HDFC Bank Ltd (HDB) 2014 Q1 法說會逐字稿

Good evening. Thank you for standing by and welcome to the HDFC Bank quarter one FY 2014 results conference call presented by Mr. Paresh Sukthankar, Executive Director, HDFC Bank. At this time, all participants are in listen-only mode. There will be result update by Mr. Paresh Sukthankar followed by question-and-answer session. (Operator Instructions) I would like to hand the conference over to Mr. Paresh Sukthankar now. Over to you, sir.

Hi, everyone, and welcome to this call. I have Sashi and Bhavin and a couple of other colleagues with me as well. I'll start off with just outlining some of the key financial parameters. You've probably had a chance to go through the press release so I won't be walking you through the entire release, but just a couple of the key financials and then we'll move to the questions.

For this quarter, the net revenue growth was up 19.7% and touched INR6,344 crores. The breakup of the net revenues is roughly a 70%, 30%; it's 69.6% in net interest income and 30.4% is other income. Net interest income was INR4,418 crores and grew 21%. The net interest margin was stable at 4.6%. Other income grew by 16.7% to INR1,925 crores. On the cost side, the operating expenses for the quarter were at INR3,038 crores, increased by 15.7% as against the net revenue growth which I mentioned earlier was at 19.7%. So the cost to revenue ratio did improve from 49.5% for the June 30, 2012 quarter to 47.9% for this quarter. Provisions were INR527 crores. After which, the profit before tax was up 32.7% at INR2,779 crores after providing INR935 crores for tax and you'll notice that the effective tax rate has gone up during this quarter. Post that higher effective tax, the net profit for the quarter was INR1,843.9 crores, which was up 30.1%.

Some of those key balance sheet parameters. The overall balance sheet was at INR416,000 crores. Loans and advances grew by 21.2% and touched INR258,589 crores. The retail piece grew a little faster than the corporate loan so the retail loan growth was about 25%, the wholesale loan growth was 16.5%, this is on a year-on-year basis. Although for the quarter, that is if you look at it from March to June, the wholesale piece actually was slightly higher than the retail piece in terms of the absolute contribution during the quarter or certainly an equivalent amount. And therefore the mix of retail to wholesale as of June in the loan mix was 54% to 46% so 54% of the loan book is retail and the balance 46% wholesale.

On the deposit side, deposits touched INR303,000 crores, which grew by just under 18%. The CASA proportion as of the end of the quarter was 44.7%. The branch network, as of June we touched 3,119 branches. We also crossed 11,000 ATMs, we were at 11,088 ATMs, and all of these were in 1,891 towns and cities. 54% of this network now is in semi-urban and rural areas. On the asset quality front, there has been some increase in gross and net NPLs in absolute terms. On a percentage of gross advances basis, gross NPAs were at 1% both in June of last year and June of this year. Although if you go to the second decimal, it was 6 basis points, 7 basis points increase on a year-on-year basis; went from 0.97 to 1.04. So it still remains 1%, but that's an underlying increase.

Total restructured loans have remained pretty low. Total restructured loans were at 0.3% a year back and now are at 0.2%. The capital adequacy ratio calculated on the basis of the Basel III framework now. So effective this quarter as per the regulatory guidelines, we have moved from the Basel II to the Basel III framework for capital adequacy. And therefore the CAR as of June, total was 15.5% and Tier-I was at 10.5%. This does not include the profits for the quarter in any case. Just for the sake of comparison had this been on a Basel II basis, the CAR would have been 16% and Tier-I at 10.6%. So it's not really too much of a difference on a Tier-I basis, it's 10.5% as against 10.6% between Basel III and Basel II, but that's really where it is on the capital adequacy point of view.

I'll stop here. I mean I've got a few more details, but I'm sure some of these will come up in the course of the questions. So, stop here and throw the house open for questions.

(Operator Instructions) Manish Ostwal, KR Choksey.

Yes, sir. Congratulations on good set of numbers.

Thank you.

First question on the CD ratio. CD ratio has been hovering around 80% to 85% band in last few quarters so why we are having such a high CD ratio and could you throw some light on the liquidity position of the bank?

Sure. So we've consistently had a slightly higher CD ratio reflecting the high level of capital that we have. So when we look at from a funding point of view apart from the deposits, obviously we fund ourselves from one, there are floats which do not show up as part of the deposits, but which are there on a core basis. In fact if you look at the annual report, you'll find that there are on a regular basis floats which come under liabilities, which are an ongoing source of funding. Certainly there is of course the Tier-II and there is the equity capital. So when you look at the CD ratio adjusted for the floats, the subordinated debt, and of course the overseas advance and we don't have a large overseas portfolio, but we have about a couple of percent of the book overseas; if you adjust for that, then the CD ratio would be about 76%.

The bank has always been essentially funded from deposits and from a funding and GAAPing point of view, it's a fairly well-matched book which is why both from a liquidity and interest rate perspective, we've been through cycles of tight and loose liquidity and higher and lower interest rates. And through these cycles, we've been able to maintain a fairly comfortable liquidity position and a fairly stable net interest margin so that really hasn't changed.

Secondly, sir, during the press conference, you suggested that retail and wholesale contributed 45% and 55% respectively to incremental slippages.

Yes.

So could you say the key retail product segments and the key sectors, wholesale segment contributed this NPs?

Yes. So basically what I'm saying is that the gross NPA slippages on a regular quarter basis have in the last few quarters tended to be more on the retail side and you'll not have so many slippages on an ongoing basis on the corporate side. We've had some every few quarters. In this quarter if you look at the slippages, we've had the slippages from both wholesale and retail roughly in line with the proportion of the basic loan portfolio as well.

So point number one. If you look at the NPA percentages for wholesale and retail, it's not that there is sharp increase in any one of them, it's been roughly the incremental NPLs in line with the existing loan mix. Within retail, for the last two quarters we've had continued slippages on the commercial, retail, and construction equipment side. That has continued in this quarter. It's not necessarily got any worse in terms of percentages, but it has continued to slip. So if you look at the December quarter and you look at then the March quarter sort of flattening out a little, this quarter is again more or less in line with the December quarter in particular. Apart from that we've had some NPLs on the gold loan side where it's not that we are under-collateralized in terms of being more than 100% LTV or whatever.

