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.

Thank you, Mr. Puri. First, a few comments to provide the backdrop on the strength of the franchise across a few dimensions, liquidity capital, provisions and credit quality and NIM. Let's give some highlights and then we'll jump into the quarter results. We carried on with the strategy to build on deposits. And on bringing in new customer relationship, thereby maintaining strong liquidity position, the bank's average LCR for the quarter was at 140%. That is about Rs. 70,000 crores of surplus or approximately 9.5 billion, considering 110% as a floor. Capital adequacy is at 18.9%. We have 7.8% point more capital than the regulatory minimum of 11.1%. Our CET1 at 16.7% is 9.1% more than the regulatory minimum of 7.6%. The floating and contingent provisions totaling to Rs. 5,453 crore built over a period of time helps in de-risking the balance sheet. We have also taken several steps to further tighten the credit. The provision coverage has been further augmented to make the balance sheet even more resilient for any shock. Provision coverage ratio including all categories of reserves stand at 149%. We'll cover more on credit as we go along in this call. The NIM has been in a stable range historically over the past 10 years between 4.1 and 4.5 and currently stands at 4.3%. Now we'll get to the results, highlights for the quarter. COVID has had certain impact on the financials, which we'll call out as we go along. Let's start with net revenues. Net revenues grew to 19,741 crore, driven by an advances growth of 20.9%, and deposits growth of 24.6%. Net interest income for the quarter was at 15,665 crore, up 17.8% over the previous year, and grew 3% over the previous quarter. For the quarter, net interest margin at 4.3%, as I said before, compares similar levels prior year and prior quarter levels. Moving on to details of other income, fees and commission income constitutes 55% of other income, was at Rs. 2,231 crore, lower by 37% compared to prior year and lower by 46% compared to prior quarter. Retail constitutes approximately 89% and wholesale constitutes 11% of recent commission. The extended lockdown during the quarter following the COVID outbreak has impacted the business across the bank, which is loan originations, distribution of third-party products, payment product activities and so on. Moratorium relief is available to customers according to RBA notification. Waiving of certain fees for customers have also been implemented in accordance with RBA mandate. These have affected the fees and commission by approximately 1,700 crore. Effects and derivatives income at 437 crore was lower by 24% compared to prior year of 577 crore. It is also lower by 12% versus the prior quarter which was 501 crore. The reduced FX demand in both retail and wholesale segment contributed to the decline. Trading income was at 1087 crore for the quarter. This represents the ALCO strategy of monetizing some portion of the gains from excess liquidity investments. Other miscellaneous income of 321 crore includes recoveries and dividends from subsidiaries. The collections were impacted due to the extended lockdown during the quarter. This had an impact of approximately 300 crores on recoveries. Operating expenses for the quarter were 6,911 crore, a decrease of 2.9% over the previous year. Year on year, we added 336 branches and we added 72 branches during. Since previous year, we added 6,381 business correspondence managed by common service centers, including 1,002 open during the quarter. In addition, Approximately 200 branches are in various stages of readiness to open in a short time. If there were no disruption, these would have been open during the quarter. Going forward, we will look for an opportune time to get these to be functional. The staff count increased by 11,668 during the last 12 months. Cost-to-income ratio was at 35% versus 38-39% in the recent past time periods. Lower costs in various sales channels, promotional activities, and discretionary spends contributed to better ratio than recent trends. We would expect these kinds of spends to resume in due course of time. Moving on to PPOP. The pre-provision operating profit grew by 15% to 12,829 crore from 11,147 crore in the prior year. Coming to asset quality. In accordance with the RBI guidelines relating to COVID-19 package, The moratorium granted as on June 30, 2020 is about 9% of our loan book. For all such accounts where the moratorium is granted, the asset classification shall remain standstill during the moratorium period, i.e. the number of days past due shall exclude the moratorium period for the purpose of asset classification under the IRAC norms. The bank holds provision as on June 30 against the potential COVID impact based on the information available at this point in time and the same or in excess of the RBI prescribed norms. During the quarter, we have accelerated the slippages. We have used analytical models in determining the slippages instead of waiting for purely on the rolls into usual certain days past due recognition. This has resulted in expedited NPA recognition. The annualized slippage in the quarter is 1.2% is predominantly due to the use of analytical models. GNPA ratio was at 1.36% of growth advances as compared to 1.26% in prior quarter and 1.40% in prior year. The impact to the NPA ratio due to the use of analytical model is in determining the NPA as I mentioned earlier is about 30 basis points. GNPA ratio excluding NPA in the agricultural segment was at 1.2% as compared to 1.1% in prior quarter and 1.2% in prior year. Net NPA ratio was at 0.33% of net advances as compared to 0.36% in the preceding quarter and 0.43% in the prior year. Now on to the provisions. Specific loan loss provisions were Rs. 2740 crore as against Rs. 2248 crore for the prior year and Rs. 1918 crore during the prior quarter. Of the 2,740 crore specific loan loss provisions for the quarter, approximately two-thirds of this is due to the accelerated recognition using analytical models. Total provisions were Rs. 3,892 crore as against Rs. 3,784 crore during the prior quarter and Rs. 2,614 crore for the prior year. Total provisions in the current quarter included contingent provisions of approximately 1,000 crores. The provision coverage ratio was at 76% as against 72% in the prior quarter and 70% in the prior year. Including contingent provisions, the coverage ratio is 105%. There are no technical write-offs. Our head office and branch books are fully integrated. Beginning of the quarter, we had contingent provisions of rupees 2,996 crore. With a build of approximately 1,000 crore at the end of the quarter, contingent provisions towards loans were 4,002 crores. The bank's floating provisions remained at 1,451 crore and the general provisions were at 4,582 crore. Total provisions comprising specific, floating, contingent and general were 149% of gross non-performing loans. This is in addition to the security held as collateral in several of the cases. Now coming to the credit cost ratios. The core credit cost ratio i.e. the specific loan loss ratio was the was at 1.08% of advances as against 1.07% for the prior year and 0.77% for the prior quarter. As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core credit cost ratio net of recoveries was at 0.99% as compared to 0.88% in prior year and 0.55% in the prior quarter. After factoring in the accelerated provisions as previously mentioned, which has an impact of 73 basis points, And contingent provision, which has an impact of 40 basis points, total credit cost for the current quarter was at 1.54%, as against 1.51% in the prior quarter and 1.25% in the prior year. Now, the reported PBT was at 8,938 crores. Net profit for the quarter grew by 19.6% to 6,659 crores. Some balance sheet items. The bank's balance sheet sizes of June end was 15,45,103 crore, an increase of 22% over June of prior year. Total deposits amounting to 11,89,387 crore is an increase of 24.6% over prior year and up 3.7% over prior quarter, which is an addition of approximately 42,000 crores in the quarter, and 2,35,000 crores of addition since prior year. As a result, our focus on granular deposits, CASA deposits grew by 26%, ending the quarter at Rs. 4,77,435 crores, with savings account deposits at Rs. 3,27,358 crores and current account deposits at Rs. 1,50,077 crores. Time deposit at Rs. 7,11,952 crores grew by 23.7% over previous year. CASA deposits comprised 40.1% of total deposits as of June 2020. Credit deposit ratio was at 84% for the current quarter as against 87% in the prior year. Total advances were 10,003,299 crore, an increase of 20.9% over prior year and 1% over prior quarter which is an addition of approximately 10,000 crore in the quarter and 1,74,000 crores since prior year. Retail advances on a Basel basis grew by 7.3% year-on-year and sequentially had a degrowth of minus 3.9%. And wholesale advances on a Basel basis grew by 36% year-on-year and 6% sequentially. Moving on to capital. With regard to capital adequacy, total capital adequacy ratio as per Basel III guidelines stood at 18.9%, as against a regulatory requirement of 11.1%. This is an increase compared to the prior quarter of 18.5% and prior year of 16.9%. Tier 1 capital adequacy ratio was at 17.5% in the current quarter as compared to 17.2% in the prior quarter. During the quarter, the bank generated slightly above 60 basis points of capital, mainly driven by earnings, while the consumption was about 30 basis points. Therefore, the net capital generated in the quarter is about 30 basis points, which is reflected in the increase in the total capital ratio to 18.85%. It is also pertinent to note that during the financial year 1920, the capital generation was 250 basis points, while the consumption was 110 basis points. This resulted in 140 basis points increase in total capital ratio in the financial year 1920. Based on our assessment, our internal generation of capital is adequate to sustain and support our business growth in the short term. In summary, we are proud of our people who have passionately managed customer relationship in executing our strategy despite a difficult environment. The results reflect deposits growth of 25%, advances growth of 21%, operating profit growth of 15%, profit after tax increase by 20%. With that, may I request Sashi to give a few words?

