HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to HDFC Bank Earnings Conference call on the financial results for the quarter ended 31st December 2019, presented by Mr. Srinivasan Vaidyanathan, Chief Financial Officer. We also have with us Mr. Shashi Jagdishan, Group Head and Change Agent of the Bank, Mr. Jimmy Tata, Chief Risk Officer, and Mr. Rahul Shyamshukla, Group Head Wholesale and Business Banking on this call. 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 a brief commentary by the management. Should you need assistance during the conference call, please signal an operator by pressing star and zero on your touch-tone 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, Aman. Good evening to all. Appreciate the participants calling in today. We will get to the results highlighting for the quarter and also for the nine months ended December 31, 2019. Let's start with net revenues. Net revenues grew by 19.1%, broadly driven by an advances growth of 19.9%, deposits growth of 25.2%, and other income growth of 35.5%. Net interest income for the quarter was Rs 14,173 crore and the net interest margin remained at 4.2%. The bank's average liquidity coverage ratio increased to 140% in Q3 from 133% in Q2 in line with the strategy to continue to build on deposits, thereby strengthening the liquidity position further. While the excess liquidity positions the bank to cater to potential loan demand and futures, it impacts current NIM by around 10 to 20 basis points. Again, as we have mentioned in the last quarter, this drag was offset by monetizing some of the investments in the form of trading gains, which essentially makes our year-on-year NII growth at about 18% or so. Moving on to the details of other income, fees and commission income, constituting roughly two-thirds of other income, grew by 24% over the previous year to reach Rs. 4,527 crore. Of this, retail constitutes approximately 93% and wholesale constitutes 7%. Effects and derivatives income grew by 32.1% over previous year to reach Rs. 526 crore. The growth was granular in nature, being driven by retail customers who contributed about two-thirds of the totals. Trading income was Rs. 677 crore. As mentioned earlier, this represents the current ALCO strategy of monetizing some of the gains from the excess liquidity investments. Other miscellaneous income of Rs. 940 crore includes certain one-off recoveries arising from resolution of NCLT matter, which is approximately 200 crore, and dividend from subsidiaries. Operating expenses for the quarters where Rs. 7,897 crore, an increase of 17.5% over the previous year. We had the festive treats program running through the quarter. This program was for most part a consolidation of several disparate and localized programs that we ran in the previous years. The one bank centralized approach brought in dealers, retailers, merchants, manufacturers, partnership, leading to efficient execution of the programs and it entails some marginal incremental cost. Year on year, we added 382 banking outlets, 70 added in the quarter, 242 added year to date. 1,126 ATM cash deposits and withdrawal machines were added, and we also added 3,421 business correspondence VCs managed by common service centers. The staff count increased by 2,773 during the quarter and 17,556 during the last 12 months. Cost to income ratio was at 38% and has remained in a stable range compared to the prior year and prior quarter after absorbing the investments in branches, people, and technology. Moving on to PPOP. The pre-provision operating profit grew by 20.1% to Rs 12,945 crore from Rs 10,778 crore in the prior year. Getting to asset quality, GNPA ratio was at 1.42% of gross advances as compared to 1.38% in the prior quarter and prior year. GNPA ratio excluding NPAs in the agricultural segment was at 1.2% in the current as well as prior quarter and 1.1% in the prior year. Net NPA ratio was at 0.48 of net advances as compared to 0.42 in the preceding quarter and previous year. Annualized core slippage ratio was at 1.7% in the current quarter as well as prior year and prior quarter. The current quarter slippage includes one-off large ticket amounts. This as well as AGRI have been excluded in the core slippage ratio. The coverage ratio was at 67% as against coverage ratio of 70% in the prior year. Including contingent provisions, the coverage ratio is about 78%. There are no technical write-offs included anywhere. Our head office and branch books are fully integrated. At the end of current quarter, contingent provisions towards loans were at Rs. 1,457 crores. The bank's floating provisions remained at 1,451 crore as on December 31, 2019, and general provisions were at 4,131 crore. Total provisions comprising specific, floating, contingent, and general were 119% of the gross non-performing loans as on December 31, 2019, in addition to the security held as collateral in several of the cases. Now getting to provisions. The total provisions were 3,044 crores as against 2,701 crores during the prior quarter and 2,212 crores for the prior year. Total provisions in the current quarter included one-offs of approximately 700 crores, primarily relating to certain corporate accounts as well as accelerated provisions for some accounts, including those accounts in the resolution plan process. Some of you, and it includes some agree. Some of you may want to know the names of these large and one-off names. As has been our policy and practice, we will not talk about the names now or even in the Q&A section. Code-specific loan loss provisions, i.e., excluding these one-offs, were Rs. 2,174 crore as against Rs. 2,038 crore during the prior quarter and Rs. 1,735 crore for the prior year. Now, coming to credit cost ratios. The core credit cost ratio, i.e., specific loan loss ratio excluding one-offs as mentioned earlier, was stable at 0.92% of the advances as against 0.90% for the prior quarter and 0.88% for the prior year. As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core credit cost ratio net of recoveries and excluding one-offs were stable at 0.66% as compared to 0.68 in the prior quarter and 0.69 in the prior year. PAT and PBT, the reported profit before tax was at Rs. 9902 crore. Adjusted for one-off credit items, the core profit before tax at Rs. 10,402 crore grew by approximately 21.4%. As you are aware, the tax rates were lowered during the year. This change was already implemented by us in prior quarter. Net profit for the quarter grew by 32.8% to 7,416 crore. Net profit for the nine months ended December 31, 2019 was at 19,330 crore, up by 27.2% over the corresponding nine months of the previous year. Now getting on to some balance sheet items. The bank's balance sheet size as of December 31, 2019 was 13,95,336 crores, an increase of 19.4% over prior year. Total deposits amounted to 10,67,433 crores, an increase of 25.2% over prior year and up 4.5% over prior quarter. Retail constituted 78% of total deposits. As a result of our focus on granular deposits, CASA deposits grew by 21.5%, ending the quarter at Rs. 4,21,827 crore, with savings account deposits at Rs. 2,77,928 crore and current account deposits at Rs. 1,43,900 crore. Time deposits at Rs. 6,45,606 crore grew by 27.7% over previous years. CASA deposits comprised 39.5% of total deposits as on December 31, 2019. Credit deposit ratio was 88% for the current quarter as against 92% in the prior year. Total advances were 9,36,030 crores, an increase of 19.9% over prior year and 4.4% over prior quarter. Advances X vehicle segment grew by 24.4% over prior year. Retail advances, Basel method, grew by 14.3% year-on-year and 4.6% sequentially. And wholesale advances grew by 26.2% year-on-year and 4.1% sequentially. Let's hear a few comments on the wholesale advances from our Carpet and Business Banking head, Rahul Shukla.