But to the extent that whatever was the absolute margins, if there was some irregularity because those margins had not been met and that irregularity had been not completely teemed out in 90 days, then we would have had some NPLs there. Other than that for the rest of the retail products, the NPL movement has been negligible. So broadly, I would say the retail NPA portfolio trends have been similar to what we have seen in the last few quarters as far as the CV and CE business is concerned and for most of the other products, really it's been very similar in terms of at least NPA accretion. And on the corporate side, we had a few names which did become NPL in this quarter. We do not have any very small single-digit sort of names so there's no concentration in a particular industry or a particular group or anything of that sort. But that has contributed to little less than half of the total NPLs.

And quickly, sir, could you provide the risk weighted asset number, sir?

Yes. The total risk weighted assets under Basel III is INR3,25,900 crores.

And this provision number of INR527 crores, could you break the floating and the specific provision?

Yes. So of the total, the general plus floating provisions are INR80 crores. The rest are the specific provisions.

Okay. And just lastly, this trading gains shot up during the quarter so is it largely because of resale in corporate bond or some ForEx proprietary trading gains also there?

This is entirely bonds.

Okay, sir. Thank you very much. Thank you.

Nitin Kumar, Quant Capital.

Yes. Hi and good evening, sir. Sir, the margins have held up very well during the quarter so can you please explain as to what kept them steady? Maybe some details on that because now they have now come closer to the higher end of the range.

True, absolutely. Well, to be honest, I think in the last quarter, also in the March quarter, we were at 4.6%; but the core net interest margin was at 4.5% because typically in the last quarter of the year, we tend to have some annual receipts, which is why. But essentially if we knock off the core element to it and look at the total, then what you're saying quite rightly is that at roughly 4.6%, this is at the upper end of the range. And I must say that again 4.6% is the rounding off of 4.5%-something, 4.56% or whatever, but it is still. What has happened in this quarter is that both funding costs and yields came down by about 10 basis points, which is reflective of the fact that from where we were and I'm just keeping -- remember this is we're talking still June, right? So we're still talking about what has happened in the last couple of days.

But when you look at the fixed deposit rates from where they were in March for instance or February, March and coming down to June, you did have a drop in the one year fixed deposit rates on retail. And across the board, I would say between 25 and 50 basis point sort of reduction in incremental fixed deposit costs. Obviously that changes the fixed deposit book cost very gradually, but that has clearly had an impact. CASA was on a daily average basis very marginally lower. In fact although the March CASA and the June CASA as of the last date of the quarter looks a couple of percent lower, on a daily average basis it was not so much lower and which is why there was no reduction in NIM as a result of the lower average CASA. So whatever was a reduction in the cost of funds was essentially a result of the lower fixed deposit rates and that was almost exactly offset by the low yields that we had on the loan book.

On the loan mix, if you look at the incremental growth during this quarter, we've actually grown -- if you look at the total in absolute terms, we have roughly just under INR20,000 crores of loan growth from March to June. And actually almost close to about two-thirds of that came from corporate because in the March quarter typically, the corporate loan book tends to get sort of moderated a little. So from there if you look at the incremental growth, the growth has actually come almost two-thirds from corporate book and one-third from the retail book. So the mix actually for this quarter has been a little more biased towards corporate and that has resulted in slightly lowered loan yields so which is how the net interest margin has remained flat.

And does that also partly explain claims as to why the fee income growth was also very muted during the quarter?

The fee income growth, actually the one line which has clearly come off pretty sizably and this is something which has been happening over the last couple of quarters, but took a further dip in this quarter was the third-party commission in earnings. Well, we have seen for sometime the reduction in terms of fee rates as a result of the change in mix of insurance and so on away from ULIP and so on, that has been happening for some time, but volumes have also been moderating there. So that was one was line, which saw a lower growth. The other fee lines have been more or less the same so we don't have a large portion of fees which come from retail loans so it's not that that would have caused the fee income piece. And in fact one of the positives of our fee composition has been that for most parts of it, it's not linked to loan growth; it's more linked to a transactional banking, it's linked to third-party distribution, it's now some little bit of it also coming from the investment banking activities, trade. A lot of these are not sort of using the balance sheet so that's really where the fee income has been slightly muted. And of course on the FX part of the fees, clearly that has been impacted by the fact that both from an export and import flows point of view, the growth there has been that much lower although we have seen volume growth despite what's happening in the macro environment. We have seen volume growth on the actual customer FX flows, but trading volumes have been that much lower.

Okay. And sir, you mentioned that the bank has benefited from the lower fixed deposit rates, but like what is the outlook on the borrowing costs and the FD rates going ahead especially after the recent measures announced by the RBI?

So clearly, whatever was the decline in retail rates and our expectation till day before yesterday was that this might continue over the next couple of quarters now stands changed; I mean at the shorter end, whether it is CD rates or deposit rates, there's no question of

further decline. Whether the rates will show an upward sort of bias or whether there will be some division will really depend on how other banks and how the market as a whole reacts over a period of time. Because just now, it's just the immediate shock or impact of what the measures might have been. Obviously, none of us know whether this is something which these measures are here for a few weeks or a few months and obviously therefore depending on how long the tight liquidity conditions last and what the actual banking system borrowings are and therefore what it is doing to the overall cost of funds. That should determine what various banks do on deposits and either bank deposit rates remain where they are and then other than the impact on bond yields and so on, they may not be necessarily a transition or a transmission of that to deposit and loan rates. But if this continues for a period of time and the liquidity conditions remain or get even tighter than where they are right now, then banks would probably be encouraged to or could be induced to increase their deposit rates and then that could have a cash cutting effect on lending rates. So right now tough to say, but clearly the downward bias seems to have been arrested for now.

Okay. Thanks a lot, sir.

Mahrukh Adjania, Standard Chartered.

Hi, Paresh. Just wanted to check for RBI last week. I'm not talking about the recent domestic liquidity measures, but last week they had come out with FX norms as well. So if those were applicable in the first quarter, how different would you FX income be?

So the measures in terms of limiting proprietary trading, right? Those are the measures you're talking about? Those would not have had any meaningful impact on our FX revenues.

