HDFC Bank Limited

Good evening and welcome to HDFC Bank Q1 FY21 earnings conference call on the financial results presented by management of HDFC Bank. 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 touchtone phone. Please note, that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Rajanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Okay, thank you, Aman. Appreciate the participants calling in today. Mr. Aditya Puri is with us today. May I request Mr. Puri to give opening remarks, please?

Thanks, Srini. Good evening, all of you, and thanks for taking the time off to listen to us. I will cover the opening remarks in three portions. First, I want to get these Twitter messages out of the way. Then I will give you an idea as to what kind of work we have put in to get the result that we have got during the COVID quarter. And last but not the least, I would like to clear all the uncertainty regarding our future in terms of succession, our management planning, our business plan. And then our team, which is actually what has performed to give you the results, will cover individual aspects, whether it is about MPA, whether it's about our unsecured loans, whether it is about our credit risk, whether we will have a sudden jump with the moratorium going off, or we've taken proactive measures to see what is happening. The fact that we have a clearly defined succession plan coupled with the team in place. So let me start first. So we've been getting these messages seeming to suggest that there's some turmoil in the employees based on transition. So let me cover that one by one. As far as Mr. Munish Mittal, our Chief Technology Officer, was concerned, he talked to me and the management about a year back, whereby he said he would like to go into more detailed and advanced studies in technology at Oxford, I told him, no problem, you've been loyal and you know you love the bank. So he was set milestones that he had to achieve before he moved on. He's achieved the milestones and now he's sitting in Oxford, in London, preparing for becoming an even better expert on technology. The second was Mr. Abhay Aima. Abhay was one of the founding people with the bank. He'd been with us 25 years and loves the bank with his life. And he played a stellar role in achieving a lot in terms of private banking, in terms of product management, in terms of high net worth. And he also expressed alternate interests, which I'm aware of, but I don't want to specify. He again was told by me that as soon as he's trained his successors and I'm satisfied with their ability to cope, I would be happy if he pursued his active interests because you only live once. He did that and he moved on. Then we have had this issue on the auto loan business. So let me clarify there very clearly. The bank has a robust policy and process to deal with complaints and allegations and take action as appropriate in the said instance as well. The bank has followed due process. Suffice it to say that as a bank we have always upheld the highest standards of governance and proprietary at all times and will continue to do so. The We had received some whistleblowing complaints. Internal inquiries carried out in the matter on the complaint received has not brought out any conflict of interest issue, nor does it have any bearing on our loan portfolio. The inquiry did bring out other aspects related to personal misconduct exhibited by a set of employees for which appropriate disciplinary actions have been initiated, stroke taken. Based on the internal inquiry findings, appropriate action was taken against a set of employees of Water Loan business segment for their act of personal misconduct. Mr. Ashok Khanna, being head of the referred business segment, had also participated in the inquiry process. Subsequently, he superannuated on March 31, 2020 upon expiry of his tenure and as per the original term of employment. Based on further development in the inquiry process, appropriation Action as necessary would be taken in the highest form of corporate governance. Lastly, we come to this loan. I don't want to take the name of the company where we've been asked by RBI to refund some money. We had appropriated that money based on sound and very strong legal advice. However, as the regulator has advised us, we thought fit that we will return the money. This and we become party pass with the other creditors. and whatever amount that there has been provided for. So I think we have exhibited exemplary standards across 25 years, and I don't see any reason why the culture, the base of 200,000 people will change. So now that I put that aside, let me tell you how we got our results during COVID. It's been a superhuman effort, and I thank all our employees for that. The economy appears to have recovered sharply from April, the drop in response to unlocking. A whole range of high-frequency indicators ranging from oil consumption and electricity consumption to eBay bill and toll collections and the Purchase Managers Index saw marked improvement in May that sustained in June. Anecdotal evidence on capacity utilization of some of the companies like Otto, Steele, FMCG seems to corroborate this conclusion. The pickup and tractor, two-wheel and small car sales, as well as the nature of FMCG items that have shown robust growth, point to a rural bias in the recovery and are consistent with two things. First, the rural economy seems to have been relatively