HDFC Bank Ltd (HDB) 2011 Q2 法說會逐字稿

Thank you for standing by and welcome to analyst call to discuss HDFC Bank's financial result for the quarter ended September 30, 2011 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). Please be advised this conference is being recorded today. I would like to hand the conference over to Mr. Paresh Sukthankar now. Over to you, sir.

Good evening, everyone, and thanks for coming on to the call. I have Sashi Jagdishan with me as well and we'll both take the questions later on.

Let me kick off the call with just a couple of minutes to walk you through the highlights. I'm presuming most of you all might have had a chance to look at the press release, but let me just walk you through some of the numbers. The numbers are for the quarter. These are, of course, have been subjected to a normal review by the auditors. The half-year results are audited results.

For the quarter ended September 30, the total income, which is interest earned plus the other income, was INR7,900-odd crores which is up 37%. Net revenues were INR4,156 crores for the quarter which was up about 19.2% over the corresponding quarter ended September 2010. Of that net revenue, clearly the largest component, as always, is net interest income. And that was up 16.6% to INR2,944 crores. The net interest income was driven by the asset growth and a net interest margin which was at 4.1%.

If you look at the non-funded revenues, the other income, that was up 26% over the corresponding quarter. Fees and commissions, which is the largest component of the other income, was up 15.3%. FX revenues were up 43%. If you look at FX and fees together, because both of those are the ongoing revenue streams as against the bond gains which are a little more volatile, if you look at fees and FX put together then the growth rate year on year has been around 19.5%, 20%.

The mark to market on the bond portfolio, which is the third component of the other income, we had a small loss of about INR1.3 crores in this year -- in this quarter ended September 2011 which was much lower than the loss of INR52.1 crores that we had seen in the corresponding quarter of last year.

So that was the breakup of the other income. Cost-to-income ratio on a sequential basis was sort of stable at 48.9%. It was 48.8% in the June quarter. Provisions are down. Again I will walk you through the asset quality piece a little later, but this total provisions at INR366 crores is despite the fact that there is a component of general provisions for standard assets as well as floating provisions in that. But despite both of those, given the asset quality picture, the overall provisions are down marginally from whatever, INR450 crores to INR366 crores.

Post-tax the net profit therefore is up 31.5% over the corresponding quarter of last year.

On the balance sheet side we grew the balance sheet by almost 20% from September of last year to September of this year. We are at INR315,000 crores now, having -- this is the first quarter that we have crossed the INR300,000 crore mark.

The gross advances, if you are to look at it on an actual book basis, it's up about 20%. If you adjust for the fact that in the first two quarters of last year, both in the June and the September quarters, we had some short-term corporate loans on the 3G side and so on, and we had mentioned that last year as well when we actually declared those results, the core loan growth was adjusted for those short-term loans. If you adjust, therefore, the base in September 2010 for those loans, they were about INR7,000 crores or thereabouts which was still outstanding as of September. And by December they had all been repaid. So if you look at the adjusted loan growth, like for like, then the loan growth is closer to about 25.5%, 25.6%.

If you look at then this 25.6% as the loan growth, it's come to a larger extent from the retail side where the gross retail loans grew by 34%. If you look at the core retail growth, it's up almost about 30%, after knocking off an [IBPC] which came back on the books because it matured.

So that's on the loan side. The loan mix still remains roughly 50/50 between retail and corporate. So overall mix of loans from the wholesale/retail point of view, again this is the classification as per the Basel requirements and therefore the RBI requirements on what we have classified as retail or corporate on the loan side, it remains 50/50.

On the deposits side we've seen, well, the year-on-year deposit growth of about 18%. But if you really look at the -- to get a feel of the momentum in this quarter, you'll find that deposit growth on a sequential basis for this quarter was almost a little over 9% which is a bit of a spurt. And, in fact, if you look at then the CASA growth in this quarter, which is about INR5,0000-odd crores, that again is a sequential growth of almost 6.5% over the -- so this is the September quarter over the June quarter, which has probably been one of the -- certainly in the last two or three quarters, INR5,000-odd crores odd is, in absolute terms, clearly, way higher than the growth in CASA that we have seen in the previous two, three quarters. And this is despite the fact that we have seen some migration, which is inevitable with the high fixed deposit rate, some migration from CASA to time deposits or to fixed deposits.

We do see that this -- we will see this trend of migration to peak in the next couple of months as most people realize we are coming close to the end of the interest rate cycle and customers would, therefore, probably want to lock into fixed deposits, there is this migration which is taking place. So the point which I want to leave you with on the CASA side is that the growth in CASA, in absolute terms, being amongst the strongest is just by the fact that one would have seen some migration.

At the same time, between the migration and the deposit rates remaining attractive has meant that fixed deposit growth, on a sequential basis, again has been extremely strong at 13%. So in this quarter itself fixed deposits has grown, September over June, by 13%. And therefore this fixed deposit growth has been as strong as that the CASA looks a little lower at 47.3%, clearly down by a couple of percent in proportion terms, not necessarily reflecting any slower growth in the CASA deposits, as I just mentioned, but certainly, in proportion to the total deposits, since time deposits have grown so strongly in this quarter, the CASA is at about 47%.

I mentioned earlier about the half year results which were audited. Well, the net profit for the half year was at INR2,284 crores, up about 32%. Cap Ad which, of course, therefore includes the year-to-date profits, is at 16.5% on a total basis. Tier 1 is at 11.4%.

Our branch network, if you look at the last 12 months from September of last year to now, to September 2011, we've seen a significant increase in the branch network. Total number of branches that we've added are 385. We've therefore gone to 17 -- to 2,150 branches from 1,765 last year.

There's been an even sharper increase in the number of ATMs. In fact also 1,800, 1,799 new ATMs have been added in the last 12 months which, given that we had about 4,721 ATMs is almost a 38% increase in ATMs over the last 12 months.

So clearly the network expansion, both in terms of number of branches and ATMs as well as in terms of the number of locations, number of cities or towns, we are now in over 1,100, 1,041 number of cities. So I think both of those have been at a heightened level in terms of expansion.

Asset quality has remained fairly strong. Our gross NPAs are at 1% as against 1.2% in September of 2010. Our net NPAs remain at -- are at 0.2% as against 0.3% last year. Clearly our specific provisioning requirements, our specific provisioning has remained well over the regulatory requirements. Our coverage ratio, based on specific provisions alone, so this does not include the general provisions for standard assets or it does not include the floating provisions --

Or technical.

Or any technical write-offs or anything of that sort, the provision coverage ratio, purely based on specific provisions, is at 81.3%.

Our total restructured loans remain at 0.4% which is the same level as in June. And some portion of these restructured loans are already in our NPL. So if you look at total impaired assets, you don't need to add 1% plus 0.4%. In fact, the standard restructured loans are only 0.1%. So 0.3% out of the 0.4% are already there in our NPLs.

So again, to summarize on the asset quality piece, gross NPAs of 1%, net NPAs of 0.2% and standard restructured loans of 0.1%.

So those are some of the highlights. I'll -- both Sashi and I will be happy to take your questions now.

Should we start the Q&A session, sir?

Yes please.

(Operator Instructions). First in line we have a question from Mr. Anand Gupta from Prudential Asset Management. You may go ahead please.

Sure, hi. Can you please comment on your market share in the retail advances segment? And my question is in the light of decelerating auto volumes and I'm just trying to gauge how HDFC Bank retail loan book will move going forward.

Well, it's tough to try and give market shares on the retail loan side. There is really no -- there are no established formal figures on what different players are doing. All I can say is that we do believe that in most of the retail loan products we would, arguably, be the largest -- in fact, in most cases, both on a stock and a flow basis, we would be the number one player. But we have certainly, over the last several years, focused on being a market leader which we define as amongst the top two or three players, and focused not purely on the market share or the volume growth, but trying to balance our market positioning and market share growth with maintaining a certain stable margin and asset quality. So, without being able to give you a number, all I can say is that we remain well-positioned in terms of being certainly a leading player across most of the retail loan products.

As far as what happens in terms of the impact of higher rates, well, if you look at the composition of the retail loan portfolio, it's obviously got some six or seven major products from car loans to commercial vehicle loans to business banking, home loans, personal loans, credit cards and so on. So it's a fairly well-diversified portfolio. And if you look at the last several years, you'll always have, at any point of time, some products which are growing a little faster and others at a slightly slower pace.

