HDFC Bank Limited

Ladies and gentlemen, good evening and welcome to the HDFC Bank Limited Q1 FY24 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. There will be an opportunity for you to ask questions after a brief commentary by the management. Should you need assistance during this conference call, please signal an operator by pressing star and then zero on your touchtone 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, Darwin. Good evening and a warm welcome to all the participants. I want to briefly start and give a minute update on the merger. Effective July 1, as you all know, HDFC Limited has been merged into the bank. Consequently, all subsidiaries of HDFC Limited have become subsidiaries of the bank. Earlier today, with the support of BSE, NSC, NSDL, CDSL, all HDFC Limited shareholders, as on the record date, have received shares of HDFC Bank. This concludes the 15-month journey for the bank and all the regulators involved, and we would like to take this opportunity to thank them for their continuous engagement and support. HDFC brand, built over 47 years, will now be proudly owned by the bank. It is a privilege to add on and engage with the 6,000 institutional investors and 7,000 individual shareholders. HDFC Limited has excelled in nurturing trust in their customer engagement over four decades of operation. We'd like to harness this bond with our home loan customers by leveraging our exhaustive distribution reach and comprehensive digital platform to upsell a complete bouquet of the bank's and subsidies products across pay, save, invest, borrow, insure, and trade, like the savings account, personal account, and so on, including the credit card and SAPs. Seamless integration to aid the sustained and optimal execution is undertaken involving merging products and processes expertise, creating learning opportunities by focusing on customer engagement and experience, onboarding 4 million customers with over 6 trillion portfolio, onboarding 4,150 talented professionals bringing in knowledge and culture. Now let's look at the key macro environment during the quarter before we review the earnings. Stronger than expected GDP growth in the March quarter has boosted sentiment. Various indicators suggest economic activity continues to be strong in the recent June quarter. GST collections have been reversed in the first quarter, where it was 5 lakh crore grew by to 5,000,000 gross grew by 12% year-on-year. Manufacturing PMI at 57.8 and services segment PMI standing at 58.5, all those well and shows robustness. Again, the current account deficit narrowing to a seven-quarter low adds more strength. Payment systems indicate business activity continues to be robust with 14% growth in RTGS, NEFT transactions, and 44% growth in UPI payments. On the consumption side, the passenger vehicle and two-wheeler sales showed robust growth reflecting strong consumer demand. During the quarter, our retail-issuing car spends have shown robust growth of 30% year-on-year and 10% sequentially. The uneven distribution of monsoon has adversely impacted sowing. Excessive rains in North India have inundated fields already sown, while lack of rainfall in east-central and southwestern regions has delayed sowing. Overall, we continue to see healthy domestic demand conditions, resilience in services exports, and push from government through CapEx expenditure. These factors are estimated to result in India's year-on-year GDP growth rate of 7.7% in Q1 and greater than 6% in the full year 24, after a stronger-than-expected GDP growth of 7.2% in FY23. However, weather-related uncertainty with a rising likelihood of El Nino causes risk to rural recovery and inflation, which remains high. Let's go to the key themes. On the distribution, while we added 39 branches in the quarter, we added 1,482 branches over the last 12 months, which now stands at 7,860 branches. On the payment acceptance points, we have 4.6 million year-on-year growth of 37%. That includes 2.8 million merchants accepting through the Smart Hub YAPAR platform. On the CRB side, our SME businesses are present in more than 90% of the district, expanded to 1.7 lakh villages reach, and is on track to achieve the objective of over 2 lakh villages. Gold loan processing is now offered in 4,336 branches, an increase over June 22, a two-fold increase over June 22. In the customer franchise building, we added 2.4 million new liability relationships during the quarter. With now over 85 million customers, it provides the base to engage, enabling us to broad base and deepen our relationships. In order to provide for this engagement, we've added 29,000 people over the last 12 months and 8,500 people during the quarter. On cards, we have issued 1.5 million cards in the quarter. The total card stands at 18.4 million. Our website continues to receive enormous traffic. We received on an average 109 million visits per month with over 89 million unique visitors over the quarter at an year-on-year growth of 42%. Focusing on the granular deposit, which