touching that. See, the revolvers haven't grown.

Speaker 1

If anything, actually, in the scope, we do see we did see slight reduction in revolver percentage, We're not seeing that. And then some other question I did a little to how card bunch of customers, Customers who have credit cards and savings accounts with us and you see their balances are 5 times, little more than 5 times, 5.4 times their balances is what they have in the deposit accounts. So that is also healthy. It was less than 4, 3 years ago. Now it is 5.4.

Speaker 1

So it has grown. That's the second thing. The first thing in terms of whether some of the digital properties are enabling less use of card revolving and alternatives. In our customer segment, that's not something that we are seeing because it is more of the segment that we have chosen and working on is little more higher rated. That means little more higher score customers.

Speaker 1

I think we have talked about the revolvers 1 to 3 months and 4 to 6 months and 6 plus months, call it 6 plus months revolvers. Across these 3 revolving categories, we have not seen pickup happening. So that's part of the customer base and that's part of the cash that they have. Or some of them have got impacted through the COVID and come out of it and not survive and come through it. I'm not indulging in any of these things.

Speaker 1

And some of them who do take it for a short period of time, right? So that's the 1 to 3 months category, if you see. They take for some short personal loan or they don't want a 2 year or a 3 year or whatever the tenor personal loan, They want it for a short period of time. They don't mind taking it. So we do think that the category is very attractive and very nascent because we know that there are only kind of 90,000,000, 100,000,000 credit cards in this country.

Speaker 1

And you would expect that to be north of €500,000,000 So we have enormous room to go. The other aspect is that whether alternative payments, UPI or anything, those kind of things are directed to assist on whether those things are that would only increase the balances in the savings account. So if somebody who is using UPI previously was drawing down cash and paying through. So the cash was going out of the bank. Now the cash is in the bank account and is using UPI.

Speaker 1

So it only enhances anybody using UPI only enhances balances in the account. So there are pluses and minuses across all of these. But at the end of the day, the customer segmentation that we are working with, We're confident that that would bring in the balances and grow as the economy grows. Sure. But the question is whether the minuses are overwhelming the pluses, because the account opening these days is much like and our software and if a bank is offering 7%, 8%, and we are seeing these banks which are offering 7%, 8% are seeing very high growth rates on the liability side.

Speaker 1

So is it that the smart customer service, if yours, Now using these properties, it's a structural change and hence it will be a headwind to our deposit accretion targets. Okay. There are 2 again, 2 things I want to respond to. 1 is the if you look at us from a market share point of view, we have been gaining market share. Our market share is at about 10.5%, and it continues to grow.

Speaker 1

On an incremental basis, I think I alluded to our assessment is 18% to 20%. So that we are keeping up with that. Yes, there may be some customers who go. But from our rate offering point of view, we offer you're talking about the savings account rate, but on a time that savings account rate is what we offer 3.5. On the bank deposits, we are more or less in line with the competition, significant peers.

Speaker 1

If you see, we are more or less in line with that on a bank deposit rate point of From a savings account, yes, we do continue to. That doesn't mean somebody else cannot grow. We are growing. And think about it still, the public sector banks from where all of the private sector banks, including the ones that you alluded to, offering 7% or 8% on savings account, Those are all in the private segment, private sector segment. And the market share there is coming from public sector because all the private

Operator

Thank

Speaker 1

you.

Operator

Ladies and gentlemen, we will take that as a last question. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

Speaker 1

Okay. Thank you, Nirav. Sir, thank you all for participating. We appreciate you dialing in at this hour. If any more questions, comments or clarifications required, Please feel free to reach out to us.

Speaker 1

Our Investor Relations team would be happy to connect directly with you or with me, and we can have a conversation. Thank you.

Operator

Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference.

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