HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to the HDFC Bank Limited Q2 FY21 earnings conference call on the financial results presented by the 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 then zero on your touch tone phone. Please note that this conference is being recorded. I now want the conference over to Mr. Srinivasan Veddinathan, Chief Financial Officer, HDFC Bank. Thank you and over to you sir.

Okay, thank you Lisanne. I appreciate the participants calling in today. We have a few comments on the top line comments on the strength of the franchise, how we are continuing to position to gain strong market share and then from there on we will get on to some more details. At the high level, we carried on the strategy to build on the deposit and on bringing in new customer relationship, thereby maintaining strong liquidity positions. The bank's average LCR for the quarter was 153%. That's about 1,10,000 crores of surplus or approximately $15 billion, considering 110 LCR as a flow. Next, I want to cover the capital adequacy ratio at 19.1% total capital adequacy ratio. We have 8 percentage points more capital than the regulatory minimum of 11.075%. Our CP1 at 17% is 9.4 percentage points more than the regulatory minimum of 7.575%. The floating and contingent provisions totaling 7,755 crores built over a period of time helps in de-risking the balance sheet. We have also taken several steps to further tighten the credit. We have remained prudent in our approach to moratoriums and as of now are diligently handling the restructuring requests. The provision coverage ratio has been further augmented to make the balance sheet even more resilient for any shop. Provision coverage ratio including all categories of results stand at 195%. We will cover more on credit later in the call. Now, we'll get to the results for the quarter. COVID has had a certain impact on the financials, which we will call out individually as we go along. We'll start with net revenues. Net revenues grew to 21,869 gross driven by an advances growth of 15.8% and deposit growth of 20.3%. Net interest income for the quarter was at 15,776 crore, up 16.7% over previous year and grew by 0.7% over previous quarter. For the quarter, core net interest margin was at 4.1%. Prior year was at 4.2% and prior quarter was at 4.3%. As mentioned earlier, the bank's average liquidity coverage ratio increased to 153 in this quarter from 140% in Q1, in line with the strategy to build on deposits, thereby strengthening the liquidity position further. While the excess liquidity positions the bank to cater to potential loan demand in the future, it impacts current NIM by around 15 basis points. This drag was offset by monetizing some of the investments in the form of trading gains. Moving on to the details of other income. Total other income at 6092 crore was up 9% versus prior year and 49.5% versus prior quarter. Fees and commission income constituting 65% of other income was at 3940 crore, lower by 2.8% compared to prior year, but higher by 76.6% compared to prior quarter. Retail constitutes approximately 91% and wholesale constitutes 9% of the fees and commission income. The fees and commission income has been impacted by around 700 crores due to COVID pandemic. This impact was largely caused by lower loan originations, distribution of third party products, payment product activities and so on. Moratorium relief was available to customers according to RBA notification Waving of certain fees for customers was also implemented in accordance with the mandate. FX and derivatives income at Rs 560 crore was higher by 1.6% compared to prior year of Rs 550 crore. Sequentially, the activity volumes picked up significantly, reflecting in a 28.4% growth versus prior quarter, which was Rs 437 crore. Trading income was Rs 1,016 crore for the quarter, This represents the ALCO strategy of monetizing some portion of the gains from excess liquidity investment that was meant to be offset on the net interest margin, as I alluded to earlier. Other miscellaneous income of 576 crore includes recoveries. The collections were impacted due to graded lifting of lockdown during the quarter. This had an impact of approximately 100 crore on recoveries. The net recoveries in the quarter was about 22 basis points on advances. Operating expenses for the quarter were 8,055 crore, an increase of 8.8% over previous year. Year on year, we added 297 branches and 104 branches during the quarter. During the first half of this year, we opened 176 branches. Approximately another 100 branches are in various stages of readiness to be opened in a short period of time. Further, we are in the process of identifying another 100 branches by the end of this financial year. Since last year, we added 1,340 ATMs, cash deposits, and withdrawal machines, and 296 during the quarter. Since previous year, we added 11,931 business correspondence managed by common service centers, including 5,589 open during the quarter. During the first half of this year, we have added 6,591 business correspondence through CSEs. The staff count increased by 5,874 during the last 12 months and about 1,000 during this quarter. We positioned our staff without letting go anybody, looking forward to the economic growth that is on the anvil to tap into that so we don't need to restart anything and we are readily positioned to go after this. Cost to income ratio was at 37% versus 38, 39% in the recent past time period. We would expect the spend levels to increase in course of time with increased sales and promotional and discretionary spends. Thus, the cost-to-income ratio will be reverting to the recent historical trends in the short run, while our goal remains to bring this down again in the medium to longer time period. On to the PPOP. The fee provision operating profit grew by 18.1% to 13,814 crore from 11,698 crore in the prior year. Now coming on to the asset quality. During the quarter ended September 30, 2020, the Supreme Court passed an interim order dated September 3rd, stating that those accounts that had not been declared NPA till August 31, 2020 should not be declared as NPA until further orders. The bank has complied with the set directive and has not classified any account which was not NPA as of 31st August, 2020 as per the RBI IRAC norms. In light of this interim order, We have not been and will not be classifying as NPA till such time the Supreme Court rules finally on the matter. However, at the same time, the bank has, as a matter of prudence, used its analytical models to estimate potential NPA, including accelerated recognition in an expedient manner on a pro forma basis and has provided for corresponding contingent provisions towards the same. The bank holds provisions as of September 30 against potential COVID impact based on information available at this point in time, and the same are in excess of the RBA prescribed norms. For the credit update that we will provide in the next few minutes, we will mention the reported number, and it will be followed by the pro forma number, which is analytically arrived. Annualized reported slippage ratio is at 0.8% in the current quarter. If you consider the potential NPAs, as I just mentioned, using analytical model, The pro forma annulus lift-page ratio for the current quarter is at 1.98% as against 2.2% in prior year and 1.2% in prior quarter. GNPA ratio reported was at 1.08 of gross advances. The impact of the NPA ratio by use of analytical model in determining the NPA, as I mentioned earlier, is about 29 basis points. Therefore, the pro forma GNPA ratio for the quarter was at 1.37% as compared to 1.36 in the prior quarter and 1.38 in prior year. GNPA ratio reported excluding NPAs in the agricultural segment was at 0.9%. GNPA ratio for the quarter on a pro forma basis excluding NPAs in the agricultural segment was at 1.2% as compared to the 1.2% in prior year and in prior quarter. Net NPA ratio reported was at 0.1% of net advances. Net NPA ratio for the quarter on a pro forma basis was at 0.35% as compared to 0.33% in the preceding quarter and 0.42% in prior year. Now coming on to provisions. Specific loan loss provisions reported were 1,241 crore. If we were to follow a regular recognition process without any constraints of court directives, including accelerated recognition using analytical models, the specific loan loss provision would have been higher by 1,130 crore, resulting in a specific loan loss provision on a pro forma basis of 2,371 crore for the quarter as against 2,041 crore for the prior year and 2,740 crore during the prior quarter. The total reported provisions were 3,704 crore as against 3,892 core during the prior quarter and 2,701 core for the prior year. The total provisions in the current quarter included contingent provision of approximately 2,310 crore. This contingent provision has got two components. The first component is the incremental specific loan loss provision of 1,130, which is reflected here. This amount we just added to the specific loan loss provision on a pro forma basis, and I just mentioned it moments ago. The second component of the contingent provision of 1,173 crore represents provisions to strengthen the balance sheet to make it more resilient. The specific provision coverage ratio was at 84% as against 76% in the prior quarter and 70% in the prior year. There are no technical write-offs. Read-offs and branch books are fully integrated. Beginning of the quarter, we had contingent provisions of 4,002 crores, with a build-up of approximately 2,310 crores. At the end of the current quarter, contingent provisions towards floating provisions remained at 1,451 crores as of end September, and general provisions were 4,734 crores. As on September quarter end, total provisions comprising specific, floating, contingent, general provisions where 195% of reported gross non-performing loans or 154% of gross non-performing loans versus the prior quarter on a pro forma basis. 154% of pro forma gross non-performing loans versus prior quarter ratio of 149%. This is in addition to the security held as collateral in several of the cases. Now coming to the credit cost ratios, the reported core credit cost ratio, i.e., specific loan loss ratio was at 47 basis points of advances. If we were to follow regular recognition process without any constraints of core directors, including certain accelerated recognition of losses, the specific loan loss ratio would have been higher by 43 basis points resulting in a specific loan loss ratio on a pro forma basis of 91 basis points for the quarter, as against 90 basis points for the prior year and 108 basis points for the prior quarter. As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core reported credit cost ratio net of recoveries was at 26 basis points. As mentioned earlier, on a pro forma basis, The core credit cost ratio net of recoveries was at 70 basis points as compared to 68 in prior year and 99 in prior quarter. After factoring in the accelerated contingent provision as I previously mentioned, which has an impact of 43 basis points and the remaining contingent provision to make the balance sheet more resilient, which has an impact of 45 basis points, the total credit costs for the current quarter at 141 basis points as against 154 basis points in prior quarter and 119 basis points in prior year. The reported profit before tax at 10,110 crore, which is approximately 110 crores per day during the quarter. Net profit for the quarter grew by 18.4% to 7,513 crore. Net profit for the off-year ended September 13th was at 14,172 crore, up by 19% over the corresponding off-year of prior year. Some balance sheet items. The bank's balance sheet sizes of September 30 was at 16,009,428 crores, an increase of 21.5% over the prior year September level. Total deposits amounted to 12,029,310 crores, an increase of 20.3% over prior year and up 3.4% over prior quarter, which is an addition of approximately 40,000 crores in the quarter and rupees 2,008,000 crores since prior year. Retail constituted about 80% of total deposit, and incremental contribution during the quarter was also on similar lines. As a result of our focus on granular deposits, CASA deposits grew by 27.5%, ending the quarter at 5,11,451 crore, with savings deposits at 3,48,432 crore, and current account deposits at 1,63,019 crore. Sequentially, CASA deposits had a strong momentum with a growth rate of 7.1%. Time deposit at 7,17,859 growth grew by 15.7% over previous year and 0.8% over previous quarter. CASA deposits comprised 41.6% of total deposits as of end September. Credit deposit ratio was at 84% for the current quarter as against 88% in prior year. Total advances were 10,38,335 crores, an increase of 15.8% over prior year and 3.5% over prior quarter, which is an addition of approximately 35,000 crores in the quarter and 1,41,000 crores since prior year. Retail advances on a basal basis grew by 5.3% year-on-year and sequentially grew by 2% and wholesale advances on a basal basis grew by 26.6% year-on-year and 4.6% sequentially. Moving on to capital, with regard to capital adequacy, the total capital adequacy as per Basel III guidelines stood at 19.1% against the regulatory requirement which I just mentioned, 11.075. And this is an increase compared to prior quarter of 18.9%, and prior year was 17.5%. During the quarter, The net capital generated is about 22 basis points, which is reflected in the increase in the total capital from 18.86 to 19.08. In the half year ended 30th September, the bank generated net capital of 56 basis points. To provide further context, during the financial year 1920, the net capital generation was 140 basis points for the total capital ratio. Based on our current assessment, Our internal generation of capital is adequate to sustain and support our business growth in the short term. Now in summary, our people across various verticals zealously manage customer relationship in executing our strategy by delivering products and services. These results that I just described reflects deposit growth of 20%, advances growth of 16%, operating profit growth of 18%, profit after tax increased by 18%, delivering a return on asset of 1.9%. With that, may I request Tashi to come? Yeah.