This last quarter for instance, if you look at the September-over-September growth, then some of the fastest-growing products have been the business banking segment, which is the small business secured -- most of it secured by property, both working capital and term loan sort of businesses, which is one part of the retail lending that we do. The commercial vehicle portfolio has grown fairly well. The home loans portfolio year on year again has grown fairly well. So these have been three of the slightly faster-growing products, while auto loans, for instance, on a year-on-year basis, has grown at about 18.5%. And we have seen the last few months that car sales, whether driven by the higher interest rates or otherwise, have come off, perhaps after a couple of years of 30% plus growth rates on car sales itself.

So we will -- because we have a diversified portfolio, we will see, perhaps, slightly more moderated growth rates on some products and continued spread in others, which will enable us to maintain our overall growth rate in retail.

We do believe this year that if I look at the overall loan growth that the Bank would seek to achieve, which is usually a little ahead of the banking system, and the banking system itself grows at some multiple of maybe around 2.5 to real GDP, then we do see the retail business growing at, perhaps, as slightly faster than the corporate business as far as our own retail loan growth is -- or our own loan growth is concerned, though not a huge gap in growth rates, but we do see retail continuing to grow.

Part of the reason, and this is our conjecture, is the reason why, despite higher interest rates, retail loan demand has not come off as sharply as it perhaps could have given the almost couple of hundred basis points increase in rates over the last year and a half or so, is that during this period we also had continued wage inflation and income levels have been going up. So even where the EMI has gone up for a new car loan or a new personal loan or whatever, it still remains affordable for the retail customer, given that, perhaps, during the same period or over the same period their income levels have also remained comfortable.

So have we seen some moderation in growth rates because of higher interest rates? That's certainly a reasonable expectation, and we would have. But do we still see, despite that, a reasonably healthy retail loan growth at this point of time? As I said in the first half, September over September, on a year-on-year basis, retail growth has been upwards of 30%. So I think we still remain in a fairly healthy growth mode.

Sure. Thanks. That answers my question largely. And it would help further if you can just comment on particular segments, if there is large market share gain scope still for you, if you're comfortable talking about it. Otherwise it's okay.

Well, I think we are still gaining share in quite a few of the products. Because if I look at even at 18.5% loan growth on auto, which has been perhaps slightly slower than some of the other retail loan products that I mentioned, we all know that the --

Market --

The system in terms of number of cars sold, at least hardly in the first half, I think saw an increase of about 1% or 2%. So if you add something to value, probably there is a reasonable expectation that we would have gained some market share there. Again, can't try and conjecture on the number of points we might have gained, but that is true.

Similarly in products like credit cards and perhaps in personal loans and so on, and commercial vehicle loans, the fact that we have grown in commercial vehicles at clearly 40% plus sort of thing, it's clear that the underlying sales have not been at that pace, so we would have gained market share.

Okay, thanks.

Thank you, Mr. Anand. Next in line we have a question from Mr. Manish Oswal from KR Choksey Securities. You may go ahead please.

Yes. There was a sharp jump in the income from investments on a sequential basis. Could you explain growth drivers over there and --

Income from investments.

Yes, sir.

Interest income you're talking about.

Yes.

One is that during the quarter, the sequential quarter, we have had some increase in the volume of investments. That has gone up by about 12% sequentially. And we've also had an increase of almost by 15 basis points in terms of yield. So both will contribute to this 40% increase sequentially.

Thanks. Again, sir, within the interest income there's one item, other interest. The other interest increased by INR28 crore to INR72 crores. Is there any one-off included over there?

Yes, there will be a bit of one-off there, but that -- these are miscellaneous items which we do get on an ongoing basis. But there is a little bit of one-off there, probably about INR20 crores to INR25 crores.

Okay. And in terms of provision, provision went down by 17.5% quarter on quarter. So any write back on investment book side?

Let me explain the provisioning part because it's got a couple of components. If I look at the total provisions of whatever, INR360-odd crores, that includes between the general provisions for standard assets and floating provisions it includes about a couple of hundred crores on that front.

When you look at the NPL creation, we have had some core slippages, that we have on a ongoing basis based on the portfolio, and some increases in -- some part of the NPA increase is related to the MFI, the microfinance portfolio, whether in terms of lending or loan buyouts on the microfinance side.

Okay.

To the extent that we had already made provisions for the microfinance portfolio earlier, whatever slippage might have been there on that front would have obviously already been there in the books. So the incremental provisioning would have been to the extent of the general and the floating provision as well as specific provisions in respect of NPLs other than for some slippages that we have seen on the MFI side.

And what was the loan loss provisioning number, sir, during the quarter?

For the quarter the total loan loss provisions therefore were -- total specific provisions that were required for NPLs would have been INR220 crores.

And last, fee income grew healthy during this quarter. So which are the segments drove fee and commission income during the quarter and what is the outlook going forward?

Well, fees and commissions, actually we have six or seven (multiple speakers).

I mean, retail and corporate --

Okay, retail and corporate almost 85% of the total fees now are retail. So the corporate commissions, which are essentially from cash management and trade and so on, while they've continued to grow, they're now less than 20%. Say somewhere closer to 15%.

On the retail side, the one line which has seen sluggish growth or which has been flat or declining depending on which quarter we're looking at, at the last three or four quarters, has been the third party distribution line where in some cases volumes have been growing. But, given the sharp decline in the fee rates, the fee growth has not been so strong. Otherwise if you look at the other retail fee lines, commission lines, whether it's relating to the retail assets business or the --

Branch related --

Transactional banking businesses or the card businesses, those fee lines have continued to contribute.

And last on the margin side, sir, during the quarter we have witnessed a strong growth on retail book side which is high-yield asset.

Yes.

Secondly, the yield on the investment went up significantly, but the overall NIM compressed by 10 basis points. So what is your outlook going forward?

And considering the high yield asset growth, whether the [transmission] are about to play out going forward or transmission is over?

No, I think there are two elements to this. One is, obviously, while there has been an increase in loan and investment yields, there has also been an increase in fixed deposit costs, primarily -- or driven by both an increase in fixed deposit rates and an increase in the total amount of fixed deposits and the proportion of fixed deposits which have been raised.

As far as retail loans are concerned, remember a lot of the retail loans typically in every month tend to get bunched towards the end of the month. That's the way the retail loan businesses go. So when you look at the average retail loan growth in a particular quarter vis-a-vis the absolute quarter-on-quarter or month-end sort of growth, you will always have the impact of the higher yield come through over a period of time as the loans based on average assets outstanding or average retail loans outstanding rather than the point of time growth.

We have seen some decline in margins in the last quarter as well sequentially although, on a rounded off basis, it was still at 4.2%. We have seen some decline as far as this quarter is concerned, taking the NIM to 4.1%. I think we have consistently said that our net interest margins, we believe, would remain in a range of 3.9% to 4.2% or thereabouts. And fluctuations of margins by a few basis points within that range I think is realistic. We still remain comfortable that the range remains something which we would continue to see in the next few quarters as well.

Okay, sir. Thank you so much and all the best for next quarter.

Thank you so much.

Thank you, sir. Next question comes from Suresh Ganapathy from Macquarie. You may go ahead please.

Yes, hi Paresh. Suresh here. Just wanted to know, in this INR220 crores which is the specific provisions, of course you're not including floating here, right, so how much would be floating and GP put together?

Floating and GP put -- see, this INR220 crores is the total provisioning required for specific provisions. Some part of that would be debit to P&L, some part of that would be what would be what we had already created for the MFIs earlier. So that would have not been charged to P&L, it would have been a movement of what was already created earlier, going back to December of last year and March of this year, in respect of the MFI portfolio.

Okay.

Apart from this INR220 crore, therefore, which would have come partly from P&L and partly from the provisions that we had already created, the floating and general provisions put together would have been about INR230 crores or INR240 crores. INR240 crores.

Okay. So just to get an idea, what could be the non-floating, non-GP, non-NPL provisions passed through the P&L this quarter?

It would have been about INR120 crores, INR130 crores.

That's a sizeable amount, because last quarter was only about INR 25 crores. (multiple speakers)

Sorry, hardly INR15 crores.

No -- sorry. Yes, about -- sorry, completely wrong. About INR15 crores, INR20 crores.

INR15 crores, INR20 crores.

Yes.

Okay, fine. So -- okay. So the provisioning which starts with the P&L will be INR3.5b or INR350 crores odd or so, right, the balancing figure. Yes, okay.

