HDFC Bank Ltd (HDB) 2012 Q3 法說會逐字稿

Thank you for standing by and welcome to the HDFC Bank Q3 result conference call presented by Mr. Paresh Sukthankar, Executive Director. 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. Over to you, sir.

Thank you, Reema. A very good evening to all of you and thanks for being on this call. I have Sashi Jagdishan and Bhavin Lakhpatwala with me as well on this call.

Let me spend just a couple of minutes walking you through some of the highlights. You've probably seen the financials and might have seen the press release as well. But let me just spend a few minutes walking you through the key parameters here.

Our total income growth -- and total income is essentially interest earned and the other income -- that growth was 35.6%, taking the total income to INR8,622 crores.

Net revenue growth was 16.2%, taking the net revenues to INR4,536 crores.

Net interest income was up 12.2%, on the back of average asset growth and a net interest margin of 4.1%. The 4.1% margin was stable on a sequential basis but was 10 basis points lower from the corresponding quarter of the last year. So -- from 4.2% to 4.1% on a year-on-year basis, although the September quarter was already at 4.1% and we've maintained that 4.1% for the December quarter.

The non-funded revenue, the other income grew at almost 26%, 25.9% and was at INR1,420 crores. Of the INR1,420 crores, the largest component is fees and commissions which was INR1,127 crores. And fees and commissions grew at 19.6%. The rest of it of course came from FX and derivatives revenues and we had a mark-to-market negative on the bond side.

The cost to income ratio was more or less stable at the core cost to income which is excluding any impact of the bond gains/losses and so on, where it went up marginally from 46.5% to 46.7%. And I'll elaborate on the infrastructure expansion a little later, which has partly contributed to this marginal increase in cost to income.

Provisions on a total basis were down from INR465 crores or INR466 crores in the December quarter of last year to INR329 crores for the quarter ended December 2011. Of the INR329 crores of total provisions, the loan loss provisions were INR289 crores. The rest were contingent provisions and so on. So the loan loss provisions of the INR329 crores were INR289 crores and these loan loss provisions include both specific provisions for the NPLs as well as general provisions and floating provisions. So of the INR289 crores of loan loss provisions roughly half of it, a little less than half, around 45% or so were the general provisions for standard assets and some floating provisions.

Bottom line in terms of net profit was up 31.4%. That's really the P&L numbers.

Quickly on the balance sheet numbers, the total deposits were up 21%. That's, I think, against a roughly 17% growth of deposits at a banking industry level as of December. Loan growth was just under 22%, 21.9% as compared to system loan growth of around 16% again as of December.

Core CASA ratio is at 47.7%, just under 48%. I'm mentioning core CASA because in the CASA as of December 31, 2011, there was about INR4,000 crores of current accounts in respect of some tax-free bond issue which was open at that point of time and where we were a collecting bank. So if you adjust for that, then the CASA ratio as of December was the 47.7% we have mentioned in the press release as well.

So that's on the rough break-up of the balance sheet figures.

Capital adequacy is at 16.3% which is the same as what it was in the corresponding quarter of last year.

Tier 1 is at 11.2%. The profits for this quarter are not included in the Tier 1 because that can be done only after audit. So while the September -- up to September the profits had been, the financials had been audited, so the September Tier 1 already included the profits up to September, for the quarter ended December, the Tier 1 of 11.2% does not include the profits for that quarter.

The network expansion, if you look at in the last 12 months, has been quite substantial. We've added 421 branches from December 2010 to December 2011, which takes us now from -- where we were at 1,780 branches to 2,201. So addition of 421 branches. And of that we had an addition of 341 new cities. So there had been a large expansion or continued expansion not just in terms of number of branches but in terms of the geographical spread into -- a fair portion of these obviously being in semi-urban locations and obviously some in rural as well.

On the asset quality front, gross NPA were -- the NPA percentage was at 1%, which is marginally better than what it was at 1.1% in December of last year. Net NPA is at 0.2%. On a sequential basis, the gross NPA and net NPA figures remain stable at 1% and 0.2% respectively.

The coverage ratio based on specific provisions is at 80%. This is a coverage based only on specific provisions and does not include any general or floating provisions. So that is not adjusted for any write-offs or so on. So this is purely specific provisions as a percentage of the NPLs and that is at 80%.

The restructured loans remains at 0.4%. That's the level it has been in the previous quarter as well.

So these are just the highlights. We'll be happy to take questions now.

Certainly sir. (Operator Instructions). First in line we have [Mr.] Mahrukh Adajania from Standard Chartered. You may go ahead please.

Yes, hi, Paresh, congratulations again.

Thanks, Mahrukh.

Yes hi. Just had a few questions. Firstly, on the deposit growth, what is the -- the savings deposits has been given in the press release. So what is the amount of current account deposits?

So the current accounts as of December were INR42,593 crores.

INR42,593 crores okay. And the growth in savings is 2% QoQ, slightly lower than what we've seen in the last few. So is it largely because of switch to savings or do you think that people were generally hoping to get more rates under saving deregulation and therefore the accretion was lower?

Well, the -- if I break it up into two, in terms of the accretion of new accounts, which would reflect any sort of reluctance or whatever you might be referring to, the new additions of savings accounts have remained at absolutely at similar levels for the last few months. So there has been absolutely no change. In fact it's marginally gone up. So that is not a huge trend, but it's certainly marginally gone up in the last couple of months.

Right, right.

Has there been a migration from savings and current to fixed deposits? Yes, there has been. And that's very evident. And this has happened in the last quarter; that is the previous quarter in September and it has happened in this quarter. And as a result you've seen the increase in -- the growth of fixed deposits has been fairly strong.

So also what tends to sort of happen is that the actual balances, we see that the incremental flows that come in when we look at the salary uploads and so on. So the inflows in terms of gross additions that typically take place either on a regular basis for savings accounts or for salary accounts, I think that has maintained its normal momentum, partly offset by the migration that we have seen.

Having said that, I think if you look at even a year-on-year growth of 15.2% in savings accounts deposits, I think that compares with a, if I'm not mistaken, a de-growth in demand deposits overall. And so I think compared to what's happening at a system level, the growth has still been pretty good, I would think.

