HDFC Bank Ltd (HDB) 2013 Q3 法說會逐字稿

Good evening. Thank you for standing by and welcome to the HDFC Bank's Q3 FY 2013 results conference call presented, by Mr. Paresh Sukthankar. At this time all participants are in 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.

Thank you. Good evening, everyone. I have [Shashi Bhavan] and [Nila] with me as well. I will just mention, I'll walk you through some of the main financial parameters and we'll move to the questions thereafter.

As you might have seen, the net revenue growth in the quarter was 23%, touching INR5,598 crores as net revenues for the quarter. Of the net revenues, roughly 68% are net interest income and net interest income growth was about 22%, driven by a loan growth of about 24% and a net interest margin of 4.1%. The NIM of 4.1% is equivalent to the 4.1% that we had in December of 2011, which is the corresponding quarter of the previous year, but was down sequentially from 4.2% in the September quarter.

Moving on to the other component of net revenues, which is other income, which is about 27% of the net revenues, other income was about INR1,799 crores and the overall growth in other income was 32%. The largest component of other income was fees and commissions, about 78% of the other income, and fees and commissions for the quarter grew by 24%.

The other two components of other income, which is FX and derivatives and the profit on sale of investments, which is primarily bond gains, on the FX side you saw sequential growth on a year-on-year basis was marginally lower, while we -- you saw some increase in bond gains. So overall that was the balance amount, while the largest contributor, of course, remains fees and commissions, which grew by 24%.

On the cost side we saw some moderation in cost growth, so operating expense growth was about 19-odd percent and, therefore, the cost to income ratio for the quarter was at 47.1% and the equivalent number for the quarter ended December 2011 was 46.7%.

Total provisions for the quarter were INR307 crores, as against INR329 crores in the corresponding quarter of the previous year, so there was a marginal reduction from on a year-on-year basis. Although on a sequential basis the provisions were higher because the September quarter was INR293 crores, while this quarter, for the December quarter, it was INR307.

The INR307 crores of provisions included about INR41 crores of standard provision that is general provisions, plus floating provisions. There was a INR15 crore write-back in some mark-to-market provisions and the balance of the provisions (inaudible) loan loss provisions. Profit before tax was up 22.6% to INR2,716 crores, while net profit growth was 30%, touching INR1,859 crores for the quarter.

The balance sheet size touched INR3,83,000 crores. Of that, loans and advances was INR2,41,000 crores, which is up about 24.3% year on year. Deposits were at INR2,84,000 crores, which is up 22% -- 22.2% year on year. And the CASA mix was 45.4%.

If you look at the CASA for the December 2011 quarter, we had, in fact, mentioned the core CASA at 47.7% because that December CASA -- December 2011 had a one-off impact. In the press release of December 2011 we have mentioned that, so the CASA as of December 2011, core CASA, was 47.7%. The September CASA was at 45.9% and currently the CASA was -- as of December 31 was 45.4%.

If you look at the loan growth and look at the mix of loans, the wholesale to retail mix now is 53% retail and 47% corporate or wholesale. And when you look at the overall loan growth, both the pieces, wholesale and retail, have grown at a fairly healthy rate. The wholesale business -- the wholesale loan portfolio has grown at 18.6%, while the retail portfolio year-on-year growth has been around 29%.

When you look at the absolute amount of growth, therefore, during this quarter the retail growth was almost a little over INR29,000 crores. And the largest contributors to those -- to that INR29,000 was business banking, at about INR5,700 crores, Auto loans, which was about INR4,200 crores, commercial vehicle and construction equipment, at INR3,700 crores, equivalent INR3,700 crores roughly for personal loans and about INR3,500 crores for credit cards. So these were the four or five larger contributors to the roughly a little under INR30,000 crore of growth on the retail portfolio during this quarter.

Of course, the overall growth of 24% in loans and 22% in deposits is as compared to the December 28 system growth rates, which were about a little over 15% and I think just under 12% for the deposits at our system level.

We've continued to add branches during this quarter and, therefore, the branch network of the Bank touched 2,776 branches. We also have 10,490 ATMs and this network is across 1,568 cities. So on a -- for the nine months so far we've added about 230-odd branches. But during this quarter itself, during the October-December quarter, we've added 156 branches and 81% of these branches -- 80% of these branches are in semi-urban and rural areas.

So the network expansion has continued. On a year-on-year basis we've added probably a little over 500 branches, but during this quarter in particular it's been 156 new branches.

On the asset quality front the gross NPLs of -- for this quarter were at 1.0%. Again, the comparative numbers were 1.03% in December of 2011 and 0.91% in September. So there has been an increase on a sequential basis by about seven, eight basis points and a reduction of about three, four basis points on a year-on-year basis.

Of the absolute increase in NPLs -- in gross NPLs, of INR298 crores or thereabouts, about 80% of that has come from the retail portfolio and the balance has come from the corporate piece, a couple of accounts there. So if you look at the increase of roughly INR240-odd crores on the retail side, this is an increase on the retail loan book which is now about INR1,30,000 crores almost, INR1,29,000 crores.

So while there has been an increase I think one -- you should appreciate that taking into the perspective in terms of the actual increase it's still not anything meaningful in that sense at all. However, of the total retail -- of the total increase in retail NPLs approximately half of that is from the commercial vehicle and construction equipment portfolio, which is today about INR16,000 crores and, therefore, if you look at something -- roughly half of the retail NPL formation, or a little -- just over half the retail formation was against that portfolio.

Net NPLs remain at 0.2% and, as I mentioned earlier, there was also some increase in the floating provision made during the quarter as well. As we have been doing consistently, the net NPLs that we mention are net of only the specific loan loss provisions and are not net of the floating provisions. So these are just gross NPLs less specific provisions and that's the 0.2% that we hold right now.

Restructured loans for us remain at 0.28%, or 0.3%. Again, that was as against 0.4% as of December of last year. That's down by about 10 basis points in absolute terms. During the quarter as well the restructured loan portfolio remained more or less the same. There was about an INR11 crore increase or something like that in absolute terms. So -- and these are the total restructured loans including a few cases in the pipeline and some of these restructured loans in any case are already included in the NPLs as well.

So the total capital adequacy was at 17%, of which tier one was at 10.9%, since -- as against in the previous quarter, where, because the half-year results were audited, the year-to-date profits were taken into account for tier-one purposes. In this case the quarter's profits are not included, so without including the quarter's profits the tier-one ratio is 10.9%.

So those are some of the highlight numbers of the quarter. I'll throw the house open for questions now.

(Operator Instructions). The first question comes from Mr. Rakesh Kumar from Elara Capital. You may go ahead, please.

Thank you, so just one question on the margin front. Looking at the growth, what we are doing in this nine months on the asset and liability side, if we continue with this kind of growth do we expect a further fall in margin, because the net addition to the advances book will be less, quite lesser actually? So do we expect that the margin will fall further from here from the third-quarter number?