The other thing is on the --

For the quarter.

For the quarter, that's right. So the slippages basically, wanted to know what is the level of slippages that you are seeing currently in your portfolio? This last quarter was about sub 100 basis points. Is that the same thing continuing --

Yes.

-- in this quarter?

Yes, that's right. It's been -- in fact the actual slippages in this quarter, on a core basis, have remained not very different from where it has been in the previous quarter.

Okay, fine. So just wanted to understand that you are actually moving a bit towards high-risk segments, whether it is personal loans, credit cards, business banking relatively compared to say car loans, but your provisioning levels continue to remain pretty low and also slippages. So somewhere down the line I think this equation should break down. Do you really think that the provisions are supposed to pick up maybe two quarters later odd or so, and slippages are also expected to increase? What's been the behavior of your portfolio, if you can just throw us some color on that?

Sure. Let me answer your question on two points. One is whether there's any expected increase because of mix, because of what you referred to in terms of whether the portfolio mix is moving towards higher risk. And the other is whether I expect any change in the intrinsic provisioning requirements.

Correct.

On the first part, I don't think I would agree with you that the mix of the loan book is changing too much because if I look at, for instance, auto loans and business banking or commercial vehicle loans, which have been some of the faster growing pieces, there's not very much of difference in the riskiness of the loans. Even on the business banking side, the segments that we're dealing with are, one, cash-flow based and secured, apart from the normal assets, also by collateral. This includes products like loans against property or other rental discounting or working capital to business banking customers secured also by property. So they are all secured products and therefore there's not much of a difference in terms of the risk profile of those segments.

As far as if you look at personal and credit cards, they are today about, between the two they are about 20% of the retail loan book, 19.5%, 20% of the retail loan book which is, in proportion terms, not very different for the last couple of quarters. And, in fact, something like, let's say, home loans which over the last two, three years has really started showing up on our balance sheet, is now also well into double digits, almost 20% of the -- 22%, I'm being prompted, of the retail loan book.

So if you look at the overall composition of the retail portfolio, we've had some additions on products which you might regard as slightly riskier, as our personal and credit cards. But you've also had that offset by a higher proportion of products like home loans and loans against property and so on which are secured by mortgage. And then, of course, you have a mix of other retail loan products.

I think, given the fact that even in the toughest of the times, as far as the retail credit cycle is concerned, our credit portfolio, I think, was fairly stable, was throwing up NPLs or delinquencies which were lower than what the industry experienced. And the fact that the intrinsic strengths of that process that we have, or the origination capabilities through our own branches, the credit standards, I think none of that has changed. So we believe that from a mix point of view, or a segmentation point of view, we are certainly not changing our mix to take on higher risk on an overall basis.

As far as each individual product is concerned, there will be some riskier products and some less risky products. And I think there is a difference in the yield that we naturally get on the relatively riskier products to compensate us for the higher expected loss in the portfolio.

On the second part, in terms of what the trend should be, all I can say is that certainly in the last couple of quarters, including the September quarter, on the retail side our actual loss experience has even been lower than what has even been our own expected loss estimates for each of the products. So when we are pricing in a certain loss, whether it's a car loan or a commercial vehicle loan or a personal loan, our actual losses have, in the recent few quarters, been lower than what we have priced in. It would be reasonable to expect over some period of time the normalization of NPLs or the fact that you would have actual losses closer to expected losses. I would think that is what one would normally expect.

Are we seeing any trends of changes in delinquencies which suggest that in the next couple of quarters, as you suggested, we might see a sharp increase in NPLs to normalize? We've certainly not seen that. So I reiterate, the portfolio quality, even in terms of early indicators, so far has been very stable.

All we're saying is we've been in this business long enough, for the last 10 years or more on the retail side, to know that there is a certain expected loss. And no matter how well you manage a retail portfolio, you will have a certain expected loss in each of the retail product categories. We are comfortable that we have priced that in. And the fact that, to actually recognize the fact that there is an expected loss but the actual losses have been a little lower than the expected losses, the Bank, on a purely prudential basis, has been making some floating provisions as well.

It's not that we can dip into those floating provisions if there's any slippage in the future. All we're saying is that we are recognizing that there is an inherent riskiness in the portfolio. There are specific RBI guidelines which permit banks to make floating provisions based on whatever the guidelines are. And we have, therefore, been doing that. And I think the total provisions that we've been doing from time to time is pretty strong, both in terms of coverage of specific NPLs as well as GP and floating.

Yes. Just one final question. You have been making, consistently, floating provisions. Your coverage ratio, excluding floating provisions, has been pretty strong. Considering that the usage of floating provisions itself is so restrictive by RBI, why is it that you're making floating provisions? Is it that this 30% growth is so sacrosanct that you had to make this INR100 crores of floating provisions to report 30%?

Well, I think that's an unkind comment because I think -- let me walk you through the logic again of why we believe the floating provisions are realistic. I mentioned to you that when you look at any of the retail loan products in particular, there is a risk-reward trade-off. And therefore when we are getting a higher yield, let's say 17% on a personal loan as against maybe 12% or 11.5%, 12% on a car loan, we are recognizing the fact that there is a higher yield to compensate us for the higher risk we are taking. So therefore if we believe -- to be able to recognize that there is an inherent loss, if the actual losses are lower we believe that the charge to the P&L at that point of time, from a closing point of view, is lower than what is being built into the loan mix and therefore the yield.

Even from the way regulatory guidelines and regulatory discussions are going, even on a global level, the fact is that, even under Basel III, we will move towards the fact that you will need countercyclical buffers on the capital side. When we create floating provisions, we are not using floating provisions to net off from our NPAs to indicate a lower net NPA figures. We are treating the floating provisions, and RBI gives you a choice to either note -- to report the floating provisions by netting them off from the NPLs or you add them to your Tier 2 capital. By adding them to our Tier 2 capital we are effectively therefore creating a countercyclical buffer in terms of the capital.

Yes, then the TCDs maybe ultimately required to be in Tier 1 or whatever based on how the Basel III guidelines come out. But at this point of time, we are creating floating provisions which we are adding to our Tier 2 capital. I think it reflects more realistically the inherent risks and therefore the inherent normalized provisioning charge that would be reflective of the mix of our portfolio and that is certainly, at this point of time, adding up in our Tier 2 capital.

Just a final question. What would be the outstanding floating provisions as of now?

It would be a little more than INR1,000 crores.

Okay. And the entire thing is a part of Tier 2. You can include as a part of Tier 2, right?

Yes.

Okay, thanks so much.

You're welcome.

Thank you, sir. Next in line we have Rakesh Kumar from Dolat Capital. You may go ahead please.

Good evening, sir. Very good numbers. Just I had one question that on the yield on investment side, if you look the quarterly numbers in the past, this time we have quite high yield on investment. So what is the reason for that I would like to understand.

For the current quarter?

Current quarter, yes.

That's because, as you know, we have had a spurt in deposits in the sequential quarter. As Paresh said -- yes. So because we've had a 9% increase sequentially in deposits, you needed to -- you have to maintain higher reserves and higher SLRs, plus we've also maintained some more liquid assets which were at a higher yield. So, on a sequential basis, on an average basis, the growth is around 12%. We have got a yield kicker of almost about 13, 15 basis points and that has -- is what has contributed to the sequential spurt in your investment book.

Could we conclude that your -- this was like effort taken to compensate or reach some level of NIM?

How would that be possible? Because if I have funds, obviously I need to deploy. Either we deploy in advances, we would either deploy in reserve maintenance or the excess, obviously, we will have a treasury management which will try to optimize the yields. So if subsequent quarters if the deposit momentum is normal, then probably to that extent we will liquidate that.

We will liquidate the investments and put them into loans.

This quarter like in the current deposit there is a quite moderated growth. So is this like an industry trend what we are witnessing or this is something specific. What could be the reason for that current deposit?

Current account deposits actually at a system level -- in fact, CASA has been negative I think for the last few months, if I'm not mistaken, but certainly as of September. So when I look at the year-on-year growth in CASA, in current accounts as well, I know that in September of last year we had some IPO outstandings and so on, as well of around, I think, INR2,500 crores to INR3,000 crores last year. But that apart, I think we all recognize why current account growth at a system level and for us has been -- at the system level has been negative and at our level has been sluggish because a lot of the contributors to current accounts like the capital market rate and activity, the IPOs, the collections and refunds on the IPOs, all those producers are obviously not there right now. And the current accounts which come from SME and other small business type accounts, that has been growing. But the overall level therefore has not grown in the same proportion as perhaps the savings or the total deposits.

