HDFC Bank Q2 24/25 Earnings Call Transcript

Quartr
Provided by Quartr
October 19, 2024

There are 9 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q2 FY 'twenty five Earnings Conference Call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Speaker 1

Thank you, Nirav. Welcome to all the participants. I appreciate dialing in today. We'll start with we have our CEO and Managing Director, Mr. Sashid Jagdishan with us.

Speaker 1

We'll start with his opening remarks and then get back to you all. Sashid, over to you.

Speaker 2

Thank you, Srini, and thank you, friends. Let me first wish you a belated Dussehra festivities and also wish you in advance the Diwali activities that's going to come in next week, etcetera. Let me start with some of the macro environment which we are witnessing. Liquidity has been gradually improving over the last couple of months. So that's a bit of a good news.

Speaker 2

However, the deposit rates continue to be elevated and sticky. Probably the credit growth still outpaces deposit growth in the system and that's mainly the reason why it continues to be sticky. As we have witnessed in the previous high interest rate cycle, customer preferences continue to be towards time deposits, probably to lock in at higher rates. Despite intense competition and the competitive environment, deposit growth has been very healthy. On an average basis, we have grown around 15% year on year.

Speaker 2

Retail branch continues to contribute around 80% to 85%, in fact to be precise, 84% of the total deposits. Let me talk about the advances under management. We have mentioned in earlier public forums and calls that we will bring down the CD ratio faster than what we had anticipated in the past. Let me spell out some of the light parts of our credit growth. FY 2025, we would probably grow slower than

Speaker 3

the system.

Speaker 2

FY2026, we may be at or around the system growth rate. FY2027, we should be faster than the system growth rate. Our assumption is that from all the regulatory commends in the Monter policy statements, there will be a convergence of system loan growth and deposit growth rates somewhere during this period. In the light of the above strategy, the average assets under management grew by about 10.2% year on year. The margins has been stable in the range that we have been talking about at 3.45% to 3.5%, which is printed at 3.46%.

Speaker 2

The gross NPA continues to be stable at about 1.4%. In fact, the gross slippages at 1.2% is better than what we had witnessed same time last year. The profit after tax grew at about INR 16,800 crores. It shows an optical growth rate of 5.3%. But adjusted for the bond gains and for the tax adjustments that we enjoyed last same time last year.

Speaker 2

So growth rate adjusted growth rate is about 17%. Let me pause out here and we probably will take a lot of questions and we have the team out here, Srini, Bhavan, who probably will also chime in for responding to your questions.

Speaker 1

Okay. Thank you, Sashit. Neeler, with that, you can open it up, please.

Operator

Thank you very much. We will now begin with the question and answer session. You. The first question is from the line of Marukhut Chania from Nomura. Please go ahead.

Speaker 4

Hi, Dini. My first question is on fees. So it's growing strongly. Is there some securitization in some fees? And if you could also refresh us with the accounting for any securitization as in where it should come?

Speaker 4

That's my first question. And my second question is on movement of contingent provisions. So what kind or what class of loans would they have been used for? Because I think the contingent provisions look lower Q o Q.

Speaker 1

Okay. Malik, I'll take this question on the fees first. Fees at about INR8,000 crores grew by about 17% year on year. Think about the fees, 3rd party products, the distribution products have been quite strong, it grew by almost 32% in this quarter year on year, year on year this quarter to last year same quarter 32%. And if you think about all of the retail categories, assets, parts and retail liability, all of those other categories on a combined basis grew by about 15%, 15.5% of

Speaker 5

the intervals.

Speaker 1

Wholesale, which has got certain episodic within that, they grew by about 5%. That's what you're seeing on a net basis, fees growing by about 17% thereabouts. Last quarter was between 14% 15%. So it's very similar range anywhere between 14% to 17% is what when you look at it over several quarters, you will see that the range at which the fees grows year on year. And quarter to quarter, seasonality plays out.

Speaker 1

That was the first part of the question that you asked on the fees. On the securitization that you asked, securitization comes with excess spread and that excess spread is not part of fees. That excess spread in this quarter, you know that we did it towards almost the end of the last week. So there's not much of income or whatever is there, but that is the excess spread and not the fees. And Maruti, it

Speaker 3

will be amortized over the life of the loan. Nothing is upfront there. So the fee item is

Speaker 6

not impacted by secured variation at all.

Speaker 4

Got it. And will the margins optically look higher then from next quarter given that or no, not clearly, because they'll be part of investments anyway, right? Yes, okay. Sorry, and on contingent provisions?

Speaker 1

Okay. Contingent provision, you see that there was a release of contingent provision. There's a footnote in the accounts that AIF provisions, we received the clarifications on AIF. We had reserved 100% of our contribution to the AAF. The clarifications came that we don't need to provide rupee for rupee of the amounts that we have provided to the AAF.

Speaker 1

It is sufficient to provide on a proportionate basis based on the AAS lending to the Qatar company and so appropriately the provisions have been taken down.

Speaker 4

Okay. Perfect. Thanks. It has

Speaker 1

nothing to do with credit. It is simply a regulatory provision that was created and it was taken

Speaker 4

out, yes. Thanks a lot. Thank you.

