HDFC Bank Limited

Ladies and gentlemen, good day and welcome to HDFC Bank Limited's Q3-FI24 earnings conference call on the financial results presented by the management of HDFC Bank Limited. 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, Neeraj. Good evening and a warm welcome to all the participants. There is an OMI presentation that's published on our website. Please refer to it as appropriate. As we get to it, in the meantime, let's cover a brief on the macroeconomic environment that operated during the quarter before we review the OMI. We continue to see healthy domestic activity, economic activity driven by robust common spending, primarily in capital expenditure. improvement in domestic manufacturing, and resilient services sector performance. As you know, the GST collections grew 13% year-on-year. Manufacturing and services PMI continue to remain in the expansionary zone, and the consumption side improved consumer demand driven by festive spending resulted in robust growth across various sectors. RBI takes its rate and change at 6.5% and retained its stance and changed its withdrawal of accommodation and modestly reduced its inflation forecast in the second half of the year. As we look ahead, the economic environment is poised for strong growth. India's year-on-year GDP growth for financial year 24 is estimated at about 7%. And for financial year 2025, GDP growth rate is expected to be around 6.5%, continuing to be one of the fastest growing major economies in the world. Let's go through the key factors to the bank's growth journey. Advances can be referred to in page 7 and 8. Growth advances are at at least 24.7 trillion as of end December, reflecting a sequential momentum of at least 1.1 trillion or 4.9%. Retail advances grew 3.3% quarter-on-quarter, primarily driven by strong performance in the mortgage business. Retail mortgage disbursements of $460 billion during the quarter grew 18% over prior years. In the CRB business, it continued its strong momentum, resisting quarter-on-quarter growth of 6.7%. Wholesale segments excluding non-individual loans of EHTFC grew 1.9% sequentially. Non-individual loans of EHTFC aggregated to 0.99 trillion as compared to 1.03 trillion as of last quarter end. Focus on the granular deposit continues, looking at pages 7 and 9. Total deposits as of December end amounted to 22.1 trillion, primarily comprising of retail deposits, which is at 84% of total deposits. Retail deposits, which are the bedrock of the franchise, grew by over Rs. 530 billion or 2.9% during the quarter, while non-retail deposits reduced by Rs. 118 billion quarter-on-quarter, resulting in total deposit growth of Rs. 411 billion or 1.9% during the quarter. Current account deposits ended the quarter at Rs. 2.6 trillion, registering the growth of Rs. 80 billion or 3.2% sequentially. or it is $280 billion, 10.3% over prior year. Savings deposits as of December end at $5.8 trillion grew to $99 billion, or 1.7% sequentially, and over $440 billion, or 8.3% year-on-year. Overall CASA deposits ended the quarter at $8.4 trillion, resulting in a CASA ratio of 37.7%. Term deposits aggregated to be 13.8 trillion as of December end and grew by at least 232 billion or 1.7% during the quarter. On the distribution footprint expansion, referring to page 10, it reflects our branch network. It stood at 8,091 outlets as of December end. Overall, there has been an increase of 908 branches over the last 12 months. During the quarter, we added 146 branches. which is at the rate of 1.6 branches per day. Payment acceptance points are at 4.8 million and year-on-year growth of 25% as adoption of the APAR app builds momentum. In CRD, our rural business reach expanded to 210,000 villages, a growth of 50,000 villages over last year. In the customer franchise building, we added 2.2 million new customer liability relationships to real Dakota and around 7.4 million relationships so far in the current fiscal year, Our customer base stands at 93 million customers. This provides an opportunity to further engage and deepen our relationships. In order to position us for greater engagement, we have added 51,000 employees over the last 12 months and 10,000 during the quarter. On cards, we issued 1.6 million new cards in the quarter. Total cost base stands at 19.9 million. You see on page 11, balance sheet remains resilient. LCR for the quarter was 110%. Capital adequacy ratio was at 18.4%. Tier 1 ratio at 16.8%. Let's start with net revenues on pages 12 and 13. Net revenues for the quarter were at 396 billion, grew by 25.8% over the prior year. Net interest income for the quarter, which is 72% of net revenues, and is at and is at $285 billion, grew by 23.9% over the prior year. The core net interest margin for the quarter was at 3.4%, and on an interest-earning asset basis, net interest margin for the quarter was at 3.6%, both slashed prior quarter. Getting to the details of other income on page 15, total other income was at $111 billion. Chief and commission income, which is almost close to two-thirds of the other income, was at $15. $69 billion and grew by 15% over the prior year. Retail constitutes approximately 94% of recent commissions. Perfection derivatives income, at which it is $12 billion, was higher by 12% compared to the prior year of $11 billion. Net trading and market market income were at $15 billion for the quarter. Prior quarter was at about $10 billion. Other miscellaneous income, of which it is $15 billion, includes recoveries from return of accounts and dividends