And as Paresh was mentioning earlier, there has been migrations to term deposits even from the current accounts. So that will continue. This we have seen even in the previous interest rate cycle in the third quarter of '08/'09 also, where when the business is slightly moderated, people do put their cash surpluses in time deposits. So that has happened. That has been happening for the last three to four quarters.

Thirdly, like there is a one other interest item of INR72 crores in this quarter.

I think we are answering the same questions because Sashi just answered both your questions on investments and this other income -- other interest. I think it was answered just --

Someone else had also --

-- just a few minutes back. But to reiterate the same thing we said that, yes, there was some miscellaneous other income, interest income which we have received earlier.

Okay, thanks.

Thanks.

Thank you sir. Next in line we have Chinmay Desai from Anvil Shares Stock & Broker. You may go ahead please.

Yes, good evening, sir.

Good evening.

Sir, could I have the break-up of your retail book?

Yes, sure. I'll walk you through the major products out there. Auto loans was INR24,600 crores. Commercial vehicles and construction equipment was INR11,300 crores. I'm rounding this off to the nearest INR100 crores. Two-wheelers was INR2,100 crores. Personal loans was INR12,000 crores. Business banking was INR16,800 crores. Loans against securities was just under INR1,000 crores. Credit cards was INR5,800 crores. Home loans was INR12,300 crores. And others, which is miscellaneous listing was about INR6,700 crores. It has about three, four products including lending, gold loans, [FAG], lent loans against fixed deposits, a whole host of products totaling to about INR6,700 crores.

Total retail advances as of September 11 was INR92,878 crores.

All right, sir, thank you. That's about it from me, thanks.

You're welcome.

Thank you, Mr. Chinmay. Next in line we have Amit Ganatra from Religare AMC. You may go ahead please.

Yes, good evening.

Good evening.

Basically see I was just observing these regional advances of HDFC Bank since the time interest rate has started going up, the re-pricing of yields on advances has been the slowest among whatever the peer group that we cover. I know that you don't disclose it separately, but I have just based on the calculated figures. But your yield on advances -- I understand that a large portion is retail. But there are other banks also which have a higher retail. But still compared to all other banks the yield on advances re-pricing is actually one of the lowest for HDFC Bank. Is there any comment that you can make on this?

Yes, sure. I think this boils down to what is the proportion of our loan book which is linked to a base rate or something like that and against what is -- or which is floating rate as against what is fixed rate.

Even if we compared to other banks which have a higher proportion of retail, in most banks who have a higher proportion of retail, roughly half the retail book tends to be home loans, which are obviously mainly floating and even some other term loans and so on which tend to be much more floating. In our case other than the home loan piece and some part of -- some small part of business banking, a lot of other loans like the car loans, the commercial vehicle loans, the personal loans and so on are all fixed rate loans.

Obviously we have matched funding on the deposit side, so therefore the spread is locked in. But they are -- therefore the change in the average loan yield will be on the retail side, primarily a function of new bookings that we do and whatever runs off.

So to that extent, the reason why our margins remain stable is not -- on that front is because we have locked in the spreads. We have some fixed deposits at rates which are locked in and lending yields which are locked in.

On the corporate side again, since a large portion of the lending is working capital, it re-prices, so it's not that it doesn't re-price. But it re-prices as it comes up for maturity. So you have a 90-day loan or you have a 180-day loan or a one year loan. It's a very short duration exposure but it re-prices as it matures. And it's only the cash credit or some part of that working capital lending which is really priced off the base rate. So that's why you tend to perhaps see a slightly slow rate of re-pricing.

Obviously we've been through -- if there's any pain involved in this, which I don't believe there should be because if we have matched funding there's not much of pain. But obviously having been through the last three or four or five quarters of rates going up and therefore the re-pricing should have happened, if that has been a little sluggish, then now if we are somewhere close to the peak of interest rates, obviously to that extent we would see similarly the slower re-pricing, if you like, certainly does not hurt on the way down.

Right. So I only wanted to understand that does it mean that for your bank there will still be some continuous re-pricing on the asset side, which will continue to happen.

Only to the extent that as earlier loans --

Mature.

-- they mature and they go off, and if interest rates remain at these levels -- and again I'm focusing more on the retail side -- then you're right. Because a lot of these loans are [door to door] three or four year, car loans and so on. So as those loans mature and you have new loans coming up at higher rate, that re-pricing will happen. But to the extent that we had more or less matched funding give or take on the fixed deposit side, it's also likely that the fixed deposits would re-price.

So I'm not -- I remain -- I'm preempting your question even if you are not asking it is the -- therefore do we expect any impact on NIMs by this re-pricing. I would think that our NIMs will still remain within that 3.9% to 4.2% sort of a range. But yes, the re-pricing might be a little lagged as compared to other banks. If that's what you've observed, that seems a fair observation.

Okay, thanks.

You're welcome.

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

Hello.

Yes, Mahrukh.

Yes, hi. Just a couple of questions. Your CD growth has been indeed very, very strong and IndusInd also announced very strong CD growth yesterday. So it's just market share acquisition or what is it and why are players continuing to move out of this market, I mean the financiers?

The total growth in commercial vehicles and construction equipment obviously on a year-on-year basis is a little overstated to the extent that -- and even sequentially you'll notice that it's grown by 25%. This includes the fact that in March we had done some IBPCs which would have reduced that portfolio and whatever was the portfolio after 180 days comes back on the books. But even adjusted for that, the commercial vehicle and construction equipment business has grown by about 40%.

So what I'm saying is that -- has it grown very strongly, the answer is yes. Has it grown at 60% year on year, the answer is no; it's probably grown at about 40%. From our -- in our own experience, the growth has been pretty good and the experience has been fairly okay.

Okay. But is it that some of the players are really moving out in a big way because all the larger banks are reporting 40%, 45% CD growth, which is very high, no?

I think it depends on also what the base has been. I think from our point of view now we've been in this business for almost seven or eight years and we've also expanded geography substantially. So a lot of our growth is coming not just from higher penetration of the existing markets, but a substantial increase in the coverage that we have got in terms of new geographies on the back of our branch expansion.

Okay. And just in terms of restructured assets, most of the slippage is on account of the MFI portfolio? It's difficult to calculate the number but would it be around INR2.5b, the slippage on restructure during the quarter? And is it largely -- is it because of MFI?

Yes. The movement of -- you're saying restructured to restructured standard to restructured NPAs. I didn't get the question sorry, can you --

The movement of restructured standard to restructured NPAs.

Yes, yes.

These are MFIs only.

Yes.

And is it possible for you to quantify the slippage during the quarter?

Well, in terms of the restructure to this thing -- it's about -- we were at -- all our restructure was at 0.4.

No, I got that. The slippage on non-restructured.

Non-restructured.

does the slippage include restructuring, including restructured slippage.

SO the total slippage into gross -- well, our gross NPAs themselves have increased as you know from about INR1,833 crores to INR1,895 crores. Obviously that is net of whatever is the normal write-off. So if you look at the first six months of the year, we've gone from a gross NPA of about INR1,694 crores, say about INR1,700 crores, we went to INR1,833 crores in June and we are about INR1,900 crores now. That includes the INR300 crores of normal write-off and whatever is the slippage that we have had now.

So that's how the net increase of INR100 crores that you see every quarter is obviously the net increase after whatever has been the write-off every quarter.

It's around INR150 crores. I mean INR300 crores for the first half.

No, it's been about -- I think it's been around INR300 crores every quarter.

It will be INR300 crores -- in terms of gross additions?

No, the normalized --

Write-off.

Monthly write-off. It would be about -- it depends. It varies from quarter to quarter but it's typically between INR250 crores and INR300 crores normalized every quarter.

Okay. I just wanted to check what would now be -- what would be your marginal cost of term deposits now?

We don't split that number out but if you look at deposit rates right now, Mahrukh, things are anywhere between 7.5% to 9.5% -- depending obviously on the tenor. And since a lot of the deposits tend to come in at one-year sort of rates, one-year sort of tenors, most of that is in the 9% sort of range. I think the one year deposit rate now is 9.25%.