Okay. Thank you, Srini. Considering the fact that the main driver of our growth during the quarter has been the corporate banking unit, let me hand it over to Rahul Shukla to tell us more about where the growth is coming from and what is the outlook on corporate banking as it is.

Thank you, Fashi. Thank you all. Corporate banking had a satisfactory performance during the quarter. Strong growth performance was helped by the desire of corporates to migrate to the bank. as also from more firm than widely believed economic activity. So first is on asset growth. The bank remained focused very sharply in serving businesses that have strong liquidity access through public markets or otherwise, through government holding or government procurement, those that are part of very large business groups and to epidemic resistant businesses. Entities include public sector corporations, private sector and MNC corporates. The bank also participated in TLTRO 1.0 to support corporates where it was constrained by GBL limits. It also provided liquidity to the mutual fund segment through purchase of assets under RBI scheme. We saw broad-based growth in the public sector in sub-sectors such as power, transportation as well as financing arms of the government or nodal agencies. The bank also extended credit to material energy discretionary consumer sectors. Customer assets increased YOY by approximately 1,25,000 crores. So how did this growth come when the economic activity is widely seen to be tepid? Given a lot of commentary and data points on the economy, we dug deep into our data to analyze trends. and look at how the actual trends were versus what we read in the newspapers. As a very large transaction bank, we looked at the value of corporate collections that passed through our cash management system. During April 2020, which was the strictest lockdown period, and we believed that there was simply no activity, corporate collections were 45% compared with April 2019. You can say that activity was down 55%, but you can also say that 45% of the economy was running in the month of April. Collections in May 2020 increased 47% over April 2020, and June collections were higher over May by 38%. In fact, the June collections were 94% of June 2019 collections. Normally, anecdotally, people talk about June being 75%, 70%, 80%, but that 94% is what we actually saw. During the quarter, collections in specific sectors such as telecoms, agri and fertilizers showed significant strength over the year-ago period. Pharma segment also showed positive growth. On sectoral trend for June 2020, when the economy had opened up widely, over May 2020, pretty much all industry segments showed a positive trend. To give you certain key sectors that everybody is normally wary about, NBFCs showed a 66% increase in collections in June over May. Oil and gas, 36%. Cement and steel sector was up plus 36%. Utilities were up 50% and so on. Auto and auto ancillary segment showed a plus 100% increase. To give you a sense of the disbursement analysis, Almost all of the quarter and quarter accretion in the book came from top half of a 10 point internal rating scale which has served the bank well over the years. The same is true when the data is analyzed for year over year accretion in the asset book. The bank continued to diversify its book and reduce concentration. Its next 100 and next to next 100 programs contributed to approximately one-third of the YOY asset book accretion. Approximately 78% of the QOQ and the YOY gross disbursements, including rollovers, were assets with less than one-year tenor maturity. Now, what was the end use towards which these assets were disbursed? An analysis of top 25 disbursements by value during the quarter shows that 46.5% was ultimately towards CapEx, 30.2% was towards working capital requirements, 9.5% was for supporting other banks and market participants with liquidity through participatory certificates and secondary purchases, 7.5% comprised of other reasons including availing existing lines for building liquidity buffer, And the balance 6.3% was towards on-lending for PSL purposes. As we continue to gain market share, what is it that led to the gain in market share? There are two reasons. One is our digital backbone and the second is brand. In terms of just the digitization trends, the bank saw a significant increase in electronic straight-through processing transactions in its collections and payments businesses. From 86% in June 2019, the percentage increased to 94%. in June 2020, which was a significant increase. While payments have always had a strong straight-through processing percentage, the collections jumped from 82% in June 2019 to 92% in June 2020 in terms of electronic straight-through processing. The bank remains poised to gain share on the back of its digital backend systems. In terms of the brand image of safety, that got reflected in the corporate liabilities. Corporate CASA YOY growth was 25% on an end-of-period basis, but for the full quarter, 37% average YOY growth was shown for the quarter compared to year-ago quarter. Corporate fixed deposits YOY growth was 14%, 31% average YOY quarterly growth. We also have, you know, the salary initiative for our corporates. In corporate salary for corporate banking customers, the amount accreted in excess of 10,000 crores during the quarter from March 31st. The bank did not see any material reduction in numbers of its corporate salary segment receiving monthly salary credit. It actually witnessed an increase in the average salary credit per corporate salary account during the quarter. Thank you. Thank you, Rahul. Thank you for that.

Jimmy, on the corporate side, can you sort of give some insights into the asset quality trend only on the corporate banking portfolio, both on the incremental side and also on the stock basis?