from subsidies. Referring to page 16 on operating expenses for the quarter, which were at $160 billion, an increase of 28% over the prior year. Cost-to-income ratio for the quarter was at 40.3%. Cost-to-assets was at 1.9%. Coming to asset quality, on pages 17 to 19, the GNPA ratio was at 1.26% compared to 1.34% in prior courses and 1.23% prior years. Out of the 1.26%, about 15 basis points are standard, but the core GNPA ratio is at 1.11. However, these are included by us in NPA as one of the other facilities of the borrower is in NPA. Net NPA ratio for the quarter was 0.31%. Prior quarter was at 0.35%. The slippage ratio for the current quarter is up. Slippage for the current quarter is at about $70 billion at 26 basis points. Last quarter was at about $78 billion. During the quarter, recovery is an upgrade where it is $45 billion. Write-offs in the quarter were at about $31 billion. No sale of entry accounts during the quarter. On the provisions side, total provisions reported were around $42 billion, and excluding the contingent provisions, it was $30 billion, as against $29 billion during prior quarter, and $28 billion for the prior year. As I just mentioned, the total provisions in the current quarter included additional contingent provisions of approximately $12 billion, and it is pertaining to investments in AIS, on a prudent basis. The fair value of the AIS is up by at least 5 billion, but 100% provisions are being taken at book value. The core specific loan loss provision for the quarter was around 26 billion, as it is 25 billion in the prior quarter. The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately $154 billion. General provisions were $105 billion. The total provisions comprising specific floating contingent and general were about 159% of gross non-performing loans. This is in addition to security held as collateral in several of the cases. In addition, the bank holds contingent provisions of at least $12 billion on a prudent basis to AAF, as I just mentioned. Shorting contingent and general provisions, excluding the contingent provisions on AAF, were about 105 basis points of growth advances as of December end. Coming to credit cost ratio, the total annual credit cost ratio for the quarter, excluding the contingent provisions I just referred, was at 49 basis points. Prior quarter was also at 49 basis points. recoveries which are recorded as miscellaneous income amongst the 13 basis points of gross advances for the quarter, as against 16 basis points for the prior quarter. The total credit cost ratio net of recoveries was at 35 basis points in the current quarter, as compared to 34 basis points in the prior quarter. The profit before tax was at $194 billion, grew by 19.8% over the prior year. After the increase, $15 billion of tax provisions no longer required, consequent to the favorable orders received. Net profits after tax for the quarter was at $164 billion, grew by 33.5% over the prior year. Summaries of subsidies can be seen on pages 21 to 26 on HDB. The quality of the book continues to see sustained improvement with a growth stage 3 at 2.25 percent as of December against 3.73 percent as of prior year end. Proceeding coverage on stage 3 books stood at 68 percent. Profit tax for the quarter ended December increased to 6.4 billion against 6 billion for the quarter ended September 30th. ROA and ROE annualized for the quarter of December stood at 3.1% and 19.9% respectively. Earnings per share for the quarter was at 8.04 and book value per share stands at 164.6. Now getting to HTLC Lite, on an IGAP basis. The profit after tax for the quarter ended December was at at least 3.7 billion, grew 15% year-on-year. India ended its value at at least 451 billion, improved 20% compared to prior year. On ANC, quarterly average AEM growth is 5.5 million, grew 24% year-on-year. Profit-to-tax for the quarter amounted to at least 4.9 billion, with a year-on-year growth of 33%. Earnings per share for the quarter was at least 22.9. STFC Ergo, on an IGAP basis, Profit after tax for the quarter into December was at $1.3 billion, which is a growth of 6% year-on-year. Solvency ratio at 187% at the end of December. HSL, our securities company, the total reported revenue for the quarter, the total reported net profits for the quarter after tax was $2.3 billion, as against $2 billion in Q2 2023. Earnings per share in the quarter was $244 billion. and book value per share stands at Rs. 1,253. On ESG, keeping up with our CSR commitment, the bank has undertaken multiple projects across India with the aim to address critical development issues such as sustainable livelihood, education, soil and water conservation, and key ratings and awards are on page 27 for reference. In summary, our results reflect robustness in growth across various parameters driven by employees passionately working with their customers to execute the business model. This has resulted in advances growth to frequency of 4.9% and 2.9% sequential momentum in retail deposit growth. Profit tax for the quarter increased by 33% versus prior year. in the quarter of about 2% and return on equity of about 15.8%. Earnings per share reported in the quarter is at 21.6 on a standalone bank level and it is 22.7 at the consolidated bank level. Book value per share on a standalone basis is at 556 and on a consolidated basis it is at 576. 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 the attached on telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Maruka Jania from Nuama. Please go ahead.