Thank you, Srini. Thank you very much. I think quarter two was reasonably more positive than what we had experienced in the first quarter of this fiscal year. We have seen a lot more micro-level indicators that capture the intensity of activity, whether it is the mobility indicators or the PMI, for manufacturing, all that rose to an eight-year high in September. Rural economy continued to be reasonably buoyant even during the second quarter. We have seen stepped-up sales in two-wheelers, tractors, gold loan sales. I believe some anecdotal evidence of SMCG sales have also been reported during this particular quarter, especially in the rural and semi-urban economy. Whilst the CMI has reported some amount of job losses, it appears to be heavily concentrated in sectors like hospitality, entertainment, education, and the informal SME segment. However, when we look at our internal numbers, because we are one of the largest corporate salary banks, Large companies, either in manufacturing or services, have not reported any substantive reduction in payrolls. When you do, as we have always mentioned, customer acquisition is one of the most important feeder for our business. Even during the height of lockdown, we manage the branch channel and other channels manage to mobilized 1.2 million customer acquisitions in the quarter ended June. Thanks to a step up in the digitization efforts. This quarter, I think the channel has managed to open 1.8 million new liability relationship. It is a quite commendable job where there is still a large portion of people working from home as well. So this is thanks to the kind of digitization efforts that have been implemented over the last six months. We are seeing a step up in the cards businesses, both the merchant acquiring as well as the issuance businesses have shown recovery. More or less, both of them hitting about 97% of last year's September numbers. I think we should see the third quarter to be far more better than what we saw in the last similar corresponding quarter of last year. We have launched the Festive Treats 2.0. This is a 45-day long program where we have aggregated far more and better offers from more than 1,000 brands as compared to 100 last year, and the reach of this particular festive treat is far higher than what we did last year as well. So we hope to sort of lift the mood and the sentiments during the third quarter. So this is something that we are very keenly watching. The early trends seem to be reasonably positive. The retail assets is something that got hit during the first quarter of this year. I think as we see the recent trends, they have started to show first signs of recovery. Disversals in Q2 have reaching about 80 to 85% of the prior year levels and more than two and a half times of June quarter. More of this color as to what's happening at the ground level, we'll have Arvind Kapil who will give some color to that. but that's a little later. The key driver, once again, during the quarter was from the wholesale banking segment. Corporate banking did a stellar growth of 40% year-on-year and a sequential growth of 3% to 4%. Though, of course, we did have some impact of a couple of obligors prepaying some of the loans. else the growth would have been even much stronger. But let me pause out here and let's hand over to Rahul Shukla as to where he saw the growth coming in from and what's the ground level feedback that he is seeing at the ground level in the coming months. Rahul, over to you.

