HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to HDFC Bank Limited's Q3 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 the brief commentary by the management. Should you need assistance during the conference call, please signal an operator by pressing start and zero on your touchstone phone. Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Good evening and a warm welcome to all the participants. First, to start with, the environment and the policies that we operated in the quarter were conducive for growth with good tailwind from monetary and fiscal policy. You all know about the activity indicators bearing better in Q3, like the PMI, GST collections, e-wables, et cetera, et cetera. They're also up to date about the CPI or RBI policy rate stands and the liquidity conditions. Now, in that backdrop, the equity capital market was robust in the quarter. Private issuers raising almost 82,000 crores. We were mandated for eight IPOs. Indian bond market also saw a total fund raise of approximately 1.87 lakh crores in the quarter. The bank maintained its ranking as one of the top three arrangers in the INR bond market. Now, with that, let's go through five themes at a high level before we delve into the quarter financials. One, on the banks, balance sheet continues to get stronger. For instance, the capital adequacy ratio is at 19.5%, CET1 at 17.1%. Liquidity is strong as reflected in our average LCR for the quarter at 123%. Balance sheet remains resilient. The GNP ratio is at 1.26%. Floating and contingent provisions aggregating to this 10,100 crores helps in de-risking the balance sheet and positioning for growth. Two, investments in key enablers are picking up in executing our strategy. We opened 93 branches in the quarter, 171 branches year-to-date nine months period. To give additional context, we have added 525 branches over the past 21 months, that is, during the COVID period, positioning us for capitalizing the opportunity. We onboarded a little more than 5,000 people in the quarter, 14,300 plus people during the nine-month period. We have onboarded about 17,400 people over the past 21 months during the COVID period to get the people ahead on the productivity curve as the economy accelerates further. There is a growing impetus on digital and we have taken the steps necessary to ensure our customers have great and consistent experience in whatever channel they choose to bank with us. Key initiatives like a streamlined, modern customer experience hub, allowing access to content across channels and devices will be introduced soon. We are also committed to continuously enhancing the digital experience for our customers through fully revamped payment offering. We have taken multiple steps to ensure ensure robust, scalable, and secure technology setup to strengthen even further. Some key initiatives include capacity for UPA has been tripled, net banking and mobile banking capacity has been doubled to manage 90,000 users concurrently, a significant step as most of our customers now relay on digital channels for banking needs. The bank has migrated core data centers in Bangalore and Mumbai to state-of-the-art facilities The bank is moving to next level of disaster recovery with DR automation and implementation of hot DR active-active setup for key applications. Significant upgrades in network and security infrastructure to support our exponential growth in digital transactions. Our digital capability is coupled with rich data and customer's behavior. Take for instance a traditional retail product wherein close to 80% new loans go through digital scorecards or automated underwriting. In Q3, we received a total of 245 million visits on our website, averaging 31 million unique customers per month. As per our analysis, we had 30 to 70% more visits on our website with our own public private sector peers. Close to 60% of the visits were through mobile device, indicating the mobile centricity of the footfalls. Three, on customers, Acquiring new liability relationship is setting new high, preparing for broad basing and deepening relationship in times to come. During the quarter, we opened about 2.4 million new liability relationships, 6.4 million new liability relationships during the nine months period of this financial year, exhibiting a growth of 29% over the same period last year. Four, our market leadership in digitizing the economy is setting new high. In Q3, we achieved the highest ever issuance with 9.5 lakh card issuances. Since late August, when we recommenced issuance of new cars, we have so far issued 13.7 lakh cars. Credit card spend for the bank has grown 24% year on year, and debit card spend has grown 14% year on year. These spend growth reflect both increased customer engagement and economy improvement from a consumption perspective. In similar lines to our CSE partnership and to scale our business further, we have signed MOUs with two large payment banks for distributing certain products. This opens up further opportunity to scale among other places growth in semi-urban and rural areas, leveraging partner distribution access points and feet on street. We have further scaled emerging growth segments such as easy EMI, consumer durables targeting our preferred customers through segmented sales and marketing. Consumer finance business has one plus, one lakh plus active distribution points. We have over five million customers with easy EMI options. The bank merchant offering is scaling to provide Enhanced value-added services across various segments. The bank has 2.85 million acceptance pointers of December with a year-on-year growth of 35%. The bank's acquiring market share stands at approximately 47% with a 19% share in terminals, processing about 300 million transactions per month. The bank has been focusing in suru locations and is investing in training and offering segment-specific solutions. Over 50% of new merchant sourcing is from Suru locations. Five, asset volumes are gaining momentum to reach new highs driven through relationship management, digital offering, and breadth of products. In the wholesale segment, carpets continue to generate strong cash flows across sectors, resulting in fair degree of prepayments. Trade continues to be an opportunity for credit growth, factoring, invoice financing, export financing, import financing, or some of the products we participated in to grow. They are also making progress in MNC segment with their ambition to be the largest player in the space. Corporate banking and other wholesale loans grew by 7.5% over prior year and 4.4% over prior quarter. On the retail assets front, the momentum pickup observed during Q2 continued its stride in Q3 as well, witnessing a robust sequential asset growth of 4.7% and year-on-year growth of 13.3%. This has been This has been on the back of a strong incremental dispersal during the quarter. Commercial and rural banking businesses saw robust growth this quarter, registering a sequential growth of 6.1% and year-on-year growth of 29.4%, reflecting underlying economic activity and continued market share gains. Now let's start with net revenues. Net revenues grew by 12.1% to 26,624%, driven by an advances growth of 16.5% and a deposit growth of 13.8%. Net interest income for the quarter, which is at 69% of net revenues, grew by 13% year-on-year and registered a sequential growth of 4.3%. The core net interest margin for the quarter was at 4.1%. This is in the similar range of previous quarter. Net interest income growth is reflective of underlying shift from unsecured lending essentially gravitating towards higher-rated segments in the COVID period. This is also represented in our ratio of net interest income to RWA, which is consistent at around 6%. Moving on to details of other income, which is at 8,184 crores, was up 9.9% versus prior year and up 10.6% versus prior quarter. Fees and commission income, constituting about two-thirds of other income, was at 5,075 crores and grew by 2% compared to prior year and 2.6% compared to prior quarter. Retail constitutes approximately 93% and wholesale constitutes 7% of fees and commission income. Fees, excluding payment products, grew year-on-year by 17%, and fees on the payment products de-grew year-on-year due to lower fees on card loan products, cash advances, over-limit fees, reflective of a cautious approach to card-based lending, as well as customer preferences. However, card sales, ANR, and interchange have come out robustly, which positions us for future growth and a customer propensity to use card products for loans and revolver increases. In addition, during the festive period, we offered certain fee waivers to incentivize customer engagement. Effects and derivatives income at 949 crores was higher by 69% compared to prior year, reflecting pickup and activities and spread. Trading income was 1,046 crores for the quarter. Prior year was at 1,109 crores, and prior quarter was at 676 crores. Some of the gains from investments were monetized in line with our strategies. Other miscellaneous income of 1,113 crores includes recoveries from return of