Yeah, hi, good evening. So I have two questions. Good evening, sir. So I have two questions. Basically, the first one in general is on deposit growth. So in general, there's a lot of noise around RBI having a discussion with banks on LDR. Plus, deposit growth has been very, very tight in November and December, irrespective of whether you had a discussion with RBI or not. So how do you view deposit growth and LDR from your own? If you could give us some sense, target or guidance on how LDR will pan out or what LDR are you looking at in FI25? And a related question to that is that if deposit taking remains tight, irrespective of the LDR debate, then what would you choose? Would you choose to offer higher rates compared to competition because your ask rate for deposits is on the higher side now? Or would you choose lower margins? If the deposit situation remains like this for, say, two quarters. Okay, yeah.

Thank you. Thank you, Mark, for asking. If anything, come back. But let me start with your first one in terms of the deposits and the CD ratio itself. It probably addresses the broader points that many of them will have. If you think about, first of all, any conversations with the RBI is confidential, and it is between the regulator and the bank. So we will not be able to talk about any individual conversations or anything. So we'll keep that to the side. But that's not your main point. Your main point is in terms of the rate of growth of deposits as well as on the CD ratio, given where it is. So let's talk about that. Now, on the deposits, if you see, On the first thing, on the deposits, I do want to mention that how we approached it here. At the overall level, our deposits grew by 411 billion. At the overall level, our deposits was at that level. Yeah, I'm closer to the mic. I think somebody is saying they can't hear. So 411 billion, that's the total growth that we had. Within that, if you see the retail deposit growth, $530 billion and 3.9% during the quarter. However, the non-retail deposit reduced by $118 billion, $118 billion quarter-on-quarter it reduced, almost 3.3% reduction sequentially in the non-retail deposit. Again, very price sensitive. We chose not to participate and get the price thing up. And we wanted to focus more and more on granular there. So that's one. And if you think about the individual component of various deposits, I talked about the current account growing at 3.2%. And within the current account, the retail current account constitutes 72% and has been growing 3.8% sequentially. And the savings account deposits, I will come back and talk about the savings of such. There is something on the savings which we need to see that, right? Where you are seeing two things on savings. One, given the rate where we are in P, there's a preference for time deposits. Two, in terms of the spend, we are seeing good amounts of spend that is happening from the customers. In our own base, we can see 18-20% spend on the issuing side, on the acquiring side from a card standpoint. So people are spending. And one other measure we look at is aggregate of our card customers, what is the balances they have. If you look at the card ANR versus the deposits against it, almost 5.4 times they have, right? That means for every 100 that I have as my card balance outstanding, I have 5.4 times that in my deposit account in the bank. So there seems to be... more spending room there to go. So that's one. And from the rate cycle point of view, and how do you overcome that is to get more customers. I talked about 2.2 million customers, 7.4. These are the kind of what we have. But coming to the, what does it all do from a deposit group? Yes. I'm here. So I'm getting, you can't hear? Can you hear?

Can you hear us?

Okay, I'll go ahead, probably. You can hear me now?

Yes, I can hear you.

Getting to our CD ratio as such, right? Yes, the LDR, which is the CD ratio that you alluded to, is maybe more than 110% as you close the quarter. Over a period of time, if you see in this quarter, how did we manage the balance sheet? We had 1.15 trillion growth in loans, if you see, and we funded that through 411 billion on deposits. And you had investments going down by about $485 billion and cash and cash equivalent by about $96 billion. So essentially, we funded that by the balance sheet somewhat coming not on the asset side. We got that self-funded through some lower investments. That is what we're seeing in the LCR ratio going down to 110. So some of the securities came down and cash came down as the ICRF I'm unable to hear you. Can you hear?

Yes, sir. The line for Maruk has dropped. We'll move to the next participant. Next question is from the line of Pranav from Bernstein. Please go ahead.

Good evening. Thank you for taking the question. Good evening. I think the question again related to deposits is one question. When you think about deposits this quarter, instead of saying the $400 billion that you accrued, if you had to double or triple that number, which is the biggest constraint? Is it the LCR where you're hitting a constraint? Or is it simply the cost of deposits? Or is it the lack of good lending opportunities? Where are you seeing the biggest constraints?

The biggest constraint is in the area of deposits, right? And if you look at what has happened in the system, it's very important to look at the liquidity in the system, how it has moved. If you see... It has been positive ever since Q1-20. The system liquidity has been positive since Q1-20, and now it has moved to a negative territory. All the way, if you look right now, this is the first quarter, full quarter, that Q3, that it is a negative $664 billion. That's the negative situation the quarter system has gone down by. That's the average that we are seeing. So it is the lack of liquidity in the system. Rightfully so, if you look at how RBI is managed, there is no rate change that has happened, but the inflation that spiked four months ago, five months ago, has been managed through liquidity constraints, through working on the liquidity side. That is what has happened on a temporary basis. But quarter to quarter, this is happening, but it is coming after more than three years, three and a half years. We are seeing this liquidity on the negative. It has been there. If you look at the last 10 years, there have been several quarters in the past, in 2013, or in 2015, 2013, 2015, where it has been negative. But this order of magnitude negative is very recent. In the last three months, it has become negative. So that deposit is an important ingredient. That is the important constraint to grow. And we are at it. And within that, I will tell you, retail has been reasonable. We would have liked retail to do 50% more, 80% more than where we did. But it is the wholesale, if you see, not just lack of growth, it's a degrowth in the non-retail on the deposit side. That is, it is very price sensitive. We chose not to participate in that price as much as possible. We have avoided that so that we can consume from liquidity that we have and at the same time make progress on the asset side. But that can't continue for long, as you know. LDR ratio is at 110 something. So we do need deposits to be kicking in. for the loans to be operating. That also answers what Mark was asking. Very similar thing that you're asking. Yes, we do need the deposits to be coming in.

Thank you.

Thank you very much.

Thank you. Next question is from the line of Suresh Ganapathy. From my query research, please go ahead.

So just to understand what is going to drive your margins in future, because if I look at it this far, for your shoulder of the 2000 crores, your LCR is at 110%. You can't go below that. There is no excess liquidity assets at 110% LCR. Right. And funding costs may remain elevated. So you're saying I want to go from 3.4 to 3.7. Incremental CASA mobilization is getting to be a challenge. Term deposit growth is high. Your HDFC limited borrowings are sitting there at 7.5%. So deposit growth is finding difficult to meet your own loan growth requirements. When are you going to replace the HCFC Limited liability? So, amidst all these challenges, what will drive your margins, say, from 3.4 to 3.7 over the course of the next 18 to 24 months? Will it be yield or no? Because it doesn't look like it can go through cost of funds. That's the first question. And if you can elaborate the movement in margins, some indication as to what will be the components and how are you going to manage the HCFC Limited liability replacement with deposits, point number one. And the second thing is, 1,500 branches doesn't look like it's happening this year because we have only opened 290 branches, or sorry, 270 this year. So going to fall short of your 1,500 branches target by a wide margin, what is the thought process there? Over to you, Srini.

