HDFC Bank Limited

ladies and gentlemen good evening and welcome to hdfc bank limited q2 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 touch tone 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.

OK, thank you, Rutuja. Good evening to all. Let's start with a brief overview for the context. We believe that the continued recovery in domestic demand boosted with the onset of festive season and higher government capex provides support to the growth. While there are risks stemming from the possibility of global slowdown, higher inflationary pressure, and an uneven monsoon, consumer demand and fiscal spends are likely to keep the economy stimulated. Geopolitical instability, strong US dollar, et cetera, continue to occupy center stage during the quarter. Activity indicators released during July to September quarter indicate that economic activity continues to hold up despite global risk. High frequency and other indicators have risen so far this year and is also promising to provide further opportunity and optimism in the economy. Labor market conditions are also improving in the rural areas as seen by the fall in the Manrega work demand and a rise in wage growth. RBI raised the policy rate by 100 basis points in the quarter, taking the repo rate to 5.9%. The central bank has hiked rates by 190 basis points since May 22. The central bank has kept its stance unchanged at withdrawal of accommodation while supporting growth. We estimate that the GDP growth to be around 7% for financial year 23. Let's go through key themes. On the distribution expansion, We added 121 branches during the quarter, and about 500 more branches are in various stages in the pipeline to be opened in the next few months. We have 15,691 business correspondence, an increase of 73 over prior quarter. Goal loan processing are now offered in 2,960 branches, an increase of 900 branches in the current quarter, and up 2.2 times over March 22. Payment acceptance points have grown by 269,000 in the quarter to 3.5 million and have grown by over 1 million versus prior year growth of 41%. Wealth management is now offered in 502 locations through hub and spoke model. We have expanded by 145 new locations in the quarter. We plan to drive increase in market share through deepening in B30 cities. In customer franchise building, Our people have acquired 2.9 million new liability relationships, exhibiting a healthy growth of 22% over prior year and 11% over prior quarter. Over the last five quarters, we have steadily acquired over 2 million new customer liability relationships per quarter, enabling us to further broad base and deepen our relationships in time to come. On cards, we have issued 1.2 million cards during the quarter. Total card base is now 16.3 million. During the quarter, we also closed 2.4 million cars, which have been inactive for a period of time in accordance with the RBI circular. We are focused on granular deposits. Total deposits amounted to 16,73,000 crore, an increase of 4.3% over prior quarter, and up 19% over prior year. In retail deposits, We added 71,000 crores during the quarter and 2,35,000 crores since prior year September. Retail constitutes about 83% of total deposits. Retail deposits have been the anchor of our deposit growth. CASA deposits recorded a strong growth of 15.4% year-on-year, ending the quarter at 7,59,000 crores, with CASA ratio at 45.4%. Retail CASA grew by 19% and retail total deposits grew by 20.4% year on year. Term deposit registered a robust growth of 22% year on year, ending the quarter at 9,13,712 crore. On the advances side, which were at 14,79,873 crore, grew by 6.1% sequentially and 23.4% over prior year. Our retail advances growth was robust Domestic retail grew by 21.4% year-on-year and 4.9% quarter-on-quarter. Card spends have grown 9% over prior quarter. Commercial and rural banking, which drives our MSME and PSL book, continued its momentum with a year-on-year growth of 31% and quarter-on-quarter growth of 9.4%. Our SME businesses are present in 90% of the districts in the country Rural business reach expanded to 1.42 lakh villages and is on track to reach the objective of 2 lakh villages. Wholesale segment witnessed a strong growth year-on-year of 27% and quarter-on-quarter growth of 9%. On the technology front, the bank continued its momentum on the technology and digital transformation to provide greater customer experience to the digital and enterprise factory. SDSC Bank One, that is the customer experience of was launched and we migrated phone banking, virtual relationship banking, and telesales on this platform in the recent quarter. It enhances our customer relationship management process using AAML and conversational bot, enabling round-the-clock