Speaker 2

Thank you.

Operator

Next question is from the line of Kunal Shah from Citi. Please go ahead.

Speaker 1

Yes. Thanks for taking the question. So first, what can I get with respect to RDI's draft circular?

Operator

Your audio is not coming clear. Can I request to speak to the handset?

Speaker 7

Yes. Is it clear now?

Operator

Yes. Thank you.

Speaker 7

Yes. So the question is on RDI's draft circular in terms of the overlap in lending with group entities. So what do you think should be the impact on H2B Financial? And maybe till the time there is the final guidelines, would it any which ways impact the listing of the HDP Financial that is being planned and that is required as per the regulatory requirement? Yes.

Speaker 1

Okay. Kunal, thank you for asking. There are 2 aspects to what you're asking. One is draft circular. The word is underlying word here is draft, number 1.

Speaker 1

Number 2, the comments are required to be submitted by November 20, our bank. And I'm sure the banking fraternity would be providing similar comments. So we like to wait to see what turns out to be the final, that's second. Number 3, the context to keep in mind is also that, HDB

Speaker 2

is

Speaker 1

a regulated entity operating under the license from Reserve Bank of India. So it is a licensed entity. And there are certain conditions for license. It meets those conditions for license. It is also supervised by the similar team that supervises the bank.

Speaker 1

The policies and the procedures adopted by HDB are consistent with what the bank does in terms of let it be income recognition, provisioning, lending standards that are required or where lending is prohibited and so on. So the entity follows very similar principles, which means there is no arbitrage between the bank and HDB. There is no arbitrage as such to there is no charge. The bank operates, as you know, for that particular product segments, those kind of products, the bank operates on a program basis. And HDB, by nature of the customer segment, which is very different from the bank customer segment, operates with a touch and feel closer to the customer through a branch network and operates handholding the customer on a periodic basis.

Speaker 1

So very different model in terms of how HDB operates and it's a necessity in this market where credit evolution is still in a early to mid stage. So that's in terms of STB as such in the broad circular for you to fit the context. We do not know what the final will be. We'll be providing the feedback and then we'll take it from there. As it relates to IPO, you know that there is upper tier circular, which came in sometime couple of years ago now.

Speaker 1

That couple of years ago, a circular actually came after the white paper of this draft circular that was given about almost 3 years ago. So subsequent to that white paper, there was a draft circular. The draft circular of the I'm sorry, the circular for the upper tier chain and that requires HDB to be lifted by September 2025. The process for that listing was kicked off. As you know, we put out certain press releases after various board deliberations here as well as in HDB between July August and the process is kicked off.

Speaker 1

As it relates to the timing or anything else, I would not be able to talk more specificity on that. That's part of the publicity guidelines as you enter into an IPO process. Publicity guidelines do not permit to talk anything more specific at this stage.

Speaker 7

Okay, okay. That's helpful. And second question is on LDR. So you indicated in terms of how we should look at the overall growth compared to that of the system averages. But when we look between our own loan and deposit growth, the way we have been maybe at least contracting the LDR, still what level should we assume that we will be so aggressive in getting these LDRs down?

Speaker 7

Would it be like 90, 95 on level and then we will get relatively more comfortable? Or would there be any time period maybe that we would have want to get it down or maybe we will see a much higher deposit growth compared to the loan growth for next 2, 3 quarters? And then maybe both of them should normalize, yes?

Speaker 1

Yes. Lots of details you provided there, Kunal. The point here is that the bank LDR was more closer to the 86%, call it even 87% if you round it. That was the rate that we operated before the merger. We went all the way to 110%.

Speaker 1

And rightfully so, because it was funded through longer term borrowings. Typically, banking system, if you look at it, at least the top banks, if you look at it, the borrowing mix in the funding profile is about 7% to 8%. For us also, it was 8% before and it went to 21%. So for better economics and for alignment, repositioning the balance sheet was required. And so thereby, currently, it's at about 16%.

Speaker 1

The borrowing mix

Speaker 5

is at 16% or so. And

Speaker 1

the LDR, when it will come down, the thought process we had, which our CEO had articulated over the last 9 months is that we had thought that it would take 4, 5 years to be at that level of what historically we have run, which is the mid-80s to high-80s. In short of that, there is an opportunity right now with the rate of credit growth being high over the last 2 years and is expected to come down to maybe the deposit level rate of growth. And so in this scenario, it was appropriate for us to rethink to say we will do it within 2 to 3 years to get to the high 80s, right? So there is no you asked me is there a quarterly as you described 2, 3 quarters or a year, we don't want to get into quarterly or year, but certainly an accelerated approach is what we have in mind to do. And again, keep in mind the way we are operating is that as far as the retail lending is concerned, retail loan is concerned.