Okay, yeah, thank you. I'll take the second one first to stop from a branches point of view. Yes, there are a little more than 500, 550 branches in the pipeline as we close the quarter. And we are targeting somewhere maybe 800 to 1,000 branches or so. If we do 1,000 branches, it would be good. Then more than 500, 550 branches are in the pipeline. So that's something on the branches. 1,500 is not something that will happen by March. 1,000 is something that is possible. But at this time, we are having about 500 plus in the pipeline. That's 570 more precise in the pipeline. The second aspect of it is in terms of your levers for margin and the deposit as such at total level. If you look at the mix of products that we are having, the mix of products, one of the important levers is the retail mix to be enhanced. Retail mix has been continuously coming down, and that is something that will help us to go and off late. In the recent times, if you see, we haven't had that kind of a market rate of growth on the unsecured as such. Our personal loan has been growing 2% to 3% over the last two quarters. So we do have opportunity space there, but part of our credit kind of a process where periodically they calibrate up and down. And now we believe that the overall credit, both from an NPA point of view and credit cost point of view, are at a benign state. And so whatever testing and other things may do, we are positioned to have a good growth there. That's one. Retail asset growth, particularly non-mortgage retail assets where there is a yield that needs to come up. And the mortgage is another big opportunity that we have. Both existing customers where we have almost 4.8 million pre-approved, pre-qualified database to go through, which we have done in our existing base who are eligible that we are making offers and talking about it. And also 5.6 million customers who already have somewhere we are targeting them. So that in terms of the retail mix needs to go up, that is an answer for the margin. And to some extent that picks up on the ROA too, right? So that is an important mix. That's not what we have seen in recent times. The wholesale growth has been overwhelming the retail loan growth. We do need to reverse that. That's part of the process in terms of what we are going through. Now getting to what are the other levers, which you also mentioned, but there are headwinds on that, right? CASA ratio. We are at 37.7. Even before merger, we were 42. Over a long period of time, we were 42, 43, thereabouts. We are constant of getting the CASA ratio back up. There are two aspects to the CASA ratio. One is The customer spending will abate at some point in time. And the second thing is that we are getting new customers. That is why it is important to get new customers, 2.2 million new customers. Liability relationships were brought in in this quarter, 7.4 million over the nine-month period. It is important to bring new customers and get them to a maturity. So that is an important thing that we are working on to get that. from a Kata ratio to go back up. And also we are at the rate cycle. The rates haven't moved for several quarters now. And by all accounts, we are at the peak of the rate cycle. And the deposit repricing that needs to happen in a quarter or so should be done because the rate cycle started in May 2022. And then the CASA should be back to normal growth. So that's something on the CASA ratio. We are waiting and vehemently pursuing that to come. The other aspect that we said, borrowing, whether the borrowings can, how do you replace the borrowing to the deposit? Yes, 8% of our fund, of our balance sheet was borrowing. Now it is 21% is borrowing. We do need to change that to deposit funding. But one other aspect that we have started to pursue even in this quarter is that the borrowings can continue as borrowing. So we got 7,500 crores of long-term affordable housing bonds that we have, infrastructure bonds that we issued in this quarter. The economics of that are like a deposit, not like a kappa deposit, but like a time deposit, right? Slightly better than a time deposit because you argue the PSLC cost and because the affordable housing is tagged against it. We do have almost 1 trillion Indian rupees of affordable housing in our assets table that we can stack to. The deposit insurance cost is obligated. And so there are some benefits that come. So it equates to slightly better than a time deposit at an overall level. But that doesn't mean we do need CASA. But there are other opportunities on the borrowings too.

Okay, and just one final question on cost. Srinu, you guys have said you will bring down from 40% to 35% over the course of the next five years. I know it's a long journey, the fact that we're opening lower number of branches. Can we get to see some benefits, not quantifying, but some benefits in that reduction next year, FY25? at least there has to be a journey in that 500 basis point reduction, right? So we were at 40 points, I don't know, four last quarter, and we are at 40.2 or something like that, I mean, around the same range. Do you think it can really come down in the next one year or so? Yeah. Sorry, thanks. Last question. Yeah.

We are with you, Suresh, on that. Yes, we do expect normally, well, we don't give a forward-looking outlook, but on cost-to-income, we always said that we want to take it down to the mid-30s and that we will progressively take it down and not just towards the back end. But there should be an expectation that cost-to-income should be improving. And it is a function of certain efficiencies through better digital offering. That's one. Several things that are in the pipeline on technology nationalization is one. That is a good tailwind that should count for it. And the second thing is that as we work on some of these margins, which is both the assets mix, the capital mix, and the borrowing mix, moving towards deposit. As we work towards that, the numerator is also an important contributor to get to that.

Okay.

Thank you so much.

Thank you.

Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Thanks. Good evening, Sini. Two, three questions. Number one, you know, the whole debate between LDR and LCR is For you as a management team, what is it that you're focusing on? I know you've put out, you know, certain strategies for LDR, but right now the LCR has kind of come off 210. And as, you know, the previous participant pointed out, 110%, you know, there's not really much room for it to go down. So what really is a key number to focus on for you all? Okay.

Both are important. It's like you need to walk and chew gum, right? You need to do both, which means LCR, we have said before that we'd like to operate between 110 to 120. We were at several quarters, 113, 114, 115, thereabouts. Then for a quarter, we went up. And then we have consumed, as we see in this quarter, we have consumed, right? So it is important around that level to keep that level of cushion to some extent, right? That's one on the LCR. LDR is important. We do want to ensure that the mix of funding moves more towards deposits. So LDR is important from that end. And if you see, currently 110. Then if you look at where can this go? Where can this LDR go? You know that if you look at our LDR prior to merger, it's very important. It's a recent discussion that is developing. Prior to merger, our LDR was at 85%. Then now it's at 110. And if you remove the merger effect of the assets and the deposits on this, the LDR is more like 89. And if you look at our historical range of what the bank has operated LDR over a long period of time, around that 85, 87, that kind of range, that's where we operated historically. If you think about our LDR, that's where we operated. Today, if you strip out the merger effect, it's about 89. Essentially, the LDR is a function of what has happened on the merger. About two quarters run on the merger, which is run through two quarters. And we do have a kind of a pathway. We do want to replace borrowing to the deposits and grow further loans with the deposits. That's the kind of a thought process. And so you should expect that the LDR to go down progressively over several quarters to come.

