HDFC Bank Limited

Ladies and gentlemen, good day and welcome to HDFC Bank Limited Q3 FI26 earnings conference call. 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 touch tone phone. Please note that this conference is being recorded. And now at the conference, Over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you. And over to Mr. Vaidyanathan.

Okay. Thank you. Thank you, Nirav. Good evening and a warm welcome to all the participants. At the outset, I know that it's 6.15, 15 minutes behind schedule. We had another meeting. We had to conclude and come. Apologies for that. But we'll take as many questions as possible and extend where required. With that, without much ado, we straight go into the opening remarks by our CEO and MD, and then we'll end. We have our DMD, Kaizad, any comments we'll take, and we'll go straight to Q&A after that. Sashi, over to you first, and then we'll take it from there.

Good evening, friends. Thank you very much for joining in on a Saturday evening. I know it's rather late, but always appreciate your attention. being here on a Saturday evening. I think we've just sort of declared the results, and you probably would have seen the financial numbers. We're reasonably sanguine and happy about the outcome that has happened. It's in line with our expectations. Looking back, I think the credit growth buildup has been extremely encouraging. We set our sights on a very balanced credit across customer segments. The easing rate cycle and the benign credit has provided catalyst for the credit growth. The CRR release enabled credit deployment slightly ahead of our expectations. As regards funding, the funding through deposits, we continue to maintain rate discipline, and that has been extremely key. Core individual retail customer segments were seen to be quite strong. For both current and savings, Having focused on granular segments have given us encouraging outcomes, and more of this, I'm sure Srini will sort of give the numbers. We did, however, fall short of our strong ambitions, but we are confident that continued focus on our strengths will bring the expected outcomes. On the growth, profitable growth, as mentioned earlier, cost of funds has moved down, reflecting the the tailwind effects. CASA growth has been positive. Costs have been under control as productivity improvements have brought in efficiencies. Credit, which has always been our USP, remains best in class, allowing us to deliver stable returns as we pivot to the next stage of growth. Looking ahead, the regulator and government continues to be focused on supporting economic and credit growth. At the same time, optimally managing external factors. During the quarter, availability of liquidity was impacted due to some of these. We saw enhanced activity in open market operations and FX swaps to combat some of these challenges. India has demonstrated stable political conditions and consistent policy regime. This has led to being one of the fastest growing major economies in the world. Growth with subdued inflation management was at the top of the order, and hence we believe and we are very optimistic about outpacing loan growth in the coming year in FI27, as we had sort of mentioned to you all along for the last 18 months. Liquidity and benign credit costs provides us a lot of runway to grow. Overall, liquidity in the country is expected to stabilize post-trade deals. The foundations are in place to build deposits to fund loan growth. We continue to expand our customer base. We are now intensifying customer engagement primarily and largely focused on granular mobilizations. We are aligning pricing with segmented approach, and we shall see that in the coming quarters as well. There's been a lot of talk on the CD ratio. We did sort of drop our CD ratio to significantly since the merger to March 25. As you know, the kind of indicator is not necessarily on the radar from a regulatory perspective. Having said that, we believe that our glide path to lowering of CD ratio will continue. It's an important focus for sustainable profitability, I completely acknowledge. The cycle, the easing cycle with credit growth focus in the country surely needs our participation. So the speed of CD ratio movement depends on how we are able to provide funding in the system at rational rates. But having said that, we're very confident that whatever we seem to have committed in the last two years, I think by March, I think we should see, and by March 27, 26, and 27, we should sort of see achieve all the most of the committed matrices that we have laid out for. I would like to say that under the current scenario, we don't think that we shall be constrained by the CD ratio. To reiterate, we're confident that it will be on a downward glide path. I would also like to reiterate that we shall meet the glide path that we had indicated earlier in terms of the growth, our top-line growth, which is in line with the system this financial year. and faster than the system in the next financial year. In summary, I have a great appreciation for our customers for partnering with us, and I have the greatest gratitude to all our 200,000 staff who are pillars making this place work successfully. We're confident of the path forward that we have set for ourselves. Thank you very much, and we have all of us here, Kaizad, Srini, and the team here, to take on any questions that you may have. Thank you.

Thank you very much. We now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on the telephone. If you wish to move 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. First question is from line of Marogat Jhanya. Analyst, please go ahead.

Hello. Hi. So my first question is on the LDR. You did allude to it. But when do you think now you would reach an LDR, say, close to 90 or below 90, like any time frame? So that's my first question. And my second question really is, on agri-compliance. So two large banks have been asked by RBI to make provisions on a certain agri-portfolio because of non-compliance issues, provisions of 12 to 13 billion. So as we stand today in terms of your agri-portfolio, do you think there is full compliance Or there could be some issues somewhere given that it's a large portfolio. It's spread out across the country. And do you think you would be liable to such provisions in the future?

