HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to HDFC Bank Limited Q4 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 touched on phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.

Okay, thank you, Tanvi. Good evening and a warm welcome to all the participants. Let's look at the key macro indicators observed during the quarter. before we get to the details on the earnings. Various indicators suggest economic activity was holding up well in Q4. GST collections continued to be robust. March 23 recorded 13% growth year on year. Full year 23 GST collections recorded a growth of 21%. Manufacturing PMI at 56.4 has remained in the expansionary zone since July 21. Services activity is holding up well. Services PMI at 57.8 continues to remain strong. Healthy trend in government capital spending augurs well. Q4 23 year-on-year growth of 18% and full year government capital spending growth of 22.8% bodes well. Payment system indicate business activity continues to be robust with 15% growth in RTGS NIFT transactions value and a 51% growth in UPA payments. On the consumption side, consumers are moving towards higher value products driven by changes in technology and regulations. We have seen customer preferences towards SUV, MPV type of segment and higher capacity two wheelers. Two wheeler and passenger vehicles witnessed continued improvement. During the quarter, our retail card issuing spends also showed robust growth of 31% year on year. Rubby crops sowing is progressing well with approximately 3.3% improvement to last year's level. IMD is forecasting normal monsoon this year, which also bodes well for the semi-urban and rural activity. Global financial market volatility could weigh in on domestic growth. Going forward, there are risks stemming from possibility of global slowdown, continued geopolitical tensions, and any further deepening of foreign banking crisis. We estimate India's GDP growth at 6.8% in financial year 23, and expected to be over 6% in financial year 24. Let's go through certain key themes. On the distribution expansion, we added 638 branches during the quarter, taking the total branch addition in financial year 23 to 1,479. The total branch network of the bank stands at 7,821. On the payment acceptance points, the bank has 3.9 million, year-on-year growth of 30%, as adoption of Yopar app builds momentum. We witnessed upwards of 75,000 new additions per month during this year. Wealth management is offered in over 923 locations through Hub and Spoke model. We have expanded by 232 locations in the quarter. In CRB, our SME businesses are present in more than 90% of the districts, rural business expanded to 1.65 lakh villages and is on track to reach the objective of over two lakh villages. Gold loan processing is now offered in 4,182 branches, a threefold increase over March 22. In the customer franchise building, we acquired 2.6 million new customer liability relationships during the quarter and 10.6 million relationships in the year, with over 83 million customers we will continue to engage in thereby enabling us to broad base and deepen our relationships. In order to position us for this customer engagement, we have added 31,600 people over the year and 6,300 during the quarter. On carts, we have issued 1.4 million carts during the quarter. The total cart space is now 18 million. On the website, our registered traffic during the quarter received an average of 132 million visits per month with over 106 million unique visitors over the quarter and year-on-year growth of around 74%. Our focus on granular deposits continues with total deposits amounting to 18.8 lakh crore, an increase of 20.8% over prior year and 8.7% over prior quarter. During the quarter, we added deposits of 150,000 crores. Retail constitutes about 83% of total deposits and has been the anchor of our deposit growth. Retail deposit grew 23% year-on-year and 7% sequentially. During the quarter, we added retail deposits of 107,000 crore. Wholesale deposits constitute 17% of total deposits. As of March 23, these grew 10% year-on-year and 15% sequentially. Term deposit registered a robust growth of 30% year-on-year, ending the quarter at 10.5 lakh crores. Savings deposits recorded a growth of 10% year on year and 5% sequentially, ending at rupees 5.6 lakh crores. Current account deposits grew 14% year on year, ending at 2.7 lakh crores. Overall CASA deposits grew 11% year on year, ending at 8.4 lakh crores, resulting in a CASA ratio of 44%. Retail CASA deposits grew by 13% year on year. On the advances side, Advances at rupees 16.1 lakh crores grew by 16.9% over prior year and 6% sequentially. This is an addition of approximately 94,000 crores during the quarter and 234,000 crores in the year. Growth of IBPC advances grew by 21% year-on-year and 6% quarter-on-quarter. Incremental credit-to-deposit ratio was at 62% for the quarter. CD ratio as of March end stood at 85%. Our retail advances growth was robust. Domestic retail advances grew 20.8% year on year and 5% sequentially, primarily