accounts and dividends from subsidiaries. Now moving on to expenses for the quarter at 9,851 crores, an increase of 14.9% over previous year. Year on year, we added 294 branches, bringing the total branches to 5,779. Since last year, we added 1,697 ATM cash deposit and withdrawal machines, taking the total to 17,238. We have 15,436 business correspondence managed by common service centers, which is higher by about 1,900, slightly over 1,900 compared to the same time last year. Cost-to-income ratio for the quarter was at 37%, which is similar to the prior year level. As previously mentioned, when technology investments are further stepped up and retail segments pick up further, we anticipate the spend levels to increase driven by incremental volumes, sales and promotional activities, and other discretionary response. Moving on to asset quality, GNPA ratio was at 1.26% of gross advances as compared to 1.35% in prior quarter and 1.38% on a performer basis in prior year. It is pertinent to note that of the 1.26% GNPA ratio, about 18 basis points are standard. These are included bias in NPA as one of the other facility of the borrower is in NPA. Net NPA ratio was at 0.37% of advances, net advances. Preceding quarter was at 0.4. The annualized slippage ratio for the current quarter is at 1.6, about 4,600 crores, as against 1.8% in prior quarter. Agri seasonally has contributed approximately 1,000 crores to slippages or about 25 basis points annually. During the quarter, recoveries and upgrades were about 2,400 crores or approximately 25 basis points. Write-offs in the quarter were 2,200 crores, approximately 23 basis points. Sale of NPA, about 260 crores, approximately two basis points in the quarter, included in one of the categories above. Now, looking at check bonds and restructuring and so on. The check bonds rate continues to improve in December across most of the retail products and is not only back to pre-pandemic level, but are also marginally better. Further, the early January bounce rate shows continued improvement. Similarly, demand resolution at 97-98% for most of the products is back to pre-COVID level, and in some cases, better than pre-COVID levels. The improvement in bounce and demand resolution rates at aggregate level, amongst other things, illustrates the overall portfolio quality. The restructuring under RBI resolution framework for COVID-19 as of December end stands at 137 basis points, This is at the borrower level and includes approximately 28 basis points of other facilities of the same borrower, which are not restructured but included here. To give some color on restructured accounts, 40% are secured with good collateral and with predominant good SIBIL score, which we feel is comfortable. Of the unsecured portion, approximately two-thirds are salaried customers and about 40% are good SIBIL scores, more than 700. The demand resolution is showing encouraging trends. COVID restructuring has been an enabler for our customers to tide over the uncertainty in the last few quarters. Initial indicators suggest that most of these customers are now positioned to resume their payment with minimal impact to overall quality of the advances of the bank. As mentioned previously, impact of restructuring on our GNP ratio could not, can be 10 to 20 basis points at any given quarter. We talked about it last quarter and mentioned that. The core provisions The core specific loan loss provisions for a quarter were 1,821 crores as against 2,286 crores during the prior quarter. Total provisions reported were 2,994 crores against 3,924 crores during the prior quarter. Total provisions in the current quarter included additional contingent provisions of approximately 900 crores. The specific provision coverage ratio was at 71%. There are no technical write-offs. Our head office and bank books are fully integrated. At the end of current quarter, contingent provisions to its loans were approximately 8,600 crores. The bank's floating provisions remained at 1,400 crores. And general provisions were at 6,000 crores. Total provisions comprising specific floating contingents and general provisions were 172% of gross non-performing loans. This is an addition to security held as collateral in several of the cases. Looking at through another lens, Floating contingent and general provisions were 1.27% of gross advances as of December quarter end. Now coming to credit cost ratios. The core credit cost ratio, that is the specific loan loss ratio, is at 57 basis points for the quarter against 76 basis points for the prior quarter and 116 basis points on a pro forma basis for prior year. Recoveries which are recorded as miscellaneous income amount to 25 basis points of gross advances for the quarter against 23 basis points in the prior quarter. Total annualized credit costs for the quarter was at 94 basis points, which includes impact of contingent provision of approximately 30 basis points. Prior year was at 125 basis points. Prior quarter was at 130 basis points. Net profit for the quarter at 10,342 crores grew by 18.1% over prior year. We'll give you some balance sheet items, color on some balance sheet items. Total deposits amounting to 14,45,918 crores is up 13.8% over prior year. This is an addition of approximately 40,000 crores in the quarter and 1,75,000 crores since prior year. Retail constituted about 83% of total deposits and contributed to the entire deposit growth since last year. CASA deposits registered a robust growth of 24.6% year-on-year, ending the quarter at 6,81,225 crores, with savings account deposits at 4,71,000 crore, current account deposits at 2,10,000 crores. Time deposits at 7,64,693 crores grew by 5.6% over previous year. Time deposits in retail segment grew by 8.3%. Time deposits in wholesale segment decreased by 2.8% year on year. CASA deposits comprised 47% of total deposits as of December end. Total advances where 12,60,863 crores grew by 5.2% sequentially and 16.5% over prior year. This is an addition of approximately 62,000 crores during the quarter and 1,79,000 crores since prior year. Moving on to CAPAD, which I covered at the beginning, total, according to Basel III guidelines, total capital adequacy at 19.5%, tier 1, 18.4%, CET at 17.1%, which I covered previously. Now getting on to some highlights on HDBFS, this will be on India's basis. The total loan book as on December 31 stood at 60,478 crores with a secured loan book comprising 74% of the total loan. Conservative underwriting policies on new customer acquisition which was implemented during COVID continues to be in place and will be reviewed in due course based on external environment. Disbursements are picked up in Q3, growing 9% quarter on quarter and 11% year on year. For the quarter, HDB FSL's net revenues were 1,982 crores, a growth of 15%. Provisions and contingencies for the quarter were at 540 crores, including 97 crores of management overlays against 1,024 crores for prior year. Profit after tax for the quarter, was 304 crores compared to a loss of 146 crores for the prior year quarter and a profit after tax of 192 crores for the sequential quarter. As of December end, gross stage 3 stood at 6.05% flat sequential quarter. 80% of the stage 3 book is secured, carrying provision coverage of about 41% as of December end and is fully collateralized. 20% of the stage 3 book, which is unsecured, had a provision coverage of 84%. Liquidity coverage ratio was strong at 222%. The STB is funded with a cost of funds of 5.9%. Total capital adequacy ratio is at 20.3 with the tier one at 14.9. With markets opening up and customer accessibility improved to near pre-COVID levels, we believe the company is well poised for a healthy growth from here on subject to any impact on further waves of COVID. Now a few words on HSL, again on India's basis. HSL, HDFC Securities Limited with its wide network presence of 213 branches across 147 cities and towns in the country has shown an increase of 58% year-on-year in total revenue to 536 crores. Net profit after tax of 258 crores in Q3 is an increase of 58% year-on-year. HSL's digital account opening journeys are running successfully. There has been a significant increase in overall client base to 3.4 million customers as of end December, an increase of 30% over prior year. In summary, we have reasonably overcome the effects of pandemic over the past 21 months across broad contours of balance sheet P&L and human capital. While the effect of the latest COVID wave is not clear, which we'll have to watch out over the next few weeks to see where it turns, we are confident of navigating through this, applying our learning from past waves. Our growth is accelerating, leveraging on our people, product, distribution, and technology. The quarter results reflect deposit growth of 14%, advances growth of 16%, profit after tax increased by 18%, delivering the return on asset over 2%, earnings per share in the quarter of 18.7, book value per share increased in the quarter by 19.4 to 414.3. With that, thank you very much. With that, may I request the operator to open up for questions, please.