Thank you, Sashi. today happens to be the first day of Navratri so wishing all of you on the call and you know in the room joy and happiness. Each of our businesses, there are several businesses in wholesale banking but corporate bank, business banking or wholesale SME as well as healthcare finance businesses are tracking better than originally anticipated before COVID. This was a quarter that not only saw strong quarter on quarter pickup but an extremely strong growth in averages in both customer assets and CASA in the range of 35 to 40%. First, we begin with a commentary on the environment based on sequential improvement in high frequency data such as power demand, EVA bills, auto sales, cement and steel production, exports growth in September. We remain optimistic about a cyclical recovery while services PMI, despite sequential improvement, remains subdued. Manufacturing PMI is at its highest in the last eight years. The total active COVID cases continuing to fall off 25% from its peak, and if this trend continues, the recovery will be lifted further during this quarter because of the festival season spending. Government's recent announcement on second fiscal support package worth Rs. 73,000 crores to support consumption and CAPEX spending will help front-load consumer discretionary spending. As a very large transaction bank, here is what we saw on corporate collections in the second quarter that passed through our cash management system, which is an indication of, you know, how the economy overall, at least a proxy of how we see, you know, it is doing. The Q2 collections was higher, half percent, you know, YOY. It was higher than, you know, what we had done last, seen last year in quarter two. And it was also higher, 41% quarter and quarter. Of course, April was subdued, so the quarter-on-quarter number basically looks very high. But month-on-month, we continue to see that activity was gaining strength. September collections this year, for example, were higher 14.5% compared to September last year. That is how strong strength that we saw. We also saw strength in the wholesale SME overdraft book in September ahead of orders for restocking channel inventory ahead of the festival season. Normalization was also reflected in new to bank additions and disbursements in our wholesale SME business. The bank added about 1,550 new customers, which is three times of quarter one. Disbursements in value were 2.65 times quarter one with September, showing an all-time high disbursement that we've ever done in wholesale SME, which was greater than 5,000 crores. In light of this, here is our performance briefly on business volumes. On customer assets, advances and investments put together, corporate banking saw low single-digit quarter-on-quarter growth. This has to be looked at in the context of a very strong growth in last quarter, where our quarter-on-quarter growth was higher than year-on-year growth of the system. And despite a very large repayment by a single obligor group, the year-on-year growth remained at a healthy greater than 40%. Almost all of the year-on-year and quarter-on-quarter accretion in the book came from top half of the 10-point internal rating scale, which has served the bank well over the years. Approximately 70-plus percent of the quarter-on-quarter as well as YOY gross disbursements, including rollovers, were assets with less than one-year tenor maturity. So there has been no change in how we have approached the business in this quarter as any other quarter. Business banking saw a high single-digit percentage growth in its asset book, which was very strong. This is quarter and quarter. Healthcare finance book comprising equipment, health infra, and working capital in the sector. That, again, grew very high in high single-digit quarter and quarter. CASA growth for the businesses showed strong growth. The growth is a result of one, of course, secular market share shift that we see in the sector, but for us, We do slightly better because of our adherence to our institutionalized sales process drilled into our heads by Mr. Puri that balances growth from penetration, new acquisitions, geographic expansion, collaboration with branch digitization, wallet sizing, full suite of superior products in the backdrop of a very strong focus on credit compliance and controls architecture. Apologies, there is no other way that I can explain this. The next question is whether growth has led to NIM dilution in these businesses. Just to give you an example of corporate banking, through both yield management and cost of funds declines that has been allocated to us in our internal management reporting systems, our asset NIMs for our large corporate banking business saw improvement both YOY and QOQ. So these were meaningful improvements. While growth in NIM performance has given a strong earnings momentum, has it led to deterioration in book? That would be the next question. Given the quality of the book that we support, we have seen several more instances of prepayments from top rated corporates. Obviously, we have to work around that and we have to continue on our growth trajectory. The restructuring book is non-material and unmeaningful to comment about in these businesses. Lastly, India has a healthcare sector with annual flows of approximately 8 to 10 lakh crore. HDFC Bank is a dominant player in this fragmented space encompassing hospitals and laboratories doctors, doctors and chemists, pharma companies, and most importantly, patients. The bank is working on building a digital healthcare ecosystem. The first step of which was announced in our partnership with Polo Hospitals Group to provide our customers access to quality healthcare with instant financing delivered digitally. The launch was last Wednesday. In the last about nine days, we have seen sign up of 1,21,000 customers to the Healthy Life platform. So I request all of you to also avail this service. Thank you very much.

Thank you, Rahul. Thank you very much for that. I probably, Arvind, can you sort of come in and talk about what is the local and the ground level flavors on the retail asset business?

Thanks, Shashi. I think let me also take this opportunity to wish all of you a joyous Navratri. And like Shashi said, bring in the colors. I think... I see the colors coming in in the retail assets. A quick sense of the retail assets umbrella comprises of 11 businesses ranging from secured loans of four wheelers, two wheelers, retail working capital loans to mortgages, the home loan franchise, gold loans, loans against securities, microfinance, as well as the unsecured loan franchise, so salaries, self-employed and professional segments. On an overall basis, For retail assets, we are seeing a double-digit sequential monthly growth from July to September 2020. We are almost at around 90% monthly pre-COVID levels and see ourselves with robust growth here on every quarter on quarter. While the country is recovering from difficult times post-COVID lockdown, we as a bank see five trends driving the economy and business at the ground level. These are infrastructure, rural and semi-urban, digital transformation in particular, supply chain and healthcare. Our observation at the ground level and across products in the self-employed entrepreneur segment reveal that there's a clear distinction emerging between entrepreneurs, those who are able to jump ahead to improvisation and value-added services and create an edge for themselves. Take, for example, even a simple Kirana store that manages to invest in a fridge and has a home delivery option is delivering an output of almost 2x of the average business among his peers. This, we believe, is happening across various levels of self-employed businesses. As a bank, we believe our ability to go micro coupled with our ability to insightfully decipher data and use it in our underwriting engines, coupled with our liabilities physical distribution pattern there, along with our sense of personalization and customer digital platform, creates a winning proposition and the robust growth that we are confident of. If one looks at the recent bureau trends to get a sense of how the inquiries are generating, the lead indicators, if I were to pick auto loans and home loan businesses, are clearly showing inquiries level are quickly scaling back to pre-COVID levels and at times, even exceeding in some of the business segments, beyond the pre-covered levels even in the month of september as observed added to this we are witnessing a double digit incremental growth as a contribution from the government segment and the rural and semi-urban especially for our unsecured business as well as secure business on our unsecured business we also see rapidly growing and we believe it should be pre-covered levels by the month of october that's this month We've already seen a surge of gold loans to a robust growth of almost 60% here.

Hello.

Hello. Members of the management team, are you able to hear me? Hello.

Can you hear us?

Yeah, we are able to hear you now. Thank you.