Sure, Shashi. Thanks. Good evening, everyone. So, a little bit to take off from when we all last spoke in April. So, As we mentioned at that point in time, we were very, very early to react to the COVID phenomenon even before it became a global phenomenon. We had several rounds of studies and stress tests done across the portfolio. There was an extremely detailed name-by-name evaluation carried out by us in terms of what impact would be to each and every entity, where they were placed, not just by what industry they were placed, how they were placed there, what their future plans were, what their immediate situation was, what their financial situation was. The result of this entire exercise was that there was a bearing down of exposures in several There was further requirement and this was put in place with the Credit Administration Department that even amongst approved facilities, a transaction beyond a particular cut-off would be re-evaluated prior to it being disbursed from the bank in a prospective manner. This is a process that carries on even till this day. So there is extreme caution in any new advance that is put out whether the lines are fresh sanctions or whether they were prior sanctions as well and that's a very important point to note. As you also do know we have pretty good early warning systems. We've been evaluating flows. We've kept our ears to the ground. I think Raul already threw a color on where the flows are and how they have been moving and improving month on month. That reinforces confidence on the customer selection being of a very high order and reposes some level of faith and you take heart in that. To just add a little bit to what he said in terms of where the new business came from, because as all of you do know, the bulk of the growth has come in the wholesale and the corporate book. So these were advances made to large, highly rated Indian corporate conglomerates, larger corporates with a high quality, pedigreed international parentage in several cases. And of course, in large measure, to very, very good public sector companies. It's a kind of term coined internally by us of Navratna quality. So I presume that would give everyone a feel of what we're talking about. So we looked at strategically important public sector companies with this kind of quality. As I mentioned, the large, highly rated, reputed domestic conglomerates and internationally supported and promoted companies, again with high repute in the promoters. To put some color on where the portfolio lies in two ways. The first way I'll just cover very briefly because that gives an external reference but it's not really what we reference ourselves to. Around 86% of the externally rated portfolio is either AAA or AA. That's just to put it in a bit of perspective but I think in my last interaction with all of you, I did refer to the bank's internal rating system. This is a system that we place great emphasis on and rely on much, much more than external ratings. The historical performance and portfolio quality does bring out that it is a system that has proven to be very reliable and time tested. It has served us well. It is essentially a 10-grade rating scale, 1 being the best and lowest risk and 10 being the worst. The quality and caliber of our portfolio, just to bring out, despite the high level of growth in this portfolio in recent times, the quarter ending December, we had average, rated average portfolio rates So that shows that the quality has been maintained despite this growth reflected in the fact that our own internal rating model which as it said has served us very well for 25 years reflects that there is not an increase in the incipient risk in that portfolio. To just dwell for a moment on the unsecured portion of this portfolio, Once again, as you know, all wholesale exposures are individually deliberated upon. All these portfolios carry a multi-level approval grade that goes as per our policies. Won't dwell into the details of that, but it is marvelous stringent. And we have a weighted average rating on the unsecured book at a 3.45%. opposed to the portfolio average of 4.43 and the secured portfolio average of 4.81. So, as you can see, since all these are individually assessed cases, there is obviously a far greater level of caution that gets injected into the unsecured advances. If one looks into the historical trends of delinquency, there is a 55% lower probability of default in the unsecured wholesale book than there is in the secured wholesale book. And this is taking our own historical through-the-door cycle probability of default. So, that's where we honestly stand, Shashi, on this, if I can.

Yeah. Thanks, Jimmy, for that. Rahul, the other hat that you wear is on the SME portion. Can you tell us more about the outlook, the business trends and outlook on the SME side, please?

Sure. Thank you, Sashi. So business banking, our wholesale SME business, we had a satisfactory performance during the quarter. The bank continued to pursue business on the basis of granularity, geographical spread, sound credit profile, and risk mitigation through self-funding, high collateral value, and strong documentations. So first point on self-funding. We've often mentioned that we were on the threshold of achieving 100% self-funding for the BBG portfolio. We actually achieved this 100% in May, and we closed in June at 103%. This was because of strong flows of funds into CASA as well as deposits. The business witnessed EOP, YOY increase of 79% in CASA and 38% in FDs. The self-funding for customers, because we have customers who don't borrow. So if we just take out all the customers who don't borrow and look at only the borrowing customers, even for that subset of the customer segment, at end June, the self-funding level was 75%, which is very strong. Second, assets. The asset book increased in mid-teens on a YOY basis. Low single digits on a QOQ basis. The asset book was actually on course to decline 10% from mid-March to end June. Our client segment were reducing their operating and financial costs. It was comforting to us because when the rubber hit the road, it actually tested the quality of our client selection and, you know, client base. But with the introduction of the emergency credit line guarantee scheme, the bank picked up, you know, very smartly. We will discuss that later. But as of June 30th, we had... reached out to 100% of our customers within wholesale SME and disbursed or in the process of being disbursed where documentation were executed on June 30th was in excess of 5,000 crores. 68% of the new to bank disbursements had a ticket size less than rupees one crore and that goes back to our push towards granularity. The third is new client acquisitions. New client acquisitions, even in that quarter, We did about 533 customers in quarter one. If you recall, we had done about, you know, 1,500 customers in the Jan to March quarter. Largely, these, you know, names came from North and South India. The movement in West and Eastern territories was slightly slower. Collateral cover, which is the second level, you know, that we test ourselves, for the new to bank disbursements, for 89% of the cases was greater than 100%. Now, if I go back to the YOY period, collateral cover in excess of 100% for the new-to-bank additions was, you know, it formed only 77% of my clients acquired. So from 77 to 89% was a deep jump. Digitization, Sashi, we again saw very encouraging trends over here. From 68% in June 2019, where we had electronic straight-through processing unit transactions, this percentage increased to 79%. So something is, you know, dramatically changing in terms of digitized, you know, payments and collections in the economy. Now, if you look at just collections as a subset, that jumped from 56% straight through electronic in June 2019 to 74% STP in June 2020. So the bank remains poised to gain share on the back of its digital backend systems. We also took certain special initiatives. We increased our agri-processing presence with our pledge finance offering. We added new features on the product to make it more robust and improve turnaround time with digital processes. And we had specific webinars across the country that were done to reach out to customers. We continue to remain very positive about the growth and the outlook of this business. supported, you know, very strongly by the government's resolve to preserve the sector. So the business continues to demonstrate the hunger of a startup. It is managed with the processes of a global corporation, and it employs intelligence of the Indian mind. So that is what is leading to our success in this business.

Thanks, Rahul. Since you mentioned about the government support, you may as well sort of cover how the – of the emergency credit line of the government has played out for us as a bank, not just in business banking.

Sure. So, Sashi, you know, I give you data not as of, you know, June 30th, but as of day before yesterday in the night. So, we had eligible customers, you know, on record, which is pre-approved, you know, because they passed through all the tests and everything. That was in excess of about, you know, 300,000 customers across the bank. And the total value of the disbursement was in excess of, you know, I mean, the value that they were eligible was in excess of 20,000 crores. The disbursements that were done as of day before yesterday in the night was to about 67,574, you know, customers. And the total amount that was disbursed was over, you know, 10,000 crores, 10,169 crores. There is still, you know, a certain amount pending because this goes through a process that you sign the documentation, you upload, you know, basically the details in the guarantee, you know, website, you get the guarantee, you know, confirmed, and then you go out and make a disbursement. So we still have about, you know, 1,076 crores in pipeline. So at this point of time, in the pre-approved cases, we basically have about, you know, 11,000, 11,500, you know, covered. Thanks, sir.