Thank you very much. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on your touch-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. Ladies and gentlemen, we will wait for a moment while the question queue resembles. The first question is from the line of Maruka Jania from Ilarra Capital. Please go ahead.

Hello, congratulations. My first question is on credit costs. So, total credit costs including contingencies have come below 100 after many quarters, around three years. Now, assuming that there is no further COVID wave, is that the new normal we are likely to see over the next few quarters?

Maruth, thank you. I hope I can, yeah, it's on, okay.

Excuse me, sir. I'm so sorry to interrupt. May I please request you to speak closer to the phone, sir? Your audio is not clearly audible.

Okay, all right, yeah. I moved my chair, but that's okay, yeah. Maruth, thank you. Yes, valid question and appropriate. Thanks for asking that. See, we are coming from a COVID cycle where... our booking have been from a retail point of view have been benign second from a wholesale point of view which we have shown very highly rated corporates right so we come through the cycle and now starting to begin to get the retail out the recent vintages when we look at the recent vintage performance they are far superior both the entry level scores and the customer profile in terms of how we opened up and started, they are superior, right? And whether this is a new norm, I would not say that this is a new norm, right? This is, you have to look at credit costs normally over a cycle, over a period of a few years, you have to look through a cycle. And that's how you need to look at it. But if you look at our NPA, 1.26 can bounce around at any time, tend to the basis points up and down, Two quarters ago, 1.47, now 1.26. So it can go up and down within a small range. That's where it can come. From a credit cost point of view, well, we are not given a particular outlook as such, but we have averaged in the past, call it 1.2, 1.3, thereabouts. That's the kind of range at which the total cost of credit, total provisions that have come up with. Current quarter is at about 95. So that's They call it a little lower than that, right? So in a broad range, if you think about 100 to 120 kind of a basis point, that's where in a last, go back to pre-COVID, that's the kind of range at which we are operating, right? And if the credit costs are lower, then the way we look at it is it calls for experimenting a few things. It calls for opening up for policy. So there is a policy reaction that comes in, right? There is always that pull and pressure between the business and the credit that happens. So I wouldn't take that 50 or 60 basis points total credit costs or the specific losses or the total cost of 95 basis points as a good standard for a long time to come. But this is the current course of where we are.

