HDFC Bank Limited

Ladies and gentlemen, good day and welcome to HDFC Bank Limited Q4 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 auctionary 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 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, Rituja. Good evening and a warm welcome to all the participants. Let's start. The COVID current state, this is a mention as we start. The saga, if it permits, we can say is hopefully behind us, at least for now. We cannot forget the deeds of the people who dedicated their lives in the service of the bank during the year and thousands of others who single-mindedly were in the service of the customer through all this. Same time last year, we were in unimaginable crisis. Most, if not all of the restrictions are behind. Thanks to our team and equally important thanks to you all for being with us through this to get us here. Let's start with providing the context on the environmental policies during the quarter, which are manifesting signs of speedy recovery. We'll jump over the basic details of GST collections, PMI, et cetera, et cetera, that shows growth. Around the mid part of the current quarter, The recent quarter, geopolitical tensions raised across the world which have given rise to global uncertainties. This has impacted the global economies profoundly, which is evident from the surge in crude oil price, major commodity prices and then further global supply chain disruptions in recent weeks. CPI inflation is on rising trend due to higher food, crude oil and LPG prices. The RBI kept its monetary stance unchanged. However, it is expected that this accommodative stance shall be switched to a neutral stance in the next MPC. We also saw the introduction of SDF and the RBI reverting to a pre-pandemic policy corridor of 50 basis points with a lower bound SDF and upper bound MSF. We are confident that the policy measures are supportive and at this time provides impetus for continued growth. Let's go through four key themes at a high level. First theme, is about the investment in capital, investment in human capital branches aided with the Dutch in-class technology. During the quarter, we added 7,167 people. For the year, we added 21,486 people, which is an all-time high to get the people ahead on the productivity curve as the economy accelerates. During the quarter, we added 563 branches, For the year, we have added 734 branches, which is about two branches per day, and further about 150 branches are in the pipeline to open within a short period of time. The bank is accelerating the technology and digital transformation agenda. We continue to stay invested in creating seamless customer experience across digital touchpoints. Significant inroads are being made through initiatives such as customer experience hub, PaysApp, which is a revamped payments and wallet experience, and refreshed offerings for MSME and wealth management customer base. Our focused digital and enterprise factory approach is enabling the building of our own capabilities to co-create tech IT. Initiatives such as DR Resiliency and our hybrid cloud strategy continue to fortify our IT infrastructure and architecture backbone. Our progress over the past year has resulted in lifting of the restrictions on the new card acquisitions in August 21, followed by the removal of the embargo on digital 2.0 program in March 22. We have taken multiple steps to ensure the robots are scalable and secure technology setup is strengthened even further. We continue to rigorously monitor the progress and are now fully geared up to launch the programs under various digital umbrellas over the next few quarters. In Q4, we received a total of 234 million visits on our website, averaging 29 million unique customers per month, with a year-on-year growth of around 8%. As per our analysis, we had 35 to 75% more visits on our website than a public or private sector peer. Close to 57% of the visits were through mobile device, indicating the mobile centricity of the footfalls. The second thing, let's talk about the business growth that continues to gain momentum across diverse products and segments driven through relationship management and enhanced digital offering. Total advances were 13,68,000 821 crores, which grew by 8.6% sequentially and 20.8% over prior year. This is an addition of approximately 1,008,000 crores during the quarter and 2,036,000 crores since prior year. Commercial and rural banking businesses grew 10% over the prior quarter and 30% over prior year. As you know, this segment is a significant contributor of PSL assets. On retail, we witnessed a healthy growth in visible sales across products, resulting in assets growth of 5% over prior quarter and 15% over prior year. This segment is gaining momentum. It could have done even better if the vehicle segment was not impacted due to supply chain issues. Wholesale business too showed a sharp rebound across sectors, growing 11.6% over prior quarter and 17.4% over prior year. Franchise building continues to remain robust with our persistent focus on granular deposits and bringing in new customer relationships, thereby further centering our position to gain market share. We opened about 2.4 million new liability relationships during the quarter and 8.7 million new liability relationships during the year, exhibiting economic growth of 25% over prior year, thus enabling the broad basing and deepening relationships. Total deposits amounted to 15 lakhs 59,000 crores, which is up 16.8% over prior year. This is an addition of approximately 1,13,000 crores in the quarter and 2,24,000 crores since prior year. CASA deposits recorded a strong growth of 22% year-on-year, ending the quarter at 7,51,000 crores with a CASA ratio of 48%. Retail constituted over 80% of total deposits. The bank had 16.5 million cards as of March 22. During the quarter, we have issued 8.2 lakh cards. Further, we have issued 21.8 lakh cards since lifting of the embargo in the seven months of this financial year. Card spends have grown by 28% over prior year. The bank had 3 million acceptance points as of March with a year-on-year growth of 37%. Acquiring business volumes, including UPI and direct pay, grew 30% over prior year. Let's get on to the third one about the market share. Our market share and advances has improved from 10% to 11% during the year. Our incremental share of credit growth in the economy was at 24%. We have demonstrated in the past that our rate of growth is not inhibited by our market share. To further illustrate, over the past five years, despite the market share improving from 7% to 11%, we have sustained our advances growth to around an annual 20% rate. In deposit mobilization, our market share improved from 8.8% to 9.5% during the year. And the fourth item relating to the strong balance sheet and sets for capitalizing on market opportunities for growth. The balance sheet remains resilient. Capital adequacy ratio is at 18.9% with a CET1 at 16.7%. Liquidity is consistently strong. average for the quarter was 112%. GNPA ratio is at 1.17%. It continues to originate loans in conformity with our proven credit models. Floating and continuous promotions aggregating to 11,000 crores helps in de-risking the balance sheet and positioning it for growth. Let's start with net revenues. Net revenues at 26,510 crores Net revenues excluding trading income grew by 10.4% over prior year and 3.8% over prior quarter driven by an advances growth of 20.8% and deposits growth of 16.8%. Net interest income for the quarter at 18,873 crores which is 71% of net revenues grew by 10.2% over prior year and 2.3% over prior quarter. For the quarter, the core net interest margin was at 4%. Based on Interest earning assets, the name was at 4.2%. For the full year, core net interest margin was at 4.1% and based on interest earning assets, it was at 4.3%. Our asset mix has shifted towards higher rated segments during the COVID period, albeit at lower yields. As a result, NIA growth has been lower, but with the corresponding offset in credit costs, which are lower than the historical average. Further, looking through another lens, our NAI to credit RWA, credit risk weighted assets, has improved over pre-COVID levels by approximately 20 basis points and is currently around 7%, representing our optimized pricing for higher rated segment volumes. Moving on to details of other income. Total other income was at 7637 