Yes, the question I had is that the deposit growth this time was not strong because it was not needed as in -- on a quarter-on-quarter basis.

Yes. In fact that's a -- let me elaborate on that. Not needed in the sense, we consciously decided that at the margin, if you look at fixed deposit rates, especially when you look at CDs and large deposits and so on, those clearly the rates have been fairly high. And if you gross up those deposits for maintenance of -- the reserves that you maintain, then the fully-loaded cost of those, of the marginal fixed deposits, which are bulk fixed deposits or CDs is well over 10%, 10.5%, adjusted also for the [PRSLR].

So what we -- then if you look at some of the short-term corporate loan deals, they are also at, give or take, similar levels. So we consciously decided that at the margin it may not be worthwhile renewing or rolling over some of the CDs as they matured. And we allowed almost INR6,000 crores or between INR5,000 crores and INR6,000 crores of wholesale deposits and CDs to run off.

And therefore what you see is really the net increase in deposits after having consciously allowed some of the corporate or wholesale deposits, including CDs of course, to mature and run off. And to that extent we also allowed some part of our short-term maturing corporate loans to run off as well.

So this is as a result of a conscious moderation in -- and the margin in both the wholesale deposits and short-term wholesale loans because this is something that you can put on because it's largely price-based and possible for you to put on when you want to get back into that.

So that's really where -- while the retail FD growth is partly because of cannibalization and partly as customers want to lock into FDs at the rates at which they are with the expectation that at some stage in the near future, rates might start coming down. So there has been a strong flow on retail FD which also enabled us to not renew some parts of the wholesale deposits.

And just one last question on the provision. You did give a break-up that of the INR2.89b, around 45% is general plus floating. So how much was floating, because I think last quarter the floating provision was a largish number?

Yes, as the loan book is growing the element of general provision is also growing. So of that of the amount which I mentioned was floating and general, it would be roughly half and half.

Half and half, okay. And so basically your specific loan loss provisions quarter on quarter have gone up slightly, right?

On a quarter on quarter, it might have gone up slightly.

Yes, because last quarter they were around INR1b. They are probably INR1.6b now. Is that the right number, specific loan loss provision?

No. INR2.2b. INR2.2b, Mahrukh.

INR2.2b. So what was it last quarter then, specific only?

Yes, INR2.2b in September quarter.

Right, okay. And --

(Multiple Speakers).

It's come down between -- between the September quarter and the December quarter it's come down by about 20%.

All right. Thank you so much.

You're welcome.

Thank you, sir. Next in line we have Mr. Manish Ostwal from K.R. Choksey. You may go ahead please.

Yes, my question is related to ForEx income. During the quarter, the ForEx income shot up by [67%] quarter on quarter. So is there any one-off in ForEx income during the quarter or what is your steady state growth rate going forward for this year?

No, this was a particularly strong quarter for FX revenues partly driven by higher customer volumes, given the volatility in the currency. And there was some one-off inasmuch as there was some trading profits. I would say that of the total FX revenue for the quarter, about 20% was trading and proprietary related. The rest of it was customer related.

And second sir, we have reported [specific] loss of INR18 -- INR1.8 crores during the quarter. So could you clarify whether it is related to entirely bond or equity?

No, there is no equity whatsoever in that. It's largely relating to the bond especially at the shorter duration that we maintained. And some of it, since we have investments in mutual funds and after the income, after the dividend some balance mark to market may be there. But there's no equity in it.

And sir, loan growth outlook for next couple of quarters and whether it will be entirely driven by the retail loan book growth or there will be some pick-up in the wholesale book also.

Whether there will be a pick up or not is really a question of what our desired loan growth rate will be on wholesale. The retail momentum remains strong. The wholesale demand and our ability to put out those loans also remains fairly healthy. The question is depending on the rate environment and what we see as the margin that we are earning on the marginal corporate assets, we will decide how much we grow.

So there is flexibility to some extent in the pace at which we would grow on the wholesale side and we'll decide that along the way. On an overall basis we have traditionally grown at a few percentage points faster than the banking system and that's what we will achieve. Within that, whether we grow a little more in retail or wholesale is something that we have a certain amount of maneuverability and we will decide that on a quarter-on-quarter basis.

And sir, during the quarter the wholesale book contracted by 1.9%. So any specific industry where there was significant run-down on the book?

No, it was not on an industry basis where we have got concerns that we are exiting or something like that.

Okay.

I mentioned earlier that this is based on where we wanted to -- what were some loans were maturing or bills might have been maturing, we may not have wanted to put those back at those current rates and therefore we -- I think the industry break-up of that would be irrelevant.

And last sir, one small data point on risk-weighted assets during -- as on December 31.

Risk-weighted assets. INR419,000 crores. Sorry, sorry.

Sorry, I take that back. There was a mistake in the number which I just mentioned. It is INR233,000 crores. INR233,000 crores is the risk-weighted assets.

And sir, can I have the movement of NPA during the quarter, sir?

No, we've just given the gross numbers. We do not break out --

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

Thank you.

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

Yes, thanks. Good numbers for this quarter.

Thank you.

Firstly, like this -- the question is about the corporate loan book that has declined on the sequential basis.

Secondly, in the retail book actually we have grown more in the personal, CVs and the credit card business, which is slightly risky. So what is your take on that, on these two things?

I think on the corporate side, I've already answered, so I don't know whether there's much more to elaborate on that. As I said we would grow that a little slower or faster depending on what we -- what our appetite for growth is.

As far as the retail break-up is concerned, I think you've got to look at the percentage growth rates in conjunction with the proportion of each of the products. So when you look at -- for instance, you're right that both personal and credit cards has picked up in terms of rate of growth. But these are like 13% and 6% of the total retail loan book, which means about 6% and 3% of the total bank's loan book. So obviously off a smaller base, these naturally have grown at an even faster rate.

Likewise as far as the CV is concerned I think we have said in the last year, year and a half, we have substantially extended our growth of this business across the second and third tier sort of locations in line with what I mentioned earlier on the expansion of our branch network as well. So apart from what was largely our existing business earlier, which was largely in the [HDV] business in a certain number of cities, we have substantially extended the geography and increased the coverage from the customer segments that we were managing on these. The combination of both these is what has grown these products.

