HDFC Bank Ltd (HDB) 2011 Q1 法說會逐字稿

Thank you for standing by, and welcome to the HDFC Bank first quarter results conference call presented by Mr. Paresh Sukthankar. AT this time, all participants are in a listen-only mode. There will be a presentation followed by a question and answer session. (Operator Instructions). I would like to hand the conference over to Mr. Paresh Sukthankar. Over to you, sir.

Thank you. Hi, everyone. I've got Sashi and [Amit] as well with me, and [Vivek Kapoor].

While she mentioned that I'd walk you through our presentation, I think most of you would have the press release and the numbers with you, so I won't walk you through the detailed numbers; I'll just take a minute or two to read out some of the key financials. I guess that might also give a minute for any of the -- those who've been trying to get into the call to also join the call.

Very quickly, you've seen the total income was up about 31%. Net interest income was on the back of a healthy, stable margin of 4.2%, and average asset growth. The other income was driven by fee growth and FX growth. We had a small negative on the bond gains because of mark to market given that the yield had gone up. The cost to income ratio was roughly stable. Provisions were down marginally, although they also include a floating provision element, merely because the NPLs were down. And profit after tax was up 33.7%.

On the balance sheet side, the overall balance sheet growth was 22.6%. Loan growth year on year, if you adjust for the short-term one-off loans that we had last year on 3G which ran off by September to December, then the year-on-year loan growth would be about 29%. Sequential from March to now, the loan growth is about 9%.

On the deposit side, the CASA ratio was about 49%. The savings account grew by about 20%; the fixed deposit growth was a little lower than that. So, total deposit growth was a little lower on the back of the fact that we also raised some Tier-2 deposits. So we did not take too much of wholesale deposits during the quarter. On the back of the Tier-2 raising and the growth on the loans, the capital adequacy was at 16.9%; Tier 1 was at 11.4%.

On the branch side, we've added 125 branches in this quarter. So that takes the total branch network to 2,111 branches. We've also -- have almost 6,000 ATMs, 5,998. And these 2,111 branches and roughly 6,000 ATMs are in 1,111 cities. So there has been a continued expansion on the distribution side as well.

On the portfolio quality side, gross NPAs were at 1.04%, net NPAs at 0.2%, and the restructured loans at 0.4%. So, not too much of a change, but a marginal improvement on the NPL side as well.

So, those are some of the key figures, you've probably had a chance to mull over them, so I'll plunge into the questions right away.

If you can throw the conference open for questions now?

Sir, should I announce for the Q&A?

Yes.

(Operator Instructions). The first question comes from [Mahrukh Jhi] from Standard Chartered. You may go ahead please.

Yes, hi. Congratulations on a very good set of numbers. So, I just had a few questions. One is, the retail loan growth has been very strong as expected, but how do you see it sustaining, where if we exclude the one-off telecom loans, then the loan growth is 30%. So, is that the kind of loan growth we should see ahead? And how do you see the retail growth panning out in the quarters ahead? That's one question.

And the other question is on breakdown of provisions. How much of floating provisions are made during the quarter, and when will you have start making general provisions again?

Okay. On the loan growth, I'm sure there's going to be some quarterly variations, depending on how we pace our loan growth through the year. But our normal stance that by the end of the year we would like to grow at a few percentage points higher than the system loan growth, I think that remains our strategy or what we would like to deliver by the end of the year. That's our internal thought.

What pace does the system grow at is the question; but at this point of time, most of us believe that if the economy grows at about 7.5% to 8%, then the system will grow at about 19%, 20%, and we would then want to grow a few percentage points more than that. At this point of time, the growth that we are seeing just for the one-offs of, say, 29% or thereabouts is almost equally from both corporate and retail. So the retail book has also grown at 28.6%. Obviously there is no base correction there because the wholesale thing is only on the corporate side. So we have both retail and wholesale right now growing at a very similar growth rate of 28%, 29%.

Going forward, whether there are any specific products within retail which show slightly more [rigid] growth rates either because of underlying sales growth coming off or because of some moderation in demand because of higher interest rate, I think that's something which we'll have to wait and watch. So far the, at least till June, the impact of the higher interest rate or what's happening on the underlying CAR or [CV] or other sales, that impacting loan growth has been somewhat neutered, so, which is why loan growth continues to be reasonably healthy.

The only other mitigating two factors is that because there are six or seven products, even if you have an odd product or two slowing down, there is always room for some of the others to pick up the slack. Also in this first quarter, we have not bought any of the home loans that we have originated. So if you adjust, if you take on something which would normally have come through, the retail loan growth would have been a little higher. So to that extent, again, depending on what ultimately happens in terms of some of the other loans, other retail loans, with the mortgage also coming in, I think we should be able to maintain a reasonable growth on the retail side as well.

But is -- the mortgage originations are strong, it's only that you did not buy loans, or there was a slowdown in general mortgage originations also?

No, there's not been a major slowdown or anything with the mortgage origination. We continued -- there are normally some seasonal and cyclical variations, but it's just that we haven't, typically we do this once in three months, so we would have probably ended up doing it. We have done it probably since then or we'll be doing it right now. So there is nothing, there's no [method] in the whole thing. The fact is that we would buy from time to time. So that will come in any case. And so that's where we are.

As far as your provision question is concerned, we have a little more than INR250 crores of floating provisions in the provision figure. As far as general provisions are concerned, we have now, in this quarter, we have a couple of crores of general provisions which we have been, which we can start making now. So we have utilized the excess general provision and we are growing the general provision, so to say, the loan book having grown to where it is today. So, certainly for whatever growth that we see in the next quarter in terms of loan growth, we will have to make general provisions. But for this quarter, it's only a couple of crores because the larger part of the loan increase was still utilizing the GP that we had earlier.

Great. But in terms of your floating provisions, last, in the fourth quarter, did you have much floating provision, in the fourth quarter?

We had I think around INR100-odd crores in the first quarter of last year.

Okay. And any guidance on credit cost? Obviously, apart from asset quality, you don't have to continue to make floating provisions, right? So, even if you had to make general provisions, that could be an offset.

Yes, I guess, we have an internal policy on floating provisions, but obviously these are countercyclical. So if we have a normalization of NPLs and therefore a normalization of specific provisions, or as the general provisions pick up, would we also have to make incremental floating provisions? No. I think we are reasonably comfortable, but from time to time we may make them as well.

Okay. Thanks so much. Thanks.

You're welcome, Mahrukh.

Thank you, sir. Next in line, we have Kashyap Jhaveri from Emkay Global. You may go ahead please.

Yes. Good evening. Hi, Paresh and Sashi. Congratulations on a good set of numbers. A question on wholesale advances which in this quarter seemed to have grown pretty fast at about 15% Q-on-Q, I mean, any one-off over that?

Yes. Yes, there are some large one-off loans, loans which we have given to the oil companies and some to the food corporation credit consortia. So that is part of this kind of -- there are some one one-offs, Kashyap. If you stripped that out, I think we'd be from anywhere between 6%, 7%.

Okay, okay. Another question on the retail loan book side, I see on a sequential basis, we are seeing a sharp growth in few unsecured portfolios like personal loan and credit card segment. So, are we comfortable with the behavior of the borrowers in those categories still?

Yes, actually we have been comfortable in terms of the stability of those portfolios for the last few quarters now.

Okay.

We have -- we were holding back in terms of the -- sort of stepping on the accelerator because the system was still going through a certain amount of pain and we did not want to grow the portfolio when there were still players in the system who were withdrawing from the market or who were running down portfolios.

We've -- and to whatever extent there were specific segments or specific geographies where we had any sort of discomfort, those, we've worked ourselves out of or reduced our presence there. Last few quarters we've therefore started growing gradually. Initially you notice therefore from less than 2%, 3% growth rate, we went to a high single digit growth rate. We've been able to grow further on that.