Thank you, Srini. Good evening all. Both our corporate banking and business banking businesses had an above 10 performance during the quarter. While yields have been impacted in the marketplace, more so in large corporates, NIMS have continued to hold up, helped also by a reduction in funding cost. Both businesses have seen greater customer liabilities accrete to us for very different reasons in comparison to the marketplace. In our business banking vertical, we saw pickup in credit demand from existing customers since the last week of November. During the prior period, existing customer accounts had seen a drop in overdraft due to release of GST cash flows by the government or lack of requirement owing to softer growth. However, there is now a pickup in credit demand. The broad pickup was seen in Punjab, in southern India, central India, and eastern India. Trends in Gujarat and some adjoining regions have remained soft. We expect that to pick up in this particular quarter. We also saw accelerated new-to-bank acquisitions last quarter on the back of our digital offerings, especially in semi-urban and rural locations, helped also by our district expansion initiative with record disbursements in November and December. Our business did well on customer liabilities as we now have a near-term line of sight to a fully self-funded business. Delinquencies to date were within internally budgeted levels and below comparable period last year. More than majority of this book classifies as being PSL compliant for us. Our corporate banking business benefited from strong client support. We saw broad-based growth in this quarter across our public sector client base and also across sectors such as material, energy, agriculture, and allied activities including fertilizer, power, discretionary consumer, etc. Our focus on up-tiering smaller clients continued to show positive momentum and helping us with diversification. We continued to support our corporate-backed, MNC-backed, BS-backed and FI and bank-backed and BFC clients. This lending also supported our PSL effort given the change in RBI guidelines which was very helpful. Our drive towards measuring and increasing our penetration showed positive results with digital host-to-host integration with our clients continuing to be very helpful on the liability side. Working capital cycles have remained normal in this quarter for our clients, while overall CapEx has increased somewhat. Thank you, Srini. I'm handing back to you. Okay. Thank you, Rahul.