But again if you look at the largest contributors to the retail loan book, then they still remain auto, which is 26% of the retail loan book; business banking which is at 17% of the loan book, which are the two largest pieces which have also grown fairly well. Then you have two, three products which are roughly 13% each, which includes home loans, personal loans and commercial vehicles.

So I think the overall mix of the retail loan portfolio is still very good in terms of being highly diversified. You have six, seven products contributing anywhere between 13% to 17% and of course auto being about a quarter of the total portfolio. And the rates of growth, even in the slowest of the products really in terms of meaningful products, has been 16% and of course going up to a higher level for some of the other products.

Our asset quality both in terms of losses and NPLs as well as delinquencies pre-NPL has been fairly stable even in the products that you just mentioned. So we are pretty comfortable.

Again remember that our unsecured portfolio, which today is about 19% between credit cards and personal loans, 19% of the retail book, is actually still today a lower proportion than what it was even a few years back. And for almost two or two and a half years, although the portfolio was still behaving reasonably well in our case, looking at what was happening in the industry, we had pulled down the rates of growth for these products, while the rest of the portfolio was growing.

As a result in the last couple of years, the proportion of these two in the total retail loan mix has come down and now as of that smaller base they have got back into slightly higher growth rates on the back of the higher distribution as well. They are catching up in terms of a little bit of market share, although even today they are smaller proportion of the total retail loan book than they were earlier.

All right. Just if we take some of the segments in the retail like auto or maybe personal, then your two-wheelers, credit card also, these are all contributing around 30% of your total loan book. And for the last two, three quarters, what we are observing is that we have seen slightly higher growth in these three, four segments. So is it a kind of preemptive measures what we are taking that we are trying to grow the fixed loan book, fixed loan rate book faster, anticipating that going forward the rates are going to come down? So is this a preemptive measure to protect margin going forward?

You give us more credit than what is due to us because the fact is that in almost all our retail loans, other than home loans and some parts of business banking, the rates are fixed. So it's also fixed in auto and commercial vehicles and personal and --

Two-wheeler.

Two-wheeler and everything else. So to be honest I think from our point of view we are today clearly one of the market leaders in most of these products. We continue to build distribution. We have a product from a structure, service, pricing point of view which is competitive. Thereafter we are quite happy to grow all our products within our credit appetite and so on without changing that at the pace at which the market supports it without our having to either go down-market from a credit point of view or being over-aggressive from a pricing point of view.

As it happens, some of these products probably based on the competitive environment or based on the demand, underlying demand have been growing a little faster. But we have not been deliberately trying to push the one or two products that you mentioned or we've not been deliberately trying to slow down one or two other products that you did not mention.

We are quite happy within the parameters that we are comfortable with to grow any part of this retail business. So I think it's as much a function of the underlying demand and the competition in the marketplace as what the underlying growth in the industry itself for these products is.

Just one more question. Like in the scenario when we have not seen any cut in the lending rate done by any bank barring one, so in the situation when the credit off-take or credit demand is not there in the system overall and secondly, that the banks start cutting their lending rate, then there -- obviously too much pressure will be there on the margin. So not as specific to your bank, since you're already taking some steps maybe to take -- like to stop erosion in the margin, but going forward, if these two situations come across then certainly there will be much more pressure on the margin. So how do you feel on this?

I'm not sure whether I understood the question exactly. But if you're saying that in a declining interest rate scenario will there be a pressure on margins for the system, I think it will depend on the -- each bank's, the composition of their balance sheet, both in terms of the composition of their deposits and the composition of their assets in terms of how much is fixed rate and how much is floating rate, to the extent that any decline in lending rates which are linked to base rates. So the base-rate-linked loans will change or will reduce only when deposit rates have been changed because the calculation of base rates is dependent on the deposit rates that have been identified or which have been used by different banks in their calculation methods for arriving at a base rate. So by definition, banks will have to drop their deposit rates in turn to get to a lower base rate that they may want to charge.

As far as loans which are not base rate linked, which may be a fixed rate product on the retail side or otherwise, those would clearly be dependent on what is happening in terms of the direction of interest rates generally and the level of competition. So I think it will depend on each bank's [ALM] matching and contribution.

Very broadly I think from our point of view we have been trying to maintain a roughly matched book. And having been through cycles in the past, we have seen that our margins have traditionally remained in a range which for a few years now has been in a 3.9% to 4.2% or 4.3% range. Within that range, will there be some movements? That's possible. But other than that I don't think we see any specific reason for margin only linked -- margin compression only linked to the direction of interest rates.

Like how --

What I would request, if you don't mind, maybe you can ask another question later on because we are trying to as far as possible have this call for an hour. So I would like to give as much of an opportunity to others as well. So if we do have time at the end, I'd be happy to take a further question from you.

Yes, sure.

Thank you, sir. (Operator Instructions). Next in line we have Seshadri Sen from JP Morgan. You may go ahead please.

Hi, congrats on a great quarter.

Thanks.

Two questions. One is a numbers question. Your other assets and other liabilities through the year has been expanding quite rapidly. This quarter they both added INR1,500 crores. If you could give some color on that.

And a more general question on asset quality. The credit cost numbers have been low for quite some time now; I think it's six to seven quarters. And we've discussed quite a few times what's driving that. But what is the outlook? Because you've been saying that the numbers are below what your expected losses are and they should revert to mean at some stage. Do you see any signs of the numbers picking up and what are the broad signs that we should look out for in terms of where these numbers could start to normalize upwards?

Okay, on the first part which is the other assets, other liabilities jumping up, I'll just take you to March wherein we adopted an accounting standard called AS-30. One of the requirements there is that the foreign currency, ForEx contracts or the derivatives, the mark-to-market, the positive mark-to-market you have to gross up. Hitherto we were netting it off. So pursuant to that we have now been grossing up since March 2011 both the other assets and other liabilities.