continues, the deposit amounted to 19.1 lakh crores, an increase of 19.2% over prior year. On the back of a fantastic quarter in March 23, where we added 1,50,000 crores We further built on this enhanced base during the June quarter with an addition to deposits of 30,000 crores. Retail deposits added in the quarter was 38,000 crores. Retail, which has been an anchor of our deposit growth, constitutes about 83.5% of our total deposits, getting more granular compared to 82% in prior year June. Retail deposits grew at the rate of 21.5% year-on-year and 2.4% sequentially. Wholesale deposits constitute 16.5%, and these grew 9% year-on-year, but were lower 2.5% sequentially. On a pro forma merged basis, retail deposits grew by 20.6% year-on-year. This is on a pro forma basis merging the June deposits of HTLC Limited I'm talking about, and the retail constitutes 83% of the total pro forma. Now moving to advances, Growth of IBPC advances grew 20% year-on-year. Net of IBPC advances at 16.3 lakh crores grew by 13.7% versus prior year. This was an addition of approximately 16,000 crores during the quarter and 2,22,000 crores in the year. Credit-to-deposit ratios of June end stood at 84%. Our retail advances growth was robust. Domestic retail advances grew 20% year-on-year and 4% quarter-on-quarter. primarily driven by strong performance in home loans and personal loans. Commercial and rural banking, which drives our MSME PSL book, continues to momentum with an year-on-year growth of 29%. Wholesale segment grew 11% year-on-year, but de-grew 1.2% sequentially. The bank's advances growth of IBPC grew by 20.1% year-on-year when we include HTSC Limited's individual home book. The pro forma core loan growth for the merged entity is 18.7% year-on-year. Technology, we continue to focus on the technology agenda. HCFC Bank One, the customer experience hub, over 12 and a half million unique customers have interacted through the platform, according to over 22 million interactions. On the PAYZAR, transactions volume of over 13 million during the quarter, with more than 1.6 million monthly average logins and one and a half times increase in customer spends. Express car loan volume now contributes 30% of our car loan volume. We continue to be focused on these investments and expanding both the distribution as well as the digital footprint and thereby driving the relationship management for growth. Balance sheet remains resilient. LCR for the quarter for the bank was at 126%, prior quarter was 116%, and prior year was 108%. LCR on a performant basis, that is, including the estimated HDFC limited book as of June 30, based on the merged entity, was over 120%. Capital adequacy ratio is at 18.9%, and CET1 is at 16.2%. Net revenues for the quarter were at 32,829 crores, grew by 26.9% over the prior year, driven by gross advances growth of 20% and deposit growth of 19%. Net interest income for the quarter at 23,599 crores, which is 72% of net revenues, grew by 21% over the prior year. The core net interest margin for the quarter was at 4.1%. On an interest-earning asset basis, the core net interest margin was at 4.3%. Getting to the details of other income, which was at 9,230 crores, fees and commission that constitutes two-thirds of the other income was at 6,290 crores and grew by 17% over prior years. Retail constitutes approximately 93% of fees and commission. Effects and derivatives at 1,309 crores was higher by 27% compared to prior year. And net trading and market income were at 552 crores for the quarter. Prior quarter was a negative 38. And prior year was also negative, slightly above 1,000 crores. Other miscellaneous income at 1,079 crores includes recoveries from return of accounts and dividends from subsidiaries. Operating expenses for the quarter were at 14,057 crores, an increase of 33.9% over prior year and an increase of 4.4% over prior quarter. In this context, it is pertinent to note that we added 1,482 branches and 1,732 ATMs since last year. In the medium to long term, distribution reach is the key. This is what will provide funding through better engagement. Cost-to-income ratio for the quarter was at 42.8%, reflecting the cost of investments, which from a timing point of view, has been chosen during the benign credit environment to capture the market opportunity. This will moderate and revert to below previous levels after the break-even and payback from the investment starts to flow through. PPOP for the quarter. grew by 22%. Our pre-provision operating profit was at 18,772 crores. Coming to asset quality, the GNPA ratio was at 1.17% compared to 1.12% in prior quarter and 1.28% in prior year. Out of the 1.17%, about 14 basis points are standard, but the core GNPA ratio is 1.03. GNPA ratio, excluding NPS in agricultural segment, Because agricultural segment has got the seasonality in June and December. So excluding the agricultural segment, GNP ratio was at 0.94%. Prior quarter was also at 0.94%. And prior year was 1.06%. Net NPR ratio was at 0.30%. And net NPR ratio, excluding