HDFC Bank Limited

Good evening and welcome to HDFC Bank Limited Q2 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 and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star 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. Thank you, Nirav. Good evening and a warm welcome to all the participants. Our MD and CEO, Mr. Sashi Jagdishan has joined us today to provide an overview of the business before we get into the quarterly results. Sashini, over to you to get started, please.

Thank you, Srini. Thank you for allowing me to steal your talk time. I'll keep it as brief as possible. This being the first results post the merger, I thought of sharing my thoughts. It's such a pleasure to connect with you all after a very long time. As you know, we just consummated one of the largest mergers in recent times with seamless integration of people, process and systems. And that too, without any external help, this showcases the power of our execution. The day one merged balance sheet was audited by the 31st of August, and the team disclosed this to the world at large around mid-September. The presentation, which they did to the analysts, brought out some of the one-offs on account of the debt-funded liquid assets to meet the liquidity coverage ratio, the LCR, as per banking norms. As you know, sometimes the assumptions and cash flows that an NBFC does is different from what a bank would do. And so, therefore, there was some amount of build-up of liquidity to be to meet those liquidity coverage ratio norms, and also provide an extra cushion to take care of contingencies. You know, as luck would have it, there was an incremental CRR, which was announced, and this cushion came in extremely handy. Obviously, it came with a cost, which is approximately 25 basis points between the liquidity buildup and the ICRR impact. I think Srini will talk about it more in detail in his call. The presentation also brought about the day one adjustments to equity, which was one of the ask of all you of this fraternity to say what will be the day one equity and with all the adjustments that one would do on merger. I think a lot of people probably mistook some of them to be destroying of value the equity, but it's not. If you look at it deeply, and I'm sure most of you would realize that these are all accounting and timing differences, which means that these benefits will accrue over time from here on. A lot has been spoken about the non-retail book of erstwhile HDFC Ltd. Surely there was a bit of an incremental spike in NPA in an account, which was standard but had to be restructured. And as for the norms, when you restructure, even if it's a performing asset, it gets tagged as an NPA. Yes, there could be some tail remaining from this book, which could slip into substandard in the future, but the impact... to the overall bank's gross NPA will not be significant at all. In fact, I can categorically say that the bank will not incur any incremental costs or losses on account of this book into our P&L going forward. And this is something, because of the realizable value of security, the provisions that we have made is going to be adequate enough to cover some of the exposures that we have inherited. A lot of questions and question marks have come about what are we planning to do on the construction finance. It is going to be extremely important. It's going to be an important part of our mortgage business. We have just absorbed the contours of this book. You will now start to see the construction finance book growing steadily from here on. And that will sort of help in building not only the top line but also some of the margins If you've seen the results, which has been released a couple of hours ago, I think it showcases the execution capability, which is what we're known for, which is what we have constantly spoken about as well, and even demonstrated. Let's look at some of the key metrics. Look at the deposit accretion of 1.1 lakh crores. You know, that translates on an apple-to-apple basis of a sequential growth of 5.3%, which if you analyze it, it's upwards of 20-21%. And mind you, this is almost 83-85% of that is retail. Now, one would wonder, and probably one of the questions that you may have is, what happened in June? You know, which is... I think we may have explained, but let me articulate it slightly better, is that when the liquidity cushion was being built on the other side, that is in HDFC Limited, we decided that we will not roll over some of the large ticket deposits even for a few basis points as well. So we let some of them grow, and that has marked these outflows significantly. in the larger ticket deposits or the non-retail deposits mask the outflow or the core momentum of the retail ones. So we are very sanguine and very confident that funding is never going to be an issue and you will see the kind of execution that we are capable of going forward as well. Look at the loan growth. We've also accreted on an apple-to-apple basis, one point lakh crore during this quarter. These are high-quality assets, whether it is corporate, whether it is CRP, the commercial rule of the MSME book, or the retail book. These are extremely high-quality books where we are extremely comfortable from the quality of the book now and into the future. But look at the kind of sequential apple-to-apple growth rate. At 4.9%, it's an annualized growth rate of 19.6%. So when you look at these two metrics, it's a very strong, very healthy numbers, which is what we have mentioned several times over, that even on such a large scale, that the banks will have the energy to continue to grow at a pace that we have done in the past, even on such a larger book. The NIMS, you know, I think the presentation in the mid-September called out that there will be a kind of an impact because of the liquidity cushion and the incremental CRR impact of about 25 basis points. We had said that we will, the core margins on a total asset basis on a pure arithmetic should be somewhere between 3.7 to 3.8%. So when you adjust to this 25 basis points, we are at the lower band of the 3.65. That's all right. I mean, that's something that I'm sure with time, we will recoup some of the margins as we substitute the high-cost bonds with deposits and the changing mix of our business loans mix more and more towards retail. Look at the return on assets. Despite that, I think the company maintained the return on assets around the 2% mark and the ROE at the 16.2% mark. So the top line growth and the profitability has been intact and it is something that will only improve going forward. This being the first quarter, we wanted to ensure that the fabric of HTFC Limited's profits on mortgages is maintained, especially on the retail mortgages. We wanted the teams to settle down and we wanted them to slowly but surely start to energize themselves and galvanize the home loan retail disbursal momentum. We have mentioned in the early release that They did the highest ever retail mortgage loans of 170,000 in numbers and a 40,000 crores of this burst was the highest ever. This demonstrates that this is the start. This is the tip of the iceberg. It's just now a matter of time where we now will start to sweat the franchise, both the distribution and the customer franchise to take this forward. But what is going to be exciting is when we launch our digital journeys for bundling products during this quarter. That will be incremental in terms of icing on the cake. So the innate strength of the institution to galvanize energy, to execute consistently even on a larger base is what we have demonstrated year after year for 28 plus years. As one can see in the recent results, The bank is poised to silently deliver the core growth that you have just seen in this quarter, and I'm very confident and sanguine that it will continue to do so quarter after quarter, even on a larger scale. Maintain the profitability in the range of 1.9% to 2.1% as in the past. So without much ado, I just wanted to tell you that we are extremely excited about this merger, and we will continue slowly but surely demonstrate to the world that how we will execute the way we have done in the past. So over to you, Srini. Thank you so much.