Right. And just in terms of savings deposit growth it has been very, very strong in the quarter. So that kind of run-rate will continue? There can't be any one-offs there right? 4% to 5% do you think can be the sustainable run-rate sequential for savings?

Well, we would love it to happen. I think this has been certainly in absolutely terms the strongest that we have seen in the last three four quarters. Whether it will sustain or not is we believe nothing is -- there's no one-off in that obviously. But whether it sustains or not we'll have to continue to see.

To the extent that this is on the back of adding a certain momentum in terms of adding new customers, some changes which tend to happen on the average balances, our focus on a more customer-centric approach and therefore trying to increase our penetration of the customers, all of that I think is a continued effort. And therefore to that extent we obviously will focus on growing this. How much of this is offset by the cannibalization of savings to fixed deposits is something that is difficult to try to project or predict. But certainly the fact that we now have this stronger branch network has helped.

Okay. Thank you so much, thanks.

Thank you, ma'am. Next in line we have Mr. Kunal Shah from Edelweiss. You may go ahead please.

Yes, hi Paresh, hi Sashi. Congratulations, this is Nilesh.

Thank you.

I just wanted to check what has been the portfolio buyout on the home loan side during the quarter.

INR1,200 crores.

INR1,200 crores.

And all of this would be (technical difficulty) sector.

All of it is [PSF].

The other thing, actually there's a big jump in the other liabilities and other assets in the balance sheet during the quarter. So is there some adjustment that we've done in terms of --

Yes, it's a change. It's an accounting -- as you know there is an accounting standard called AS-30. If you go back to the March account and if you see the Annual Report too, we have adopted AS-30, which means that for the FX and derivative contracts, you need to gross up the marked to markets on the FX and derivative which was hitherto being netted off.

So there is almost -- I think in the annual accounts almost about INR7,000 crores to INR8,000 crores impact in the balance sheet because of that as of March. So June also would have had a similar one. In September since the dollar rates have moved up so the impact could be slightly higher. So the other assets and other liabilities would be higher by probably another INR7,000 crores.

So the --

By the way, just to reiterate there will be no P&L impact whatsoever.

Okay. But this was -- this adjustment was made and would have been felt in Q1 also, right so this is just --

Yes, that's right. So if you see Q1 -- Q4 and Q1 the dollar/rupee rates were more or less --

Steady yes.

-- more or less steady. So you would grossed out very similar amounts as you did in March. In June over September, the dollar moved from roughly INR45, INR46 to INR49. That would have given an additional INR7,000 crores, INR8,000 crores. So you have an incremental jump of around that level both in your other assets and other liabilities.

Okay. And in terms of investments the investment portfolio has also picked up. How much of that would you attribute to credit substitutes and your SLR?

A large part of it is SLR. But I think I have mentioned this to some other participant earlier on, that since we have had a very unusual growth in deposits during this quarter to the extent that we needed to maintain SLR we have put it in SLR and the balance we have maintained some excesses in high yielding G-secs and some portions in CDs etc.

And what is the SLR position as of September 30? Only percentage.

As a percentage maybe about 27%, 28%.

Yes, it's about 27%, 28%.

Okay, great. Thanks, all the best.

Thank you.

Thank you, Mr. Kunal. Next in line we have Nitin Kumar from Quant Capital. You may go ahead please.

Yes, hi, Paresh and Sashi. What is the status on prepayment penalty on retail loans? Are we still levying that?

Yes. Let me put it this way. The whole discussions on this have centered around prepayment penalties on floating rate retail loans, right.

Right.

And most of our products as you know are fixed rate. So the only product which really comes into this play, or the major product which comes into the play on this one is what happens to prepayment penalties on the home loan portion, which is where as of now, till I think January or whatever -- no, one second. What is the thing on the -- that is on the other one.

On this one we haven't yet taken a decision. As you know the whole thing about whether there is prepayment or not is, these are HDFC loans and whatever has been agreed as part of their documentation. At this point of time there has been no change as far as the prepayment penalty on the home loans portion and that's the only one which is in play.

But car loans are not under this purview.

No, because it's --

It's fixed rate.

Fixed rate loans there is no bar on charging prepayment. Or even the recommendation which was made it was only on floating rate loans there has been this, whatever guideline or recommendation that prepayment penalty should not be charged.

Okay. And secondly, would you like to relook at the loan growth guidance for the full year, given that in 1H we have already grown at 18%?

First half we've grown 18%. The fact is that -- you're talking about the year on year or you're talking about --

YTD. 1H YTD.

Well, we still believe at this point of time that if the system does 17%, 18% I think -- because even now, our growth really is on a Y-on-Y adjusted basis is about 24%, 25%. If you look at us traditionally we've grown always a little faster in the first couple of quarters, first two, three quarters and then tend to level off a little. I'm not sure how the growth will pan out on a quarter-on-quarter basis.

But at this point of time, if the system does 17%, 18%, 19%, I guess you would normally look at growing 3% to 5% faster than that. I don't think at this point of time we want to relook at that.

Okay. So not much growth expected in the second half then.

Well, we've --- Nitin, if you look at the last year for instance, and I'm not suggesting that that will be repeat -- but in the last year we grew faster in the first couple of quarters. We grew at a slightly slower growth rate in the third. Sometimes in the fourth quarter we've actually cut back a little. So if you look at even the cyclicality in our own growth rates, you will find that in the last few years we've always grown a little faster in the first half, moderated a little in the third quarter in terms of rate of growth. And sometimes in the fourth quarter, because the focus is more on ensuring that we meet regulatory requirements on [BSL] and so on, the rest of the loan growth we tend to moderate and focus on BSL -- of course through the year -- but certainly more in the fourth quarter.

Okay. Okay, thank you.

Thanks.

Thank you Mr. Nitin. Next question comes from Mr. Nilanjan from Brics Securities. You may go ahead please.

Hi, thanks for taking the question. Coming to the CVC which has been asked, you have grown this sector for the last couple of quarters and over this period, we had always issue on the mining, the bans and issues of developing in Orissa, Goa, Karnataka. How are you seeing this because you're still growing that portfolio?

We've actually continued to see very stable asset quality even the early delinquencies have not really changed. Again remember this is -- a large part of this -- the larger part of this portfolio is the commercial vehicle business. And then of course there is construction equipment as well in that. The larger part of our portfolio also within that is new equipment and it's not the used commercial vehicle or the used construction equipment segments which are again slightly higher yielding and are also high risk. So most of it is in our case, newer.

And we have again -- we might have defocused on certain segments of that market and increased our focus on other segments that we were comfortable with. So at least at this point of time, we have not seen any sort of deterioration in asset quality on that front.

Even if there was an increase in slippage in that portfolio, I think given that currently our losses are way lesser than what our [price trend] or our expected losses, that would still be well within the product parameters that we are running for those products.

Okay. Let me put it this way. Can I get an understanding of the tonnage of the trucks that you finance?

I really wouldn't have that.

Will it be on the -- more than 24 tonnes, on the lower side or the higher side?

I think -- because I think those are questions to a level of detail that I may not be able to take on the call itself. Maybe you can contact Amit or somebody or we'll try and figure out whether that's information that we can put in the public domain in the first place, or that level of detail can be shared.

Okay, fair enough.

Thank you.

The next thing is on -- you have already said that you following AS-30 which means you are already moving towards IFRS. So just a quick question. Do you rate your portfolio externally and if you can share that bit, will you see -- as you move to IFRS and on Basel III, would you see some freeing up of capital.

Still early to say because on the Basel III front, RBI has been doing some sort of panel studies and so on, so we've been participating in those. I think at this point of time, the capital requirements are not changing too much either way. But the final guidelines are still awaited. So until we know exactly how the guidelines evolve, it may be difficult to say. I think what we are comfortable with at this point of time at least with our understanding of how these guidelines would evolve that there certainly will not be any impact from it from requiring more capital point of view. But we'll just have to wait for that.

Okay. The third thing that I want to focus is how are you placed in terms of the existing licenses. Have you finished up in terms of the branch expansion?

No, we would have some licenses and as you know there are also some locations which do not need licenses based on certain. So I think we will be adding branches in the next couple of quarters as well.

Why I'm asking this is I just want to understand your rural focus in terms of building up the brick and mortar branches and how are you -- if you go back a decade or so PSU banks had not grown and you were able to capture that space by being operationally efficient. Would you see a repeat of that happening in the rural and how do you read that situation?