Okay, thank you. So my next question is on fees. You did mention that payment and credit card related fees declined. But were there any one of the more, I mean, if you could give more color, was there any one of big time promotional expenses which won't recur so that we know or we can, you know, get a clear outlook on the trajectory in the next few quarters?

Okay. Yeah, again, a good question. Thank you. See the fees, 5,000 odd crores that we reported is 2%, right? In the past, we have done pre-COVID, if you think about it, before there were waivers and so on and so forth, we have done 20 odd percent offset. We have consistently said the way to think about the fees is somewhere where it should settle is mid to high teens kind of places where it can settle, right, normally. And again, this quarter, if you think about excluding the payment products, it is at about 17%. Payment products has been unusually low. There are a few things to think about on the payment products. One, as I alluded to, we offered certain fee waivers to incentivize customer engagement. So that's one thing which doesn't need to recur every quarter, but it can happen every other quarter depending on what programs we run. But that's part of running the business And that's part of growing the franchise, right? So that's one thing to think about. Second, even from a card's point of view, from a credit, I think I alluded to in terms of how customer behavior from a late payment point of view, right, is that customers are paying very much on time. So that is reflected there, too. So the opportunity that we used to get from a late payment doesn't come through. the customers used to take cash advances that is on a lower end right so the cycle has to turn a little more on that and so you'll see some cash advances coming through right and from a policy point of view until recently we were we were tight on the credit limits right so there is a credit limit over the credit limit there is some fees that will come that is also lower because From a policy point of view, we've been cautious on that, right? But as we speak now, the policy review has taken place and we are getting to business as usual subject to another wave of what it does and so on, right? So that is one aspect that you think in terms of the impact. But then the broader context is required in terms of what is the overall, right? So if you think about the customers, particularly I'm talking about the payment products, the card customers, right? The credit line utilization is at a low. It's like on gate X of the pre-pandemic level. So while the spend levels are up 24% and the interchange is quite robust and good, with a good yield that we get on that, but the credit line utilization has got much more to go to get back to the pre-pandemic level. So that's one thing on the people who are spending. So the thing they're paying. And then if you think about if they're all paying, what is happening to the revolver types, right? that is also at about 0.7 to 0.8 of the pre-COVID levels in terms of the revolving on cars. So there's much more room for people to get into those revolver type, right? So that's part of what the strong quality of the book that exists today, right? And that is part of what some of the fees that come are also muted, which are connected to that. I'll give you another perspective to think about on the cars, for instance, on the customer's liquidity. Deposit balances, you know, most of our card customers, you know, have liability relationships with us, right? We have good amount of liability relationships. Card customers contributed almost 4x, this is pre-COVID, right? If we access the advance, we access the ANR of cards, which is the card loans on books, at an aggregate level. At an aggregate level, the liability balances of the card customers were typically 4x. Right now it is 5x. So which means customers are sitting in good amount of deposits and liability balances with that. So this is the economy has come down. Now with the huge amount of liquidity and cash at disposal with people, now it is starting to pick up and go. And so this is part of the cycle growth that we expect that to come back to a reversion, right? So from a long-term point of view, mid-teens to high-teens is what we have said in the past that that's what one should expect from a car fees point of view.

But in your assessment, how many quarters would it take to reach that long term?

It depends. It's a combination of both the environment, the economic activity in the environment, and the customer behavior to get on with that. I would expect that I don't want to venture to predict exactly what it is because there's no exact science that tells where it is. But typically that is what you would see that it takes for a maturity model to operate. And similarly, the same thing applies to if you think about the PPOP, it is very similar, right? whether as the loan growth gets back, the PPOP should more or less mimic the loan growth. That is what historically that we have shown. That is where historically we have performed, right? That is the kind of what the loan growth is, the headline. That's what most of the lines operate, tend to be similar as we go along.

Okay, thanks. Thanks a lot. That's helpful.

Thank you. The next question is from the line of Alpesh Mehta from

iso securities please go ahead hey thanks so thanks for taking my question and congress on the decent set of quarters oh the first question is about the reconciliation between the on the restructured loads what we see in the notes to accounts that works out to be around 22 000 and if you know 1.37 works out to be around 17 000 so how do you reconcile both these numbers okay well you're seeing what you said the When I see notes to accounts, the total number works out to be around 18,000 crores plus there would be a R1 number. So both put together is around 25,900. Notes to accounts also mentions that the double counting between R1 and R2 is around 2,700 crores or something like that. So the net number was out to around 23,200 crores, whereas our commitment shows that it's around 17,200. So that is the gap of this around 6,000 crores.

Okay, got it. Got your question. See, it is based on what the template, right? Somebody signed the template and we filled the template up and put up there, right? So that's something different. It's a good point that you raised, right? The 25,000, what was there is what did you grant as a restructuring in R1 and R2 when you add up, that is what it is. And if you eliminate the double counts, it is like 22,000, right? This is originally as granted in several points in time. That means whenever it was granted at those points in time, right, what was the number? That is what you see there. Last September, we reported 18,000 crores, right, last September. And currently, we say 1.37, that is 17,500 crores or so approximately. So first, the 18,400 to 17,500, the movement, they call that about 900 crores of movement. that half of it is moved to NPA, half of it is a net of various recoveries and adjustments. So that is part of what from September to December things have moved. But between the 22 to what we reported in September 18,000, that is a net of whatever happened before September, which is between what happened to NPA, what happened to various recoveries and adjustment around that time, as we speak in September. That's part of I think some of some of you picked up the number of what was originally granted, but what was outstanding as of September 18,000 and now the 17,500.