Okay. Thank you, Maulika. If I take that. The first thing you touched upon is the LDR from a timing point of view. I think Sashu alluded to that we are committed on the glide path of taking it towards the downward glide path and we continue to be in that but on a quarter to quarter basis it is slightly different and that's because of the seasonality and the opportunity and you know that in the recent time period the further opportunity was also provided with the easing cycle and the credit growth focus in the industry as well as the CRR release, which provided that ample opportunity to do that. So given that, we do expect that over the next one year to two years, we would be getting down further into the levels that we've previously been there, call it the 90s or low 90s and so on. And that's the level of confidence we have, and the pillars that are required to drive that are in place to do that. That's one. The second one is in terms of the AGRI that you asked about, the regulatory kind of impact, if any. Our regulatory inspection is also complete, and whatever according to the regulatory requirement, there was about 5 billion or so thereabouts, which have been taken. In the overall context of our book and our results, you see, they have been observed within that and there is no special and we have had certain other things that were there. And so, in future, we need to operate in a model that is acceptable with the regulators so that whatever is that, that's an ongoing process of what we do. Any one time is already subsumed and it is. the calibration that we need to do on the agree, consequent to those kind of things, recalibration of our book due to the scale of finance. So that what is indeed an agree and what is outside of the scale of finance, scale of finance is the one that determines how much is required for the farm and how much of that is over and above the farm requirement by the farmer. Those evaluations we will take and go through that process too. That's in terms of the future impact on that.

But did the 5 billion come this quarter only then?

Yeah, it is already subsumed in December.

In December. Okay. And what would be the size of the portfolio? Any such indication you could give?

Our Agri portfolio is published. You'll be able to see the. No, the size of the portfolio on which the provision was taken. No, that's not something that's not consequent to this at all because it depends on loan item and what is the scale of finance on each one and so on. But at the aggregate level, that's the kind of loan.

Okay. Thank you so much. Thank you.

Thank you. Next question is from Nandov Kunal Shah from Citi Group. Please go ahead.

Yeah. So again, getting on to the question on LDR and deposit growth in particular. So if we want to get the LDRs down and still want to grow loans above the industry average comfortably, then we need to see the acceleration in the deposit growth. And you said like pillars which are required are very much in place. So any reason maybe for a slightly slower deposit growth this quarter? Otherwise, we will need like almost 500, 600 business points higher than the industry average deposit growth now to get the LDRs down. And any rundown in the bulk deposits which have been there in this quarter and if you can quantify that?

See, let me take this and maybe Srini and Kaizab can add into this if required. Kunal, if you recall, We gave a broad range. Number one is there is no regulatory, what shall I say, benchmark or a requirement to meet a loan deposit ratio. Was it there as a bit of a nudge when the outlook was negative or when the system outlook was a little tight, liquidity was tight in the period when Inflation was moving up and rates were moving up and there was a little bit of a concern on the credit quality of the system. There were certain preventive measures that the regulator had said that try and ensure that you bring down the LDR or maintain a certain stability in LDR. That was the at that point in time. Whether there is a number that you need to meet, I don't think there is any compulsion. But in our own interest, we had given a kind of a glide path wherein we had said that we will come to a certain number in FI25, which we achieved. We said we will try and be in a range of somewhere between 92 and 96 in the year FI26. which is what we will be, is what we are very confident about. And then maybe by FI27, by the natural growth, and even with the growth in the way we are expecting in terms of faster growth rate, I think we should land somewhere around the 85 to 90 for FI27. We continue to believe that this is going to be there. It's not an easy thing, as we have said, of course. But we know what are the strategies we need to do. There were certain tactical measures we could have taken in the third quarter. We chose not to, but that's all right. I mean, these are sometimes learnings we probably may have missed. But we know what are the things to be done to bring about these kind of meeting up like parts that we have committed in the broader sense of a medium to longer term basis. So as regards the kind of deposit growth that is required, I think the pace at which we are growing deposit in line with the top line growth that is more or less matching 11 point plus percentage in this second year, in this year, should probably slightly faster, which is what we normally do in the fourth quarter, like most what we have done in the past, should lead us to the kind of range that we have committed to. And we are very confident that once as we have a clear-cut, you know, as I said, all things remaining same with whatever we are seeing in the macro, we should believe that the growth runway opportunities of growth and hence in the deposit requirements other than certain events that may happen which you and I would not be able to predict now. We are reasonably confident that we will land and as Shani mentioned, don't look at quarter to quarter movements. We are on a, you know, look at on an annual basis or on a medium to long term basis, the trends will be in that kind of period. So I think the infection has started You know, we had to contain ourselves in FI25 for all the right reasons. I think now we are opening up, the engine is opening up, and you will start to see this kind of consistency in the trajectory that we have laid out for ourselves.

Thank you, Sachin. Sure, and anything on bulk deposits run down quantification if possible.