Yeah, the reason why I ask this question also, Srini, is because, you know, we've bottomed out in LCR. Again, it can't really go down any further. LDR is clearly elevated. So, clearly, loan growth outlook and the visibility thereon is looking a little difficult given the environment that we are in. So, what do we prioritize, growth or margin? We prioritize growth and clearly the loan growth has to come off for us to start, you know, bringing these ratios up, you know, to a more acceptable range. Or if you have to grow the margin field, it takes a knock because you have to offer or maybe increase the deposit rates further. So how are you just trying to buy in P2?

Okay. So I do want to mention one thing. We are not caught up and we are not into one level of rate of growth as such. If you look at our rate of growth, there are some times we are slower, sometimes we are faster. But all we have done is that over a period of time, we have always doubled in every four to five years. That's what we have done. Quota. or even a year can be different, but over a period of time, that is what we have done. So growth is not something that we are caught up with, saying this is the rate of growth that we want. Over a period of time, we want to, because that's the investment we have done, we need to harvest returns of this. So we are focused on returns. So that takes you to the margin. We focus on margin or growth. We certainly do not want growth for the sake of growth. If you look at our wholesale growth, we had 1.9% in the quarter. Enough demand was there. There were several banks undercutting and taking, and we let that move on. We don't need to be participating. If it does not give returns, we don't want to be there. And so that's something that we are focused on. We want to do the products that are going to give us the returns. Now, on the margin, very important that you talked about the margin. Margin is important, but the first passings It's about the return. What does it give from an overall ROA point of view? That's the first part. Then it comes because when you do a product pricing or a product choice to do to a customer, we're looking at returns more than the margins. To the extent that the mix appropriately gets calibrated, the margins. For us, we have never had this margin conversation because our mix has been predominantly retail and the retail rate of growth over a decade, if you see, has always outstripped wholesale. So there is There was not a necessity. There was no conversation about any margin because it comes with a hefty margin. And it comes with a credit cost also. And our credit cost is at a very benign state of sub 50 basis points right now. And if you look at our credit cost adjusted for the mortgages, you'll see that the mortgage is because of the denominator in the low loss rate. The credit cost, what is the mean on the credit cost? Call it 70-80 basis funds, that's the mean. And pre-mortgage merger, 100-110 basis funds. So what we, due to the mixed change that has impacted the margin, that has come through in the credit cost line. So certainly we are focused on profitable growth. I hope that answers you in some manner that you are trying to seek.

Sure. Just two small questions. The branches, you said this year maybe 1,000. So is this a new trajectory that we're looking at, or we'll go back to 1,500 or thereabouts in the following years?

Again, I'll tell you one other constraint that we are also working through on the branches. This URC. This URC is something that is required. The mix between the unbanked rural center and so on. Selecting that availability. What is that URC that is available so that we are able to get that mix appropriately? That is a targeted percentage. It's a regulatory target on URC. That is more. Internally, we would do, but we need to have that mix between the URC and the non-URC so that we can grow progressively across in a balanced manner. within the regulatory approvals. That is what it is. So if you look at whether we go back to 1,500, I think Sashi has alluded to that over a period of time, we do want to get to the 13,000, 14,000 type of branches. not just for the sake of branches, it is the geographical presence that we can have so we can tap into the pockets of both the deposit and lending opportunity in that area. So it's not just deposit, deposits and also the lending opportunity in the area. So we would be there, but there is no hard kind of, we're not going to push ahead with only one number, but currently this is what we are seeing.

Yes. You've been very generous with your time. Just a small question on the intra-bonds. So you raised some money in the last quarter, I think 7,500 crores. Do you have eligible assets even sitting on the balance sheet against which you can keep raising these intra-bonds and how much would that be?

We have eligible assets close to 1 trillion Indian rupees as I mentioned. So that's part of the way which is it can have qualification in the sense that it is You may have PSL benefits because you will take it off the top line to the extent that you're able to pack the bond and the affordable housing. And you will get the other benefits that I mentioned, that the cost on the PSLC or the deposit insurance, those things are obviated. But still, any day you need CASA, but to the extent that there are time deposits, This economics is better than even, slightly better than the time deposits due to this. Yes, there are enough asset rooms, if that is the question. Do you have enough assets on the asset side to face off against this infra bond?

Yes. Thank you so much.

Thank you.

Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.

So given that overall liquidity is tight plus the deposit correction all said and done, this quarter has not been very encouraging. So when do we see in terms of tweaking the rates, given that now at least the repo rates have sustained, would we ever look at raising deposit rates beyond 7.2 just to make sure that we are on our target to get the deposits and at least sustain the growth momentum even on the asset side? So will there be a thought? No doubt you have earlier said that we will look at branch expansion that's going pretty slow. Even in terms of like activation of the field force, still not that great response. So at what time do we look at tweaking the rates just to ensure the deposit fraction is what we were envisaging earlier?