Now if you see the movement from March '11 to now, the dollar/rupee has moved significantly. So hence that has created a kind of impact on the other assets, the numbers. So it's ballooned both on the other assets and other liabilities, equivalent on both sides. So if you adjust for this so-called large increases in other assets and other liabilities your balance sheet has grown by about 24%.

And when you release your NIMs you adjust for that, you don't capture this in your NIMs?

Absolutely. Because it's notional.

It's notional. There is no funded portion to that.

Here let me try and take the question on the asset quality piece. So I think you're absolutely right that every time we've also been fairly delighted with the continued stability by and large of the asset quality and the fact that especially on the retail side where the expected losses inevitably are the cost of doing business in any product whether it's a car loan or a personal loan or a credit card or any other product and the fact that actual losses for a few quarters have been lower than what the expected losses are.

If you look at the actual charge to P&L and to some extent the NPL figures also they have been lower partly driven by slightly muted slippages and also partly driven by the fact that the charges are partly offset by recoveries and of course normalized write-offs which continue to happen based on what was -- what became an NPA six months, one year, 18 months back because on the retail side we have a certain time-based ticker at which stage we make full provisions or where we write off and so on. So clearly the gross NPAs would be a function of what were the NPAs sometime back which would now get written off on the retail side and what our recovery is, whether on the retail or the wholesale side.

The slippages themselves have still continued to be stable. And even on a quarter-on-quarter basis and so on, we still find that by and large the slippages have been roughly stable. Maybe in a few products a slight uptick; in some others a slight, a very small reduction. So overall, I think the slippages have been fairly stable.

I would imagine that the slippages, if the economy was to continue to slow or if there were other pressures which impact the ability of customers to service, that could marginally increase depending on how the environment is. But what would certainly tend to come off a little at some stage -- and we've seen that happening even in this quarter -- is that since we've had a long period of relatively low NPL creation, at some stage the recoveries are going to come off. And we've seen some of that in this quarter.

Likewise in terms of write-offs when you look at the new write-offs 18 months back vis-a-vis what was created two years back or 2.5 years back, the larger write-off which was linked to the larger creation at that point of time is also coming off. So to some extent when you look at the increase which might happen it would be more relating to these negative sort of numbers which were -- rather than any increase in new slippages at least at this point of time.

Is it easy to actually predict all of this? The answer is no. We'll be quite happy if slippages continue to remain this way. It's just that if you again analyze the mix of loans between retail and corporate and within retail across each of the products, I have traditionally said that our expected gross NPA numbers or our normalized or appropriate NPL numbers related to the mix of products should be somewhere in that 1.3% to 1.5% range which is where it had been traditionally even prior to the Centurion acquisition.

It has now been almost two years since the number has been a little lower than even the bottom end of that range. We have not seen any change in that trend right now in the last quarter. But it's tough to predict when this normalization would take place. So I'm maybe repeating some parts of what I've been saying for some time, but that's our best assessment at this point of time.

The only thing we are comfortable with is that some of the concerns in the system relating to chunky, relatively large, new NPL creation linked to specific sectors or specific customers and so on which are being discussed so much in the press or otherwise, I think we have been fortunate inasmuch as we don't have any meaningful exposures at least at this point of time that we feel are vulnerable from those sectors or from the kind of concerns that are being spoken about.

So what we might see over a period of time is more the normalized increase or cyclical increases that might take place. But we have limited vulnerabilities to the larger, chunkier concerns that perhaps a lot of you have for the system.

Great, thanks. Thanks Paresh.

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

Yes, hi Paresh. Just a quick question on fee income. It's been relatively a bit stronger this quarter compared to what has been the trend for several quarters now, closer to 20%. So -- and you have repeatedly said that not much portion of your fees is related to lending, right? So can you just provide some color, was there any one-off or any particular product which did well this particular quarter?

Yes, I think your question is absolutely right that as against a normal 14% to 18% range in terms of fee growth, this time we are at 19.6%. So it's certainly been a stronger quarter.

We've got a little bit of a seasonal impact of -- because this is the festive season some of the products relating to bullion sales and so on is slightly higher, which has made a small impact. There is also slightly higher interchange relating to again car spends and so on, which have a cyclical element to these. So if you look at these two, that would explain about 1%, 1.5% of incremental growth for this quarter.

But even adjusted for that we would probably have been at the higher range, higher end of the 14% to 18% range that I've just mentioned and the rest of it has really come from higher fee growth across the entire range of the other products including the fees that we get on retail assets and ATMs and whatever else. So there has been a across the board improvement in the fee growth across the range of products and then that has -- the icing on the cake has been a couple of products which have given a little more for this quarter adding about 1%, 1.5% to the fee growth.

So distribution of third-party products also this quarter was better than what has been the trend for several quarters now which has been one of the main reasons why fee income was relatively weak.

Yes and no. In the sense that volumes have been -- we have seen some growth on a year-on-year basis in terms of the volumes. But the fee income is still year-on-year negative as far as that line is concerned. Some part of that and this is again something we've been -- we have discussed in the past is that as you know the unit commissions that are paid have come down on both insurance and of course mutual funds even earlier. To the extent that has happened obviously the fee growth has been lower.

Some part of that decline in fee growth would have been offset by slightly higher volumes. But it's still on a year-on-year basis --

Negative.

That particular line within fees.

(Multiple Speakers).

And that (inaudible) still depresses the overall fee income.

Okay. Thanks, thanks so much, Paresh.

Welcome.

Thank you. Next in line we have Saikiran from Espirito Santo. You may go ahead please.

Just quickly on the sharp spike up on the yield on advances during the current quarter. Is it primarily because of incremental loan mix being different from what it has been or due to the pricing power which you would have seen in the market as of now?

No, I think it's more to do with the first. For instance, we have -- since retail has grown faster and we have run off some of the low-yielding corporate loans, the combination of both of those would have helped increase the interest, the yield on assets. Because the assets that we -- as I mentioned earlier, the corporate assets we grew year on year 15%. Quarter on quarter we ran off some which would have been at the high single-digit or very low double-digit range. While the retail asset growth which has been year on year almost 29% would have naturally -- across the entire range of retail, would have been at a higher interest rate.