Okay, so she just correct me if I'm wrong. If I look at the September disclosure, right? The R1 plus R2 minus the double counting the as per the notes to accounts was around 22,500. of which there were NPLs and the amount repaid of the R1 amount that you mentioned in the notes to account. So that number was around 20,400 whereas as per your disclosure in September was 18,200. So the 2000 crores was the difference between the amount which was reported as of September and between your result date. Is that my understanding correctly?

Correct. Various other recoveries and other things that came until the reporting date.

okay okay and right now also is the similar situation wherein you have not reported the NPLs and the repaid amount out of R1 and R2 so the as per the notes to account it could be around 23,200 crores but after the recovery NPLs everything and the repayments etc it's around 70,000 this quarter this quarter notes to account simply calls for this is again mandated right calls for reporting only R2

as originally granted, which is reflecting 18,000 crores or something in the notes. 18,000 crores is not the outstanding, right? It is 17,500 is outstanding. So whatever was mandated to show in the notes, that's what we showed. But both when I talked and I gave the 1.37, that is the 17,500.

Which is R1, R2, whatever is the restructuring outstanding on the balance sheet, that is the number that you are mentioning. That is correct. That is correct. Okay, the second question on the, can you just give some qualitative comments related to the tenure of this book? You mentioned as one of your comments that 10-20 basis points would be shifting to cross NPN at any given point in time. But that could be a situation that almost 25-30% of this book can sleep over a period of next one year. So when we are talking about 10-20 basis points of that particular quarter or over the tenure of the book. So for example, if it's around 1.37%,

then out of this 1.37 only 20 basis points can sleep into npl category i just wanted to clarify that number okay see by the way there is no particular signs of 10 20 or something this is based on what our analytics comes up to say based on what experience we have seen based on the customer profile which i which i alluded to say for example uh the one that i gave uh about 40 percent are secure right uh fully collateralized and with a good CIBIL score, which we feel very comfortable with. Then on the unsecured portion, we said about, call it roughly about two thirds or so of salaried customers where we feel quite comfortable. And then on the balance, where we keep watch, about 40% or so of good CIBIL scores, CIBIL scores more than 700 or so. So based on various, these kind of analysis, that's where we, if you said we feel comfortable, that tend to debase points at any particular point in time that can be within our tolerable range. And from a restructuring point of view, generally the restructuring can run up to two years. And again, if there was one year of a loan left and the two years granted, now the person has got it for over three years to go.

Okay, so again, just again clarifying over here is almost 15 to 20% of the book can slip as per your analytics. Is that the number correct now? That 10-20 business points is of 1.37%, so it's around whatever that 7 to 15% of the book can slip based on your analytics or the customer data that you have.

I don't want to venture into extrapolating the 10-20 basis points into various time periods.

Yeah, got it, got it. Okay, the second question is related to the credit growth. Historically, we had a multiple, X multiple of the system credit growth that we always used to guide about, but as just an indicated number. But now when I see at the system level, because of the consolidation in the larger segment within the PSU banks, the system may be growing at X percent, but the private sector banks are growing much faster than that. And some of our larger peers are also growing at a significantly higher rate than that of the system. How do we see our credit growth? Do we still maintain that X percentage that we used to talk about in the past or we can have better opportunities to grow much faster and gain market share? Secondly, your comments on the three specific products. One is payment product. Second one is the commercial and rural bank, which is growing very fast at around almost 30% YOY. And lastly, corporate and wholesale banking, since we have developed quite a bit of capabilities over the last two years and growth is more progressive as a share of overall loan boost. So these are my questions.

Thank you. Okay. Thank you. Long question, but I'll try to be as short and crisp as possible. So, you know, if you think about the loan growth and the market share, one thing is that, you know, our loan growth is consistent, right? Consistently growing, including during the COVID period. and one has to look at it not one quarter two quarters but over a longer period of time one has to look at how we are growing rather than the one period so essentially looking at the consistency of growth over a longer period for example you can take a two-year growth right a longer period and that includes the code period too we have grown at 35 percent right let's call it high teams annual that kind of a growth rate that's why And similarly, you can go back five years, five year period between 2016 to 21 or something like that. Again, about two plus, a little more than double, call it high teens type of growth. That's what we had at that time. So one has to evaluate in the current circumstances, one also has to evaluate based on the incremental basis, right, what we have grown. We believe based on an incremental basis, we have a share of more than 25% or so on an incremental basis. from what has happened. If you think about it, 1,79,000 crores in the past 12 months, 3,25,000 crores in 24 months. And again, we focus on appropriate products. You touched upon the categories of commercial and rural or wholesale and retail. Yes, at some point in time, we did grow a good amount of wholesale. It's a good demand. We were there for the customers to support them in terms of the wholesale, very highly rated. And now we see a lot of pre-payments happening. That's about 700% of what year on year we see in the whole state. On the commercial and rural, enormous opportunity and very fast growing. About a third of the country's GDP is contributed by that kind of a segment, right, that segment. And we want to participate more vehemently in that group, in that segment, and we will continue to bounce on that one. On the retail, we were subdued, rightfully so from a policy point of view. We are back, and that is what you're seeing in the sequential growth at 4.5% or so. So net-net, I mean, coming back to the same summary, which is now one quarter or two quarters doesn't establish what the growth is. It's about the consistency of growth and over a period of time. And that's how you must look at it in terms of our growth, and we will continue to capture market share. And again, in a balanced portfolio across secured, unsecured in retail, across commercial and rural, and wholesale. So across various product spectrum, customer spectrum.

