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.

Yeah, hi, thanks for taking the question.

So firstly with respect to one thing, Kunal just one second. The team told me that as I was that I had to correct two things. I think I was referring to the profit before tax is 16,218 crore. I think I was referring somewhere. And the contingent provisions, I said 3,400 or something. It is 9,400. That's all. I just want to, because I was referring wrong places. Now, go ahead, please, Kunal. Kunal.

Sure, yeah. So firstly on OPEX and particularly the employee cost side, no doubt we have added quite a lot of employees over the last couple of quarters. But was there any other extraordinary within that wherein maybe the sequential growth was also quite high in both as well as year on year? So if you can highlight on that part, yeah.

Okay. One is that normally the third quarter is the seasonal, right, with a lot of activity in that time period. That's number one. Number two, on the people cost, apart from adding of people both for business growth and branches, there is also another punch of ESOP and RSU that would come in. That's about, I think, 250 or 300 crores approximately that would come in. That's part of that. It's a business as usual. I wouldn't call it a one-timer. That's part of the business which is embedded there. which would be up compared to prior year. And even prior quarter, because the ESOPs were effective October and the RSUs were also effective about end October or something. So those part of the cost which is there.

So 250 to $300 crores.

Correct, yeah.

Sure. And secondly, in terms of the other interest income, particularly around about say $800 crores, So what does that actually put into? Because I think that's what is driving the and I otherwise the broadly when we look at it in terms of the advances, investments and expenses, then and I wrote seems to be round about 22% here.

The other interest income. If you look at the class 41 or something that has got certain income that comes from non lending, it could be income on already have deposits kind of thing will be there. That's one. And the other one I think I called out, which is about six basis points, is the interest on tax refunds.

Interest on?

Tax refund. IT. Income tax refund.

Okay. Yeah. Tax refund.

Okay.

Okay. So that quantum would be around about $300. So six or basis points is what you had. Okay. Got that.

About $300.

Yeah. Okay. Thank you. Thanks a lot.

Thank you. The next question is from the line of Suresh Kanpati from Macquarie Capital Securities. Please go ahead.

Yeah, Suni. So, two questions. You know, one is on deposit accretion itself. So, you know, if you look at QOQ, the deposit accretion is 600 billion or if you look at fuel and retail deposits, it's 670 and the previous quarter was 680 on overall deposits. you know the initial guidance was that eventually you want to take it to 1 trillion rupees with every quarter showing an improvement but that has not happened in 3Q in fact 3Q has shown a decline over 3Q in terms of absolute accretion of deposits so what's happening here are we on track to get that 1 trillion rupees accretion you know any color on that would be great Srini ok good thank you good good point Suresh yes indeed

our objective was to take that 60 to 68 to 80 to 100,000 as we go. And yes, this quarter, if you look at retail, it came in with 67,000 crores. The retail came in quite well. Yes, it didn't come in as much as what we thought. We had expected that it would be 80,000 or above, north of 80,000 or above, but it came in at 67,000. But within the kind of right away, we did put in an audacious goal and in terms of how we want to get there and achieve. And it came in at 67. But we are still, the mindset and the drive and the distribution network and leveraging of our existing relationships are in full force. And we believe that in this quarter, more consumer spending has happened broadly in the country. And we see that in our own customer base too. If you look at our cards, as an example, card spend, the retail card spend growth 27%. So people are spending in other things that they want to do. So that's part of what has happened. But we are still getting on track to be growing that sequentially up.

Okay. And the next two questions, first on margins, know your margins are flat qq of ioi also for that matter whether you look at uh on assets or on interest earning assets my point here is uh shiny bulk of the deposit rate hikes have actually happened between september to december you can see actually all banks even post hbi and when you are yourselves included have high deposit rates quite aggressively so if you have not seen a margin expansion this quarter uh especially when deposit rate hikes are yet to flow through What happens next quarter when some of these deposit repricing or at least incremental flow will be at a higher rate? Do you think you can sustain the current level of margins or there could be any margin pressure?