So the pricing power, frankly at any point of time the market is competitive. So I would -- we would love to have it, but I think given the competitive environment the pricing power is almost -- is always somewhat limited even to market leaders like us.

And the second question what's the reason being price leader in NRE term deposits, post deregulation?

I'm sorry, I didn't get the question. Could you please repeat it?

No, I mean to say that you were the first guys to increase the NRE term deposit post deregulation. Any specific reason you attribute because you have not acted on the savings bank deregulation earlier.

I think frankly the (inaudible) on the NRE deposits merely meant that there was no logic why the, with the same rupee deposit why it should be priced any differently for a domestic customer or a NRI customer. So all that was done was to align the deposit rate for the same rupee deposit for the same tenor to the domestic deposit, which of course might have captured that space in having done it first. But it was a wonderful thing to do and I think within hours if not days, everybody has followed suit.

So the basic point was if you were willing to take a deposit at 8.5% or 9% or 9.25% for a certain tenor for fixed deposit from customer A, which was a domestic customer, it was logical that you should offer the same thing to an NRI customer. Of course because we're not the highest in FD rates for domestic customers, there are banks who are offering even higher than us on the NRE side as well linked to what their deposit rates are. So that's where it is.

Finally, on the floating provisions actually -- sorry, on the specific provisions, does the number include anything which you would have [used] from the balance sheet apart from the P&L which you were mentioning around INR2.2b approximately.

For the balance sheet there is no specific provision that you can use from anywhere else. The increase or decrease in balance sheet -- in actual charge to the P&L could also be a function of some release of provisions based on recoveries. But whatever is the incremental provision other than what might happen because of release of provisions because of cash recovery from customers would only be through the P&L. There is no utilization possible of floating provision for sure or general provisions for creating specific provisions.

No, what I mean to say is like the last couple of quarters you would have seen [MFI] portfolio provisions getting utilized. And I just want to understand whether there is any during the current quarter.

No, there's nothing in the current quarter.

That's it from my side, thanks.

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

Hi Paresh; hi Sashi. Nilesh here. Congrats on a great set of numbers. Just on the ForEx bit, we have seen a strong quarter and you mentioned about the customer volumes going up. Now I was just wanting to check at the back end of the quarter, we've seen RBI come out with their strictures on the reduction in open market positions for banks and the reduction in the activities for corporate. So how are we seeing, in the month of Jan, how is that behaving? And what do you anticipate would be a steady state number for this line item?

See, I think if I look at it traditionally, the FX revenues have also grown at somewhere in the mid to high teens or 15%, 20%. This is what we've seen on a year-on-year basis. And I think this is a revenue line that one would more logically have to see on an annual year-on-year sort of basis. There will always be some volatility on a quarter-wise basis because it's not something which if you're doing X in the full year, you're likely to do exactly a fourth of that in each quarter. You will have slightly stronger and weaker quarters. So I would still look at what has been the annualized growth rate for this line.

As far as your specific issue on volumes, I think we did see the initial volumes spurt purely linked to the fact that there were a large number of customers especially on the import side who were caught somewhat unawares and then seeing the impact of what was happening with the rupee at that time, depreciating as fast as it was rushed in to cover. And obviously there were also exporters who therefore were locking and then seeing the impact of what was happening with the rupee at that time, depreciating as fast as it was, rushed in to cover. And obviously there were also exporters who therefore were locking in to longer forwards.

After that initial spurt, whether it was a function of their -- various corporates having reached the levels of cover that they wanted to or linked to perhaps the rupee itself, now in more -- right now having bounced back a little. And perhaps some of the regulations of the -- where the cancelled contracts cannot be re-booked and stuff like that, will volumes tend to come off the spurt? I would think so. However, given the normalized level of trade and hedging that was there for the foreign currency exposures, as I mentioned earlier the annualized growth rates should still be par for the course.

So around 15% to 20% is what --

That has been historically the levels. I'm not -- I don't have a guidance on any revenue number or balance sheet number. Let me clarify that, for discussion and otherwise. If you look at the historical trend it's been roughly in that range. And there is no major change in the business dynamics for this -- for the FX line which would -- which should change that broad range that we've seen in the past.

Okay. The reason I'm asking is the limits have been cut so would this not have an impact on the revenue?

The limit has been cut only for open positions and so on. So I think, as far as being able to --

Intra-days only.

Yes. So I think wherever there are customer flows, that will not get affected as far as the Bank's ability to service that. But the customers would --

(multiple speakers) volumes will come down. But the margins on that has been very wafer thin anyways. So from a revenue impact it will not be so much. And normally these are some large corporates who were doing cancellations, etc. So those kind of volumes will come down, but from the Bank's perspective I don't think there will be too much of a change in the margins.

Okay, okay. Just one more question. Have we seen any delinquencies from the MFI portfolio during the quarter?

No not -- nothing material. We may have had a couple of small names here and there, but very, very small. So I don't think the -- if you look at the contribution to the NPLs, if there has been a large contribution from any one sector, MFI or otherwise, it's more customer specific and not sector specific.

Okay, okay. And you mentioned about the CV -- the last couple quarters we've seen a strong growth in the CV portfolio. And you mentioned there has been geographic expansion which has also contributed to that. Have we -- earlier what I remember, we used to do a lot of these new CVs, so have we changed -- are we doing old CVs, used CVs incrementally or we still stick to the new CV portfolio?

No, we're still sticking to the new only.

And this is more LCV?

It's a mix. In value terms the HCV would still be larger. But when you look at the growth it's been from both. So the mix now would be a better -- would also have a reasonable contribution of LCV, although LCV would still be lower than HCV. But significantly higher proportion than what it was a few years back.

Okay, great. All the best, thanks.

Thank you.

Thank you, sir. Next in line we have Ashish Sharma from Enam Asset Management. You may go ahead please.

Yes. Good evening, sir, and congratulations on a good set of numbers. I just wanted to get a sense, you mentioned that we haven't seen any decline or deceleration in savings accounts accretion. Can you just give some numbers, what would have been the run rate in Q2 and Q3?