NPS and agricultural segment, was at 0.23%. Again, same as prior quarter, which was also 0.23%. The slippage ratio for the current quarter is at 35 basis points or about 5,800 crores. The slippage ratio for the current quarter, excluding agricultural segment, was at 26 basis points, about 4,200 crores. During the quarter, recoveries and upgrades were 2,650 crores or approximately 16 basis points. Write-offs in the quarter were 2,100 crores or approximately 14 basis points. no sale of any NPA accounts in the quarter. Restructuring under the RBA resolution COVID framework as of June ends stands at 27 basis points, about 4,265 crores. In addition, certain facilities of the same borrower which are not restructured is approximately five basis points or 800 crores. On the provisions reported were 2,850 crores against 2,700 during the prior quarter and 3,200 in the prior year. The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately 11,150 crores, same as last quarter. General provisions were at 7,150 crores. Total provisions comprising specific floating contingent and general provisions were 171% 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 June end. Coming to credit cost ratio, the total annualized credit cost for the quarter was at 70 basis points. Prior quarter was 67 basis points and prior year was 91 basis points. Recoveries which are recorded in miscellaneous income amount to 19 basis points of gross advances for the quarter. The total credit cost ratio net of recoveries was at 51 basis points in the current quarter. compared to 68 basis points in prior year and 44 basis points in prior quarter. The profit before tax was at 15,912 crores, grew by 30% over prior year. Net profit after tax for the quarter at 11,952 crores, grew by 30% over prior year. Some highlights on HDB financial services. This is on India's basis. The total loan book as of June end stood at 73,568 crores, growing 5.1% sequentially and 19% year-on-year. Secured loan comprises 72% of the total loan book. Disbursements for the quarter were higher by 42% over the prior year. Customer franchise grew to 12.8 million with 7.3% additions during the quarter and an increase of 29% year-on-year. Distribution network was augmented by 89 branches in the quarter, taking it to 1,581 branches spread across 1,100 cities and towns. Net interest income for the quarter was 1,501 crore, an increase of 5% quarter-on-quarter and 13% year-on-year. Provisions and contingencies for the quarter was 267 crores against 398 crores for the quarter ended last year, June. Quality of the book continued to see sustained improvement. Growth stage three as of June end improved to 2.5% against 2.7% as of March 23rd. and 4.9% as of last year, June. Reflecting sustained healthy collections, provision coverage on the Stage 3 books stood at 66%. The profit after tax for the quarter ended June increased to 567 crores against 545 crores for the last quarter and 441 crores for last year's same quarter. ROE and ROE for the quarter stood respectively at 3.2% and 19.4%. Earnings per share in HDB was at 7.16 and book value per share in HDB is at 150.5. HDB remains well capitalized with a total capital adequacy ratio of 19.8% as of June end. And a few sentences on HDB, on HSL, our securities company that has added nearly 0.6 million clients in the last 12 months, taking the client base to 4.6 million. HSL has a network of 207 branches across 147 cities and towns. Digital offerings continues to enjoy good traction in the market. Around 93% of active clients utilize the digital platforms of the company. SHFC Securities has introduced SHFC Sky, a low-cost booking platform, which is targeted at all kinds of customers, millennials, investors, traders, providing easy, do-it-yourself, seamless execution with a high ease and competitive flat pricing policy. The total reported revenue for the quarter was at Rs. 497 crores against Rs. 432 crores in prior year. And the net profit after tax was at Rs. 189 crores, almost flat to prior year. Earnings per share in the quarter in HSL was Rs. 119 and the book value per share at HSL is at Rs. 1,153. In summary, our results reflect consistency of delivery, diligently executed to result in continued momentum in deposit growth at 19%, and retail deposit growth within that, which is 21%, 21.5%. Growth advances growth of 20%, and the net advances growth net of IBPC of 16%. Profit after tax increased by 30%, delivering return on asset in the quarter over 2%, and ROE of about 17.3%. Earnings per share reported in the quarter is at Rs. 21.4 at the standalone bank level and Rs. 22.2 at the consolidated bank level. Book value per share, standalone bank is at Rs. 525.4 and at the consolidated bank level is at Rs. 542.7. With that, may I request the operator to please 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 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 to two per participant. If time permits, you may join the queue for any follow-up. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.