HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to HDFC Bank Limited Q1 FY23 earnings conference call on the financial results presented by the management of HDFC Bank. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after a brief commentary by the management. Should you need assistance during the conference call, please signal an operator by pressing star, then zero on your touchstone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vadyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Okay, thank you, Faizan. I appreciate the good evening and a warm welcome to all the participants. We can get started with providing the context on the environment that we operated in the quarter, so that gives the backdrop of what was going on. Much of this quarter has been about inflation and price surges, as you know. Energy and fuel have been at the center. Supply chains have been disrupted, which created a major demand and supply gap. As we progress further in the year, we'll keep a careful watch on the development. We see opportunities in the marketplace in the current environment, supported by dynamic fiscal and monetary policy. Activity indicators released during April to June quarter indicate that economic activity continues to hold up well despite global risks. GST collections, manufacturing, PMI, IAP, credit, rail freight services, PMI, et cetera, et cetera, show robustness and opportunities in the economy. The RBI raised the policy rate by 90 basis points in the quarter, taking the repo rate to 4.9. The Monetary Policy Committee also voted to remain focused on withdrawal of accommodation in a calibrated fashion to ensure inflation remains within the RBA's upper band while supporting growth. Accordingly, they have responded with appropriate lending rate increases. Let's talk about the five themes at a high level now. On the distribution expansion, that's the first thing, we added 36 branches during the quarter and 250 more are in various stages of readiness to be rolled out. We have 15,618 business correspondents, an increase of 277 over the prior quarter. Goal loans are now processed at just over 2,000 branches, as against 1,340 branches in the prior quarter. It is well on the way to be a product offering in most of our branches. Payment acceptance points have grown to 3.2 million, a year-on-year growth of 42%. Wealth management is now offered in 357 locations through hub and spoke model. We have expanded to 141 new locations in the quarter. This is in accordance with our plan to take this to deeper geographies in over 900 locations in the current financial year. In commercial and global banking, SME is now offered in 640 districts in our drive to expand the SME market share. Next, let's talk about a few comments on the customer franchise building. During the quarter we added 10,900 plus people and 29,000 people over the year, over the past 12 months. Our people have acquired 2.6 million new liability relationships in the quarter, exhibiting a phenomenal growth of 59% over the same time last year and 10% over prior quarter. They've also acquired 1.9 lakh MSC accounts in the quarter on cards We have issued 1.2 million new cards during the quarter, highest ever with a 47% growth over prior quarter. Total cards based now stand at 17.6 million. Moving on to next, our focus on the granular deposits. Deposits at 16,004,000 crores increased by approximately 46,000 crores in the quarter as against an addition of approximately 11,000 crores in last year's June quarter. Deposits reflected a year-on-year growth of 19.2%. Detailed deposits increased by approximately 50,000 crores in the quarter, up 19% year-on-year, and 3.9% sequentially. CASA deposits recorded a strong growth of 20% year-on-year, ending the quarter at 7,34,000 crores, with a CASA ratio at 45.8%. Term deposit grew by 18.5% year-on-year, ending the quarter at 8,70,000 crores. Next, moving on to advances. Total advances were 13,95,000 crores. Growth of sell-downs, we grew 22.5% year-on-year. Our retail advances growth continued during the quarter as well. Retail advances grew 21.7% year-on-year and 4.9% quarter-on-quarter. Excluding auto and also two-wheeler, loans which faced supply chain disruptions during the quarter, the year-on-year retail growth, excluding these two, 25%. Card spends have grown by 24% over prior quarter. Payment business advances, payment business loans have grown 27% over prior year and 4.4% over prior quarter. The bank has a market share of 22.4% in cards, 48.9% in card receivables, 27.7% in card spends, and 47% in merchant acquiring volumes. Commercial and rural banking, which drives our MSME and PSL book, continues momentum with a year-on-year growth of 28.9%. In the wholesale segment, with the rates dislocation, we let go assets aggregating to 40,000 to 50,000 crores. Despite that, the book grew 15.7% year-on-year. And lastly, on technology and digital, as promised, the bank commenced digital launches to enable smooth customer experience. MyCards, which is a microservices architecture that is stateless and deployed on cloud, making it highly scalable. This has emerged as a preferred service tool for our customers. It has simplified login and service features. We now have over 2 million registered card users, a growth of 1 million over prior service. We had 33 million customer service addressed digitally during the quarter on this platform. This microservices architecture design principle de-risks and removes clutter on our digital platform and enhances customer service. Express Auto Loans is an end-to-end digital service which enables instant and hassle-free car loan disbursals for existing and new-to-found customers. 