Jimmy, one of the segments that a lot of people have been worried about is on the SME side, especially when you consider the impact of COVID on this particular segment. Can you sort of give some insights on how your portfolio on the SME side has been behaving? And if you can also specifically cover, in the last conference call, we did mention that you did a lot of stress tests. Can you do the back testing of the same field?

Sure, Shashi. In fact, I'd like to take that last bit first. So, if you recall the last time we covered which was in April, it was earlier times and there was obviously a greater level of uncertainty and a lower level of control. So we had stress tested the portfolio in three different levels in a low, medium and high level of stress. And what we had put out was there was a possibility that 9 to 11% of the customers would find or perhaps face difficulty in servicing their obligations based on the high and the very high level of stress testing that was done. So, I have to say that this was happily not correct. It was an extremely conservative estimate that was made. We have the hindsight now of the actual flows that have taken place. The vindication of our historical policies and customer selection has clearly manifested. And I would say that at this point of time and perhaps with even a more encouraging trend coming forward, those estimates should be down by more than half. So it was clearly an extremely conservative estimate made and we should be correcting that record. Based on current flows, we do believe that the impact could be less than half of what we had originally estimated. The current flows also are increasing month on month for us. If we look at it on an average basis, April over March, we actually saw a 47% reduction in cash flows And we have very good cash flows in this business because very often we are a sole lender and it is mandated sole banking. So we actually have very good visibility, control and early warning insights over this portfolio. So it was 47% down the cash flows April over March. Improved a little bit in May. We saw only a 20% reduction in May. And then there has been in June a 13% increase in improvement over the previous month on an average. So we do see encouraging trends coming over here. We would hope that they continue. It does obviously give us hope that the customer selection has been rather good. And I'll come to a few more points that leads me to believe that at this moment in time. If you try to split this cash flow analysis into the not so highly impacted and the impacted industries, you would see that there is not very much difference in recent times. I think the early months created a very high impact for the highly impacted industries, but the recent months have actually shown that the recovery is pretty much on par with all. There's not very much to choose from. It's like a 12-13%. It's a couple of percentage points between them in terms of the improvement in cash flow. So that once again is interesting. But that said, I must say, it doesn't benefit us so much because our concentration, portfolio concentration in the highly impacted industries itself is not very high. It's I think I would say single digit if I'm not wrong. So not that we're going to reap great benefits from that but we weren't very impacted to start with. To move into a couple of other aspects that have come, Rahul touched upon the EC-LGS and how they benefit and I must say that in our mind when we have looked at and we have spoken to many of the customers, The fact that this kind of relief has been provided by the government actually does allow them to kick-start businesses. Receivables that were stuck do not need to be realized before the business rejuvenates. They can actually start a new working capital cycle with this money and this should once again augment the cash flows that flow in in the coming months. Another good sign for us and I think as Raul mentioned, our bank has been one of the largest participants in this scheme and has tried to bring the benefits to as many MSME customers as possible across the country. It's a win-win all around for that to happen. I had mentioned last time about the Self-funding ratio that we talk about in this particular portfolio, it's something that we used to monitor for several years. We were watching it like a hawk. We wanted to see that it would not move away in hard times. Repeating just once more as I did last time, this is not collateral, it is not landmark, it is the personal wealth and savings of the customers and their families in our bank, but it is definitely a reflection of the liquidity and wealth of the SME customers we have onboarded. Very happy to report actually that as per our last calculation, the self-funding ratio has actually gone up over this period. We are very pleasantly surprised. We tried to go into the depth of it. The smaller reason for this is that due to the slowdown, the working capital itself to some level has attracted. But the larger reason is that these savings in these customers and in these accounts, therefore, have actually gone up. It's a point I'll touch upon a little later when we come to the retail as well. But that coupled with the fact that the collateral that we have in this portfolio is on a portfolio level around 80% of the portfolio. So the wealth of the borrowers is intact. The collateral remains intact. We are seeing the cash flows coming back in a reasonably steady and encouraging manner. So at this point of time, no alarm.

Thanks a lot, Jimmy. I know Srini, Mr. Puri alluded to that on the retail side where they would be discretionary spends and consumption have been reasonably hit during this quarter. But can you touch upon the recent or the latest trends and maybe product-wise some changes or some interesting insights that you're seeing on that?

I'll give a context on the retail asset side. Retail loan originations fell by 70% during the quarter. So the overall originations came down significantly. The personal loan book contributed to the biggest of the impact, a drop of 86% in origination. Both a combination of our own credit policy tightening actions that we took early on in the prior quarter itself And also, otherwise, the uncertain environment also contributed that people weren't coming along. Card sourcing, again, one other item that significantly showed a drop, 87% card sourcing dropped. And spends fell by 44%, right? And the card book is down 4.5%. It is lower. June versus March. Among all this, the loan originations in the vehicle segment fell at the aggregate vehicle segment level, fell by 66%. But within that segment, the two-wheelers and tractors showed greater resilience, with demand being driven by deeper geographies, mostly coming, as you see, the products, two-wheelers and tractors, more deeper geography-related products. The fall in two-wheelers was restricted to 50% when the average was 66% at the total level, it was down by 50%. And tractor segment actually grew 26%. But we have a smaller book on that, but grew by 26% over lower base. Gold, loan against gold jewelry, again a large rural footprint type of product. Originations fell 15%, but still it gave a growth to the book of about 3% or so. So that's mostly I would say from a retail segment of

Jimmy, retail is one of the most, a lot of people are looking at it. So start off with the asset quality trends on retail and then we'll cover section by section on that one because we need a bit more detail on that.

Sure. So I must start off saying we were rather fortunate when this crisis started because We entered the crisis with an improving book. As everyone will recall, there was a slowdown in the economy for a good 18-24 months preceding the COVID crisis and in our usual manner, we would react to such changes in the economic scenario and we would have had depending on which product it was in retail, we would have had at least two or sometimes three rounds of policy tightening during those preceding 18 months or so. The result of that policy filtering was effectively that we had a new book coming with lower delinquency and there were very encouraging trends on that particular book. So it was rather fortunate when the COVID crisis hit us that we entered with this kind of a portfolio and we did not therefore have very heavy baggage to carry. That said, I must say that once the crisis hit, we again looked at the portfolios, we once again decided to have some level of filtering and more than the demand I would say it is the policy changes that resulted in a lower business flow for us. We have always stated in all our interactions with you that the bank sticks by its credit policy, the bank is extremely steadfast in this, extremely dogmatic about it, would not change based on business exigencies, the risk comes first and this perhaps is the biggest and most obvious manifestation of this policy actually being put into practice during this COVID crisis. We did allow business to attract. We will not and did not compromise. So we have had a reasonably good run. Delinquencies have not gone up. Of course, customers who have entered moratorium and I'll get into that a little later. But the portfolio has held up well. The early trends are good. The early delinquencies all hold up. The signals at this point in time are good. Of course, the business volumes have suffered, but the portfolio quality has not.

