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.