Speaker 1

If you think about our mortgages, we are full force in the market in terms of marketing and selling mortgage because it provides better customer relationship. Price, you know our price and you know the price of the legacy banks, which are there, where high differential exists. And so there is a sensitivity to price there, but we grew as you see there almost 11.7% year on year. And as it relates to non mortgage retail, we do 11% year on year in this quarter that you are seeing, but we have moderated the growth purely based on credit dynamics, but our credit underwriting standards, underwriting field looks at certain standards and calibrates that. And priority sector has grown 4.7% sequentially, which is at the rate of 16% to 20%.

Speaker 1

We need the priority sector, high quality, again, popping through the whatever credit filters comes in. Here, there is the larger ticket size loans is where we have used this tool of calibrating, again, price conscious. If you look at even in this quarter, the bond spreads on a 2 year AAA or a 1 year AAA bond spreads have moved between 15 to 30 basis points up. Loan spreads in the market are pressurized to come down. And so at this stage, we chose that's not the way to go.

Speaker 1

And so we moderated the growth on that. So there is no one particular target as you saw. We talked about it for 2 minutes to say There is not something that over the next one, 2 or 3 quarters that we can give you a target, but directionally, we got what Sashi has been talking about for a few months now.

Speaker 2

And the reason for the change in our thought process is we also believe from the various regulatory commentaries that is you have been listening and we all have been listening that it may coincide over the next 2 to 3 years change in the credit environment. So we want to ensure now that we have mentioned and we have been witnessing a very stable asset quality, we want to be extremely well positioned when the positive cycle probably changes in the next 2 to 3 years, we want to be well positioned to capture the kind of incremental growth that we have seen in the pre merger levels. That's one of the reasons why we are accelerating the bringing down the CD ratio or the loan deposit ratio, which is what I mentioned at the beginning of my commentary as to what our light path of credit growth would be visavisistent growth rate over the next 3 years, including FY 2025, 20 6 and 20 7.

Operator

Thank you. Thank you. Thank you and all the best. Thank you very much. Next question is from the line of Gaurav Singhal from Analytics Management.

Operator

Please go ahead.

Speaker 5

Hi. Thanks for taking my questions. I have a couple of questions. So one

Speaker 7

are you Deepakar?

Operator

Yes, go ahead.

Speaker 5

Hello. Yes, so I have a couple of questions. The first is on the priority sector loan. Maybe if you can share some more detail on how much are we meeting organically? Because I noticed that in the last few quarters, our other assets as a percentage of total have gone up a lot like 3%, 3%, 4% pre merger now it's like almost 6%.

Speaker 5

But this quarter, it has actually come down Q and Q. So I'm just curious if that is because we are meeting more priority sector requirement organically. So maybe if you can share some thoughts on that. And the second question is about the non mortgage retail that you mentioned. Do we envisage us reactivating this and start gaining market share again because a lot of our peers actually are now seeing our credit cost go up and they are going faster than you.

Speaker 5

So that we in the next several quarters we'll see us gaining that market share as our peers step back?

Speaker 2

Thank you. Okay.

Speaker 1

Thank you for asking again. Let's go to the PSL that you mentioned. Yes, I think as far as the PSL achievement is concerned for March 24, which is already published, that you will be able to see it. It's in our annual report and various other disclosures. We are close enough in terms of at an aggregate level.

Speaker 1

Our PSL was 50 odd percent aggregate level. And the smaller marginal farmer and the weaker section, we were slightly under, that's less than 1% or so that we have seen that. Sequentially, you'll see some other assets going down. That various causes that go up and down, including some RADS maturity. So many things will happen that that's about INR 2,000 crores or so, that's something.

Speaker 1

Then you talked about the PSL as we stand today. Yes, as far as the PSL is concerned, the only PSL that we focus on organically because the rest are naturally part of the business model to grow is on the smaller marginal farmer and the weaker section, which typically we are between the organic growth and the PSLC and the IBPC and the PTCs or the securitization that we do on the investment side. Across all these sites, we operate somewhere between 9%, 9.5%, thereabouts closer to the 9%. 10% is the target as you know. So we endeavor to close that gap as much as we can organically.

Speaker 1

That is where the approach has been built organically. I wouldn't say where we will end because we don't know the market availability and how we do it, but that's at least the approach is that organically we want to do as much as possible. And other tools are available at a price for us to take. And that's where we are as we stand even in September. That's one on the PSL.

Speaker 1

On the non mortgage detail, I'm going to start and then Sashi is going to say. You talked about market share, right? Despite whatever you talk about our rate of growth slowing down, In the recent year, we slowed the unsecured loan to a rate of growth, which is 10%. In the recent time periods, 1 to 2 quarters this year, we've slowed it down to between 9% 10% rate of growth. And if you look at the year before, we grew at 19%, right?

Speaker 1

So the risk calibrates in terms of they're seeing it far ahead of time in terms of how to time it from a calibration, which is what has happened. And if you look at the non performing on the retail side, our non performing loans GNPA is at 1.36 and thereabouts, retail GNPA is at about 0.8, right, 0.8 that's where the unsecured loans are also there. From a market share that we alluded to on appeal on the private side that means leave the government segment to the side we are the number 1. If you look at auto, we will be the number 1, right. So in cards we are the number 1.