See, more than quantification, I mean, Kunal, that's part of the business. There are certain segments that we patronize. I think Sashi mentioned about where rate discipline has been the key. And to some extent, we participate for relationships. To a certain extent, we don't need it. We don't go there. But on the whole, if you look at the retail or non-retail, retail, There are individuals in retail, which have been phenomenally growing and growing. There are certain non-individuals in retail, which is branch-related. It could be institutions, trusts and HOIs, some non-individuals, but branch-related, where we have had some lower levels of growth. And there are certain other customer segments which we have seen, particularly capital market segments, where it has been low, where we have not paid rates as much as what the market has demanded or what the competition has offered. And that is what you see that is reflected in our cost of funds. If you look at our cost of funds, it's down by about 10 basis points, 11 basis points or so in the quarter. So we're trying to manage it, growth with profitability, And that is what you're seeing, right? So segment to segment, time to time, it changes, but at least you've got a color of how we operated in the recent time period.

So you're right, Kunal, just to supplement what Sweeney is saying. The focus, the good part is retail has grown very steadily and all these are the granular ones. Very happy with that. If the non-retail, tactically, we did not sort of offer the kind of market rates that were there. And we said, it's all right, because we did sort of know for the kind of growth that we needed, that is good enough.

Got it. And one last question on labor code. So the impact of almost eight odd billion looking at our employee costs, then comparing maybe the labor code impact vis-a-vis the employee costs for others. For us, it seems to be relatively on the higher side, more than 10% of the employee cost, not so much for the other banks. So is this more of an estimation which has been done and what would be the recurring impact which would be there on the cost as such?

Good point. Thanks for raising that. One, it is an estimate given whatever information that we have. And that estimate is driven through an actuarial process, right? So you go through the normal process of how you do and that there is an actuarial valuation and determination of how do you do. Again, there are some signs in that, but it is based on certain assumptions that come. That is the second thing. The third thing is that variables. When you look at these variables, the definition of what is wage, what are determined to be wage, inclusion, exclusion, The rulemaking on that is pending. You know that, right? So that there are some assumptions that go for one of the variables that go into those assumptions. And that is not based on determined rules. That is based on some assumed. So that's the second, third thing. The next item is the, you know, that individual organizations can be very different because of the longevity of the staff that you see there. So that determines on how long and what is the kind of organization tenure and so on and so forth, both historical and anticipated. And so many other factors like that go into play. So at this time, I would just ask you to take it as a high level estimate based on best available information and through a scientific actual process that has come and as and when the rule making evolves, as and when more information is available, This will be evolved. Again, I can't venture to come out with a forward-looking or what impact on an ongoing business. Cannot do at this time. And the reason being that we need to have all of these in place before we can get there. And that is why this is not determined at an employee level to say next month when somebody retires, this is the kind of amount that it can come or what will be the amount determined for a crowd and so on and so forth. It cannot be determined at this stage. This is a really high level based on this estimate.

Got it. Thank you. Thanks and all the best.

Thank you very much. Next question is from autonomous. Please go ahead.

Hi, good evening. May I get into the LDR again, please? So, Sashi, please, did I hear you correctly when you said 85 to 90% by FY27? That seems to be aggressive to me. You know, if I look at consensus numbers, it's expecting 13% loan growth and 93% LDR. if you are going to achieve kind of the 90 in the next fiscal year, that suggests a very strong deposit growth number. And I know you've kind of said that you want to prioritize growth now. So it's not telling us if you could help us in a certain way.

Chantan, thanks for asking. Maybe then let me, I've given you a broad range because I don't want to box myself with a narrow range. But having said that, You know, we have been operating in a range of around the 87, 88 in the pre-merger levels, three years before the merger. And so when I say 90, of course, I would have meant somewhere around the plus or minus in that particular range of 90, maybe around the 88, 89, et cetera, or it could be 90 to 91 as well. But why I mention this, at least, you know, the trend lines that we are seeing, You know, if it can be 96 for FI26 or a 95, we are all right. You know, at least the direction is what we're looking at for. We just gave a broad one so that we know what, if we are lucky to really step up growth or the liquidity changes and we have more benign liquidity and no FX operations or FX swaps or open market operations, maybe then it'll be wonderful. So, That is why I'm saying since I do not know what's going to be the liquidity condition in this, therefore I gave a broad range. But even if I achieve these kind of directions, directionally going there, that's something that we can achieve. As I said, there is no regulatory number to comply to. It is just a direction that I think we need to achieve for ourselves, let alone the regulator asking us to do. It is something that we believe just by doing what we're supposed to do will lead us to that kind of thing. I don't have to do anything extra to measure that metric. It will happen. So when we did sort of forecast a faster growth rate for ourselves than the system, we also, as we have seen, we have been having deposit growth rates in line with normally the top-line growth, slightly faster than the loan growths. So estimating that is what we believe where we will land for FI26 and FI27. So don't take it literally that we may be on the lower end of that range. It could be anywhere in that range. You know, practically speaking, it will be somewhere at the, you know, if it's 90 is that range, then somewhere around the 90 is something that we'll be happy with. Similarly, somewhere around the 95 is something that we'll be happy with for FI26.