So, one I think we do see fairly stable portfolio quality on the existing book. We've seen these trends of stability for quite some time, including some of the early delinquencies we have seen in those particular products. And we stepped up the ante a little. Obviously the base is a lot smaller, so the rates of growth might look a little higher. But in absolute terms, it isn't a large part of the growth because the auto, commercial vehicles, mortgages when it comes back, when you take it on our books, business banking, which are all the secured products, are still the larger contributors to the loan book.

Okay, okay.

So if we look at between credit and personal loans, they will still even -- both of them put together, maybe somewhere in the teens in terms of a proportion of our loan book.

Right.

So, 3%, 4%, 5% faster growth, and those will not drive the retail loan growth.

Okay.

But will certainly be sequentially faster growth than what we have seen in those products last year.

Okay. And last question on the deposit side, if I look at sequential deposit growth, it's one of the lowest in the last about four, five years that we have seen a (inaudible) 1.2% sequential growth in deposits.

Yes.

Still are comfortable they're falling by about 360 bps Q on Q.

Yes.

So, what's the guidance on the CASA side?

Okay. On a sequential basis, the CASA clearly, in the March quarter itself we had said that there were a few thousand crores of current accounts which had come based on the fertilizer companies selling their bonds on 31st, to the RBI paying them and so on.

Okay.

And we had, in fact, mentioned that, even at the time of the conference call that we did for March.

Right.

So those were obviously one-offs which were there and which we had adjusted at that time itself, and obviously which have run off.

Okay, okay.

Other than that, the savings account deposits have grown at about 20-odd percent. We would obviously look to continue to grow those and, adjusting for the one-offs, the regular current account growth to also continue to happen through the year.

As far as the fixed deposit growth is concerned, while we have continued to grow the retail fixed deposits, to whatever extent we would have liked to. On the corporate fixed deposits or the wholesale fixed deposits, we have not been as aggressive as we could have been or we would have in the normal course have been, because this was also a time that we were sitting on some excess interbank and other liquidity where we were -- where we said therefore liquidity those short-term assets to generate the liquidity, because it made more sense to lend those, and that was at a lower yield than taking fresh bulk deposits, that did not make sense. And secondly, having raised about INR3,650 crores of Tier 2, we also had additional liquidity, so, and the margin to also take bulk deposits at a rate that does not make sense, we actually needed to deploy that money.

Right.

So the swing factor of the last few percentage points is a question of making those bulk deposits at whatever market rates there are, which if we don't need them, which we did not need them in the first quarter, did not make sense. If we need them going forward at whatever proportion of the deposits, we will get back to the normalized deposit growth. So I don't see an issue there, and obviously, depending on how interest rates also pan out --

Right.

-- we figure out when we would like to be a little more than the fixed deposit market, a little less.

Right, right. And just one clarification, those margins which we report in the press release, those are, on the earning assets, those are core margins, not on total assets

Total. These are on total.

On total assets.

Yes.

Okay.

Obviously I'm told the other banks do it on earning assets which is --

Right.

-- surprising. So, probably on a similar basis we would be much --

Okay. And just one more question on the NPA, I see sequentially there is about one particular addition. So, anything to read on those assets, (inaudible)?

No. There are some regulatory, but this also some -- there are two things which we're actually looking at slightly differently. One is that we have some portfolio buyout in the MFI piece which has become non-performing.

Okay.

Not a large amount but still -- that is one portion which has slipped into NPA.

Okay.

The other is that there are -- there was an RBI circular which required investments where (multiple speakers) preference shares which something [new] which has been calculated into cumulative preference shares and the dividends are not declared, or whatever, has to be declared as NPA. So although -- so those have been classified. Again, none of these are in very large amounts, but when you look at what is different from what would have been (multiple speakers).

Other than that, I guess given the size of the balance sheet this is sort of less than what the normalized NPL (inaudible) should be for the mix of portfolio that we have.

Sure. Yes. I'm done. Thank you.

Good.

Thank you, sir. Next in line we have Suresh Ganapathy from Macquarie. You may go ahead, please.

Yes. Hi, Paresh and Sashi. Just quickly on your provisions, so this quarter, what could be the [SP] provisions, that is, basically the GP plus they combine with (inaudible)?

Well, the total provisions are --

INR443 crores.

PS -- 443.

Yes.

And of that, approximately INR250 crores are the floating.

Correct.

There are some contingent provisions which are not very high at this time (inaudible) and other things which are about, what, INR27 crores. And the balance are the GP and loan loss provisions.

Okay. So the other one-off provision are roughly 20, INR30 crores basically?

That's right. Yes.

Okay. Just on this floating provision policy, RBI doesn't allow usage of floating provisions for smoothening of earnings. It's very tightly regulated as to when you can use floating provisions. So when you have made so much of floating provisions over the past few quarters and various contingent provisions, how confident you are that you can actually reverse it back in future for any delinquencies that arise? In fact -- just want to understand the logic behind beyond making these floating provisions when the reversibility of them is relatively low.

I don't think there's any intention of reversing our floating provisions if there are normal delinquencies or anything of that sort, right?

Okay.

So it's not -- you mentioned two things. You mentioned contingent provisions and floating provisions.

Correct.

And obviously there's a difference between the two. The floating provisions are part of the policy to build countercyclical provisioning buffer. We are not therefore using them for smoothening or netting off from net NPAs or whatever, right? They are currently being made as for a Board-approved policy. You are absolutely right, and if we need to avail of any of these provisions we would have to get one, our Board approval, and secondly, the RBI approval before we can use it. I do understand that there are banks in the system who in certain circumstances, this is what I've been given to understand, have approached and have got permission from RBI, though I'm not -- there's no way that I can verify that.

Okay.

But if there an extraordinary situation. And I think that's there in the circular as well. Obviously one cannot just reverse out floating provisions at whims and fancy, so we recognize that these are provisions which reflect the normalized cost to an extent and which are currently going up to beef up the Tier 2 capital of the Bank.

Then that floating goes into Tier 2 or a part of it goes into it?

Yes, (multiple speakers)

Absolutely, okay.

As far as the contingent provisions are concerned, there we are saying that whenever there are external shocks which have a very clear impact on potential losses or potential asset quality concerns. But at that point of time the exact amount or the exact entity which will result in those losses or which will create those losses cannot be defined, then the Bank has made contingent provisions. So broadly, if I can -- remember there are two major situations where this had been done. One, if you remember a few years back was when we had the entire derivative-related issue. So we had dimensioned what could have been losses or repudiation other risks. And the Bank had estimated and made some contingent provisions. So these were identified and existing issues, but contingent on what might or might not happen in terms of certain counterparties or certain regulatory -- certain legal cases and so on.

The more recent one of course which we had done was again on the MFI issue, recognizing that there was an external, it was not a wrong [current] decision or a normal cyclical change in a particular industry. You had a regulatory change, a change in a particular state. We all recognize that that created a significant shock to the system. And the fact that there would be MFIs who would therefore not be able to service their obligations to the Bank, whether that would result in restructuring or NPLs and so on. So the Bank made a contingent provision based on its estimate of the portfolio. That was the second situation that we've done it.

So there obviously, if -- as some of those NPLs actually form or there are losses which are incurred or there are provisions which have to be made on the restructuring of some of those launched, the Bank would in fact be obliged to use the contingent provisions that they have already created for that particular use.

Okay, fine. So this quarter, when you said there is some slippage on the MFI portfolio buyouts, a part of contingent would have already been utilized?

That's right.

Yes. Okay, so can you just give us the block of contingent SLS floating provisions that is outstanding on the balance sheet as on date?

Well, the floating provisions as of yearend were -- at the last year end were about INR730 crores or whatever, and we valued about --

INR250.

250-odd for them. Contingent provisions since there are two, three such situations in which they have been created, there is no -- we do not put that in the public domain.

Okay, fine. So any quantum that you can define how much you would have used from your contingency distinct for this quarter's portfolio buyout (inaudible) individuals gone bad, basically?

