Q1 2027 HDFC Bank Ltd Earnings Call
Speaker #1: Financial results presented by the management of HDFC BANK. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes.
Speaker #1: Should you need assistance during this conference call, please signal an operator by pressing * then 0 on your touchstone phone. Please note that this conference is being recorded.
Speaker #1: And now, hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC BANK. Thank you, and over to you, Mr. Vaidyanathan.
Speaker #2: Thank you, Neerav. Good evening, and warm welcome to all the participants. We have today with us our CEO, Sashidhar Jagdishan, and our Deputy MD, Kaisar Barucha.
Speaker #2: I'll hand off the call to Sashi, and then we can take it forward from there.
Speaker #1: Sure. Thank you, Srini, and thank you all for joining in on this invested call for the Q1 results for FY27. As you know, we've had a very— we navigated this during this period, certain challenges over the last 4 months.
Speaker #1: Our people have kept steadfast, focused on customer needs and built further build the franchise. It's been a very tough period, but I really am proud of them, and thank you to each one of them for really stood behind in continuing the strength and resilience of the institution.
Speaker #1: I also sincerely thank the board for their guidance and more so Kiki Mistry for chairing as the interim chairman during this period. I also heartly welcome our new chairman, Rajiv Kumar, who we look forward to taking the franchise to the next growth stage.
Speaker #1: With appointment of Mr. Rajiv Kumar, there is a sense of stability and a clear signal to minimize uncertainties in a very short time period.
Speaker #1: Coming to some of the accomplishments in Q1, the deposit growth continues to be relatively better than the historical Q1 trends. We continue to gain market share, both on an incremental basis and on a stock basis as well.
Speaker #1: Our productivity of the branch continues to move up, and we realize benefits of the investments that we've done over the last 5, 6 years.
Speaker #1: Advances as we had mentioned envision a while ago, I think we are on the verge of pressing the pedal as you have seen the advances have done very well over the last 3, 4 quarters, and that continues the trajectory continues.
Speaker #1: We are focusing on certain customer segments for more to manage more longer-term opportunities. Our focus now, as I may have mentioned in the past and also in our annual report, we are trying to take customer service to a different level.
Speaker #1: Especially in focusing on the turnaround time of our product and service offerings. We are now measuring it at a more granular level across the length and breadth of the country.
Speaker #1: We are reimagining our digital journeys and analytics so that we are able to have a new levels of adoption. That should sort of bring in a fair amount of efficiencies in the quarters to come.
Speaker #1: As regards to environment, we see our policy responses have been very timely and effective. This is— there is a very healthy credit demand that we are seeing in the system as we speak.
Speaker #1: We believe that the FCNR policy window that has been offered to the banking system is a great opportunity, and we are focusing on that.
Speaker #1: We have spent a large part of the month of June in completing the documentation and approvals necessary from our side and also from the counterparty banks across various jurisdictions.
Speaker #1: The ECLGS scheme 5.0 is also a very good opportunity and you will see a fair amount of growth that's we will pick up in the mid-market segment.
Speaker #1: Competition has been very intense, both on the corporate side where the spreads continue to be very thin, and we have been rather selective. But what we are also looking at are holistic primary relationship engagement.
Speaker #1: The deposit rates on the granular side has been reasonably stable, but on the non-granular side, I think rates have continued to remain elevated. The this quarter, you may see some amount of mixed change in terms of more non-retail shorter-term asset mix, the cost of funds moderation, these are all elements which I believe are just tactically being managed.
Speaker #1: Fundamentally, the franchise continues to be extremely strong and we will be stepping up the multiple product offerings and one customer view in and you will see the changes happening in the quarters to come.
Speaker #1: Productivity is a very key focus and you will see the outcomes of efficiency of the efficiencies from our focus on digital adoption, the process re-engineering, the kind of customer focus by the senior supervisory architecture, which will ensure that we are able to turn around the delivery times much shorter than what we have ever enjoyed and what the best-in-class market is offering today.
Speaker #1: We have provided a fair amount of tools, for deeper customer engagement, as I did allude in terms of technology. We are on the cusp of really of harnessing some of the GenAI technologies on our processes and we do have a fair amount of Lighthouse programs that will go into production during the course of the year.
Speaker #1: Obviously, all of us realize that security is going to be an extremely important part of our strategy and we are focusing on seeing how we can leverage on AI to augment our defense mechanisms as well.
Speaker #1: We are, of course, there are risks in the horizon in terms of the weather-related disruptions like El Nino and also the geopolitical situation in West Asia.
Speaker #1: But I think the country has weathered these reasonably well. I think we continue to remain very sanguine where prepared for as a country and hence as a company in terms of weathering these any such challenges in the near future.
Speaker #1: I once again thank everyone for a wonderful performance. Despite a lot of challenges that have happened over these several months, I think good times are here to come and we stay committed to what's customer and others stakeholders in terms of what HDFC BANK has always been to all these stakeholders over these last 30 years.
Speaker #1: Thank you so much and over to Srini and company. Okay. Thank you, Sashi. Neero, with that, let's open up the line for questions. We'll go straight jump into the questions relating to the earnings of the quarter.
Speaker #1: Please go ahead.
Speaker #3: Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and 1 on their touchstone telephone.
Speaker #3: If you wish to remove yourself from the question queue, you may press star and 2. Participants are requested to use handsets while asking a question.