60% of our loan positioning through this service are processed in less than five minutes, with the disbursals taking less than 30 minutes. Within a month of launch, Express Auto Loans volumes has already reached more than 5% of our new car loan volume. STLC BankOne, our customer experience hub, has been launched recently on multiple channels, email, social care, SMS, and WhatsApp, and enhances our customer relationship management using AIML and conversational bot, enabling round-the-clock self-service capabilities akin to human interaction. We are continuously adding features to our smart hub, the AppR app, and see a significant increase in its adoption across our customer base. We now have more than 1.15 million customers since its launch, onboarded on this platform. In Q2, that is the current running quarter, July to September, we are poised to launch further digital initiatives such as PaysApp 2.0, customer onboarding journeys across more products such as CFDPL, balance transfer EMI, et cetera, implementing customer experience hub across additional service and sales channels such as phone banking and telesales. For enhanced customer service and relationship management, we continue to work on developing applications for Q3 implementation. For instance, built app, revamping net banking, revamping corporate net banking, and launch of new mobile banking app in Q4. In Q1, we received a total of 231 million visits on our website, averaging 28 plus million unique customers per month, which is a year-on-year growth of about 20%. Business growth continued to gain momentum across diverse products and segments driven through relationship management and enhanced digital offering. Balance sheet remains resilient. Average LCR for the quarter was at 108% and was at 120% as of June quarter end. Capital adequacy ratio is at 18.1% with CET1 at 16.5% including profits for the current quarter. Let's start with net revenues. Core net revenues were at 27,181 crore, excluding trading and mark-to-market losses, which grew by 19.8% over prior year and 2.4% over prior quarter. Driven by advances growth of 22.5%, deposit growth of 19.2%, and total balance sheet growth of 20.3%. Net interest income for the quarter at at least 19,481 crore grew by 14.5% over prior year and 3.2% over prior quarter. The core net interest margin was at 4.0. Based on interest earning assets, the net interest margin was at 4.2%. Moving on to details of other income. First, fees and commission income was at 5,360 crores and grew by 38% over prior year and were lower 4.8% over prior quarter after seasonally strong fourth quarter. Retail constitutes approximately 92% of fees. FX and directives income at rupees 1,259 crore was higher by 5% compared to prior year. Trading and mark-to-market losses were 1,312 crore, primarily due to spike in benchmark bond yields witnessed during the quarter. The mark-to-market losses come from our AFS, HFT and Government of India securities, corporate bonds and pass-through certificates. Prior quarter was a negative 40 and prior year was a gain of 600 crores. Other miscellaneous income of 1,080 crores includes recoveries from return of accounts and dividends from subsidiaries. Excluding trading and mark-to-market losses, total other income at 7,700 crores grew by 35% over prior year. Operating expenses for the quarter were at 10,502 crores, an increase of 28.7% over prior year due to a low base of prior year COVID wave 2 impacted quarter. and increased by 3.4% over prior quarter. We added 725 branches and 2,329 ATMs since last year, taking the total network strength to 6,378 branches, 18,620 ATMs, and 15,294 business correspondence managed by common service centers. Core cost to income ratio for the quarter, excluding trading and mark-to-market losses was at 38.6%. Moving on to PPOP, Our earnings trajectory improved with continued retail growth. Our core PPOP grew 14.7% year-on-year and 1.7% sequentially. Our pre-provision operating profit was at 15,368. Coming to asset quality, the GNP ratio was at 1.2% as compared to 1.4% prior year. Out of the 1.2% to 8%, about 18 basis points are standard, thus the core GNP ratio is 1.1%. However, these are included by us in NPA as one of the other facilities of the borrowers in NPA. But we'll talk about 1.28. We'll have to anchor with that. As you have seen in the past several years, agricultural segment has a seasonal impact in June and December cycle. GNPA ratio, excluding NPAs in agricultural segment and the one-off, was at 1.03%. Prior year was at 1.26%, and prior quarter was at 1.01%. The net NPA ratio was at 0.35%, prior year was at 0.48%, preceding quarter was at 0.32%. The slippage ratio for the current quarter is at 0.5% to be 7,200 crore. Excluding the seasonal agree and one-off slippage, the slippage in the current quarter was approximately 38 basis points, call it 0.4%. During the quarter, recoveries and upgrades