The proportion to which we created for those particular loans, as I said, we have identified specific portfolios or specific names when we have arrived at the requirement of a certain contingent provision.

Okay, fine.

The proportion from whatever we have said that these could be vulnerable, a certain proportion of that portfolio has become impaired. That was the portion in which we'd have been able to step into that.

Okay. Just two quick questions. Again just on margins. This is a quarter when the savings rate hike has happened. Plus you already had 16% -- 16% q-on-q decline in current account which is where you pay zero percent interest. Despite that your margins are still flat at 4.2%. So can you just throw some color as to how much cost of funds have moved up and whether your [reloan] fund has also moved up? Are these significant? I just wanted to understand the dynamics as to how you have gone about maintaining your margins despite it's a bad quarter in general for the sector.

There had been some impact of about 4, 5 basis points. But that still keeps -- so we're talking about second decimals here.

Okay, fine.

But the fact is that the movement was not enough to knock off 100 odd basis to come down to below the 4.2 level.

Okay.

How have we done that? I think one is if you remember the knocking off of the current accounts was not relevant because that was not what had propped up last quarter's margin either, because as I say, some of the current accounts were only there for a day or two because of been what else had happened on the 31st, in fact is the date that those bonds were bought up by (multiple speakers).

But other than that, the fact that fixed deposit rates went up sharply is a fact. And obviously this quarter will have had an even more full quarter impact of the higher fixed deposit costs relative to last quarter. But equally the -- on the lending side the loan yields, especially on the corporate shorter term loans, those yields have also gone up pretty much to the same extent. You have seen what has happened to CP rates and CDs and so on. So the short-term working capital type loans, as they are maturing, are obviously getting repriced at whatever are the short-term corporate lending rates. And those have been pretty -- have moved virtually in line with what has happened to deposit rates.

Between that and the fact that we -- even if you look at the increase in the savings account rate by 50 basis points, that's still less than what has happened to fixed deposits under margin. And if you've had then some increase in lending rates on the corporate side and some on the retail side, broadly that's been adequate to allow us to pass on or offset much of the cost increase. So there is a few basis points reduction. But it still remains pretty close to where we have been.

Shall I take the next question?

Yes, sure.

Thank you. Our next in line we have Veekesh Gandhi from DSP Merrill Lynch. You may go ahead, please.

Hi Paresh, Sashi. Just a few questions. Basically one is, you know your fee income has become quite volatile, 30% last quarter at 15%, 16% growth this quarter. Can you throw some light considering also the fact that your loan growth adjusted for that one-off is running at almost 30%? And earlier we had periods of very much mirroring the growth, fee and growth mirroring your loan growth. I understand the third party insurance and all that dying off to a large extent. But beyond that, is there anything else?

No, not really. In fact, while you might have felt that in the past the loan growth and the fee growth were somewhat more aligned in terms of rates of growth, that was spurious correlation, if you like, because as you know, much of our -- in fact almost all our fee growth has got nothing to do with loan growth, except for maybe about 5% or 7% of our retail assets, processing fees. There is hardly any other lending that results directly in fees.

The -- in the last quarter, did we have some slightly higher commissions that we had got from whatever was the related sale that we had made on the insurance side and so on? Yes. Has that been dropping off sharply as the -- given the mix of the insurance sales and the fact that for the unit type policies now, the drop in the commission rate is almost 15% to 17%. So even if you have some growth in volumes, which of course would also have some volatility from quarter to quarter, the last quarter is always the peak for a lot of these sales, apart from the volume volatility, the commission rate declined for that, not for the entire piece but for certain types of policies, almost 60%, 70%. So that, if this is a total on the fee growth rate, it's probably much more attributable to the third party piece than anything else whatsoever.

And would it be fair to assume your wholesale retail fee would be what, 60/40, or 70/30?

No, it would be probably --

85/15.

85 would be corporate?

No, would be retail.

Retail.

Retail, right.

This thing in here between 80 and 85.

80.

80, 85 would be retail, okay. And any -- you've expanded on N25 branches in this quarter. You're carrying the more licenses, you have outlook on that for the next balance part of the year?

We would had a few hundred more branches. There are some now, it's not just a question of getting licenses, which of course we have of some approvals. But it's also a question of adding some licenses to some branches which don't require licenses, right? So that's really a function of how we -- where we want to expand, how fast.

But in the rest of the year we would probably land up having another couple of hundred branches at least.

Great. And just quickly, so you are basically not disclosing or not giving the MFI piece that has -- the buyout piece that is NPL/

So far what is there is frankly some --

Because you had some INR1,000 crore exposure, right, to MFI as a whole.

I think that is -- several, several months back. Our total MFI exposure now across everything from -- and most of it about 90% of it is loans, is about INR600 crores or so, which includes obviously some players who have not been impacted at all, and some portion which is either -- and some of it is already in the restructured loans of 0.4% where they are pending applications, the applications are pending restructuring. And there is some portion which is in the NPL.

Okay. Just very small data point, how much would your wholesale funding be now? For deposit with?

Wholesale after fixed deposits probably would be about somewhere between 25% and 30% off the fixed deposits.

Right. Okay. Fine, great, thanks a lot.

You're welcome.

Thank you, sir. Next in line we have Nilanjan Karfa from Brics Securities. You may go ahead, please.

Hi, Paresh. Thanks for taking this question. A quick understanding on where do we -- where do you think we are in terms of the NPL cycle at present?

Well, we seem to be at an all-time low, so I'm not sure when we start moving up. But even if you look at our own cycle and leave out anything to do with the difference that we have normally had between our NPL levels and the average of the industry, even by our own NPL levels we are at perhaps at least in the recent few years an all-time low. We are not currently seeing any immediate trends of NPLs looking up. But if I just look at the book at a half and half between corporate and retail and look at what the normalized expected NPLs on the corporate book would be and the normalized measured average of the NPL that I expect across our retail loan portfolio, we are certainly today lower than what that should have been.

One could argue that if I look at the historical averages, and if the portfolio mix does not change too much, then our normalized NPLs have traditionally been somewhere between 1.3% and 1.5%. It's just that for the last few quarters the portfolio has just been holding up and we've not been seeing as much as slippages. I think from a very long-term point of view it would be fair to believe that these NPL levels should normalize, but we are not seeing any pressure right now.

Any indication as to what could be driving this in terms of lower NPLs?

We are ourselves looking at what we have done right, so we do more of the same. To be honest, I think one thing of course is that you are, even though there's a slight slowdown, you are still in an economy which is growing at arguably somewhere between 7.5% and 8%. Our portfolio itself has been fairly well diversified, so we don't have huge concentrations in any industry or any sector. So even when you have these little bits of shocks, like we had for the MFI, or you have in some other sector, it's -- we think that it's a little lesser because in absolute terms and in percentage terms it's not large.

Okay. Nothing on (multiple speakers).

It helps the fact that on the wholesale side we've had little more of working capital and medium-term loans and not as much of project infrastructure loans which could be -- which are little more vulnerable to cyclical changes in the economy. And on the retail side, we have traditionally been a little more disciplined. We have had a larger proportion of our lending to our own internal customers. We have got a larger salary account customer base.

So I think -- I can't say that any one or two of these have been the major contributors. But these are various things which have worked for us. But I think whatever are these cyclical concerns in the economy in terms of whether when the economy slows down or interest rates go up or what it does to SMEs or does to certain retail portfolios, I don't think we can be completely immune from them. But we are pretty confident that historically, even if there is a cyclical swing in NPL at industry level we should be better off than that. I think that is something which we remain comfortable.

Okay. So which means that you will keep on doing floating provision for at least next four quarters, looks like?

I have no such guidance on that at all.

Okay. The next one --

I just mention however that we are back to creating floating, we are back, sorry, back to creating standard provisions for wholesale.

Right.