Now, let's move on to CapEx. With regard to capital adequacy, Total CIR as per Basel III guidelines stood at 18.5% as against a regulatory requirement of 11.075%. December 2018 capital adequacy was at 17.3%. Tier 1 CIR was 17.1% in the current quarter as compared to 16.2% in the prior quarter and 15.8% in prior years. CET1 capital stood at 16.2% in the current quarter compared to 14.9% in the previous year. Now, some business update. During the year, we added 242 banking outlets, as I mentioned before, taking our total network to 5,345 banking outlets. Including the banking correspondence, i.e., 3,421 BCs managed by the CSCs, the total banking outlets were at 8,766. 66% of these outlets are in semi-urban and rural areas. As of this quarter end, we have signed approximately 1.3 lakh common service centers, village level entrepreneurs, of which 86,000 are onboarded as business facilitators. Of these, around 41% are actively sourcing. The monthly run rate of products sourced by CSEs have progressed to approximately 70,000 units. Festive Trees that we spoke of earlier was also run in partnership with CSEs, taking our festive offers to the remotest part of the country. From a small businessman looking to avail a loan to a family looking to purchase a new television, the three month long festive treats campaign enabled it all. Year to date, we have acquired 4.9 million new liability relationships, an increase of 50% over the acquisition in the corresponding period of the previous year. This was driven through various strategies that we adopted and have articulated in the past. As on December 31, 2019, we have 13.9 million credit card bays and 1.5 million merchant acceptance points. Now in summary, we are proud of our staff who have impeccably executed our strategy resulting in advances growth of 20%, deposit growth of 25%, card spending increased by 28%, Retail loan disbursals increased by 21%, operating profit growth of 20%, and profit after tax increased by 33%. With that, may I request the operator, Aman, to open up the line for questions.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to limit their questions up to two per participant. If time permits, you may join the question queue for any follow-up. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of from IDFC. Please go ahead. Hi.

I just had a few questions. Firstly, in your slippage, what is the total amount of slippage, and how much of that is lumpy, and how much of that is agri?

Okay, the core slippage that we referred to, 1.7%, represents slippage of 3,839 crores, 3839. The total, which includes the lumpy, one-offs, agree, and all of them, let me see, that's between them roughly approximately 1,500 crores.

And how much is agree of that?

Roughly half, a little more than half, 60% or so agree. Yeah, 60, maybe 60, 65% agree.

Okay. And just in terms of the additional provision that you made on a few corporate accounts, could you tell us the sectors?

No, we said we don't want to talk about sectors. You can, I mean, it'll be, I don't want to get into individual names and individual types of what that is.

Okay. And just in terms of HDB, the GNPAs have improved. So, is that because of recoveries or better outlook in the geographies or any other reason?

No. HDB, you would have seen, I read the number, stage 3, stage 3 method of in-day air slippage, that I see is 3.01 and the corresponding number for prior quarter is 2.72.

Okay, sorry, I was comparing it to GNPA. So why has it gone up?

This is more commercial transportation related.

Yeah, absolutely.

Sorry, so it's basically CVs.

Correct.

Okay. And there's been no change in accounting. Like last time there was some alignment to HDFC Bank's accounting. So all that is done with, this is just the cycle.

Yeah. Correct. It is consistent with the last, what is it? There's no change. There's no change. Yeah. Okay.

Thank you.

Thank you. Next question is from the line of Manish Oswal from Nirmal Pong. Please go ahead.

Thank you for the opportunity, sir. My question on our risk weighted asset to total asset ratio during the quarter is a sharp reduction of 400 basis point during the quarter. So can you explain the reason for the same? And secondly, on the slippage side, you gave the slippage number, any recovery in the upgradation and write-off during the quarter, can you share that number, those numbers?

Okay. See, normally, if you look at our capital ratios, we normally, our earnings offset the consumption, approximately, right? But this time around, we did have benefit in RWA, The RWA to assets currently at about 68% or so. I think prior quarter was more in the 70s, 72, 73. There has been an improvement. Couple of things. We have some initiatives driving this efficiency as well as impact from mix of assets. Better market risk is one thing. Assessment of better market risk is one that improved. If you recollect, If you have any investments in mutual funds, they're considered equity mutual funds, whereas these investments are actually debt mutual funds. So there is a different risk weight, and we don't have any at this stage on that, so that was some optimization done there. We reduced investments in that mix, right? So better mix there. We also got some ratings improved. There were certain things that moved up on the ratings that brought the risk weight down. and also some favorable lending mix to low-rated public sector like power or transport and things like that that also contributed to better RWA.