Okay. And the other thing I wanted to check is on loan against property.

Sorry, are you talking about the draft guidelines on unhedged expense or are you talking about the restrictions on the proprietary trading part?

Yes, sir.

Yes. Okay. So I'll stand by what I just said.

And the other thing I wanted to check is on this business banking loan. Now most of the newer players and a lot of the existing players are focusing on that product for growth so what's the view in general on the market? You've not grown much on a sequential basis in this product, but in general in terms of the asset quality and if at all there are any risks?

Traditionally SME obviously carries because of its smaller size and sometimes the balance sheet structuring of the SMEs, it does carry obviously a slightly higher risk than other parts of wholesale lending. Having said that, in our own experience in this economic cycle in the last two, three years even as the economy has slowed down from upwards of 9% to say 5% or lower; the traditional soft spots of asset quality which is SME, which is unsecured retail, and so on; has surprisingly held up extremely well. So even our business banking and other parts of the SME exposures have by and large held up well in relation to what are the expected losses or the expected credit costs that you anticipate from a portfolio like this, especially in a cyclical downturn. But the reality is that you don't know how things can turn if things don't get better over a period of time.

So it's one thing when the economy goes from 9% to 8% to 7% to 6% to 5% and yes, you will have some slippages, but not as bad as it could have been. But then if it continues for a while, things can get tougher for the more vulnerable customer segments which clearly includes SME. In our own experience so far, other than the commercial vehicle and construction equipment piece which though it's retail, in some ways has SME characteristics because it's a business that is run by the borrower from those assets as you speak from other retail where he has separate income and then he buys an asset and repays the loan. Other than those segments of SME if you might, our portfolio has held up reasonably well. There are pockets which were more vulnerable initially, which were more export oriented, or which were more exposed to commodity cycles or currency exposures. But so far, I think we have not seen anything which causes meaningful or serious concern in delinquency trends in our business banking book.

And is competition changing anything because now everyone suddenly has their key focus product as LAP so that will --?

So for us, LAP is only one of the various business banking products that we land up doing. I agree that LAP and perhaps rental discounting and some of these product categories within business banking have been the subject of more intensive competitive pressures, but a lot of this for us is our branch based sourcing. So as our branch network has grown, we are essentially adding business banking customers who have account or bank relationships with us so this is not really a feet on street or a DSA originated retail type portfolio. This is much more of our branch and relationship manager source portfolio. And while obviously intensifying competition always puts its own pressure on pricing and sometimes on underwriting or credit standards, I don't see this right now as something which is causing any irrationality. What you're saying on the LAP piece is right, but that's not a very large portion of our business banking piece.

Okay. Thanks. And just on the pending regulation, one is this unhedged exposure? I mean does anyone have any estimates on what that would be because that's going to be a long drawn exercise, right? So would you have any estimates on?

Not really, Mahrukh, because I guess people are seeking clarifications on what should -- because there are not just a question of what the hedge is, but whether there are issues of customers claiming economic hedges because the nature of their underlying business which is linked to perhaps dollar realization for their sales to other types of issues before you could really quantify what is the degree of unhedged exposure for different customers and then how that should actually translate into because clearly as it is right now, it is onerous in terms of higher provisioning and higher risk weightages that may apply. But right now, honestly, I don't think many of us have done too much of calculation because there are lots of issues which still need to be clarified.

Thank you so much. Thank you.

Anish Tawakley, Barclays Capital.

This is Anish Tawakley from Barclays. Paresh, the OpEx growth was about 15% this quarter year-on-year basis, what is the outlook for the rest of the year? And secondly, you talked a little bit about pass through on the deposit side, right, that will happen I guess with the lag. But how quickly could you reprice your asset side upwards, I mean given that the marginal cost of funding has clearly increased, right?

So on the first part, this is something that we've been saying is part of our focus and our target internally, which is to improve our cost to income ratio reflecting partly the fact that as the macro environment is challenging and is certainly going through a phase where economy's growing that much slower, which supports a slower system loan growth and therefore a slightly lower loan growth. To whatever extent the growth in the topline is slightly muted, we do see this as a good time for us to be improving our efficiency and the productivity of our existing expenses and existing resources. At the same time, I've also mentioned that having added a very large number of branches in the last two or three years, as these branches tend to breakeven progressively, which is that the cost structure is in but the revenues that we generate from those branches increases, there is room for us to improve cost to income ratio. So I do believe that progressively over the next several quarters, there is room for us, this won't sort of happen in big bang, but it won't happen in a completely secular way, you could have some ups and downs. But clearly, the idea is to improve our cost to income ratio in baby steps over the next couple of financial years including this one and I think there is room for that.

If we knock off the treasury gains this time, is that kind of the underlying [margin]?

Much more reflective and I think there you see not the 1.5%, 2%, but more like a 70 basis points, 80 basis points sort of improvement. And that's really what I'm referring to as the sort of core improvement that we would see in baby steps, which is why I said that if you look at just on the face of it, you might see a large higher and lower depending on what the revenue composition is. But you've hit the nail on the head that yes, the improvement on a core basis still is meaningful. As far as the deposit and loan pricing; on the loan side, the good part is that large parts of our corporate book as you know tend to be more working capital and short-term 90-day, 180-day sort of lending. Now we don't know whether this current shock that we have seen in terms of liquidity in rates is something that is here for a couple of months or longer or shorter, but whatever tends to mature gets repriced very quickly. And very large portions of our corporate book tend to mature within a year and get repriced on maturity and the balance amount which is term, which could be about roughly 30% of our wholesale book, that in any case is linked to some benchmark typically our base rate or some of the benchmark so again get repriced at least annually.

I don't know whether these measures that we've taken induces banks to change their deposit rate and therefore their base rate. Right now, I think it's premature to speculate on that. But if that does happen, then of course roughly 20%, 25% of our loan book is linked to base rate. Of the balance amount, the corporate fees would get repriced over a six to nine month period and the retail piece will reprice only to the extent of new lending because other than the mortgage fees and some parts of business banking, the rest of our retail portfolio is fixed rate so that does not reprice, the existing portfolio does not reprice. Obviously what comes in in terms of new loans will be at whatever high rates. But again, all of this is really dependent on whether this impact on liquidity and bond yields and interest rates is seen as a short-term aberration or it is seen as something that is here to stay at least for a few months.