self-service capabilities akin to human interaction. Phone banking voice support rollout is underway across the country, adding more cities along with multilingual support. We see this as a significant step in our journey to create an engaging customer experience while at the same time bringing in productivity improvements to our call center operations. We launched PaysApp 2.0 to a closed user group for performance optimization and improved payments experiences. We expect to broad-based the rollout shortly. SmartHub Yopar app, a one-stop merchant solution, was formally launched to facilitate instant digital and paperless merchant onboarding and allow merchants to accept interoperable payment across multiple payment modes including cards, tap and pay, UPI, and QR code. The platform is adding more than 60,000 merchants every month. As of end September, over 1.6 million small businesses are on the Smarter platform. In Q2, we received a total of 261 million visits on our website, averaging about 30 million unique customers per month with a year-on-year growth of around 12%. Our well-established distribution network, combined with our focused digital offering and relationship management, continued to fuel growth. Balance sheet remains resilient. LCR for the quarter was at 118%, capital adequacy ratio is at 18%, and CET1 is at 16.3%, including profits for the half-year index September 22. Let's start with revenues. Net revenues were at Rs. 28,617 crores. Core net revenues were at Rs. 28,870 crores, excludes the trading and mark-to-market losses, which grew by 18.3% over prior year and 6.2% over prior quarter, driven by advances growth of 23%, deposits growth of 19%, and total balance sheet growth of over 20%. Net interest income for the quarter at 21,000 crores grew by 18.9% over prior year and 7.9% over prior quarter. The core net interest margin for the quarter was at 4.1%, Prior year was also at 4.1% and prior quarter was at 4%. Based on interest earning assets, the core net interest margin was at 4.3%. Moving on to the details of other income, fees and commission income constituting three-fourths of other income was at 5,800 crore and grew by 17% over prior year and 8% over prior quarter. Detail constitutes approximately 93% of the fees. Effects and derivatives income at 948 crore was higher by 9.3% compared to prior year. Trading and mark to market losses were 253 crores loss. The mark to market losses are mainly from our EFS investments in our corporate bonds and PTCs due to rate moments in the front end yield curve. Prior quarter was also at a negative 1,312 crore and prior year was a gain of 676 crores which were then opportunistic from an investment portfolio. Other miscellaneous income of 1,098 crores includes recoveries from return of accounts and dividends from subsidiaries. Excluding trading and mark-to-market losses, total other income at Rs. 7,849 crores grew by 16.7% over prior year. Moving to operating expenses for the quarter which were at 11,225 crores, an increase of 21% over prior year, an increase of 6.9% over prior quarter. As I mentioned earlier, we added 813 branches and 2,226 ATMs since last year, 121 branches and 248 ATMs last quarter, taking the total network strength to 6,499 branches, 18,868 ATMs, and 15,691 business correspondence. Cost to income ratio for the quarter was at 39.2%. Moving on to PPOP, our core PPOP group by 16.6% year-on-year and 5.8% sequentially. Our pre-provision operating profit was at Rs. 17,392 crores. Pre-provision operating profit for the quarter is 5.37 times of total provisions. Coming to asset quality, the GNPA ratio was at 1.23% as compared to 1.35% prior year and 1.28% in the prior quarter. Out of the 1.23%, About 19 basis points are standard, thus the core GNPA ratio is at 1.04. However, these are included by us as one of the other facilities of the borrower is in NPA. Net NPA ratio was at 33 basis points, prior year was at 40 basis points, and preceding quarter was 35 basis points. The slippage ratio for the current quarter is at 36 basis points, or about Rs. 5,700 crores. During the quarter, Recoveries and upgrades were about 2500 crores or about 19 basis points. Write-offs in the quarters were about 3000 crores or approximately 22 basis points. There were no sale of stressed or written off accounts in the quarter. The restructuring under the RBI resolution framework for COVID-19 as of September end stands at 53 basis points, 7,851 crores. In addition, certain facilities of the same borrower which are not restructured is approximately nine basis points. On provisions, the total provisions reported were around 3,200 crores as against 3,900 crores for the prior year and 3,200 crores during the prior quarter. The provision