HDFC Bank Limited

Good evening and welcome to HDFC Bank Limited Q2 FY22 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 complimentary by the management. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Okay, thank you. Thank you, Rituja. Good evening and welcome to all. Let's start with providing the context on the environment and the policies which are at an inflection point for accelerated growth. With support from pent-up demand and easing of mobility restrictions in the country, economic activity moved above the second wave levels in early August. Encouragingly, in recent weeks as well, economic activity has remained robust. We expect economic activity to recover further driven by festive season, pickup in vaccination and a likely increase in government spending. Activity indicators like PMI, GST collections, e-wables, etc. fared better in Q2 and continues to be building up. We expect GDP to show positive sequential growth for the coming quarters. Inflation has remained within policy range and RBI has kept its policy stance accommodative. Now, in this backdrop, the bank is operating and is poised for capturing significant growth opportunities. Key enablers are very well lined up for execution of our strategy. For instance, capital adequacy is at 20%. Our CET1 ratio is at 17.4%. Liquidity is strong as reflected in our average LCR for the quarter at 123%, approximately $6 billion excess over a floor of 110%. Balance sheet has been built with great resiliency. The GNP ratio has remained within a reasonable range at 1.35%. Floating and contingent provisions aggregating to 9,200 crores helps in de-risking the balance sheet. About 400 branches are in the pipeline to open within a short period of time. To give additional context on the branches, we also added 432 branches over the past 18 months. That is, during the COVID period, positioning us for capitalizing the opportunity, progressing on the vintage maturity models. We added 5,868 people in the quarter. 9,248 people in the first half of this financial year. We have added 12,259 people over the past 12 months. This ensured our people were ahead on the productivity curve before reopening of the market once COVID subsided. Technology enablers are getting in place for driving future-ready organization with several partnerships for co-creation and for product sales and marketing. Several large programs are in progress under the digital factory and enterprise factory umbrella using agile methodology. HLC Bank is the first to deploy its own landing zone in September 21 using a hybrid multi-cloud strategy for hosting applications on cloud. This will enable the bank to build and deploy highly scalable platforms with flexible capacity utilization while conforming to the high security posture of the bank. In the month of September, bank's website traffic received a traffic of about 82 million visits from approximately 31 million visitors This is an increase of over 24% versus last year. As per our analysis, HTLC Bank has received more than 30 to 80% higher website traffic than the next bank in the public or private sector, respectively. Over 60% of the visits were through mobile device, indicating the mobile centricity of the footfalls. The growth momentum that has already started, which has set in motion, shows great early results. During the quarter, we opened an all-time high of about 2.4 million new liability relationships, which is an increase of 31% over prior year and 45% over previous quarter. Total deposits sequentially grew by 4.5%, led by strong momentum in CASA deposits that grew at 7.6%. Total advances sequentially grew by 4.5%, with a substantial upswing in retail assets, commercial and rural segments growing at 5.4% and 7.4% respectively. Credit card spends for the bank has grown 36% on a year-on-year basis with a sequential quarter growth at 27%. Early results for the first 10 days of October show 42% growth in card spends over a similar time period in September driven by festive spend. We are making new headway in leading the market to digitize the economy. In the last five weeks of the quarter, we issued 416,000 credit cards Recommensing our accelerated approach to digitizing the economy through card payment products. It is expected to sustain and grow monthly run rate from here onwards. Preparations are underway to consolidate a large number of ongoing merchant offers. Two large strikes are already announced. Bank customers contributed almost 55% of the spends during the special sales organized by EECOM platform players. About 7,000 plus hyperlocal offers for this festive season is underway. to ensure best deals are available to customers across geographies. There are several strategic partnerships in pipeline. One of them, one of which has been concluded, which is restaging Millennia, Infinia Metal, Freedom Credit Card offerings. The bank expects to see momentum building up a new offerings in consumer commercial business cards phase in the coming quarters. UPA transactions by count, both P2P, P2M, put together are sequentially grown by 35% to 89 crore transactions annually. And over here, it has gone up by 2.2 times. For the quarter in terms of value, P2P market share is about 10% and P2M market share is about 15%. Mobile banking transactions count in first half has seen a growth of 66% year on year. We are positioned to capture the opportunities in the emerging growth segments of VNPL through enhanced product offering and segmented sales and marketing. With a product-led approach and partner-led approach to pay with convenience to customers for small value transactions, to enjoy free credit period up to 30 days, to pay for multiple items or services in a consolidated manner, and pay in EMI for larger value purchases in monthly installments, this is targeting to acquire new customers, activate existing customers, and drive stickiness. We have over 3.5 million customers with such easy EMI loans. Consumer finance business is enabled across 1.3 lakh merchant points. The bank's merchant offering is scaling to provide enhanced value-added services across various segments. The bank has 2.5 million acceptance points as of September end with a year-on-year growth of 27%. Acquiring business volumes including credit, debit, UPI, EPI, direct pay grew by 45% year-on-year to Rs. 3,53,000 crores for the quarter. The bank's acquiring market share is at 47%. We are consistently improvising merchant and customer engagement and user experience on the Smart Hub merchant platform. Several new developments on the platform have been implemented in the month of September. As on September 30th, 1 million small businesses operate through this new Smart Hub platform. With the above strategy, the bank is confident on achieving the scale of 20 million merchants and also be the largest payment ecosystem in the country. Asset volumes are gaining momentum to reach new heights, driven through relationship management, digital offering, and breadth of products. In the wholesale segment, corporates have seen strong cash flows and also have preference to use market instruments for borrowing. There was a fair degree of prepayments. However, on the retail assets front, incremental disbursals during the quarter exhibited phenomenal growth of 50% sequentially and 71% year-on-year, resulting in a sequential growth of 5.4%. Arun Kapoor can give a little more color in terms of what you're seeing in the market.