Again, very nice and very correctly you are asking that. It is correct to expect that the deposit pricing factoring in as we go along, would start to increase because the prices have started and it'll have a full quarter impact and if there is one more rate hike, there will be further coming in on the deposit cost. But along with that, the loan pricing also happens, right? Our position more or less is kind of a balance. When the deposit pricing goes up, we also get up on the pricing on the assets. So if you look at some of our, MCLR is a good indication to see why well that not all loans are there but you know enormous amount of retail loans go off MCLR and then there are certain other SME type loans that also base off the MCLR so if you look at that we have enhanced that more than the deposit funding so that means we are catching up on the asset yield also along with that that's that's the second thing to keep in mind the third thing The margin pickup, I think over a period of last four or five quarters, we have been saying that the margin is a function of a mix of products, right? To the extent deposit goes up, the asset will go up to keep the margin constant or thereabouts within a small range. But the margin going into the middle to the higher end of the 4.4, 4.5 is a function of the mix of wholesale and retail. Still, despite retail growing 5% up sequentially, the mix is still 45 retail, 55 wholesale. The Basel classification is still at 45, 55. And a couple of few years ago, before COVID, a few years ago, it was 53 to 55% retail. So the mix needs to change for the margin to move up. But the other question that you asked is the margin under pressure. Yes, we are cognizant that we need to keep up on the yield to keep pace with the deposit cost that goes up.

Okay. And lastly, anything you have heard from RBI with respect to any of the statutory relaxations or any other relaxations that you have sought? If not, then what do you think could be the timeline to hear something on that front?

Not yet. So there is not heard yet. but we would expect it within the next month to, I mean, there's no particular timeframe, right? This is not a particular schedule. For context is that the merger process is progressing. The NCLT final hearing is on 27th January, right? And so thereupon, once it's adjudicated, then there are certain other processes, regulatory processes to go through. So we do have some time that this would take, and we are hoping that in this interim period, there will be something.

Okay, thanks, Srinivas. Thank you.

Thank you. The next question is from the line of Maruk Adajania from Nuwama Wealth Management Limited. Please go ahead.

Yeah, hi, Srinivas. Hi. So I had a question partly linked to Suresh. So your asset growth for the quarter was just 3% QOQ whereas you know at the time of the merger or the analyst day the guidance was achieving 18% YOY even on a merge balance sheet basis. So does that stay and will the corporate loan exist at the end of the quarter?

Okay, so then there are two aspects. You touched upon how to think about the loan growth and then you talked about the wholesale growth at the end of the quarter. The way you think about the loan is not quarter to quarter, right? That is why we give kind of an indication to look back to see how the bank has grown the loan book over a period of time, right? You can look at a three-year block or a two-year block or a five-year or a 10-year block. Whichever blocks you look at, it would be, call it, every five years, 2.2 times or 2.3 times or thereabouts, right? Which is that 18 to 20, that is what I think your memory says, because that is the historical thing. So quarter to quarter, there can be variations, but in this quarter, if you see, Still it is 19.9, 19.5%. And the growth of the IVPC, the loan grew 23 and a half percent, right? 23.6% I think it was. So there are, the loan growth can come and it's a question of the wholesale that you touched upon. It's a matter of how we prioritize in terms of what we want and at what price. If you look at the wholesale, the spreads are such, right? If you think about the bond spreads, in the quarter, the bond spreads widened in the quarter. And whereas the loan has to come and catch up over time. So we took a stand saying that from a pricing point of view, we will wait for the price to come up, right? We don't need to. And so the wholesale was minus 1%, right? The bond spreads went up anywhere from 30 to 60 basis points, the market bond spreads widened. So we do have to wait and see how the loan starts to catch up on the yield from an opportunity point of view where the other banks in the country or the financial market participants would appropriately start to price in looking at how the bond spreads are moving. So it's a question of quarter to quarter timings will be there.