Both on loans against property and retail working capital loans, we are already at pre-COVID levels to give you guys a sense of where we're really moving from here on. Yes, we've been cautious and prudent on the microfinance business and expect a full-scale recovery within the next 90 days in this particular business segment. It's worth noting that our observation at the ground level on the rural demand also shows that there is a massive increase on the two wheeler sales by almost 34% at an industrial level. This we believe is backed by an increase in the rural demand compared to a historical compounded rate of growth of 13% over the last five years. Our two wheeler business has also seen robust recovery in similar lines. Tractor sales are also at an all time high, And it's due to the two-year consecutive years of good normal monsoons leading to water storage levels at its best in the last 13 years in our country. Also noteworthy is that the correct crop planting is at a record high on a year-on-year basis. I think this aggregate gives us strength to our rural and semi-urban distribution. Simultaneously, if we were to delve for a moment, in the self-employed sector, basis of sales team interaction with businesses at the ground level pan-India, I'd like to share with you that we are observing a positive uptake, demand and capacity increase by the SMEs and the self-employed. Whether it is the farming sector, whether it's industrial chemicals in AP, Telangana, Ankleshwar in Gujarat, Or is it the rice and flour mills increased capacity utilization in Punjab or Madhya Pradesh or even Chhattisgarh for that matter? Whether it's the food processing and packaging industry responding during COVID time with an uptake and with their basis predominantly in Pune, Rajkot or Bangalore. Or it's the fastener and bicycle manufacturing in Ludhiana that the demand is clearly showing an upward trend. And these are all, I'm giving you a ground level feel of our sales guys directly talking to businesses. At this junction, while fully acknowledging that India is growing substantially in terms of the internet users, almost a 24% increase in the number of active users monthly, over a year on year basis, let me take this opportunity to share with all of you the plans on digital transformation, one of the key game changers on the retail lending side. Our next digital offering as a bank on the retail assets platform will be the AutoFirst, which we believe will transform the automotive financing landscape in India. Both for the four-wheeler loans as well as for the two-wheeler loans, it will be a dedicated platform to transform the vehicle lending and ownership experience from completely predominantly physical to digital. This offering, which we'll unveil in the next 90 days, will be available not only for our existing bank customers, but also to strengthen our open market customers onboarding. As SGFC Bank, we see significant opportunity to transform the automotive landscape over the next three to five years. We believe presently that 90% of our car purchase journeys in the industry are actually initiated online. which is why we believe the shift from physical to digital purchase and strengthening these platforms and creating an ownership journey will be delivering a distinctive loan experience. The customer journey from search to probably trust drive, maybe exchange, and a couple of sales initiatives will be integrated seamlessly on this platform. This platform, we believe, be the first of its kind for a bank our size in India and possibly the world. Even for our unsecured personal loan business, we are gearing up and getting ready over the next three to five months horizon to substantially digitize the open market acquisition. We've had a successful stint on the 10-second loans over the last five years, and we believe this could be another game changer for the distribution. Thus, the new normal capitalized on our micromanagement strategy the way I shared with you, coupled with our digital strengths of customer journeys and our depth of data deciphering and underwriting engines, we strongly believe that we will come out as winner and create a robust growth from here on quarter and quarter. Thank you.

Thank you, Arvind. Jimmy, Tata, a lot of people would be looking at you with a lot of eagerness So there are a lot of questions I'm sure they would be having. First is, you know, with the moratorium getting over in August and September being the first month post which you would have presented all the dues, they would like to know if you can give a very synopsis on how your demand resolution has been.

Thanks Shashi, definitely. Hi everyone, good evening and allow me to join all my colleagues in wishing you compliments of the season. I usually say thank you for joining us on a precious Saturday evening, but Saturday evenings aren't really all that precious anymore. But thank you for coming. Really appreciate it. Yes, Shashi, and to take it forward for everyone, I'll just put in a flavor of the, I think Rahul and Arvind have both given you a good flavor of where the business is headed. So I'll just, without trying to repeat anything that they're doing, put in the flavor of where the risk profile and the dimension for the bank exists in our various segments. So we start with the wholesale businesses. That's where most of the growth has been, as you know, in the last six months or so. We have achieved this growth and continue to achieve this growth no dilution of the credit standards. The best way to define that for all of you is our internal rating scale. I have described it last time, but for those who are new on the call this time, we have an internal rating scale of 1 to 10, 1 being the safest, 10 being the riskiest. We usually have mapping process and we rely on this scale much more than we look at external ratings plus there are of course a good number of companies and transactions and customers who are unrated so this is a more universal method of adoption for us but of course to those who are not insiders to HDFC Bank it does need some elaboration. So the historical Steady state average borrower grading on this scale of 1 to 10 of the wholesale portfolio has been around 4.4 for the last several quarters. Happy to report that the incremental portfolio put on in the last quarter has also come in at a 4.4 average and therefore there has been no dilation. A 4.4 essentially from public perception corresponds to a double A rating. That's the best way that I can put it. There has been a marginal, in fact, improvement if you look at the basis points over the last few quarters, but let's just suffice it to say that it's pretty steady in that sense. So keep reporting this figure a quarter on quarter to you. I must put out over here as well that this is an extremely safe average borrower grading to have based on our internal scales. it is a asset profile that we do manage to achieve because we have the advantage of a good cost of funds to associate with the best profiles in the country there could actually be a slightly higher risk profile if it were to be adopted at any point of time that would still be to our minds well above the average risk profile of the banking system as a whole. That said, we stay where we are and continue that way. Around 75% of the externally rated portfolios, so this I think is something people will relate to more, but from those who are externally rated, 75% are either AAA or AA, 93% if you want to add the a-rated companies get into that kind of a bracket um i'm often asked about the unsecured exposures and here again it's been kept at a very steady uh rate the i did mention 4.4 as being the portfolio average The unsecured is rated at a much safer level and comes in at an average of 3.5, which means that the secured portfolio is around 4.5758 kind of range. The difference between these two grades effectively is a 55% lower probability of default. about the best flavor that i can give you based on what we have right now so the unsecured portfolio remains in a much lower risk category than the overall portfolio and obviously therefore the secure portfolio as well Fresh NPAs I'm not going to get into because Srinivas covered them and we have some constraints on. There were no fresh accounts in the quarter that were referred to the NCLT from what we have.

Okay. Thanks, Jimmy. Thanks on that corporate side. Do you have anything more on the corporate side? No, on the SME. SME, yeah. That's the question that I have for you is, you know, if you recall in the July 18th in the quarter one earnings call and also, sorry, the quarter four earnings call, you did mention that you all had done a simulation exercise simulating the drop in sales in the SME portfolio, and you arrived at that 9% of your SME book is high stress. Can you give color as to where we stand on that?