Excuse me, this is the Operator. Excuse me, this is the Operator. Excuse me, this is the Operator.

See we have our Tier 2, both lower and upper Tier 2 are rated AAA. There is a demand from -- we've been issuing this every 12, 18 months or so. So if somebody is offering us at reasonable rates and given the fact that we do grow faster than our sustainable growth rate and therefore do consume capital, it is logical for us to look to raise Tier 2 from time to time.

But the data looks a little higher this time, right?

Well, the quantum looks higher because there is that much of appetite for (multiple speakers) It's not an X amount that we decided that we had to place, or whatever. There was appetite from investors, you were getting 10-year capital and you would get rates that you offer for 90-day wholesale deposit. So I think it was just a -- (inaudible) decided that it made sense. We do understand that capital is our -- the capital adequacy ratio is still very comfortable. And in fact this is obviously without the first quarter profits, right? Because it's not -- the first quarter is not audited.

So if you -- you can include that in your capital adequacy numbers, and treat it as capital only after audit. If you had to include the first quarter results, the capital adequacy would have been probably about 15, 17, basis points, even higher than where it is today. So we recognize that we are comfortable from a CapEx point of view. But this was an opportunity, made sense for us. We believe that the rate was reasonable from a capital point of view. And so we did that.

Right. Third is on fee income. And on this question was -- so typically, how much is coming from the LCs and the guarantees? Is your off balance sheet growing much faster than your balance sheet?

No, actually, LCs guarantees, while they have been growing in the last few years, the fee rates are very low. So while we continue to grow that, as I said, the total wholesale commissioners, which includes LCs, guarantees, custody, tax payments, whatever, all the wholesale commissions put together are somewhere between 15% and 20% of our total fees and commissions. So although while that business continues to grow on and it's a good, profitable business, it's not seeing feverish growth rates. It's seeing, I would say if you look at the average growth rate on commissions, the fees from some of these products that you just mentioned would actually be lower than the average.

Okay, I see. Quickly in terms of couple of other banks, short-term rates, can you speak in terms of do you see some movement in term assets or saving assets, in or out of the bank because of that? Or as a system?

You're saying shift from fixed deposits -- savings accounts to fixed deposits?

And even to other banks. Because some other banks have raised their short-term rates quite sharply.

That could happen. Again, that tends to happen a little more on the corporate deposit side. Retail deposits, first of all, the more relevant rates for retail deposits tend to be the one-year and -- whatever one year 15 day -- somewhere between one to two years tend to be the more important rates for retail depositors. (multiple speakers) for 60, 90, 30-day corporate deposit. And actually those deposits will tend to gravitate towards those banks who are offering the highest rates. Again, these are retail rack rates so sometimes there are premiums which are there for corporate deposits.

So there the -- depending on whether we are in that market and looking to add deposits or not, we would be more or less competitive at any point in time. Admittedly in the last quarter we have not been so comfortable. We had consciously taken a decision not to be very comfortable on the corporate deposits because of what we just discussed earlier in terms of our having liquidity, our having raised Tier 2 and so on. But if it means that we need to have slightly higher corporate -- higher deposit rates on the shorter term for Bank policy, we would have to be competitive.

Okay. And a quick data question. Can I have the risk-weighted assets total and split between balance sheet and off balance sheet.

I'll try to get somebody to put together if we can while I take some other questions in the meantime.

Okay, sure. Thanks.

Thank you, sir. Next in line we have [Ashwini Agarwal] from [James] Financial Mutual Fund. You may go ahead, please.

Hi, Paresh.

Hi.

Paresh, I just wanted to know your views on the interest rates and how do you see it panning out for the next two quarters?

Well, actually we thought that we had -- because of the strong deposit growth at a system level, and loan growth coming off and the gap narrowing, we had thought that we probably had seen roughly the peaking of both deposit and loan rates, and that even if there had been another 25 basis points or something in the policy rate side, that we should not have seen too much of an increase on deposit or lending rates. That was our general expectation.

However, the fact that in last couple of weeks you have then seen some increase in deposit rates, a little more the shorter end but certainly at the short end, medium-term ends, means that we are probably not seeing the absolute end although we are close to the peak of deposit rates. And therefore it is likely that deposit rates remain where they are, or in some tenor or the other might go up marginally, if any of the larger banks decide to continue to raise their deposit rates.

If the deposit rates remain where they are or increase very marginally, then I think on the lending side as far as base rate increases are concerned, I think we have -- we would also have seen much of the peak on the base rate side. However, if you look at some of the retail loan products, then in some of them the rate increases have not been commensurate, at least with the (inaudible) increases. Obviously on a blended basis your funding costs for bank like us does not go up in the same proportion as fixed deposit rates. So it does not squeeze margins. But if I look at it purely from a fixed deposit rate increase and a retail loan rate increases, I don't think those have been as much as they could be. Some more increase year to go as far as lending rates on some of the retail products are concerned.

So what has been your average cost of funds? And what's your incremental cost of funds?

We actually don't put out on a quarterly basis asset yields and funding costs. But I can tell you, on a sequential basis between last quarter and this quarter, the -- both the funding costs are up by about 30 odd basis points. And the asset deals are also up by almost that much, some 3, 4 basis points less than that.

Okay. Thirdly, the ratio is almost 83%?

Yes.

So how do you -- what's the comfortable CD ratio for you? And how do you plan to increase the deposits?

You see, I don't think we're looking at it from a CD ratio point of view. Because the higher CD ratio is really a function of our having raised some of the Tier 2, or generally having had a higher capital position. So the rest of it is funded not from borrowings or wholesale money or whatever, it's funded from equity or Tier 2 debt.

But going forward, and since we are through to whatever Tier 2 and so on we will have to raise, going forward, whatever on incremental basis is the loan growth that we are looking to do, we would have to ensure that the deposit growth is keeping pace. We have traditionally grown on the deposit side also [passing] the system. So we're pretty comfortable being able to do that.

Okay. And so what are the industries which your UC will try to demand, as you said there you will be growing 25% next year too?

Well, actually one of what -- I did not say they are growing 25% but that may be by implication the number when you build it from the system plus delta. But the other side, on the corporate side we have about 22 or 23 industries which accounts for 2% or more of the portfolio. So it's a highly diversified book. I don't think there are two or three or four sectors that are going to be the major contributors. But from a product point of view I can certainly say that you'll have more of medium- and short-tenor loans and working capital than you'll have of term loans or project finance. But it will be diversified across our industries.

So any sector in which you have seen or witnessed any stress in the last three months, maybe in the data corporate?

Not really, no. I mean, other than what we just mentioned in terms of a little bit on the MFI, which is not -- which is pretty much as anticipated. But other than that, we haven't seen any sector showing us any signs of -- which can cause concern.

Okay, typically it takes some time lag between interest rate hikes and increasing stress in various sectors?

I would think so. In fact, we've been anticipating, or we've been expecting some impact of the higher interest rates and a slight uncertainty in environment and so on for quite some time. So in fact, if you look at the last nine months, and you had fairly reasonably high increases even on the retail side, but neither has demand been affected as much as one would have expected with 150 basis points increase in interest rates. Nor has asset quality been impacted. Of course, on the retail side, since most of our loan book is fixed rate, the obligations of existing borrowers don't change. And so the higher interest rate impacting loan quality does not really show up on the book, on the existing book. It probably first impacted demand for new loans and potentially if you continue to have growth with the higher interest rate and therefore there is some adverse selection and so on, that could at some stage show up on the retail side. But so far at least we haven't seen those signs.

Okay. Okay. That's all my side. Thank you, sir.

Welcome.

Thank you, sir. Next in line we have [Medesh Kandaal from Arete]. Please proceed, sir.

Hi, Paresh.

Hi.

My question is what kind of exposure do we have to power sector and real estate sector? And power sector, particularly, do we have direct lending to SEBs?

To -- ?

SEBs.