Okay, but my broader question was that if you see some of the economies have already downgraded growth forecast for India. So do you see what is your sector growth assumption for FY24? And then of course you would go grow above the sector to justify your 17 to 18% year on year growth for the next year and then maybe for the next two to three years. So is it just a tactical call based on pricing or you think there is adequate growth to grow 18% with quarterly variations? Is that a fair assumption?

Yeah, it's a fair assumption. It is a tactical thing. We see good demand for loans, right? More than over 30,000, 40,000 crores of loans we did not go through. We didn't want to go because the price has to catch up with what we are seeing on the bond market. And it didn't catch up, so we let go, right? And we do see good demand. in the NBFC segment, in the PSU, or in the retail and infra segment, we do see good amount of demand coming. And we are also getting on to the new product lines that I mentioned too, again, driven through PLI or other aspects, we are also into those.

So would you have a call on the sector growth rate for FY24? I mean, any such... No, maybe... Okay. And sorry, just one follow-up. uh basically the what would be the quantum of tax difference 350 crore what would it be what is the interest on tax yeah six basis points would be approximately 300 crores yeah okay thank you thank you it is not tax it's the interest on tax yes yes got that thank you thank you

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

Good evening. So three questions. One is, could you comment on what's the reward rate on the cards business? Spends have gone up. I just want to see what the reward rates are. The second is, what will be the LCR, both for the average and the period end? And lastly, just coming back to this NIMS, so this cycle, HDFC Bank has shown lower NIMS sensitivity versus if I look at your private sector, you know, peer group. So will it be fair to say as rates, if they were to go down, maybe in second half of the year, we should again see lower sensitivity on names to rates? Thank you, sir.

Thank you, Saro, for asking. On the revolve rate, we haven't seen any pickup in revolve rates. And so they are still at 65, 70% of the pre-COVID levels. We don't see pickup and revolve rates. Actually, this quarter is slightly down by a percentage point or so. And understandably, third quarter normally goes down because you see higher level of spend, card spends that happen due to various festivals and events. So, you will see that there are more transactors into that mix. So, one percentage point change doesn't make, but we are not seeing the pick up in the revolver rate. So that is still far lower than what it used to be in the past. So that's one on the revolver rate. Yes, we are confident that the industry will come back. The revolver segment will come back. But again, we analyze that between what we call the occasional revolver who revolves between one to three months and four to six months and six plus months and so on. but the cream of that would be somebody who revolves six plus months. Actually, that is not moving at all, right? It is not. And you'll see that somebody one to three months going up or down a bit, but that is, again, more temporary that happens, and it's not a revolving habit. So we're not seeing that yet. The second aspect that you touched upon is the LCR. I think I did allude to 113% LCR in the quarter, right? So that's close to average EOP, whatever you call it, the 113% is the LCR. You asked about the net interest margin in the context of, in the second half, what happens when the rate moves. See, you can think about our net interest margin over the last three years, right? Go back to before the rates started to go down, and during the kind of a COVID period or in the current period last year to year and a half period. If you look at it, it operates normally between the 3.94 to 4.4, 4.5. And the function of the NIM going up or down is about the mix of products. More retail composition in the portfolio gets you higher NIM and comes with a higher cost and also comes with higher credit costs The credit cost can come with a slight lag, right? So that's the model in which it operates. And otherwise, if the cost of funds or the yield, other than the lead and lag effect, will move more or less, right? Quarter to quarter from variation because of the lead and lag effect, but otherwise it is pretty tight from a matched book point of view. So if the rates were to go down in the second half, and it would be the we still will continue to manage the net interest margin in a stable manner around that historical range thank you thank you the next question is from the line of hardik shah from goldman sachs please go ahead Yeah, hi Rahul, good, yes, please go ahead, yeah.