Let me try and answer that in two ways. One is in terms of how we see the margin trending and whether the asset growth has anything to do with the impact on margins. So on the first one I think we've been saying this for a long time and we still maintain that the net interest margin range still remains at 3.9% to 4.3%, or, in more recent times, if you look at the last couple of years maybe pretty much 4% to 4.2% sort of a range.

The rate of growth in the loan book, which is -- for this quarter was 24%, I don't think that by itself has anything much to do with the margin at all. The movements in both directions that we have seen -- because, as I say, it was 4.1% in the corresponding quarter, was 4.2% in the previous quarter and it's 4.1% again. There have been movements in both directions.

That has got more to do with what's happening to the cost of funds, which is again a function of what's happening to fixed deposit costs, which, as you know, are -- right now have come off from their peak; a slightly lower CASA ratio, again reflecting primarily a slightly slower growth in core current accounts, which again is because the one-offs that we get from time to time from the capital markets-related businesses in terms of the stock exchange activity or IPOs and so on; and the level of current accounts that come with the level of activity in (inaudible) and others, obviously, that has been slightly lower with the slower growth rate in the economy.

So one is the impact on NIMs because of the mix and cost of deposits and the other is, of course, what's happening to the mix of our loan book, which has pretty much for the last few quarters remained at this 52%, 53% retail and the balance wholesale.

Apart from the deposit piece, one relevant point from a cost of funds perspective is that in the last year or so, or certainly in this financial year for the first nine months, we have raised almost INR5,000 crores of tier-two capital. In fact, in this quarter itself as well we've raised about INR1,970 crores, let's say, close to INR2,000 crores of tier-two capital, which again is obviously slightly higher cost when as compared to your average cost of deposits.

So I would reiterate that the pace at which we will grow our loan book will be a little faster than the system loan growth. And I would not link the rate of growth on the loan book to any specific movement in margins actually for this point of time.

Secondly, on this loan investment side, which has come down actually in this quarter, so is it due to some profit we have booked also in the fixed income side, or there is some other reason attributed to that?

No, this is purely with the fact that if you (inaudible) the last quarter, the previous quarter we had given an income that we had got from mutual fund units which -- because we had surpluses and that was also, therefore, offset by, to some extent, the negative that we had on the mark-to-market of the units posted [having been] declared. So the interest on investments includes the accrued interest on the bond portfolio and the dividend that we had earned during the quarter which are not there, because they had obviously been sold off at that point of time.

Okay, thanks. Thanks a lot.

Good.

Thank you, sir. The next question comes from [Nitil Runtar] from Standard Chartered. You may go ahead, please.

Paresh, Mahrukh here.

Yes, Mahrukh.

I just wanted to check one or two things. So, see in terms of your CVs during the quarter, were there any sell-downs on the CV portfolio -- CVC?

No, there wasn't any sell-down. So on a sequential basis if you see that book has been more or less flat. So while there would have been some growth there would have also been some run-offs, but there has not been any sell in the portfolio. We have obviously slowed down the pace of growth a little bit in that portfolio. And also the underlying sales of CVs themselves would have also moderated during this quarter. So the rate of growth on a year-on-year basis for the CV portfolio is still running at roughly -- in the high 20s, but sequentially that growth has come down.

And in terms of fee income it's the core fees that have grown very strongly quarter on quarter. What was the key swing (inaudible) --

Sure.

-- insurance or --?

No. See, on the fees, in fact, there are two aspects. One is a seasonality aspect. You will find that every year in the third quarter there is slightly higher fees because slightly -- because of some fees we get on an annual basis which get billed and then collected in the third quarter, and also because there are some fees relating to the seasonal -- festive season sort of thing, because you have higher card spend and you have gold -- bullion gold coin sales and those kind of things which all happen during the third quarter which usually give us a seasonal pickup.

In addition to that -- which certainly contributes to the sequential growth every time in the third quarter. Having said that, there is also some one-off in a particular commission that we have got which would -- but for that the gross sales would have been a couple of per cent lower than what it was. So instead of 24% it would have probably been somewhere in the 21%, 22% range.

So overall commission growth rate for a few quarters, if you look at the last several quarters, has been running at high teens, except for the third quarter, which usually is around 20%, 21%. And that 21% is a little even further higher during this quarter, with some one-offs that we have got relating to some -- certain franchise revenues.

Thanks.

Thank you, sir. The next question comes from Kashib Daveri from MK Global. You may go ahead, please.

Yes, hi. Congratulations on a good set of numbers. Looking at this about INR290 crores increase in the gross NPLs in this particular quarter, I understand that you don't disclose the slippage number, but would, let's say, the delinquency as a percentage probably in H2 will be higher than H1 this year overall?

H2 vis a vis H1 overall?

Yes. I'm just asking as a percentage. I'm not asking any particular number for this quarter.

Yes. No, there has been an increase in the slippage, [as I mentioned] in the product line that we mentioned earlier.

Okay.

On the corporate side there hasn't been much of a change in the incremental slippage during the quarter. But, yes, on an overall basis there would have been because the write-offs level have not changed, so --

Okay.

-- to the extent that there would have been a higher -- increase in the gross number --

Right.

-- (inaudible) that much to that same extent it would have been a slightly higher slippage.

And is -- do we see this as a one-off in this quarter, or are we generally seeing an increase in the delinquencies, maybe not alarming, maybe just above what we have seen in the past? But is it rising?

I think there are -- when I look at the entire range of retail products, in most products there really isn't any trend of increase which would -- even if it is -- forget alarming, it is tracked towards what we might call a normalization of NPLs that we've been talking about for some time.

Okay.

Specifically in the one or two products that we mention, which is the CE and CV sort of business, there has been an increase which has -- have started showing in the retail delinquencies and we mentioned that in the last quarter. Some of those delinquencies obviously have slipped to a 90-day [lag], which would imply the NPL. And whether that would level off now or increase a little more before it levels off is anybody's guess. I would say that there could be a little more to go there, but not too much more.

So overall on the retail portfolio we still see losses and delinquencies and NPLs which are well below the expected losses or the expected NPLs for each of the portfolios.

Right.

And to the extent that if you have six, seven portfolios and really most of them are holding up, and in particular unsecured piece has so far been absolutely stable, --

Right.

-- I can't see a trend which would emerge. And therefore if any one product continues to show some increases I'm not sure whether that in itself can move the needle much, unless it's accompanied by something else.

Okay.

But on a broader basis something which we've been saying for some time is that our historical loss NPL levels have been -- if you look at the 10, 15 year average they were somewhere between 1.2% and 1.5%, which is, we believe, appropriate for our mix of loans.

Okay.

I'm not suggesting that we hit those levels in the immediate future or whatever, but if you just look at each of the components of our loan portfolio and you look at what would be an appropriate or an acceptable and, perhaps, an expected NPL level for those loan portfolios, then one would reach a level which is somewhere in that mix.

Okay.