Okay. One, we don't have any direct exposure to SEBs. As far as the power sector, we have existing power companies, again, much of it may be working capital and some (inaudible) but these are not -- most of it is not new project finance as much as existing companies, although we may have some projects.

Real estate.

And the number is about what? 2% -- between 2% and 3%. I don't know the exact percentage but it will be somewhere around 2%. So it is 2%. And real estate, if you're looking at developer financing, not mortgage or not anything else, which is secured by real estate, because some of our SME portfolios and business banking also have --

Secondary collateral.

Yes, collateral loans against property and so on. But if you're looking at lending to the real estate sector or construction or developer financing, I think about 0.5%.

Okay. Okay, thank you.

You're welcome.

Thank you, sir. Next in line we have Tabassum Inamdar from Goldman Sachs. You may go ahead, please.

Yes, thank you. Just one question. Basically, looking at your operating expenses, it seems to be growing now at more modest pace. And this is despite the expansion in branches. So is it a trend which we'd expect will continue in terms of the expense growth numbers?

Well, we have been -- you're looking to --

Add on.

Add branches, expand. But to try and do that in a manner and at a pace which allows us to maintain our cost to income ratio at somewhat stable levels. So at this point in time we -- while there is obviously the rate inflation and whatever the normal growth in expenses, but we don't -- even if there is some growth in expenses, we don't see that at a pace which would impact the cost to income ratio negatively.

Thanks, that's all.

Thank you, ma'am. Next in line we have Ganeshram Jhiaraman from Spark Capital. You may go ahead, please.

All my questions have been answered, thank you.

Thanks.

Thank you, sir. Next in line we have Hitesh Aswani from Khambatta Securities. You may go ahead, please.

Hi, Paresh.

Hi.

Hello?

Yes, hi, go ahead.

Yes, hi. I just -- just a data, one question. If you could provide the retail loan break-up for Q1 FY12?

Sure. These are of course the figures as categorized from March onwards, where we've reclassified retail to mean the regulatory retail, okay?

Yes.

So as of June 2011, the auto loans, and I'm rounding these off]=, 20,000. Commercial vehicles, 9,000. (inaudible) 2,000. Personal loans, 11,000. Business banking, 15,000. Credit cards, 5,000. Home loans 11,000. And others, about 6,000. so the total is about 84,000.

83,863.

Okay. Another question, just a quick macro outlook. If you could provide on the auto and residential property market and what will be your guidance on auto loans and the home loans going forward as interest rate sensitive sectors seem to be slow down in the sectors?

On auto loans the first couple of months are how -- while you had a bit of a gyration of one month down and one month back again and so on, the overall momentum was not bad. But I think the last few weeks, one has seen a slight slowdown in the actual demand on the ground in terms of [ad] dealerships and so on. And I think some of those car sales numbers have also been coming through, reflecting that there is some moderation in growth rates as far as car sales are concerned. So I think it would be fair to believe that in the next few months, there should be some moderation in car sales and therefore in car loans to that extent.

Yes.

It should have actually shown up in this quarter, but in the first couple of months I think we were surprised that it did not show up as much. I don't know if there was a slight slowdown, but there was some --

Spillovers.

Spillovers, or redistribution of market share [more so]. But certainly I think going ahead it will be fair to believe that there should be some impact.

Moderate.

Okay. Thanks for taking the question.

Okay, and just one more elaboration on that.

Sure.

The similar impact should have been there on commercial vehicles sales and commercial vehicle loans, which surprisingly we haven't yet seen. But I would imagine that that is usually even more price sensitive than cars. So again, fair to expect that some of it could moderate in growth rates along the way. But again, there the signs as yet has been even less than in the cars.

Okay, yes. Thanks.

You're welcome.

Thank you, sir. Next in line we have [Adedesh Nayer] from UBS. You may go ahead, please.

Thank you. Good evening, sir.

Hi.

Hi there. Sir, just a couple of questions. One is on -- if you could share the movement of (inaudible), how much would have been the slippages in this quarter?

Annualized about 80, 80 to 90 basis points.

So still lower than last year, what we're seeing?

Yes, that's right.

Okay, thanks for that. And secondly, just -- I know you answered a bit on the commercial vehicle side, 11% q-on-q the gross that we are seeing is totally divergent from the underlying volume sales that we [were assessing so]. Is that some of the players have exited from the market? Or (inaudible)?

No, I don't think there are players in this market who are exiting. In fact, I think the last few months I think there are more players and the competition, if anything has intensified a little. But -- and this is whatever you seeing on the retail side, as I mentioned earlier, is without having even taken the home loans on our books. So -- but (inaudible) we have seen the path that there are some quarters of stronger and some weaker growth. So I'm not saying that this is something which you should necessarily extrapolate. But we certainly, on the CD side, had a stronger quarter than what would have imagined or tried to factor in, given the slight slowdown in the economy and the higher interest rates.

Sure. And finally, on the margin spread. There was some bit of softening in this Q. But do you expect this to be the worst in terms of margin and the rest of the year should look better than -- in terms of the calculated (technical difficulty) that you are witnessing?

See, I think it's still early to say. Obviously this quarter had the double whammy of the higher savings account rate, and the higher fixed deposit rate. And if anything, what has probably surprised us a little on the stickiness of the fixed deposit rate. Because if you remember from the March peak, as we came into April the deposit rate did come off. And that was what we had expected. But then surprisingly along the way, somewhere around in the quarter, decided going up again. And they may not have gone back to the February/March levels, but they are still clearly higher than what they had come down to in the first half of April.

So I think -- and if rates remain this way you continue to see some of the deposits getting repriced, the fixed deposit getting repriced as they mature. So our basic outlook on margins is that if I look at the range which we've seen at an absolute low of 3.9 and a high of say 4.3, that range we are quite comfortable will not get breached. Within that range, whether you will go up or down by 5, 10 basis points, is something that could happen. You may have movements in both directions over the next two, three quarters. Do I think that we have seen the last of any sort of downward pressure on margins? I think that may not be fair, because we are not sure what is going to happen to deposit costs from here, and whether there's going to be some more, better repricing on the retail side going forward either.

So I would just say that margins will be somewhat range-bound, but a few basis points coming off cannot be ruled out.

Sure, that's very helpful, thank you.

Thank you.

Thank you, sir. Next in line we have Anand Vasudevan from Franklin Templeton. You may go ahead, please.

Thanks. Good evening, Paresh and Sashi. Just a question on the most recent, in fact yesterday evening's guidelines from RBI on branch licensing, the requirement to open 25% of branches in unbanked Tier 5 and Tier 6 locations. So in a -- does that -- what sort of readjustments do you need to make to your branch expansion plans to meet these guidelines? And some thinking on what could be the economic impact of that?

And we haven't actually mentioned exactly how many more branches we might need to open in this sort of situation. Because some of these were -- are not -- are indications which have been there. So the fact that we would need to open more branches in some of these locations is something that we have also factored into our plans as we are putting them together. So it's not something which has taken us completely by surprise. Obviously the numbers and the proportions, no, were not necessarily frozen.

Well, from our point of view, if we then do want to open X number of branches, we recognize that if that proportion is not being met, we would have to open those many more of branches in these locations. I think from a cost dynamics point of view, it does not make too much of a difference because as you can imagine, these are extremely low cost given the extremely low cost of rentals and so on in these locations.

It might if at all be a tracking thing like parameters on a per branch basis. These branches would obviously be significantly lower in terms of potential, if you look at deposits per branch or whatever, profits per branch and stuff like that. But does this distort the cost to income ratio? No. Does it -- is it something that we will therefore do partly in obviously because of the regulatory compliance issue, and partly because if we are going to be there we might want to ensure that we use, we leverage these branches for whatever part of the financial inclusion in other targets that we have taken on. I think we will do that.

So I don't think economically it's a big stream factor. There may be some costs, no doubt, but those would have to be factored in. It does mean some more management time and effort. But again, not trying to find, to execute and to manage and control. But I think like several other costs of compliance, that's something which we would put in place.