So recovery, upgradation, write-off number, sir?

Do you have the sheet here? No, we will get Ajit to get you that number. I don't have the sheet in front of me.

And the second question on the on the retail book. So in this period compared to quarter two to quarter three, are we seeing any incremental stress build up in the any category of retail loans or mid corporate or SME portfolio and qualitative comments will be very helpful.

Good evening everyone, this is Jimmy. So in the retail book, I think the build up varies from product to product. We have over the last year put in filters across all products that may have showed somewhat of an uptrend. These filters now have had some vintage and maturity that allows us to measure the recent book. And in all these cases, the recent book is showing a considerably improved performance and that would therefore be the trend in these books going forward. I'll come to specific names in a minute. When it comes to the residual historical book, we are relatively well provided bank. So, there is not a concern in terms of any adverse expectation on that front either. So, I think most retail products have actually shown a slightly beneficial trend over recent times, which is to say even automobiles, credit cards, personal loans, etc. The only growing concern would be in terms of commercial vehicles and to some extent commercial equipment. So it is the commercial products that are continuing to be some level of concern and you might see the trend continue in that direction. This is not to say that we have not filtered those portfolios. It is not to say that there is no improvement on new acquisitions. But these do tend to have longer maturity. So the weightage in the portfolio as a whole would be a little less and therefore not visible immediately at a portfolio level. This would take some more time to resolve. And one has to also take into consideration that these products are a function of economic climate and situation. So we continue our policies across the board of no dilution in the face of facing difficulty in generating business. If certain products do not generate the required business, we would not generate that level of business. We manage our growth on geographic expansion, putting out a very wide product range across our extensive branch network. looking at the relatively unbanked and underbanked demographics in these areas as well as our existing areas. To some extent a new variant of a product being introduced into these segments and of course this gives you the ability in such demographics and segments to price appropriately for the incremental risk that could manifest. So this is not to construe that we are expecting it to happen. But even should there be a 10-15 basis point increase in delinquency, the calculations for us internally based on probabilities, based on our expectations and our wide experience in analytics of all these products, we don't think it is advisable to forego such growth given the probability of this small incremental delinquency. So that's effectively the trend across all retail products. As I said, just to answer your question in one line, CV, commercial vehicles, and to some extent, commercial equipment might be the only concern areas.

Thank you for the qualitative assessment. And the only one small data point, YTD basis, what is the increase in the NBFC portfolio for SDFC Bank? That's it. Thank you. ytd nbs ytd would mean from from here today sir 31st march 2019 to 31st december 2019 what is the increase in the nbfc portfolio percentage increase in the nbfc portfolio we will have the pillar 3 disclosure we should see it soon i think if it's not already there we put it out sure thank you thank you

The next question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.

Yeah, hi. I have three qualitative questions for Sashi. First, Sashi, can you just take us through the CSE business, how exactly it is shaping up, and what are the trends? If you can quantify, it would be great. The second is, what is the status on the CEO selection, where we are, and what has been done so far? That's the second one. And the third is there has been a repeated breakdown of online banking for the bank time and again. So what are the steps which are being undertaken by the bank to ensure that the system downtime is corrected?