Speaker 1

So various products on the retail non mortgage, when you think about it, we are the market leaders across various product segments with whatever. Even in the recent times, if you look at the high quality customers, customers who are rated above 750, 760 score and above, which is a bureau score, which is not the model for us to originate, but that's for us to refer. We have one of the highest to share both from application incoming, inquiries, disposals, across all of those segments. And the stock, we are one of the highest from a higher rated credit score segment point of view. I think that's in terms of we continue to focus its credit calibrated and we don't have one particular target for credit to achieve there.

Speaker 2

And all the portfolio, as I said beginning of the commentary, while the quality continues to be very stable across the board. And of course, there will be this quarterly fluctuations, but we are not overtly concerned. So it also sort of helps us to position ourselves very well when we probably are ready with the cycle changes back into a positive territory. And that's a time when we will probably pick and choose the right customers at the right price, which will be contrarian to some of the banking system trends.

Operator

Thank you. Next question is from the line of Pranav Jee from Bernstein. Please go ahead.

Speaker 2

Hey, good evening. Thanks for taking the question. The question is on the loan yields for the bank. I think if you look historically, the bank as well as the pro form a entity has always had a higher yield versus peers. And we have a significant gap versus peers.

Speaker 2

Incrementally, is the bank's loan yields on par with peers? Or are we still seeing a lower yield because of our conservative stance on our right?

Speaker 1

You have to look at it by segment again, if you look at it by product on the mortgages, it's our published rates are anywhere between 8.8% to 8.9%. So the private sector peers would be more or less within the same range within a 10 basis points range. That is not the competition on the price. It is the legacy banks, the incumbent banks from AAGES, that's where the price differentials are almost 50 basis points or thereabouts. That's the mortgage as such.

Speaker 1

So the non mortgage when you look at it on the retail side again, there is a risk based pricing for the quality of the assets that you originate or the customer segment that you choose. The price is appropriately calibrated according to that risk models that come. Similarly, on the CRB side, the commercial and rural banking, we have tried several price points from anywhere from 10 basis points to 20, 25 basis points over the last 6 months. The price has been extremely elastic, which means the higher the price, lesser the demand. Because again, this is the incumbent legacy banks have lower price in that segment.

Speaker 1

And so we haven't seen the ability to move the price up. We have not seen and that's what we are seeing even in the system when the repo rate has gone up by 2 50 basis points. The dollar, the weighted average lending rate has moved up only half of it and are 150 basis points or thereabouts. But you will see that the public sector banks rate movement is far below that, 120 basis points or thereabouts, essentially inhibiting the private sector to price up more in line with what the repo rates are more than. So that's the factor there.

Speaker 1

On the wholesale side, cost of larger ticket size side, I talked about the credit spreads. Credit spreads move in the direction, but not necessarily the bond spreads move in the direction, not necessarily the credit spreads are not the loan credit spreads are not keeping up in the same direction as the bond spreads. So thereby, that's again a choice to make in terms of how you price for that. I agree that the credit quality in that segment is extremely great, but still, we have to price for a life cycle credit cost and not for today's or tomorrow's just credit cost. So that's where we are limited on that segment.

Speaker 8

Understood. That's very helpful. Thank you.

Operator

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

Speaker 6

Hi. Good evening, Sashi, Shing and Bhavan. Three questions. First is on the trajectory of the liquidity coverage ratio. So I want to understand, we have been inching

Speaker 2

that

Speaker 6

higher. Clearly, there is a draft regulation out there. So is that something that we are baking into our assumptions and pushing this LCR higher or what exactly is the reason why you're thinking there? So that's question number 1.

Speaker 1

See, 1, the liquidity coverage ratio is at 128. There is no idea that our target that we normally tend to operate is between 110 to 120. And somewhere, historically, we operated at 115 or thereabouts plusminus15%. That's the kind of where one would be there to operate. However, in the recent times, last quarter was 123, this quarter was 128.

Speaker 1

Again, it is driven by the fact that we get more deposits, granular deposits, retail driven deposits, which have higher value, good value. We want to get more deposits, which puts money in reserves. And we have talked about our lending value proposition about how we are addressing the lending loan growth as such. So it's a follow-up of how we are trying to get as much as possible the optimal level of deposits that are available and calibrate the loan for current conditions and situations for repositioning the balance sheet as well as the credit filters. That's what it shakes out to be at that level.

Speaker 1

So just to

Speaker 6

simplify it, Suneet, so LCR, would it further go up or you would run it down a bit because clearly now the mix is also changing and we would want to push up our margins also because the ROA also could potentially be better or you will keep inching this up because there's an impending regulation that is out there or draft regulation that is out there?

Speaker 1

Yes. See, we like to wait. It's still in a draft form. That regulation is still in a draft form. Feedback has been provided by us and by various organizations and associations.

Speaker 1

Feedback has been provided. We'll have to wait through to see. For example, if you see some of those, anybody with a digital banking capability, net banking capability, including an UPI transaction capability, which is a digital capability and so on. So it starts to be punitive, where in a situation where we are trying to digitize many things, including day to day transactions. So we do not know where it will land.

Speaker 1

So that's on one side, right. Draft regulations is something which is there. The feedback has been provided. We'll have to work through it. We do not know what that is, where it will come and then.