Yeah, sure. So on the SME book in the bank, yes, Shashi's right. We had quite early on, maybe towards the end of February and early parts of March, we had done a stress test in three degrees of stress. And we had reported out to you that if you looked at the mid level of those three degrees, there could be approximately 9% of the portfolio that could face stress. We now have the benefit of hindsight on this particular situation. It was clearly an extremely conservative estimate that we had put out to you. It has not panned out that way at all. If we look back now from a position of early October, we have a 30 DPD counter that we are looking at. We also have identified stress accounts now because we do have relationships with all these entities. They are not mere loans, so we are able to observe their bank accounts. We are able to observe their business flows. We are able to observe their expenses and their revenues that come in as well as capital account transactions. So we are in a position to identify those who are in stress. If we now identify those who are in stress, and if we look at people who are even short-term delinquent, I think this number could be brought down somewhere into the 3.X percentage range. It's not in the 9 percentage range. So there is some good news to report on that segment. The 3% as well, now if we want to analyze that a little further. We have looked at, these are obviously all relationship accounts, so we look at them individually. There is a very good probability of recovery in several of these. We are seeing, I think Rahul alluded to it as well, that cash flows are definitely improving. The order books in our portfolio are improving. In addition to that, the promoter savings have gone up, and I'm gonna come to that a little later as well. We are always well collateralized. Another part of this portfolio will probably want to avail the FITL that has been allowed to them for a few months more, and that would probably give them the relief that they wish. Needless to say, the EC-LGS has been of benefit to this segment in large measure. And whatever is left would probably need some form of restructuring, which has been permitted. And a very small part of that, let us also say that if it does not fall within the specified norms, and if we did believe that they do need some help and assistance, we would be willing to restructure that part even without it falling into the standard restructured bracket. But let us take that as it comes to it. As of now, the signs are good. Flows are improving. Flows are increasing. Order books are going well. The utilization of our limits which had fallen during the pandemic is also now creeping back up. And again, through account observation, it is not creeping up lump sum to take care of problems. It is a utilization operation based in the larger part of things. Our utilization has actually remained fairly steady throughout this entire time. It's been in the low 70% of sanction limits and has not really either fallen dramatically or gone up dramatically, both of which we understand for different reasons is a fairly good sign. The SME portfolio diversification continues to remain highly diversified. The large concentration being in agri and agri processing oriented. This is only because it is directed lending. Otherwise, the concentration is created through there. Everything else is less than a 5% concentration. And if you move to around industry number six or seven, it would go well below that as well. To give you a small feel further on the portfolio performance after the moratorium is over, we are seeing now a mean reversion. So if you look at the very early DPD buckets, you know, 715 types, we had a particular level pre-COVID. obviously during COVID and during the first three and the second three months we had certain levels. We are normalizing those levels in our internal calculations so that we do not artificially take any benefit of moratoria. And there is clearly an improving trend down to a mean reversion and you would probably see that reversion back to the original level in a few months or so. So this is One more positive trend that I can put out to you. Another thing to point out, I think in the very first quarter of the pandemic when we did report, we had mentioned while we had thought the stress test at that time to be a source of some worry, which I explained a little earlier, the hindsight details upon. We had referred to the self funding that we have always carried out in terms of our SME promoters and their families and their personal wealth. Once again to repeat, this is not security. This is merely liquidity. The we were watching that it has not only held up, it has actually increased as a percentage of the outstanding. Then, as I mentioned to you, we have not seen any great demise in those outstanding. So the savings have actually kicked in through the pandemic for these segments as well. The collateralization of this portfolio beyond the inventories and current assets continues to be extremely high. There's an 85% portfolio level collateralization for the same. And with that, I think it's a flavor that I can give you on the risk profile of our SME business. Thanks, Jimmy.

Thanks, Jimmy. I think the last one which everyone will be waiting for is when you present it for the retail portion in the month of September and the early trends in October, they would like to know what's your resolution coming about.

Yeah, so thanks. So on the retail portfolio, now as we all know for everyone, not just for retail, the moratorium is over. So for the last two months, it has been all about what the demand has been and what the resolution on this demand has been. Once again, pleased to report that in the month of September, we had a demand resolution of around 95-odd percent by October, and we're pretty close to the end of October now. So we can, with fair level of confidence, say that we should expect that to improve further to around 97-odd percent. You want to juxtapose this with what it was pre-COVID. Pre-COVID, we had a 99 odd percent. So we have two percentage points to go. We expect that to be covered in a few months. Our non-moratorium portfolio already has a demand resolution of 99%. So you can see that that is clearly on par. and the rest of it uh will again shows increasing and there are encouraging trends month on month in all these businesses so we do feel a little pleased about that arvind mentioned a good amount on where the businesses are going so i'm not going to get in

Degree of buoyancy.

Demand for credit in fact I must say has been available for virtually all retail products. The extent to which we are onboarding it through the various departments that Arvind and Parag handle. has been the extent to which we have chosen to revert to the original policies which had been considerably tightened during the pandemic. So I would say in auto and two wheelers, we have reverted in very large measure to the pre-COVID policies. There are a few geographies and a few segments where it might yet be constrained. the personal loans in the unsecured the other large product we were always very well placed in these because of the customer selection and there we continue to have now much better site because once again the salary accounts of these individuals stay with us so we know that we are dealing and we are in touch with employees of companies who have not indulged in job cuts, who have not indulged in salary cuts. So the income streams remain steady and we expect that to go well. The lower end of the personal loan segment has not yet been opened up and we would do so as we find it appropriate to do so. I would say the same thing for cards and if you look at the self-employed segments for the business loans as well as the commercial transportation again over there the policies remain relatively tight for the time being and would be opened up only when we found it to be appropriate. The agricultural portfolio which we usually do segregate even when we are reporting our NPAs, has actually been a segment of the industry that has done rather well. We had a bumper Rabi crop. There were a few logistical lockdown related issues at that point in time for transporting the produce, but most of these are not ultra perishable and therefore there has been good realization. The Kharif season also looks to be doing well. and we have actually had a rather good period with this particular line of business and therefore that works well the sli portfolio which we have it's not our largest portfolio but as you would understand the sustainable livelihood has been impacted quite significantly through this pandemic The analogy I can draw perhaps is a similar impact that they faced during the demonetization phase. It took approximately six months that time for things to get back to normal. Arvind does believe, and I probably do share his belief, that it may not take that long this time round. But on this book, I must say that these are people who are very good in terms of their culture. They are genuinely suffering. We do intend to be sympathetic towards this portfolio, so we are not trying to accelerate any kind of recoveries there. In fact, I must say one of the last things that Aditya mentioned to me recently was be kind to these people, be kind to the MSMEs. They have genuinely suffered. Don't try to push it on them. So we do keep that in mind. We do understand that this has been no fault of a lot of people and therefore we would be very understanding in how we interact with them. The last thing I would want to mention is in terms of recoveries. This has actually been a pleasant surprise. Recoveries across the board, across products are actually higher than the pre-COVID So I do see a benefit in terms of the credit profile from a better recovery flow going forward as well. Shashi, honestly, that's... Yeah, thank you, Jimmy.

Thank you so much for that very elaborative and comprehensive commentary on the credit and the collections part of the business. I will request the operator to throw open...

uh the forum for questions now thank you ladies and gentlemen we will now begin with the question and answer session anyone wishing to ask a question may please press star in one on your dutch tone telephone if you wish to remove yourself from the question queue you may press star and two Participants are requested to use handsets while asking a question. We also request participants to limit their questions to two for participant only. If time permits, you may join the queue for any follow up.

The first question is in the line of Maruk Adajania from Ilaro Securities.

Please go ahead.

Yeah, hello, congratulations. My first question is on collection. So you said that the moratorium collection efficiency would be 97% by end October. Would that be true of the whole book as well or just the retail book?

This is the retail book, Maruk. Hi.

Hi.

This is the retail book, but you won't see any significant variation on the whole book as well. It would pretty much be around the same.

And the denominator for collection efficiency would be the total demand, not the collection buckets or any such thing, right? It would be the total demand.

This is the demand resolution. It means what was the demand during the month and what was collected of that demand during the month.

Got it. Got it. And my other question was that Rahul did explain how NIMS in the corporate book work good. So, how do you explain the pressure on NIMS? So, NIMS has declined, but the corporate book has expanded. It's just the liquidity or?

Yeah, yeah. Malik, that is what, this is Srini here. That's what I alluded to that we did increase. We did see the increase in the liquidity coverage from 140 to 153%. That's part of about 15 basis points or so

uh is what we estimate as the drag due to additional liquidity where we have the cost of funds but with very little uh choices for investments got it and just one last question what is the percentage of customers who have not paid a single installment i didn't follow that sorry uh what do you mean so i mean in the so there was a morad book And you know, there would be customers who are not paying any installments. So at the end of August, at the end of June, you had given a figure of around 8.5% of customers who have not paid a single installment. So at the end of August, in the morad book, what is the percentage of customers who had not paid a single installment?