In both the -- in fact in the entire year so far, on average we've been adding somewhere around 2.2 lac to 2.5 lac accounts per month and that's been the level that has been added in this last quarter as well, marginally higher than the previous quarter but that's an increase in thousands. So roughly, on average, it would be somewhere between 2.2 lac to 2.5 lac total savings accounts, including salary accounts, per month.

But majority would be salaried accounts only.

No, it will be a combination of both.

Combination of both. And, I just wanted to get the sense, as of now the stance taken by the big banks has been that the current rate is the rate. We'll not be changing that rate. I think in most of the conferences we've wanted to get a sense has there been any interaction between the banks and the RBI? RBI is happy with the stance the banks have taken?

Paresh Sukthankar I don't know whether RBI puts out guidelines, and I think as far as we are concerned, I don't think there's been any interaction between the individual banks and RBI. If there has been, other banks they would know. As far as we are concerned, we have not had any interaction on this. But I think when we talk about freeing up of interest rates, I'm presuming that, within the regulatory guidelines, each bank would decide. And so I don't know what -- I'm not so sure whether I get the import of what exactly you are asking, because if the rates are free, I guess, within that, banks have decided to price what they are. We are comfortable with the rates that we are offering. \

Okay. And the second question was on asset quality. In any of the segments are you seeing any dip in the collection efficiency, in the retail segment, sir?

Paresh Sukthankar In every business you'll have some segment or some geography which will see some uptake and others where you'll see a pullback. There is no specific trend where, on month on month, we're seeing a trend of deterioration that is specific to a particular product or segment.

Okay. And do you think that retail segments will continue to maintain the same momentum or -- and the bank, consciously, would not like to tone down the growth? You're happy with the current environment and with the collection efficiency you're witnessing in the segments?

I would go a step further and say that, apart from the fact that the current levels of NPLs and efficiencies have been, as I mentioned earlier, even better than what have been priced in, if the loss which has been priced in is higher than what we are currently experiencing, even if there is some increase in these losses, as long as the losses remain within what has been priced in, or within what is expected losses, we would have no discomfort with the overall products. Within that, even when our NPLs are extremely low or losses are low, if there are specific segments or specific parts in the portfolio that are showing any sort of signs for -- where we believe we should be concerned about it and we can take corrective action, that also happens on a ongoing basis. So the overall rate of growth in every product will be such that we are comfortable growing that within the credit parameters that we have laid down and the environment.

Okay. And this is true, for the segment you were saying that the current losses and the expected losses have a huge margin and you don't need to tone down the growth at all in any of the retail segments?

Based purely on the signs that we are seeing from a credit point of view, the answer is no.

Okay. Thanks a lot, sir.

Thanks.

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

Thanks, Paresh, for taking the question. A couple of things that have already been discussed, but first on the asset quality a couple of sub-sections there. First is on the retail side. Can you throw some color in terms of the CIBIL scores that you have seen for the customers that you acquire as well as the customers that are already in some product line of yours?

Related to that, in terms of pricing pressure, do you see, any time soon, that banks will start undercutting competition just like what happened just before 2008?

In the first one, that data is not in the public domain. The credit -- the score cut-offs that we may have for different products and different segments is not something that we can divulge. All I can say is that whatever growth we have been able to achieve has not been at the cost of going into riskier segments or changing our credit profiles, either score based or other parameters that we have.

As far as the risk, or the expectation on pricing becoming even more competitive, or becoming in any way irrational, that's something which you can never rule out in a competitive market. I would think that, given that we've seen a slight slowdown in the economy in the last year or so, given that generally, for the banking system as a whole, margins have been stable to declining, given that in the environment that we are in as a system, capital -- banks would probably want to be prudent in terms of their use of capital, one can only hope that banks are a little more circumspect in terms of pricing and risk.

But I would -- the risk is certainly there, because if there are certain segments of wholesale, maybe those segments which provided the large part of the growth in the last couple of years, if those are slightly slower, or if there are players who are looking to grow their share in certain businesses, will they, or could they play the pricing card? That's certainly a possibility I cannot predict. But I must say that overall the pricing environment has been slightly more rational than it was at the peak of the last aggression that we've seen a few years back.

Okay. But very quickly on the score-based analysis, qualitatively scores have improved. Is that what you would attribute?

Paresh Sukthankar Qualitatively scores have improved --

CIBIL scores let's say, for example.

I think, if you just look at the fact that income levels have been going up in terms of the wage inflation being in double digits, the fact that, as a system, delinquencies and losses for portfolios across banks, at least in the last couple of years, have been coming off, maybe because there wasn't so much of a loan addition but certainly in terms of further defaults, both those and therefore the amount of de-leveraging that might have taken place in various segments over this period, might be some factors which might be helping the quality of the overall customer base.

Right, right. Any quick indication on the card rollovers that we have seen? Typically I would assume 80%, 85% rollover would be -- or anywhere between 70% to 85% rollover would be the desirable. Have you seen rollovers coming down to let's say 55%, 60% odd levels?

Well, I -- we haven't put out whether it is, for us, whether it is 50%, 60%, 70% or 80%. I don't think there are too many banks in the 70%, 80% level at all in the world, even in India. So if you're dropping off your names hoping that I (inaudible), no. Generally speaking, by the way, the revolve levels do come off as spend increases. And the single factor, I think a lot of the spend that happens in the festive season are not revolved because that's the time people are probably getting their bonuses or whatever, their other cash flows, a lot of that is actual spend. But the normal revolve in absolute terms, maybe the percentage comes down during the higher spend levels, I think has not broadly changed in the last year or so.

I see. Moving on to the wholesale side, a couple of other people have mentioned that construction is one area that is seeing some pressure. Are you -- how much you are -- definitely you have a CE portfolio out there. How much are you exposed there and what kind of risk do you see building up and some predictions or guidance on that.

Well, all I'd say is that we -- on the construction finance and development funding side we are less than 0.5%. As far as the construction equipment is concerned, that's not necessarily only to -- real estate construction per se. It goes into a variety of industries including, of course, construction and some parts of infrastructure. We have seen fairly stable asset quality at this point of time.

And --

I'm sorry, I'll have to cut you, but I think I've answered a couple of questions. If you don't mind --

Sure.