I appreciate that I mean if you are trading off EPS growth for slightly slower ROA improvement that's fine I mean that's not the issue especially if the opportunity is there in the market so but I just wanted to make sure because you know we have an occupational hazard to kind of do our due diligence in our model so just wanted to get that flexibility that you have highlighted now the second question was around asset quality Could you, you know, you've got a unique vantage point, second largest bank in India. Could you give us some idea about, you know, any pickup in growth momentum, any pickup, any issues in asset quality, particularly due to US tariffs or in the MSA area? So it's a combination of, you know, is growth improving and are there any asset quality concerns? More broadly, if not in your book.

So if I got the question right, you want to know the trend for asset quality and how it is looking. Across segments and even first at the sectorial, you're well aware that the banking industry right now to borrow a term is going through a Cinderella phrase where you've got very strong balance sheets when I refer to that form an asset quality point of view. We have the lowest accretion of gross NPAs and net NPAs are at decadal lows. Mirroring this trend has also been, you know, reflective on our books. We have seen, you know, very low accretion to gross NPAs. And none of the particular portfolios have indicated any stress building up. So I think the economic environment with the kind of GDP growth that one has seen, the kind of consumption growth that one is seeing, as well as the wage increases that one has seen on one hand and on the other, the lowering of the interest rates and affordability therefore going up, including the fiscal benefits that were given to not take up much time, I would say the asset quality continues at the bank to be pristine. And as of as we see it, there is no particular segment, which is showing any major signs of concern. Srini, would you like to?

Perfectly good. There will be seasonality in agreement. every segment including the every segment period to period if you see is lower both from a leading delinquency and into the slippages which are far from lower and then from there going into laws given default is also lower you are seeing that the recovery is wherever that is also on an absolute level good level. Sridhar hope that gives you a perspective on both sides.

Yeah thank you and just on growth momentum are you seeing things improve generally in the economy?

In the economy the growth momentum yes if you look at some of those indicators that you have seen the take the crop cycle itself very improved the showing cycle is improved over prior year very healthy water reservoir levels have aided that. The manufacturing PMI continues to be in the expansionary zone with many programs that are coming in. Services sector doing very well on the consumption demand side. If you look at the recent time period for car spend, which is important for you to look at, the overall car spend up 15%, 3.4% sequentially. Within the car spend, when we look at the discretionary category of car spends, The discretionary category spends have grown 21% year on year. The non-discretionary, which is the bread and butter, normal activity is about 13% up. So that indicates that when the kind of a discretionary spend goes up, people do go and indulge. That's what you're seeing there. On the other side, we do see revolver rates not picking up. So, which means people are spending to pay down. So, there are certain other segments of the society, which is what is pending. So, on an overall level, I would say that similarly, you have seen the auto and the tractors and so on. Two-wheeler has been somewhat less than expected, but then the four-wheeler autos and the tractors type have done exceedingly well. And you're seeing some of that reflected in the aggregate level GDP output that gets reported too.

That's interesting. Thank you.

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

Hi. Good evening and thanks for the opportunity. I have a question on the branch productivity and deposits now that we are so hopeful about the deposits pickup. and targeting at a close to 90 kind of a number. So if you look back as to what kind of experiences that we used to have in terms of the branch vintage and the deposit built up, is that kind of sustaining in the recent years because the deposit growth is just not picking up the system level and that is a key constraint across banks with LDRs, the number that we are seeing across many banks. And related to this, has been, like, coming up from pretty high number now to every successive year we are opening branches. So, do we... Sorry.

Nathan, repeat that. Nathan, repeat that. We could not hear you. Sorry.

So, I was also saying that related to this, if you look at the branch expansion run rate, every successive year we are now opening up lower number of branches. Like, if I have 23 versus 24 to 25, every year we are going down in terms of branch expansion. So how do you look at this corollary between the branch vintage and the deposit buildup? And do you think that the current pace of expansion will be sufficient for us to sustain that above industry growth rate over the next three, four, five years? So just some thoughts around this.