Speaker #3: Please note participants are requested to restrict to two questions per participant and rejoin the queue for a follow-up question. First question is on the line of Maruka Janya from Tara Capital Partners.
Speaker #3: Please go ahead.
Speaker #4: Yeah, hi, good evening. My first question is on margins. So do you think margins have bottomed out now? That's my first question. And you know what are the headwinds or tailwinds for margins?
Speaker #4: How would the FCNR mobilization impact them? So that's my first question and my second question is that ADFC BANK does require one more ED, right?
Speaker #4: So when will we hear of that appointment?
Speaker #1: Okay. First, probably I'll take the first part of the question how to think about the margin. There are two aspects as you know. One is the cost of fund is the biggest opportunity on the margin where compared to our historical norms as well as compared to what we have seen in the industry as such, there can be 40, 50 basis points change, but it is not going to change in a hurry.
Speaker #1: And there are the elements of that is one is the liquidity countries liquidity scenario needs to be slightly different than where it is. For example, even in the recent quarter, the average liquidity in the system was about 2.08 trillion.
Speaker #1: However, the peak was 5.5 trillion and the trough was a negative 0.43 trillion. So there's a big difference between the peak and the trough on an average it is 2.08.
Speaker #1: We need that standard deviation to that average to be minimal so then there could be kind of an active kind of a market where the rates can stabilize well.
Speaker #1: And that's part of what the policy is also envisaged and you've seen that FCNR or the swap window and all of that is in the direction to ensure that there's adequate flows and there is a stabilization of the rates there.
Speaker #1: So it depends on that and that's what determines both the deposit cost particularly the non-retail deposit cost. The retail deposit cost asks as well as various players in the industry have been circumspect and have been steady there.
Speaker #1: But the non-retail cost non-retail deposit cost have been high elevated. And similarly the borrowing mix is not come off yet. We still remain at about 11%.
Speaker #1: That continues to be a space that we keep watching but again it doesn't change in the short term and doesn't change in a hurry.
Speaker #1: CASA mix again we've been relentlessly following up on the CASA. We did I mean on a quarter to quarter basis we can't see and we don't judge but on a yearly basis for the year that went by for example March 26 for which data got published across the industry while we grew between 9.5, 10% or so we still gained market share on that right on that front.
Speaker #1: So we do envisage and we are positioned with our distribution and customer addition to get that. But again that is a journey and not a kind of a shorter term impact.
Speaker #1: So that remains on that. On the asset yield asset yield is a function of whether if you ask me whether the margins of have bottomed out for the year we can talk about.
Speaker #1: Quarter to quarter we cannot and we don't manage for the shorter term. The reason is there are timing in the year through which various types of loans get booked and so we have to wait for the year to see.
Speaker #1: But we do think that on a full year basis we are well positioned with our reach and with our customer selection to be better.
Speaker #2: As regards the second question that you asked about you know enhancing the number the whole time directors on the board yes there are several milestones which the board is seized off including you know with the appointment of the new chairman from a new part-time chairman.
Speaker #2: Some of which all of you know. I think a fair amount of action will be visible in the short time period and I would like you to sort of wait for the same.
Speaker #1: Thank you.
Speaker #4: Okay. Thank you very much. Thanks.
Speaker #3: Thank you. Next question is from the line of Pranav Gundapalli from Burnstein. Please go ahead.
Speaker #5: Hey. Good afternoon. Thanks for the question. Question is largely on the branch network where we had a big boost in FY20 to 23. Do you think all the branches that were added in that period are scaling up the way or have scaled up the way you would have initially expected?
Speaker #5: And the related question is on the Saa market shares which have been the incremental market shares have been largely flatlined despite the branch additions.
Speaker #5: So what should change for us to once again start seeing meaningful gains in Saa market
Speaker #1: Yeah. I'll first talk about the branch as such right from a branch vintage model. Yes. About close to 40% of the branches are less than five years and yes those time periods that you mentioned we did add made a significant addition to branches.
Speaker #1: If you look at the branch per branch metrics we are about 330 crores per branch currently and if you go back to the 23 time period we were 266 crores per branch and if you go back even further right it's less than 200 crores.
Speaker #1: So the point is the branch addition at an aggregate level the early vintages are performing to the legacy branch vintages and the legacy branch vintages are also progressing towards what a 10 plus years and 15 years plus years will do which is what is demonstrated in the average per branch when you see it 330 crores per branch is extremely very extremely productive and one of the best in class in the industry on a per branch basis.
Speaker #1: So the branches are behaving according to the model that is envisaged one thing I want to mention is that while it is very important that the branches are the key arm to get the deposits in branches are a very significant part of how we grow part of the retail assets and the small and medium enterprises loans SME loans.
Speaker #1: The wholesale top corporate mid corporate loans get centrally managed through various relationships but branch level is where all the other segments operate and the growth that you see there these branches do deliver all of those things right.
Speaker #1: I just want to leave the thought there. And in terms of the Saa the savings account that you mentioned one thing that if you look at the household deposit growth in the country as such when you look at the data that gets published by RBI across various categories segmentation of deposits household deposit growth is one of the lowest among various right when you look at the corporates when you look at the government and institutions and when you look at the households the household deposit growth is one of the lowest.
Speaker #1: That doesn't mean that that's how it's supposed to be. That's it's going through that phase of how it's remaining in the single digit. And the way we have approached to address this is there will be only certain level of savings accounts anybody will have.