I think the fact that in the last couple of years, when we have substantially increased our branch network, a substantial portion of that expansion had been in Tier 2, Tier 3 right up to Tier 6 cities. I think that's an absolute reality. The fact that in these locations again I guess banks like us would be offering a superior customer experience and a wider product range than perhaps the existing players is also a reality.

It's also perhaps a reality that in those markets the level of penetration or the availability of banking services has not been to the same extent although you are right there have been other banks who have been operating there for quite some time.

So are we extremely excited about the opportunity in the semi-urban and parts of rural market? Absolutely. I think just to put it into perspective if you look at in the last three years in terms of sheer number of branches we have grown from about 750, 760 branches in March of 2008 to 2,100 as we talk. So -- and clearly having added therefore more than 1,000 branches, a lot of these branches are in semi-urban areas.

Also it's not just a question of having the branch there. When you look at the retail lending products, a lot of these products we did not have across our entire network. So we had some of these products in a slightly more limited number of locations or branches. Progressively and concurrently with adding branches, we've also been expanding the rollout of our various retail lending products and other offerings on the liability side as well to a wider and wider number of branches in terms of geography. So that would also I think help us offer a more complete product range and hopefully gain share.

Okay, fair enough. A couple of questions. I was just looking at the average interest cost. I know you don't reveal the number but on a calculated basis, between last quarter and now, it's jumped quite sharply. And I have not seen your total borrowing -- the Tier 2 borrowings they have practically remained flat. Can you throw understanding in terms of why this sharp rise in cost of funds?

Absolutely. I think there has been no change in the borrowings for our Tier 2 and so on. The only thing in this quarter you would have had the full impact of the fact that we had taken Tier 2 capital in the first quarter. And if I remember right we had taken this, we had raised this money closer to June. But that would have had only a -- and that was almost 3 odd -- INR3,000 crores, INR3,500 crores of what we have raised that time. That should have now had a full quarter impact.

But apart from that I think just the fact that our time deposits have gone up and finally the fact that even on the savings account as well, what was the increase in savings accounts rates also which were done in May also would have been a full quarter impact. So one is a full quarter impact of the higher savings account rate and the higher -- and the amount that we raised as Tier 2. The other is that with a 9% just -- sorry, 13% growth -- sequential growth in just fixed deposits, we have that much more of fixed deposits, just outstanding as of September than we had as of June.

Now clearly we don't expect to or we don't intend to grow our fixed deposits on a full year basis at 52% annualized which is what the 13% would be. Clearly in the quarter you would see the jump and of course you know fixed deposit rates have (multiple speakers) been rising. There's no doubt about the fact that as I mentioned earlier, fixed deposit rates at 9% or thereabouts is higher than what they were three four months back. So it's a combination of those factors.

But typically if I do a back of envelope calculation, let's assume 90% of your savings account on an aggregate basis is stable and you give 4% to that. You give let's say 9% to your term deposits and on the borrowing side you give anywhere between 9.5% to 10%. I still don't -- there is no comparability because the jump has been so sharp. Maybe I can take it offline, but --

Sure because I think the math has to add up. It's not rocket science.

Correct.

You absolutely should be able to work it out.

But you're right. There is a steep increase in the time deposit cost during this quarter.

And a couple of data questions. Can I have the risk-weighted assets for this quarter closing?

INR2.29 lakh crores.

I'm sorry? INR2.29 lakh crores.

Correct.

Perfect, thanks a lot.

Thank you, sir. Next question comes from Amit Prem from UTI. You may go ahead please.

Yes, hi. I just had a question on the marked-to-market, (inaudible) total assets and total liabilities front. How does it impact the risk-weighted assets and the return on asset calculation? Does it impact at all or is it just a notional entry?

No. Number one is there will be a very marginal impact on the (multiple speakers). But because on the grossing up because there is no outflow, cash outflow of funds out here, your return on assets will not be --

And the capital charge, is there any capital charge?

Capital charge anyway you know even prior to AS-30 we were taking a capital charge on the positive MTMs anyway. So there is no impact because of the AS-30 change.

Okay. And the other thing on the asset mix side -- maybe you have discussed this already. I just wanted to understand is the asset mix of 50/50 from corporate and retail still the range we should expect or is there any movement likely towards retail.

I think the broad mix is remaining that way. These slight differences in growth rates, something at the high teens, something at in the 20s is not going to make a huge difference. Certainly in this quarter we did see retail outpacing corporate growth. But in the previous couple of quarters we've seen both growing at a similar growth rate.

We're not targeting a certain mix. That 50/50 can go to 52/48 or 55/45, one way or the other. Those have been the ranges that we've seen in the past. But at this point of time, the growth rate variance is not so sharp that it will cause a huge swing in one direction or the other.

Finally, one question on the asset quality. I'm asking you because you are most likely to be affected by that on the corporate side. There has been a lot of noise on the street about impending credit quality issues coming up (inaudible) as well as term lending kind of loans. So what is your view on these kind of loans? Do you think that something like 2008 when there was [some 3%] of the assets got restructured in say six months, something of that sort is likely to come or will it be like 1% every year kind of restructuring?

I must confess that I don't have strong understanding or visibility on the infrastructure and power piece which have been perhaps the most under stress or have been the talk of the street as you said.

The fact that there are obviously projects which are hurt by either availability or what's happened to the price of coal and so on and therefore the capacity utilization or which have stuck into what might now appear to be un-remunerative rates in terms of PPAs, those are realities that we all know of or have heard of anecdotally.

I think the question is how much of that translates into NPLs. I think at least in the immediate, near future, these are more likely to result in an increase in restructured loans because if one accepts the fact that even if it's generated at a higher cost and therefore has to be sold at a higher price, the fact that the country is still deficient in power, my belief is that these projects actually ultimately get completed and get implemented and power is generated. There is a demand for that power and even if the price is higher than what might have been currently contracted, it'll probably still be lower than the cost of power which is generated on a captive basis from diesel and so on.

So what might have been loan repayments which were expected over 12, 13 years would then have to probably go to 15, 16, which is what I'm implying is more on the restructuring side. I think that is a possibility. Whether it will amount to 2% or 3%, I honestly don't have an idea. But some restructuring I think is almost inevitable in some of these sectors.

Thanks a lot for answering the questions.

Welcome.

Thank you, sir. Next question comes from Sreekanth Akula from Spark Capital. You may go ahead please.

Good evening, Paresh and Sashi. I just had a question on your slippages. Can you give me absolute slippages in this quarter if you can?

Absolute slippages?

I mean the gross addition of NPAs.

The gross addition would have been about INR400 crores.

And what would that number read as in the previous quarters?

INR350 crores.

Okay, thank you so much. That's it from my side.

And of course this includes the slippages that I mentioned which are restructured in which the bank may had the flexibility, some part of this which may not have had the flexibility of not necessarily reflecting this but the bank has taken a conservative view to do that.

Okay, thank you.

Thank you, sir. Next question comes from Laxmi Ahuja from Marwadi Shares. You may go ahead please.

Yes, good evening sir. Just a couple of bookkeeping questions. If you could just give me the break-up of the wholesale book as in your break-up into large corporates, [emerging] and mid-size for the quarter.

I don't have it ready right now but I can -- that's something which maybe you can contact Amit.

Okay, fine. Just another thing I wanted to know is what would be the proportion of the bulk deposits to your term deposits.

I guess there is no uniform definition of what bulk is. But if I look at our mix of fixed deposits generally between CDs of course being bulk and larger ticket corporate sort of deposits, usually about 30% has been what we might call loosely wholesale and 70% has been retail.

Okay. This is the similar number to what was said in the last quarter. So it's roughly -- (multiple speakers).

There may be a couple of percent change or whatever but that mix has broadly not changed.

Okay, fine. That was it from my side, thank you.

Thank you.

Thank you, ma'am. Next question comes from --

Just one second before I take the next question, can you indicate how many questions -- requests or questions you now have in line because --

Sir, about 10 questions are there.

I see. So if we can try and do that as quickly as possible, we've been now on the call for about an hour and 20 minutes or so. So maybe if we can and I don't want to rush all of you all but if you can just be a little quicker. And if they are sort of slightly repetitive than of course we would love to pass those instead of repeating our answers. Please go ahead.

Next in line we have Jai Mundhra from CRISIL Limited. You may go ahead.

Yes hi. All the questions have been answered, thank you.

Thanks, appreciate that.