In the scenario that it stays for let's say three months or six months, right, and given that wholesale CP rates have moved up more than 100 basis points, I guess I'm trying to understand why wouldn't you price up your loans. And you or the industry, right, wouldn't you price up your loans by that amount?

At the shorter end, no question about it. The reality is that if you look at the last few months as liquidity has eased, you had corporates substituting some of their working capital borrowings with commercial paper, right? And I guess now the sort of shoe is on the other foot, if you might. So obviously at the margin as and when these CPs mature if they are to come back to the banking system, obviously the banks will be pricing it based on what the current market rates are. So you're right that at the shorter end lending which was happening at very close to or just above the base rate because that's what was the market rate; if that there's an increase, I guess there is some increase in the lending yields on the corporate side. This may not impact the medium or longer tenure loans because a business perception is that this is not here to stay for a very long time. But if you look at a 90-day bill or you look at a short-term loan, what you're saying is certainly on the cards.

Paresh, if I can squeeze in a final question. What proportion of your credit card balances would be interest paying versus only transactional and paid before they earned any interest?

About 40% 45% would be interest paying.

Thanks.

Jimit Doshi, Reliance Securities.

Hi. Good evening, sir. Sir, just wanted to ask you as in I'm sure you must have got this question a lot of times today. So how exposed are you in terms of your liability book because of the past week events and this week events rather from the RBI? How exposed are you basically?

Well, do we sort of have surplus SLR and do we borrow against that under LAP? The answer is yes. Have we borrowed against -- do we have wholesale deposits? The answer is negligible or very low. Do we borrow under MSS? The answer is no. So I think the last part of our balance sheet has always been -- our core assets have always been funded from core liabilities, which is essentially our deposit franchise and whatever capital that we have. At the margin if there are opportunities to borrow under LAP and some short-term asset opportunities whether in the markets or lending, we would do that because there was an arbitrage. If that arbitrage disappears or there's no liquidity available, we would give up those opportunities. So I think we've been fairly comfortably placed from a structural liquidity point of view always and that remains. Yes, I mean that's really it, but obviously deposit rates and CD rates and so on, how they evolve, we'll have to wait and watch.

Do you see any impact on the growth going forward given the current economic scenario if it sustains let's say for FY14, the GDP doesn't improve or it remains at let's say 5% range?

I think if GDP growth remains at 5% give or take, I think that's not great news from the economy point of view and from the banking system point of view in terms of growth. We've sort of said this for the longest time that loan growth in the banking system in India has been at a certain multiple of the GDP growth and our earlier assumptions were that GDP growth picks up from what might have been just under 5% last year to maybe somewhere closer to 5.5% or 5.7%. So although we were never in the 6% plus camp, we did believe that there was reasonable hope of moving up by about 0.5% in terms of GDP growth, which might have meant a system loan growth pickup of a couple of percent. If you don't have a pickup in GDP growth and you have GDP growth languishing at around 5%, then I think the best that you can expect at the industry level is probably 14% loan growth or if you're lucky 15%, but somewhere in that 13% to 15% range, which is where currently loan growth is at about 13.7%, 13.8% for the industry. Even if we therefore then maintain our delta growth over the system, that in a sense tends to dimension the pace at which we would be willing to grow or comfortable growing.

Would that also mean that you would take a hit on your cost to income because given the way you've increased your branches over the last two years, it would take longer to breakeven?

Not necessary because when you look at the growth that we are achieving right now and we continue to achieve this growth of whatever 4%, 5%, 6% faster than the system that we've been doing, that growth is really coming at the margin from the broad spectrum of our branches, but certainly a higher proportion of that contribution from the semi-urban and some of the newer branches. So I in fact feel that in an environment in which we are, perhaps one of the best things or one of the things that puts us in a better position in our minds is the fact that we have expanded our distribution network. Remember, the worst of the cost to income in terms of the drag is already there so whatever we can eke out, obviously helps.

Further, the impact of this more moderated recovery or no recovery as you're putting it is again more likely to be in the urban areas because what are we seeing. The recovery if it had happened or pickup in the economy if it had happened, it would have been at the back of a recovery in the investment cycle. But the consumption side, whatever little upsides you can see in the economy are probably going to be more on the consumption side because of maybe a better monsoon or because of the usual pickup in consumption that you might get triggered in a pre-election environment. So I would believe that those parts of our business which are linked to the domestic consumption part of the economy will perhaps support us with higher growth rate than anything which is linked to the investment cycle or government spending.

Okay. That's it. Thank you.

Saikiran Pulavarthi, Espirito.

Yes. Just quickly on the retail book breakup. The other segment has been growing at a very rapid pace in the last one year. Can you just help us know what is it all about and then how do you see this panning out?

Yes, sure. Give me a second. So the product lines there in each of these are a couple of thousand crores so that is why they don't get spun out into a separate piece. But there are things like the Kisan Gold Card, which is essentially our agri loan to the retail farmer; OD against deposits; tractor loans; healthcare, which is again medical equipment finance; and some lending that we do directly to self-help groups, which is what we call sustainable livelihood financing. So, these are the four, five products, which is what sort of constitute this.

If you can get your agri (inaudible) banking is mostly coming under this segment?

Well, the agri piece actually is housed in different parts of the book. Only one particular product out of that is coming in this others because it is more retail. There are several other agri lending products, which come as part of different other -- in wholesale in particular in different other segments. Also we may have certain other products, which for instance say light commercial vehicles to the extent that some of those are to farmers or used for agricultural produce shipment. Those could be qualifying as agri, but essentially which will come as part of perhaps our CV portfolio or something else. So when you look at the agri portfolio from a regulatory perspective; part of it will be in our different wholesale portfolios, part of it in some of the retail products including for instance things like tractor loans and so on, but one of the products which is the Kisan Gold Card piece is also part of our others in retail.

And second question is on the gold loan. After so many quarters, I believe there is a de-growth on a quarter-on-quarter basis. In your initial comments also you suggested that there is some stress on the gold loans. Just wondering considering the price volatility and then the current economic environment, how do you see this portfolio behaving and then any changes you would have taken in while incremental lending?