Speaker 1

But the second aspect of it that you asked whether it will go up or come down or remain where it is. Again, it's a function Rahul, it's a function of what happens with the market on the deposits. As we have said, we will get we are positioned to get good share of deposits and we are calibrating our loan growth. So we could remain where it is or we could go up, but that is the last of the considerations, but it is about the customer franchise of growing those deposits and getting that loans at a level that we desire.

Speaker 6

The reason why I asked this question is because in the balance sheet quarter on quarter, the defects still went up about INR 15,000 crores. LCR also went up. I appreciate the point about the granularity of deposits and therefore the lower runoff factor. Just wanted to get some directional sense. Fair enough.

Speaker 6

The other question is on the branch expansion, etcetera. So what are the fresh thoughts out there? How you're all thinking about it?

Speaker 1

We grew 2 40 odd branches in this quarter, 350 something for the year so far. Last year, we sold 9 17 branches. Our objective has been to make those investments in branches now when the credit has been benign. And as you know, as you see that it continues to be benign. And there is we have stopped giving exactly what number whether it is a 1,000 or a 7.50 or a 12.50 or whatever, but we will our approach has been to grow branches to go into more areas where we need reach and but even in cities to make it much more denser so that we could capture all the customers that are positive.

Speaker 1

So we continue to grow at what pace will that be calibrated time to time.

Speaker 6

All right. Appreciate. Thanks. Last question is on your latest thoughts on the credit quality, because I think you've got the cycle again right on the unsecured, you stayed away. Now you're starting to grow that piece while others are having denormalized experiences or elevated credit costs.

Speaker 6

So what's your latest thoughts on asset quality in general, unsecured microfinance, any other segment that you are cautious about? Anything that we all would we should know from your perspective where the credit concern will be starting to build up?

Speaker 2

We have been sort of mentioning this for quite some time. As Srini did mention, for a couple of years, we have been calibrating our growth depending on what we have been seeing in the early indicators. But I think the call that has been taken by our credit architecture has come out well yet again. And so as we speak today, we are in a very extremely comfortable position. Obviously, there are risks in the system.

Speaker 2

There are the impact of what's going to happen in the macro side is something that you and I may not be able to predict, but we are well positioned as we speak looking at our portfolio that we don't have too much of a worry at this juncture, which is one of the reasons why while it will take some time for the book to build, the retail, as you can see, we are seeing the retail disbursals going up. We and this will take a little bit of time for the book to start to reflect that because large part of the book will happen only in about if you continue this kind of a momentum over the next 12 to 18 months' time. But the definitely will be ahead of the curve and probably should capture the right customer segmentation at the right price going into the future. So that's a thought process, but we are very watchful of what's happening in the environment, what's happening in the ecosystem. And good to say that as of now, we are not seeing any red alerts or amber alerts.

Speaker 2

And we continue to calibrate our growth depending on what we have of pulse at the ground level. And just to chime or complement what Srinivas has been talking on the LCR, the one thing that we don't want to control are is of the deposit franchise. The deposit momentum is not something that you can it's an overnight plug and play. It's a very large franchise and there is a momentum that it needs to have and we don't want to sort of curtail that kind of a momentum. Obviously, we are working in a very competitive environment in a very tough macro and liquidity environment.

Speaker 2

So there is a little bit of an uncertainty where we want to cushion ourselves in terms of a higher LCR. In addition to that, we have just both Srini and I just mentioned about the glide path on why and what we want to do on the credit growth rate. Obviously, that will lead to this extra amount of high quality liquid assets, which probably, you're right, may depress in the near end some amount of margins, which we are okay for it because we are not here in the shorter end. We want to ensure that the balance sheet and our financial statements are very resilient in the medium to long term. The third aspect, which you alluded rightfully, is the fact that there is an overhang in terms of what will happen if the guidelines come into play, the draft guidelines when it comes in circular.

Speaker 2

Obviously, we want to position for that as well. So the 129 or whatever that you're seeing is probably a kind of a temporary phenomena, which we will keep on we'll watch as to how the various macro and the regulatory framework keeps evolving. And at some point in time, I think it will normalize to the median levels at which we have operated, which is what Srini alluded to. I think it's just a timing difference that we are seeing this kind of a slightly elevated LCRs, which will adjust its path into the future.

Speaker 6

Very helpful. Thank you so much, Ashish.

Operator

Thank you. Next question is from the line of Riten Shah from IFO Securities. Please go ahead.

Speaker 8

Good evening, everyone, and thanks for the opportunity. Just have one question. With the faster normalization in the LDR, we are generating excess liquidity on the balance sheet. So the cash balances have gone up almost by INR 750,000,000,000 in this quarter. In the past, we have demonstrated to prepay some of the bond borrowings in addition to the scheduled maturity.

Speaker 8

But this quarter, we didn't see that. So just wanted to understand, do you still see those prepayment optionalities available in the quarters to come by? Or we could probably see for a few more quarters where this excess liquidity could sit on the balance sheet?