Thank you, sir. Next we have Mr. Sohail from Motilal Oswal. You may go ahead.

Yes hi, good evening.

Hi.

Sir, I just wanted to know like what would our average CD ratio be. Even though our deposit growth has grown by 9%, the CD ratio is around 80%.

Correct.

So can you tell me what has been the average CD ratio?

CD ratio has been about 81%.

81%.

80%, 81%. And given the higher level of capitalization and the Tier 2 and so on, it will typically remain that way because we are funded on the deposit side by deposits. And so apart from deposits, because you're looking at the CD obviously in relation to deposits alone, if you look at the amount which goes beyond the reserve portion, that is essentially being funded by the equity Tier 2. And that's it really. There's no other borrowings.

Hi, Paresh, Alpesh here.

Yes, Alpesh.

Just wanted to know about your provisions. I missed those numbers about the exact general provisions, standard asset, your floating provision and the NPA provisions. If you can give the exact number because I guess there was some confusion on that.

What I said was that between the floating provisions and the general provisions, the total was a little over INR200 crores -- about INR240 crores or something like that. And the balance therefore, are the specific provisions and other contingent and other provisions.

Okay. And in this other provisions were around INR20 crores, right? INR15 crores.

INR15 crores.

So INR105 crores would be for the specific provisions and in the quarter you must have made INR240 crores. Out of that you must have reversed the previous quarter INR135 crores.

Correct.

And you --

You may be INR10 crores, INR20 crores off. Yes, that's right.

And you have started making general provisions from this quarter?

From last quarter.

Okay.

Last quarter was just about some INR2 or INR3 crores, because they have finally [gone] into the general provisions. Just for those are on the call who may not have the background, we had a certain level of general provisions, which was way more than what we are required to have, because RBI reduced the GP percentages for retail loans and so on.

So for almost a few quarters, I think some five, six quarters or more we did not make any incremental general provisions in -- our loan book grew to a certain level. So last quarter, which was end of June we had just crossed the total GP requirements, so we had made some INR2 crores, INR3 crores. This quarter, of course, has been given us a large loan growth, we've had to make some INR70 crores, INR80 crores of those general provisions (multiple speakers).

Right. And would the average cost of growth be the similar one that you have reported or there could be some change in the trend as well?

Average cost of growth would not be very different actually. And there is always a slight cyclicality within a month on saving accounts between the salary credits and then run off and so on. But there is no major difference in seasonality which -- from what we have had in the past.

Perfect. And out of the INR750 crores of slippages that had in one hedge, out of that around INR250 crores is on account of MFI, right?

Yes. Sorry, what -- sorry I didn't get the figure what --

Your gross slippages during 1H were around INR750 crores.

In the first half of the year.

Yes. And out of that around INR250 crores was on account of MFI or more than that?

Across the two quarters a little less than that.

A little less than that.

Yes.

Okay. Thanks a lot Paresh, and congrats for the good set of figures.

Thank you.

Thank you, sir. Next in line we have [Neha] from [AHM Group]. You may go ahead please.

Hello?

Yes.

Hello?

Yes, hello.

Yes, I am (inaudible) from AHM Group. My question pertains to the deposits, we have seen phenomenal deposit growth this quarter and I was just wondering is like the customers anticipating their interest rate cycle peaking or re-anticipating the interest cycle not peaking.

Just to take the questions for the -- I understand the book is largely 50% retail on the fixed side and you have some challenges in terms of the re-pricing of the assets. This high deposit growth does it [sense] in terms of we need to growth a little bit faster. We have capital. We have that [space from], so just to ensure the profitability growth.

Yes, I think I can just say the deposit growth has come in spurts right. So you're right that the faster than what you're [might] look for in terms of the base of the deposit growth is a reflection of very attractive deposit rates in the market.

So while we have to remain competitive in the market I think at this -- at these rates the flow of deposits has been very strong, and to the extent therefore that there have been some surpluses which have not yet deployed. As Sashi mentioned earlier you know we [managed] to hold some temporary liquid in other investments.

My feeling is that unless we continue to see this extremely rapid deposit growth the initial inflows would get deployed in any case. And if we continue to see this kind of quarter on quarter fixed deposit growth, for instance, at 12%, 13% then one would need to moderate rates because we certainly don't need and we don't want to have this kind of flow of deposits.

So you're right that we would need to have a balance between loan growth and deposit growth. Whether that means that we should step on the gas as far as the more activated loan growth is concerned, or we might just need to moderate our fixed deposit growth while maintaining our CASA growth. I think that is the balance that we will obviously continue to try and achieve over the next couple of quarters.

Okay. And also within the business mix we saw that while broadly that 50/50 mix has been changed and the change has been largely in the internal mix between the retail where we are growing the high yield segments like [CVC or LAB] or probably we will increase the share of home loans which are actually floating rates so it doesn't matter between -- in terms of -- it helps us pass on the rates. Is it that -- and now that we are mentioning that it could be retail is going slightly faster and the 50/50 could possibly go to 50/48. So have you -- what kind of levers still remain on the rebalancing on the retail side of it or is it now the mix is largely between retail/corporate?

I think within retail also there are some products which are growing a little faster or slower. But I think that would really depend more on how the demand and credit environment unfolds.

So you may actually see a slight moderation in growth rates in one or two products merely because demand is waning a little in some of those segments, or they [might] -- may want to come back if we at some stage feel that there is any sort of a change in the -- in our credit appetite or the delinquencies for some of those products.

But these are two things -- between corporate and retail and some within retail given the mix, but the -- at this point of time there is no huge difference between at least some of the major products. We have seen both on the secured and unsecured side and across various secured products a fairly stable growth rate.

Okay. And just one last question from my side if I may, -- sorry, it's --= missed out I'll just probably come back, I'm very sorry.

Sure, no problems. Thank you so much.

Thank you, sir. Next question comes from Mr. Subramaniam from Sundaram Mutual Fund. You may go ahead.

Hi, Paresh, and congrats on a very good set of numbers.

Thank you.

Just wanted to understand in one of the earlier results which we just had the other company was mentioning that on some of the products like construction equipment they are seeing weaker margins because the competitive intensity has increased. So what are your thoughts on some of these segments? Do you think products are not as profitable as they were a year back? If you could just throw some color on that.

Well, I think the -- I suppose different players will have, I guess, different views on this because the input costs for different players might vary in terms of the cost of funds, the operating costs and the credit costs.

Sure.

From -- in our experience at least relative to what our -- the pricing metrics is and what our actual cost has been these are still products which are doing fairly well. Obviously as deposit rates have gone up would we be seeking to ensure that the yields also move up appropriately?

There has been an attempt in some segments, the higher level of competition either from new players or other players who've -- looking to gain share, we will -- has that precluded the increase in lending rates to the same extent as deposit rates. That's the case in certain segments and certain products. And there I guess we would evaluate whether at those rates, which are now very currently prevailing it's still attractive or not. But in our experience so far, given our operating and credit costs these are preferred products which still remain profitable.

I was asking more from a perspective say six months back and currently are you seeing differences in product profitability? They would still be higher than what you would have budgeted for.

(multiple speakers)

Okay, sure.

Absolutely, there are a few products that we have we've seen some increased payouts to dealers or some increased -- or some not proportionate or not equivalent increase in lending rates. But the profitability has not changed too much at all.

Not too much, to selecting the transfer pricing will have gone up (multiple speakers)

That's right, but that is internal.

Internal, yes.

Okay. Thanks, so that's it from my side.

Okay thanks.

Thank you, sir. Next question comes from Mr. Vishal Goyal from UBS Securities. You may go ahead.

Hi. My question actually is on fee income. If I do break down the fee between exchange annual core fee, in core fees clearly it's sluggish partly because of third party, but you don't have third -- too much of third party in second quarter. So one is how do you see this particular line growing?

And second, the growth in exchange income how sustainable do you think that line would be?

Well, the fee income actually it has on a standalone basis been about 15% odd which has been the 13% to 17% range that we've seen for some time. So I think that the growth rate in fees, even excluding FX, is not in terms of growth rates very different from what we've seen the last few quarters.

As far as the FX growth is concerned it does seem particularly strong at 40% odd, but that is actually more reflective of the signs (inaudible). In September quarter of last year we grossed -- the actual FX revenues were a little lower. So if you look at the normalized or the average of the FX level last year then you'd find that the growth rate is strong but not quite at the 40% odd.