Yes. So I think the moderation in the growth rate is clearly a function of the fact that as the gold prices came down, customers would have been required to reduce their outstandings to maintain margins and that would therefore have resulted in while we might have added our normal quota of increased new customer acquisitions on the new gold loans, there would also have been a reduction in outstandings for existing customers because of the lower value of the collateral. As far as the margins on incremental loans, those would also have been increased slightly; but overall the margins that we have been maintaining have been holding us in reasonably good stead. Also the fact that we take our interest on an ongoing basis, we don't do sort of back-ended bullet repayments with interest; that has also helped keep our sort of head above water in terms of the loan to value ratios. Having said that, seeing the sharp decline which we have seen and the volatility that we have seen, clearly for new loans and on renewal of any existing loans, margins has been appropriately adjusted.

Just a couple of follow-up questions on the gold loans. What could be your outstanding LTV approximately and I just want to understand on an incremental basis, whether that has come off dramatically?

I don't have those numbers with me to put out and we have not really put those details of any particular product in the public domain. We must remember at the end of it, for us this is an extremely small portion of our portfolio, and yes, they would have been approximately 3% of the retail loan book so about 1%, 1.5% of the total loan book. So while we have taken all the moves that we would require to take in terms of what is logical given the volatility, it's not something which is where we've got any meaningful outages or whatever. Even whatever little stress that I have mentioned earlier was more where the customer has not met the required margin for a period of time rather than our being completely undercollateralized because then we would have sold the gold and recovered the money.

And last question from my side. There has been a pretty strong growth in the wholesale banking book. Can you just explain what has contributed for this growth when the industry is struggling to grow?

Yes. So I think the healthy growth which you're seeing is really on a sequential basis because the March number tends to be a little depressed. If you look at on a year-on-year basis, the wholesale book has grown at about 16.5%, which is of course higher than the 13.7% that the banking industry is doing; but still is not very high given the fact that we're continuing to add new customers, we're continuing to increase our share of existing customers and so on. But the larger part of that lending has been working capital medium-term loans. We have seen some term lending, which is more in the nature of either refinancing by those corporates of more expensive debt from others or in some cases some Brownfield CapEx activity.

Thanks. That's it from my side.

Jatinder Agarwal, CIMB.

Good evening, sir.

Hi, Jatinder.

Just one question, sir. In your ALM, when I look at your current deposits and your savings deposit, can you just give us a brief breakup as to where each of this sits and you could broadly break it up in terms of your majority buckets; less than one year, one to three years, three to five years, and over five years?

Well, approximately 80% is regarded as core based on the behavioral study that we have, which then therefore comes in the one to three-year bucket. The rest of it tends to be at the absolute shortest end of the ALM buckets.

So this would be true for both current accounts and savings, sir?

Well, in the current accounts we have a breakup between what is corporate and what is retail and so on. Really primarily for the savings and the retail component and the rest of it is a little more. We segregate this by more than one slice, but the elements which way we are allowed to take the behavioral study, this is what is the trend. There are some which we you just go by the contractual.

So unlike other banks, for us we have more assets repricing this year compared to liabilities and which was the case last year also. Given the way markets have behaved over the last couple of days and presumably if this stays, do you think there could be a tailwind to margins or whatever?

I would not wish it on our ourselves anyway because I would rather see the growth than hope that the growth gets hit by what you just said and in the hope that you offset that to margins. Is there some natural should I say saving that is there between what might impact growth might be a bit of help on margins? Possible, but right now it's too early to say and we really don't know what this does to funding costs as well. But yes, generally speaking because of the higher proportion of slightly shorter tenure corporate assets do have the ability to reprice a little quicker, but equally that is also sort of vulnerable to what happens to industrial growth and what happens to corporate loan demand.

That was useful. Thank you, sir.

Rakesh Kumar, Elara Capital.

Hi, good evening. Just one question. Looking at the balance sheet, actually the bank is meeting the PSL requirements; maybe in some say sub targets bank might not be meeting. But if we look at that deposits with NABARD, that has grown actually on the year-on-year basis by around 17%, 18% so what could explain that?

So I think what you just said is absolutely right that we've been meeting our 40% overall PSL targets and we have actually also been improving our compliance with some of the sub targets when you look at agri or [RIDF] or some various sub targets which are there. We've actually been having a higher and higher sort of compliance with those sub targets as well. Having said that, the total amount of allocations which are done at a banking system level under various tranches of RIDF and so on, has been also increasing. So let me put it this way. What I'm saying really is that of the total amount, our proportion which is being allocated to us which really reflects therefore our shortfall in PSL and vis-a-vis the system shortfall, that as a proportion has been coming down, but the absolute amount of allocations for RIDF have been going up. So the total amount that we ultimately have to commit to RIDF has been continuing to increase or at least remain on a year-on-year basis more or less flat. Also remember that these amounts remain for a period of time so whatever was our shortfall for let's say two years back and if we had to put a certain amount in RIDF, that amount would lie in that particular tranche of RIDF for maybe five years or seven years or whatever it is depending on the different schemes there. So it tends to sort of build up and will build up for a few years before perhaps some of oldest of them tend to start running off. But the positive is that in proportion terms therefore, we are better off so we would have been much worse if we had not had this improvement.

Secondly looking at the floating provision of around INR30 crore we have done in this quarter so can we conclude that for the full year the run rate of INR400 crore, what was there previous year, that could come down this year?

Well, we don't have a guidance or a number on what we would create for floating provisions, but the basic point on floating provision is it is in the nature of what we might call countercyclical provisions. So in a particular quarter or in a particular year if there is an increase in the need for specific provisions, which of course is then dependent on what the NPA creation for the rest of the year might be, we would have smaller or lesser amounts of floating provisions. This quarter between the floating and the general provisions, the general provisions of course is a function of the pace of loan growth in standard assets, we made about INR80 crores. So I think depending then on the specific provisions that we might need or that might create for the rest of the year or in successive quarters in the rest of the year and how that compares with the sort of countercyclical nature of those provisions, we would look at whether we would and how much we would look at in terms of floating provisions.

Okay. Thanks.

[Nikhil], Standard Chartered.

Hello. All my questions are answered. Thanks.

Hiren Dasani, Goldman Sachs Asset.