Speaker #1: And that is why the distribution reach and addition of the customers is about the increasing the unit and so thereby the unit value can marginally go up.
Speaker #1: We need the unit. So this is about the unit economics that we need to drive and at the same time as we drive the unit economics we are today a little more than 100 million customers and as we drive the unit economics keep the cost in check and under control on efficiency so that we scale this.
Speaker #1: That's what is happening is the scaling is happening with unit economics slightly moving because we are not counting on the household deposit growth to go from 8 9% to 15%.
Speaker #1: That may happen may not happen but that's not our approach. Our approach is to increase the units to get that benefit. Sashid can add.
Speaker #5: If I can just follow up like my question was largely on the relative basis. So you obviously had a but if you see it relative to the system it actually come off a bit in the last three years.
Speaker #5: Same with you know deposit growth Saa growth etc. You had we said very big delta of the system with the spheres that seems to be narrowing.
Speaker #5: So some color on what is changed like are you adding the same number of accounts? Is it balance coming off? Some color there that will reassure that you know you'll eventually get back to industry leading growth.
Speaker #2: So Pranav thank you for that. I mean number one is you yourself alluded to the fact that we've had a fair amount of investment and distribution over these five years.
Speaker #2: So our denominator has a fair amount of branches which are which will start to you know generate more and more customers and hence balances as we start to move into the 0 to 5 5 to 10 10 to 15 vintage of these investments that will happen.
Speaker #2: And you have seen in the in our presentations how the economics work for different vintage branches. Number two is despite that the productivity may have come down relatively but it's still one of the best in class in the industry.
Speaker #2: The second part of it is as Srini was saying it is a fact that in the last couple of years or more so three years the industry and the system were also playing with a fair amount of number of accounts which were not necessarily behaving in an orderly manner.
Speaker #2: And what I meant by that is you did see a fair amount of fraudsters using accounts as mules and that sort of started to increase in the banking system.
Speaker #2: Significantly. We needed to you know we use a fair amount of our algorithms and rule engines to try and see how we can bring in a fair to bring in some amount of quality acquisitions over the periods of a 5 24 25 and 26.
Speaker #2: I think these are the three or 25 26 which is what you we did and that was pretty much reflected in the slowdown in the new acquisitions because we were gearing ourselves to the new realm of better quality acquisitions.
Speaker #2: As we now move forward you will and one should see a step up in the in as what Srini calls is unit economics in terms of the numbers moving up as the quality that and the and the kind of diligence that one would need one would necessarily need in this kind of a environment digital environment.
Speaker #2: And that is what we are trying to do. So I guess it was a matter of correction to ensure that we put in a guardrails not to not to bring in unwanted accounts.
Speaker #2: I think as we move forward I think we are reasonably confident that we not only will should reach reasonable healthy numbers in terms of annual momentum depending on the capacity of the overall 9,700 branches but also the quality acquisition value unit value as well.
Speaker #2: So my hunch tells me that I think you should see reasonably healthy growth over a 1 2 3 year period in the savings account as well.
Speaker #5: Very clear. Thank you Srinivasan. Thank you.
Speaker #1: Thank you.
Speaker #3: Thank you. Next question is from Nan of Kunal Shah from City Group. Please go ahead.
Speaker #4: Yeah. Thanks for taking the question. So firstly on margins. So now we are almost down to 3.4 odd percent borrowing has also come off to 11 odd percent and we had highlighted that it can come down to 8 9 so not much room left out there.
Speaker #4: Obviously it's a competitive environment but on with this franchise where should we eventually see margins settling down because earlier the expectations were much higher but now it's trailing a bit and what would actually led to this what are the levers available for the same.
Speaker #4: So that's the first question. Second is when you look at it on the FCNR deposits last time we were quite active we mobilized the largest chunk.
Speaker #4: So if you can just guide in terms of you mentioned like documentation is on but what is the kind of number which we would look at or maybe the market share in the overall FCNR deposits that we would want to target at this point in time.
Speaker #4: And thirdly on CEO reappointment if you can just highlight in terms of where the process is because it's now due. So has it been already applied to RBI or would there be announcement from the board in terms of the approval and then we would see the application to the RBI.
Speaker #4: So if you can just highlight in terms of the process where we are in terms of the CEO appointment. Yeah.
Speaker #1: Okay. I'll handle the margin then so first is Kunal thanks for asking that. One is I do want to mention that the borrowing mix which is at 11 percent we we don't expect that it'll just settle at 8 or 9 right.
Speaker #1: The industry the industry is more like a 5 or a 6 percent right. So we do think that the maturity should should take care of that to some extent and the growth overall growth should also take care of it to to to the balance of extent because as the growth happens and you don't need to fund only through borrowing so then the borrowing percentage will do off and come down.
Speaker #1: Now that's one. Second thing connected to that you asked is what is the longer term margin where where does this settle right. Yeah see again as I mentioned both from a when you benchmark and see against us and against the against the peer group and so on the the cost of fund elements that needs to play out are very much intact and those are being.
Speaker #3: Participants please stay connected while we check the management connection. Ladies and gentlemen thank you for your patience. We have the line for the management reconnected.
Speaker #3: Kunal may I request you to help serve where the line dropped please.
Speaker #1: Okay. Thank you Kunal where did it get dropped because somewhere the the cable.