were approximately 3,000 crores or 22 basis points. Write-offs in the quarter were 2,400 crores or approximately 17 basis points. There were no sale of stressed or return of accounts in the quarter. The check-bound rates across the products in June continues to remain lower than the pre-COVID levels for almost all of the retail products. The restructuring under the RBI resolution framework for COVID-19 as of June ends stands at 76 basis points, 10,750 crores. In addition, certain facilities of the same borrower, which are not restructured, is approximately 13 basis points or 1,850 crores. That totals to 89 basis points. Provisions reported were around 3,200 crores, as against 4,800 crores for the prior year and 3,300 crores during the prior quarter. The provision coverage ratio was at 73%, there were no technical write-offs office and branch books are fully integrated. At the end of current quarter, contingent provisions and floating provisions remained close to prior quarter at 11,100 gross. General provisions were 6,500 gross. Total provisions comprising specific floating contingent and general provisions were about 170% of gross non-performing loans. This is in addition to the securities held as collateral in several of the cases. Floating contingent and general provisions were about 1.25% of gross advances as of June quarter end. Now coming to credit cost ratios, the total annualized credit cost for the quarter was at 91 basis points, prior year was at 167 basis points, prior quarter was at 96 basis points. Recoveries which are recorded as miscellaneous income amount to 23 basis points of gross advances for the quarter, as again, 14 basis points in prior year and 26 basis points for prior quarter. Total credit cost ratio net of recoveries was at 68 basis points, compared to 1.53% in prior year and 70 basis points in prior quarter. The reported PBT at 12,180 crore grew by 18% over prior year. Net profit after tax for the quarter at at least 9,196 crores after factoring in the trading and mark-to-mark losses of 1312 crore in the quarter grew by 19% over prior year. after taking the charge for 1,112 crore grew by 19%. Now some highlights on HDBFS on an NDIS basis. HDBFS opened 29 branches in the quarter, taking it to 1,403 branches spread across a little more than 1,000 cities, 1,008 cities and towns. Branch addition continues to supplement the digital investment. Customer base grew to 9.8 million with 7.7% additions during the quarter and an increase of 35% over the prior year. The uptick in disbursements in March quarter was sustained in the quarter ended June 22 at 9,000 crores. Those disbursements in Q1 are traditionally lower as compared to March quarter. These disbursements reflect a growth of 130% year-on-year. The total loan book as of June end stood at 61,814 crores, secured loans comprising 76% of the total loan book. Net revenue for the quarter ended June 30 was at 2,194 crores, growth of 13% over prior year and 2.4% sequentially. Cost to net income for the lending business was at 37%. Provisions and contingencies for the quarter were at 398 crores as against 422 crores for prior quarter and 870 crores for quarter ended last year same time. Stage three as of June end stood at 4.95% after factoring in 1.18% impact of new RBA guidelines issued in November, reflecting sustained healthy collections. The PCR on secured and unsecured books stood at 48% and 92% respectively. Profit after tax for the quarter ended June was 441 crore as against 89 crore for last year same period. Earnings per share was 5.58 and book value per share was at 125. The company remains well capitalized with a capital adequacy ratio of 20% and well positioned to sustain improvement in disbursements across segments and growth. HSL, HCFC security is limited. has a wide network of 216 branches across 147 cities and towns in the country. HSL has increased its overall client base to 3.99 million customers as of June end, an increase of 41% over prior year. The total reported revenue for the quarter was at 432 crores as against 456 crores in prior year. Net profit after tax was at 189 crores against 251 crores for prior year. Earnings per share in the quarter was 119.5 and book value per share was at 1,061. In summary, over 152,000 employees across the bank dedicated their tireless service to focus the customer engagement, product delivery and service, providing highest standards of banking experience, which results in the quarter's number of advances growth of 22%, deposits growth of 19%, Core operating profit excluding the bond losses of 14.7%, delivering a consistent profit after tax growth of 19% after factoring in the bond losses of the 1,312 that I alluded to earlier. Again, from a return on asset point of view, 1.8%, excluding the impact of the trading and mark-to-market, it's slightly over 2%, with an ROE of 17%. Earnings per share reported in the quarter is at 16.6, rupees 16.6, Book value per share increased in the quarter to 450.6. With that, can I request Faizan to open up the line for questions, please?

Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their 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 two per participant. 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 Maruk Adajania from Edelweiss. Please go ahead.