HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to the HDFC Bank Limited Q3FI23 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 touched-on phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, SGFC Bank. Thank you and over to you, sir.

Okay, thank you, Tanvi. Good evening. Welcome to all the participants. Greetings of the new year. Now let's start with some context on the environment that we operated in the quarter that gives a background of how we operated. High frequency indicators suggest that domestic economic activity held up in Q3. GST collections continued to be robust, remained above Rs 1.4 lakh crores since May 22. In December, GST collections stood at Rs 1.5 lakh crores compared to Rs 1.3 lakh crores in the prior year December. Manufacturing PMI has remained in the expansionary zone. and is at 57.8 as of December, and also the services PMI is at a six-month high of 58.5 in December. Healthy trend in government capital spending also bodes well for industrial activity. Spent almost 60% of budget estimates during April to November versus 49% in the prior year. On the consumption side, we had our cards issuing spend growing at the rate of 27% year on year, reflecting good consumer demand. Rabi crop showing looks encouraging, up 4.5% above last year's level. As you know, the RBI raised the policy rate by 35 basis points to 6.25 and kept the policy stance unchanged at withdrawal of accommodation. There are risks stemming from the possibility of global slowdown, reopening in China amidst rising COVID cases in many parts of the world and continued geopolitical tensions. However, strong consumer demand boosted by fiscal spends and higher agri-produce from Rabi crop are likely to keep the Indian economy stimulated. We estimate the GDP growth to be around 7% for the financial year 23. Let's go through certain themes at a high level. On the distribution, we added 684 branches during the quarter, taking the total to 841 branches in the year so far. Goal loan processing are now offered in 3,938 branches. an increase of 978 branches in the current quarter and up three times over March 22. Payment acceptance points growth has picked up pace as a smarter platform builds momentum, taking the total to 3.99 million year-on-year growth of 45%. Wealth management is now offered in 691 locations. Through Hub & Spoke model, we have expanded by 189 locations in the quarter. On the CRB side, our SME businesses are present in more than 90% of the districts. Rural business reach expanded to 1.51 lakh villages and is on track to reach the objective of 2 lakh villages. In the customer franchise building process, during the quarter we added 5,863 people and 32,478 people over the year. Our people have acquired 2.6 million new liability customer relationships exhibiting a healthy growth of 12% over prior year. On cards, we issued 1.2 million cards during the quarter. Total card base is now 17 million. We progressed in our pursuit to focus on granular deposits. The deposits total amounted to 17,33,000 crore, an increase of 3.6% over prior quarter and up 19.9% over prior year. In retail deposits, we added 67,000 crores during the quarter and 258,000 crores since prior year. Retail now constitutes about 84% of our total deposit and have been the anchor of our deposit growth. CASA deposits recorded a strong growth of 12% year on year, ending the quarter at 762,000 crores with a CASA ratio of 44%. Retail CASA grew by 14% and retail total deposits grew by 22% year on year. Retail current account, which constitutes 70% of our current account deposits, grew by 14% year-on-year, while our wholesale current account de-grew by 4% year-on-year. Time deposit registered a robust growth of 27% over the prior year, ending the quarter at 970,000 crore. On the advances, it ended the quarter at 15,600,000 crore, grew by 1.8% sequentially and 19.5% over prior year. This is an addition of approximately 27, net addition of approximately 27,000 crore during the quarter and 246,000 crores since prior year. Growth of sell downs, IBPC, we grew advances by 23.6% year on year and 3.3% quarter on quarter. Our retail advances growth was robust. Domestic retail grew by 21.4% year on year and 4.7% quarter on quarter. CRB, which drives our MSME and PSL book for most part, continued its momentum with an year-on-year growth of 30% and quarter-on-quarter growth of over 5%. Wholesale segment witnessed a strong year-on-year growth of 20%. Corporate banks' initiatives across new-to-bank, PLI, MNC, and supply chain finance continue to be a focus, allowing to diversify revenue pools from new customers, products, and sectors. We expect demand from loans from NBFC, telecom, PSUs, retail, and infrastructure sectors to sustain. On the digital front, the bank continued its momentum on the technology and digital transformation agenda to provide greater customer experience through our digital and enterprise factory. Progress on the key digital initiatives in the quarter smart up your part, our one-stop merchant solutions act has further enhanced with the addition of new features in the current quarter, such as instant QR, a revamp of ETB journeys and enabling onboarding of