HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to the HDFC Bank Q2F520 earnings conference call on the financial results presented by Mr. Srinivasan Vaidyanathan, Chief Financial Officer. 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 brief commentary by the management. Should you need assistance during the conference call, Please signal an operator by pressing star then zero on your attached own phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan. Thank you and over to you, sir.

Okay, thank you. I appreciate the participants calling in today. We'll get to the results highlights for the quarter and also the off-year end date, September 30th, 2019. Let's start with the net revenues. Net revenues grew by 21.1%, driven by advances growth of 19.5%, and deposit growth of 22.6%, and other income growth of 39.2%. Getting to the details underneath this, net interest income for the quarter was 13,515 crore. The margin remained in the historical range of 4.2%. The bank's average liquidity coverage ratio for the quarter was at 133%. The current ALCO strategy is to maintain a stronger than usual liquidity position to cater to loan demand in the quarters to come. The consequent impact to NEM was around 10 to 15 basis points. Adjusted for the same, the core NEM would be around 4.3%. The bank offset the drag by monetizing the investment in the form of trading gains. If we had reduced the LCR to 115%, the net interest income would have grown approximately by 19%. Now getting to the details of other income. Fees and commission income, constituting 72.5% of other income, grew by 23% over the previous year to reach Rs. 4,054 crore, of which retail constitutes approximately 91% and wholesale constitutes 9%. Mutual funds income remained impacted by changes in regulations that came in the preceding quarters. Excluding income from mutual funds, total fee and commission grew by 26.4% over the corresponding quarter of the previous year. Effects and derivatives income grew by 31.4% over the previous year to reach rupees 552 crore. The growth was primarily granular in nature, being driven by retail customers who contributed around two-thirds of the total. Trading income was 481 crore. As mentioned before, this represents the current ALCO strategy of monetizing some portion of the gain from excess liquidity investments. Other miscellaneous income, including recoveries, was 502 crores. Now moving to operating expenses. Expenses for the quarter were 7,406 crores, an increase of 17.6% over the corresponding quarter of the previous year. Year on year, we added 489 branches. 184 branches added during the quarter. Year on year we added 496 ATMs and 206 cash deposit withdrawal machines. The staff count also increased by 16,301 during the last 12 months and that included 7,054 added during the quarter. Cost to income ratio for the quarter ended September 30, 2019 was 38.8% as against 39.9% for the corresponding quarter ended September 30, 2018. Moving to PPOP. Pre-provision operating profit grew by 23.4% from 9,480 crores in the quarter ended September 30, 2018 to 11,698 crores in the current quarter. Now moving to asset quality. GNPA ratio was at 1.38% of gross advances as on September 30, 2019 as against 1.4% as on June 30, 2019 and 1.33% as on September 30, 2018. GNPA ratio as on September 30, 2018 excluding NPAs in the agricultural segment was 1.2% in the current quarter as well as June quarter and 1.1% in the September quarter of the previous year. Annualized core slippage ratio during the current September quarter was at 1.7% as against 2% in the June quarter and 1.8% in the previous September quarter. The coverage ratio at 70% and net NPA at 0.4% were stable across the current and prior quarter as well as previous year comparable period. The bank continued to hold floating provisions of Rs. 1,451 as on as on September 30, 2019. Total provisions comprising specific general floating provisions were 114% of the gross non-performing loans as on September 30, 2019. Now getting to the details of the provisions. Total provisions were, it was 2,701 crore for the current September quarter as against 2,614 during the June quarter. and rupees 1,820 crores for the September quarter in the previous year. Specific loan loss provisions were rupees 2,038 crores for the current September quarter as against 2,246 during the June quarter and rupees 1,573 crores for the September quarter in the previous year. In addition, given the current macro environment and in order to make the balance sheet more resilient, the bank has made contingent and general provisions. Total contingent and general provisions amounted to Rs. 663 crore for the current September quarter as against Rs. 367 crore in the June quarter and Rs. 247 crore in the September quarter in the previous year. Total credit cost ratio, which includes general and contingent provision, was 1.19% for the current September quarter as against 1.24 for the June quarter and 0.96% for the September