Okay. So I'll get started with the last one first, which is to do with the branches. Nitin, you can't look at one year branch, but you have to look at it. a trend of what was the trend. So for that, if you go back to, you look at the five year branch trend, I'll give you round numbers of the branch trend. We opened about 250 branches in 2020, 350 in 21, 750 in 22, 1500 in 23, 900 in 24, 700 and 25. So if you look at this, 250, 350, 750, 1500, 900, the opportunity space that it provided, we took that and accelerated. All within the overall returns framework, right? All through this time period, if you look at our returns, between 1.9 to 2, right? In that period. So where there was, we accelerated and we don't need to do 1,500 or 900 and so on. It can be more modest, but still add to the branches. It is important to add to the branches because currently we have really little more than 6% of the country's branch network with us. So that means our branch is 9,600 plus is about little more than 6% of the systems branch. So we have more than 11% of the market share of deposits. So that's one in terms of we have more more room to run and more share to gain through that process next is productivity right what does it do from a branch productivity if you look at the per branch productivity uh we are now at about 305 crores of thereabouts on a per branch at an aggregate level right despite all of these additions that i talked to about if you go back where we i just mentioned to you about how we were doing per branch If you go to 23 or 19 to 23, that time period, 4 by time period, about 237 crores per branch, right, at that time. And I told you when 237 crores per branch, before I started to talk about those acceleration of the branches, right. Now, with all of those acceleration, we are at a 305 crores per branch. So, at every incremental branch, when we add, it is also at an aggregate level added. So, this is at an aggregate level. Then that takes to the next one that you talked about at a micro level, right? Aggregate level is one. Let's talk about micro level in terms of where it starts to have the pivoting point for further scale. First is the breakeven is about two years or so. When you look at the breakeven, branches that are in the metro and urban area typically breaks even in about 22 months. branches that are in the semi-urban and rural area takes about 27 months, thereabouts. On an average, about two years it breaks even. So that's one. And these models are in consonance with our legacy branch models, which means they are confirming to what our traditionally there. That's number one. Number two, the pivoting point, where four, five years ago, where we analyzed what does the branch do in five years, five to 10 years, and 10 to 15 years and so on, when you look at it, where the scaling factor is about the 5th year mark to the 10th year mark it moves, and it moves about, it moves about 5, 3 times. Between 5 to 10 years it goes about 3 times up. And then once it goes into 10 to 15 years, 10 times up. So that is very important, and that scaling factor continues to operate now. Now what is more interesting and important than that is currently, If you look at the branches that are in the bucket, 5 to 10 years bucket, which are doing 3x than what they were doing 5 years ago, 1,232 branches, right? Out of the 9,600, 1,232 branches are in that bucket, right? And if you look at the branches before that, the 3 to 5 year bucket, 3 to 5 year bucket, we have 1,300 branches. So, we are entering into that pivoting point where the cohorts that are entering into the 5 plus bucket is more than the cohorts that are going to exit from 5 to 10. So, that is again similarly when you when you look at the 10 to 15 year bucket it got 2499 branches and then the 5 to 10 year branches are going to go into those cohorts and so that almost 43 percent of our branches are young vintage branches less than 5 years. So, this is the cohort that needs to move through the pipe and and get there and so we are quite that is point I think he said that we are positioned well with good expectations coming out of that and that is again aided by seven factors that go. Okay. So, another data point, so she was just reminding me when we reviewed it with him, on an incremental basis when you look at it, these new branches contribute slightly north of 20% of the overall incremental, incremental that come, deposits that come. So, which is very important, right, so that these things keep adding, accreting as we go along. That's something I wanted to leave the topic.

Right. See, the reason to ask this is also because while advances side is still in our control, we can maneuver the advances growth and choose the business segments we want to underwrite. But deposits, if we compare across the best-run private banks also, typically the growth kind of has its own saturation point. And if you look as to how HTFC Bank has done last year versus the current year, probably we will be closer to in terms of deposit rate versus what we were last year on a good case basis. So for us to...

talk about that ldr can come so sharply next year do we look at this uh deposit growth run rate breakout from as to how the trends have been in the recent years can this really happen with the kind of vintage games that we talk about this gets benchmarked uh by by district uh by our presence in those districts that's how that's how we benchmark and that's how we work our marketing and product teams work with our distribution channels where we are present to orchestrate and move this, right? So two things I want to mention. One is new account acquisition is an important element. We are at about 100 million customers. Last quarter we added about 1.5 million new liability relationships. It is important to get that new account value because that's how you keep building. And the change in balances, so that means existing customers adding, increasing has been lower in the recent time periods when some kind of a choices into various other financial decisions they take. So some of that has been slower. But again, you beat that by getting more presence and more customers and have diversified product, asset product. Because you know that in the last two years, our retail asset products were slow. Then where we are now trying to accelerate and move. for every asset product that you have, again, cards, I think not in the last quarter, but maybe a few quarters ago, we have spoken cards, for card customers spending on their card account and having a hundred outstanding, at the aggregate level in the bank, we see almost north of 5.5 times deposit balances from the customers. So what does it mean? We want more of our customers to have cards. And same with mortgages, which I think last time we spoke, 99% today we have penetration. That means we are not selling a mortgage product. We want to get the customer relationship. When we are giving a mortgage product, we get the savings account. And the savings account gets funded approximately today at initiation at about 35,000 rupees. And then when you look at a 12-month, 18-month on books, which is the kind of vintage we can measure today and see, we are seeing that it is growing two, two and a half times. But historical, some of those category customers that we have seen, it has got the propensity to have five times more than a customer who does not have a mortgage. So liabilities don't come only purely on just an engagement and asking. It also comes by multiple products that get sold.

