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.