Thanks, Srini. Very good evening, everybody. The retail assets book has exhibited a robust quarterly sequential growth of around 4.5%. That's September 21 over June 21. And around an 11.5% on a year-on-year basis, September 21 over September 21. This is on the back of the incremental dispersals in the quarter where large portfolios like whether the four-wheeler auto loans, unsecured loans and mortgage loans have achieved new highs. And we expect a positive sequential growth in the coming quarters as well. To supplement this, Let's also look at a quick sense of how we see the macroeconomic indicators from a business point of view. And I'd like to in the next two minutes supplement it with what's happening on the ground level. So one is the monsoon we see finally is normal levels. The rural economy is started to show at a ground level a feel-good factor. You will have a good Rabi season probably in the next six months. If I look at the employment indicators, we can see that it's probably September reached the pre-COVID levels if I look at the CMI data. If I look at the bureau data for loans, the industry inquiry for loans has witnessed a month-on-month increase. And for all our retail asset business, it's confirming a strong demand and validating our confidence for growth. Now, if I also look at the mobility index that we watch, I think it's improved across states with the potential to boost consumption. Added to that, if I were to just look at quick eyeball into the GST, electricity generation, the fry generation, index of industrial production, I think all of these are showing a positive trend. Now, let me quickly add this to the ground level, I think, what's happening, what I hear from my teams and the way the business trajectory is moving. Let me begin by auto loans. So our book has shown, has grown against the tide at a healthy pace. And just to give you a sense, the domestic vehicle sales units witnessed a drop at an industry level of 37% for the month of September 21. Over September 20, however, incremental auto loan dispersal for hgfc bank in value terms has increased by 36 during the same period probably that could give you a sense of our level of traction that we are building we understand from our manufacturing partners that these are there are global supply chain issues affecting the supply of vehicles and however This, they should be able to probably in a month or two get a much more tighter grip on that and that will I think add to our strength of what we are building on the dispersal side. On the unsecured personal loan side, our incremental dispersals are exhibiting sustained growth with very consistent sensible delinquencies. Our focus on increasing government business which is our core strategy on this product is yielding positive results and we plan to strengthen the segment consistently in quarter and quarter thereafter. On the combined mortgage books, and I'd like to comment on the home and loans against property together, it's exhibiting a strong sequential quarter and quarter growth, and we expect this growth rate to sustain in the latter half of the year as well. Loans above 1 lakh are clearly showing a significant higher traction And I think loans below that, that's two-wheeler and the microfinance segment, we expect the dispersal runways to reach pre-COVID over the next 60 days. We are beefing up our distribution on both business loans and gold loans via noteworthy quantum, which will yield results in the subsequent quarters. And this effort is on as I speak to you. And Even when I look at the ground level feel on the confidence of the self-employed, if I look at the textile side, they're talking about, the businessmen are talking about an expectation of a growth of 30 to 40%. A couple of home appliances guys are talking about a 20% higher than pre-COVID. The food grains, telecom, FMCG is talking about a range of 20 to 30% growth. So that's just a feel at what we're hearing at the ground. We are not only increasing our market share across products, but we are also saving time ensuring and witnessing our social quality is improving across the risk bands. So whether it's the Bureau, the quality of the visible score, a certain percentage of better customers is increasing. Our open market distribution, we believe, gives us a strength of first right to refuse and that strength uh will give us a substantial quantum leaps as we come up with new digital products whether it's the uh on the auto loans or it's couple of other products as the government kind of opens up that and allows the law of the land allows certain uh even the mortgage side we are further strengthening our geographical footprint both on reach and density uh We are also strengthening our contactless end-to-end digital journeys. This was a big strength which we developed during the pandemic times. Another area like I mentioned to you is the government and the use cars, which is going to make our future level readiness. We are market leader position coupled with our portfolio quality. The sustained economy recovery that we see in an ongoing festival season, even with the festive treats that we have launched in our limited capacity to add to the existing demand that we see at the ground level, we are clearly bullish on our retail assets growth in the coming quarters. And we believe we should be in a position to be ahead of the curve quarter on quarter. Thank you, Shani.