coverage ratio was at 73% as against 71% in prior year and it was at 73% in prior quarter two. At the end of current quarter, Contingent provisions and floating provisions remained close to the prior quarter level at 11,000 gross. General provisions were at 6,800 gross. Total provisions comprising specific floating, contingent, and general provisions were about 171% of gross non-performing loans. This is in addition to the security held as collateral in several of the cases. Floating and contingent and general provisions were about 1.19% of gross advances as of September quarter end. Now coming to credit cost ratios, the total annualized credit cost for the quarter was 87 basis points. Prior year was 130 basis points and prior quarter was 91 basis points. Recoveries which are recorded as miscellaneous income amounted to 22 basis points of gross advances for the quarter as against 23 basis points for prior year as well as prior quarter. The total credit cost ratio net of recoveries was at 64 basis points as compared to 103 basis points in prior year and 68 basis points in prior quarter. Now coming to profit. Profit before tax was at 14,152 crores. Net profit after tax for the quarter at 10,606 crores grew by 20% over prior year. Now some highlights on HDB financial services. This is on an in-day basis. The momentum in disbursements continued during the quarter, which was at 9,860 crores, registering a healthy growth of 29% year on year and 8.5% sequentially. Customer franchise grew to 10.4 million customers with a 6% additions during the quarter and an increase of 33% year on year. HDB Financial Services has started to augment the distribution network and opened four branches in the quarter, taking it to 1,407 branches spread across 1,009 cities and towns. The total loan book as of September end stood at 63,112 crores, with secured loan comprising 75% of the total book. Net revenue for the quarter was 2,201 crores, a growth of 14.9% on an year-on-year basis. Cost to income for the lending business was at 38.4%. Provisions and contingencies for the quarter were 351 crores as against 398 crores for prior quarter and 634 crores for prior year. Quality of the book in the current quarter has sustained the improvement shown in the last two quarters. Stage three as of end September stood at 4.9% after factoring in the 1.1% impact of the new RBA guidelines from late last year, reflecting sustained healthy collections. The provision coverage ratio on secured and unsecured book stood at 46.5% and 92% respectively. Profit after tax for the quarter ended September 30 was 471 crores as against 192 crores for the quarter ended last year same time. Return on asset slightly over 3% and return on equity 18.5%. Earnings per share for the quarter 5.96, rupees 5.96 and book value per share was HDB remains well capitalized to the capital-requisite ratio at 20.8%. HDB also continues to augment its digital investments to enable the next level of growth in its business across segments while maintaining healthy asset quality. Now moving on to HSL, again on an NDIS basis, the physical network for the customer acquisition remains steady. HSL has 215 branches across 147 cities and towns as of end September. SCLC Securities has grown its claim base very strongly, with a year-on-year growth of 36% over prior year September, taking the overall claim base to 4.14 million. HSL's digital offerings are enjoying very good traction in the market. Over 91% of retail broking revenues from trades that are originated digitally. The total reported revenue for the quarter was at 468 crore, as against 489 crore in the prior year, and net profit after tax was at 191 crores as against 240 crores in the prior year. Earnings per share in the quarter was 120, which is 120.59, and book value per share was at 1,084. In summary, strong momentum coupled with our seamless execution and delivering comprehensive range of products and services has helped us capitalize on growth opportunities. Our results reflect continued robustness across various parameters, advances growth 23%, Total deposits growth of 19% and retail deposits growth of 20.4%. Core operating profit growth, excluding bond sales, of 16.6%. Profit after tax increased 20%, delivering the return on asset of over 2% and ROE of over 17%. Earnings per share reported in the quarter is at Rs. 19.1. Book value per share stands at Rs. 456.2. With that, may I request the operator 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 one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to limit their questions up to two per participant. If time permits, you may join the queue for any follow-up. The first question is from the line of Maruk Adjania from Nuwama. Please go ahead.