Hi, thanks, Shini, two, three questions. Number one, again, coming back to deposit growth. I mean, for the whole industry itself, the growth is not really showing any acceleration and banks and all have kind of increased the rates. There is clearly pressure from alternate channels. So do you want to hazard a guess as to the banks need to touch the savings rate also in the next couple of months to push up the deposit mobilization?

I certainly don't want to take a guess, but that has been something that over a longer period of time has remained more or less within a small range. So that's not something that generally has happened. But again, the way is that we don't lead with it, but we'll follow the leader on that front. But still, you know that we price slightly above. than the largest bank player in the country on the savings.

So, I mean, what measures, you know, can banks take or, you know, eventually the growth will have to take a knock, the loan growth will have to take a knock because the CD ratios are, I mean, don't have much of a scope. I mean, it can still go up by a couple of percent, but how will you all kind of minimize the whole growth versus deposit dynamics?

The growth of deposits, one, of course, the market itself grows at a certain rate, right? And the goal is to grow faster than the market to gain the share. So, like, for example, our share is slightly under 10%. and grows at call it 80 to 100 basis points in the last year and similarly over a five year period you would see that it's about 400 plus basis points market share gain so that's that's and we strive to get that by expanding our distribution to get closer to the customer with a better relationship so that's it is all about getting the customer in and deepening that relationship it takes 21 to 24 months for the customer maturity cycle to peak. And so you want to get the customer in and work with the customer to get the maturity to be peaking. That's the only thing. And with a market share slightly under 10%, there's a long runway to go and get that.

Understood. The second question is on the cost side. So you opened about close to, let's say, 700 advances in this quarter. how many more you would want to open this in this quarter and whatever cost added to accrue with regards to branch expansion has that already reflected in the numbers or there will be some you know spillover into the fourth quarter as well plus of course whatever you will open up in this quarter in terms of branches yes the branches that we intended to open

call it 1,500 to 2,000 branches, we probably will open and we, in the pipeline, we have at least another 600 odd branches in the pipeline to go, right? And then we keep adding into that. Again, it's not a function of whether, we know which locations and how many we want to open. It's a question of getting the least consummated in an appropriate manner and getting the fitment done on time. It's a function of that. So yes, we are pursuing that branch build strategy and we have a little more than 600 in the pipeline to go in the shorter time period it will come. From a cost point of view, those costs will mostly come in the following quarter and to the extent that it goes into later part of the quarter, then the cost will mostly spill into the following year itself because the cost may be a month or less than a month type of cost and then it goes through. So from a cost point of view, it also depends on the timing on that.

Yes, just maybe one more. On the priority sector, did we do any buyouts in this quarter? I mean, how are we placed on that front? Because the growth is strong, remaining strong and any updates from RBI on the exemptions, potential exemptions that you applied for for the merger?

No, we haven't heard, as I was saying, that we would expect at some point in time. Maybe there is a 27th NCLT meeting, and from then on, there are a few other regulatory things to go through before the effective date, and maybe in the interim period there, we may hear. So there is no target date or a timeframe set on that, and we hope to hear as soon as possible of that. But on the other question that you asked in terms of the priority sector, yes, you know, we do buy in the market different products. One has to do with the core growth, which is a significant push. The core PSL growth is about 35% year-on-year. So that means you know that the total loan is about 19.5% year-on-year, and the Core PSL, which means the on-books PSL that we originate and keep, grows at the rate of 35%, right? Has grown at the rate of 35% so far. That's one tool. So that means it gives good ROA and that is the priority and that is the push, right? And then there are other opportunities that we go and tap to. which is the PSLC or the IBPC or the RADF, which is again, that's a continuous evaluation that happens between the alternative costs of various such strategies and then that is how we use them.

But do we have any significant shortfall out there or we are okay with growth picking up in the core PSL book?