driven by strong performance in personal loans and home loans. In the CRB, which drives our MSME and PSL book, continued its momentum with a year-on-year growth of 29.8% and quarter-on-quarter growth of 9.7%. Wholesale segment grew 12.6% year on year and sequentially 4.5% primarily driven by demand from NBFCs, telecom, PSUs, and retail sectors. On the technology update, launches PaysUp 2.0, which was rebuilt from ground up, is available to public at large. Smarter VR part, they continue to add new features to our one-stop merchant solutions app. The app has garnered tremendous growth with three-fold increase in active users and more than three-fold in merchant transactions value. As of March end, over 1.5 million small businesses are on this smarter platform. Express Car Loans is an end-to-end digital lending journey platform facilitating instant and hassle-free car loan disbursals to existing as well as new-to-bank customers has been witnessing tremendous response from customers. Express Car Loan volume now contributes 20% of our new car loan volume. We are focused on investments in expanding our distribution network combined with our focused digital offering and relationship management, which continues to fuel growth. Balance sheet remains resilient. LCR for the quarter was at 116%. Capital adequacy ratio is at 19.3%, with CET1 ratio at 16.4%. Let's start with revenues. Net revenues for the quarter were at 32,000 crore, grew by 21% over prior year, driven by gross advances growth of 21%, and deposits growth of 20.8%, and net revenues for the year ended March 31, 2023, were at 1,18,000 crore, grew by 16.3% over prior year. Net interest income for the quarter at 23,352 crores, which is 73% of net revenues, grew by 23.7% over prior year. The core net interest margin for the quarter was at 4.1% versus prior year of 4%. Prior quarter was also at 4.1%. Full year core net interest margin was at 4.1%. On interest earning asset basis, the core net interest margin for the quarter was at 4.3%, again, at similar levels to prior quarter. Full year core net interest margin based on interest earning assets was at 4.3%. Getting to the details of other income, total other income at rupees 8,731 crores was up 14.3% versus prior year. Fees and commission income constituting about three-fourths of the other income was at rupees 6,628 crores and grew by 17.7% over prior year and 9.5% over prior quarter. Retail constitutes approximately 94% of the fees. Effects and derivatives income at Slightly above 1,000 crores was higher by 25.6% compared to prior year of 804 crores. Net trading and mark-to-market income were a negative 38 crores for the quarter. Prior quarter was a gain of 261 crores and prior year was a gain of 48 crores. Other miscellaneous income of 1,130 crores includes recoveries from return of accounts and dividends from subsidiaries, excluding net trading and mark-to-market income Total other income at Rs. 8,769 crores grew by 15.5% over prior year. Operating expenses for the quarter were at Rs. 13,462 crores, an increase of 32.6% over prior year. Operating expenses for the year ended March 23 were at Rs. 47,652 crores, an increase of 27% over prior year. In this context, it's pertinent to note that we added 1,479 branches and 1,597 ATMs since last year. Cost to income ratio for the quarter was at 42% and for the full financial year was at 40.4%. Moving on to PPOP, for the quarter grew by 13.8% and our pre-provision operating profit was at 18,621 crores. Pre-provision operating profit for the quarter is 6.93 times of total provisions in the quarter. Coming to the asset quality, the GNPA ratio was at 1.12% as compared to 1.23% in the prior quarter and 1.17% prior year. Out of the 1.12%, about 14 basis points are standard. Thus, the core GNPA ratio is at 0.98. However, these are included by us as one of the other facilities of the borrower is an NPA. Net NPA ratio was at 0.27%, prior quarter was at 0.33%, and prior year was at 0.32%. The slippage ratio for the current quarter is at 28 basis points, or about Rs. 4,900 crores. During the quarter, recovery is an upgrade where Rs. 3,300 crores are approximately 22 basis points. Write-offs in the quarter were 2,400 crore, or approximately 17 basis points. No sale of NPA accounts during the quarter. The restructuring under the RBI resolution framework for COVID-19 as of March end stands at 31 basis points, or rupees 5,000 crores. In addition, certain facilities of the same borrower which are not restructured is approximately six basis points, 970 crores. Thus totals to 37 basis points. restructuring in the prior quarter was at 50 basis points. On the provisions reported were around 2,700 crores as against 2,800 crores during the prior quarter and 3,300 crores in the prior year. The total provisions in the current quarter included the build-in contingent provision of approximately 300 crores. The provision coverage ratio was at 76%. At the end of current quarter, Contingent provisions and floating provisions were approximately 11,150 