At this point of time, at around 1%, we still remain below that level, --

Right.

-- so I don't see any immediate trend of a sharp increase of any sort.

Sure. And the second question is on this Gold loan portfolio. If you could just highlight what kind of customer that -- are these existing customers or they are new customers? And any behavior of those customers, if you could probably help us with that.

Yes, so --

I just want to understand the demography of that customer.

Yes. I think this is -- these are a mix of both existing and it's roughly half and half actually --

Okay.

-- between existing customers and new customers. The segment that we are really targeting are ticket sizes just slightly larger than perhaps which are typically targeted by [NBSs] which focus exclusively on this product. And our main attraction for this is that in a lot of our semi-urban branches -- semi-urban and rural branches it's a product that there's been a demand for and some of our customers in those regions or in those areas who will be of the profile that would also qualify from a private sector lending perspective.

So because we have the presence there, we have the infrastructure there and in some cases certainly a fair portion of the customer base, existing customer base of the Bank wants that product. That's the way we've rolled it out.

Obviously, it's still a relatively small part of the total loan book, so, for instance, right now it's about 4% of the retail loan book, which is maybe about 2% of the total loan book. But, yes, it's been growing at a very healthy pace and we expect it to continue to do that.

Okay. And just a last question on this. Other loans, other retail, which has seen a growth of about 50% Y on Y, anything particular in that which is lumpy and has grown very fast?

Yes, that's a good question. Of the total other, which is, what, now roughly INR10,000 crores -- or INR9,000 crores, actually, about half of that is our retail Agri piece, which is what we call our Kisan Gold Card business, which is -- we've been doing this now for a few years and I believe [it has] probably become a little larger can be carved out. So about half of that is the retail Agri. The rest of it is healthcare financing, tractor loans and -- but those are each INR1,500 to INR2,000 crores each couple of other products.

Sure, thank you so much.

You're welcome.

Thank you, sir. The next question comes from Hatim from Karvy. You may go ahead, please.

Yes, hello, sir.

Hi.

[Seven] NIMs have seen a compression of around 20 basis pointed in the last two quarters, where the retail [composition] have increased over 100 basis points during similar period. So is it that we are seeing any compression on retail lending yields?

No, see, the actual reduction that we've seen, we still seeing on a core basis, would be approximately 10 basis points. We have mentioned earlier that in the earlier quarter, where we had some dividend incomes that we got on the mutual fund and so on, that would have distorted the yields and, therefore, the margin for a particular quarter, which is why, as I said, we've gone from the 4.1% up to maybe the 4.3% and then back to 4.2% and 4.1%.

But as far as the retail portfolio is concerned there has been a change in mix over the last, not necessarily only two quarters, but certainly partly in the last couple of quarters, but certainly over the last few quarters, where if you look at the proportion of, for instance, say, home loans in the retail portfolio, that has gone up relative to where it used to be. While similarly for, say, a product like business banking, which includes [lag], which again is slightly lower yielding than some of the other products.

So if you look at the composition of the retail portfolio we have seen an increase in some production which are slightly lower yielding, while the unsecured portion has remained more or less flat at about 20%, between 20% and 21% of the retail portfolio.

Has competition been intense on the retail asset side? I would say that that has also been the case, in particular in the last few months, with increased aggression by various players as they increase their focus on the retail lending space. So there has been some increase in the pricing competition on the retail side.

Some of this has been offset by the lower fixed deposit costs and the slight reduction in CRR that we have seen in the last couple of quarters. Finally, of course the CASA ratio has been slightly lower, about 3% lower on a year-on-year basis, so that will also have taken [off].

So if you look at it -- if you try and break up that 10-odd basis points reduction you would probably two, three basis points explained by various reasons. I can't say that any one reason, including the specific issue that you mention on the competition on retail or the pricing pressure on retail has been a large contributor, but it's been one of three, four other reasons as well.

Okay, thank you.

You're welcome.

Thank you, sir. The next question comes from [Prabhakar Agarwal] from [Edward Street Securities]. You may go ahead, please.

Yes, hi, Paresh in Malaysia. I just wanted to check on -- over the last three years we have gone and expanded largely in the semi-urban and rural branches and so that can be seen in terms of our expansion in terms of the number of cities that we've covered. Now, in terms of -- according to you in terms of the performance on savings, how has that shaped up?

Because when you look at our numbers the growth is on savings, which used to be -- the savings percentage in terms of the overall CASA, which used to be about 31%, has come on to about 28%. So I just wanted to check now that -- we've followed that strategy, but going forward does it mean that we probably require more deepening in the metro side also?

Well, I think we can look at it from numbers and value point of view and look at the proportion of the total deposits. When you look at as a proportion of total deposits, savings having come down is also because the fixed deposit component in particular has been growing at a much higher rate.

In fact, if you look at this quarter as well, while the savings account growth rate has been somewhere in the, what, 18% level, 17%, 18% level, which, in relation to the fact that at a system level the savings account growth rate for the banking system has been single digit, is not bad. But fixed deposit growth rate has been at 29%, so clearly there is a proportion drop.

But to your question on the -- what does the deeper geography growth do to savings account growth, I think we continue to see very strong traction in terms of adding new customers and this is, of course, across the newer branches and the existing branches. As far as average balances are concerned, clearly the semi-urban and rural branches do not give you the average balances that you can get in the larger markets. But that's as of today.

And we do believe that in a lot of these places we've been there for just a couple of years or less, and we do believe that the level of product penetration that we've been able to achieve so far is still scratching the surface in many ways. Because it's the same thing that we might have done in the larger urban markets where we acquired customers and over a period of time we've increased our penetration and average balances and so on.

I think perhaps it's a slightly different customer segment, but the basic hypothesis still remains the same that if we are offering superior products, if we have a more complete product range, and as we build distribution, customers will prefer to be with us and increase -- and we can increase over a period of time our share of their wallet.

So I think this -- we are still in that initial phase where we've invested in the distribution and we are in the customer acquisition part of the story. As this moves to a mix of new customer acquisition and increased penetration and cross-sell, I think that's when we'll get a better idea of the true potential of those markets.

But in the meantime the icing on the cake is that while we're focusing on what I just mentioned more on the liability side, to the extent that this -- our being present in these locations also helps us in some of the PSL and some of the Agri and some of the retail asset origination, that, therefore, on an overall basis still makes that a worthwhile proposition, which is why we have continued to invest in those markets.

Okay. So in terms of -- from a proportion perspective, clearly it's dropped, but where do you think this ratio stabilizes? Considering that we continue with the expansion in this region, where do we see CASA ratio at least stabilizing for us here?

I think the -- where CASA stabilizes to my mind will really be driven much more by what happens to the current account cycle. Because [at] the margin I don't think there's going to be too much of a difference in the pace -- or the relative pace of savings and fixed deposits too much. The swing factor really is current accounts, where again at a system level we've seen hardly any growth on current accounts really happening.