Deposit pricing is not a tool. that we are having in our sales and relationship process, which means it is not a driver. The conversation would never go to say, I am the best price to deposits come here. It's not a conversation because that's how, if you look at some of the comparative pricing on our deposits with our peers, we are more or less in that line, right? With our top peers, that's the kind of pricing that we are positioned in. We're not trying to differentiate on the pricing. We're trying to differentiate on other offering features. That's one on that. Second, in terms of the market share, you touched upon the growth rate and the market share. I do want to allude to say that we do believe that on an incremental basis, 18%, 20% market share, we do garner. That's part of whatever is the size that we have got. whatever is the level at which we are growing, we continue to maintain that superior rate of growth to the market, gaining market share on an incremental basis, getting that in the iTunes to continue to increase market share. Rates are not at play. And that is part of the reason why our non-retail deposits degroup by 3.3% in this quarter.

Yeah. Okay. And secondly, with respect to tax write-back, so last time when there was a write-back, you indicated that maybe it might not repeat and we should see it normalizing towards 25% but that benefit is still continuing. So if you can highlight in terms of is it expected to continue what is actually leading to this kind of or maybe a lower tax rate, I would say, or maybe this is like the investment gains which have been there. It's on that count if you can just highlight that, yeah.

The tax benefits that we booked in are consequent to two things. One, there were certain favorable orders received relating to EHDFC limited past assessments. So that's one. And two, there were some favorable orders received relating to the bank for the past years. So that is based on those assessments. We have determined that certain positions are no longer required. And it depends on time to time. And there is no such kind of a routine timing that I can predict when these orders come and when they get done. But yes, these are episodic from that sense. We receive favorable orders, we assess, and we take it. And in this quarter, we have had two or three like that.

Okay. So all orders which have been received, which have been favorable, they are more or less accounted for now? More or less.

Okay.

Okay. And lastly, if you can highlight in terms of the maturity of the borrowing, HDFC limited borrowing over next one year, which is falling due, okay, and any quarter we would see any kind of volatility in that maturity? Okay.

Maturity profile is 25,000. There is no big maturity at least over the last two to four quarters. It is evenly there. There is not a spike of a trillion going away in a quarter or half a trillion going away in a quarter, that kind of profile. And I think annually we do publish the profile of those and soon get to see that.

Okay. Okay.

Good. Yeah. Thank you. Thank you. Next question is from Chintan Joshi from Bernstein. Please go ahead.

Hi. Thank you. Can you hear me?

Yes, Chintan. Hi. Go ahead. Yeah.

Hi. Hi. So can I go back to the LD ratio discussion? You know, what I'm hearing from you is that, you know, it does need to come down. But also, you know, growth will remain intact. So I'm trying to square the circle. You know, how...

Like, you know, the only way the ratio improves is if you grow deposits faster than lending. You know, is that what we should expect, you know, by a cycle inside? And the pace of that, if you can talk about, you know, do you have some target in mind or do you look at market conditions and do your best? How should we think about this? No, good. Thank you. But one thing I do want to mention is that The growth rate, sustainability of the growth rate is not irrespective of what the CD ratio is. CD ratio has to improve. As I mentioned, typically we have been in that mid 80s to high 80s. The merger took it to where it is today, past the 100, and over a period of time, we do need to bring it down. So we can't keep the CV ratio to be growing all the time. That's not a proposition that we are envisaging. So that takes the second part of what you asked in terms of the deposit growth and how you should think about the rate of growth. Yes, we do envisage that the deposit rate of growth should outpace the loan rate of growth. And for the CD ratio to progressively come in and for the economics to work, the deposit rate of growth should be at least 300, 400 basis points higher than the loan growth. Only then the economics will work better. So yes, that is the kind of approach that we have here.

So the other question I have is on borrowings and debt securities.

If I look at HDFC limited balance sheet as of FY23, there was about 1.7 trillion that was going to mature over the next year as of FY23. However, we have not seen that mature. If anything, borrowings have gone higher today than the pro forma combined FY23 balance sheets.

Is this, you know, what was the thinking behind this? Because, you know, one way of looking at this is there was an opportunity to reduce borrowing, but it was not taken because there was comfortable lending growth out there. Is that the way you thought about it? Or, you know, if you can explain, that thinking would be helpful.

Okay. See, in this time period now, two quotas have gone by after the merger. And the borrowings have remained or actually gone up in this quarter by almost 209 billion Indian rupees. It has gone up. Out of which about 7,500 is intrabonds, which economics work well. We have taken that. The rest are either market borrowings or other specially related actions. So it is only one item, which is the intra-bond, which is the borrowing as such that has gone up. The rest are market-related activities which are there in the borrowing. The other aspect of it is that should you expect this to go down, As for maturity, I think another person was asking about the maturity itself over the next several courses. Yes, there are maturities coming. And we envisage to the extent that economics work, we will have a similar replacement. If not, it has to be replaced by deposits. And that is part of how the rate of growth of deposits needs to outpace the loan growth. Otherwise, we will not be able to keep up with the loan rate of growth. And finally, on the CRB business, which is growing really fast, what is the overall lending yield of the CRB loan book so that we can understand what is the mix impact on the overall lending yield from the CRB given that it's growing so fast? Okay. The CRB yield comes in about between 9% to 11% depending on product. There are certain products that go above that. There are certain products which are around that 8.5%. But on average, it's a slightly above 9% type of yield at an aggregate level. But there are several products, as you know, within the CRB segment from business banking to emerging corporates to agriculture loans to SLI loans to the commercial vehicle and so on and so forth. So it's a different price point, but on an aggregate average, if you look at it, it's not that 9%.

It is in line with the overall group lending rules. It's not above the average of the balance sheet. It is in line with it.