Speaker 2

Rikin, right? Rikin, I you're right. That endeavor continues to be our our efforts are towards that endeavor. But as you know, a large part of the borrowings that we have inherited from our Spinal HDFC is non callable. So it requires a lot of negotiations across the table.

Speaker 2

Obviously, it has to find favor with the investors. It's not a done thing that this will happen. It will take it depends on their interests as well. But having said that, the efforts are on. Also, in line with what I just said just about a moment ago towards in Rahul's question, we also want to ensure that we have adequate cushion and liquidity to balance off not just the probability of the sustainability of deposits going into the future, the draft guidelines that will come about and also the fact that if there's an opportunity to bring down the borrowings, yes, why not?

Speaker 2

So we have to play this depending on the circumstances and how this how all this plays out in the future. But if at all we do have an opportunity to do so and still keep adequate cushion in terms of liquidity, why not? We will do that.

Speaker 3

That's exactly right, NIM.

Operator

Next question is from the line of Hamikit from Access Mutual Fund. Please go ahead.

Speaker 1

Yes. Thank you for taking my question. So the first question is the other OpEx growth is sharply down. What is driving these efficiencies? And what is the trajectory we should expect in the near term?

Speaker 1

Yes. The total other OpEx is what? Expenses, you're talking about expenses. Yes, the total expenses is growing at the rate of about 10% or so. You've seen that we have moderated the headcount to some extent in this quarter.

Speaker 1

It's a seasonal timing in terms of how we spend for what festival and so on. And again, certain third party expenses of origination and so on could be calibrated. There are several players that go into it. There is no particular strategy on that here. Sure.

Speaker 1

Thank you. And second question is, I just want to understand. You have spoken about CVR, the budget pay etcetera. But can you

Operator

Due to no response, we move to the next participant. Next question is from the line of MB Mahesh from Kotak Securities. Please

Speaker 3

go ahead.

Speaker 2

Hey, hi. Just two questions, 3 from my end. One is, we have started to see a slowdown in the commercial banking space, especially on the emerging projects. If you could just kind of highlight as to what's happening there? Emerging?

Speaker 1

Corporate. Emerging profits. See, emerging profits, I mentioned to you in some other context, Mahesh, that larger ticket size loans are sensitive to rates and the rates are not moving in tandem with the bond spreads that are moving in the market, right. These are good rated emerging corporates. We need the right kind of a price for that quality, right?

Speaker 1

So and if you don't get it, it's calibrated to a lower level. And but within that segment, we do grow too. And there are certain in the segment, which provides us priority sector and also provides through then partnership certain small and marginal farmer or agricultural alive activity loans. We patternize all of those. So it's not that it's only one way of just look at this, you balance across various parameters of cost, price including the price effect of cost price and so on.

Speaker 1

But that's how we calibrate that. There's no again one particular way, just a business line that you now manage that.

Speaker 2

Sure, sir. Second question is on the deposit side and loan growth. Is there any number

Speaker 8

in mind when you're looking

Speaker 2

at below industry average and looking at where the sector is growing in terms of deposits or you don't have an opinion about this at all?

Speaker 1

The deposits, what we have seen is that the industry has grown anywhere between 10.5%, 11%. And we have grown more than that gaining market share any time period if you take a year, 3 years or 5 years between 50 to 7 basis points a year gaining market share. But I'm not sure which one you talked about where

Speaker 2

No, I just mentioned in the sense if deposits at a system level, let's say, is about 15% and loan growth starts to accelerate for a system. Is there a number in mind as to where you want your loan growth to grow? Or you're going to keep it a very flexible number out here?

Speaker 1

We are leaving that there's no one particular target, Mahesh, as we said. We are not strategizing to execute that one number that we want to hit. That's not what is there.

Speaker 2

Okay. Just one clarification. On the savings account balances, if you look at the number of credits that are happening into the account, Has there been a slowdown there or this is just transition to term deposits that we are looking at?

Speaker 1

We're glad that you asked that question. When you look at the credits that are coming into the account, they are robustly growing, growing in 20s. So that means that's again contributed by new customers too. So it's not just on a I'm not talking about a static customer base. I'm talking about adding every quarter little more than 2,000,000 customer base coming in shows that the credits do increase and we are seeing robust increase in the credits.

Speaker 1

But people do spend. You are seeing that in the car spends anywhere between high teens to low 20s. Even in our own base, the issuing spend or the acquiring spend, we have slightly under 40% share on the acquiring spend, but also we see quite robust growth where the spends are happening. So it's just that people spend and money with the government are not coming back to recycle or going through investments through their alternatives in terms of what they are choosing to do. And time deposit is also one other areas where savings is moving to time.

Speaker 2

Perfect. Thank you. Thank you, Ali. Thank you.

Operator

Thank you. Next question is from the line of Saurabh Kumar from JP Morgan. Please go ahead.

Speaker 3

Sir, just two questions. So one is on your Slide 36. Your RWA to total assets is down current quarter and you will see on the corporate book and the market book has also grown towards the overall growth quarter on quarter. So what would explain this lower RWA? And the second is just on the savings account again.