Okay. Thanks, Suresh. On the first one, in terms of the CAC, we have about 1.3 lakh CAC accounts that we have opened. about roughly 80,000 plus have been initiated as business facilitators. What that would mean is that the systems have been integrated, they have been sort of handheld and trained so that they can distribute our products digitally. Out of that 80 plus thousand, I think roughly about 40% odd have become active in various stages of activation, which means that they now can start sourcing products. I guess as she was mentioning, on a combined basis, I think we have touched about the 40% of that 80,000 have contributed to roughly 70,000 plus products in a month. which translates to two products per active CAC. So that's not a bad job for a start, and we believe that this will increase with better engagement by the hub branches going forward. So it's a lot of hard work, and this is something that we will continue to do CAC by CAC, which is mapped to the adjoining branches. In addition to that, I think one of the things that Shini did mention is that the better CACs, we would also like to make them as business correspondence because you could do a lot more transactions at these centers. We have thus far appointed about 3,400 odd VCs as we have mentioned in prior calls. I think over a period of next six to 12 months, we would like to at least take the BC total to about 25,000. So that would sort of really give us a better penetration into the semi-urban and rural areas as we had in Visage. So that's part one. One of the things that we, the learnings from this particular experiment or the kind of initiative that we have is that when you engage with these CACs on a constant and ongoing basis, which is the key, I think you would see a fair amount of activation and product distribution that is happening. So it's on track, it's in line with the expectations that we've had for this particular initiative. The second one, to your second question on CEO search process, I think in the board meeting, I think they have sort of agreed upon the search firm who's gonna help in the search process. I think we do have a kind of a roadmap or a glide path as to when the long list of candidates, a short list of candidates, whether both globally, both external and internal, will happen, when the interviews will be slated. I think that kind of a fine, you know, the granular details have all been sort of agreed upon in the board meeting today. I think as probably we may have mentioned in the past, normally we would expect the bunging in the applications for the, to the regulator for approval somewhere around July, August. I think that's the time that we should see, you know, we would have finalized, we would have had, we can shortlisted number one, number two, number three for RBI to approve. I think we are on track. I think the specifications, the board had I'm told, of course, we had to recuse ourselves, so there's been a fair amount of deliberations today on that particular account.

Can you disclose the search firm, Sashi?

Not as yet. I think let it be officially come out probably in the next couple of days, but I think there are some small, minor issues cost negotiations or commercial negotiations that needs to be inked out the next couple of days. So once that is done, I'm sure we will let you know that. The third part is on the technology issues. I think one of the things that we realized as a company is that we have been victims of our own success. You know, what we did not realize is the kind of increase in businesses across liability, across assets, across payment products, and within payment products, multiple channels that we have been patronizing, whether it is the cards, whether it's the UPI volumes, I think we underestimated the growth in these volumes. I mean, what one would have normally envisaged that from a base level, you normally size up for about four to five times the capacity. We realize the volumes have gone even beyond five times the five times capacity that we had originally sized up. So it's more a kind of a capacity issue. But having said that, we have, post the December 2nd incident, I think we have been able to sort of segregate the We have de-risked the parts so that we can sort of have a lot more redundancies. We've been adding capacities. We hope to add more capacities. We will be rationalizing volumes. We realize that sometimes it doesn't make sense to acquire some of the marginal volumes. So we should be in a much better state. We are in a good state at this juncture. We are far more comfortable. We've diverted a lot of traffic into multiple other channels, and we hope to be even more comfortable the next three to five months with a lot more capacities being added. So thus far, I think things are very stable. We hope to sort of, you know, I wouldn't like to say too loud. We would like to keep our fingers crossed and we would like, we are monitoring this practically every minute now so that the monitoring mechanism has only heightened thus far. So this is where we stand. It is, you know, a lot of questions are being asked whether there was a cyber attack, et cetera. I can categorically say And we have said it to the regulator as well that there is no such cyber attack or incident on the 2nd of December.

Thank you, Sashi.

Thank you.

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

Yeah. Hi. So firstly, in terms of this entire 200 crores of recoveries pertaining to the resolution of the NCLT matter. So that's the P&L impact. But if I were to look at it in terms of the flow of NPLs in terms of the recoveries, how would that number be? So in terms of the principal component and anything in the interest income effect as well?

No, there was no book value when we had it as a full recovery that came into P&L.

Okay, so no impact at all in terms of the flow of NPMs. Yeah. Yeah. Then second, in terms of the branch expansion, so I think earlier during the end, they also highlighted that the plan is now to move towards 600 to 700 branches a year. So are we looking at it? Maybe when we look at it, 240-odd branches over the last three-odd quarters. So are we very much on track in terms of going in for the branch expansion and should we see it coming over the next one or two quarters, which will have some effect on the OPEX as well?

Yes. Our strategy to expand branches continues. We are on track for those. The branches that we are planning are of different sizes, depending on location. So the cost per branch is not identical to what we have on books or one branch versus another, there will be a good level of differentiation. It will also have a good mix of semi-urban and rural and metro. As we said, this financial year, we targeted 600 new branches. Save plus minus a few on timing, depending on local approvals or fitment and staffing. But we do expect, as is usual, seasonally quite a number of branch openings in this quarter, fourth quarter, and we anticipate that it will continue and we should be there.