crores. Contingent provisions at 9,700 crores and floating provisions at 1,450 crores. General provisions were at 7,000 crores. Total provisions comprising specific floating contingent in general were about 176% of the 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 1.12% of gross advances as of March quarter. Now coming to credit cost ratios, the total annualized credit cost ratio for the quarter was at 0.67%, prior quarter was at 0.74%, and prior year was at 0.96%. The total credit cost for the full year was at 0.74%. Recoveries which are recorded as miscellaneous income amount to 23 basis points of gross advances for the quarter, against 21 basis points prior quarter and 26 basis points per prior year. The total credit cost ratio net of recoveries was at 44 basis points in the current quarter as compared to 52 basis points in the prior quarter and 70 basis points prior year. The total credit cost ratio net of recoveries for the full year was at 53 basis points. The profit before tax was at 15,936 crores grew by 22% over prior year Net profit after tax for the quarter at 12,047 crores grew by 19.8% over prior year. Net profit for the year ended March 23 was 44,109 crores, up 19.3% over prior year. Now some highlights on HDBFS, this is on India's basis. HDBFS has continued to augment its distribution network and opened 71 branches in the quarter, taking it to 1,492 branches spread across 1,054 cities and towns. Customer franchise grew to 11.9 million customers, adding 2.8 million over last year. The momentum and disbursements continued across all three business segments during the quarter, registering in a healthy growth of 53% year on year and 20% sequentially. The total loan book as of March end stood at 70,000 crores, registering 14% year-on-year and 7.6% sequentially. Net interest income for the quarter ended March 23 was at 1,424 crores, a growth of 6.6% quarter-on-quarter. Provisions and contingencies for the quarter were at 268 crores against 313 crores for the prior quarter and 422 crores for the quarter ended March 22. Credit costs for the quarter were at 1.6%, as against 2.78% for last year March quarter and 1.95% for the December 22 quarter. Stage three as of March end continues to improve and stood at 2.73% against 3.73% as of December end. Provision coverage ratio on stage three book increased to 65%. The provision coverage ratio on secured and unsecured book stood at 62% and 96% respectively. Profit after tax for the quarter ended March 23 was 545 crores, a growth of 27.7% year on year. Profit after tax for the full year ended March 23 was at 1,959 crores compared to 1,011 crores in the previous year, a growth of 93%. Annualized ROE and ROE for the quarter ended March 23 stood at 3.25% and 19.5% respectively. For the full year ended March 23, ROA and ROE stood at 3.07% and 18.7% respectively. Earnings per share for the quarter was rupees 6.89 and book value per share was at 144.5 in the subsidiary HDBFS. HDBFS remains well capitalized with the total capital adequacy ratio at 20.05% and continues to step up disbursements, leveraging a strong distribution spread across 1,492 branches. Now a few on HSL. HSL has a network of 209 branches spread across 147 cities and towns. HSL increases customer base to 4.5 million as of March end. HSL's digital offering continue to enjoy good traction in the market And during the quarter, around 94% of active clients utilize the services offered through companies' digital platforms. For the quarter, March 23, HSL's total revenue were at Rs. 486 crores against 510 crores for last year's same quarter. Profit after tax was at 194 crores against 236 crores for the same quarter last year. Net profit for the year ended March 23 was at 777 crores against 984 crores for last year. Earnings per share in the quarter was Rs. 121.95 and book value per share was at Rs. 1,131. In summary, our results reflect robustness across various parameters, driven diligently and passionately by our people, resulting in continued momentum in deposit growth of 21%, and within that, the retail deposit growth, which grew at 23%. Gross advances growth of 21% and net advances growth of 17%. Operating profit grew by 13.8%. Profit after tax increased by 19.8% for the quarter and 19.3% for the year. Profit after tax on a consolidated basis increased by 20.6% for the quarter and 20.9% for the full year, delivering the return on asset in the quarter of about 2.2% and return on equity of about 18%. Earnings per share reported in the quarter is at rupees 21.6 at the standalone bank level, and rupees 22.6 at the consolidated bank level. Book value per share on a standalone bank is at rupees 502, and at a consolidated bank it is at rupees 519. The bank's board has recommended a dividend of rupees 19 per equity share, subject to shareholders' approval. Now 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 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 for any follow-up questions. The first question is from the line of Mahroog Ajania from Nuwama. Please go ahead.