Speaker #4: So you were mentioning that cost of benefit cost of fund benefit is yes to play out. Yeah.
Speaker #1: Cost of fund benefit will play out and it is very much in the works both in our annual review of plans and as well as our strategic review it's very much where where we envisage and receiving the attention of various verticals to get that right.
Speaker #1: Both from a mix of products within the deposits as well as mix of borrowings within that very much there to get that. On the asset side I was that's where I think it got cut off.
Speaker #1: On the asset side the mix of assets is also an important contributor for a longer term margin. Today we are at a 52 percent retail mix at our kind of an experience that we have seen we we were at about 60 percent or so and we always have thought that in India's consumption component of the GDP is at about 60 percent and that's where we want to be as far as the retail mix is concerned because that's when will mirror the economic growth and fortunes in the country.
Speaker #1: So we can be going in tandem with that. And so that that mix of the asset loan asset is also an important contributor on that.
Speaker #3: As as regards the third question
Speaker #5: that you had on the reappointment of the MD I can you know share with you that the GNRCN board is fully seized of the matter and that is work in process and as they arrive at a conclusion we will certainly make the necessary announcements in that regard.
Speaker #2: And as regards FCNRD as I mentioned even in 2014 the pay start in the second month of the announcement. The first month like in 2014 I think we have spent fair amount of time in the documentation part of it and the approvals both internally and also the respective counterparty bank.
Speaker #2: And you will see in the month of July August September we have certain milestones. I'm sorry I can't sort of put a number to that in the public domain but you will see a very handsome or that's the endeavor to ensure that we are reasonably strong and significant market share in the market.
Speaker #3: Kunal can you hear us?
Speaker #1: Thank you we can go to the next. Thank you. Thank you Kunal.
Speaker #3: Thank you very much. Next question is from Nano Sheshadri Singh from MK Global please go ahead.
Speaker #2: Hi thank you for the opportunity. Can you hear me?
Speaker #1: Yes yes yes thank thanks for the opportunity. So a little bit of a follow up on Pranav's question on on on deposits. So am I to understand that this you know decline in the kasa ratio is temporary or is a passing phase and as your you know customer acquisition engines start to fire in we will see a restoration also.
Speaker #1: Seeing you know the share of wholesale deposits rise only you know not by by large amount but it's gone up from 17 to 20 percent.
Speaker #1: And you're right that that does reflect what the RBI has been talking about in change of the composition of deposits. So being a large bank do you think that even if the system you know continues to gravitate towards wholesale and non kasa deposits you'll be able to get back to your earlier ratios once your customer acquisition engines start to bear fruit?
Speaker #2: Okay let me let me try and attempt that. Start the endeavor and our vision is to reach tools somewhere near the pre-merger levels. Or just around the time of the merger which was around 38 post the merger we were 38 and before that we were 40.
Speaker #2: And if you as Srini had alluded obviously there has been a significant change in the household savings pattern over the last three years more so.
Speaker #2: So what are we trying to do. We are trying to see how we can gain more incremental market share on our low cost funds much more than what we have as a stock of as a stock share.
Speaker #2: That's the first part of it. Obviously our appetite to grow is much more so there is a need to you know even grow our time deposits and the the result is because if you're if you need to grow then you would need a certain amount of time deposit growth which invariably over the last couple of years has been much higher than the and the low cost funds growth rate.
Speaker #2: So therefore the kasa ratio has been a little bit on the lower side. So the the thought process that we have as Srini did mention is that we are probably now after putting in our guardrails in terms of what kind of customers need to come in into the institution.
Speaker #2: From an acquisition perspective I think we are now ready to press the pedal. I think that is what I think the entire franchise is driving about and maybe over the next nine months we will see we hope to see a fair amount of change in the acquisition numbers and hence value.
Speaker #2: If that sort of really changes the growth rates to be much better than our time deposit growth I think that will be wonderful. But obviously you know a world is not so perfect and having said that also I mean if you are also 50 percent of your balance sheet is non retail which is wholesale you know you cannot really ignore that particular franchise as well.
Speaker #2: We cannot sort of pick and choose what we want. We need to ensure that we are there for all the needs of the corporate customer whether it is for deposits whether it's for cash management whether it's for any other type of facility as long as the appetite is there for us.
Speaker #2: So yes this this particular quarter is as I said we we're now not looking at a quarterly measurement. We want to see at the medium to long term.
Speaker #2: I think while this quarter it could be a 20 percent mix in terms of deposits etcetera but I guess these things then normalize and in the medium to long term I think it's it's been more or less stable which is what we have seen over the last ten years.
Speaker #2: Our focus is going to be on retail in terms of because that's where you get the advantage on deposits that's where you on the cost of funds but at some point in time from a from a holistic relationship perspective from even we need to patronize some of the capital markets and also the corporate segments as well.
Speaker #2: But be as it may while margin is something that I think a lot of us have been focusing on for us there are areas that we want to first because margin will play out as we move forward.
Speaker #2: I'm sure assuming all things remaining same from year from next year there will be the basic equal wear off and how this sort of plays around is not something that I'm necessarily focusing.
Speaker #2: I need to be in the market. We need to be competitive. But we want to be competitive in such a way that we are able to garner a lot of efficiencies arising out of our our enhanced and stepped up focus on customer service which will bring down turnaround time and hence will bring down the capacities the back end which will move to the front end which we'll see a fair amount of efficiencies over the next two or three years.