Okay. And in terms of the behavior of the commercial vehicle and unsecured portfolio, are we seeing maybe in the early day buckets as well some kind of rise out there in both these portfolios?

Taking them both separately, unsecured exposures are holding up rather well. Unsecured exposures, if you look at their essential nature, would primarily involve personal loans, which are almost entirely towards salaried segments. Our segments are also not merely just the salaried segments, but public sector, government and the higher rated entities amongst the private sector and that's where it is predominantly situated. The volatility of income in these segments continues to be extremely low and therefore the serviceability of these loans is holding up very well. In the terms of credit cards, there has actually been an improvement seen over a period of time in the various delinquency parameters. And this may be due to the customer selection. Once again, a fair amount of cross-sell to our own internal customers where we have the accounts, see the fund flow, see the behavior, etc. But that is once again holding up rather well. Commercial vehicles, I did cover briefly some while ago as part of another question, but commercial vehicles due to the various economic factors as well as some of the auto sector factors is something that needs to be looked at, monitored very carefully. Naturally, that is what we do. Have filters been applied into our policy? Do we have absolute micromanagement of the same? Answer is yes. Have we seen the recent book once again behaving better as a result of this as per the historic book? Once again the answer there is yes. But given that these loans are of a longer maturity compared to personal loans and other such transactions on an average. There will be a larger component of the historic base in the portfolio as it stays and we might need a little more time to see a complete change or reversal. And not to say that the environment once again is difficult for these operators. Freight rates have come down. Freight movement has come down. The efficiencies in the systems created by octroi abolition and GST and the other matters have really increased the productivity of vehicles once again resulting in lower deployment. So these factors continue to affect and we naturally watch this closely and I hope that answers what you wanted to ask.

Yeah, and lastly, just a clarification. Was there any contingency provisioning made when we are saying this 1457 crores of contingency provisioning at end of this quarter? So there was some 660 crores which was made last quarter and 115 the queue in Q1. But besides this, was there anything created this quarter?

Some minor amount less than 100 crores, I would say.

OK, and the 700 is entirely specific.

Yes, that is correct.

Thank you. Thank you.

The next question is from the line of Deepak Agarwal from Access Mutual Fund. Please go ahead.

Yeah, hello, sir. So I wanted to understand from a growth perspective for the bank, how much of that would be new loans versus acquisition from other banks and NBFCs for us, sir?

No, other banks and NBFCs, no.

It will be very difficult to sort of really, we don't sort of track that at an overall level. But having said that, a large part of our SME business would be takeover of loans from other banks. In terms of corporate side, which I think you did hear Rahul say that, We have not only looked at new customers who could be banking somewhere. We've also sort of deepened our penetration into our existing customers. So there's a fair amount of deepening of relationship which has given a bit of a fillip to our credit growth. On the retail side, it will be very difficult to conjecture as to where they are coming in from. But largely, as a philosophy, Jimmy is here. I think he is far more comfortable to sort of provide credit to people who are not necessarily new to the system, but new to bank credit.

Yes. I would understand your question two ways. So, if you are referring to assets actually acquired from banks, that's not a very significant number at all. If you are talking to facilities that are taken over from other banks, depending on which segment, and I think as Shashi articulated it's correct, as you look more towards the SME and MSME segments, They do look at our new products, Rahul alluded to them. So, when you do offer host-to-host integration and trade facilities across security connections, etc., customers do seem to appreciate this and that does encourage movement. Our cash management facilities, trade finance, all these are definitely attractive to such customers. Our 5,300 branch network definitely also throws up these customers on a regular basis. So there would be movement from one bank to another in such facilities. It varies from segment to segment.

Okay, okay. And so my second question is related to the festive team. Numbers you can share in terms of, say, what will be the kind of income and what would be the expense related to this campaign? Sorry, did you mention festive treat? Yes, yes, related to the festive treat.