I don't see that the moratorium is frankly over and behind us so whoever took a moratorium their transactions have been adjusted and extended accordingly i think what we have to look at now and they haven't really contributed to delinquency as you know because the transactions continue the real thing for us to look at now is what is due and what is collected from what is due which is why i think the demand resolution is really the measure so i honestly don't have the answer to that question okay

Thank you so much.

Thank you. The next question is from the line of Suresh Ganpati from Macquarie. Please go ahead.

Yeah, hi Jimmy. I mean, of course you you clarified this, but I just wanted to double check on couple of things. So say on June end your total loan book under moratorium was 9%. Is it possible to share the 31st August number? I know the moratorium is over, but you guys would know what was the as of 31st of August, right?

Hi, Suresh. Suresh, the moratorium is over and behind us. I think every single person has their own way of defining this and it's probably going to mislead to try and put these numbers out right now. I think the real thing we should put out is what we are collecting from what is due and where our portfolio stands and where it's going to be. I think that's what we've tried to put out as clearly and fairly as we can.

Okay, so let's hypothetically assume the number is, say, X percent as of 31st of August. What you are arguing here is that 97% would have paid, that is the collections in October or it is expected to be collected by the end of October, right? 97% of X percent.

Suresh, the phrase I used and the term I used was the demand resolution and this is defined as the amount that could be demanded of customers during a month and how much of that was actually collected during the month.

Okay.

that's the exact definition of what i'm talking oh cool okay that's clear okay and last two question is is there any estimation of a total cumulative uh restructured book that you can give to us i mean you think half a percent could get restructured two percent could get restructured any indicative number honestly suresh no and why i'm saying no is because whatever estimates we made

The demand for restructuring is not measuring up, so I wouldn't like to give a figure right now. It's not turning out to be, at this point of time, a very large or meaningful number. That said, I want to caveat it. Everyone has till the 31st of December to apply. But at this point of time, any estimate that we had made within the bank has proven to be so ultra conservative that I should not be mentioning it.

okay okay and and last question is to sashi i mean um where is the disconnected here disconnect here sashi because you guys are painting a completely different outlook of the market compared to what the reality is it looks like you guys are in a completely different world in a positive way i'm looking at it because the commentary across whether the darwin couple jimmy tata the corporate guys everybody is saying that there is no problem with you guys How do you reconcile with a 25% drop in GDP in a single quarter?

See, you are asking a very tough question because we all work hard and we have sort of produced these results. But jokes apart, I think, you know, this may be a cliche, but if you really look at it, we have assiduously built this platform you know, in terms of what is the target customer segment, what needs to be in terms of the profile of customers that we would like to cater to, whether it is in the wholesale, whether it's in SME, whether it's in retail. I mean, you heard the commentaries of the three gents out here. It is very clear that even though that there is a bit of a pain which has arisen because of the the lockdown, I think the segment that we are catering to, whether it's in the top end corporates, whether it's in the top end of the SMEs, whether it's in the more top end salaried customers, has been much lesser. Even in the self-employed and even the micro enterprises, I think since we have been patronizing more in the top end of each of the sectors, we have been able to you know, manage or navigate through this adversity. It's not that we have not taken risks. It's not that we don't have pains, but it's much, much more manageable well within what we had expected. Fortunately, I must also say that especially the worst segment, which is the SME segment, we have got a huge amount of relief from the government guarantee scheme. That has been one of the prime reasons and getting the 9% high-risk asset to the 3% that Jimmy mentioned. So we need to thank the government for that. Of course, we would have wanted more to adopt for that, but the quantums were so small that the customers who were probably the smaller segments, they did not opt for or elect for that. So on an overall basis, even though we have the appetite, we probably are covering around the 60% or 55% to 60% of the total eligibility under the Gaman Gandhi scheme. So it's all about the distribution platform. It's about the target customer segmentation. It's all about the kind of processes, whether it's the sales process or the credit processes that we have adopted, and not to mention the collection process as well. So each one of them have really worked hard during this entire period and that's all. We have tried to nibble away where we see an opportunity. So it's not that there is no problems in the economy, it's just that we have been positioned ourselves reasonably well to nibble away that opportunity and we believe that when good times are going to be there, we will be even more well positioned to nibble away at that.

thanks sashi thank you the next question is from the line of abhishek muraraka from iifl please go ahead yes hi good evening thank you uh congratulations for the quarter so um three questions one on the check bounce rates what is it for you versus pre-covered levels and how does that compare with the high collection efficiency numbers that uh you know you've uh disclosed uh uh on your retail book and on the overall you know portfolio the second question is on the name outlook now this quarter your td accretion qoq is also slowed down um and it's actually uh you know much lower than your casa accretion on a qoq basis uh so just will this support name and this coupled with your uh you know uh healthy names in the corporate bank should that help your name stable stabilize and the third question is on festive treats uh now you mentioned that your tie-ups are much uh you know much much uh wider as compared to last year uh probably 10x more and the reach is also wider so in terms of the scale uh of volume and value of credit or value of you know revenues that you bought last year under festive treats What kind of scale up do you expect this year? Thanks, those were my questions.

Probably I'll take the NIM first before Jimmy can come on the check bounce. On the NIM, the way to look at it is how we deal, think about how we deal with it in the ALCO, right? And before that, even if you get back to our historical approach to managing a net interest margin over a period of time, one year or three years or five years or whatever time period you choose to select and monitor that. We operate between four to four and a half, right? That's the kind of range at which we have operated. And that's how the products are priced in our ALCO biweekly. That's when we meet and price the product. That's how we handle that pricing. We are at that kind of a lower end type of a range at 4.1. While we don't give a particular outlook where it will be, we believe that is the range that you should think about. It is 4.1, 4.4. That's the kind of a range, and we've been smack in the middle at 4.2, 4.3 for a long time. If you look at last four quarters to six quarters, we have been in that kind of a range. There's nothing more that we do other than to manage the pricing on both sides, the deposit side and on the asset side, to be within that kind of a range.

So basically it should sort of flatten out or at least the decline should get arrested at these levels since you're at the lower end of the line.

We believe that is how we manage it to be within this range, short range.

Sure.

To answer your question on the check bounce, yes you are right. You would not have a good demand resolution if it did not start with a very low level of check bounce. It cannot be that you chased 90% of the people and succeeded within a month. So there has been a very good and better than expected response on to the deposits and not as much as was earlier anticipated has bounced that said not putting numbers out here right now for various reasons if we look at what has happened across the country there are still logistical issues there are a few habitual issues in the very first months after six months of not paying a check could have bounced but gets paid very quickly after that only because of some carelessness There have been logistical issues in terms of the ACH and other such things. So let's just leave it that the bounce trend is encouraging and is definitely contributory to the good levels of demand resolution.