It's a good assumption, yes. It is not above the average. It is at that level. It's not dragging the overall average down as such in any meaningful manner, yes.

Understood. Thank you.

Thank you. Next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Hi, good evening. Thanks for the opportunity. Two, three quick questions. One is on the Bundan Bank stake sale that has happened in this quarter. So if you can quantify the gains on this sale, how much has flown in this quarter from that? See, I talked about that 15 billion or so on the overall I mentioned. So not necessarily, I won't talk about any individual particular item, but from an overall point of view, I did talk about the market and the trading treasury investment portfolio income. 14.7, 15, right, which is there. Right, so this is included in the total, but you're not, like, giving the... It is included, yes. Okay. And secondly, on the Cradilla, have you booked the gains in this quarter or it will come in 4Q? Like, how are we looking at that? Okay. No, Cradilla, nothing has been booked in the December quarter. We are waiting for regulatory clearance before the transactions can close. So we are working through, or the potential purchaser is working through certain things to provide. And we are hopeful to close soon, but there is no particular concrete time that I can give. They have to go through approval process before it can conclude. Okay. And lastly, on the contingent provisions, this quarter we have made 1200 odd crores of contingents. So any particular levels you want to reach or is this like the blowback of the excess gain that we are having right now that we are using that? So any thoughts around how do we look at this contingent provision numbers? Okay. See, the contingent provision that we build in the quarter, it is $12.2 billion. We attributed on a prudent basis towards the AAF. There is an RBA regulation to account for and look at the AAF in a specific manner. So we took that chance to say on a prudent basis we need to provide, and so we did build a contingent provision against this. As I mentioned, the fair value of the AAF, is almost $5 billion more than the carrying book value, but we made 100% portion on a permanent basis. So again, we evaluate this quarter to quarter, but that's the process, that's the regimented process to look at it quarter to quarter. There is no such targeted level of build or release that we have. We'll assess it every quarter end, certainly at every year end. Right. Okay. Thanks so much. Thanks a lot.

Thank you. Next question is from the line of Abhishek Muraka from HSBC. Please go ahead.

Yeah, hi, GDBC. Thanks for the opportunity. So one question is on the anti-curve loans. So after this RBI, you know, circular on risk-related assets and also, you know, just the nudge that has been happening on NBS as well, What is your approach? So part one, what is your approach to unsecured loans, especially personal loans? Will that slow down? If yes, you know, when you were talking earlier about bringing up the yield on non-market retail assets, how does that affect that strategy? And second on NBFC, again, what's the approach? Will you limit the percentage mix or will you sort of limit the absolute exposure? How do you plan to move ahead?

Okay, let's look at the retail unsecured that you alluded to. The retail unsecured is an extremely profitable product and we like it. and uh it has to go through our credit filter and we've been in that for a long time and one of the best scorecards we believe we have that if you look at the uh the delinquency profile on that is fantastic the delinquency profile the npa profile is better than a secure book that we have so we like it uh there are times uh it gets calibrated up and down and we're confident of growing the book and let me tell you one one important thing on that unsecured as such. Pre-merger, on the retail book, our unsecured component was 41%. Post-merger, it is about 22%. So, if anything, we created more kind of a runway for a faster growth. But when we say faster growth, we are not talking about something that is a 25, 30% thereabouts kind of rate of growth. For us, Faster growth is to go into high teens to 20 type of rate of growth. That's what we have had in the past. That's why I'm more than telling you what we will do. I'm trying to tell you what we have done. And we think that that is what we will do rather than do something new about it. So we have enough headroom, enough runway, and opportunity. And that is extremely profitable product. So that's something to keep in mind on the NBFC. Our approach to NBST has always been one for TSO lending. We do want that. For corporate houses, NBST is affiliated to corporate houses, something that we work with because that's a much broader relationship across the corporate group that we have. So that is quite profitable and we like it and we work through that. One thing that I do want to mention is that yes, the risk weights do add in terms of the capital that is required for it. In respect to all that, we look at the profitability. They are quite highly profitable at the enhanced risk weight, both ROA and ROE that you see. And we like to go with that.

So there will be no sort of approach to limit the percentage of overall exposure to NDFCs in light of whatever nudges have come from the regulator or caution, let's say, that would have come.

Correct. The way to think about it is that where it is to be directed lending, which is priority sector, is number one preference. And by the way, some of our NDFCs are government-sponsored NDFCs. And they are not into consumer lending at all. And so I do want to distinguish, of course, the circular does not distinguish between different categories of NBFCs. So our NBFC does not necessarily need to be lending only to consumers of segmentation which is lower than the bank targeted segmentation for lending, no. NBFCs are also government-sponsored, government-linked NBFCs are there, where we have a good relationship with them.

Okay. And just another one on the cross-sell, you know, at the time the models were talking about how you benefit from cross-selling your products to the customers who are coming into the fold. how do we track that? And when do we start seeing those cross-sell benefits? Either in terms of higher latency or can we start disclosing some sort of cross-sell metrics? So how do we track whether that's really occurring or it's taking time?