Okay. And a little question is the requirement to meet (inaudible) sector norms. And I'll be again saying that branch licensing -- I'm sure that our idea has always been looking at how banks meet various norms. But is it fair to think that this is becoming increasingly important? And with respect to your direct (inaudible) lending, what was the position in March '12 and do you need to be taking that up significantly in -- I'm sorry, what was the position in March '11? And what would you like to take it up to in -- by March '12?

You're right, this is increasingly important. Not that it was any less important [to us] on a relative basis, it's certainly becoming that much more important. The good part is that in the last maybe 18, 24 months, we have ourselves -- I know that was partly just seeing the signs, partly our larger distribution network forced the merger and everything else. But we have ramped up our own origination of PSL loans, direct agree and so on. And we have bedded that into each of our businesses. So it's not that we do our corporate lending and retail lending and then we have a separate department doing PSL. We try and define PSL opportunities and originate PSL from each of the businesses, whether it being specific products within retail or specific segments on the corporate and emerging corporates and business banking side.

We have actually seen extremely healthy growth on the direct [agree] side between last year, it is March '10 and March '11. But we are still short of the direct agree figure. We have not put the percentage as such right now in the public domain. But we are short of the sum limit for direct agree. And to that extent, will we have to keep increasing that share? That piece is growing faster than the overall loan book. So our percentages have been improving. But they would have to improve further.

But the fact that we've been improving, the fact that we now have some branches in -- the (inaudible) which we can use to do more of this stuff, I think that's -- those efforts have been recognized, and I think we are therefore getting our licenses and so on, I think (inaudible) to evaluate how we are doing across each of these parameters.

So it remains a challenge that we looking to work on, yes. Is it something that is out of the blue or which is only going forward? No, I think it's a process which has probably gained momentum in the last few quarters, but it's been something that we have been working on pretty feverishly in the last few years.

Okay. Thank you.

You're welcome.

Thank you, sir. Next in line we have Mahrukh Jhi from Standard Chartered. You may go ahead, please.

Yes, hi, One follow-up question. Basically in terms of floating provisions is to clarify for last year, there was no draw down? There was no floating provision which was netted off against NPL, is that correct?

That's right.

Okay, thank you.

Thank you, ma'am. Next in line we have Jatinder Aggarwal from Royal Bank of Scotland. You may go ahead, please.

Hello?

Yes, hi.

Good evening, sir. Two questions. One is while we have a very small textile exposure, could you please (inaudible) what's happening in that industry? Have you not got feedback in the recent couple of weeks?

And secondly, on your floating provisions, what is the tax implication of this?

On the first part, (inaudible) the textile thing, as you might have seen, is about 1%, 1.5% to our book. So we are dealing with slightly better placed players. So we haven't seen anything material. I have been hearing the same thing that you have. So I know that with what's happening to raw material prices, markets and so on, there has been some concerns on that industry. But we haven't seen any deterioration in the asset quality as yet. But again, because our portfolio is so small, it may not be reflective of -- or we may not have the right or the adequate understanding relative to other players, or much larger.

As far as on the tax implications of floating provisions set in there, this is -- this will come under the purview of timing differences. So in current taxation it will not be allowed. Up to 5% it's allowed, beyond that it will not be allowed. So you will get it allowed when you were to -- when you start to dip into and write off the provisions, the actual write-off. So as of now we're carrying a deferred tax asset on floating provisions.

Okay, that is useful. Thank you, sir.

You're welcome.

Thank you. Next in line we have Kashyap Jhaveri from Emkay Global. You may go ahead, please.

Yes, hi. I have a follow-up question on the margins. Average assets have grown by roughly about 6, 7, percentage in the quarter, and you mentioned that the margins on total assets were about 4.2%, which is flagged q-on-q. We still see the net interest income remaining flat sequentially. So how do you solve that equation?

See, there are -- you're right, sequentially we're not seeing too much of a growth in the net interest income. That's because there have been some -- as you know, net interest income is net of some charge offs such as acquisition costs and certain other items in the net interest line. So since the acquisitions there has been a one-off in the acquisition costs during this quarter so which is why you're not seeing that incremental or a sequential growth because of that.

And that's part of interest expenses.

No, that is netted off from the interest income.

Okay. So in interest income on advances probably we would have netted off (multiple speakers).

Yes, there are multiple items which are netted off from interest income. One is the acquisition costs which is principally on retail assets. The second one is the amortization of premia on held to maturity investments.

Okay, sure.

Thank you, sir. Next in line we have Hiren Dasani from Goldman Sachs Asset Management. You can go ahead, sir.

Thanks. Just to follow up on one of the earlier questions on these recent changes in the Tier 5, Tier 6. I didn't really understand whether they have made it more stricter in terms of view to open into un-banked areas or is it more relaxed compared to earlier what was then 33% in Tier 5, Tier 6?

No, they have put in a bit of both. Obviously Tier 5, Tier 6 is not so attractive because it is un-banked. But at the same time they have also dangled a carrot because if you do open 100 branches, if there is 50 which is in over-banked in Tier 1 and Tier 2 cities and say 50 in -- say 25 in Tier 3 and Tier 4 cities and 25 in Tier 5 Tier 6 cities, what he says is that if you do open 25 in Tier 5, Tier 6 cities you may be allowed to open another 25 in Tier 1 and Tier 2 cities. So that's a bit of a carrot which they seem to have given.

So it's a bit of both. One is trying to push you to go into Tier 5, Tier 6 which as Paresh was mentioning it while the cost may be low, the business per branch may be pretty much on the lower side as against what one would get in our normal semi-urban and rural branches. But at the same time he's giving an additional carrot that you can open in a Tier 1 and Tier 2 city.

And in terms of language I thought the earlier language was saying under-banked districts and under-banked states and now they're saying un-banked --

Yes, exactly.

Does this make it a little more prohibitive?

Slightly more tougher.

Okay, that's it. Thanks.

But the proportion has come down.

Thank you, sir. Next in line we have Suruchi Chaudhury from Edelweiss. You may go ahead please.

Yes sir. This is Kunal over here from Edelweiss.

Hi Kunal.

First thing, what is the average CASA for this quarter?

49%.

Average CASA has also been around 48 something.

Yes. Even on a daily average basis also it's around 49%.

And as you mentioned with respect to the wholesale deposit that say it has come off how was the proportion of wholesale deposits in Q1 of FY'11 as compared to say 25%, 30% in this quarter?

It's almost 3%, 4% higher.

One second I will tell you.

Hello, sir.

Just give us a second. He's talking about March.

March?

Yes, even March what was the number? So where was it at the year end?

It's the same.

It's about 2%, 3%.

It's 2%, 3% higher than what it is now.

Okay. Sir, did we -- even on the retail side did we see any moderation in deposits on the term deposit side from wholesale?

No, actually if you do really look at it sequentially the retail term deposits actually was pretty much strong, robust. And you could see a corresponding slight moderation in the savings accounts that Paresh did mention that there was some amount of. But otherwise retail term deposit was pretty much good in this quarter.

And year on year it would be similar to that of your term deposit growth rate of 15%, 16%?

Little faster than that.

Okay, faster than that. And sir, you gave the guidance in terms of how the retail loans and your outlook on say mortgages and auto. But how would it be on the corporate side? Maybe on the working capital side are we seeing the disintermediation coming because the wholesale rates have also pulled off? So, on the corporate side currently excluding one-offs we are seeing 29% kind of run rate. Do we see any moderation out there on the corporate side?

No, I think Sashi briefly alluded to it that there were some one-off large disbursements which are not necessarily every quarter, like I mentioned for the Food Corporation and others that claims come in. You know you disburse that once or maybe twice a year. So I would not read too much into any particular quarter's growth on corporate.

And corporate is always a combination of some stuff which is tactical short term and some which is an ongoing core increase. So we can't predict on how the quarterly movements in the corporate side would be.