I'll get to the third point that you raised about the festive treats. Festive treats has been about two weeks or so that festive treats have been running. And it's been the early results have been phenomenal in terms of the customer engagement with us across the board. Let it be on the spend through the programs that we have with Amazon or with the other partners or in terms of the branch activity that we have in terms of what Arvind Kapil had alluded to in terms of. that operates predominantly through the branch and through the non-branch channels too, but in terms of the customer engagement on that front. While we don't put the particular forecast number of where this trajectory could go, but all I would say is that the buoyancy is pretty good, which is what you heard from Arvind in terms of what we see on the ground in terms of the customer effectiveness to this kind of a program that is running.

Sure, so just to jump back to Jimmy on this check bounce, could you is it possible for you to give an idea of where it is for you versus pre COVID at least that will give us an idea of you know how fast the improvement has been over September and following up into October.

We're getting there and there is a mean reversion and it should happen in a while, but as I said, it's an apple and orange if you're trying to compare it to pre COVID.

sure and if i can just squeeze in one one last quick question uh so if i look at your auto and two wheeler book now you know the commentary has been that there's a you know very strong momentum and mean diversion and all of that and also the volumes are great you know we've seen the volumes for september and even expectations for october

but uh your own book has shrunk on the qoq basis uh why is that i would have imagined that you would have actually grown that book quite a bit uh sequentially so see the auto book um had shrunk even before covid uh there was a slowdown in the sector we had concerns and in fact it was one of the products where we had decided that we wanted to constrain policy and go slow even before COVID. It actually was very fortuitous because we entered COVID for that reason with a very good auto book because it was extremely tight credit parameters on which it had been built. So we've said this always, continue to say it, we will never dilute policy. and in fact i alluded to it a few minutes ago as well that there is demand across the board across products and what we onboard is where the policy can in the view of the bank be liberalized to the extent that something can be onboarded auto has been one of the products where we have found due to the security in the product due to our assessment methods to our much larger than a larger share in the very high bureau scored customers as well as our internal p27 scored customers so we we have the ability to judge it well and it's one of the products where we have opened up little more than other products sure

Yeah, just to add on to what Jimmy is saying, Arvind here, I think even from a level of readiness, like I shared with you guys, we're launching an order first, which is nothing but a complete digitized version of the entire experience for auto loans. The whole idea being not just to get more of the new to bank customers. Imagine the cross-sell opportunities. Imagine all my feet on the street in the rural sector can probably far easier close a digital auto loans. and including all the other businesses. So it becomes a far more easier proposition to kind of expand and build on your internal customer plus external customer.

Sure, sure. Okay, thanks. Thank you. Lizanne, I would like to just take this opportunity to sort of talk to the investors. I would like to take this opportunity to thank Mr. Puri who steered this company with a near blemishless track record for 26 glorious years. It's a poignant moment for the 117,000 plus strong workforce to see their iconic leader move on to new innings of his life. We shall miss this magnetic persona which has guided us all these years. But such is the selflessness that is transferred as energy and passion to many of us is laid actually all the platform with pure strategies for the future so that HDFC Bank Team 2.0 can carry this wonderful legacy forward. Suresh, you asked a lot of questions about why is it that you are different from the market and I think a lot of us owe this to this man who's created this kind of a platform. A lot of you have written and even sent some wonderful soundbites affectionately on Mr. Puri. It was indeed heartwarming to read and hear the same and it surely moved Mr. Puri. I thank you for all the patronage you have provided to this institution all these years and I'm sure we can count on you for your support even into the future in our next journey. On behalf of all our stakeholders, be it the customers, the investors, the regulators.

Ladies and gentlemen, thank you for patiently holding. We now have the line for the management reconnected. Over to you, sir.

Two minutes, last two minutes. Right, I was just mentioning that You know, on behalf of all our stakeholders, be it the customers, the investors, regulators, the board, and the HDIC Bank family, we thank Mr. Puri from the bottom of our heart for creating such a world-class institution. Thank you, Mr. Puri. There will not be anyone like you. You are one in a billion. We will miss you. Thank you. Lizanne, is Mr. Puri there? If you can connect him, he may want to, he wanted to have a... Yeah, yeah, yeah, yeah, yeah, yeah, Shashi, I'm here. All right, Mr. Puri, I think a few words from you to a lot of investors.

Sure, sure, sure.

So firstly, thanks a lot, all of you. It's been a pleasure dealing with you. We've had our ups and downs. We've had our differences of opinion, but it's been fun. I am absolutely thrilled in handing over to Shashi and so is the team below him. And more importantly, so is each and every employee. Now there is a gang in the bank called the Karamchand gang which Shashi heads. What they have done is they have got together to give me the most poignant emotional favour that I could see. But what it's done, it's brought the HDFC bank family together. Well done Shashi. The second part I must tell you is really good that not only has it brought the HDFC Bank family together, but all of them have promised to carry on the legacy and deliver what Shashi and me have jointly had every single review. So Shashi very cleverly over the last one month has been having two reviews a day with me leading them basically so that everybody is on the same wavelength, which is very well done. By the way, even my wife is a part of this Karamchand gang. So it's been a beautiful experience that we can see all 120,000 of us coming together, recognizing the change. I am happy with the recognition of the footsteps I've left behind, but I'm even more happy that the whole bank is behind Shashi, me and the legacy and the strategy that we have set up. I also found that in part of the farewell, I had everybody who's anybody right from Mukesh Ambani to the government secretaries and Shashi had rung them up asking for two words. So he's introduced himself to everybody, which is just phenomenal. And I promised him that once COVID goes, whoever he wants to be further have a one-on-one meeting, I will accompany him. So what we've got, and I don't want to go into so much detail thereafter, other than to say the team is there, Shashi is there, the technology is there, the market is there, your support is there. But please recognize two things. There's no point saying year on year, yes, we had two good quarters because we even didn't take the, we had the energy not even to let the COVID hit us for two quarters. But the fact of the matter is comparing with the previous years doesn't work because six months there was actually supposed to be no business. But we sat down and we said HDFC Bank will not lose. And we even didn't lose those two six months. We didn't let go a single person. Everybody got his increments. Everybody got his bonus. Everybody got his promotions. And both Shashi and me have promised them that if they achieve What they've set out to achieve, they will have the same thing. So there is a wave of optimism out there. And our strategy is very clear. The market is there. We will dominate semi-urban and rural India. Please log on on the 20th to CNBC. There's Shantanu Narayan and me there. basically to tell you how our digital story is going to unfold, some of what all these guys have been doing. And we all worked on it together. Then to give you a further illustration, it takes guts for a fellow taking over to do it. This guy in Srini come to me and say, you know, boss, this NPA will fluctuate like hell. And then people will say, Mr. Puri went away and the NPSI. I said, what is your solution? Tell me. their boss do you mind we create a pro forma NPA and we'll create provisioning because we had the robustness so they created pro forma NPA so we don't violate anything of the RBI that also tells you Mr. Puri is not that he's selling shares just because NPA are going up Mr. Puri is here to give a long term legacy not short term so they provided a pro forma and What they really wanted, provisioning underneath. So we are at some, even if we take the, if we don't have formal provisioning 190, if we have formal provisioning 150. So I'm delighted. I want to thank all of you. I want to wish Shashi and his team the best. And I'll take any questions you have.

Thank you. We'll move on to the next question. That is on the line of Utkarsh Katkoria from PGIM India Asset Management. Please go ahead.