crores. Excluding training income, total other income grew by 10.6% over prior year and by 7.6% over prior quarter. Fees and commission income constituting three-fourths of other income was at to be 5,630 crores and grew by 12.1% over prior year and 10.9% over prior quarter. Retail constitutes approximately 94% of fees. Bank retail franchise delivered well on fees and commission income, commensurate with the healthy assets growth registered during the quarter. Fees on payment products remain subdued due to lower risk-related fees, over-limit fees, late payment fees, etc., reflective of our cautious approach to card-based lending as well as customer preferences. However, card sales and interchange have come out robustly. In all, this had an impact of about 4% on fees. The fixed derivatives income was at 892 crores, was higher by 1% compared to prior year of 879 crores. Trading was at negative 40 crores for the quarter. Prior year was at 655 crores and prior quarter was at 1046 crores. which were opportunistic gains from our investment portfolio. Other miscellaneous income of 1,155 crore includes recoveries from return of accounts and dividends from subsidiaries. Moving on to operating expenses for the quarter were at 10,153 crore, an increase of 10.6% over prior year. During the quarter, I mentioned about the 563 branches that were added and for the year 734 branches. and 2,043 ATMs, taking the total network strength to 6,342 branches, 18,130 ATMs, and 15,046 business correspondents managed by common service centers. We are further expanding our distribution network through partnership with Airtel Payment Bank, India Post Payment Bank, and Manipal Business Solutions, who have approximately 60 million, 50 million, 13 million customers under their ambit, respectively, and can provide access to that. Cost to income ratio for the quarter was at 38%. With stepped up investments in technology and retail segment continuing to pick up, we anticipate the spend levels to increase driven by volumes, sales and promotional activities and discretionary spends. Moving on to PPOP, the pre-provision operating profit was at 16,357 crores. Excluding trading income, PPOP grew by 10.2% year on year and 4.2% sequentially. Coming to the asset quality, The GNPA ratio was at 1.17% as compared to 1.26% in the prior quarter and 1.32% prior year. It is pertinent to note that of this, about 19 basis points are standard. These are included by us in NPA as one of the other facilities of the borrower is NPA. Net NPA ratio was at 0.32%. Preceding quarter was at 0.37%. The annualized leverage ratio for the current quarter is at approximately 1.3%, about 4,000 crores as against 1.6% in the prior quarter. During the quarter, recoveries and upgrades were 2,100 crores for approximately 18 basis points. Write-offs in the quarter were 1,700 crores for approximately 16 basis points. These basis points are mentioned or analyzed basis points. The restructuring under the RBA resolution framework for COVID-19 as of March end stands at 114 basis points or 15,700 crores. This is at a borrower level and includes approximately 17 basis points of facilities of the same borrower which are not restructured but included here. Of the total COVID restructured standard book, approximately 37% pertains to customers who have chosen to restructure only one of their facilities. Of the remaining 63%, 41% is secured and 59% is unsecured. Of the unsecured portion, 84% have good civil score or they are non-delinquent at the time of restructuring. This leaves us within manageable range with a maximum potential impact in our GNP ratio of 10 to 20 basis points in any given quarter as we have mentioned this previously. Provisions. The core specific loan loss provision for the quarter were at 1778 crores as against 1,821 crores during the prior quarter and 3,153 crores for the prior year. Total provisions reported were 3,312 crores as against 2,994 crores during the prior quarter and 4,694 crores for the prior year. Total provisions in the current quarter included additional contingent provision of approximately 1,000 crores. The specific provision coverage ratio was at 73%. There are no technical write-offs or head offices and branch books are fully integrated. At the end of current quarter, contingent provisions towards loans were approximately 9,700 crores. The bank's floating provisions remained at 1,450 crores and general provisions were at 6,600 crores. As on March end, total provisions comprising specific, floating, contingent and general provisions were 182% of gross non-performing loans. This is in addition to security held as collateral in several of the cases. Looking at through another lens, floating and contingent and general provisions where 1.28% of growth advances as of March quarter end. Now coming to credit cost ratios, the core credit cost ratio that is the specific loan loss ratio is at 52 basis points for the quarter as against 57 basis points for prior quarter and 110 basis points for prior year. Recoveries which are recorded as miscellaneous income amount to 26 basis points of gross advances for the quarter as against 25 basis points for both prior quarter and prior year. The total annualized credit cost for the quarter was at 96 basis points which includes the impact of contingent provision of approximately 30 basis points. Prior year was at 1.64% and prior quarter was at 0.94%. The reported profit before tax at 13,045 crores grew by 20.3% over prior year. Net profit for the quarter at 10,055 crores grew by 22.8% over prior year. Net profit for the year ended March 22 was at 36,961 crores up 18.8% over prior year. Now on to some highlights of HDBFS. This is on an India basis. The total advances were 61,326 crores, of which 76% were secured. Disbursements have picked up in Q4, growing 11% quarter-on-quarter basis and 7% year-on-year basis. For the quarter ended March 31, HDB FSL, net revenues were at 2,141 crores, a growth of 8%. Provisions and contingencies for the quarter were at 422 crores, including 223 crores of management overlay, as against 429 crores for the quarter ended March 21 and 540 crores including a 98 crores of contingent management overlay in the prior quarter in the sequential quarter. Growth stage 3 stood at 4.99 down from 6.05 from the sequential quarter comparison. This includes an impact of 1.27% on account of new RBI guidelines issued in November 21. 80% of the stage 3 book is secured, carrying crucial coverage of 44% as of March 31, 2022 and is fully collateralized. 20% of stage 3 book which was unsecured had a crucial coverage of 87%. Above all, HDB remains well capitalized with total capital adequacy ratio at 20.2% and tier 1 capital adequacy at 15.2%. LCR was at 102%. Profit after tax for the quarter ended March 22 was 427 crores. Earnings per share in the quarter was 5.41, rupees 5.41, and book value per share was at rupees 120.69. As of March 22, HTB SSL had 1,374 branches across 989 cities and towns. Now on to HSL. HTB Securities has a wide network presence of 216 branches across 147 cities and towns. There has been a significant increase in its Overall client base to over 3.8 million customers as of March end, an increase of 40% over prior year. 86% of HSL's revenues come from transactions done by customers on its digital properties. HSL's revenue aggregated to increase 510 crores for Q4-22, an increase of 16% over corresponding period a year ago. Net profit after tax was at 236 crores. the quarter earnings per share in the quarter was it is 148.84 and book value per share was at 1050. in summary we remain committed in offering our customers with comprehensive range of products and services while capitalizing on growth opportunities we have delivered consistent performance for years together and remain pledged towards the culture of excellence excellent thus the quarter results reflect Advances growth of 21%, deposits growth of 17%, profit after tax increased by 23%, delivering a consistent profit growth rate and return on asset of over 2% and ROE of over 17%. Earnings per share in the quarter of, it is 18.1. Book value per share increased in the quarter by, it is 18.6 to 433. The economy is growing. Businesses are robust. Credit demand is high. Savings growth is strong. Customers have cash to spend on their spending. We are here to serve. With that, may I request the operator, please open up the line for questions. Thank you.