But what about the check bounce trends or the real check bounce?

What we have done in order to look at this, we've actually looked at three things that come into the portfolio quality. So when we look at the zero DPD because we need to compare it to the non-moratorium because whoever is in moratorium does not need to pay. So when we look at the pre-crisis and post-crisis zero DPD check bounce trends, There has actually been an improvement over the last two or three months. It may be small, but there has been an improvement. So it has definitely held up. Our moratorium portfolio, as Srini mentioned to you a little while ago, is barely 9% of the portfolio at a bank-wide level. So the bulk of the customers do continue to pay. And we have actually seen an improvement in the check bounce trends.

What about the resolution, collection resolutions?

So collection resolution, we had to change a lot in collections. Let me just take a moment to tell you about collections at this juncture. If you look at the, we used the first couple of months during the lockdown period to actually revamp, reorganize and ensure that the collection infrastructure remains intact. We obviously have a very large team internally. That team, of course, as Aditya mentioned earlier, is just like every other employee, very well taken care of and working on the job. But we also did augment this team with teams from the sales force, teams from the credit underwriting itself because as you know, if the business doesn't come in, even they would have a load. So there was effectively a deployment of 20,000 additional staff into the collections activity. We revamped and changed everything. all systems very rapidly into a work-from-home environment because of the lockdown. Whether it comes to dialers, recorders, the collection systems themselves, everything was enabled for a work-from-home environment. Contactability was a great benefit to us because during the lockdown, it was much more likely to be able to contact a customer than otherwise. So all these things benefited us. The agencies we use of course had part of the migration of population that took place impacted them to some extent but impacts HDFC Bank much less because of the presence that we have in the semi-urban and rural environments themselves. That said, we have long and old relationships with these agencies. We partnered them. We reassured them that we continued. We provided advances so that they could retain their staff. We had temporary incentives put out so that they could once again engage the staff. And as soon as the lockdown was lifted, wherever it has been lifted, we were ready to go. We did not lose a moment. And the result of that is that the resolution rates today, despite significant areas of large concentration like Mumbai, Delhi, Tamil Nadu, etc., still being under lockdown, the resolution rates have moved around 65-70% of what the historical rates were. When the lockdowns get lifted in these areas, they would only improve.

Thanks, Timmy. Can you just touch upon three specific portfolios which I think a lot of investors may be very keen to look at? One is the unsecured portfolio because a lot of people have been a bit concerned about that. The second one is the agri-portfolio. The third one is the commercial rates.

Okay. So our unsecured portfolio, as you know, primarily consists of the personal loan, the business loan and the credit card. The personal loan, as we mentioned, is entirely salaried individuals and the bulk of that comes from private enterprises that are very highly rated. and of a high quality themselves. The advantage of that is that there is a very low volatility of income. It's something we have always said and I'll come to it in just a second because it has been proven at this point in time. And of course, there is a good concentration in government enterprises. Once again, as one would understand, the volatility of income for a government employee is also extremely low. When we look at the portfolio that came in for our personal loans, we did, as I mentioned last time, a very quick survey of customers who had chosen to take moratorium and we had realized that the bulk of them had done it out of caution and not so much out of stress. When we have looked at customers even today in our moratorium portfolio, 98% of them continue to receive salary credits. Around 97% of the customers in our moratorium portfolio today are zero DPD customers. So the fact that they have elected to take a moratorium after so many months of observation and now that we do have hindsight and a learning curve behind us definitely seems to be more out of caution than out of anything else.

Can you talk about the checkbox rates and unsecured portfolios?

The check bounce rates for the unsecured, once again, they have also shown an improvement over the historical levels, a small, but improvement over what the pre-COVID levels for these check bounce rates were. That has been the case actually across all products and also in the unsecured products.

Good. Okay. You did mention about the salary credits for the moratorium thing, but overall, you know, in the unsecured portfolio, since we have a large portion of our, you know, one of the fears that we had is that are there companies which are dropping their salaries or the average salaries or are there a lot of attrition that is there? Do we have enough large portions of concentration and companies where the the drop in salary is more than 20-25%.

I think firstly that fear is not so well founded. Fortunately, what we noticed is the reduction in salary credits over those initial months of the COVID crisis, you know, March, April, etc. was around 2%. And this could well be more of a banking and a cash flow matter than actual haircuts in salaries. When we try to split this up by companies, we do realize that barely 5% of our personal loan portfolio is in companies where the drop in salary cuts has been 20% or more. And the bulk of the personal loan portfolio is where there has been no impact or a minimal impact in terms of salary cuts or even delays. That said, I would want to say one more thing. We are extremely conservative. Even before we entered this crisis, we have extremely conservative leverage policies for unsecured personal loans. Our fixed income obligation ratios are maybe 20 percentage points lower than industry averages. So a 20% dip in the salary, even should it manifest, even for this 5% of the portfolio, there is enough headroom in the leverage to absorb this kind of cash flow attrition. Not to mention, once again, that throughout this entire period, the savings rates have gone up. So whereas the cash flow will have dipped, the savings also, the expenditures of these clients have also dipped, but should they not have dipped, there is still headroom to absorb it.

Thanks, Jimmy. Last but not the least, I mean, whilst you have tightened your policy for this particular period, we have, I mean, even though there's a dip, it's not zero. There have been disbursals that have happened. What's your policy of this versus the quality of sourcing?

So, as Sini alluded to it a little earlier, when we did tighten the policy and when COVID hit us, the sourcing pretty much ground to, I wouldn't say ground to a halt, but it was substantially reduced across all products. This was a function of the caution that we had put into our policy is our belief much more than a function of the actual demand for credit. As time has progressed, we have noticed that certain industries and certain types of loans have done better. We have therefore been onboarding a certain number of these transactions. I think Srini alluded to the two-wheeler and the tractor loans. I would say two-wheeler and tractor loans are already pretty much in line with the pre-COVID levels. Auto loans are also now moving to probably around 60-70% of pre-COVID levels. One will notice and I won't lose an opportunity to mention that The personal loans and business loans are still, despite some level of onboarding, only at around 30 to 40%. I would like to emphasize the caution that remains injected into unsecured products. We will always be more cautious about them. We will always have tighter filters. We will always be stricter in the assessment and what we choose to onboard in these products. So this is how it has come. We've done a further analysis, Shashi, if I can let you know, in terms of the new business onboarded and the share that our bank has had in the higher bureau scores. I don't want to emphasize too much on bureau scores because we go way beyond bureau scores when it comes to our policies and to our analysis of what we want to underwrite and onboard. But if you look at every single product, the share of HDFC bank in the higher bureaus calls, which is a proxy for higher quality credit has been higher than the rest of the market has been. So what we are onboarding is of a better nature.

Thank you so much, Jimmy, Rahul and Shaini and Mr. Puri for opening. I think we can now sort of put the, put it to the floor for any questions if any.

Sashi, one thing, just one thing.