Hi, Paresh. Just one thing on the asset quality. So as you say it's 45/55 kind of split between retail and corporate. Within retail, is it largely CVC yet or are there any other lines also which are showing some signs?

No, it's not in CVC yet.

Okay, largely CC. And within CVC, it's like a deterioration from what you've seen in the last couple of quarters or equally paced?

No, it's I would say more or less in line with December quarter. March had sort of flattened a little, I would say improved a little, if you mind, but it's back to let's say December level. So it's not a continuous deterioration, but it's not much worser at all. If you look at the absolute amounts of this thing in this quarter, it's actually even lesser than what it was in the December quarter, but still I mean there's no trend of improvement or significant deterioration.

Any changes in terms of product pricing or LTVs et cetera from our side in this segment?

Yes. Well, I mean this is not now, but whatever tweaks or whatever changes that were required have been sort of done a few quarters back. These are, of course, customers who would have been acquired even earlier. And again, these are not to my mind intrinsically bad customer, these are customers who for the first couple of years managed to keep their head over water, but are over a period of time finding the stress. And it's not just CVs, also a lot of it is CD where payments have been delayed or incremental sort of level of the contracts they have got have come off. So it's clearly reflective of the general slower level of activity in the areas in which they are put out. And of course, while there are NPLs, I mean there are assets there so we'll certainly have recoveries over a period of time from some of these. But right now, the environment still looks pretty sluggish there.

Any additional color on the corporate NPLs would be really helpful in terms of whether they are more concentrated or spread across or sectorial (inaudible)?

Honestly, it seems they are small single-digit numbers; they're all different industries, different groups, different couple of regions so there is really no particular trend. These are customer-specific issues where somebody has got stuck because of the nature of the business vulnerabilities, both domestically and export markets coming down in terms of their growth, not being able to sustain the debt that they have or somebody else in some other business and it's not relating to a particular industry or a particular segment in particular so it's just individual corporates. These are mid-to-large size in some cases, slightly smaller in some cases so there's no trend to it and there's no predictability to it. Like I said in the corporate side, you can't compare it with the previous quarter or whether this is the continuous trend. I would say on a year-on-year basis, if I look from June to June, the gross NPAs in the corporate book are actually still the same, only 1 basis point lower or something like that. So it's just that it doesn't happen for a couple of quarters, you might have it in a particular quarter because it's never predictable and certainly not something which happens on an ongoing basis like retail where trends tend to be a little more predictable or little more meaningful.

Sure. Just one question on the savings growth, quarter-on-quarter seems to be somewhat muted so any color there?

Yes. So we have seen regular retail growth continuing. We have seen some parts of these savings piece are also linked to government type bodies which have such accounts in some of the semi-urban areas and those we've certainly seen out. In March we had seen an uptick and some of those I presume is money being spent. So these are the nature of government, semi-government schemes, development authority type balances which have come off. The core retail piece has actually largely chugged along. So I'm presuming this was a little more of a seasonality factor at least, which gave it an uptick in March rather than anything which is much more widespread or retail in nature.

Just two more things and then I'm done. On the KYC related violations, whatever fine has been imposed and also are we kind of done and over with that? And now obviously we have tightened our process, et cetera, and now hereon I mean that chapter is closed for us. And second is the ALM profile which is disclosed in the balance sheet, there is a lot of confusion in the street, people treat that as an interest rate maturity. I just want to clarify whether it's a liquidity maturity which is disclosed in the balance sheet or whether it is also an interest rate maturity profile.

So it is a maturity profile from a liquidity perspective and not an interest rate perspective. As far as the KYC portion is concerned, yes, I mean we would believe that it's a closed chapter from the particular action point of view and so on. Whatever strengthening of processes that we might have needed to get done, have either being done or are an ongoing improvement which is required to be done, which is being done. I mean to whatever extent there are fresh guidelines which come out which might further influence the businesses, that is something that might happen in future.

Sure. Thank you.

Laxmi Ahuja, MSFL.

Thank you for taking my question. I had one question on the retail loan book growth. As we have seen in this quarter, there has been some slowdown in the LAS and gold loan segments. Also from the data we are getting, auto segment is also slowing down. So just wanted to understand what would be the segments or how the retail book would be growing ahead.

Yes. So if you look at the overall retail portfolio and there are seven or eight products, the larger products have traditionally been auto loans, commercial vehicles, business banking followed by perhaps home loans, personal loans, and so on; and credit cards and loans against shares and gold loans are all in the somewhat single-digit range, right. So I think the key thing for us is that we've always had this and this is I think a fair expectation that you will have one or two products where loan growth tends to be slightly muted probably linked to the underlying sales in those industries or linked to what we might see as a credit environment or our view on the delinquencies of those sectors and so on. So I would say that the products which are still growing at a reasonable pace and where we believe we can continue to grow in irrespective of what might have happened in a particular quarter, we still believe that you will see reasonably healthy growth on the business banking, home loans, personal loans. I think we will see and we believe we would continue to see reasonable growth rate.

True as in I understand that, but the thing was that in these segments like personal loans and CC which is an unsecured proportion, that is growing at a pretty faster rate as compared to the other segmental growth. So in the kind of the environment we are currently, does the higher growth in the unsecured space post some kind of an asset quality challenge for us?

I would think not because the proportion of unsecured of the retail book was 20% in June of 2012, was 20% in March of 2013, just now it's just under 21%, let's round it off to 21% so I don't think there is a change in the mix of those loans. Having said that, while you're looking at unsecured on the one end; if you look at the other end which is let's say something like say for instance home loans, right, which is perhaps at the most secure end of the secured loans; that proportion has gone up by about 1% over the last year, year-and-a-half. So all I'm saying is that even a product like car loans or auto loans, right, clearly is a function of what happens to car sales and so on. But between our being able to maintain a leadership position or maintaining our market shares and so on, we have actually grown the auto loan book at a fairly healthy rate.