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on the touchstone telephone. If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to limit their questions up to 2 per participants. If time permits, you may join the queue for any follow-up. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mehruk Adjania from Eaglewise. Please go ahead.

Yeah, hello. Hello.

Please go ahead, ma'am. Your line is unmuted.

Yes, go ahead.

Yes, so I had two questions. My first question is on margins. So in the second quarter or so, we had in the earnings calls, we had outlined that there could be margin improvements with a lag once. retail loans pick up and that could happen over six months, three to four quarters maybe. So is that and now in the fourth quarter margins have declined further. So is the margin expansion on track? How do we view margins from here on? That's my first question and also connected to margins. If you could just lay down, if you could just give a rough indication of the commercial banking yield x agriculture.

Okay, let's take these questions. On the margins, yeah, I think I mentioned it when I, a few minutes ago when I was presenting. Our asset mix has shifted, right? It has shifted significantly from unsecured to higher rated segments, right? And it has come All through the pandemic, you saw that the retail was going down in the rate of growth and it was picking up in wholesale and then commercial global. If you go back to pre-pandemic, go back to three years, 2019, right? If you look at it, the Basel disclosures that we do, I'm doing that Basel because we show that by type. Wholesale was 45, retail is close to 55. Now things have reversed, right? Now retail is 45 and wholesale is 55. In fact, in this quarter, the rate of growth in wholesale was even more, 10% sequential, 11% sequential growth in wholesale in this quarter, right? And retail also grew very well at 5%, 5.1%. That's an annualized rate of little more than 20.5% on retail. So, retail has grown well, but except that the wholesale has grown much faster, right? So, that's one from a mixed point of view. What does this mix do, right? What has happened is that the high-rated segments tend to be low-yielding. Basically, what has happened is we traded off NIM to POSCO. to operating costs and credit costs to sustain, to deliver sustained profitability on our, that is what has happened in this scenario. You will appreciate that NII or NIM is a function of risk, right, and you got to connect it with the credit too. And we have been, we chose to be risk-off. all through the pandemic, and it is not something that, that's why we told you last time that it could take three, four quarters, six quarters to come back, right? And retail is coming back, but wholesale has not relented, right? We need to get that opportunity to the extent that this opportunity comes at a good quality. We are okay with that to the extent that it delivers the profitability that is required, right? Which is what is happening, both the top line in the form of volumes and the bottom line in terms of returns that it provides. Because when that high rated things come, as I said, it comes with lower cost and lower credit. So, something I want to emphasize on that. One other thing I want to mention is that, if you look at, I think I mentioned about the credit RWA, right? One other way to look at the margin is, are you pricing for your credit? So if you use credit RWA as a denominator, it is 7% now and it's 20 basis points more than what it was pre-pandemic. Essentially trying to say that we have optimized, we are optimizing on the margin. That's one way to look at it. And another way to look at it is you look at net credit margin, which is net interest margin minus cost of credit represented by specific credit cost, right? If you do that, we are at 3.5% in this quarter, which means net interest margin less cost of credit 3.5%. And the same time last year, if you see it is 3.1%, right? Again, tries to show you that it is about pricing for the risk. And the same, you can talk, think about full year, right? One quarter doesn't make a, cannot set you a trend or show you something that is consistently there. But let's, I'll give you the same thing, net credit margin for the full year, right? Full year 22, 3.3%, right? Which means including that high credit cost quarter that we had in Q1, include that too, right? net interest margin less specific credit cost, right? It's 3.3%. The same metric last year, full year last year, FY21, 3.1%. Again, tries to tell you that we are pricing well for what we need and so it is about the bottom. And if you look at the ROA, any time period. This quarter is a little more than 2.1 and if you look at the full year, it is 2. Last year, 2. The year before, 2 ROE. And if you look at ROE, same around 17% or so return. So what is this telling you? Margin is one of the metrics and it is an important metric. And to the extent that the margin is reflecting the risk that you are taking and it is borne out from the credit ratios and that provides the right kind of a cover for you to give the Returns that are required for shareholders. I hope that answers in terms of what we tend to give you on that.

Sure. So, henceforth, the focus will continue to be on dim minus credit cost. Is that the right way to look at it? Because if the macro remains volatile, then the risk of could continue longer. Correct?