Yeah, Mr. Puri.

The purpose was to tell you, number one, we have not laid off anybody and we have provided them gainful employment largely to make sure that our ability to recover when the market keeps turning is fully intact. Absolutely. Two, we gave you a fair idea of what is happening about most of the things that you've been concerned with. Three, clearly you can see the depth of the management that we have and it's only a lack of time that we didn't include a Parag or an Arvind Kapil or a Rakesh or Arvind Vora. Each of them have been exemplary and these have all been strategic positions that have been filled in to make sure that we can be where we want. I forget the name, Shashi, of that HR agency that has named the only certified bank or company in India that has named us as the best place to work in.

It's called the Great Place to Work History.

Okay. And last but not the least is that our strategies are not a pie in the sky. Our thoughts are not a pie in the sky. All of our employees are very confident. When we sent out our mail, are very confident and believe in the strategic plan. And normally we also have the blessing of God. So I think and our succession plan and management team plans are all in place. So I at least am feeling very satisfied. I used to feel a little disappointed, but I hope now at least I've told you I still remain a competent manager and ensure that the legacy remains.

Thank you so much, Mr. Puri. Thank you. Abhan, you can put it to the floor for any questions, if there is any. Sure. Thank you, sir.

Ladies and gentlemen, we will now begin the question and answer session for the audio participants. Anyone who wishes to ask a question may press star and one on the address on the telephone. If you wish to withdraw 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 Rahul Jain from Goldman Sachs. Please go ahead.

Yeah, hi. Good evening, everyone. Just two questions. Number one, on this moratorium, this 9% number, I just wanted to clarify. So this is including all the segments of portfolios, opt-in or where you had given opt-out earlier, even the corporate portfolio. So this is including all the portfolios.

Is that a fair understanding?

Yes, it is. Okay. The second question, Sashi, is on the provisioning policy. So, you know, Jimmy was kind enough to detail out a lot of, you know, points about how things are looking better. So the contingency provisions that we have made in the last two quarters, do you think this is going to continue or we are fine with what we have built so far four and a half, 5,000 crores of extra provisions.

As we speak now, I mean, looking at the kind of environment that we are in, I mean, all things remaining the same, we believe that this is sufficient. But if, you know, let's face it, I mean, we are still in a very uncertain environment. There is always this lockdown, unlock, lockdown, unlock. So we still do not know whether we have yet or when we will flatten the curve in India. So if this gets elongated, there will be a bit of disruption that we have to re-examine it. So for the time being, we believe this is fine. We are pretty much comfortable. There is a methodology. There's a basis. For example, Jimmy did mention that 4.7% of the 9% high-risk assets is very comfortable. The balance 4.3% is where we have created further contingent provisions. Similarly, you know, the ones where people have paid after the first moratorium, some we have collected. The balance which we have not collected, we have sort of taken into contingent provisions. So, for the timing, we are pretty much comfortable, but it doesn't mean that, you know, we can look into the future. We have to see how things pan about as we go.

Now, taking into account, I'd like to state that we have the earning capacity to take further provisions without substantially affecting our bottom line.

Certainly, sir. Actually, this was more in context of what, you know, banks globally are doing. So, clearly, we have seen the American banks take much significant provisions. So, I just wanted to validate against that as well.

So, which makes the American bank 140% coverage plus security?

No, absolutely, sir.

I have come on a call. You guys go and do your research.

So just one more last question and I'll squeeze in here. On the capital raising, so there's a capital rush on the street. Every other bank is looking to raise capital. Clearly, we are much ahead of the regulatory buffers. So any thoughts, you know, at what level, if at all?

Lots of thoughts. We are not a part of the herd. We are not a part of the herd. We have excellent capital adequacy and a great portfolio, and we have sufficient cushion to raise, and we've got subsidies if we want to raise. At this point in time, we don't feel the need.

And even at HDP Financial Services, sir?

That we will come to separately. See, don't mix two things. That is the different kind of capital raising, and the capital raising to cover the fact that you could have downside is different. So I was covering the second part. ATB at the opportune time, we'll get back to you.

Got it, sir. Thank you. Thank you so much, sir, and wish you very good luck. Thanks a lot, Sushant. Thank you.

Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Yeah, thanks for the extensive presentation. So, two questions. Firstly, in terms of margins, structurally, if we look at it, We have cut MCLR by almost 70 basis points. CD ratio is coming off. Plus incremental lending is towards corporate advances, but still we are building onto margin. So is there a lag impact which we could see wherein margins can actually come off? So that's the first question. And second, in terms of the operating expenses, I think a phenomenal job on the other operating expense that's down more than 10% clearly showing the agility. But of this, how much would we say that this would be more of a business-related and these are like the structural initiatives taken and so much of the cut in the cost would be sustainable?

Kunal, on the margins, I think this is the 10th year wherein our margins have been in a band of 4.1 to 4.4 or 4.5. Okay, so it's been in a stable band. We have seen multiple cycles. As probably you should know by now that our philosophy is to ensure that we have matched durations on both the assets and liabilities, and we have a very robust risk-based pricing methodology which ensures that we know what is the minimum return that we need or a pre-tax return that we need for each and every product, net of costs and net of expenses. Now, once you have that kind of a construct, okay, And then you have very active ALCO where all the management team is there. There is obviously a kind of a measurement and monitoring which knows that where are we coming on yields, what's the new business outlook going to be on the yields, and then how do we ensure and what do we need to do to drop to maintain margins so we keep on proactively managing our cost of funds as well. So, you know, the kind of a duration and the... Can I add here? Yeah, Mr. Puri, yeah.

And also what I'd like to bring out to you is that our semi-urban and rural push was based on certain very obvious facts, but it even took us a little while, but it came to us at least two to three years back. For those of you who are all aware, the credit deposit ratio for the country is about 122%. The credit deposit ratio for semi-urban and rural is between 33% and 37%. We went in for a large semi-urban and rural push, primarily to ensure that we would have sufficient liability generation at the right price. And we are proud to say that that has worked exceedingly well, and we do believe that it will continue to work well.

So if you're looking at a quarterly, you know, variation, surely there will be some quarterly variations. But I think in the medium to long term, I think now we have enough demonstration that it has been within the band of 4.1 to 4.4 as long as we maintain a reasonable amount of mix between our retail and wholesale. So that's on the margins. On the operating costs, I think Srini did mention that as well, that don't look at this current low of 35%. We have, and that's going to be the number that we're going to aim in about three years' time. This is a bit of an aberration because a fair amount of our loan origination costs and a lot of other variable costs that normally is there has not happened because of, you know, the retail businesses have been tepid. So once that comes about, then you probably may go back to about 38%, 39%. But structurally, from that level onwards, I think we have committed that. Mr. Puri has been committing. Srini has been committing. All of us have been saying that we should see over a three to five year period thanks to the digitization effort. You have also been committing. Sorry?

You have also been committing.

Yes, sir. I said we all have been committing.

You never said. You said Srini and Mr. Puri.