Thank you.

The next question is from the line of Akriti Kakkar from Goldman Sachs. Please go ahead.

A couple of questions. First one on the asset quality bit. Just wanted to confirm, was there any new restructuring that we did in this quarter?

No, no new restructuring, but part of that net change that I gave you 500 crores is a plus and a minus net of 500, which is whatever was in the pipeline. that came through that was about 500 crores or so that new that came in but that was not a new granted application granted whatever was in the pipeline that came but then the pay downs and other things that happened so net net it is that 17,500 1.37. Thank you.

The second bit is only slippages and you know credit cost I think I think Madhu also asked this point question the credit costs also 95 basis point and slippages also are one of the lowest that we've seen the last few quarters assuming no pandemic impact you think uh you know this could be a new normal over the next few quarters and then in that context how do you plan to build up the pcr buffers from here shall we continue to see more and more floating provision come through okay good good question you to touch upon another aspect of uh what what maru also touched upon

But, you know, as a bank, we don't need one particular outlook or forecast in terms of how to look at a credit. But all I can point you is to historical to say that in the recent COVID time period, we operated 1.2%, 1.3% kind of thing. If you go to a little before the COVID period, 100 to 120 basis points, somewhere there we operated. Currently, including the COVID, the contingent provisions, about 95 basis points. But yes, over a period of time, again, when you look at it, we should revert to that kind of a what was a pre-COVID mean, a type of a mean reversion should happen towards there, right? And current quarter is reflective of what we have booked because the recent vintages, call it the 18 months or 15, 18, 21 months type of vintages that we have booked across various segments, right, across various segments. They are of very good quality. Retail book, you know, is typically... two years on an average retail book. And it brings up a very good quality. And our innovation lab is working on several things, including opening up new to bank, right? So that means what previously that we had about call it 80% of existing to bank personal loan or call it two-thirds to 70% existing to bank card loans, But now our innovation lab is making progress towards using alternative data from the market to see how new to bank could be as efficiently scored and pass through the muster on the scoring models to get it. So yes, I wouldn't ask you to project based on the current quarter, but if you think about it from a pre-COVID norm, uh what it is and that's the kind of so your second aspect of the question on the on the building of the promotions and so on right see our buildup of the contingent promotions goes back several quarters and much before the onset or onset of the code period right so for example if you look at june june 19 or so when we initiated a build of our contingent promotions uh that was the argument of counter cyclical promotions then right at that time the contingent portions were less than 1 000 crores Today, it's built up. It's more than 8,500 crores, right, or about 70 basis points of gross advances or 80 basis points including floating promotions, whichever way you look at it, right? What it does is that it makes the balance sheet much more resilient for any shocks, uncertainty pandemic can bring. And what does such resiliency do? It supports good execution on the front line for our growth, including making several experiments in our lab, as I alluded to. So that's how we should think about. We evaluated quarter to quarter. There is no preplanned type of how this runs. We take it as it comes in a quarter and evaluate it.

Got it. Shane, just two more questions. The other question was on the credit card or the payment product profitability. You laid out a few points why it was suited this quarter. But when you think about the structural profitability of this product and also what regulators are thinking, any thoughts as to how we should think about what are the components that would still remain remunerative while the components which could witness some pressure. You pointed about the fee waiver, the repayment fee, et cetera, sort of coming down. So how should we think about more from a one to two year perspective?

Good question, right? We'll come to that. the regulatory or any other thing that will come to that. But from an overall buoyancy point of view, see the first aspect of a card is about the spend. And the spend is quite fixed up, 24% or so year-on-year growth. So that is something that has happened. And the next thing as the spend goes up, the credit line utilization needs to go up. As I said, the credit line utilization due to the spend coming down over the period of the COVID came down. Now it needs to go up that the still credit line utilization is at about 0.8 of the three pandemic levels. So that should start to go up. And then along with that gets to the revolving and so on and so forth, everything else that comes, right? And from a fee charging point of view, There's various fees. The penal type of fees or incentive type of fees or loan origination kind of fees, those are routine and will happen, moves on as the volumes come up, right? Any other type of fees that where there can be a regulatory constraint also comes with a cost, right? So that means you need to think about not just the fees, it's also you need to think about the cost that goes with the fees. For example, if there are certain fees that goes up, there has to be a certain cost also that goes up, right? And what are the type of costs that can go up? You see that there is a balance between what you earn on the fees and what you spend on the expenses, call it the rewards. call it the cashback, call it the sales promotion, the marketing promotion, they all have some linkages across the P&L, right? From top to bottom, these are the kind of linkages. One cannot look at only one isolation as a structural change, right? There's no such structural change, but if there were to be a structural change, one has to look at it across all the P&L lines in terms of what is discretionary and what supports what, right? And then accordingly, one has to model. But from an aggregate sense, the card's profitability model should remain intact irrespective of whatever.

Last question on the digital strategy, you know, you've even also partnership with a few entities. So can you just talk about this partnership with some of the entities that you're working about and how does it sort of feed into your digital strategy to acquire and retain the customers? and also from operating leverage point of view. That is the last question.