Speaker 3

I mean, assuming you get a 50 basis point rate cut, would you expect savings account go

Speaker 1

to go up or do you

Speaker 3

think this is more structured this time? Thank you.

Speaker 1

All right. Yes, let's talk about that RWA density. 69 last quarter went to 67 this quarter. Again, sort of that's a function of carrying higher liquid assets. If you look at our HQLA on an average basis went up by almost INR 40,000 crores in this quarter.

Speaker 1

So it's a function of how the HQLA is up and it's there on one other page on the balance sheet where you see that we have more liquid assets. That's one. The second aspect you touched upon is the if the rate changes by 50 basis points, what happens to whether the savings rate goes down. It's too early to speculate on the direction of what it would be. We'll watch the system in terms of how

Speaker 2

Yes. We have seen that change in rates is rather inelastic for savings, build balances build out. So having said that, we cannot sort of do it on a standalone basis or Sumoto. We have to watch how the system plays out, how the banking fraternity plays out, because it is something we wouldn't like to sort of jerk that at this point in time. So we're not committing anything.

Speaker 2

I think we would like to wait and watch on that particular front how it plays out in future. Thank you.

Operator

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

Speaker 3

Hi, Tashree, Srini and Bhavan. Good evening. So two questions. One is a data driven one. Can you share the loans that are linked to repo, the BLRs, MCLR and fixed rate?

Speaker 3

And I can come back, Fatu, back to the second question.

Speaker 1

The loans that are floating or external benchmark is I think roughly about 69%, 70% or thereabouts, which is similar to what last quarter or the previous quarter that we had mentioned. So it is pretty at that level.

Speaker 3

Shneur, this includes MCLR as well or external and dilate?

Speaker 1

MCLR is a tiny piece of that.

Speaker 3

Okay. And the rest is fixed. Yes. Okay. Thanks.

Speaker 3

And the second question is on NIM. So it seems if I also accumulate all the comments that Sashi gave in the call, it seems like there are positive factors, there are negative factors as well like liquidity build out, CV ratio and all of that is keeping name where it is. Going forward, there will be a repo cut at some point and that will sort of help to drag it down. What can you do to offset that? If you want to keep it here or increase, what are what is now in your hands?

Speaker 3

What levers are there in your hands to offset that?

Speaker 2

Whilst Bhavan and Srini will sort of supplement what I'm planning to say, all along, we have maintained a very matched modified duration of our balance sheet. So our view is that we should not have too much of an impact in the range at which we've been operating the margins in the near term. Of course, it's not a perfect it will not be the change or the delta for rate movements is not going to be in a perfect sync. So there will be quarterly variations. But broadly, we should not see too much of I mean, don't go by 2 and 3 with the decimal points, please.

Speaker 2

We have been operating in a certain type range. I think that should be maintained. In the medium term, I think we should be able to manage this margins in this particular range. If we have clarity as to how the sustainability of liquidity in the macro environment, the sustainability and hence of our deposit mobilization, the fact that hopefully by then the draft guidelines will also sort of bring in clarity. Then you will and we normalize the NCR to levels where we have operated in the past.

Speaker 2

I think you should see some amount of kicker that we should we have always explained in the past.

Operator

Next question is from the line of Prakash Sharma from Jefferies India.

Speaker 8

I just just asked on the credit cost part. Generally, 1Q tends to be a seasonally heavier quarter from the Agri side. So generally, slippages tend to come off in the Q2 adjusted for the seasonality and same for credit cost. But if I look at the slippage ratio, it's kind of flat Q o Q, which I wanted to ask for clarity. And similarly, if I look at the provision number of about INR 2,700 crores and add back the reversal that would have been done of the AIF, it will probably go to INR 3,300 crores.

Speaker 8

So can you just explain if there is any other moving part

Speaker 7

in the credit of life? Thank you.

Speaker 1

Okay. Prakar, it is yes, your observation that the NPA is stable. But the question of whether it should be improving is a relevant question. Historically, there has been some level of improvement whether it can be we can debate whether it is a 3 or a 5 basis points, it has improved. That is the kind of range that we are talking about here.

Speaker 1

Also keep in mind the context that we made Forage into small and marginal farmer and into deeper geographical segment over the last 1 to 2 years. So the seasonality operates differently at different years, right, particularly when you're moving to different segments, that organically, yes.

Speaker 7

Understood. Thank you so much. Thank you.

Operator

Thank you. Next question is from the line of Chetan Joshi from Autonomous Research. Please go ahead.

Speaker 3

Hi. Good evening and thank you for taking my question. Can I come on the balance sheet again? So, as I kind of take a few points you mentioned that there is limited optionality on prepaying the borrowings. You are doing more securitizations, which also reduced your loan growth rate.

Speaker 3

That excess deposit that you have, so for example, this quarter it was 700 on average or average deposits versus 300 on average advances, kind of gets passed in liquidity. How would you optimize this? If you build up too much liquidity, does that give you a little bit of room to grow your loans a little bit for 1 quarter until that optionality on the borrowing plays out? Is that how we should think about kind of sequentially how you would optimize that balance sheet structure?