Festive treat is not one type of an activity that runs for one product. It is a bank-wide program that runs across all product segments, geography segments, customer segments. It is kind of, you can think about it like both digital as well as a physical offering where a close user group where we bring the dealers, manufacturers, and the like, retailers and the like to our customer base for a better shopping experience, for a better asset purchase experience, and we are intermediaries where we finance where we should. So this is not something that targeted to x volume of assets or x number of customers and where we have it's all pervasive across everything this is uh as we said we ran through the quarter and uh it's called festive treats but in this quarter it will be called something else and it's an it's an ongoing effort and it was it was an event where we brought in several partnerships together and we continue with the partnerships as we go okay

so i think she did mention the business growth rates arising out of uh during the period of october now over december i think we have had a substantial lift in both uh asset disbursals and also in terms of payment card spends uh we wouldn't like to sort of put the income uh arising out of the same neither do we want to even disclose the kind of an expenditure of course there was a bit of a lift in expenditure because of the festive treats, which is completely baked in the 17.5% growth in this quarter's expenses. But it would not be appropriate for us to peel the numbers of the festive treat program.

Okay. Got it.

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

Yeah, hi everyone. The first question, actually I've got two, three questions. The first question is on slippages. So we've talked about the core and agree, stroke, any specific corporate account. Is it possible to get a similar number for last quarter as well as last year? Either the core slippages or the bifurcation that you provided this quarter?

The core slippage last quarter was same level, right? 3714 at 1.7%. That is last quarter. Last year the core slippage was 33, 3290 is what I have, again at 1.7%.

Okay, so last year the gross was about 4000 crores of which the core was 3290.

That's right.

Got it. Got it. Thanks. The second question is, so in the latest FSR report, the RBI talked about increasing SMA2 loans for the whole banking industry, which saw a jump from 4% to 7.5% in the month of September.

May I have your attention, please? Sorry about this.

Have you seen a similar trend in the SMA2 portfolio as well in your books, or it is much lower than what the RBI would have reported in terms of the delta?

It's been pretty much stable for quite some time now. In fact, even on an absolute level, it's pretty low compared to what you see in other banks. And even from a growth perspective also, we've not seen too much of a growth in the SMA2 numbers.

Just one last question, Sashi. So the fee income growth, which has, again, come out quite impressive. The retail loan growth, though, was tepid. So what explains this fee income growth? Was there any specific items there that may not continue, or this is a result of a sustained pickup in the corporate book as well, which is where we are benefiting by deepening the relationships, et cetera?

No. you know, we have been mentioning this. Sometimes, you know, we, it's sort of, we ourselves are surprised by the kind of certain runs that we've had in both in the third party distribution and also in the payment products. We have seen a decent amount of sustained growth rates in the spend, the credit card and the debit card spend. That's upwards of about 20, 25%. which is sort of leading to this kind of a growth. You're right, I mean, we ourselves sometimes are wondering when that will sort of really peter down, et cetera, but that is one of the reasons why we've seen a reasonably strong growth. The other one is on the third-party distribution, where while the volumes have been in the mid-teens, but the yields on the products that we have been distributing the year-to-date have, have been reasonably better for the kind of new products that they have been launching. So that has also sort of helped us in this quarter. But if you really look at it, we have been mentioning that in the past as well. We normally expect about 30 to 15% of core growth in fees. Maybe we have internally revised ourselves to somewhere between the 15 to 17% as a core growth that we can sustain over a medium to long term. So this is a bonus that we have got and let's enjoy when it comes.

Yeah, is it possible to get the composition of credit cards in our total fees?

Credit card, which is the payment.

Or maybe payment for the interchange, et cetera, yeah. We have a conglomerate, I mean a holistic thing including all products. I think somewhere around the 30 to 35 percent would be the payment products. The retail, the core retail assets and liabilities will be another 35 or percent. The third-party distribution will be somewhere between the 15 and 20 percent and wholesale will be the balance 15 to 20 percent. Got it, perfect.

Maybe, Sachit, as one last question, if I can squeeze in. On the common service center, you've talked about 70,000 products have been originated. Is it possible to also know the average ticket size there?

So this is a combination of both assets and liabilities. When you say they are not third-party distribution products, they are accounts that they have brought in into new customers, and the balances are as per our programs. We need to wait and watch how these balances or these customers behave over a period of time. But roughly I'm saying about 60% to 70% would be liabilities, about 30% as we speak would be the asset distribution. Maybe the things will change with stabilization, maybe we'll have a 50-50 going forward. Got it, perfect.

Thank you so much, thank you so much, great.