new to bank customers digitally. As of December end, over 1.9 million small businesses are on Smarter Platform. The platform is adding more than 80,000 merchants per month. HCFC Bank One, the customer experience hub, the solution which transformed our on-premises contact center into a singular centralized service platform has now been further expanded across more locations in India, now at seven locations. It enhances our customer relationship management process using AIML and conversational bot enabling round-the-clock self-service. With the rollout of HTVC Bank One, we have witnessed significant improvements in our customer engagements, such as 39% reduction in case resolution time and a 64% reduction in turnaround time and an average reduction of 324 seconds in handling time in our care centers. Express car loans is the first of its kind end-to-end digital service enabling instant and hassle-free car disbursals. This channel contributes now 17% of our new car loan volumes. In the previous quarter, we launched PaysApp 2.0 to a closed user group, as we mentioned before. In this quarter, this was made available across the bank personnel as well as app stores for early adopters. We have received encouraging response from the users of PaysApp 2.0. The existing 31 million registered users on the erstwhile PaysApp will be progressively transitioned to the new app. In Q3, we received a total of 315 million visits on our website, over 100 million unique visitors over the quarter at a year-on-year growth of around 30%, reflecting enhanced engagement in our digital properties. Our continued investments in expanding our distribution network by adding people and branches, combined with our focused digital offering and relationship management to fuel growth, balance sheet remains resilient. LCR for the quarter was at 113%, capital adequacy ratios at 19.4%, with a CET1 at 16.4%, including profits for the nine months ended 31st December 22. On the revenues, which ended the quarter at 31,488 crore, on a reported basis grew 18.3% year on year. Core net revenues were at 31,226 crores, excluding Net trading and mark-to-market income grew by 22% over prior year and 8.2% over prior quarter, driven by an advances growth of 19.5% and deposits growth of 19.9%. Net interest income for the quarter at 22,988 crore, which is at 73% of net revenues, grew by 24.6% over prior year. The core net interest margin for the quarter was at 4.1% and this excludes one-off interest income on income tax refund of about 5-6 basis points. Prior year and prior quarter were also at 4.1%. On interest earning asset basis, which appears to be industry norm, the core net interest margin was at 4.3%, again at the similar levels to prior quarter. Moving on to details of other income, fees and commission income constitutes about three-fourths of the other income, was at 6,053 crore and grew by 19% over prior year and 4% over prior quarter. Retail constitutes approximately 93% of fees. FX and derivatives income at 1074 crores was higher by 13% compared to prior year of 949 crores. Net trading and mark-to-market income were positives 261 crores. The mark-to-market gains are mainly from AFS investments. Prior quarter was a negative 253 crores and prior year was a gain of 1046 crores, which were then opportunistic from our investments portfolio. Other miscellaneous income of 1112 crores includes recoveries from return of accounts and dividends from subsidiaries. Excluding net trading and mark-to-market income, total other income at 8,238 crore grew by 15% over prior year. Operating expenses for the quarter were at 12,464 crore, an increase of 26.5% over prior year. We added 1,404 branches and 1,769 ATMs since last year. As I said, we added 684 branches during the quarter 841 branches during the year, taking the total network strength to 7,183 branches. Cost to income for the quarter was at 39.6%. Moving on to PPOP, our core PPOP grew by 19% year on year. Our pre-provision operating profit was at 19,024. Pre-provision operating profit for the quarter is 6.78 times the total provisions. Coming to the asset quality, The GNPA ratio was at 1.23% compared to 1.26% in prior year and 1.23% in prior quarter. Out of the 1.23%, about 17 basis points are standard, thus the core GNPA is at 1.06. However, these are included by us in NPA as one of the other facilities of the borrower is in NPA. GNPA ratio excluding NPAs in agricultural segment was about 100 basis points. Prior year was at 104 basis points and prior quarter was at 103 basis points. Net NPA ratio was at 33 basis points. Prior year was at 37 basis points and preceding quarter was also at 33 basis points. The slippage ratio for the current quarter is at 42 basis points or about 6,600 crores. The slippage ratio for the current quarter excluding Agri, which is the seasonal December quarter impact was at 35 basis points or about 5,300 crores. During the quarter, Requiries and upgrades were 3,100 crore, approximately 21 basis points. Write-offs in the quarters were 3,100 crore, approximately 21 basis points. Sale of NPA of about 200 crores in the quarter. Going to the restructuring, the restructuring and the RBA resolution framework