Speaker #2: This is this is how we are planning strategically and if in the in the bargain in the in the in the process the outcome also sort of helps us in getting a better low cost funds proportion and hence better margins I think that's the kind of a bonus as well.
Speaker #2: So we are very focused on three or four things. Customer focus to to the level of obsession. Riding on technology especially in terms of embedding AI in our in our journeys.
Speaker #2: Three is trying to ensure that our our daily operating rhythm just reduces the turnaround time for product and service delivery. Four is stepping up and releasing a lot of capacity at the customer facing end to be able to engage more with the customers and hence more of of business momentum coming about which is growth.
Speaker #2: And then the very fact that we are cutting down on turnaround time efficiency should lead to better cost to earnings efficiencies as well. So this is an offset which is what we are looking at and if in the bargain that we also sort of get the benefit of improved kasa ratios kasa mobilizations over the next two three years I think in in over our strategy.
Speaker #1: Thanks. Just a quick follow up. You know given your investments in front end tech and customer service do you think there's also an opportunity to increase wallet share in existing in vintage customers?
Speaker #1: You you were talking about customer acquisition being a driver but do you think that that's also an opportunity?
Speaker #2: Yes absolutely because see the moment we start to focus on that and when we try and create a kind of best in class experience why would any customer move out.
Speaker #2: I mean rather he would that's one of our key objectives gain market share within the within our existing base itself or even from a new to bank acquisitions as well.
Speaker #2: So that's going to be our next two three year journey and we are all seized of this. We're not sort of too worried about the segmentation I mean we need to be agile in any customer segment that we are participating.
Speaker #2: Today we are focusing on more and more in the retail and MSME segment. I'm sure we have a strong hold in the corporate segment but even on that with the with the implementation of new technologies over a period of time we have been prioritizing more on the retail and MSME segment but I'm sure that even the wholesale corporate and capital market segment will also get that and that will also sort of see a kind of a change in terms of the wallet share increase.
Speaker #1: Thank you so much. Thanks. And all the best for the for the rest of the year. Thank you Sashidhar. One one thing I do want to add is that while there is a relentless pursuit for kasa granular kasa that includes current account two from the retail merchant type of customers time deposit continues to be a very big opportunity because only 14 percent of our customers have time deposits with us.
Speaker #1: So there is an enormous opportunity for a deeper penetration on that and so there that's it's not this or that it's both. I just want to mention that.
Speaker #2: Yeah sure.
Speaker #1: Thank you very much. I request all the participants kindly limit yourself to two questions per participant. Next question is from Lionel Suresh Ganapathy. From a query capital please go ahead.
Speaker #3: Yeah sure. Thanks. Just two questions you know one thing is your bad growth or your earnings growth has been lacking your balance sheet growth right.
Speaker #3: Look at last year if I look at this quarter it's been just five percent balance sheet growth is well upwards of 13 14 percent.
Speaker #3: So are you confident over the next two three years you can get earnings growth above balance sheet growth because if you're going to grow at 15 percent would earnings grow well above that.
Speaker #3: Are you confident of doing that. That's the first question. The second question you know I mean one of the biggest aspects post the merger is that staff decline in kasa down to 34 percent.
Speaker #3: I know there are several reasons for it. All of your peers are at 40 percent and even RBI's own financial stability report has explicitly talked about that.
Speaker #3: The correlation between rates and kasa is breaking down completely. So it doesn't mean that if rates are going to go down kasa may go up or anything like that as per Reserve Bank of India's own report.
Speaker #3: So how can you go back to the levels of 40 percent. So just wanted to add wanted an answer for these two questions.
Speaker #1: Okay. The first one in terms of the profits Suresh just to mention that Suresh you you asked about the profits. The reported profits when you compare last year this year it does show five percent but last year included certain one timers like HDB gains and then we add a a floating provision counter cyclical buffer that we added and some contingent provision and so on.
Speaker #1: So adjusted for that I think in one of our reports that we filed it shows nine point eight percent profit yes. But nine point four nine point eight percent profit growth is still lower than the overall balance sheet growth.
Speaker #1: Correct. We we do think that in the longer term that the profit growth should be at or above the balance sheet growth. Yes that's still in in our plans and that's how we approach.
Speaker #1: Again please don't look at quarter to quarter. But since you touched up on the five I talked about the nine point eight. You should look at the full year.
Speaker #1: And yes that's part of how we envisage to do. The second aspect that you touched upon is also where kasa correlation to the rates.
Speaker #1: Yes we are cognizant of that fact and we have seen over the last few years about the household deposit growth and how that is functioning and we are also aware that you and me included every individual is going to keep only certain level of their individuals working capital so to say the needs in the savings account and similarly the small merchants which is our target for current account into their current account.
Speaker #1: And so the the way I was describing to another person was that it is about the unit increase and that is why the distribution is important and we are adding customers into that and we are more than 100 101 million 102 million customer relationships.
Speaker #1: We'll keep building on that and that's an important ingredient to get that. Yes can can it organically grow up go go by the nominal rate of a ten percent.
Speaker #1: Yes it can go nominally ten percent but anything more gaining on the market share comes from the unit economics here which is get more units for the same unit same average balance.
Speaker #1: Thank you. Thank you very much. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Speaker #3: Yeah hi good evening and thanks for taking my question. So I'll just squeeze in for direct questions. One can you quantify how much of the bonds are maturing this year and probably this quarter and what is the rate differential what is the rate benefit you are getting on the maturing bonds versus the retail TD rates.