In terms of how long... The retail growth, if you see, is at 5, 5.1% growth is what we have had sequentially. And on year-on-year basis, if you see retail, it is about 15 odd percent. So it is lagging. That means the quarter growth is more than the year-on-year growth because it was on a sliding scale. More paydowns were happening than bookings in the past several quarters around the COVID time period. And now, The sequential is leading, right? You're seeing that it is beginning to go on an up curve. So the year on year will come and catch up soon, right? And that is one on retail. You need that to power. And when retail powers, I do want to mention to you, it does not come free. It comes with enormous cost. You can see the cost to income, the full year cost to income is at about 37 or so. The quarter cost to income is 38, 38.3 to be more precise, right? It comes with cost and when the retail powers to 6% and 7% and so on, you will see that the cost to income also goes up. And again on the credit and credit cost I am talking about, that also goes up because retail comes with a higher credit cost, right, compared to wholesale. So, at the end of the day, it is about getting the returns that you need. That is why I try to focus and I gave you the numbers on the return on asset, on the return on equity, which is what gives the shareholders value or at least returns above the cost of capital. If you think about what the cost of capital is, whether it is any of these mixed, whatever happens on the individual lines. Is your top line growing? Is your customer franchise growing? I have shown you how the retail wholesale and the commercial is growing. 5% on retail, 10% on commercial, 11% on wholesale. That is the top line customer franchise growth that you are seeing. And what is it translating into the bottom line? Good returns, 18-20% PBT or PAT with a 2% ROA, 17% ROA. So that That's what the top line and the bottom line from a franchise growth point of view it gives you. In between, that is the optimization tools that we deploy to get that.

Got it, sir. Sir, any rough rate you can give on yield on commercial banking loan?

Yield on commercial banking will be approximately about 8% or so and you asked about what the agree could be. 9-10% or so is the agree yield. Okay, sir.

Sir, and what would be the, now moving on to the next question, what would be the, what is the accounting policy associated with RSUs in terms of upfront cost and amortization?

Okay. See, first accounting policy on RSUs. First, let us take what is RSU, right? So that you see whether it is any different from ESOPs or not from that point of view. It is RSU, you can think about it as similar to ESOPs except that it is at a deep discount, right? That's one thing. That's that the excise price is one. However, the way to understand this is the number of RSUs would result in no different impact at the bank chosen to grant ESOPs. No different. What does that mean? For instance, if the bank was to grant three ESOPs worth a fair value of 500 each, it will grant one RSU. That's all. That means fair value of 500, you grant three, an employee gets 1,500. Now, when you grant RSUs, You just grant one RSU. And what does it do? So that the total compensation is remaining at that 1,500 or so. And it avoids the shareholder dilution to some extent, right? It mitigates the shareholder dilution. And what is it that we are trying to do with the RSU? One, it is intended to be extended to mid and junior management, right? Far deeper in the organization. for the staff up to 10 levels below the managing director that that's one thing mode right and this will be part of the overall compensation structure this is whatever is the compensation structure this is part of that overall structure 75 percent of the rs use are intended for personnel in level 6 to 10 below the ceo right 75 is intended for them and what is it going to do it is going to lower the attrition significantly it's going to bring up enormous amount of productivity at those levels. So this is something that we thought about it and we wanted to make a difference to those employees and make them share owners and get them this so that they can participate in these things, right? Just so that you have a context of what this will mean. Another thing that you need to think about RSUs, right? It is granted whatever approval we have sought from shareholders, is expected to be granted over the next four years. So, it's not a one-year grant, it's expected to be done over a four-year period. The second, which is what normally we do, even ESOPs, we take approvals that is expected to be at the four, five-year period or something. Then, the next thing on the RSU, you need to, the vesting period is five years. So, which means four years to grant, right, every year one, year two, year three, year four, five years to vest, So this can go all the way to nine years from now, right? And whatever cost needs to go in the P&L will go over that longer period of time. That's one thing. The second thing that you touched upon, what is the accounting, right? The current accounting is like it was for ESOPs, which is it doesn't need to go through P&L other than for material risk takers and executive directors and CEOs and so on, right? But ESOPs, we as a bank chose to have that on the P&L for all of them. We have that. And for RSUs, we will decide what we need to do, whether it is from a shareholder point of view, it mitigates the dilution. That's what I want to leave you there. Compared to ESOPs, it doesn't change anything different. That means, as an example I gave you, an employee got three ESOPs, and the equivalent compensation of 3 V stops of 1500 will get one RSU for the same compensation value of 1500.