for COVID-19 as of December end stands at 42 basis points, about 6,400 crores. In addition, certain facilities of the same borrower, which are not restructured as approximately 8 basis points or 1,100 crores, thus totals to 50 basis points. The COVID restructuring in the prior quarter was at 62 basis points. Now moving to the provisions, the total provisions reported were 2,800 crores as against 3,000 crores in the prior year and 3,200 crores in the prior quarter. The provision coverage ratio is at 73%. At the end of current quarter, contingent provisions and floating provisions were close to prior quarter level at 10,800 crore after utilization of approximately 200 crores. General provisions were 6,600 crores, contingent provisions were 3,400 crores, and floating provisions were 1,451 crores. Total provisions comprising specific floating contingent in general were about 166% of gross non-performing loans. This is in addition to the security held as collateral in several of the cases. floating contingent and general provisions were about 1.15% of gross advances as of December end. Coming to the credit cost ratios, the total annualized credit costs for the quarter was at 74 basis points, prior year was at 94 basis points and prior quarter was at 87 basis points. Recoveries which are recorded as miscellaneous income amount to 21 basis points of gross advances for the quarter as against 25 basis points for prior year and 22 basis points for prior quarter. The total credit cost ratio, net of recoveries was at 52 basis points in the current quarter as compared to 69 basis points in prior year and 64 basis points in prior quarter. The profit before tax was at 612 crores. The net profit after tax for the quarter was at 12,260 crores, grew by 18.5% over prior year. Now, some highlights on HDB financial services. This is on India's basis. The momentum in disbursements continued across all business segments, all three business segments during the quarter, registering a healthy growth of 41% year on year, 18% sequentially. Customer franchise grew to 11.2 million customers, adding 2.6 million over last year. HDBFS has started to augment the distribution network and opened 14 branches in the current quarter, aggregating to 1,421 branches spread across 1,020 cities and towns. The loan book as on December end stood at 65,100 crores with a secured loan comprising 73% of total loan book. Net revenue for the quarter was 2,233 crores, growth of 12.7% over prior year. Provisions and contingencies for the quarter were 313 crores compared to 540 crores for prior year and 351 crores for prior quarter. Credit costs for the quarter were at 195 basis points as against 358 basis points for prior year and 225 basis points for prior quarter. Quality of the book continues to see sustained improvement. Stage 3 as at December end saw significant improvement and stood at 3.73% as against 4.88% in the prior quarter, reflecting sustained healthy collections. Provision coverage on stage 3 book stood at 57%. The PCR on the secured and unsecured book stood at 54% and 85%. Profit after tax for the quarter was 501 crore against 304 crores for the prior year and 471 crores for the prior quarter. HDB FS ROE stood at 3.12 and ROE stood at 18.8%. Earnings per share in HDB for the quarter was at 6.34 and book value per share as of quarter end was 137.52. HDBFS remains well capitalized with a total capital adequacy ratio at 20.5% and continues to step up disbursements, leveraging strong distribution spread across 1,400 plus branches. Now coming to HDFC securities, HDFC Security Limited added nearly 0.9 million new clients in 12 months to December, taking the client base to 4.3 million. HSL has a network of 210 branches spread across 147 cities. Digital offerings continue to enjoy good traction in the market, which around 93% of active clients utilize the services using the digital platforms of the company. The total reported revenue for the quarter was 505 crores for HSL against 536 crores in the prior year. And net profit after tax was 203 crores as against 258 crores in prior year. Earnings per share in the quarter was 128.1 in HSL and book value per share is at 1,114. Now in summary, tailwinds from the economic momentum, fiscal and monetary policies have provided conducive environment for growth by delivery of a full suite of products and services. Our results reflect robustness across various parameters, continued momentum in deposits growth at about 19.9% and retail deposits growth of 21.6%, advances growth of 20%, 19.5%. Core operating profit growth, net of trading and mark-to-market income was 19%. Profit after tax increased 18.5%, delivering the return on asset of about 2.2% and return on equity of over 18%. Bank's earnings per share reported in the quarter is at Rs. 22. The book value per share stands at Rs. 479.80. With that, may I request the operator to 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 their touch-tone 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 participants. If time permits, you may join the question queue back for any follow-up. The first question is from the line of Kunal Shah from ICICI securities. Please go ahead.