Very good. Thanks. You touched upon that. I'll give you one minute. I'll tell you the three things that we will start to publish and show to you. One is that we said we want savings accounts. That's one. Because we want to offer the bank not just a mortgage product. So if you look at one month, the last month of December, in October we showed to the broader world in terms of how various digital approach that we have taken to offering this bundling of products. Savings account is an important part of that product suite that we offer. Among the discursals that we had, in one month if you take 40,000 plus discursals, such discursals, because I'm not counting for the discursals which are ongoing, second installment, third installment, leave that to the site. on the first diversions that have happened in the month, in December, roughly half-off is existing to bank and new to bank. Half-off is that. Among that half, which is the new to bank, almost 65% of them, we have penetrated with the savings deposit. So it's gone with the 65% penetration to start with, right? And talk about the December, where we are. And that penetration comes with the deposit balance, at least one to two months of EMI, which is 30,000 rupees to 35,000 rupees on an average we have taken from the customer base where we are open. So we will publish these. So one is savings account as a product, And what is the penetration on that? That's number one. And I gave you an example of 60% of new to bank. First, we have had that and we want to take it to 1995-99. We'll keep tracking and reporting that. The second one is the credit cards. We're just beginning on that one. We'll report on that as a product in terms of how We are offering credit cards. The third is consumer durable. Consumer durable, again, one is the offer. The second one is the drawdown because the customer will not make that offer on the consumer durable. The customer will draw down a month or a quarter or six months later as the house is ready for the person to move in and do. And then over a period of time, we will bring in the other products. Insurance also is something that we will start to disclose to see the penetration level of insurance. So things like the DMAT account and the mutual funds and those sort of things, over a period of time, we will come with that. But there are nine products that we will come up with, out of which three are digitally enabled. The rest will be soon, and we will start to report them and show it to you.

Sure. Thanks. It will really help to get some more granularity because that will help us figure out how the cross-sell effort is going. So thanks. Thanks for your time. Thanks.

Thank you. We'll put up a page or two from next time and we'll have that.

Sure. Thank you.

Thank you. Next question is from the line of Anand Bhavnani from Vyto Capital. Please go ahead.

Thank you for the opportunity. I have a question on the consumer behavior. This is more to do with seeing revolve rates on credit card being much lower than pre-COVID levels. Similarly, on the savings account side, the growth rate is weak. So can one surmise that because of good apps available on mobile devices, consumers are now being very active and not giving in to the inertia on both the asset side, the credit cards, they are not revolving, they are just taking personal loan or something. And similarly on the liability side, moving away their deposits to an account where they're getting 7%, 8%, whereas we are getting let's say 3.5%. So have you done any behavioral advances on both asset as well as liability side to see how across the broad spectrum of your customers, is there any data to prove through these pieces?

In terms of the customer's You touched upon the revolver. Thank you. Thank you for touching that. See, the revolvers haven't grown. If anything, actually, in this quarter, we did see slight reduction in revolver percentage. You're not seeing that. And some other question I did allude to how card bunch of customers, customers who have credit cards and savings accounts with us, and you see their balances are five times, maybe more than five times, 5.4 times their balances is what they have in the deposit accounts. So that is also healthy. It was less than four three years ago. Now it is 5.4. So it has grown. That's the second thing. The third thing in terms of whether some of the digital properties are enabling less use of card revolving and alternatives, in our customer segment, that's not something that we are seeing because it is more of a the segment that we are chosen and working on is a little more higher rated. That means a little more higher score customers. I think we have talked about the revolvers one to three months and four to six months and six plus months. Call it six plus months revolvers. Across these three revolving categories, we have not seen pickup happening. That's part of the customer base and that's part of the cash that they have, or some of them have got impacted through the COVID and come out of it and not survived and come through it and not indulging in any of these things. And some of them who do take it for a short period of time, right? So that's the one to three months category. If you see, they take for some short personal loan or they don't want a two-year or a three-year or whatever the tenor personal loan. They want it for a short period of time. They don't mind taking it. So we do think that the category is very attractive and very nascent because we know that there are only kind of 90, 100 million credit cards in this country. and you would expect that to be north of 500 million. So we have enormous room to go. The other aspect is that whether alternative payments, UPI or anything, those kind of things, or direct debit to system, whether those things are, that would only increase the balances in the savings account. Somebody who is using UPI previously was drawing down cash and paying through, so the cash was going out of the bank, Now the cash is in the bank account and is using UPI. So it only enhances, anybody using UPI only enhances balances in the account. So there are pluses and minuses across all of these. But at the end of the day, the customer segmentation that we are working with, we're confident that we're bringing the balances and grow as the economy grows.

Sure. But the question is whether the minuses are, you know, overwhelming the pluses. because the account opening these days is less like an hour's affair and if a bank is offering 7-8% and we are seeing these banks which are offering 7-8% are seeing very high growth rates on the liability side. So is it that the smart customers of yours are now using these properties and it's a structural change and hence it will be a headwind to our deposit acquisition targets?

Again, two things I want to respond to. One is, if you look at us from a market share point of view, we have been gaining market share. Our market share is at about 10.5% and it continues to grow. On an incremental basis, I think I'll leave it to our assessment of 18 to 20%. So we are keeping up with that. Yes, there may be some customers who go, but from our rate offering point of view, we offer, we're talking about the savings account rate, but on a time savings account rate is what we offer 3.5. On the time deposit, we are more or less in line with the competition, significant difference. peers, if you see, we are more or less in line with that on a time deposit rate point of view. From a savings account, yes, we do continue to. That doesn't mean somebody else cannot grow. We are growing. And think about it still, the public sector banks from where all of the private sector banks, including the ones that you alluded to offering 7% or 8% on savings accounts, those are all in the private sector segment. And the market share there is coming from some public sector because all the private sector banks are gaining market share.

Thank you and all the best. Thank you.

Thank you. Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

Thank you, Nirav. Thank you all for participating. We appreciate you dialing in at this hour. If any more questions, comments, or clarifications required, please feel free to reach out to us. Our investor relations team would be happy to connect directly with you or with me, and we can have a conversation. Thank you. Bye-bye.

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