Okay, sure. Thanks, Shini. Thanks for putting that color. Wish you all the best. Thank you.

Thank you. Next question is from Suresh Kanapati from Macquarie Capital. Please go ahead.

Yeah, so first question is on LCR. What would be this quarter and how it would move towards the April 2026 guidelines? Whether it will move up, move down?

LCR, we reported 116 in this quarter.

And post the new guidelines?

No, the new guidelines, we don't expect any material change that can impact.

Okay, and just a question on margins itself, you know, it's been almost nine quarters since the merger, your margins are not gone anywhere. In fact, it is even lower than what you had reported at 3.4%. I know there are several moving parts. Are you really confident that you can get this up in the next two, three years?

Suresh, if you think about the margin, the most important lever on the margin is the cost of funds, which at various points we have mentioned. And within the cost of funds, there are a few. One is the time deposit repricing, which has a lag effect. We have changed time deposit rates in line with the policy rate change, but not fully, but maybe two-thirds two-thirds way we achieved 125 basis points is what the policy has changed. We have done about two-thirds into that we need to see what more and again that works competitively priced right. So, we will not disadvantage anywhere there and that takes almost five quarters to flow in part of that this quarter you have seen 10, 11 basis points change in cost of funds that is the lag effect of that flowing through then that that continues. So, that is one element. And the second element is the borrowing. Quarter to quarter has remained static at about 13%. But again, more than a quarter, if you look at a year, we were at about 7%. Broadly, the industry is at about 6, 7%. So, there is an opportunity space to beat that to keep coming down. That is another important lever that provides the cost of funds change. And the third one is the CASA, which again, is a customer on the other side more than we creating any action. where we need to work through to bring filling within the new customers and better engagement, more products, more retail products. That's the kind of process we need to take through to get to that industry average and beat that industry average over time. Yes, there is a line of sight and these are some of those elements we work through.

Okay, thank you.

Thank you.

Thank you. Next question is from Prakash Sharma from Jefferies India. Please go ahead.

Thank you, Aviva, and congratulations on the results. I just wanted to delve on this deposit growth part. You know, it was an interesting comment that you said that the granular retail has grown, but slightly bulkier retail hasn't. Is there any sort of a data point that you can share in terms of the growth or the mix in the two? And one alternative is, can we use the LCR deposit number and the growth there as a reference point to just get some comfort on, you know, what's the range of growth there? Because 4Q onwards, you know, it gets aggressive on pricing. So, if you can share some colors, that will be right. Thank you.

The second aspect of the question I didn't get, probably you didn't see. But as far as the rate of growth is concerned that you asked about the categories, certain other categories that we wanted. Yes. Yes, I mean, if you look at the institutional types, they were in the mid-single digits, right, the institutional type of deposits, mid-single digits, that is what we have seen. And within the retail branch, the non-individuals were much more modest, I think it was again little more higher single digit and the individual within the branch is there in the solid double digit group. Sorry, the individual at the branch was at? No, I did not give you a number, I said it is a good double digit and everything else was in single digit, yeah.

Okay, and is there a way to just give a context of you know within your total deposit 83 percent is classified as retail. How much would be the granular retail and how much would be the quasi-institutional retail?

I do not think they have published that, but yes, when we say that is branch-driven deposits where there are RNs engaged with either an individual or that individual's organizations and institutions, that is what.

Got it. Thank you so much and good vision.

Thank you. Next question is from Abhishek from HSBC. Please go ahead.

Hi, good evening. So, Finny, going back to the branch addition question and thanks for giving so much color, but just net-net, are you still looking to grow or add about 5-7% branches this year and in FY27 or what are your near-term plans? I understand the whole picture you painted about the scale-up of whole branches and how that will accelerate deposits. I just want to know your next one-year plans in terms of branch addition.

To answer in short, 5% to 7% implies 500 to 700 branches annual. I don't believe that that kind of branch addition in the near future. We will evaluate as we go through the annual planning process and come back at some point in time. but it will be of a good order.

Abhishek, just to add to what Srini is saying, you know, if you've seen the last cohort of what he just said in terms of the 4,800 odd branches over the last five years, today it is contributing, as he mentioned somewhere, around the 20 plus percentage points in terms of the incremental liabilities of the deposits that we are mobilizing. As this cohort starts to which we are seeing delivering and getting to a substantial number, then we know that we have the confidence to start to step up the next phase of launching new distribution points. Obviously, we want to wait and watch. We are not saying we will not add any branches. As he mentioned, we will add branches, but these are probably... Normally in suburbs where there is a kind of an opportunity, that is what we are now focusing on. But we want to ensure and stabilize the last cohort of the 4,800 branches, stabilize and start to get to a certain level of maturity and level of contribution, which is substantial. Then we know that that will be on an autopilot. And then we can start to see the next phase of introduction. And obviously, at that point in time, we will have to rethink in terms of we would have probably moved far beyond in terms of our branch transformation and automation. So there will be some new thought processes in terms of how we need to add or how we need to sort of expand our distribution. It's not that it's going to be different, but maybe there will be some amount of recalibration that we will do in the next phase of branch additions.