Got it sir. Thank you so much. Thanks a lot. Thank you.

Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Yeah. Hi. Good evening Sini. Am I audible?

Yes sir. Good evening.

Great. Thanks. So two or three questions, Srini. First of all, on the liquidity coverage ratio dropped quite a bit in this quarter. Seems like you utilized the excess liquidity that you were sitting on. So how long, I mean, how much more scope is there to rationalize this? And if I were to tie it in with the deposit mobilization, you know, that you also intend to do in light of the merger, what would be the strategy out there? So that is the first question for me.

Okay, let's get on to that one. The first thing is as it relates to the, yes, we have continuously optimized on the liquidity available, as you know. And the context for this quarter, if you see, we had loans growing. In this quarter, loans growing 1,008,000 crores, right? In one quarter, we had that kind of a growth, right? 1,008,000 crores. And in this quarter, the deposits also grew 1,13,000 crores. So we did consume, still the deposit growth from an amount point of view exceeds the loan from how we have deployed. But from an LCR value point of view, it will come down because there are certain things that you will have to have the liquidity assumptions, the rundown assumptions and so on and so forth. So we have used that. And how much more we can optimize this I don't think we can optimize this any further, right? We have come to 112, probably, see, we run it with a floor of about 110, right? That's the kind of a floor we think that we will run. At 110, we will get on to doing certain things in terms of mobilizing more. And we'd love to run it between 110 to 115, optimize, but I do expect, I think in some other context, we did talk about the branch vintage model and the deposit that it should generate. Think about the branches that we have opened. The 0 to 3 year vintage branches provides a value of X and those branches migrate to 3 to 5 years and 5 to 10 years give you a value which is 3X and 5X from a branch productivity point of view. The branch productivity that we have as a bank is 250 pros per branch, right? That's the productivity that we have. And that's one of the best in class in the industry, right? And if you look at certain branches that are new vintage branches, they are progressing towards that high productivity. And that's, I think, some other context somewhere we published in terms of what the branch productivity model is and how the branches are progressing through that vintage model, right? So that's one that will bring the deposits more. the deposits gathering is less about the merger combination or whatever we talked about right that's something that we need to work on and think about to fund and that's part of various branches that we are opening anyway we opened 563 branches in this quarter 700 and odd branches and we have said that we want to open order of magnitude 700 to 1000 branches during the COVID period also last year we opened 353 branches So we continue to do this because we believe that the radius around which the customers can be serviced, currently I call it four, five kilometers radius, needs to come down to one to two kilometers radius from where the branch in the catchment area can effectively manage the customer's relationship better. So the part of that we open and it is also about getting the sales force to sit in those branches and do. So essentially, yes, deposits gathering is a prime kind of an activity. Branch opening is that. Branch vintage model monitoring and driving through that is another kind of a dimension to look at it. Yes, we'll keep driving that.

Got it. Shani, just one more question on retail. Various segments in weekend have shown now continued momentum. So, fair to assume that, you know, all the current filters are normalized and this can be sustained over the next few quarters, a few years.

You mean the retail lending, retail loans? Lending growth.

Yes, yes, yes. Yes, we believe so, right?

So, even in this quarter, if you look at it, the retail grew by about 5% or so sequentially, right? That's the kind of growth. Now, supply chain issues were impacting the vehicle type of businesses. That grew lower than the average. And the payments business, I alluded to the cars spending growing at about 28% or so, but the payment business grew, the cars business on the loan side is about 14% or so, and sequentially slightly under five, around to 5%, right, under five. slightly under the average. Now, if you look at the total outside of the vehicle segment and the cars, the retail currently is powering at about the sequential momentum of about 6% or so, right? And we do believe that the vehicle should come back once the supply constraints abate, which is for a good part, it is slowly coming back. The rate of growth this quarter we had on vehicles was better than the last quarter. coming back and same with payments too, right? Last quarter, we had a spend, credit card spend of 24% and a loan growth of 9%. This quarter, credit card spend is growing at 28% and a loan growth of 14%. This is all year-on-year numbers. So, you're seeing the momentum also picking up there, right? So, that's something I want to bring your attention to. And that's over a longer period of time, that's That's what we should expect, that there is an enormous opportunity, demand far outstripping supply, and the credit penetration in the country is low, and we are there capturing that.