So tough to predict what the contribution of each individual product will be in the retail loan portfolio. What you are seeing right now is some products growing a little faster and some slower, maybe let's say some of these products which have seen moderation pickup towards the second half of the year. But from our point of view given our focus on having a large internal database of customers between our focus on having added branches and therefore being able to operate with a wide range of products in several semi-urban and rural markets where we did not have as much of a presence in some of these products in the last couple of years and our focus on increasing our penetration of existing customers in both our existing urban and semi-urban markets; we are looking at maintaining a healthy growth in the retail portfolio. Wherever we find that there is no underlying demand or lower underlying demand or that we have credit concerns, we naturally will moderate our growth rates in those products.

Could this anyway change the mix in favor between retail and wholesale?

I think right now the proportion of retail from where it was three or six months back where we had I think touched a peak of about 56%, 57% -- 56% I think was the peak; from there, we have come off a little to 54%. I think it might come down further in a meaningful manner only when you see corporate CapEx loans picking up. But if you don't really see too much of pickup in the economy and therefore the corporate loans will still be driven much more by working capital, trade finance, and so on; then I don't see a huge change in mix. I mean there may be 1% or 2% here or there and that might have been changed between quarters, but by and large right now I don't think we're targeting a certain mix, but we see reasonable growth in both the portfolios.

Okay, alright. Just another data point I wanted. What would be the proportion of the wholesale term deposits and what would be the proportion of repricing which would happen within that in one-year time period, if I could get that?

I don't know how one define what you call wholesale. But broadly on our fixed deposits, about 30% tends to be corporate. Now corporate doesn't mean that these are wholesale. These could be corporate customers who are at branches and so on, some of whom would be smaller also, but that's been the sort of typical mix. We don't have a high proportion of large bulk deposits or CDs, I mean that has traditionally never been our forte.

Okay. Thank you. Thank you for the answers.

Nilanjan Karfa, Jefferies.

Hi, Paresh. Just one question on asset quality. Given what we have seen happening to the currency in the last two, three weeks and qualitatively speaking, how worrisome is that on the asset quality typically on maybe mid-corporates? If you have to speak about it in terms of how much delta do you think we should be looking at, which are typically the subsectors that might be affected and maybe you have vacated all those sub-segments or you are perhaps worried about those segments? Some color there would be very helpful.

I wish we have vacated them. To be honest, I think this tends to be much more customer specific rather than really in that same sector because obviously the vulnerabilities lie where corporates have taken in particular foreign currency loans in the last few years. But within that, you have different corporates having had different levels of greed or risk appetite, but there are some who have probably not hedged at all, some who have hedged reasonable portions of their debt. Some who believe that although they may not have taken hedge contracts who believe they have a natural or an economic hedge, not natural from an export point of view that's one part, but even economic hedge because their underlying product has a price which is ultimately linked to the import price which is again then dollar linked. So there are various issues there. To my mind, one set of issues are which put pressure on the margins of these companies relating to their imports and their inability to pass on the higher costs and so on and the other is linked to balance sheet structuring with foreign currency debt.

The vulnerabilities are obviously significantly higher in the latter, but whether that crystallizes right now or not is a question mark because right now it's a balance sheet -- it's a question of translation losses or capitalizing the depreciation or basically increasing the rupee value of the loan and perhaps the fixed asset with whatever it maybe. But as and when the recovery or I mean as and when the repayments of those loans starts happening that is when actually the cash flow impact can then impact asset quality for banks, which is exactly I think where RBI is coming from when they talk about the need for banks to be that much more cautious on customers with unhedged exposures. So is there some concern, which is meaningful? The answer is yes. Is it possible to on overall basis try and dimension what proportion or what number of customers? Probably not. But on a credit-by-credit basis or a customer-by-customer basis, is this something which has always been and which even more so now will be a factor while evaluating the credit? Absolutely. So will there be some moderation in exposures for where the risk perception is significantly higher? I'm sure there will be from us and from others as well. But how much of that will actually translate into NPLs in the next couple of quarters is honestly not possible to really dimension that right now.

Okay. If I have to extend this argument, so how are you dealing with it currently in terms of already preparing for an eventuality if it were to happen?

Again, can't generalize. I think there would be some corporates where you would try and figure out whether the customer has the ability to service that over some period of time, whether the bank is comfortable maintaining its levels of exposures or needs to moderate its own exposures, whether the bank wants to tighten securities, whether the bank will try and work with the customer to ensure that he in whatever manner can reduce the levels of leverage. There are no sort of simple solutions to what happens at a point of time since it is already on the company's balance sheet, but that is what as part of the normal ongoing relationship management and remedial efforts that the bank would do. The bank would have to take the call. There may be cases where the bank is generally comfortable with the fact that while the risk on the underlying say borrowings might have gone up, that could well be offset by higher cash flows or slightly higher margins from the operating business if there is in fact an economic hedge or there is a natural hedge to expose.

Right. So would you believe your -- is it possible let's say that you can force the corporate to take a hedge? I know it's pretty difficult given the way corporates behave in India. Would you think that's possible or --?

I don't think you can or you're supposed to force a customer to take a hedge. I mean if the customer does not want to hedge, it's up to you whether you would want to continue to lend or price that risk appropriately. But ultimately it would be for the corporate to have their own Board approved policies for hedging and based on what our hedging products which are appropriate to that customer's understanding and exposures to take the risk. The fact is the bank then has to say is that risk which is being taken by the customer and want that translated to as credit risk for the bank, is that acceptable risk? If it is, then is it appropriately priced and if it is not an acceptable risk, then it's up to the bank to figure out whether they want to continue the exposures.

Right. Thank you so much, Paresh. That helps. Thank you.

Can I just find out -- this was supposed to be an hour, I think we've done about an hour and 15, 20 minutes. I'm not sure how many questions we still have. We could take a couple, but --

We have more 10 questions, sir.

Okay. Let me -- if we can then just try and rush through. I'll just take one question each and if your questions have been covered earlier, then we can move a little faster.

Viacheslav Shilin, DB.

Hi, I guess that's me.

Yes, go ahead.

Yes, hi. This is Viacheslav Shilin from Deutsche Bank here in Singapore. Very quickly. So given the expected increase in cost of funding potentially going forward on the domestic market and do you can see the increase in your borrowings outside of India and maybe issuing a euro bond in nearest future in her currency?