Thank you. The next question is from the line of Sri Karthik from Investec. Please go ahead. Sorry, it seems we have lost the line for the current participant. We'll move to the next question. That is from the line of Aman Ahluwalia from Laburnum Capital. Please go ahead.

Thank you very much. Two questions. First, on the corporate lending side, You know, it appears, at least from the market, that it's really you and SBI who are aggressively out there trying to grow on the corporate side. Most of the other large banks are not doing this, even if they have a sort of deep history, vintage, et cetera, in terms of corporate lending. So if you could give us some color on that. What it is that you're seeing and able to do that your large private sector competitors are not able to do, that would be helpful because I assume that a lot of them have a similar kind of diverse product basket. They can offer a range of services, have good technology, et cetera. And secondly, and relatedly, post the Altico issue there was some harsh language used by SBI for HDFC and at least anecdotal evidence seems to suggest that SBI has been very aggressive even with clients trying to keep HDFC out of clients where they are present. Any thoughts on you know is this a sort of minor issue that you think will blow over you know long term could we see two of the country's largest banks just being involved in a sort of corporate war. I would just be interested to get your thoughts on that.

Hi, this is Rahul Shukla. So you're correct, SBI is a competitor which is very active, and we respect them a lot for their judgment and the marketplace presence. And we continuously go out and learn from them. In my travels throughout the country, I always make it a point to go out and also call on the seniors at SBI because I think they are a very large bank compared to us with a rich history. And we continue to believe that we have lots to learn from them. Secondly, on the corporate book growth, I will not be able to comment as to what the other banks don't see. What we see is there is still ability to go out and grow. The only thing that we always constantly balance is that growth should not come at the cost of credit quality and growth should not come by dilution of my margins on the transaction. So those are two tenets. So I have to balance growth with margins and with credit quality, which is what we have done, which is what we have tabled for all of you as well as the shareholders as a result in this quarter. Thank you.

Just to understand that better, is it fair to say that most of the business you're gaining on the corporate side is then from PSUs who are less likely to have, say, non-SBI PSUs who are less likely to have the full suite of products as opposed to places where... Yeah, actually, you know, that is not a correct characterization because for a bank, we believe that we might be, you know, the second largest corporate lender in the marketplace.

When you grow, you have to have a broad-based growth. Otherwise, you are going to creep up on your concentration of your lending portfolio. So as we see that, we comment that in this particular quarter, yes, we did go out and see a little bit more on public sector because that is a segment of the marketplace which continues to create capital expenditure at this particular point of time. So we have benefited by being proactive with our solutions in front of clients.

Okay, thank you. Thank you. Thank you.

Next question is from the line of Shreya Shivani from CLSA. That's the last question, please go ahead.

Hi, this is Mohit. Good afternoon, gentlemen. Thanks for taking my question. So you mentioned that 700 crores of one of provisions are on account of some corporate accounts and then there is some additional agri credit costs. Would it be possible to quantify them?

No, not in addition, it includes. Could be what? It's a small amount, primarily corporate related. there's a small piece of other.

Okay, got it. And on the third party search form being appointed, does it in any way mean that the search committee will look at external candidates or both internal and external candidates will be considered?

I did mention that the philosophy is to look at both internal and internal candidates.

Okay. And lastly, in terms of this new launch of MyApps, could you throw some light on what this product is and how it will benefit the bank? Thank you.

Oh, yeah. You know, one of the USPs of the bank has been that we have a very broad-based customer segmentation. and one of that segmentation are institutions and the institutions could be in various activities and in services. The bank has been at the forefront of sort of providing solutions to these kind of institutions whether it is religious bodies or whether it is education institutions or whether it's hospitals at all, clubs as the case may be, and it's just we have multiple such segmentations. So it is just to provide value added services to these institutions so that we can tap into the supply chain of these institutions both from their customers and the suppliers and the service providers to these institutions so that we have a far more integrated you know, value offering to these kind of customer segments.

Okay, thank you. Thank you.

Ladies and gentlemen, due to positive time, that would be the last question for today. I now hand the conference over to Mr. Vedanathan for closing comments. Thank you and over to you, sir.

Thank you, Aman. I again appreciate all calling in on a Saturday. And if you have any more questions or need more clarifications, please contact Investor Relations. Ajit Shetty would be able to come back to you and get you what you need. Thank you.

Thank you very much. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes this conference call. Thank you all for joining us and you may now disconnect your lines.