Okay. We have been committing that costs will come down over a three to five year period to the mid-35 levels as well.

No, but in specific, is there any structural initiative and cost out of this 1400 crore kind of a delta? Do we see that this cost are not going to come again? We have taken some initiatives and this will be completely controlled. No doubt with business volumes, it's going to come up. And in course, in some, we will see that. But maybe how much of cost would we have got structurally?

No, let me amplify on what Shashi said. This is fundamentally based on, and you take into account what Rahul said and what Shashi said and what Jimmy said, our fundamental digitization and straight-through processing and technological push towards frictionless straight-through processing coupled with host-to-host integration. As more and more we become digital, this is a natural consequence.

Thank you. Cool. Yeah. Thanks a lot and all the best.

Thank you for now.

Yeah. Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead. Hey, Dylan, how are you?

You fine now? Yeah, yeah. God's grace, Mr. Puri, everything is fine. Everybody is fine at home. Good. Thank you. Yeah. Yeah. Thanks so much for all your support. Okay. So, Mr. Puri and Mr. Sashi have two questions for you. First to begin with this vehicle financing, of course, there was some personal misconduct. But how sure you are about the compliance across several divisions in the sense that are you pretty confident that there are no such instances in other divisions? And therefore, do you think you need to do some kind of an audit to ensure things are okay? Point number one. The second question is on the attrition that we have seen. Of course, there have been reasons that have been attributed to, but we have seen a steady round of attrition in the top management in the bank. How has been the attrition rate? Has it been higher in the last couple of years compared to historical trends? And any which way you guys can think you can control the senior management attrition going forward? And finally, just a quick data question. Is it possible to share the moratorium numbers as of April end and May end also? June end, we know it's 9%. Can we get on April end and May end also, please? Thank you.

Firstly, Mr. Ganapati, what are the senior iterations that you are talking about?

Rajesh has gone to Sibyl TransUnion. Nitin Chowk has gone to Ujjivan. Many people go there, sir.

If Rajesh has gone, then what level? We've got five Rajesh's in the bank. We've got 10 Nithin Chooks in the bank. We've got 150,000 people. Anyway. No, no, I'm saying it seriously. See, Suresh, you and me are friends as well. Yeah. So I can take liberties with you. I'm genuinely asking you.

No, but there has been, right?

A steady, okay, fine, two, three years. But is this attrition the cause of alarm or concern? Definitely not for me. I'm trying to understand why for you.

Yeah. Okay.

No comment. Okay. Second is, you know, yes, the car thing happened, but we've got very robust processes. But let me be very honest with you, Suresh. Human frailty, you cannot, I cannot give you 110% assurance. We have very strong processes of checks, rechecks, offline auditing, online auditing. But if people collude with each other, then it comes out. But by and large, compared to the rest of the system, what comes out for us is minuscule.

Can there be a better media communication, Mr. Puri? I mean, if senior people retire, can you file an exchange or a press release or something like that? I mean, just do that. There's unnecessary rumors.

I've never heard of anybody doing that. People retire. And I explained for IMA as well as I explained for Munish. All I can say is that they've come, they've talked, we put up alternatives in plan. But no, I don't think we want to start filing on the exchange that's also retired. We have a very robust succession planning right down the line. We have people at least three deep who can take the positions of their next bosses. So, if and when it's alarming, we will let you know. Last bit, Shashi will answer now. But your thinking has improved after COVID. Thank you.

The last bit was on the moratorium. It was See, the numbers of the first moratorium, we have not tracked. Now it's history. Now you're asking me to go back into history. So I'll, April and May, and I don't recall, I'll sort of get back to you.

Yeah. Thanks, Suresh.

Yeah. I'm very happy, Suresh, because I heard when you were serious, I was very unhappy.

God is great. Yeah.

Thanks. Thank you, sir. Thank you. The next question is from the line of Manish Karva from Access Capital. Please go ahead.

Yeah, good evening everyone and congratulations on a good number. So, my question is on slippages. We had like 1.2% of slippage. Shouldn't these, a large part of this slippage should ideally be have been in the morat, isn't it? Because any which way who is largely unable to pay over the last 3-4 months have been going under morat. Is there something which I'm missing over here?

Yeah, you are. In the sense that, you know, what people had taken a morat, you know, when the first moratorium got over, we had about almost 70% of them paying off, paying back, or paying in, to use the right conjunction or preposition. So what rolled people who did not take a moratorium, there are two things that happened. 90% of, so the 90% which is the current moratorium, who have taken moratorium two, 90% of them have come in from moratorium one. So that's part one. The balance who have not taken a moratorium, who have not paid off is what some would have flowed in as NPA as of June 30th. And as Srini was mentioning, it will be a part of the accelerated recognition. In fact, Srini is now prompting me saying that no, there was nothing which fell in as a 90 DPD in June. The entire thing, he has taken it in the accelerated recognition of NPAs. And as a moratorium, you may have missed out what Jimmy was saying. the 9% moratorium, 97% of that are all zero DPD, and the entire, and of which, whoever had a salaried, were salaried customers, 98% 98% of them continued to get salary credits even in June.

Shashif, I can just comment for a second and answer this a little more. Uh, You know, we have had throughout this period a lot of customer interaction right from the month of March when we started, which I described to you the last time. Sometime towards the end of May, we went into another very extensive communication with all the customers because the moratorium was ending at that point of time. So we were engaging with them. And we were trying to ask them whether they were ready for June because the moratorium was over and installments would start kicking in again. And it was once again very heartening to hear from a lot of them, not just a lot, pretty much a very solid majority of them, that they were ready, they did recognize it was over, they were all ready to pay. Then, of course, the second moratorium got announced, so we stopped that exercise. But I think the thing to take heart is that from the standstill portfolio of the first moratorium, 70% have actually paid their overdue as of now. From the first moratorium customers, 70% of them paid up their June installments. So the customer interaction that we did have and the voice of customer that we did take was that it was not a universal demand to get the moratorium has been vindicated through both these observations. So it's just a kind of illustration, if you will, of what we are trying to, what Shashi was trying to say earlier.

Yeah, Manish, there are things...

Yeah, just to be, just to clear myself more on this. So, this 1.2% slippage number is coming from, largely coming from people who had actually not taken moratorium earlier.

Yeah, absolutely.

And this isn't... It is entirely from people who have taken moratorium. There are no accelerated NPS. So, this is people who have... We are not accelerating them.

So, people who did not opt for moratorium 2... And as Srini was mentioning, we did an accelerated recognition even if they had not crossed the 90 DPD. And that is what the large portion of the slippage has been.

Okay. And Sachi, just a very basic question. How are we defining moratorium? Is it now it is the customer's choice if he wants to take the moratorium and he asks the moratorium to us? So that is the way the moratorium works?