The shortfall or excess gets determined more at the end of the year in terms of how we do and that is where it comes. But if you look at what we have done over the past several years, typically the overall PSL is 40%. We are always there and even now we are there in the mid 40s plus. It's a question of how do we get to the right kind of composition on the agricultural and the micro. These are the two things that you focus to get there. And which we always endeavor and look for organic growth because it is tough to get organic growth. And then where we can't get, we go to the market to see how we can get PSLC or IBPC. And even if that doesn't work, we evaluate whether RIDF is another choice onto that, right? So all of these gets worked and normally it is an annual type of a target and goal.

Got it. Very, very helpful. Can I squeeze in one more small question if you don't mind? I mean, on consumer behavior, on lending has been strong, the personal lending, you know, personal loans, you know, growth has been strong quarter on quarter. But we see that inflation continues to remain high. The EMIs have gone up. So how do you think about, you know, this portfolio shaping up over the next couple of quarters? Asset quality seems to be strong, but do you think growth may take some knocks because of, you know, these factors? Or we are seeing some revolver shifting to the EMI loans, which may be getting clubbed here. So just wanted to understand, you know, how this piece is going to evolve over the next couple of quarters.

We still see quite an amount of, that's part of the retail spend, if you see, retail card spend, if you see, almost 27% retail card spend growth, right, which is quite good. Similarly, if you look at the acquiring business spend, that is also in the 20s, good, robust acquiring spend. So you are seeing people are spending. I'm talking about this quarter, right, that is happening. And another thing, if you see, there is enough liquidity also there with the kind of customers. I'm talking about our customer base. If you take our cards customer base, I think last time I learned it too, and it is true now too, which is the card customers liability balances in the bank is over five times. So that means if there is a hundred of a card receivable balance at an aggregate level, the deposit from that bunch of customers is like five times that, right? So that means, and pre-COVID, I think it was, we said it is less than four, three and a half or four times. So people have built up liquidity and it seems to be there among our customer base. And we do see good amount of spend happening.

So that should continue. Even the personal loan book should continue to grow.

You've seen the personal loan book in the quarter grow in close to mid-20s, 24% or something you're seeing growing. Similarly, even the sequential growth, you're seeing good amount of sequential growth even on the personal. 6% sequential, 23% year-on-year on the personal loan. So seeing that growth. Understood. Got it.

Shane, that's very helpful. Thank you so much and wish you good luck for the coming quarter. Thank you. Thank you, Rahul.

Thank you. The next question is from the line of Nathan Agarwal from Motilal Oswal. Please go ahead.

Yeah, I have 2-3 questions. Firstly, if you can provide some color on the credit card acquisition strategy. We recently talked about like doing 1 million cards per month. How are you planning to achieve this and the timeline for it?

We acquired 1.2 million cards in the quarter. And I don't think we have said 1 million per month. If anything, this is more of a strategic call. But I can tell you that we are at about 1.2 million in this quarter. And the prior quarter was slightly under a million for the quarter. That's the kind of rate at which we are acquiring cards.

Okay, this was there in the media very recently. So I thought of sharing this. And but no worries are a security like this quarter. We have consumed small amount of contingent provisions. So what would be an approach to utilization of these provisions going ahead?

See the point. See this every every quarter. As we have said in the past, we evaluate what to do and if there is a kind of a minor release, it happens or a build that happens. But broadly, if you think about how to think about it, which is also, I think, one of the notes we have given the COVID, one of the important kind of drive that we built the reserves and even before COVID, we built on certain other economic considerations. But I wouldn't say that it's all behind us. So if you look at certain markets in the east of the country or in the west of the country, the COVID cases are far higher, right? Far, far higher and it's spiking. And I'm not wishing that we follow what we followed last time with a lag of three or four months. I'm not wishing, but we got to be watchful to see how that turns out. So we keep evaluating how this turns out and that's how we keep the provisions on books.