(multiple speakers) some others.

Sure. Thank you.

Thank you, sir. Participants are requested to restrict two questions at a time. Next in line we have (inaudible) from [Capital Market]. Will you go ahead please?

Hello. Just wanted to know, how would we be moving on the savings bank interest rate? Does the industry see any de-regulations happening in that account?

Well, de-regulation, as you know, has already happened. As far as the pricing by banks like us, I think we are -- we have certainly not changed our rate, as you know. And at this point of time we have no immediate intention of doing that because we believe that the total interest of 4% plus the cost of servicing the savings accounts, the total cost is appropriate to -- or is the right cost of that money vis-a-vis the fixed deposits that are there, where money is available at different tenors for fixed deposits. So at this point of time we certainly have no plans whatsoever to change our savings accounts rate.

Okay. And what is the tune of NRE term deposits?

What is the size of our NRE deposits? Just now our total NRE would be -- I don't have the exact figure but it would be -- what? In percentage terms it would be less than a couple of percent?

Yes, yes.

It would be about a couple of percent, very roughly.

Below 10%?

Yes, yes, well below 10%.

Okay, okay. And you said there was some -- we have taken off wholesale bulk deposits. What would be the tenor currently now?

What we allowed to run off was a few thousand -- you said tenor of -- I'm sorry --

(Multiple Speakers)

No, I was asking for the tune of.

Tune of.

Right.

The -- of our fixed deposits, the mix would roughly be 70%/30%. 70% of our fixed deposits would be retail; roughly 30% would be wholesale which includes large retail and wholesale customers.

Okay, fine. Thanks a lot.

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

Yes, hi. Congratulations, sir, on good results.

Thank you.

Sir, just one data point. What is the composition of retail in your total fee income?

About 80%.

Okay. And secondly, your ROAs they're close to peaking out. We have touched 2% mark and have increased steadily quarter -- every quarter, even as our balance sheet growth has slowed in comparison to what it used to be over -- say on a long term basis. So how comfortable you are and how sustainable do you think this improvement is?

Well, this time I think the ROA has got almost a one-off push up because we -- balance sheet growth was a little more muted. So clearly I think, in the last year or two we've had a ROA which has been in the range of about 1.6%, maybe sometimes 1.7%.

I think the reason for the higher than normalized ROAs has been partly the lower than normalized credit costs. And this time of course, also partly driven by the slightly stronger fees this quarter and -- fees and FX this quarter, and the slight shrinkage of the growth rate in the balance sheet for this quarter. So I would not necessarily try and extend this quarter's ROA as the normalized ROA, although you rightly said the basic profit -- both revenue and profit growth still remains fairly strong.

Okay, sure. Thank you, sir.

Thank you.

Thank you, sir. Next in line we have Mr. [Vikesh] from Bank of America. You may go ahead please.

Hello?

Yes.

Hi. Hi, Paresh, congratulations. I just wanted to understand one thing. There appears to be some disconnect; your volume growth is still holding up, growing well over 22% with retail growing almost at 29%, 30%, and your NII appears to be growing only by 12%, 14%. So just wanted to understand where is the disconnect, because your margins are not moving that much, 4.1%, 4.2% hardly moving their level. So volume is strong; margins here and there.

Average.

So I think there are two things. In fact the math is very simple. The fact is that the margin impact, as you know, from a year-on-year basis is 4.2% to 4.1%. So there is a 10 basis points impact -- drop on the margin. And which is -- and technically if you look at the loan growth, you're looking at margin growth on a point to point basis. Right? So whatever is the loan growth, even on a sequential basis or a year-on-year basis, that is -- if you were to reduce that slightly for the fact that during the quarter naturally these loans would have come out -- come up through the quarter, the average growth in assets would be less than what you're looking at on as year-on-year, point to point. If you look at the combination of that and the growth in -- and the drop in margins, you'll come to that figure.

Fine. And just a couple of data points if you can give out. I just wanted to know, what is you nine months specific provisioning?

And also if you could give us the share of your wholesale deposits.

Wholesale deposits, as I said, of the fixed deposits would be about 30%. Obviously it would be a higher proportion of current and nothing in (background noise) accounts.

The specific provisions year-to-date would be approximately -- INR600crores?

Yes, approximately INR600crores.

Yes, it would be approximately INR600crores odd.

INR600crores odd?

Yes.

Fine, okay. Thanks a lot, Paresh. Thank you.

Thank you, sir. Next in line we have Mr. Manish from Deutsche Bank. You may go ahead please.

Hi, Paresh. Congratulations on a good set of numbers. I just wanted to know the, or understand the future outlook on the fee income. This quarter fee income obviously have done well and even adjusting for the one-off which we mentioned, fee income has remained strong. Would it be fair to assume the trend actually has turned for the better, or you think this quarter itself is a one-off and probably 15%-ish growth is more doable?

It's tough to give the exact expectation as well because there are obviously flows also which tend to move a little based on actual underlying momentum in these products. So I would still say that the -- adjusted for the one-off, it would still be within that -- at the upper end of that range. So I would still say that the 15% to 18% range still is a reasonable range for fee growth. I would -- only if we have a few quarters of sustained growth which is at the top end or outside the upper end of that range would I feel that we've actually gone into a slightly wider range. And I don't see that really happening until we see volume growth on the third-party distribution side having grown such that you have offset the negative impact of lower commission rates. And I think that's a couple of quarters away.

So either the regulation change once again to change the commission rates there, which I don't see necessarily happening in a hurry, or the volumes pick up to offset that. So it has to be built into the base before I would be comfortable saying that yes, we are in a slightly different range altogether. At this point of time I would still say that we are in the range, perhaps, for this quarter at the upper end of the range.

Sure. And assuming the fact that over the next six months we will see some interest rate decline happen, would it be fair to assume that your margins may see an uptake on that time, because your loan book is largely fixed in nature. You will initially get the benefit of funding costs coming down sharper than your loan costs -- [loan-ins].