Maybe on the broader side just wanted to know whether the working capital utilization at the corporate level whether it is coming off.

No, I don't think it's coming off. In fact what typically happens is because we are in a slightly higher inflation mode, working capital requirements actually tend to go up. And we have certainly not seen any slackening of working capital demand at all. So in addition to that there might have been some one-offs but the basic working capital and medium term loan growth is not coming off in terms of demand.

Even in terms of disintermediation maybe because the wholesale rates have now come down below the base rate so that is also not impacting or it is getting offset by higher inflation.

Yes, not yet. And the thing is the moment that happens it happens temporarily. But if the system as a whole is still a net deficit then the market rate might come off for a brief time and then they tend to bounce back again. And if for instance market rate because short term liquidity improves so much if market rates do come off then it's only a matter of time before short term deposit rates will come off and that would then again translate into lower base rates. So there could be a month or two of lead and lag but ultimately short-term lending rates and therefore the base rate will be reflective of the shorter term liquidity conditions and shorter term market rates.

Okay. So that lag we are not seeing as of now maybe. We have not yet seeing the signs of that.

Not yet.

Okay, sir. Thanks a lot.

Thank you, sir. Next in -- yes, sir.

Do you have an idea of how many more questions do we have in line here?

Seven, eight. Eight now.

Okay, fine.

Shall I take the next question?

Yes please.

Okay. Next in line you have Manish Oswal from KRC. You may go ahead please.

Hello.

Go ahead, Manish.

Sir, in terms of your net interest margin because on a quarterly percentage wise because we have calculated reported numbers basis, it has declined by 23 basis points whereas in a reported basis it is 4.2. So could you explain why there is a discrepancy between these two?

We compute our yields, costs and expenses and deposits or costs on deposits and hence the margins on a daily average basis which is far more accurate and reflects the movements of the P&L. So normally what happens is there are violent fluctuations on period end, so sometimes you may get erroneous results because if you go on a period end basis and try to average it out. But if you do on a daily average basis you will get a 4.2%.

Second, what is your risk-weighted asset number as on June 2011?

Yes, Manish, this is a figure that had been asked earlier as well. The total risk weighted assets as of June is [INR2.9 lakh crores]. Somebody had asked the proportion. About 78% -- 77%, 78% of that is on balance sheet. That gives us the second part that was asked earlier. I think Nilanjan had asked for that proportion.

Sir, we have raised Tier 2 bonds during this quarter. What is the coupon rate on that?

9.25%, 9.40%.

9.4%, around that much. I'm not sure of the exact thing but it's somewhere in that 9.4%, 9.5% range.

During the year sir, how much we have raised base rate and BPLR?

During the year so far?

In the quarter how much you raised base rate and BPLR?

We raised our base rate by about 55 plus 25 that's about 80 basis points and BPLR by about 75 basis points.

And this is (inaudible).

I'm sorry. In the quarter -- because this we would have done in June, July. During the quarter ended June we would have done it by about 55 basis point base rate and 50 basis point is BPLR and then subsequently in July around just about a few days ago or about a week ago we raised it by another 25 basis points both the base rate and the BPLR.

During this quarter fee income grew 23.7% YOY. So what is the driver of fee income -- whether they are predominantly into wholesale fee income or retail? So could you explain what is the driver and how it will shape up going forward?

No, the fee income actually grew by 16%. I'm not sure if you are clubbing the fees and the FX and so on. So I think the fee income as I said grew by about 15%, 16%. As I mentioned there are a few lines which have been -- which are seeing sluggish growth because of changes in the commission rates and so on. So I would imagine that the fee growth will probably continue to be somewhere in the low teens if at all.

And on the bond gain side of course whether it's a marginal positive or a marginal negative will be a function of what happens to bond yields because our duration on the AFS is less than a year. So the swings are not too much. But a marginal negative or a marginal positive is a function of what happens to bond yields between now and the rest of the year.

And finally as far as foreign exchange revenues are concerned those have been running in the 20s. Again last year in the corresponding quarter there was a bit of a trading loss. So the year-on-year growth therefore looks in the 30s. But if you adjust for that the core growth on the FX revenue has typically been in the 15%, 20% range. So I think most of the other incomes have been in the teens.

What is your outlook on net interest margins going forward for the full year?

We expect the margin to remain in the range of 3.9% to 4.3%.

Sir, can I have the AFS book side and the modified duration of the AFS book?

The AFS piece is about 20% of our total -- sorry, around 35% of our government securities book, of our total book, total investment book and has a duration of about less than one.

Thank you very much, sir.

You're welcome.

Hello.

Yes please. Next question.

Next in line you have Shri Shankar from Tata Securities. You may go ahead please.

Paresh, good evening.

Good evening, Shri Shankar.

A quick question now. We have maintained our NIMs at around 4.2%. And if I heard clearly there has been one-off large lending this quarter to oil companies and Food Corporation of India, etc. which has -- probably in terms of yields will be pretty on the lower side. How did you manage this despite that?

Well, actually because at the margin some of the when we looked at the deployment of funds some of the excess liquidity that we had in inter-bank or short term investments were not necessarily yielding -- in fact were yielding less than what were -- what have been -- what are now yielding -- being yielded by these loans. And I have said even though these are lendings which are at the best rates, the short-term corporate lending rates have been pretty healthy. Because that's been reflecting what has been happening in the short-term money markets and the short term CP rates. So these are not at rates or these are not lending that we would not have been comfortable with on a return basis either.

Okay. On the other side, you also mentioned about -- probably had given the current scenario of GDP growth of around 7.5% to 8% probably. Are you saying that you are expecting somewhere around 19% to 20% growth for the industry?

Yes, that's right.

Okay. And do you also believe that in the current environment the industry is going to have a problem going forward in terms of credit growth because investments are on the lower side than anticipated?

See I think the fact that new greenfield investments are going to be slow to come to the table in the current environment unless something changes in terms of sentiment and so on in the latter part of the year, I think that's the reality. But my feeling is that the actual loan disbursements which will be happening right now are a function of projects and CapEx decisions which have been taken a year or 18 months or two years back. So if you have perhaps a lesser number of new projects being initiated right now and if that does not change for the next few quarters then I guess somewhere along the time whether it's in the last quarter of this year or in the first half of next year, at some stage it would tend to reflect in terms of lower term loan growth.

But there will always be a lag in that between the discussions and the proposals and then the approvals and the actual disbursements. So right now I'm not sure whether that is going to impact this year's loan growth even for the system.

Yes, obviously I was talking about the future.

Then I think I would tend to agree with you. Now how much is a question mark, Shri Shankar, but some moderation I think is probably what all of us believe is realistic.

One final question. I think you mentioned about the fee income especially in terms of the commissions on LCs and guarantees, etc. The competition has been so severe that the commissions -- the yields from that part also has been driven down. Have you seen the bottom yet?

Yes, I think we have because in a lot of these now you're down to fixed amounts. It's not even ad valorem. So you open the next LC and you're getting a fixed flat amount. So I think in terms of fee rates there or fee amounts there you've probably seen the bottom. I guess that's been true for a lot of the wholesale markets.

Okay. Thank you and all the best.

Thank you.

Thank you sir. Next in line we have Srinivasan R. from IIFL Capital. You may go ahead please.

Hi, most of my questions have been answered, so thank you.

Thank you, Srinivasan.

Thank you, sir. Next in line we have Brian Hunsaker from KBW. You may go ahead please.

Yes thanks. Good afternoon. Could we go back to the NIM calculation? I appreciate that you are making the calculation on an average daily basis. So that's a more accurate way to do it than what us analysts on the outside would be doing.