And for us also, since a portion of our current accounts are linked to product franchises rather than branches, there, it's a question of as markets come back and the level of activity on the markets in terms of settlements comes back, the secondary -- sorry, the primary issuances go back to where they were, those -- the stock exchange settlement volumes go up, those are not necessarily linked to branch expansion or our presence in a particular market, but just those activities coming up back to normal.

So if you look at the last, say, five years, our lowest CASA was at 40%; this was in, I think, December 8 -- quarter ended to December 2008. And highest might have been even 53%, 54%. On a particular day we might have had some IPO balances and so on.

But that 40% was immediately post CBOP, right, so on an standalone basis you're still doing closer to 50%, right?

No, no. In fact, the pre -- there are two impacts there. One was of course the CBOP impact, which has taken us down from about 47% to about 43%. And then from 43% to 40% was during -- that was a time when deposit rates on fixed deposits were very high, --

Sure.

-- so you have seen a lot of migration from savings accounts to fixed deposits to lock into those double-digit fixed deposit rates. So driven by various factors, but 2%, 3% could have been attributed to the CBOP merger. But you saw the quarter after that. The CBPO only happened in May 2008. I'm talking about the December 2008 quarter.

So I'm not saying that both those extremes are core or realistic, so I'm just saying that that has been the rather wide range. I more recent times I would say that given the -- where we are in the interest rate cycle, where we are in terms of our own rollout of the distribution network, and where we've seen current accounts being somewhat sluggish, I think anywhere between [a] low of 42%, 43% going up to 46%, 47% is the range that we might tend to oscillate in.

Okay.

But obviously from our point of view we are focused on maintaining that advantage and I do believe that on the retail side in particular we remain extremely well positioned to do that.

Sure, just one quick question. On this loan loss provisions of about INR307 crores, is this a mix in terms of general floating and a specific case?

Yes. So I said, of that, the INR41 crores is the general plus floating. Floating of that is INR30 crores and the rest is specific.

Great. Thanks, Paresh. Thanks a lot.

Sure.

Thank you, sir. The next question comes from Anish Tawakley from Barclays. You may go ahead, please.

Congratulations, Paresh, on a good set of numbers. I had two questions. One is on -- relating business banking and the wholesale banking. Business banking grew (inaudible) quite strong, above 30%, and wholesale is about 20%. Now, I've always thought of the business banking as being part of the supply chains of wholesale banking clients. So if that is still the right way to think about it, could you talk a little bit about the divergence in the growth rates?

Sure.

And -- okay, I'll take -- put the second question later.

Okay. So when we started off our initial business banking efforts a lot of that was on the back of supply chain financing, which still remains a portion of our business. But the larger part of business banking over the last few years is now independent sourcing that we do from our branches.

So these are branch customers who -- and there are two, three products here because the business banking piece includes where we do working capital type lending or some term lending to customers of a certain size, and then also loans against property, rental discounting and a whole range of products, the underlying principle being that the customer is of a certain size which is smaller and the lending is cash flow based, but in all cases would have also a property collateral of some form.

So that's the profile of customers. So it is no longer a business which is purely tied into the supply chain piece. And I guess our growth here, therefore, is our gaining market share on the back of significantly higher distribution, where moving into more markets or as we open more branches customers who might come to us first on a current account basis or for some little bit of cash management, or whatever other products, would then also look to build a lending relationship. From our point of view we would look to extend that to a lending relationship and that will be business banking.

Incidentally, the business banking piece comes partly in retail and partly in wholesale, based on the size of exposures. So our segmental break up of the loan book is based on the Basel II classifications as laid down by RBI. So broadly if a customer has more than INR5 crores of exposure that would come into the wholesale book and, therefore, the smaller exposures will come in here. And that is true of business banking as well as any other business.

So, for instance, in the commercial vehicle or the dealer financing if the ticket size crosses the retail threshold from a regulatory reporting perspective we will take -- even though the product itself may be retail, or that the way we run it at a business level will be retail, we would include that from a segmental reporting perspective in the wholesale portfolio.

Right. The second was if you could provide some more color on the CVCE slippages in the sense of is it regionally concentrated, is it concentrated in some products, because that has implications for a number of players in the industry? I know it's a relatively small part of your -- it's a relatively manageable part of your portfolio.

No, it's not for us linked only to a specific region or whatever. I think the regional stress, or where there were specific areas which were impacted and so on, I think that is something which was more what went through the system in the previous couple of quarters. And fortunately for us we didn't have those concentrations in those two, three -- out of the three areas that were affected because of mining or other related issues. We had very limited exposures in two out of the three of them and we had some exposures in one of the three.

But the increases that we have seen are really across -- again, between half and half between slightly mid-size or larger borrowers, and the other half between what we might call standalone PFL type exposures, which are individual first-time user -- of a profile which is not the transport operators in that sense.

And again this is a mix between some construction equipment and some commercial vehicles. So this is not just a couple of large borrowers. These are half and half between some slightly mid- and large-size borrowers and some which is a little more retail, and across a few regions.

And just going by the number you gave in terms of about 80% of the slippages are from retail and about half of that from CVCE I come up with a slippage rate of around 4.5%, 5%, or maybe even 5.5%.

No, no. It can't be that much at all.

Okay. I just assumed write-offs at the rate that you've been running last year.

You're talking about that for that product, or are you --?

Yes, yes, that product.

No, but we don't -- it would not be that much because the total commercial vehicle and construction equipment business is about INR16,000 crores.

Right. I just assumed write-offs at the rate that you were doing last year, which is about INR250 crores a quarter. And then added the gross -- the Indian gross NPLs and did the math. And annualize the slippage rate, of course. It's not in the quarter.

No, but the -- okay. I may not have the annualized slippage rate right now, but -- and again I think when you look at slippages for a product like this, this may not necessarily be something that one would want to annualize, because you may have some slippages and, in fact, you might have some pull-backs and some further slippages. So I would still look at -- you could certainly look at it on an annualized basis after having seen a couple of quarters rather than for a particular quarter.

But did this surprise you, or was it like -- was there early warning? Were check bounces or 30-day past dues swing this trend last quarter, or did it come as a bit of a surprise this quarter?

Well, in fact, I think I specifically mentioned in the last quarter conference call as well that within retail, as we saw some increase in pressure, it was in this particular product line. So it certainly wasn't a surprise. We've been seeing the trends and we still believe that with whatever has been done and whatever has happened these are numbers which are still within what we believe are priced in, especially when you look at the different segments that we price differently.

Right.

Remember also that a portion of these, to the extent that they are PSL, our appetite for taking a little bit of more risk would be there simply because from a commercial point of view as well we'll be willing to take some amount of loss on a portfolio, which otherwise enables us to meet the PSL and other sub-limits within PSL.

Okay. And would you expect to start growing this book again any time soon?

Yes, we would continue to grow this book.

Okay, good. Thanks a lot for your answers.