Can I just squeeze in one small question on the fee income as well? It picked up this quarter nicely 12% earlier. Can you just break it down between payments and the other usual fee income that you earn, how the momentum has been there in those segments? Thank you. That is it from us.

Thanks. Okay. Got it. See, the 12% is partly aided by the payments doing a little better also. But still, payments is not at the business as usual type of growth that we have seen in the past. It is not done. But from a mix point of view, if you see what the mix is, the total 12, the payment is 10, 11% or so now. It was a very small single digit last quarter. And excluding the payments, we are at about 14, 15% or so on the fees. And if you think about the mix that you asked about, The retail, the assets and the liabilities on the retail, that's call it about say 40%. You should look at an annual rather than quarter because quarter to quarter there will be variation. Some point in time you will see some third party products, customer preference, and some point in time you will see some festival spend and other things happening. So quarter to quarter variations, but if you look at the mix of various fees over a year kind of a time period, retail assets and liabilities, about 40% of the total, about 20-20 each. And if you look at the third-party product, you can call it close to a quarter of the total fees. And card, call it about under a third, call it 30% or so. And the wholesale is anywhere between 5-7% that is. So that's the kind of how the fees stacks up in terms of What are the contributing factors? What are the products that contribute into the fee mix?

Got it. So, the payments grew 10 to 11% YOY in this quarter. Just wanted to clarify that.

That is correct, yeah. But still, it is lagging what it used to.

Got it. Thank you so much, Sri. I really appreciate this. Thank you.

Thank you. The next question is from the line of Aditya Jain from CP Group. Please go ahead.

Hi, thank you. On the branch vintage slide which we uploaded some time back and a little bit recently, this puts on the link between the historical deposit productivity and branch vintage as it's in the chat. Could it be different now with the historical experience, given that the earliest branches would have been in the larger cities and the frequent ones would have gone into smaller locations progressively? So, the multiplier effect that you're seeing put it in the word and your sense on how much would that impact the historical experience.

Okay. If I understand your question, historical location of the branches versus the current location of the branches, does it give the same kind of a, branch maturity model, branch productivity model? If that is the question, I assume that's what you're asking. The answer is yes, right? Even the current model, this is how we test, and this is how we establish what is the detection class, and we drive the branches to those detection class, and that's part of the current model that we have.

Okay. Understood. And then secondly, so on the view on depositor, the leaders gave an experience in past trade cycles. So one, as term deposit trades rise, we expect some idle amount in seven deposits to start getting deployed in term deposits and would that be a material amount?

And second, the- If I ask your pardon, As you were talking, there's a lot of background noise that was coming. If you can patiently repeat, I'll appreciate it.

Okay, let me try again. Sorry. So I was asking depositive behavior in a rising rate cycle. So existing saving deposits and term deposits. Would you expect a move of saving deposits to term deposits and what sort of a quantum that would be? Is there a way to look at that? And secondly, your experience on how often or what proportion of term deposit investors would do an early break of their term deposit to get into higher rate deposits as rates rise? I don't know if it's easy to answer this, but just behaviorally from your observation, if you could give us an answer.

Okay, a couple of questions you had. One is what will happen to the mix of products between savings and time deposit as the rate starts to go up, right? See, if you think about our historical mix of Qatar ratio, currently at 48, 48 is high. Last quarter was 46, right? But if you look at over a longer period of time, the Qatar ratio, anywhere between 40, 42, that is the kind of rate at which you will see that. We are not shy of that and I'll tell you this. The time deposit penetration in our customer base is at just high teens. We would expect the time deposit penetration in our customer base to be in the 80s and 90s because as part of the customer's asset allocation, you would expect every customer would be having some amount in some liquid funds, some in savings, some in time deposit, and so on and so forth, right? So you would expect that the customer would have, and our penetration, we have a long way to go to get that penetration up, right? So that's one thing, and we are not shy of that, and that's part of the narrative our RMs have, conversations in the relationship management with the customer is to engage to deepen that relationship. And if it is time deposit deepening, so be it. Over a longer period, if you go back five years ago, three years ago, five years ago, 40, 42, that's the kind of range that we have. In recent times, it has gone up. But even now, a rational customer will go to time deposit if required. If he wants 50 basis points more, the customer will go to time deposit. And as the range starts to go up, may go and we are okay with that because that's how you price the assets too, right? You price the assets also as the rates go up, time deposit goes up, asset price also will be repriced up.

Got it. So there could be some more movement towards time deposit. And the second part of my question, if you could touch upon that, you know, behavior of time depositors, would they sort of breaking current deposit in a higher rate time deposit?

It depends on the customer at what rate. It depends customer to customer. It depends. I'm sure there is a break-even analysis that everybody does in terms of when you break a time deposit and you pay the breakage fee because there is a penalty for prepayment. When you do and pay the prepayment penalty and you book it into the new rate, what is the yield pickup that you get and over what tenor. So there is a map to be done and I'm sure the customers do but we don't see that as a rampant issue that is not something that bothers. And there is always somebody who may have booked it at very low rate who wants to come and change it.

Thank you.

Thank you. The next question is from the line of Manish Shukla from Axis Capital. Please go ahead.