As far as the actual FX revenues in the last few quarters I think given we have already given the -- therefore the need for customers to hedge their exposures we have seen pretty strong momentum on the volumes. And so while I can't predict what will happen to markets and therefore what would happen to customer volumes there is no major one-off something which will not make it sustainable. It will obviously depend on how we -- the market volumes and therefore our own volumes do.

And coming back to core fee, you think that core fee would be growing lower than, let's say, the balance sheet growth now or --?

Yes, I think that would -- that has been the case for the last few quarters and I think that will remain until the -- at least if nothing else the whole issues on the third party distribution fees being lower, until that goes through the system.

Okay, thanks.

Thank you, sir. Next question comes from Mr. Hiren Dasani from Goldman Sachs. You can go ahead please.

Yes, just two small things, as part of the other or other retail loans of about 6,700 crores what would be the gold loans if at all that's classified there and what is the growth rate you are expecting on the gold loans?

It's about 1,800 crores is the gold loan portion there. It's still off a relatively small base so we're seeing growth rates which are very similar to the rest of the retail loans or maybe a little faster than that.

Okay. And your indicative yields on this product.

About 12% to 14%.

Okay. Great, thank you.

Thank you, sir. Next question comes from Mr. Santosh Singh from Espirito. You may go ahead please.

Hi. Just want to understand the last few quarters how do you split the overall bank's advances and deposits growth between new markets as well as increased penetration, if you can throw color on qualitative basis.

Sure. Qualitative basis what happens is the new -- in absolute terms the new markets, as far as -- define the new markets as let's say branches or locations that we have accessed in the last 12 months or on a rolling basis 12 to 24 months.

(Inaudible) in the last 12 months we've added say just under 400 branches, therefore on an average through the last one year, only half of them would have been actually open, right. So looking at, let's say, 200 branches on average which have been outstanding all of the 2,000 branches been new. So you're actually talking about roughly 10% coming from branches that have been added -- or 10% of the branches being on average outstanding in the last -- of the total number of branches which are there.

And therefore in absolute terms at any point of time it is the branches which have been around for a while, or the locations that we have been in for a while which will contribute to a larger extent.

Once we've had those branches for a while and we've acquired a customer base, which obviously takes a 12, 18, 24 month period, then the ability of the bank to cross-sell and increase our penetration of that customer base actually starts helping the contribution from those branches. And then over an extended period of time, as we have first brought those customers in on the deposit side and then we can also cross-sell our lending products, that then further increases the contribution of these branches.

So while the branch expansion is an inherent part of the strategy in the immediate near few quarters after a branch is open they are more a drag and it's really more of an impact on the cost side of it, and so only over a period of time that they support the overall business growth.

Some limited portion, what challenges you had seen or opportunities you had seen in these new markets, if you can just help us.

Well, I think we all recognize that there is a huge potential out there, but there are costs in terms of brick and mortar putting all those branches. The total market potential on a per branch basis may be slightly lower, but then so are the costs.

So I think the challenges are just to have a wide enough and a complete product range to access those markets (inaudible) to the customer segments there. And then of course ensuring that having acquired the customer we can actually provide our full range of products to those customers without compromising on service levels, asset quality and so on.

Okay, thanks. That's helpful. Thank you very much.

Thank you sir. Next in line we have Mr. Manish Oswal from KR Choksey Securities. You may go ahead.

Yes. A small data point what is our [AFS] book size in the modified [additions]?

I don't think we have put that in the public domain.

Okay, thank you, sir.

Thank you ,sir. The last question comes from Mr. Neha from AHM Group. You may go ahead please.

Thanks once again for the opportunity. (Inaudible) We've been consistently been surprised on the retail consumption growth as well as on the asset quality side. The credit quality has been phenomenal even in high interest rates, so what's the perspective on this particular front between delinquencies and growth slowing. When do you anticipate some of these problems, and just (inaudible) delinquency to flow probably a quarter after slowing growth or something like that ?

I think especially in the last few quarters we ourselves have been seeing the high interest rate and the slight moderation in growth rate in the economy and felt that this should result in some increase in NPLs. The truth is however that so far we have not.

And that may be -- and that is also true I think on the --- as you cite as well as the consumption side is the fact that despite the slight slowdown in the economy the -- a lot of the consumption-led sectors are still seeing pretty strong demand although clearly there has been a decline in the investment-led sectors.

I think the wage inflation and therefore higher retail and higher incomes on the individual side have I think softened the impact of higher interest rates.

Also from our own limited portfolio point of view since the, as I mentioned earlier a large part of the portfolio is fixed rate, the high interest rates impacts perhaps demand for new loans but does not impact the obligation of existing customers for their existing loans. And therefore it does not impact asset quality, because their obligations have not changed.

To the extent that we have floating rate loans and therefore the customer's obligations might change that is -- those are the only products where one could have expected some impact on asset quality. But I think that has been offset perhaps by the higher income levels.

I think the last time we saw a sharp increase in NPLs or delinquencies as a result of the slowdown was back in --

'08/'09.

Yes, in the last quarter of 2008 (multiple speakers)

At that time we had more personal loans and credit cards then, so the [retail] mix is a little different this time so probably therefore the extension.

More than that actually, also that time we were grappling with both our own portfolio and a portfolio that we acquired from Centurion. So there were different segments that both of us had been in so they were slightly different impact.

And you are right that off this interim portfolio the personal loans, (inaudible) loan portfolios were on exit and therefore those were at that point of time seeing slightly higher stress than perhaps our own PL and (inaudible) portfolios.

But the other chief differences at that point of time, apart from a sharp decline in the fourth quarter, you also had liquidity drying up for those few weeks. And that meant that all the SMEs were not being paid on time, there were delays or -- so not only was there a sharp decline in the turnover of these companies but they were also strapped for liquidity.

This time around, although we have seen a gradual slowdown in some sectors, I think it has been far more staggered. And liquidity has not been a constraint, although the cost of liquidity has gone up. So I think this time it's more to do with specific sectors or specific customers who are either highly geared or who have other risks which have -- which might impact their ability to service. But we haven't seen an across-the-board impact as one had seen at least at that point of time.

Okay. Great, thanks. On the corporate side do you see the working cap cycles declining given that the interest rate cycles anticipating cost of funds increasing a pretty strong effort going on since quite some time on that, and that's started showing up amongst your clients.

Well, in fact, I think much of that -- once more in the last year or two when people were tightening and so on. But I think although interest rates have gone up right now, given that in some sectors [a repeat of] -- demand growth has not been quite as strong, the manufacturing companies will be willing to at some time extend their credit periods and so on to maintain their growth rates. So working capital demand, I think, will still remain reasonably healthy despite the slightly higher interest costs.

Then from a working capital perspective interest costs are never a very high proportion of sales. So the -- we sort of -- [linkage] to rate is a little lower than for CapEx.

Okay, great. And sorry one last question the -- earlier you mentioned also that there was a trade off between a very high growth or to increase [clients] slow growth. But say from a real short-term perspective it would be probably high growth because the levers to increase CASA would be much lesser given that most people would now sense that not probably peaking interest cycles and stuff like that.

Yes, but you know we need -- the reason why despite all these levers and despite all these pressures the reason why CASA has grown strongly in this last quarter is because we are acquiring new customers, we are still increasing our penetration of existing customers and then we have more product in the -- believe we can increase our balances.

So, there will be pulls and pressures in both directions. We'll have to wait and watch on how the outcome is. The fact is at the end of all this we still have CASA which is in the mid 40s which is pretty high. In fact, the last time we had interest rates at these levels in end-2008 or early 2009, the CASA ratios were in the low 40s and it was 42%, 43% or something like that.

So despite these same level of interest rate, this time we have got higher levels of CASA which means we've done something right in the interim in terms of adding that much more in terms of our customer base or expanding our geography and so on which has helped us go through a similar interest rate cycle at a higher CASA.

Thanks. Congratulations, and thanks for the insights. Thank you.

Thank you so much.

Thank you, sir. At this time there are no further questions from the participants. I would like to hand the floor back to Mr. Paresh Sukthankar for final remarks. Over to you, sir.

Well, thank you so much for all the questions, and I do hope we have been able to answer all or at least most of them to your satisfaction. And thanks once again for being on the call. Bye.

Thank you, sir. That does conclude our conference for today. Thank you for participating on Reliance Conference Bridge. You may all disconnect now.