Speaker #3: So that's one. The second one is if I look at your interest income breakup and if you look at the interest on balances with RBI and others there are pretty high balances over there.
Speaker #3: So is there any one off or some kind of refund or any anything else. So why is that growing at you know fifty percent QQ or twenty percent Q.
Speaker #3: So that's just some explanation around that. And the third is on ECL can you quantify what would be the one time impact and also on an ongoing basis how much would your credit cost be impacted.
Speaker #3: So yeah those are the three three quick questions. Thank you.
Speaker #1: So can you hear us. I believe you're on mute.
Speaker #2: Yeah.
Speaker #1: The annual report we just published a few days ago. We'll show you the profile of maturity of borrowings. You'll you'll see that 40 or 50 thousand crores over the next couple of years.
Speaker #1: You'll see that. And from a from a it does have a differential in rate is a little more than seven percent to if you get a retail it could be six six odd percent.
Speaker #1: So you can pick up hundred basis points hundred and twenty five basis points depending on the source of the time deposit. If you just replace borrowings with time deposit or you envisage to replace with a mix of time and kasa but only time a little more than hundred basis points you will see.
Speaker #1: Second question we didn't we didn't get that second question you can repeat but we'll go to the third. On the ECL ECL method see there there are two aspects.
Speaker #1: On the ECL method the overall provision that we are carrying seems adequate and and sufficient for the ECL methodology. Which is going to kick in in first of April twenty seven.
Speaker #1: One thing on the ECL that you need to take into account is that at that time it depends on the pool position. It depends on the behavior historical behavior of that pool position and from that that is various pools of assets I'm talking about.
Speaker #1: And then you look forward from there for twelve months. Right. That means whatever is the various categories of pools from that you look forward for twelve months from then on and then you have a modeling.
Speaker #1: Then on top of that there is a flexibility for management to overlay and so and there are floors to take into account. Considering where we are today and looking twelve months down the line we do believe that our reserving process and the reserving methodology is quite adequate.
Speaker #1: Right. And and for us to think about the stage three assets which is equivalent to the NPA today that you have. That coverage is quite adequate there.
Speaker #1: Stage one and stage two which are in various buckets of delinquencies or stage one is not in any delinquency. Stage two could be in various buckets of delinquency.
Speaker #1: The floors that are there for example the the floor in the unsecured category is one percent and the floor in the secured category is five percent.
Speaker #1: No no stage two. Stage two is five percent. And so on. So if you look at that the standard asset carries a forty basis points provision but then here the floor is one percent for unsecured.
Speaker #1: And for stage one and then for stage two it is five percent. So there will be enhancement. But then those enhancements are are adequately covered in various manner through various contingent provisions and others that we have.
Speaker #1: So we feel confident of working through this process on the reserves. The second question we didn't get it you can repeat yeah.
Speaker #3: Sure. Sure. So just to clarify on ECL at the time of transition you don't see much of an impact. You have an enough provisions for that.
Speaker #3: After transition on an ongoing basis do you think there will be a material increase in credit cost. Like I don't know five ten basis points or fifteen basis points anything of that sort.
Speaker #1: I don't think there will be anything material but there will be some because as exactly I described standard assets today are approximately forty there are some twenty five basis points some hundred basis points but on an average forty basis points standard assets.
Speaker #1: And that by definition because of the floor which are there unsecured floor is one percent in stage one which is standard. Stage two in any delinquency bucket the floor is five percent and so on.
Speaker #1: So because of the floor there will be enhancement. But then the way we look today and look forward from here it would be some impact but nothing material in terms of the impact.
Speaker #1: Thank you. A request to all the participants. Kindly limit yourself to two questions per participant. Next question is from the line of Nitin Aggarwal from Muthilal Oswal.
Speaker #1: Please go ahead.
Speaker #3: Yeah hi good evening everyone. And thanks for the opportunity. I have two questions. One is around growth. Now with this like we have started one key on a healthy note with this FCNR opportunity that is there.
Speaker #3: Are we looking at an improved growth run rate this year we earlier talked about that you'll want to grow higher than the system but I believe with the system in a different tangent.
Speaker #3: We I'm not sure we'll want to really go by that. So any any number if you can share our growth estimate outlook that we are targeting at.
Speaker #3: That's one. And second is on the PCR provisioning coverage we have seen some downward drift on in this number over the last few years.
Speaker #3: So post ECL transition where we would like our coverage ratio to to be maintained.
Speaker #1: So Nitin I'll answer your first question and Srini to take the second. In terms of growth in our view seen growth if if you see the fact that we've already released and the advances makes we have seen you know very good growth happen in our corporate and wholesale segment.
Speaker #1: We've seen that grow at about eighteen percent and this is you know continuing from the growth that we had seen in the previous quarter as well which was around those levels.
Speaker #1: We've also continued to see very good growth come in our MSME segment and out over there you know we have seen a business banking which is the largest component of our MSME segment grow at twenty two point three percent this year.
Speaker #1: And you know this even tops what we had done in the March quarter. Typically June is a little softer quarter but you know what we have done in June in the MSME segment you know tells you the traction that we are seeing out over there.