Sure. So, Sashi, as I understand, that's a great point for making that point. So, today about 50% of branches, which is this 4,800, is contributing around 20% of incremental deposits. Is it correct to think that when this starts contributing maybe 40, 50% of incremental deposits, that is when you start thinking about future expansion. Is that the right way to think about it?

Whether it's 40, 50, 60, we will keep on recalibrating because there are a lot of things that we are trying to do. Obviously, we also, you know, if you really look at it, we stepped up our distribution the moment we knew that we announced our merger. And we knew that we needed to, you know, fund not just at that point in time, the future of, in the future. So all this is going to add to incremental deposits in a substantial way into the future. But so there will be a lot more dimensions that we will examine, not just the extent of contribution, but probably, you know, certain events that we may have or certain other things dimensions that we may look at before we start to step up the pedal on the new phase of incremental. And, you know, you look at it even over our 30-year period, there have been these phases of, you know, right from 2009 onwards to 2013-14, we stepped up our distribution. Then we had a little bit of a pause. Then we started off again. So, you know, we discussed Recalibration and doing it in phases is something that we've been doing. It's not a new thing. We've been doing this for right through our 30 years journey. And I think we will continue to do. Obviously, the dimensions keep changing in terms of what we need to look at as we move ahead because the world is changing very fast. The kind of technology implementations that we are doing you know, as we unveil, you know, we probably may need different thought processes as well. So let me pause out here and probably you probably will get the drift.

Sure. Thank you for that. And the second thing is on credit costs. Now, if I look at your net slippages, X of the agri part, but let's say look at the net slippages in the nine months or last few quarters, around 30, 35 basis points. write-offs are holding steady at 3200 crores of free a quarter. So why is the, you know, underlying trade costs at around 55 bps and not coming off? I mean, don't you think that should also start coming off at some point?

If this kind of... I will say a couple of things. One is the slippages. If you're looking at excluding agree slippages, it's 24 bps in the quarter. Prior quarter was 23 bps prior year was 26 bps. So, order of magnitude, call it 25 basis points. That is the kind of a slippage in a quarter, right? That's what you see. So not the 35 or something that you're talking about. That's one. The second thing is that credit costs, you know, also you have to look at it, including the recoveries because When you write off certain loans as it progresses through some of the delinquency buckets, then you get it in the form of recoveries. And net of recoveries, if you see, we are at about 37 basis points or thereabouts. And when you look at again last quarter, last year, order of magnitude very similar within a few basis points by basis points. So, it is not just about the 55 basis points, it is also about the net of the recoveries which comes in quite handy. And it is a function of how fast you write off and how you recover.

No, sure. That's what I was referring to. So net of your recovery, etc., it should keep coming down because your slippage performance is, I mean, it's improving. The book is growing and your absolute is pretty much stable. So you're seeing very good asset quality trends. And I was sort of wondering why the credit cost is not coming off.

Yeah. See, in a growing book, if the slippage is steady, the losses are steady, recoveries are steady, I don't know what you are expecting.

So 50-55 is more or less BAU is what you are saying. No, GNPA. No, no. No, no, no. Credit card. Okay, I'll take this off. Never mind. I probably have not explained myself clearly. No problem. Only just one question on cards. You know, overall card receivables are pretty stable. If I look at You know, the data that comes out in RBI, the spend market share for you is doing well, SIF market share is doing well. So why is it not reflecting in the receivables? Is it just transactors running down or is it something else?

No, actually, you know, great question, Abhishek. I think if you really look at it, the segment that we are patronizing is more the middle and upper middle segment. segment. Therefore, slightly higher end cards is what is in our portfolio. The proportion of that is large. And a large part of that, you know, over a period of time, we have been, I mean, as you know, you know, the card, credit card, what shall I say, the behavior has also changed over a period of time. Today, We look at it not as a net receivable from a revolve perspective, from an asset perspective and an earnings perspective. We are looking at it as an enabler for our liabilities or deposits. Srini has mentioned in the past, and that is something that we are extremely proud of, the spend of the cards actually provide a significant portion of our deposit momentum. Today, 20 to 25, maybe in the middle of 20 to 25, I can say, is the range at which, out of the total deposit basket, the kind of momentum that you're seeing, whether it's on the healthy balances and what it contributes to total, it's somewhere around that 20, 25. So the credit card focus today It's more not from a net receivable basis, but from a transactional basis. And, you know, as I said, I mean, whether it's a lot of you on the call or people in this room that we are, we all pay, you know, on a scanning instruction basis on due dates. So this is something that we are very happy with. And so this is the kind of a new strategy that we are evolving. Obviously, We are also recalibrating some of the business model and cards. We have been doing that, and we probably have come out with something which is very encouraging and something that the organization will really benefit from our card strategy.