Thank you, sir. The next question comes from [Manish Ostwal] from KRChoksey. You may go ahead, please.

Sir, my question on -- one is your other operating expenses. Other operating expenses growth was muted during the quarter, given the high branch addition.

And, secondly, will other operating expenses [will] see a seasonal track in -- trend in Q4, because historically we see increase in 18% to 20% sequentially in last quarter of fiscal year? So what is your comment on that?

Well, as far as the increase in operating expenses in relation to the branches are concerned, I think what's relevant is that while we have seen an almost 156 branch -- increase in branches in the last quarter, as I mentioned, a good 80-odd percent of those are in semi-urban and rural areas. So the cost impact of that is not as large as it would have been if these were urban branches.

To the extent that -- again, when we look at it from a last quarter point of view, there tends to some seasonality relating to expenses that are -- while some of these are estimated through the year, but on account of the year-end payments that may be made on staffing and other related expenses. So there could typically a sequential growth that does happen in the fourth quarter when these numbers are better estimated. But other than that we don't see any major volatility.

One of the things that [we've been saying] as part of our strategy is that on the cost to income ratio we do have a target to bring this down over the next couple of years from where it has been. So when you look at it on a full-year basis our cost to income ratio has been somewhere in the 48% range. And we do believe that there is scope for us to bring that down gradually over the next three, four years, perhaps, by maybe even a couple of percent.

So we would have continued a tight leash on the operating expense line, but not on the -- without compromising on investment. So we continue to invest in new branches, but other than that there's no major volatility of the expense line.

And, second, this personal loan portfolio has been growing at a faster pace the last few quarters. Could you throw some light on customer profile and key driver of such high growth compared to other retail products, number one?

And, number two, what is the behavior of this portfolio from the budgeted losses levels to the actual losses? And any alarming signal in the portfolio? Or where do you see the growth to settle in these unsecured segments?

Well, both the unsecured loan segments between cards and personal loans, while they have been growing at a healthier pace than the overall retail book, are -- in the last one year they have moved from 20% of the retail loan book to 21% of the retail loan book. So it's not that they are becoming a much larger portion of the loan book. In fact, if you go back a few years they were at 22%, 23% of the loan book before they came down to 20% and now they have gone back to 21%.

The customer segments that we are focused on are primarily -- or a large portion of those are salaried customers who have a relationship with the Bank. In fact, typically, a little over half of our personal loan disbursements and almost 70% of our credit cards would be going to customers who have deposit relationships with the Bank. And our experience on that, even in terms of early delinquencies or check bounces and so on, all the early signs of asset quality, have shown, in fact, that those products have remained absolutely stable and, certainly, much more stable than some of the other products that we spoke about.

And I think -- let me take this since we are getting these questions repeatedly on a couple of items on the retail asset side. Let me state categorically that on an overall basis the retail asset portfolio still remains extremely stable.

When you look at the specific product that we referred to, which are the commercial vehicle and construction equipment business, although it's a retail business in the nature in which it is done, as a portfolio or as a portfolio characteristic it tends to have a little more of an SME sort of a profile, because that is an earning asset, rather than for a personal loan or an Auto loan where the customer has an independent source of income and then has taken a loan and services [that from] what is otherwise a separate source of income.

So with the economy going through a sharp slowdown the last year or two, of 3% to 4% slower GDP growth, plus the fact that there might have been certain segments that could have been impacted by the slower manufacturing growth in particular, or slightly higher costs of operating those vehicles, or delayed payments in the system because of other issues, that might have impacted a particular segment.

But across all other secured and, certainly, across the unsecured portfolio the portfolio trends still remains -- well, not only do they remain stable, but remain much better than the expected losses. And the levels at which we are at in these products where there has been an increase are today a little -- at or just about the expected levels, but still certainly well within the business parameter that we have run for at least those segments which qualify for PSL.

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

Thank you so much. Bye.

Thank you, sir. The next question comes from Nilanjan Karfa from BRICS Securities. You may go ahead, please.

Thank you, Paresh, two questions. Number one, in terms of branch additions we have added quite a few branches, quite a lot of branches over the last 18 to 24 months. Going ahead do you see the pace continuing, or would you rather wait a little bit for the efficiency to creep in before expanding further?

Well, we certainly are tracking the branches that we've opened already to see whether they are moving in the right direction, whether we have got to do anything which will tweak our strategy in respect of opening new branches.

But one of the reasons why we've also opened some more branches at the slightly higher pace is that, within these 150 odd branches, we would have -- we have experimented with branches that are even smaller, smaller and lower cost, so with probably two or three employees and much smaller in terms of the physical operation.

So apart from the continued growth in terms of new semi -- or rural locations and some semi-urban locations, we have also been -- we had run a few pilots and now we have been rolling out more of these slightly smaller branches, which we believe there's scope for us to do much more.

So when we look at our overall branch expansion strategy the traditional branches that we were opening, there, the pace may be moderating a little. But that would be offset by the time that we are opening these slightly smaller branches in many more locations, increasing our coverage of the semi-urban and rural landscape.

So it's something which we do an ongoing basis. I'm not -- we're not stuck with the fact that we'll open so many next year or so many the year after and stuff like that. But we, at this point of time, feel pretty positively inclined towards maintaining a reasonable growth rate of branches.

Okay. So does that mean that going forward those really small branches will give you a better operating leverage? Is that what you have figured out?

No, it's just that given the -- as you go deeper into the market the absolute amount of market potential --

Decreases, got it.

-- that's much lower, right, so the physical infrastructure that you need is that much lesser. So ultimately the time that it takes to break in or the cost to income ratio that you build out there will not be any different.

But it will not be any different because -- but if you look at business per branch or stuff like that, that will be lower, but so are the costs. And since you progressively do this on a -- if you look at the catchment areas of those branches and as you move into this markets there is enough of potential for that. We really don't need a much larger branch.

So the breakeven still stays about 24, 30 odd months?

Absolutely.

Okay. And second question, sorry to revisit this CVCE.

Sure, no problem.

We were asking you the growth that was happening in CVCE in the last four to five quarters and you kept on mentioning it's because of the expansion geographically.

Yes.

So I just wanted to understand is it the usual seasonality or seasoning of the loans from these new branches which is what is showing up as the delinquency in this segment?

No, not -- there will be some components of the segments that we have -- [because I] mentioned to you that our growth in some of these markets were because the LCV piece was growing faster and we had built our distribution in those markets, right, and so some of that portfolio would be seasoning. But some of what is currently shown as slippage is not necessarily in only that portfolio. Some of it is that portfolio, some of it is what we've been doing for a longer period of time.

Right. And is it now -- are you seeing that pressure coming into LCVs?

No, the -- when we look at our growth rate in the semi-urban markets that has been a mix of LCV and SCV. The market itself was more LCV focused in the first place. And that has been the portion which qualifies for PSL, Agri and [so on].

Correct, correct, okay. Just a small offshoot. How are you seeing the tractor segment in terms of delinquency, not from a HDFC Bank, but from a sector's perspective?