Speaker #1: We've also in the MSME as you would be aware the you know scheme of ECL GS five point O was launched and we have participated in that scheme and we have you know already as of thirtieth of June you know had a disbursement in that scheme of you know close to fourteen thousand crores.
Speaker #1: Under the ECL GS scheme. And I think and I believe that's amongst the highest in terms of the participating banks because of the spread of customers and the quality of the portfolio that we have out over there.
Speaker #1: So we've seen a even the MSME segment you know grow very robustly. And I mentioned to you the pace of growth that has taken place over there.
Speaker #1: In addition to the wholesale and MSME you know we've seen good growth also come through in our core retail segment. We've seen you know on a year on year basis very strong growth in our disbursements in the wheels business.
Speaker #1: We've also similarly seen a strong growth in our unsecured business on disbursements in terms of the personal loans and business loans. That we do out over there.
Speaker #1: As well as you know touching upon finally the mortgages piece again we've seen you know a growth of close to fourteen percent in terms of disbursements on mortgages on year on year.
Speaker #1: And the earlier two pieces that I talked about we have seen you know disbursement growth approximately of about twenty odd percent. So that should give you a flavor of you know how we've participated in each of these segments and we do see credit demand holding we do see you know a lot of resilience which has been there in the economy even post what we are seeing in terms of the geopolitical situation.
Speaker #1: Yes we have to wait for the full impact of the El Niño and see because that does have a bearing you know which plays out in the third quarter of the financial year.
Speaker #1: So therefore you know we we're well positioned across most of our business segments in terms of how we have approached them. And they're continues to be an opportunity and a relationship which we will continue to mine whether on the wholesale segment or in the mid market and retail segment.
Speaker #3: Okay thank you guys. I want to take your second part of the question relating to the coverage. See the overall coverage that you see now is sixty six percent right.
Speaker #3: I would draw your attention to go back to nineteen two thousand nineteen. And the reason for that is in between there could be COVID somewhere up somewhere down in terms of coverage and subsequently there was a merger somewhere up and then subsequently down.
Speaker #3: Right. In terms of various coverage there are several other nuances in between. So you go back to a longer term what the coverage is.
Speaker #3: It was seventy one. Now it is sixty six. Right. That is the headline headline coverage. If you if you peel that and get to what is it.
Speaker #3: If you look at the coverage excluding the agricultural book agriculture is a secured part of the book. At that time it was seventy one was was the total.
Speaker #3: And today excluding agri it is seventy. So it's a proportion of the agriculture book which is at a higher proportion right now. That is the difference that you are seeing in the coverage.
Speaker #3: That's number one. Number two is a shorter term. Shorter term means when you look at a quarter or a year kind of a shorter term.
Speaker #3: It is the secured unsecured mix that shows the difference. If you look at the unsecured mix the provision coverage will be in the seventies mid seventies or higher.
Speaker #3: The unsecured will be lower.
Speaker #1: No secured will be lower.
Speaker #3: So secured will be lower. The unsecured is in the mid seventies or above. And the reason for that is if you look at our rate of growth that we had over a two year period on on some of those retail type of unsecured loans have been modest.
Speaker #3: Right. Even even now when you look at the book growth on cards is two point three percent or something. While the sales the spend grows at thirteen percent but the book grows at two to three percent.
Speaker #3: And similarly the unsecured on personal loan and so on still remains in the in the single digit there. Right. And and it is the disbursals are in the healthy double digit but is it to catch up on that.
Speaker #3: So the the PCR is a function of the composition of the book and where where there is a necessity to build reserves it is there.
Speaker #3: It's formal act. It doesn't go through any kind of a discretion. It goes through a formula and gets it done. And same when we benchmark this to an ECL method also which is the which is the stage three ECL provision.
Speaker #3: We seem to be adequate there too. Even in the go to model.
Speaker #2: Right. Thanks for this. I have one small question one more question if I can squeeze in.
Speaker #3: Go ahead.
Speaker #2: Sorry. The other question is on the FCNR. You talked about that this will gain traction. But how should we benchmark the whatever quantum we raise what number should we benchmark that to.
Speaker #2: Should it be to the outstanding deposit share? Should it be to. You raised in FCNR even the in terms of total quantum HDFC Bank in.
Speaker #1: Nathan sorry to interrupt we lost your audio in between.
Speaker #2: Hello. Am I audible?
Speaker #1: Nathan Nathan Nathan. We just commencing the drive while demand is there we just don't want to commit any number. Let it start to flow and you will see it.
Speaker #1: But definitely if the system is X we will be a significant portion of the system as we were in the two thousand fourteen fifteen period.
Speaker #1: That is our endeavor and I think we are all you know the entire team is quite gung ho to mobilize that kind of we are all energized and I think we are on track towards that.
Speaker #2: I'm sure. Thanks. Thanks Sashind everyone so much. Thanks a lot.
Speaker #1: Thank you. Participants kindly limit yourself to two questions per participant. Next question is from Engineer from CLSA India. Please go ahead.
Speaker #2: Yeah. Hi. Thanks for taking my question and congrats on the quarter. Firstly just on cost of funds can you highlight how much cost of funds are down quarter on quarter as well as year on year?
Speaker #1: So I believe year on year. It is muted.
Speaker #3: Oh it was muted. I think it's in whatever page the team will tell you it is the cost of funds is published along with the yield yield too.
Speaker #3: Sequential quarter I think it's almost there flat a couple of basis points plus minus it's within the range. And over a period of a year I think it's about call it forty fifty basis points forty basis points or so year to year.