So as I was saying just a few minutes ago, the bank has always for moratorium 1 and moratorium 2 had an opt-in policy and we had engaged with every single customer and we had publicized and published all over the method to apply for the moratorium. Of course, in the first moratorium, we were much more, I don't know the word to use, I think benevolence kind of wrong word, but we were much more reasonable and we were much freer with granting the moratorium. So even if someone did not apply, but merely missed a payment, we would not follow up, we would not ask any questions and we would effectively grant them a moratorium without applications. However, towards the end of May, when I mentioned the exercise we did, and that was a very significant exercise, we were contacting a lakh customers a day for a good few days. So, it was a pretty large sample that we had picked up. And we realized that there is no universal demand for this moratorium and we in fact had many voluntary customers coming and telling us that, listen, we don't want to bear this cost anymore. So, please start collecting from next month and get us out of the moratorium. So, Both these things combined did lead us to understand that we should be a little more judicious and a little less liberal in granting the moratorium because it's not necessarily the wish of every customer and every customer is not so financially savvy as to realize the cost of the moratorium himself. That's why we took a little push. But that said, any customer who applies for a moratorium will get a moratorium. No questions asked. Okay.

And just one more data point on Morat. Would it be fair to assume that the corporate Morat would be very negligible and largely all the Morat is coming from SMEs, business banking and some bit from retail?

The last part of your question is extremely, I think it's very strongly directional. So, I wouldn't want to give such a strong direction. But yes, portfolio is very strong.

And I had a question on fees as well. Typically, our fees are in a ratio of 19 to 10 in terms of retail corporate. Obviously, it's pretty obvious that retail fees would have declined very sharply. But on retail, which are the three, four segments where the fees would have declined and how quickly do you think it can bounce back?

It remains at that level 89 and 11 retail and wholesale that's the level at which it is in and how quickly it bounces back it depends on the economic activity how it comes started and we did give you pointers of how the card sales is picking up we did give you something about retail lending both internal and external from a policy point of view, how we are trying to deal with it. The third-party products, which are the insurance type of products, has been reasonably good on that sense in this quarter, too. It picked up. June was far better than April, as you'd imagine. While we don't tell exactly what the outlook will be for the quarter coming or the two quarters down the line, but it depends overall on the environment how it picks up.

Thank you. The next question is from the line of Prakash Sharma from Jefferies.

Please go ahead. Thank you for this opportunity. Just two bits on the moratorium and a little bit on the future side. One, you know, when you say like 70% of the people who had taken the moratorium in the first phase paid their dues till, what is it, May, June. What proportion of these guys would have continued in the second phase as a moratorium?

Sorry.

Can you repeat that question, Prakash?

Am I audible properly? No, not so clear. That's fine.

Is it better now?

Yeah, slightly better.

Thank you. So, I wanted to ask, like, when, you know, you said that 70% of the people who had taken moratorium in the first phase paid off their dues before we switched to phase two. What proportion of these guys would have probably continued in May in the second moratorium?

We said, now, out of, see, what did she say? 9%, as of June, 9% of our total customers' stock portfolio is in, have taken a moratorium or elected. for moratorium two. 90% of them have flown in from moratorium one.

So, I was trying to cut the other way, but that's okay. Second thing, you know, at a broader level, you know, if you can help us understand, like, you know, there's been some discussion around do we need, you know, a third moratorium or do we need restructuring? What, in your view, is is the approach, like, either you comment on your book or at a broader level, what, in your view, is the right approach, you know, at a broader economy to, you know, move on moratorium or restructuring?

I think, Prakhar, the, I mean, you have heard, you know, both Rahul, Srini and Jimmy and Machapuri in terms of giving the kind of, insights into what's happening in the recent trends in terms of collections and wholesale SME and also retail I think we seem to be alright with just the moratorium 2 I don't think we are rooting for any moratorium 3 but I think because the more you keep on doing this you may start to see a bit of a moral hazard that's our belief so we are pretty much happy to sort of restrict if the Reserve Bank would restrict this to moratorium too.

Thank you.

Thank you. We'll take the last question. That is from the line of Mohit Sarana from CLSA.

Please go ahead. Yeah, this is Adarsh. I had a question on the, you know, obviously our market share gains in corporates has been very strong. Given the kind of consolidation, do you expect you can continue this momentum, say, for the next two, three years? And related to that, the impact of that on profitability, given that you're doing AAA lending, so the profitability of that book would be low. I understand that the risk-weight consumption is also low, but how do you kind of marry the profitability part here?

Okay. Couple of things. As I said, we are not chasing growth. We are not sort of really saying that we need to grow. As long as it meets our credit criteria, only then we are going to grow. All that has happened is we had an opportunity, we had the hunger, and we captured that opportunity during this period. Whether this opportunity will be there in the next quarter or quarters to come, only God will know. As of now, we are well poised, we are well positioned, and if there are such opportunities again, I think we are well poised to capture that. So don't take an extrapolation of whatever we have done now to say that we'll continue in the future as well. We are very clear, we will not compromise on credit quality or risk standards. As Jimmy and Rahul have been mentioning, the incremental portfolio that we have been putting up is actually getting better and better. And that is what we will do. At the moment, it sort of drops. I don't think we will be even interested in it. That's part one. Part two is, what is the second question?

I think I know I did mention about the 4.47 and the 4.42 and the 4.43. I know that the outside world doesn't, it is just a number. But one, I would say anything in the force is of a very high credit order. So, it's, I think, you know, 10-20 basis points this way, that way is not divergence from the risk paradigm of the bank.

I would just say. Yeah, okay, fine. Jimmy, two things. Number one, we do expect that COVID will not continue forever. Obviously, with the recovery, the demand, as Shashi said, would come across a much wider section. The third part is on the liquidity that we talked about and the declining yield that also leads to a decline in the cost of funds. So, actually, we do see our margin remaining in that base. We do not, as Shashi said, go after growth, but demand exceeds supply, and we've always maintained that. And if you heard my beginning comment that the fact that we have semi-urban and rural India, We have a digital process. We have, and you see Rahul Singh. We do not see, we don't give guidance for the future, but we are very comfortable that in the long run, India is a great opportunity.

Absolutely. Thank you. Thank you, Mr. Puri. So, on the profitability, I think Mr. Puri has, you know, mentioned it well. As I said, even though we are moving into the – and you have answered it yourself also, Adarsh. The risk-adjusted return will be very more or less similar. As I said, even here as well, we have avoided going below a certain threshold level. Yes, yields are dropping. If the yields are going to drop to such a level that it doesn't make sense, we would rather prefer to keep it in government securities itself. So that's where we are. I don't think it should sort of fluctuate too much or the profitability will be impacted so much. Got it.

Thank you. How many more questions you got here?

This is a lot. Over, Mr. Puri. Thank you.

I've been at it for a very long time.

Yeah. Sorry. Thanks. Shini, over to you.

Thank you.

We thank the participants for dialing in today. Appreciate your engagement with us. Thank you. Thank you all.

Thank you so much. Thank you all. Take care. Remain safe.

Thank you. Thank you very much. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes today's conference. Thank you all for joining us.