Thank you so much. I want to add one thing to the cards thing. particularly the card revolving aspect of it, right, which is, if you go back to 2020 or before and compare it to today's revolvers, they are slightly under two-thirds level, right, slightly under two-thirds level. So that means that of the three 2020 levels revolvers, right, and so the profile of the customers and that is why you see the deposit balances of those customers, which is little more than five and a half times, was slightly under four times at that time. So the profile of those customers are also different where they do transact, they do keep balances, and the revolver balances are lower of certain other segments. And we have not literally offered the credit line increases and made more and more revolvers to tip them off into delinquency. We've been, credit has been cautious on that. Yeah.

Got it. Got it. Thank you so much for answering all those questions and all the best. Thank you.

Thank you very much. Next question is from Jayanth Korde from Access Capital. Please go ahead.

Thanks for the opportunity. So one question is on your loan growth broad guidance of above system next year. So I just wanted to understand when we are saying we'll grow above the system. uh what is our range of assumption for system growth because we're seeing some acceleration in the system growth itself where we are moving from this 11 to 13 band to maybe closer to 14 15. if we were to move in that band uh would we have accounted for that kind of a system and we say we can grow all that yes so our uh our understanding as uh as of now is

Next year, we expect system growth to be between 12 to 13%, you know, when you look at nominal GDP and the credit growth that's required to support nominal GDP. So if you're talking about, you know, 12 to 13%, we are talking about a couple of percentage points above that going into the next year. We see distribution on the retail side. You've been seeing, you know, over the last two quarters coming up our positioning also in the MSME space, you know, given our geographic coverage as well as our suite of products that we have out over there. And, you know, the wholesale piece, which you would have seen in this quarter, you know, again coming back, we do believe that, we have the customer segmentation to be able to grow at a couple of hundred basis points over system growth next year.

Great sir, I think this answers you working with the 12 to 13 trains at least. Second part is a broader three year or four year question. We have seen products like mortgage getting a lot of competitive intensity. PSA banks being well capitalized are probably being more aggressive in vehicle increasingly, auto. Do you see this competitive intensity eroding

uh profitability for the larger players over the next probably three years and not not a six month or 12 month question we are addressing uh we are addressing competition only through relationship and not through pricing uh mortgage products as you see you've seen that in the last 12 months uh we we are not leading through a market product we are leading through our relationships where the mortgage product could be a fulcrum around which we can operate. Same with auto. I do want to let you know that our auto loans are almost little more than 80% self-funded, which means the customers, when they take auto loan, we want their liability announced, we want them to have balances in that, and the loan self-fund itself for most part within the balance sheet. So, it is about relationship offering, and that is part of the engagement of the branch, and it's not just a product. and a loan balance sheet building approach.

Having said that, Shini, absolutely in order. I think, you know, we do continue to be the largest financers in the auto loan space in the country, not only in terms of the dispersals, but also the book size, as well as, you know, if you see a year-on-year growth in the entire automobile space, I think, you know, that is reflective of growth what our position is and the target market that we will have so it is relationship it is also ensuring that we have the right pricing for the product based on the customer segmentation and we don't feel any need to you know do business at price points which don't make economic sense and your market reading is as now we are not in that situation where

aggression is eroding margins for the broader system, at least in auto.

I'm sorry, I didn't catch your question. Can you repeat it, please?

So not for HDFC, but probably for broader system. Are you seeing that aggression in auto segment from the public sector or maybe the broader system aggravating in the last couple of quarters?

Yes, we've seen it not only in auto, but also in the home loan products. So, you know, these are two products where we have certainly seen, you know, some amount of, if I may say, a bit of irrational pricing. But, you know, irrational pricing has never sustained. You know, it will, you know, play itself out and bury itself in a couple of quarters on the outer side, if not earlier.

Great. This is very helpful. Thank you and all the best.

Thank you.

Thank you very much. Ladies and gentlemen, we have come to the end of the allotted time for the call. I would now like to hand the conference to Mr. Vidyanathan for closing comments.

Okay. Thank you, Neeraj. And thanks to all the participants for taking the time to attend. Again, I want to mention that we did not extend to be there. uh further questions any more comments uh mr relations team will be on standby and help and explain or clarify everything you need uh today or the weekend or next week whenever you desire uh we are available uh with that we'll sign off for today have a great weekend bye-bye thank you very much thank you thank you thank you all thank you very much

On behalf of HTC Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect the lines. Thank you.