Speaker #3: Yeah.
Speaker #2: Okay. Sorry. If it's published I might have missed it. I thought I thought otherwise. Anyway sorry for that.
Speaker #3: No problem.
Speaker #2: Just secondly just in terms of loan growth barring MSME with segments are you confident that will result in a pick up in loan growth from current levels.
Speaker #2: Because our retail growth has been fairly you know range bound at seven eight percent and I don't know it doesn't seem to be picking up.
Speaker #3: So we run the growth
Speaker #1: you know as we have always said is going to be a function of how the growth is being seen in the economy in the segments which are bankable by our credit underwriting standards.
Speaker #1: So we have I just alluded to an earlier response you know where I talked about the fact that we have seen good traction year on year on the disbursement side in terms of our core retail book.
Speaker #1: Which consists of our wheels business the unsecured as well as the mortgage business. So we do see that certainly picking up over the next several quarters.
Speaker #1: It it doesn't happen overnight. It's a journey and we are well on the path to see that really moving forward. We also seen good traction in the system on the mid market and corporate side.
Speaker #1: And we have a very good franchise and presence in that segment where we are market leaders. And we see that also continuing to contribute in the year ahead.
Speaker #1: So there are several drivers including you know other products that we've got in our basket on the retail side such as gold loans which have started contributing.
Speaker #1: Yes right now it's a little more small a part of the whole retail basket but growing very well. We've also got other micro loans that we've started in terms of our dukandar lending which is bring up the core retail.
Speaker #1: So we do see it being well diversified within the retail space but I think both corporate and retail along with mid market should continue to drive growth in the coming quarters.
Speaker #2: Understood. And just lastly you'll have you know you'll have had a good leash on costs over the last two years now. Now some part of it is technology et cetera AI.
Speaker #2: But how do we get comfort around you all not say under investing in the future of the business?
Speaker #1: No. The I think on the contrary I think we kind of investments that we have done over a period of five years has been one of the most despite the fact that there have been a lot of events that have happened during these five years.
Speaker #1: I mean whether it's the merger whether it is COVID and initially the merger. And then fair amount of investments. But distribution investment and resources and investment in technology has been there.
Speaker #1: Now we are probably you know as you may have heard Srini in the past there's always a investment pace and then a harnessing of the investment pace that will happen.
Speaker #1: So we also want to enjoy. Some of the things that what we have invested is it sort of giving us the kind of returns as in research.
Speaker #1: And I think you will see a while the investments will be slightly muted especially in distribution for now. But technology will continuing because you know security and AI is going to be a very significant part of any organization into which which wants to really thrive and into the future.
Speaker #1: That will continue to be there. It's just that what you're not seeing is that we have upfronted a fair amount of investments and therefore you don't need that kind of a large incremental investments.
Speaker #1: But the investments will continue into the future. As I had mentioned I think we are probably at the cusp of harnessing these investments whether it's on the brass distribution or in terms of the technology investments.
Speaker #1: And over the next two to three years this returns in terms of efficiencies will start to play out and which is what is going to be our key strategy in terms of how we you know balance growth and efficiencies offsetting some of the margins if at all there is.
Speaker #1: In the same levels as we are today.
Speaker #2: Got it. Got it. Okay. That one is useful. Just lastly if I may request I I do this with all corporates and this is probably the first chance I'm having here.
Speaker #2: But if we could go back to weekday reporting rather than Saturday reporting it would really help us a lot. And it would help you all because you all will get much more investor participation across the globe if you report on a weekday.
Speaker #1: There is a reason why most of us are all doing on Saturdays. It's not that we have a joy in coming to work on a Saturday.
Speaker #1: I can assure you that. Or to spoil your weekend. There is a reason why because since the markets are closed and a fair amount of people will get exposed to this kind of information through the day.
Speaker #1: We just want to minimize some of the some of the regulatory transgressions that may happen if we do it on a weekday. So. That's why all of us a large part of the banking system I think is now gravitating towards weekend as disclosure for these very reasons.
Speaker #1: It's not that we are not going to be ready on a weekday. We would be. But it's a little bit of a high risk during that period.
Speaker #2: Well that that's true sir. But I think like this this argument is true for all banks not just all companies not just financials or all banks all over the world.
Speaker #2: I think it's just that Indian banks stand out especially on this front. And more so in an era where you know you all manage trillions of rupees of money and trillions of transactions per year.
Speaker #2: Which are safe I'm sure you all can keep your information safe. While reporting. So this is just a request. I hope you all consider it with all you seriousness and thought.
Speaker #2: But my questions are done and all the best.
Speaker #1: Thank you. Thank you. We'll give a thought to that. Yeah. Thank you.
Speaker #3: Thank you very much ladies and gentlemen. We have come to the end of the time. Allotted for the call. I would now like to hand the conference over to Mr. Vedanathan for closing comments.
Speaker #3: Thank you and over to you sir.
Speaker #1: Well thank you all for participating. With this we'll close the call and if there are any more open questions we'll be continuing the dialogue with the few that you need to talk either today or any other day.
Speaker #1: Our investor relations team will be available. We'll stay in touch. Thank you. Bye bye.
Speaker #3: Thank you very much. On behalf of HDFC BANK LTD that concludes this conference. Thank you all for joining us and you may now disconnect your lines.