So far that's been holding up well for us. I haven't heard of anything definitive across the board. It's again a portfolio that for us is still small and we've been growing it in a particular manner. And if we build sufficient comfort to scale it up substantially we'll figure it -- at that time we might tweak our strategy.

Sure, sure. Thank you, Paresh.

You're welcome.

Thank you, sir. The next question comes from Chandana Jha from Avendus. You may go ahead, please.

Hi, Paresh. I have two quick questions. One, within CVs what is the proportion of used commercial vehicles, and if you could share the incremental delinquencies that has come from this segment?

And my second question is if we were to see further normalization of NPLs do you think it would largely be concentrated in the retail segment and mainly CVs?

Well, of our total portfolio in the commercial vehicle business the used CV business is in single digits, maybe about 7%, 8%. As far as the -- what was your second question?

Incremental delinquencies, has it largely come from this segment or the new -- or new commercial vehicle segment?

No, no, it's the regular. Because this is a relatively small and newer segment for us, that's not where. It's the traditional segments.

And my second question was if we were to see further normalization of -- or up-trending of NPLs would it largely be concentrated in the retail segment?

Well, I would think so, in the sense that not because we are seeing a trend towards that happening in retail, but the gap between expected and actual losses is much more in retail even now.

Okay.

Because if you look at each of the retail portfolios that we have got, and you look at the expected losses which might range in some products at around 1% and going up to maybe 3% 4% in some other products, and you look at the actual losses which we are incurring even today, then the gap between actual and expected is much higher in retail.

On the corporate side, in any case, you don't have a specific expected portfolio loss. It's really a question of seeing how -- what sort of a portfolio we have built and whether customers that we have put on that portfolio are doing adequately well, or which are not slipping.

Right. Also, if you could maybe just give a sense on what kind of growth in the CV segment do you see over the next few quarters?

Well, at this point of time the portfolio on a year-on-year basis has still been growing in the mid to high 20s. You might see some moderation in growth rate linked to the fact that the industry itself has seen some slowdown, but otherwise it should still be growing somewhere in that range, in the low 20s perhaps.

Okay, thanks. Thanks, Paresh.

You're welcome.

Thank you, ma'am. The next question comes from Parag Jariwala from Macquarie. You may go ahead, please.

Sir, my question is earlier you said that your branch which are in the rural areas -- rural semi-urban areas which you are currently expanding will actually remain same as compared to the urban dynamics on a profitability basis.

So the thing is that the overall basis it might remain same, but again do you see some kind of variation in terms of the CASA proportions within those branches, like urban and rural, but overall the cost is lower so profitability wise it remains same? So can you quantify those things, that maybe, say, CASA is not 45, but, say, around 30, 35, but the overall branch cost is, say, not INR1 crore per month, but INR75 lakhs per month. Can you give some numbers like that?

Well, your logic is more or less on the right line, but I don't think I'm going to be putting specific numbers in the public domain. But it's fair to say that the actual savings accounts in these branches is actually pretty good. So the -- relative to the total deposit base in those branches the -- not necessarily the CA, but the SA piece still remains fairly healthy.

The only thing is that in these branches you -- unlike in the slightly larger urban markets, where customers tend to look at sometimes relationships on a product basis, so they may have a relationship with a particular bank branch and be having most of their deposit accounts and they may still look at different players for different asset products, although the bank likes to cross-sell across a range of products. In a rural market you need a customer-centric sort of an approach and the customer also looks at the branch as being the sole provider across deposit and loan products.

Right.

So to that extent when we look at the profitability of a semi-urban or rural branch it would tend to be not just the total deposits or the CASA deposits, but also the car loan, or the two-wheeler loan, or the gold loan, or the commercial vehicle loan, or the business banking loan, or the retail Agri, or whatever other products that we do have.

And what I think works in our favor is that, one, of course we believe we offer a superior service level, a quicker turnaround time and all of that. But also we do have in many of these spaces probably the widest product range that banks offer in these markets, which is not easy, because it's not just a question of having the branch.

It means that across a range of products we need to have the ability to sell those products, the ability to process those products, the collections infrastructure, the operations infrastructure. So there is a lot of investment and a building up of expertise that has to happen so you have the complete product range.

And when you do that, then, while for a particular product it may be a little more or a little less, depending on what that particular location is, the overall profitability piece for that business or for that branch is still within those same parameters of breakeven and the overall return that we're looking at. So that's the problem. The product mix might be different, the way you access the customers may be a little different, but the overall risk/return dynamics and the cost and revenue dynamics would be no different.

Even it would be same on the timeline of breakeven?

Yes, timeline of breakeven would still remain between two and three years.

Okay, thanks a lot.

You're welcome. Can I just check how many questions there are, because we have finished about an hour? We had planned this to be a one-hour call, but if there are few more questions I can try and address them.

We have more 10 questions, sir.

Okay, let me try and finish as many as possible.

The next question comes from Mr. Nitin Kumar from Quant Capital. You may go ahead, please.

Yes, hi. Good evening, sir.

Hi.

Sir, our lending yields have moderated during the quarter despite a steady growth in retail loans. A part of it you have already explained, but were there any discounts that we offered to the dealers during the festive season which has impacted?

There would have been some reductions on the retail side during this quarter, because this festive quarter does see a tactical reduction in rates and the market was competitive. But generally speaking, apart from what might have been done specific to the -- to this quarter, the fact is that both fixed deposit rates and lending rates in the last quarter have come off a little, just trending with what's happening to interest rates overall.

Right. And would it be possible to -- for you to give an indication of the average yield the Bank earns on the CV loans -- CV segment entirely?

We don't give break ups of individual asset categories or overall asset yields. And since there are two, three segments there, there would be changes. But we essentially are competitive with what is -- what are market rates there. But I wouldn't have the numbers to give you off hand.

Okay, okay. And, sir, has there been any progress on the request to the Central Bank for migrating to IRB approach?

There's been no -- we've put it in our applications the intent to -- desire to move. I think RBI has received the letters of the intentions from different banks and I think they have been seeking now certain details that they can begin their evaluation. So I think this is something that will probably evolve over the next couple of months. At this point of time there's really not been any specific progress on that.

Okay. Thank you very much, sir.

You're welcome.

Thank you, sir. The next question comes from Vibha Batra from ICRA. You may go ahead, please.

Yes, hi. I have two questions, one is on the retail products. This Auto, is this car loans, or it includes the inventory funding to dealers?

And, related to your retail loan [there], if we were to rank order on the retail portfolio on return on equity how would it look like?

And the second question is on [less stable] funding ratio. It's under Basel III. If you were to compute that for the Bank would you be comfortable, or would there be any structural adjustment that would be required on either funding side or a strengthening of some long-term assets?

On the first one, the Auto portfolio would include dealer financing if it is within the cut-off of INR5 crores, which is the threshold between retail and corporate.