quarter in the previous year. The core credit cost ratio represented by specific loan loss provisions were 0.9% of advances for the current September quarter as against 1.07% for the June quarter and 0.83% for the September quarter in the previous year. excluding agree, the ratio was 0.92, 0.93, and 0.82 for the respective quarters. As you are aware, recoveries are recorded as miscellaneous income. Therefore, core credit cost ratio net of recoveries was 0.68% as compared to 0.88% in the quarter ending June 30, 2019, and 0.66 in the quarter ending September 30, 2018. Now getting on to profit before tax for the quarter ended September 30, 2018 was up 17.5% to Rs. 8,997 crores. Core profit before tax, that is PBT excluding contingent and general provisions, grew by approximately Rs. 1,753 crores or 22.2%. During the quarter, the results incorporated the impact of new tax rate. Year-to-date impact of reduced tax rate was approximately Rs. 1,650 crore. The deferred tax asset was reassessed at the current tax rate and approximately Rs. 1,200 crore was written down representing the full impact of the change in tax rate. This resulted in a net tax benefit of approximately Rs. 450 crore in the quarter. Net profit for the quarter grew by 26.8% to Rs. 6,345 crore. Net profit for the half-year index September 30, 2019 was Rs. 11,913 crore, up by 24% over the corresponding half-year index September 30, 2018. Some balance sheet items now. The bank's balance sheet size as on September 30, 2019 was Rs. 13,2572 crore, as against Rs. 11,69898 crore as of September 30, 2018. An increase in size, overall size, of 13.3%. Total deposits as of September 30, 2019 amounted to Rs. 10,21,615 crore, an increase of 22.6% over the September 30, 2018 and 7% over June 30, 2019. Retail, which constituted 77% of total deposits, increased by 24% over the previous year as a result of our focus on granular deposits. CASA deposits at Rs. 4,1235 crore grew by 14.7% with savings account deposits at Rs. 264,445 crore and current account deposits at Rs. 136,791 crore. Time deposits at Rs. 620,380 crore grew by 28.3% over previous year. CASA deposits comprised 39.3% of total deposits as on September 30, 2019. Total advances as of September 30, 2019 were 8,96,984, an increase of 19.5% over September 30, 2018, and 18, and 8.1% over June 30, 2019. Advances to the vehicle loan segment, which has seen continued moderation in sales volumes, constituted 17% of total advances. and grew by 2.3% over previous year. Advances X vehicle segment grew by 23.8% over the previous year. Moving on to capital, with regard to capital adequacy, the total capital adequacy ratio as per Basel III guidelines stood at 17.5% as against a regulatory requirement of 11.075%. June capital adequacy ratio was 16.9% and September of previous year was at 17.1%. Tier one capital adequacy ratio was 16.2% in the current September quarter as compared to 15.6% in the June quarter. The reduction in risk weights of certain retail loans had an impact of around 80 to 90 basis points, beneficial impact of 80 to 90 basis points on the capital adequacy ratio. CET1 capital stood at 15.3% as of September 30, 2019. compared to 14.7% as on September 30, 2018. Some business updates. During the year, we added 211 banking outlets, taking our total network to 5,314 banking outlets. 52% of the branches are in semi-urban and rural areas. As of September 30, 2019, we have signed up approximately one lakh common service centers, village-level entrepreneurs, of which 32,242 are onboarded as business facilitators. Of these, around 40% are actively sourcing now. Year to date, we have acquired 3.2 million new liability relationship, an increase of 53% over the corresponding period of prior year, driven through our strategy of increasing brand sales and semi-urban and rural momentum. As on September 30, 2019, we have 10 million relationship-managed customers, of which 6 million are virtually managed. As of September 30, 2019, we have 13.3 million credit card base and 1.3 million merchant acceptance points. In conclusion, in conclusion of remarks, it will be fair to say that our people have raised to the occasion to keep great engagement with our existing customers, bring in tremendous new relationships, all within our standard credit and process architecture that has resulted in Healthy advances growth of 19.5% and deposits growth of 22.6%. Net revenues growth of 21.1%. Core net interest margin of 4.2% and adjusted for LCR 4.3%. Cost to income at 38.8%. Robust PPOP growth of 23.4%. Stable credit quality with current quarter GNPA of 1.38% and core credit cost ratio of 90 basis points and 68 basis points net of recoveries. Profit after tax growth of 26.8%. With that, operator, we can open it up for questions.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Anyone wishing to ask a question, may please press star and 1 on your touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of from IDFC Securities. Please go ahead.