Thank you, Shane. Okay, thank you. I know this is more of a key question and getting talked about everywhere in terms of partnerships and how you think about and the cost of income and so on and so forth. Maybe it's a time I'll take two, three minutes or so to describe, right, how we think about it and you can see whether it fits in with what you're all thinking, right? See, in a bank, you'll have to look at things in three different kind of activity, call it like that, right? One is the customer acquisition. The second one is the customer servicing. And third one is relationship management. So this is the continuum of how one engages with the customer and works on. The various fintechs and the partnerships that we are all talking about is on the front end there, on the customer acquisition side, right? We have several channels for acquisition. Branch, we have a virtual relationship model, we have a street model, we have a physical DSA model, right? And then now we have a digital marketing model developed over the last three years based on analytics. And now we have a partnership model, that is, call it a fintech partnership or any other type of partnership that you think about, that is another model. And we do get, I gave you some time ago in terms of regarding 2.4 million liability relationships. That's the key ingredient that comes in based on which every other product starts to work on that, right? And so that is the kind of inflow of customers. So you get a little more accelerated customer acquisition. At the end of the day, you measure the effectiveness of that through the better cost of acquisition, which is the optimal cost of acquisition. That's where it gravitates to. If a branch brings in accounts, brings in relationships at a cost that is much better than the FinTech or better than a partnership, that is where things gravitate to, right? That's part of the cost of acquisition model, that's how you think about that. Then certain other FinTech or a service or a mobile banking feature or various other things that go, that goes in customer servicing, that is enabling customers to do things where it can be done on self-service or where it is done through a relationship management, how on a straight-through basis, on a paperless basis that we execute. That's where you measure that to a cost-to-income, whether are you at an optimum level in a cost-to-income where you are able to support the customer's activity in an optimum manner. So that you measure through how we are executing on that aspect of it, right? Now, on the relationship management, which is where the most of the money, right, which somewhere in the past we have done, we have said, last year I think we mentioned it, call it about a third, less than a third, less than 30% of our customers provide a little more than two-thirds of value to the bank, right? And 30% of the customers are the ones where we have relationship management. So at the end of the day, you can bring in any customers through any channel, optimum cost of acquisition, you service them through digital approach to any way, at the end of the day the value it comes through relationship management right that's what at least in our case we have we have published that and we have talked about this in the past so it is about the relationship management that brings in now there are there are certain things in relationship management for example in the relationship management you see we implemented we talked about over the last 12 months actually during the code period uh the analytics based uh engagement with the customer the next best action uh that we that we implemented right in terms of how it it rank orders customer preferences based on products uh behavior and the intent to purchase and that the recommendations that come we have for 20 million customers uh we have recommendations that we we have an engagement with mod again it is digitally driven proprietary driven internally through analytics technology helps there but the delivery is through relationship management so this is can't be delivered through a through a mobile banking or an internet banking or a fintech partnership or any other partnership can't be delivered right it gets delivered through because that's where the value comes through a through a relationship approach right so that is that is something that the capability is coming from there so that's i probably i leave it there i've taken a minute or two more than what i said i will do on that hope hope that gives the perspective of how we think about yes yes thank you so much we will definitely take it offline as well thank you so much

Thank you. The next question is from the line of Sourav from JP Morgan. Please go ahead.

Hi, good evening, Srini. So just one question. One, this is on your net interest margin. So how should we think about the progression from here? The book mix clearly seems to be getting better. And, you know, if rates rise, you clearly seem to be better positioned. So would you expect that the NINs should go up from here? And in that context, you know, your earlier comment that BPOP will grow in line with loan growth, shouldn't ideally this growth be better? Thanks, sir. Okay.

See, Basaru, thanks for asking. Again, a very key part of the dynamics from the P&L to think about, right? See, historically, over a period of three years, five, 10, 15, right? We have seen all of those, which you have seen too. The bank has operated in a band of, call it 3.94 to 4.45, right? 4.4, 4.5 percent. That's the band at which, by the way, that is based on average assets, not interest earning assets, because we don't want to get confused with the denominator being what it is. Denominator in this case that I quoted the numbers is average assets, because there is a process, I think, in the industry about using interest earning assets, but that's a different matter. Okay, 3.94 to 4.4, 4.5, right? That's the band at which. Currently, we are at the low end of the band because the retail products where we see much, much more of yield coming, much more of a spread coming, and it comes with higher RWA, right? It comes with a higher risk rating on those, right? That comes there. We brought that down, and it's in the mid-40s. and it's starting to take its own legs and start to grow, right? So one is that it needs to take its time to grow back to what it was, call it two years ago, right? So that's the journey. And the journey, if you look at the sequential that you see, about 4.5%, call it 18% or so is the growth on the retail portfolio, right? And the next part of that could also be on the retail front itself, the mix of the retail front, right? Whether in the current rate scenario, what sort of loans that yield, right? It also depends on the segment in which we operate. In the recent past, we have had a good growth in retail, this quarter 4.5, last quarter also it was 4 something, right? So it's going to take a few quarters for that to come back to life. But within that, as we came out of COVID and started to focus on this, we have five categorizations for the corporate salaried segment, which where many of our high yield products are targeted to, right? category A, B, C, D, E, right? And category A, B, C, Cat A, Cat B, Cat C is a kind of a very popular where we have had a good success to start with right now. And we should have broad base as we go along with better yield and rates also going up. So that is something to keep in mind. And the other aspect of it is also the government segment. The government segment in our risk analytics model can typically be a low risk relative to the rest and will come in a risk-based pricing model, it will come with a relatively lower yield than the rest. So that is something also we have focused and continuing to focus on that also. So at the end of the day, it will take few quarters for this mix of retail and within the mix of retail should be much more broad based across all the segments within the retail that we are talking about. So that is one aspect of what you can think about the NIM coming up. The other aspect of the NIM is also about the rates itself, right? If you think about the repo rate, loans linked to repo rate, slightly under a third right now, right? About 31, 32, slightly under one third of our loan book is linked to a repo rate and about a little mid single digit or so is linked to T-bills, right? And so, which is, if you go back to three years ago, when we were in the mid to high end of the NIM range, the components, that means the composition of these two were very meager, right, were very low. I wouldn't call it single digit but very low it was. So it has moved up and now the rate starts to move up that is going to give something. And of course the cost of the rate starts to move up that will have an impact on the cost of funds too. But the cost of funds can come with a lot and savings deposits they're not necessarily on the time deposits which can come with a lag right so that's that's the kind of way you think about it saying one is the rate environment and another is a mix of retail uh that can come and and bring in that so ideally it should move up so that's what i was coming to that if your nims tend to move up shouldn't your operating profit be better than loan growth is the limited point i was trying to get that See, Saurabh, it's a good point that you say, right, but from at least my point of view, my perspective, I will tell you that you need to be continuously investing, right? And when you make those continuous investments, then that is where you get to the long term. So in a static book, what you say is right, right? If you look at it in the short term, say, hey, don't make any other change. Just allow these two changes, change the mix on the loan and change the segment between retail, get to the higher yield segment and should that be? Yes, it will be. But you know that this is not a unidimensional model, right? It should be a dynamic model where you invest for the future. That's why I alluded to in my opening remarks that about the branch investment. about the people investment, about the technology investment. We need to do that for the future. You don't see a return on it today. You will see the return on it in a couple of years time, right? Because the branch maturity model takes anywhere from two to three years to be in a reasonable state and between five to 10 years to get to the robust state, right? Same with people productivity. And so we need to make those continuous investments on those. And so that is why the one that I mentioned that the pre-provision operating profit or PPOP mimicking kind of a lending growth rate. That's how historically we've been because continuously we have added branches. So if you think about in the last five to 10 years, we've added 2,600 branches in the last five to 10 years. In the last one to three years, we've added 1,100 branches, right? And so these are the kind of investments continuously we do to model so that it is dynamically maintained for a longer term to come.