But that's not a part of a business banking?

Sorry?

That will not be a part of business banking?

No. For the car, since the Auto business will be -- will include the dealer financing for Auto dealers. Our regular -- for all the other small businesses or dealerships and so on the supply chain piece would be part of this. But the Auto business [is handled on] an integrated basis [and] be part of the same business.

As far as the [NSFR] is concerned, the fact is that, I think, all -- the RBI has indicated that they would at some -- at least this was said by one of the senior officials of RBI in a seminar, that they would indicate what portion of SLR would perhaps be taken into account for -- to be counted towards the ratio.

So until that time I think it's a little premature to figure out whether -- I doubt whether Indian banks generally -- not just HDFC Bank, but generally, would be required to change the structural component of their liabilities, since between [CLR] and SLR Indian banks already keep much more liquidity than, perhaps, banks in any other part of the world. But at this point of time, since there is no clarity on how much of that would qualify for being taken into account for this ratio as a liquid asset, I think I'll have to hold on that one.

Okay. The rank order of retail assets on profitability.

On profitability right now the most profitable products would be probably personal loans, followed by maybe business banking and Auto, and mortgage as well, because there's a PSL implication for that.

And the Gold loans?

Gold loans on a -- would be profitable, but right now we have a higher -- a high investment in operating costs there, because we have yet to scale the business from a volume perspective. So it will be a profitable business, but not quite as profitable. Again, for the segments that we deal with we're not looking at a very high yield on that loan, but, yes, it will be a profitable business. But if we're talking about a rank order I would say this would not be as profitable as some of the other products.

So Auto will be the least profitable?

No, Auto still remains fairly profitable. I would say that the Auto and CV businesses would be at the lower end of the piece, but not necessarily the least profitable.

Okay. But the CV also comes with the priority sector benefit which Auto piece doesn't have, so it's still a sizeable part of your portfolio.

Yes, because we are a large player there and over a period of time we've built some pretty strong efficiencies and economies of scale there.

Okay. So the Auto piece is attractive because of the diversity of the book and not really for the ROE?

It's also a core business, a core product from our customer viewpoint. So I think when you look at products like mortgages and Auto loans these tend to be important products in a retail portfolio both from the Bank's point of view and the customers' need -- meeting a customers' needs point of view.

Thank you.

You're welcome.

Thank you, ma'am. The next question comes from Tabassum Inamdar from Goldman Sachs. You may go ahead, please.

Thanks. I'll just keep it very short. I just wanted three data points. You mentioned something on write-back of investment depreciation. What was that amount?

INR15 crores.

And what is the outstanding floating provision?

Sorry?

Outstanding floating provision?

About INR1,700 crores.

And just one last one. Number of employees you have, finally?

Number of employees is 68,800, almost 69,000.

Okay, great. Thank you very much.

You're welcome.

Thank you, ma'am. The next question comes from [Manish Agarwalla] from PhillipCapital. You may go ahead, please.

Thank you. All my questions have been answered.

Thank you so much.

Thank you, sir. The next question comes from [Amit Premchandani] from UTI. You may go ahead, please.

Good evening, sir, just a question on the fee income front. Some of the other private banks have set up their DCM desk or investment banking desk and even though they don't lend to projects or infrastructure projects. What are your thoughts on that as a driver of fee income going forward?

Well, we have set up this business in the last 12 to 18 months and, in fact, if you look at the deals for -- debt deals for better rated corporates in the last year we have -- in almost all of them, I wouldn't say all of them, have been an active player and, certainly, in the top three, four in respect of the segment that we are participating in.

So are we willing to participate in that segment or in that business for a particular segment of customers? The answer is yes. And it's a fairly wide segment. It's not a very narrow segment. It's a fairly large segment of customers.

Are we willing to hold some of that paper and distribute some of that? That's been the strategy. I don't think any player can be in this distribution business with not being willing to hold anything on their own books. So a balance of where we are committing our balance sheet and we are in it for the distribution it's certainly a business that we will participate in.

In relation to our overall fees, because we have a very large diversified pool of fees right now, both across retail and wholesale and within wholesale as well between transactional banking, between trade, between custody and other products, as of now this may not be a large contributor. But I would agree with you that it's certainly something that will increase in size over the next few years. But we're already in it. It's not something which we will get into. We're already in this.

If you can you share with us what percentage of fees would be coming from this?

Right now it would be extremely small. It would be in very, very low single digits. As I said, it's just something we started about 12 to 18 months back.

And one more question on the investment income, the interest income on investment. There has been a drop in the income and there has been a booking of treasury profits. So is it one of the reasons why margins have gone down because you book it in the treasury side?

No, I think I clarified this a little earlier as well.

Sorry.

No problem. The earnings that we had which were higher were on account of the dividends that we had got from mutual fund surpluses that we had held and which were invested in mutual funds. The yield on our investment book has really not changed. So obviously we were right in timing the -- where the yields had come off. But whatever substitution of assets that we -- or securities that [we would have] done would not have changed the book yield [honored]. So our book yield on our investment book would not have changed, other than the mutual fund units which we're not holding any more.

Okay, that's it from my side. Thank you.

Thank you, sir. The next question comes from Mr. Saikiran from Espirito Santo. You may go ahead, please.

Yes, just quickly one data point. What is the outstanding risk-weighted assets this quarter?

Outstanding risk-weighted assets is INR2,87,000 crores.

Thanks, that's it from my side.

You're welcome.

Thank you, sir. The next question comes from M. B. Mahesh from Kotak Life. You may go ahead, please.

Good evening, sir.

Good evening.

Just wanted to understand one thing. You mentioned that there is a possibility of an improvement in cost to income ratio going forward. Just wanted to understand how is it likely to pan out, because on one hand you have collection costs which tends to be very high for a retail franchise such as yours. We have now seen that probably at the bottom levels, given the slippages that we have seen in this book. Just wanted to understand how does the dynamic work on that front.

Second question is on the ForEx income line we have seen a little bit of slowdown in the -- at the pace at which it's growing, so just wanted to understand what's happening on that line.

Yes. So, on the first one, the primary piece that we're talking about in terms of drawing operating leverage is the fact that in the last couple of years we would have added well over 1,000 branches. And since, typically, the branches take two, three years to break even we're counting on the fact that, while the costs are largely -- costs are entirely in, the revenues are still building.

So even though we will continue with some new branch additions and some of these expenses, like you said, somewhere on collections or somewhere else, the fact is that as you have a lesser and lesser proportion of branches which are yet to achieve the breakeven and so on you will get an operating leverage there kicking in, which should help us manage the -- or improve the cost to income ratio.

Also, apart -- while I'm linking this to branches, it's not just the branches. It's that when we roll out some of these products in a much more wider geography there are investments in terms of sales, in terms of credit, collections, a whole host of these things which a lot of these costs are already sunk there or in there and we're still not yet fully deriving the benefits of that infrastructure, or those people, or those costs because the business is not building up. So we're talking really more of improving our operating leverage there.