isolated from the virus. Second, the robust Robbie or winter crop of the previous cycle and the satisfactory progress of this season's summer or curry crop has manifested in a healthy income in the hands of the farm sector, as well as expectations of income boost going forward as the summer crop is harvested. While this points to a potentially good recovery, there could be moderation going forward. If part of this demand is indeed pent-up demand from the lockdown phase, that could lose steam. Second, the steady rise in infections. and the greater dispersion across the country means that containment remains a policy challenge, and partial lockdowns that are being imposed in different pockets could hinder a full-blown recovery. Credit flow has been recovering strong in the range of 5-6% year-on-year over the last few fortnights. This could sustain a steady disposal to MSMEs backed by government-guaranteed gains momentum. The transmission of a 150 basis point rate cut since February and the presence of a large surplus liquidity of 6,50,000 crore currency has led to a sharp decline in yields and borrowing costs for other tenors. It also augurs well that the market would be able to absorb the additional borrowing of the government. However, duration risk and the large supply of central and state government paper have set a floor for longer tenor loans and debt paper. In our internal review, we expect another 25 to 50 basis points cut in the policy rate over the near term and yield management operations such as twists and conventional open market operations to pick up in the second half of 2021. Now we come to employees. It is imperative to place on record our sincere appreciation to the thousands of our employees across the bank. We are proud to say that our bank is one of the few in the country which has given increments, bonuses, promotions, as we have always done. This is no favor to anybody. The employees delivered, and since they had delivered, they were entitled to their share of the profits of the bank. Our bank has been well positioned to play a meaningful role in the changing work landscape. Two-thirds of our employees outside of the branches are working from home. Certain branch staff come in to service customers on a rotational basis. We have improved productivity across the board. We have been extremely careful about the safety of our employees from arranging for transport, from having them work from home, from disinfecting, from making doctor service available, from making insurance available, as employee safety is our prime concern as well. In quarter one, the highlight was rolling out our Anywhere Working Construct for the retail branch personnel through various initiatives in early April that enabled our people to engage with customers or through video conference, which was much appreciated by the customers. During the quarter, and this is what, you know, I want to get across, we have been working at an excellent capacity. During the quarter, on an average, we had customer interactions per month of approximately 225,000 per day, totaling to 68 lakh customer interactions in the month. almost double of what we saw in March with higher salience towards telephone or video. During the quarter, we acquired 1.2 million liability customers, approximately 1,30,000 accounts a day. No, sorry, approximately 13,000 accounts a day. This is about 80% of prior year quarter one levels. Despite the COVID-19 environment, this was driven through various strategies that we adopted, including enhanced digital journeys. The enhancement to digitization of our processes such as Insta account journey, new account, online funding journey, fixed reported renewal through voice bot are some illustrative examples that help us to acquire new customers and have them onboarded digitally. It also enables the customers to access net banking and test cardless cash withdrawal through ATM and so on. We are entering prime time to scale up our various digital journeys. The technology is in place, the people are in place, and as the lockdown moves, we will think that digitizing our current account, onboarding, video KYC, and so on, to supplement our existing digital offering. By and large, our branches remain open for customers. 95% of the branches are operational. And I'd like to thank, and we as management would like to thank all our employees for their dedicated efforts. Approximately 13,000 ATMs across the country are operational, which is an average uptime of 92%. Digital. A lot of people talk about digital. Our virtual relationship team continues to be enabled on our available technology solutions to ensure productivity of resources from WFH, which is work from home, IECRM on mobile, and customer engagement. We are seeing good traction on liabilities at this channel. Our launch of Video KYC on a limited pilot basis through this channel has enabled 100% digital full KYC accounts for our customers. This capability is being scaled up in quarter two. VRM has increased its relationship productivity to 22 call engagements per day versus 18 in April. On phone banking, Intelli says 50% of our resources are enabled to work from home. As far as marketing is concerned, a lot of you would have seen that A.R. Rahman, who is a customer of the bank and understands that we are a good citizen as well, agreed to do the concept along with his colleagues for free. And I'd like to take this opportunity to thank both