Right. And lastly on the liability, this quarter has reported like a pretty strong TD growth, almost 6% Q on Q. So can you share some color as to what has been the mix of savings deposits, which has moved to TDs? Or ultimately, when you talk about 67,000 crore of retained deposits sold during the quarter, what is the mix of SAR and term in these incremental deposits?

I think mix of both. Given you the savings account growth, I think it's about 13 odd percent in the quarter. Time deposit growth is about 27 percent or so. The current account growth year on year is 8 percent. But however, I did mention that the current retail current account, which is a granular current account, which is a big focus for us, is a 14 percent year on year growth. However, the wholesale current account, De-grew by 4% in the quarter. So from the CASA ratio is 44, right? The long term CASA is about 40, 39-40 in the long term. And if you think about the time deposit last year, FY22, the whole year the time deposit grew by only 7%. So it's a question of the customer preference and the rate cycle that happens. And that's all the growth. And I give you the rate of growth across each one of these products.

Sure, we'll work that out. Thanks so much.

Thank you. The next question is from the line of Kunal Tanvi from Banyan Tree Advisors Private Limited. Please go ahead.

Thanks for the opportunity. So I had two questions. One was the employee addition. Can you throw some light on, you know, the breakup of employee addition in terms of, you know, branch related and others and within others, what are the areas where we are adding employees? Because last nine months we have added around 25,000 employees. How much work to do with, you know, new branches and how much is non-branch?

Okay. See, most of the branch, most of the staff additions are will be in frontline. Frontline means either they are in asset sales, retail asset sales, which entails, because you know that after a couple of years of a slowdown, we did pick up, so retail asset sales. Branches also adds in, out of the 30-odd thousand, more than, call it 60-odd percent would be simply directly branches, And then when I say assets, it is both cards and the retail assets. Both of them would also be there as part of the growth. So yes, we have about, call it, 84% or so of our people in the customer-facing role. That's where most of the... In some manner or the other, I gave you two, three examples of liability branch product or an asset sales product or a card sales type of product. But that's the kind of growth where in the front line, handling the customer in some manner or the other, either in relationship management or in sales, that's where dominant growth comes from.

Sure, and the second question was on if you look at our fee income, the share of credit cards and payment products have been gone to 34% for this quarter. So can you throw some light on how the contribution of fee and payments have been improving and what's the outlook there? What is that sustainable number one should look at?

Again, it depends on yes, the payment business was 32% of the total fees last quarter. 33% in this quarter right so it is more or less in that kind of a normally in the third quarter you would expect that it contributes slightly higher than what it used to contribute historically and last year third quarter was was an aberration because of certain other things I alluded to at that time from a coming off the restructuring a lot of these uh risk related type of fees right uh with people uh check bonds fees or the late payment fees or the uh over credit limit fees etc etc they were they all came down because they are all risk related fees and with the curtailment of all of those last last year in the code period they were docked but otherwise uh there's no particular outlook i can give it's a function of customer behavior on these things uh but yes It has gone up from 32% composition to 33% here. And again, it depends on the seasonality and the promotions we run period to period.

Sure. Thank you so much. All the best.

Thank you. Before we proceed to the next question, I would request all the participants to please limit their questions to one per participant. The next question is from the line of MB Mahesh from Kotex Securities. Please go ahead.

Hey, Hashini. Okay. If I were to just ask on verification, what is the accounting treatment of IBPC? And when HDFC mortgage book customers were to come down to your bank, how does the pricing of those loans move? Because they have a different interest rate regime and banks have a different interest rate regime.

Yeah, OK. On the accounting literature, I think it's in a public document somewhere in terms of what that is and we can take it offline or one of our finance team can talk to you to show you where it is. So that's a very simple thing you'll see.

In a sense, do they have to move to EBLR or do they have a choice to continue where they are?

This is on the mortgage you are talking about, right?

Absolutely.

Your second aspect of the question in terms of the mortgage, right? There will be a one-time change, right, that we will do when the migration happens, right? We are working through that migration process, and once it's integrated, we will exactly communicate with the customer how that will move. And then, of course, at any point in time, customers have a choice, right? Even today they have. And in future, they will have a choice to pick the external benchmark, whatever they need.