Yes, good evening to the management and thank you for taking my question. This is actually on HDB Financial. If the management can throw some light on what's happening there in terms of profitability, which is down sharply, and also the asset quality.

and what are the challenges uh we are seeing there uh going forward and if there is any change in strategy thank you so from an htb point of view uh like like everything else uh the advances growth that did slow down uh there was a caution and it did slow down to about two percent growth that's what you're seeing uh a lot of the sales force have also been directed towards collections so that we bring effectiveness in the collections area. If you look at the pre-provision profit, the pre-provision profit is quite robust. It did take about 300 or crores of additional provisions in the quarter. Adjusted for that, you will see that the profit before tax would be about 10% or so. that's the kind of number that we have.

And Srini, Srini, also I'd like to add here, RBI had told us and we are now going back to RBI and saying that unless they get the rest of the industry to change, we will also revert back to the way the rest of the NBFCs account for their NPAs. So if we go by industry standards, the NPA and the profit figures would have been very different. They asked us to follow what the banks do and they had advised us that they will make sure the rest of the industry follows. They haven't. Both the boards have asked Shashi, J. Ramesh, and Srini to go back to RBI and advise them that we are reverting to what is the industry standard. They have a lot of new products. We, again, have not laid off there. So the prospects are bright. They've gone into gold loans, they've gone into microfinance, they've gone into two-wheeler loans, they've gone into second-hand car loans, and they're looking at a few new products. And so I think the growth will come back there as well because we've kept the people on. And as now the sales develop, this is what I was saying, that if we look at it, the key is have we reached pre-COVID level running rate everywhere, run rate everywhere? And the answer is yes.

We kept the powder dry in the sense that we have a big amount of liquidity built up. 214% is the liquidity coverage ratio in HDB. So kept ready for the growth to foresee that and get that in. And another important element of the capital ratio is in excess of 19%.

So we positioned well in order to get back and get that growing. Sure. Okay.

Thank you.

Thank you.

The next question is from the line of Ashish Gupta from Credit Swiss. Please go ahead.

Hi, everyone. And congratulations, Mr. Puri. So I think you are finally a free man. But this question was for Jimmy.

Sorry to interrupt, Mr. Gupta. Sir, we are not able to hear you clearly.

Is this better?

Sir, a little better.

Okay. yeah the question was for jimmy jimmy i wanted to check you mentioned the collection numbers for september so if i was to translate it in another term would it be fair to say that in the retail book all sma categories put together will be less than five percent of the retail hook sms012

sma in the retail book is negligible but i must say in large measure because we don't have higher than five crore exposures in the retail book in any significant measure so it didn't fully follow no oh no in the sense that uh the day is overdue so or if you look at 30 days 60 day overdue

numbers so both put together those buckets will be less than 5% of retail book.

The 30 plus varies product on product and there will be some products where as I did mention earlier we would be rather sympathetic to the plight of those segments. Those segments might well have a 30 plus Offer out five or so or more. By and large, yes, you would be right.

It would it would vary from 5% plus or minus one and a half percent. OK, OK. Thank you so much.

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

Yeah, congratulations for a great set of numbers and congratulations Mr. Puri for building up such a robust institution and all the best going forward. So three questions. Now firstly, in terms of the growth, I think we are getting back to more or less pre-COVID levels or we are expecting it to be there within one or two months and we have all the distribution strength digitization so finally where should we see in terms of the growth momentum and gaining of the market share within the industry so that was the first second was with respect to the current account discipline guidelines which have been there now it's more than two months so what is the kind of benefit that we are seeing with respect to those norms And thirdly, in terms of the provisioning, so I think the overall connection efficiency or demand resolution is settling at a much better level. So with respect to the contingency buffer which we have created, should we say like we are more or less done with that, maybe having created 2,300 crores and going forward, there would not be much need of a contingency buffer given this kind of developments which have been there for us in terms of connection. Yeah, thank you.

So, can I? Yeah, on the first question, Kunal, we normally don't give a guidance, but I think the kind of narrative that Rahul and Arvind both have spoken about, I think it's quite evident and clear that the trends are encouraging, and it's on an increasing trend, both from a retail and SME perspective. Yes, you would have a bit of a tepidness

of the year.

So I think, you know, as Mr. Puri also mentioned briefly, you know, you need to now look at how we are tracking the growth sequentially from now on, and largely from the retail and the SME stack. Now that is a very key indicator. We are very, quite optimistic, cautiously optimistic that the GDP is gonna be much, much better in the second half of the year, which is what we all believe from the kind of indicators that we are seeing at the ground level. And I think whilst on a year-on-year basis, there could be a bit of a base effect for a couple of quarters, but on a sequential basis, the trends will tell you that we are reasonably robust and strong vis-a-vis what the industry is going to do. As regards market share, naturally, we are going to be higher than the market or the industry. We will continue to be nibbling away at that extra share. That's on the growth part of it. As regards on the current accounts, I think, as you know, the entire objective of the current account guidelines is more from a risk management perspective. Considering the fact that we are one of the largest working capital banks in the country, in addition to the fact that we are a large cash management bank, I think there will be some areas where we will gain and some areas we may have to sort of give up some of the shares. I think initial primary, prime FAC assessment of the same, it appears that we will be more or less on a squarish basis, if not slightly positive. So that's where we are and we also have clear-cut micro-level strategies between the corporate banking, the wholesale banking team, the SME team to see how we can, you know, get that slight advantage in terms of gaining that extra share of the current accounts and hence also, which means that we will also get an extra share on the funding side as well. So, suffice to say that I think it's not going to be a negative for the bank. it probably will be on a square basis or we will be slightly positive in the future. The third aspect of it is, what was the third question? On the provisioning, yes, Kunal, I think the last three quarters, whether it's a March quarter or whether it is the June and the September quarter, and in addition to that, the 1,500 crores of floating provisions that we are carrying on the books, As Ms. Puri also mentioned, from 195% is the total coverage all put together. Even if I were to, you know, if the Supreme Court ruling does come about and we are able to continue the way the IRAC norms of RBI is regularized, then it will come down to 154%, which is still a very healthy number. I think we believe that we have sufficient cushion to buffer any future contingencies that may arise in the future. But if there is an opportunity when things are looking good, as we have done in the past, if we believe that we need to do more of countercyclical provisions, I think we'll be more than happy to do so.

okay so sorry just on that so in terms of the credit cost very good is 140 150 maybe 40 bits still comes from contingency so still would we look towards it maybe given a very very strong profitability which is coming in at the operating level or maybe we should see it back with racing to somewhere around 100 120 or this point

Kunal, if the economy were to move up and if we have the ability and if we want to provide counter-cyclical floating provisions, basis analytics, basis the expected loss on the standard book, even if it is in the region of 1.4% to 1.5%, we would not be apologetic about it. but on a core credit cost basis, minus of the floating provisions or the counter-cyclical provisions, I think it'll be much lesser.

Okay, yeah, thanks a lot.

Thank you. Ladies and gentlemen, due to time constraint, that was our last question. I now hand the conference over to Mr. Srinivasan Vaidyanathan for his closing comments.

Thank you. Thank you, Mr. Puri. Thank you, Sashi, for handling the call. We appreciate the participants dialing in today. If there are anything more that you need to know, Ajith and I will talk to you over a period of time to see if anything more is needed as the week goes along for the next week. Thank you very much. With that, we can sign off now.

Thank you. Thank you.

Thank you all. Thank you very much. Thank you. Thank you for a wonderful talk.