See I think, to the extent that our balance sheet is reasonably well-matched, while we may have fixed rate loans, we also have fixed deposits. I think -- can there be a few basis points movement one way or the other? I think it also depends on the level of competition affecting the yields on loans, because it's not necessary that as rates start coming off loan yields and deposit rates come off in parallel. So, if all things being equal, if there was a parallel shift in deposit and loan rates, obviously there would be a gain. But that traditionally has not happened.

So I would say that the range of margins, which has been 3.9% to 4.3%, within that range could you see a movement which is both ways depending on how the market evolves? I would just say that is the case. Specifically because rates are coming down, is there a natural and inevitable increase in margins? I would hesitate to say that, but I think they will remain in that range.

Sure. And just a couple of data points. Have you sold down any loans during the quarter?

Sold down? No.

Okay. And, of your retail loans, the other retail portion has increased, or has been increasing fairly fast. Is it largely to do with gold loans or is there some other component which is driving that?

No, there are three or four products. There is gold loans; there is some -- the kisan retail agri loans, there is some tractor loans, there is some retail overdrafts against FDs. So there are four, five products, all INR1000crores, INR2000crores each, which is what is totaling up to that INR8000crores. So there are three, four products. Gold loans is one of them, but again still is in the couple of thousand range. So it's not yet large enough to carve out.

Sure. Thank you.

Thank you.

Thank you, sir.

I'm not sure how many questions there are at this stage. We were -- it was supposed to be an hour. We are into an hour and fifteen minutes. Maybe we can just do another five or seven minutes and hopefully I would have addressed most of the questions.

Certainly, sir. Next in line we have Jatinder Agarwal from RBS. You may go ahead please.

Good evening, sir.

Good evening.

Sir, just one number on employees as of December?

Employees as of December --

Around the same levels as -- around 55,000.

Okay. And, sir, more qualitatively, in terms of some of these segments which is auto, business banking and probably home loans, if you could give some this thing on ticket size across each of these?

Jatinder, I don't have the average ticket size right now. For -- you're saying for business banking, home loans and?

Autos, which is the break up, auto and CVs basically.

We'll send it to him.

No, we don't have that number off the cuff right now.

Okay. So generally in terms of, all the indicators suggest that there is a slowdown which is coming in the retail side or the consumption side of the this thing. So for us, do we have some feedback in terms of what is happening on the ground and what is pushed back in terms of what business growth will be as we go forward over the next 12 to 18 months in that part of the business?

Well, I think we have seen some ups and downs in demand for some of these retail products. But, while, relative to what we've seen in the first half, there was a slight slowdown in the pace of growth on auto, still, on a year-on-year basis, and even on a sequential basis, we continue to see fairly strong growth. But then again this quarter also has a seasonality to it because it's the festive season and so on. So there are different things that play.

At the end of it, the numbers don't really show a meaningful slowdown or moderation in growth rates. Slowdown in any case is around them because we're talking about relative rates of growth. So although the auto loan business has grown at a slower rate than around the other retail loan products, it has grown at almost 16% year on year and almost 4.5% on a sequential quarter basis. So it really hasn't slowed down as much as one might intuitively feel.

So I think overall part of the impact of, either a slightly weaker sentiment or slightly higher interest rates, has been, at least in the last quarter, been offset by the festive season impact or a slight seasonality impact and the continued wage inflation which probably means that people are still willing to take those loans for products that they are comfortable with.

To the extent, however, that the higher interest rates have an impact on the growth rate in the economy and therefore the GDP growth and so on, this gets factored into the overall growth rates because we've always said that the banking system will grow as a multiple of the pace at which the economy grows. And then we will grow a little faster than that. So whether it's, for whatever reasons, if the economy does grow a little slower, and part of that is because of slightly slower consumption levels or, partly, slower demand for domestic consumption products, to that extent it's inevitable that some moderation in growth rates on loan growth will tend to happen.

Sir, just to continue on this side, sir, do we track also between the top six, selectively, tier one, tier two cities and the rest probably, and how that mix between the retail book has changed over the last year or so?

Yes. I think we've certainly seen a stronger growth rate being maintained in the tier three to tier six type cities. Now that may also be a function of the fact that we have added distribution in those centers. Okay? So, for us, a lot of that is a relatively newer geography or relatively a geography where we had a presence but we have increased our presence. But that -- it's not that the larger -- metropolitan and larger urban markets are not growing. But we've seen a fair portion of the growth also coming from the tier three to tier six locations.

Can we get the mix, if you don't mind?

I don't really have the mix and I don't think we put that in the public domain yet.

No worries, sir. Thanks a lot, sir.

Thank you.

Thank you, sir. Last question comes from Mr. Ganeshram from Spark Capital. You may go ahead please.

Hi. I wanted to know your proportion of your liabilities, including borrowings, and proportion of assets including investments, which would get re-priced in calendar '12, or FY '13, whatever.

I'm afraid we don't have that data and I don't think we have put out the maturity or interest rate gaps on our book, other than at the year-end. So I'm sorry, I may not be able to share that with you.

Okay, okay. Secondly, on your -- the bond loss that you have had for INR82-odd crores this quarter, wanted to know if these are actual losses or are they MTM losses?

It's a combination of both. Large portion of them are MTM actually. A substantial portion of them are MTM losses.

Okay. The reason I'm asking that is that in September quarter you had about INR1crore loss, whereas since then bond yields have only corrected across the yield curve. So why is the bond loss --

No, the -- Ganesh, the yield curve on the one to one and a half year is higher in December and September. So there is a bit of a drag there. Also, as Paresh probably alluded in the earlier part of the conversation, we do have some -- yes in September. We do have some amount of mutual funds, which we always have during the year. So we have received some dividends which also --

Of course (multiple speakers).

Okay. All right, thank you. That's it.

Thank you.

Thank you, sir. At this time I would like to hand the floor back to Mr. Paresh Sukthankar for final remarks. Over to you, sir.

Thank you so much. Thanks, everyone, for having participated in the call and I hope we've been able to address most of your questions. I'm sorry if some of you did not get the chance to ask the questions, but I think most of the questions that you might have had might have been probably asked by some others as well. But since we are closer to an hour and a half almost on this call, I think I'll bring it to a close right now. Thank you once again and have a great year.

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