Okay. So just on the first question then, on the IBPC part, does that increase in sale of loans through IBPC have any impact on the NII or the pre-income rate?

There will be NII depending on whether the IBPC is done at a price above the cost of funds or below the cost of funds and and so on and similarly there will be there will be some impact on the ibpc here and how was it distorted if i have to ask ibpc will have a will have some impact so if you look at our loan growth uh 19 and a half percent uh growth of ibpc the growth of ibpc the loan growth is 23 and a half percent right and you do on the nil And the NI line, there will be some impact, right? Could be at any point in time, could be 0 to 5 basis points or 10 basis points at any time.

Okay, perfect. And if you can give a clarification, what is the definition of a retail current account?

Retail current account is the customers managed out of the branches, right? Wholesale customer is normally a big corporate or a wholesale customer relationship managed, whereas in a branch managed, that is what we call the retail. Example, it could be a merchant around the corner somewhere, or it could be that another institution which the branch is managing and opening and maintaining that account.

Okay, perfect. Thanks a lot.

Thank you. The next question is from the line of Pranav Gunlapalli from Bernstein Private Wealth Management. Please go ahead.

Hey, thanks for taking my question. Just a quick question on the NIM. You explained how the change in loan mix is driving the change in NIMs, so that's clear. But within a given segment, have you seen a change in your risk footprint to the last 50 years, which can also explain at least a part of that NIM pitch? Basically, looking at certain loans going towards safer segments or looking at corporate going towards safer segments, have you seen anything of that sort clear?

So now your line is echoing. I I didn't get it all. I know the question is about the name from 2-3 years and something, but I didn't get it exactly. If you can slowly repeat, I'll try to run out.

If you're wearing any headphones or your phones, we would request you to speak to the handset directly.

Yeah.

Not very clear so.

OK, please try it once again. My question was, you explained about how change in loan segment, explain the change in NIM that you've seen. Is there a change in relative riskiness within the segment itself? Have you seen a shift to a safer or less risky segment within personal or any particular segment?

I got it. You're asking about the relative, of course, yes, absolutely. Because the change in our composition that we saw when the wholesale moved from 45% to 55% from a total composition, we did see a significant improvement in the quality of the customer. These were very highly rated corporates, right? Our wholesale customers, wholesale book, is at about an average internal rating, call it about 4.3 or so, which is equivalent to a double A rating. Yes, the quality of the book. And one other thing is also the, and it comes with the lower risk weights. It comes with lower risk weights anywhere from 20, 30%, and retail comes with a 100% risk weight. Yes, it comes with a different type of a risk matrix, and that is why when the wholesale comes, it will come with a lower margin, cost to income which is very low, there's virtually no marginal cost to income, and the credit cost, our experience on the credit cost has been that you will see that hardly any credit cost that we report on that segment. So, whereas on the retail, come with a higher margin, higher cost of origination, higher cost of maintenance, It'll come with a credit cost, the credit cost can come with a lag too, right? So that's part of the model. But one thing is from a returns point of view, if you think about the returns, more or less they will be matching, right? From an ROA, you'll see that, call it approximately 2%, could be 2.1, 1.9, but approximately 2%, irrespective of the segment in which we operate, we managed to optimize ROA, right? Because if the margin is low, cost is low, credit cost is low, and so you get to the margin, you get to the returns that you want to get. That's how we manage that. And so over a period of when the shift has happened, you will see that the ROA remains pretty stable.

Thank you. Thank you. Ladies and gentlemen, we have come to an end of the time allocated for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Okay. Thank you, Tanvi, and thank you to all the participants for joining in today. Any further questions, comments, or anything, the team is available, and at some point in time, we can connect over the next few days. Thank you. Have a great weekend. Bye-bye.

Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.