On the -- what is -- your second question was --?

FX (multiple speakers).

Yes. On FX I think there are two elements to this. One is the revenues are a function of what happens in terms of volatility in the markets and, secondly, what happens to customer flows. A major portion of our revenues are customer-flow driven, but what we've seen is that customer volumes themselves tend to be higher when there is higher volatility.

So if you look at it a year back, in the last quarter of the previous year you had much more volatility on -- especially on the forwards and, in fact, in spot that time which, obviously, one, meant that you had many more customers looking to hedge their exposures, both on -- on both the import and export side and, secondly, that there would have also been slightly better trading opportunities in that market.

Since then, of course, we've seen that there have been slower growth rates on flows because of the slower growth rates that we are seeing on both imports and exports of the country. And we've seen much more -- much greater stability in the exchange rate, especially in the forwards, in the last couple of quarters. So that is really what would determine the revenues there.

There is a core which keeps coming in because of the customer flows, but the actual proportion of that, or the level to which you can see revenue flows from those lines would depend on the markets as well.

Just if I may follow up this question, you wouldn't book any derivative losses that you report in the Annual Report in this line?

No, meaning?

In the Annual Report you do mention another income which is negative -- which tends to be negative and that is predominantly from the derivative transactions.

No, the --

Mahesh, you have to look at that along with the profit on exchange together. Unfortunately, the geography disclosure is -- on derivatives is there but, frankly, whatever derivative exposures are there, normally, there is a contra foreign exchange exposure. Therefore, you have to look at it together. So whatever is reported in the press release, it is the combination of what is there in the miscellaneous income and on FX.

So this is the combined amount of what has been reported of FX and derivatives, but there has not been any increase or change in the -- specifically in the miscellaneous income being negative on derivatives. So there is no drag in this line relating to derivatives, if that was your question.

Yes. I just wanted to check whether it was from that or whether it's purely on volumes.

No, (inaudible).

Thanks a lot.

Yes. Are we through with the questions, or is there any more left in terms of --?

Yes, sir, we have two more questions.

Okay, let me rush that through.

The next question comes from Jatinder Agarwal from CIMB. You may go ahead, please.

Good evening, sir, --

Hi, Jatinder.

-- a few questions actually. First, in terms of investments that are getting commissioned the pipeline is very strong. And are you able to see this in terms of a very big refinance market developing over the next 12 to 18 months?

Secondly, inter-related to this, what is the average loan yield that you think these exposures are fetching in the market? Within this, which are the segments that you would like to participate in if you wish to do, which is roads, power, telecom etc. whatever?

And the fourth one, which is again inter-related, if you could share in the last nine months if you have participated in any of these deals where assets are ready and you've taken a term loan exposure for the longer period. Thank you.

This will be a bit of an estimate. But I would say that over the next year or two the total value of projects which might actually get completed and which, therefore, might come up for either refinancing or re-pricing would probably be -- and this is a guesstimate -- but would probably be about INR1.2 to INR1.5, INR1.7 lakh crores.

Now, a good portion of this, what happens is once the projects are completed they would get re-priced, but a lot of the lenders would be willing to retain those loans themselves at a slightly lower cost. But maybe about 20%, 25% of that would get refinanced, because those lenders may not be willing to take the -- continue with the asset at a lower price.

So to my mind this opportunity for players who are not just -- who already have the loan and who are just really re-pricing [is] the actual opportunity for others would probably be something like maybe INR30,000 crores to INR40,000 crores or something like that, or maybe INR30,000 to INR50,000 crores as an opportunity.

And to my mind the saving to the customer would be anywhere between 100 to 200 basis points, depending on whether the refinancing happens through the -- stays in the loan market or goes to the bond market. That is the size of the opportunity.

Now, of that, whether we can get a 10% market share, 5% market share, or 20% market share will really depend on which are these products -- which are projects, which are these -- who are the sponsors. From a sectoral perspective we are pretty agnostic.

So I don't think we are saying that we will deal with only roads, or only power, or only something else. We are really much more customer focused and project specific -- focused on specific products, specific projects in terms of how comfortable we are with those dynamics. So even if the project is complete there may be other [lists] that we may or may not be willing to deal with.

So this is an opportunity. And to that extent that we are in relative terms newer players in this business, because we've been in this business for the last two, three years, we do have an opportunity to pick up some of these loans. And we have done this in the last year or so.

So we would have -- I wouldn't put the specific number, but we would certainly have done a handful of transactions and most of these transactions, therefore, would be in a few hundred crores' range, each of them so that we would have built some portfolio of such loans where we are comfortable with the term exposure.

Okay. And, sir, can I ask you two more questions?

Sure.

The first -- these are very useful. The second is, is it true that you've lent to SKS Micro Finance? And if you could -- and, if yes, can you share what is the thought process that you have?

And secondly, sir, on the system deposit growth what are your thoughts and how do you think this will pan out? Does this concern you at the Bank level [individually]?

Well, on the first question, we do not answer -- or we cannot really talk about any specific customer. So I am sorry I will not be able to talk about SKS or any other specific customer.

As far as the deposit growth piece is concerned, I think we are concerned at an industrial level that we -- especially the last numbers which have come, which have been, what, of 11%, 12%, seem particularly concerning. We do believe that the overall [money supply] growth, which was originally expected to be 16% plus, then was revised to 15%, now it's somewhere in the 13% range, and unless that increases you're not going to see adequate deposit growth. And if the -- if you do want to see a reasonable and sustained reduction in lending rates, then that can happen only if there is clearly a pickup in deposit growth.

So while -- we still remain extremely comfortable from a liquidity perspective and between our deposit growth and some tier-two capital that we have raised we still -- we remain extremely comfortable ourselves. At the system level I would share the general concern that deposit growth has been a little sluggish.

Perfect, sir. Thanks a lot.

Thank you.

Thank you very much.

Thank you, sir. The next question comes from Mr. Prashant Kumar from Credit Suisse. You may go ahead, please.

Good evening, sir, just a quick data question. Your other assets and other liabilities, they have been trending down for last couple of quarters. So just wanted to know are there any contra entries related to FX derivatives and its implication -- any implication in terms of risk-weighted assets?

Sure. First of all, I think you've answered the question. Absolutely, the reduction in the last couple of quarters has been on account of the contra. This is, what, AS --?

30.

AS30. And from a risk-weighted assets point of view it has some small implication, but because of the conversion factor it's not a meaningful change in the risk-weighted assets or the capital adequacy. But the actual balance sheet size coming off is -- because of the mark-to-market on derivatives it comes on both sides of the balance sheet.

Okay. Thank you, sir.

Thank you, sir. There are no further questions.

Okay. Thank you very much to everyone and I hope we have been able to resolve most of the queries. Thank you once again. Bye.

That does conclude your conference for today. Thank you for participating on Reliance Conference Bridge. You may all disconnect.