Mr. Rahman and Mr. Prasen Joshi personally. On phone banking and telesales, 50% resources are unable to work at home, that I told you already. We also dispel this Doom and gloom. Corona aaya hai toh corona jaayega bhi. Duniya chalegi. Thoda beach mein difficulty hoega. Some attrits launched by us have shown good traction in participating merchants and consumers, where we have a plethora of merchant-funded offers, some national offers on electronics, for example, Apple, Samsung, and great deals on various products. This was launched to boost sales and send a confidence message to consumers, manufacturers, and merchants, that HDFC Bank is with you even in times of adversity. On the payment business, payment business volumes both acquiring and issuance in June 20 saw a bounce back to about 70% of January 2011. Strong tractions are seen under categories such as daily essentials, medical expenses, food home delivery. Since these are low ticket spends with high frequency, it led to higher engagement levels with customers on payment instruments. While travel, hospitality and the like have been muted, many other high spends have increased, such as online education, subscription services, e-commerce as a consequence has grown faster than offline payments. On the merchant acquiring business, the model has been to create a thriving and efficient HDFC bank, merchant payments and collections ecosystem, with value-added services helping drive merchant business. As far as corporate and wholesale banking is concerned, we actually went in for AAA corporates on a total basis on our balance sheet. We improved the risk rating of our balance sheet by 30 basis points to 4.3. And we had also restricted consumer loans, which are good, but till we have a greater recovery, we have stopped them. And we are watching the recovery, which we hope we should be able to start by September. We have seen... Significantly higher activities by domestic companies and FI during the quarter end of debt market. The debt raise was in excess for 22,155 crores. This amount was 60% higher on a year-on-year basis. In the corporates, also raised 102,665 crores from the equity markets through a mix of various instruments. We were actively involved in these fundraisings. SME assets were on a declining trend but received a partial offset QRQ because of the guarantee scheme. Retail asset. Retail originations fell by 70% during the quarter, both as a combination of tightening of credit standards as well as some amount of pessimism in the borrowers. The personal loan book, not surprisingly, contributed to the brunt of the impact, a drop of 86% in originations. A reflection not just of the lockdown, but also our own prudence as we tightened in an otherwise uncertain environment. Credit cards dropped by 87% and spend swelled by 40%, leading to a book contracting by 4.5% during the quarter. Loan originations in the vehicle segment fell. However, the recovery, and this time we are almost back, especially for the small cars and two-wheelers. Tractors is record. These are back to about 75% of pre-COVID levels. Other products showed recovery as well. Then we come to collection. The good part is we gave everybody full salary, we gave the increment, we gave them the bonus, and we have not laid off a single person. We have also told our people that given our expectation of delivery and the superhuman efforts they have put in, which is the main strength of HDFC Bank, the training and the HDFC Bank team. So we moved our excess sales staff to collections, and Srini and Jimmy will cover this later, which will tell you how well we have been able to estimate our LPAs as well as what success we have had in our collection efforts. We have also contributed to society, which we normally do. We are a good bank, but we have a heart of gold. Besides our CSR activities, we also gave 70 crores to the Prime Minister's Relief Fund, and have given in various states for improving hospital service, buying of kits, buying of ventilators, providing for umbrellas for the police, providing food, medical supplies, all of that. Now this gives you some idea of the effort and how much we have changed to be able to produce this result. Now I come to the second part. The second part clearly is an understanding that did I train my successor? Do I have a management team that is in place to take care of the future? Did we put in the right technology? And what is going to happen? When I came back from Silicon Valley, after I had a lot of people tell me that between the fintechs and the other developments that were taking place, we would be blown out of the market, what I found there was that with the secular shift in telecommunication, computing, social mobility, and artificial intelligence, the operating model's for the companies would change completely. The people who understood this and changed their operating models leading to a better product delivery to the customer coupled with lower transaction cost and better customer service thrived. That's where you got the Apples and the Googles and the Netflix. We came back and decided that we also wanted to thrive using this change that has come in the world and we set ourselves the goal that we will provide frictionless service, benchmarking against an Amazon or a Google, we will provide frictionless service and an enjoyable customer journey across a wide product range and geography in the most convenient manner to the