Speaker 1

Shintan, thank you for asking again. Similar to what I alluded to before. As far as the deposit is concerned, both our distribution reach, addition of the customers working with them 96,000,000 plus customers and 207,000 people are positioned to get as much as we could on the deposits with everything else permitting. So that's something there's no calibration there, right? We want to get as much as we can.

Speaker 1

Price is not differentiated. It's about the relationship to get. Having got that, then it goes to the other side of the balance sheet in terms of how you deploy what you do. That's why they are asking about how does the liquidity ratio or the LCR shakes out, right? LCR is an outcome, it's not a driver.

Speaker 1

These are the drivers in terms of you get as much as possible deposits and the loan calibration that we have done. Loan calibration, again, I described that we want as much loans as possible that passes through the credit on the mortgages and on the retail side, at the price point we want and that the credit filters it passes. Where we have inhibition is only on the larger ticket size, where we are seeing very stubborn pricing, which is very low. That's where it gets calibrated. And other than credit and price, there is no other way that we are calibrating the loan as such and we are not targeting one number or one range of numbers that we want to get to there.

Speaker 3

So the bottom line is that if you keep growing deposits faster than loans, we don't have any issues with growing liquidity because the point here is to dilute this LDR ratio rather than worrying about the loans in the short term.

Speaker 1

No, that is building up liquidity is an outcome that comes and the good thing to be having because when there is a growth opportunity that is what it gets positioned for growth. It's a good thing to happen.

Speaker 3

And then on the second question I have is on asset quality. The one area there that has seen pretty strong growth over the last few years has been CRB, MSME. We are going through cycles, so you know, in MFI, in consumer credit. I'm wondering if there is something that might be in the pipeline in that area. It's not so huge and more generally for the industry.

Speaker 1

So we have not seen in our book any kind of a credit that inhibits the growth or inhibits any kind of different approach to how we operate that.

Speaker 3

That's good to hear. And it is happening to see the improvement in the LDR ratio and that's relatively. So thank you for taking my questions.

Speaker 1

Thank you.

Operator

Thank you. Ladies and gentlemen, due to time constraint, we'll now take the last question from the line of Manish Chukla from Access Capital. Please go ahead.

Speaker 6

Good evening and thank you for the opportunity. Srini, just to reconfirm the floating proportion of the book, corporate loans are about 19%. So I'm assuming that would be entirely linked to MCLR, right?

Speaker 1

You can't look at it like that. There are some corporate loans that could be MCLR, that could be other yes, good amount of that your assumption is that a majority of this EBLR, yes, it will be.

Speaker 6

And the question is purely on repo. So purely repo linked book would be what proportion of your overall loan book, just linked to repo?

Speaker 1

No, I don't have that particularly handy, but there are EBLR has got repo across mortgages, across some CRB products too and the wholesale corporate products. It's got some of them are T Bills and some of them have NCLR. So across all of that, that's 69%, 70% that we talked about.

Speaker 6

Okay. And the last question, before merger, HDFC Limited used to carry hedges on the liability side for interest rates. Are you still carrying any of that or those are matured?

Speaker 1

Yes, we do carry those hedges. You know that hedges presupposes various borrowing that is attached. So to the extent that the borrowings have not been paid down, that means they are not rolled down or prepaid, they just continue.

Speaker 6

Would you be able to quantify that proportion?

Speaker 1

I think for the annual, we have published as of March, we have published in our breakey schedule, you should be able to see it in our annual report for the annual, but not quarterly, yes. We published it annually.

Speaker 6

Okay. Thank you. Those were my questions.

Speaker 7

Thank you.

Speaker 2

Thank you. Thank you

Operator

very much. I now hand the conference over to Mr. Vaidyanathan for closing comments.

Speaker 1

Thank you all for participating with us today and engaging here. I appreciate your time. Thank you, Sashi. And if any of you have more questions or comments to provide, feel free to connect with our Investor Relations over time and we should be happy to engage. Thank you all.

Speaker 1

Have a nice weekend. Thanks, Sumeera. I can switch off now.

Operator

Thank you very much, sir.

Speaker 2

Thank you. Thank you all.

Operator

Thank you, everyone. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.

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Key Takeaways

  • Deposit growth remained robust at about 15% YoY, with retail branches accounting for 84% of deposits, though high system credit demand has kept deposit rates sticky.
  • Average advances under management rose 10.2% YoY, and the bank plans an accelerated CD‐ratio reduction: below‐system credit growth in FY25, system‐level in FY26, and outpacing the system by FY27.
  • Net interest margin held steady at 3.46%, while asset‐quality metrics remained healthy with a gross NPA ratio of ~1.4% and gross slippages at 1.2%.
  • Reported profit after tax stood at ₹16,800 Cr (up 5.3%), or +17% on an adjusted basis excluding bond‐gain and tax‐benefit effects.
  • Fee income jumped 17% YoY to ₹8,000 Cr, led by a 32% rise in third‐party distribution fees and a ~15.5% increase across retail fee categories.
AI Generated. May Contain Errors.
Earnings Conference Call
HDFC Bank Q2 24/25
00:00 / 00:00