Hi, Manish. Yeah, good evening. Thank you for the opportunity. Actually, could you give some color about the wholesale growth during the quarter in terms of PSU versus private mix or short-term versus long-term lending? The incremental lending done during the March quarter.

Okay. See, it is all of the above. For example, if you see there are the sectors, if you see which are the sectors, telecom sectors are there, where there was a loan demand in the quarter. PSUs were there, where it is. There was some manufacturing we saw picking up, but not a big thing. And some NBFCs also came in, right? So these, I would say the three, four things that came in to give. From a utilization, see what has happened is we had a tremendous amount of prepayments happening at the beginning of the financial year, right? Corporates were prepaying. The prepayment in this financial year was to the order of about call it 60,000 crores, 65,000 crores or so prepayment happened, paydowns happened. Then this quarter we did not see as much of prepayments or paydowns happening. This quarter was something different. We didn't see it, right? So, two things contributed. Some new demand, they gave you some sectors that there was some credit demand. And the other thing is that the prepayment didn't happen as it was seen in the prior quarters so these two contributed to higher wholesale and we are pretty okay because we are very interested in a relationship we don't measure the profitability only on the loans which again by the way the cost of income on the corporate side is in single digit the cost of income is single digit the expected credit loss is virtually nothing right so that's so highly profitable or equally profitable as any other product that you would imagine And so we're quite comfortable with that. And apart from that, it provides that the kind of entry to deepen our relationship on the retail side through the salary relationships and the products that we do on the retail side with them.

Sure. In terms of overall wholesale mix, how would the PSU mix today versus let's say a year or two back? Share of PSU in overall wholesale?

As part of the we have not put the PSU out we are not separately called out for PSU but if you look at the sectoral deployment I think we publish that periodically you will see that somewhere if it is so far not published it will be published later today I think. The sectoral deployment.

Sure. Last question in terms of your oral loan books how much is floating rate and within that how much is linked to repo?

Floating rate and fixed rate is college Okay, 46 is fixed, 54 is floating.

Okay, and repo link would be?

Repo link is about, you have to look at repo along with the T-bill, repo and T-bill about 38% or so.

No, the only reason I am asking repo separately is because repo is dependent on regulatory action. T-bill will be market driven, which is why I am trying more interested in repo separately.

Yeah, I think it was about 29%, 30% was the repo, about 10% was teaser.

Sure. Thank you. Thank you very much.

Thank you. The next question is from the line of Sagar Doshi, an individual investor. Please go ahead. Sagar Doshi, please go ahead with your question.

Hello, sir. Hello. Yeah, hello. Hello. Yeah. My question is regarding the treasury income. So, as I could see quarter on quarter and year on year, the treasury segment income has reduced. I understand that it might be due to the bondage, etc. But could you give any view on that, that how it would go going ahead?

Okay. See, you are talking about the trading income, right? Yes. okay, last year same quota was about 655 crores, last quarter was little more than 1000 crores and this quarter was close to nothing or actually negative 40 crores, right? So that's what you're talking about I guess. Those were, as I alluded to several minutes ago, those were more opportunistic gains that we harvested from whatever was possible, the timing and so on, whatever we could, we harvested. And when the rates are rising, we haven't harvested and the opportunities to harvest is also less, right, in a rising scenario, right scenario. So going forward, how you should think about it? You should think about it that it is minimalistic. The second thing also you need to think about it is when we have excess liquidity, too much of excess liquidity, we do have always excess liquidity, when we have too much of that, We deploy it in such a way that we don't mind harvesting gains on those excess, right? So that the drag that can come from securities at a lower kind of a coupon is offset in some other form. But we are at an LCR of 112, call it around between 100 to 115 kind of a range. So you should not expect the treasury trading income to sustain at any big levels for the time being.

Okay, thank you.

Thank you. The next question is from the line of Adarsh Parish Rampuria from CLSE. Please go ahead.

Hi, Shridhi and team. I had a couple of questions. One is from your life.

I'm sorry to interrupt you, Mr. Adarsh, but your voice is breaking. Can you please check?

yeah let me try again so from a next 12 to 18 month perspective how do you prepare the balance sheet for the you know you're already ramping up on branches and deposit mobilization what's the implication both from how the balance sheet liability side would look would you bloat it up a little bit as you get closer to the merger and from a OPEX perspective, because you ramp up distribution a little more front-ended, does that cause a drag on EML for the next 18 months till the merger?