customers. So we all sat down, the entire team, and prepared our plans and prepared our plans to figure out what we're going to be doing going forward. This was a team effort for determining the strategy, for determining our action plan, for determining the changes required in process, the changes required in marketing, the changes required in technology, and what it could do to increase our distribution. The team worked and came out with a vision and an action plan. We appointed a change agent to make sure that most changes fail because there's not enough monitoring and commitment. Every Manjack of the 200,000 people bought into the change. That's our strength. You can talk to anybody anywhere and he'll give you the same talk that I'm giving you here today. And we put our plans in place completely to see which businesses we would dominate, what we would do, what technology we would have. That has been in place and where do we find ourselves today? We are the only brand and I'm not talking Indian brand and I'm not talking about a bank. That comes in the top 100. We are number 65 in the Milford brand recognition globally among all global companies, which I think is a great achievement in our being able to get across our strengths to our customer base. We have approximately 18.9% capital adequacy, which is a result of our deciding the proper target market, the proper marketing, the proper technology, the proper cost, proper probability of default, and monitoring that this is effectively monitored to give us enough return to take care of our delinquency, return to equity shareholders, pay our employees, and return the deposits. We have our base portfolio is not strained because in all cases, We are in the middle and upper middle. And Jimmy will explain how even the cash flow-based lending, which all of you people call unsecure, is the quality of that lending, how it holds up, even in the most tough circumstances. So that's not a cause of worry. It's a cause of strength, which I will let Jimmy and all explain as we go forward. We changed our technology from core banking to middleware to enterprise and now service lending. software as a service to be able to deliver across all channels and omni-channel experience two clicks and you're able to do your business and using artificial intelligence to come down to customer segmentation of one. All this is almost complete and among the with us we have some of the most advanced technology companies who are not fundamentally the old the IBM and etc. These are the people that are looking at software as a service And they have told us we are among the top five globally. You will be hearing shortly from us on the subject. We talked four, five years back about semi-urban and rural India. And we are today almost in the virgin market in terms of product, in terms of technology, in terms of distributions. We opened 50% of our branches in semi-urban and rural India, and we added already about 15,000 banking correspondents, which will increase further, giving us one of the largest distribution franchises in semi-urban and rural India. I can continue forever, but, you know, I've got a very competent team to talk from here onwards. And so, regarding my successor, the main successors in respect of where – The RBI finger points have been with me. They understand the business. They were part of the transformation. They were part of the training. They are part and the people love them. So there is no issue on who is the successor. And you would have seen in today's AGM all the talk about there is difference here, difference there. I think it should have been very clear there is no difference anywhere and we are very clear on where we are going forward. The team itself will cover how we transform our banking experience in the branches, what we are doing to dominate the payment business, where our digital will take us both for retail and corporate, retail in terms of our frictionless omni-channel experience, corporate in terms of either host-to-host integration or APIs, and further how we've been able to take our products in one actor to the semi-urban and rural areas. We are market leaders in retail lending and what we did in terms of what we did on corporate lending, how we have been able to maintain and sustain, what we are doing on SME, what we are doing on agriculture, what we are one of the few people even on small lending. We are also a company with a heart of gold and they will also cover what we have done in terms of adopting villages and completely transforming the village. what we've done in terms of sustainable livelihood, why we are on the Guinness Book of World Records on blood, what we've done about changing education, what we've done about yield productivity. So with that, I hope I've covered for you where we're going, what we're doing, what are the rumors, the fact that 25 years we've been an icon of corporate integrity and governance. I don't think anything changes there. The team that we have, The plan that we have, the execution capability we have, the training that we have, the succession planning and the cohesion between the intended successor and the team. So, what I said in my annual report, the best of HDFC Bank is yet to come. Srini, can you take over on the financials and then Rahul can talk on corporate and Jimmy can talk on finance. on asset quality, etc. And my brilliant change agent, Mr. Jagdish Singh, can answer all questions.