Thank you, Srini. Thank you. Thank you.

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

Yeah, hi. Srini, I have a question on the fees for the payments products in the sense that are you seeing pressure on interchange fees or the MDR levels coming down? The reason why I'm asking this question is that first, of course, you can just tell us what has been the experience. And secondly, from the new digital payments paper, I know it's always complicated. difficult to second guess what the regulator is thinking but you really think there can be further reduction with respect to MDRs on debit cards can there be something on credit cards can UPI be monetizable I'm just asking all these questions because everything has got to do with the payment related fees so if the regulator is thinking only in one direction that's to bring down the transaction cost then this is not going to be one sort of phenomenon you're going to be prepared for subsequent several quarters so how is the management thinking about taking care of some of the regulatory challenges here. Thanks so much, Rini.

Thank you, Suresh, and it's indeed important to address it and say about what we think. There are two aspects to this. One is the experience itself in terms of what we see on the interchange or the MDR. There has been no pressure on interchange or MDR. from a rate point of view, right? It has been quite steady and quite nice. So that is something from our recent experience that has not been inhibiting our kind of a free line. The rate is quite all right. Now, when the MDR, we'll address that because it is easy to address, we'll come to interchange. See, MDR, we don't make on a net basis, we don't make much, we don't make anything on MDR for that matter. That means, If it is an internal customer, that means if we have an issuing card, our MDR business pays interchange to the issuing card. If it is a third party card, office card, our MDR business pays interchange to a third party issuer. MDR business as such is pretty neutral. very vehemently pursue EMDR relationship or merchant relationship 2.85 million and continuously grow that because of the sandwich strategy which is along with that comes the liability and comes the asset value. Liability we have already started and assets we are working on various models and we are come to a reasonable value there. We still have to do a lot to grow there, but that's part of that strategy so that NDR as such, there is nothing to take it away on NDR, because there's nothing there to take it away. So that's one. Now coming to the interchange, it is being held steady. If there is any other pressure on interchange, Suresh I alluded to a little earlier in some other context of the question, which is, see, interchange and isolation, Perhaps it should not be looked at. Interchange should be looked at in the context of what is the rewards that is offered on the card, right? What are the reward, cost of the reward points? Cost of the cashback points that are, cashback cost which is there. Cost of the sales and promotion marketing type of costs that are there, right? So when you draw a P&L only on the sales, so that means keep the revolvers to the side. keep those people who do the cash advances and who do the limit enhancements or spend more than the limits and who habitually pay late and keep them to the side, right? And it's a pure transactors if you see and you draw a P and L on the transactors, it is like the MDR sandwich strategy. You keep the customer engaged because you've got a float on the liability side with the customer and you're able to do certain things on the asset side of the customer. So if they interchange for any reason, right, which you can't predict, but if any reason that has to move up or down, then you get the other levers on the P&L get operated, right, which is when you look at reward, when you look at your cashback, then you look at your marketing and sales promotion. And so you look at all of those and try to manage the P&L to profit.

Okay. Okay. Thanks. Thank you. Thank you.

Ladies and gentlemen, that was the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Okay, thank you, Janice. Thanks to all the participants for dialing in today. We appreciate your engagement. And if you do have anything more that we could help you from your understanding, Ajit Shetty in our investor relations will be available to talk at some point in time in the future. Please stay in touch with us. Thank you.

Thank you. On behalf of HDST Bank Limited, that concludes this conference. Thank you all for joining. You may now disconnect your lines.