But you also mentioned that there is this issue of acquisition cost and suggested these are one-offs. So I'm just trying to understand because on my calculated net interest margin it seems like the NIM declined by roughly 25 basis points Q on Q. So should we attribute this discrepancy between what you're saying is the NIM and what would appear to be the NIM -- is that -- how much of that is due to this issue of using the daily average balance and how much is -- would you attribute to these one-off adjustments in particular the acquisition costs? And if you could -- on these acquisition costs are these generally sort of one-off or won't they be repeated as you continue to do more retail lending?

The acquisition costs are not one-off. You know we continue to originate every quarter, I mean every month and they get charged off. However whenever there is a spike, let's say, in the March period or whenever there are certain quarters when your retail loans might spike for that would -- these acquisition costs are for certain channels. So they could be dealer channel for the [DSA] channel and not for the branch channel as much. So there could be one-off increases or spikes but the charge off of the acquisition costs and which is what our press release also typically has been saying is our net interest earned net of acquisition costs and so on -- I think those are the things that we have been giving at least in the past for quite some time.

Now what Sashi was referring to was that there was a higher -- there was a spike in the acquisition costs which was a one-off. But otherwise that's the only issue as far as the one-off element of the acquisition costs.

Correct.

Other than that it's the balance sheet year-end.

Other than -- the reason why probably you were getting a large denominator, when you say net interest income to total assets by doing a period end average because we had a higher period end in March as Paresh was mentioning in the earlier conversation that we had some one-off deposits, so it ballooned the balance sheet size by an X amount. So that creates a lower margin for you when you do it from a period end basis. But when you take it on a daily average basis, it's not so much of an impact.

Okay, thanks. So it sounds like the bulk of the discrepancy is coming from this, the denominator rather than these deductions.

Yes, on the margin. On the -- this is to explain the discrepancy. For the two of you who just mentioned that on a period-end basis, we are getting margins to be lower by 20 basis points, I'm trying to explain that. But to another gentlemen who had said that sequentially there has not been a growth in NII, whilst you've seen a sequential growth in advances and probably more stable margins, as I said on an optical basis, we would have said 4.2. Paresh did mention that it's still lower by 3 to 4 basis points, that impact plus the fact that you have a slightly relatively higher charge off on the acquisitions cost which is the reason for a drop.

This is the March peak for --

Yes.

Okay, thank you.

Thanks, Brian.

Query is answered, sir? Hello?

Yes, you can go on to the next one.

Thank you, sir. Next in line we have Kajal Gandhi from ICICI Direct. You may go ahead please.

Hello, good evening, sir.

Hi, Kajal.

Hi, sir. Sir, just wanted to know this loan book, if we see industry has seen a huge loan growth of around INR84,000 crores in just last 15 days. So have we also made a major loan book [operation] in that 15 days?

No. See in any case if there's something in the last 15 days -- you're saying which is basically post June or you're saying --

In June. The last fortnight of the quarter basically I'm saying.

Of June. I don't think we saw any particularly large -- see again retail naturally will get spread out every month. And on the corporate side, I'm not sure whether the Food Corporation --

There could be some amount, but that is --

Not a -- a large portion did not come through towards the month or the quarter end. There might have been some disbursements. In corporate they will always be a little chunky. But I wouldn't -- there wasn't any really large proportion of the corporate loans which came up only towards the last fortnight or the last weeks of the quarter.

Sir, and also secondly, last quarter this year was the 3G loan one and some were supposed to be bridge loans, one year loans being talked of. So whether there has been any reversals on those sides in this quarter.

No, all of those which we have (multiple speakers) --

Matured.

Last June, in the June quarter, got paid off by December. So by December of last year, all those short-term loans were off our books.

Okay. Thank you, sir.

You're welcome.

Thank you, ma'am. Next in line we have Manish Shukla from Deutsche Bank. You may go ahead please.

Good evening. First question is on asset quality. The sequential NPL growth is 8%. Now if you adjust for the two one-offs that you mentioned, MFI and the preference shares, what would the run rate have been like? Basically I'm trying to understand if you take off the one-offs then what would the asset quality have looked like.

I'm coming from the fact that your NPLs, reported gross NPLs had been declining sequentially for the last, about two, three quarters and now you've seen a spurt. So how do you read that?

So it would have been about half of the amount. The one-offs would be roughly just a little less than half of the total amount of slippages. So if you knock that off it would be roughly flat to the previous quarter.

Okay, all right. On your non-retail book which is roughly I think 52% of your total book now, what would be the average maturity of that book?

The average maturity of that book would be about --

70% would be less than one year.

70% would be less than one year and the balance would have maturities going up between 3 to 5 years.

But those also would have a one year reset.

Most of them would have a one year reset. As far as any of the term loans are concerned they would be either one year reset or would be linked to some benchmark. So then it would be ongoing pricing, whenever the benchmark is reset.

And how does this book look if you split it as large, medium and small corporate in terms of rough proportions.

Well, the total wholesale book would be about 60% large corporate. It would be about 25% emerging corporate and there are some segments which are the larger ticket sizes of construction equipment, commercial equipment, business banking and so on, which under the regulatory classification now come as wholesale because there are more than INR5 crores ticket size.

Okay. But in terms of behavior will this segment behave similar to an SME?

Probably closer to a mid-sized corporate rather than a SME in that sense. The business banking piece which is what we would call SME, this is probably somewhere in between that and a emerging corporate sort of a business.

All right. Okay, those were my questions. Thank you.

Thank you, sir. Next in line we have Kashyap Jhaveri from Emkay Global. You may go ahead please.

Yes, hi. Sorry to come back to this question again. I probably may sound repetitive. But when you calculate net interest margins, the acquisition cost is not netted off. But when we calculate interest income, this is netted off.

It is, it is.

But not in interest margin. So 4.2 will --

Of course it is. That's why I said, when we are saying core margins of 4.2, it is net of acquisition costs.

Okay. So both interest income as well as NIMs both are netted after acquisition costs.

Yes, yes.

Okay, sure. That's it, thank you.

Thank you, sir.

Okay, I think we'll -- this call has lasted for an hour and a half. Unless there's -- how many more questions are left?

One more question is there, sir.

Okay, then we'll hear that and then we'll -- don't -- let's not take any more questions. I'm sure everybody has had their share. So one last question, let's go ahead.

Okay, fine. Next in line we have Nitin Kumar from Crown Capital. You may go ahead, sir.

Yes, hi. Good evening, sir. Sir, I want to know what proportion of your loans are linked either to the base rate or the BPLR, in the retail and wholesale segment.

About 20%.

And that would be primarily from the wholesale?

It would be -- no, on the retail side, it includes business banking and some -- yes, basically business banking (inaudible). And on the corporate side, it includes some part of our cash credit limits.

And home loans.

But home loan is not linked to our --

Not our, but floating. He said to our base rate or --

To our -- and so there's another. The home loan which is about [25%] of the retail book is also floating but it's not linked to our base or PLR. It's linked to the HDFC base PLR or whatever it is.

And secondly, the wholesale loan growth in this quarter has been particularly strong. So are there any loans that we disbursed in this quarter that are likely to get reversed?

As I said there are some short term loans that we have put out to companies and so on, which are typically 90, 180 days sort of loans. So they could get reversed, if we don't use them until the end of 90 days. Those are short term asset opportunities that we avail of.

And as far as the (inaudible), again there are proportion because our balance sheet has grown and those are allocated across banks in a certain proportion, our share there has gone up. But what proportion gets drawn through the year and what proportions come off is really a function of what happens to the total consortium. It's not really a function of what we want to put out or take back, but it's a function of what the total borrowings for that are. But our share in the total thing has gone up because our share in deposits of the banking system has gone up.

Right. That's it from my side here.

Okay, thanks.

Thanks.

Thank you, sir. Sir, there are no further questions.

Thank you so much, everyone, for participating and asking these questions. And I hope we've been able to answer most if not all of them. Thanks once again. Bye.

That does conclude our conference for today. Thank you for participating in the Reliance conference bridge. You may all disconnect now.

Thank you.

Thank you.