Okay, good, good. A couple of good points you're raising, but it's very important we address it so you can think about it. It is not about preparing or merger or anything, but what is our normal strategy, right? That's a good thing to keep a note of. We do want to ramp up branches. We do want to bring in new liability relationships. We do want to get the branch productivity from a deposit gathering point of view to be the best in class, right? And as I mentioned to you, branch is the best in class. And we are trying to deepen even further from a productivity point of view on that. So we'll keep going on, that's one. Irrespective of what it is we do and that is part of what the branch growth that we have embarked on. There was a modest 350 odd branches in FY21. This year we have taken it to more than 700 and we have a plan to sustain significant amount of branch growth. 150 branches are in the pipeline to open anytime soon and so we are going to do that to mobilize the relationship The reason for the deposit is we have equally from an asset appetite point of view. If you look at the last five years, right, we have grown assets, CAGR, call it 20 plus percent. That's what historically. I cannot give you an outlook of how asset growth, what is the asset growth we are doing. But I can only point you to the past to say if you look at any kind of a two blocks of five year period or something, think about the 2017 to 22 or 16 to 21 or 11 to 16, whatever kind of a time period if you see, 18 to 20, right, that is a kind of rate of growth at which we have gone and we have done that irrespective of what the market share at the respective time periods were. The market share is 6%, 7% or 11%. Whatever it is, that is the kind of rate of growth we have. And so the machinery is tuned at that kind of speed and that kind of infrastructure that we have set for growth. So we do need more liabilities to support this. Now, if we will have excess liabilities, possible we will have, it is quite possible that we could have and we have had it over the last 2-3 years and if we will have it in future, it is quite possible. But the last aspect of your question is what is even more important. The liability, excess liability not necessarily translate into kind of a inhibiting growth rates or drag on anything. If you get a deposit and put it in a security at the current yield curve you still have an opportunity to make a 2% ROA. You need to get the right mix of deposits between CASA and time deposit and you need to have them at the right quality granular VCA So you will have an opportunity to invest in any kind of security and provide returns equal to the average of what the bank does, right? So that's how I would urge you to think about. Again, if you think about margin, if you have high deposits, will you have a margin impact? Of course, because you have a zero risk weighted assets. If you have excess deposits and put in securities with zero risk weighted assets, you earn for the risk that you take. You don't take any risk, you learn for that, right? But still, you optimize for the return on asset, return on equity at the end. So, that's how I urge you to think that if you do get more deposits because we are ramping it up, but it is supposed to provide good returns.

And, you know, refer to the point that you mentioned that cost-in-term spending that will go up, you know, in preparation for some of this, like what's the kind of spike you would expect in the near term?

The cost to income, whether it will go, cost to income, Adesh, as I told you, will go up as we have more retail activity coming, retail lending activity coming, retail liability activities coming in. You will see the cost to income go up. But this is normally as we said we don't give an outlook or a projection of what we will do but cost to income is something that we have consistently said over a period of time. That is while it will go up now we do think in the medium term 3-5 years term it will come down back to mid 30s and that is purely driven through scale and driven through various digital initiatives that we are running. So while it will go up it will come back down due to the scale operating on that.

One more thing just to follow up on the margin queries that were there earlier. Just from the perspective that given that we did have a mixed change over the last couple of years where retail activity was a little slower through COVID, we did have a material drop in margins from the peak. Given that things are opening up and everything and given that you'll get to a normal mix, normal activity, is it safe to say that margin is now stabilized to start going up? Because in a normal circumstance, one would think that the corporate growth now shouldn't like materially keep exceeding retail and SME growth for very long periods of time.

As I said, I don't want to project the future. We don't give an outlook of what the growth can be or how it will be. I can tell you what we drive to. Our strategic drive is retail back on the drive. That means we are back to the pre-COVID level in terms of the credit policy opening up. The business across product lines, right? Other than the supply chain issues that we have had in vehicles, other than that, we have had on the cart is the customer behavior, right? Spends are happening. Customer behavior will have to catch up. Other than that, we are in that, right? So in this quarter, we did see higher demand on wholesale and we entertained that because it provides good returns.

Next century, this is it for my side. Thanks for all your answers. Thank you, Adarsh.

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

Hi, Shini. So my question is on credit card. So one is when you expect your market share, you know, to come back to your earlier 30% level, it's been seven months since the ban is gone. So what's your outlook on that? And second is, how much are your revolve rates now, you know, versus pre-dynamic sales? Thank you.

Okay. You're talking about the market share means, you're talking about the stock spending.

Spending market share.

Okay. I do want to tell you one thing that we don't, as a target, we don't have a market share because market share doesn't mean anything. Particularly, spend market share doesn't do anything from a profitability and returns point of view. Right? So, that's one thing because there are If you are looking at it, I would urge you to look at the retail spends versus commercial cost spends. If you look at it bifurcate and look at retail, commercial. We like retail. We are okay with commercial, but it's the retail. Why? The propensity for the customer to do the other things, both from a relationship value, as well as from a card product value itself, is much more on retail, so that's where we will focus, right? So chasing market share on the spend is not a target that we have. So I would not be able to tell you how much it will go. It's a function of optimization of the P&L, optimization of the customer relationship on the product that we are able to do with the customer. And the second part of your question was in terms of the reward. We are still at about 70 to 80% of the pre-COVID levels on revolve rate. Last quarter, I mentioned that. Last quarter to this quarter, marginal improvement, one percentage point improvement in revolve. So that's also part of what you're seeing in the card balances going from year-on-year growth to 9% to 14% is going in the right direction. but then that has to do that magic of paying interest, right, as that starts to go up. It's a question of customer behavior, and it will have to, it follows with the lag. Spend happens, and you're seeing the spend happening. The buildup on the ANR must happen. You're seeing that the buildup on ANR is slowly coming. The third aspect of this is when the buildup of ANR happening, the customer needs to start to revolve. I can see that it is turning the corner, one percentage point better, but some way to go.

And just one final question, when is BayZap launching?

BayZap launch is probably a quarter away, I would say. We have several plans on that from a close user group to making selective customers and then getting to broad base, maybe a quarter away, I would say.

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

Okay, thank you. Thank you all for joining us today. We appreciate your time and we had a good conversation. If anything more that you have, you can connect with Ajit Shetty in Industrial Relations. We shall be happy to engage with you. Thank you.