No, not really. Our rupee balance sheet has been funded essentially from rupee deposits. We have not been borrowing in the international or the overseas markets to fund our rupee balance sheet. We do have one MTN outstanding right now, which is to fund our balance sheet in our overseas branches. So we currently remain very comfortable from a liquidity and cost of funds perspective to fund our rupee assets with rupee liabilities. No plans for a foreign currency bond offering.

Great. Thank you so much.

Hiral Desai, Alpha.

Thanks for taking my question. Just on the retail piece, wanted to understand if I look at the auto credit growth that you've reported over last couple of years, that's been extremely strong compared to the volume growth that the industry overall has reported. There could be things like people moving to diesel cars or the C-segment cars. But any number you would have on the overall banking credit growth to the auto industry?

Unfortunately not because there really isn't any available data. I mean we try and sort of try and add up whatever is available from various presentations made by different banks and some MBSEs. But there really isn't any industry level data to accurately calculate for instance what is the size of the overall actual car financing market in a very accurate manner. There are estimates of course. But yes, our growth has come from the fact that we've added market share because we've grown in terms of distribution and the auto loan business itself might have grown at a pace, which is slightly higher than the numbers because of going up the value chain in terms of the kinds of cars being financed and, of course, inflation in terms of the price of cars.

And any sense on how your market share would have moved over last couple of years maybe in percentage points if that's possible?

I think in the last couple of years, our market share might have been more or less stable. I mean if you look over the last five years, it would have gone up. I think the last year, year-and-a-half it would have been probably stable, wouldn't have sort of changed much because there have been many more players who have sort of either come in or come back into the market. We've also had some market share which has moved to the manufacturer linked financier so there has been some change in the composition of the auto financing industry. But I think despite some of these changes, we have probably maintained our market share in the last year, year-and-a-half.

Okay, perfect. Thanks for that.

Subramaniam P.S., Sundaram Mutual Fund.

Hi, sir. Good evening. Just wanted to know what would be the branch expansion plans for the current fiscal?

So we are looking right now at approximately 250 to maybe a max of 300 branches. But right now somewhere between 250 and 300 is our best estimate right now.

Okay, fine. So there's a clear slowdown from the 500 odd number that you were at?

Yes. I mean the 500 was clearly a step up for the last two years. If you look at the last five or six years, we were adding somewhere between 150 and 250 branches for number of years. We went into a slight overdrive for a couple of years to ensure that we cover a certain number of locations and we build out a certain distribution network in markets that we were keen to do that, including some unbanked and underbanked areas. Having got to the level where we are, which is little over 3,000 branches, now the additional branch that we might need to add would be one, most of these are in newer areas, but are also smaller branches. Some of these are what we call micro branches. But yes, the absolute pace of the growth would probably be low.

Fine, sir. Thanks. That's from my side.

Anand, HDFC Mutual Fund.

Hi. And so just maybe a [repeated] question just on asset quality. If I have to understand, the trend on the CVs on the retail side has been sustained for the last two quarters, maybe Q3 and this quarter. Do you see given the GDP growth number, that can sustain for some more quarter? And on the corporate side, is it a one-off or do you foresee more pains that's coming in the coming quarter? Also if you can clarify some of the slippage in the corporate side are been cases which have been referred to CDR?

So on the first one, do I see the trend on CVC continuing for a couple of quarters, that's certainly possible on the back of I guess what we are seeing as trends on the macro and what is a fair expectation in terms of what happens to costs and freight rates and so on here. So I think that will probably continue for a couple of quarters. On the corporate side, I don't think one can predict whether this thing continues or not because I don't think there is any trend or we don't see a huge pipeline of customers or corporate credits which we believe are vulnerable. Even if we had for instance seen a lot of these exposures from one particular industry and we had several other names in that industry, we would have had a sense that yes, there is more pain to come. So I would just say that there is no extrapolation that is reasonable or that is possible from what has happened in a particular quarter. I would say overall, the wholesale portfolio has remained significantly better than what have been industry pressures and that we have really not had any large problem loans of the times, which have been probably in the press for a number of other banks. None of these are names that we have restructured. Arguably, one could have probably maybe even avoided some of these by restructuring, but given the nature of the credit and the pain that was being felt right now, it became a non-performing asset, but these are not from the restructured portfolio.

Okay. And just lastly, could the floating provision be part of NDTL as there were some press articles saying that you don't have to maintain a CRR and SLR on the same?

I don't know this off the cuff, but it's not a third-party, it's not an outside liability so I don't think it would attract reserves.

Okay. That's all, sir. Thanks.

Abhishek Kothari, Violet Arch Securities.

Sir, in I mean rough case scenario, the yields on corporate bonds have moved up by 50 bps in the last two days. So any impact or how do you plan to mitigate this loss? How do you see the plans being taken to capture the volatility?

Well, to whatever extent we would have some portion of our SLR book in AFS or whatever portion we might hold in corporate bonds, obviously that would be subject to whatever mark-to-market depending on what the yields are. I think what is the yield just now is probably not so relevant in as much as this is the immediate impact of whatever the measures have been. And what really would ultimately come through even in this quarter in the P&L would really be a function of where the yields stabilize maybe next month or in fact at the end of September. So as far as how do we capture trading opportunities relating to what might be opportunities relating to the volatility, I think that is part of our trading book, but we have never been large traders. I mean our core revenues have always been customer linked. So whether it's on the bond and money market side, on the local currency side or on the foreign currency side; most of our revenues tend to be much more customer driven. So yes, there are some opportunities, I'm sure we will try and access them. But whatever is the mark-to-market in an existing portfolio, there is very little that you can do now. Whatever we might have done, we would have done earlier in terms of managing duration.

Okay. That's it from my side. Thank you.

Jyothi Kumar, Spark Capital.

Sir, I just missed the movement of NPAs, if you can just repeat that for me?

The movement of NPAs.

Yes, quarter-on-quarter slippages.

We have -- I mean I didn't -- can you ask me what you because I haven't covered it so far, what were you looking at?

Slippages, gross slippages.

Gross slippages in the quarter. We don't sort of typically breakout the quarterly movements, but if you look at the gross NPLs as of the end of the quarter at 1.04% and you look at the increase in this quarter therefore and this is not the gross slippage, but the absolute increase; it would have been about INR380 crores odd.

The other question that I had was if you can give me some qualitative assessment of the recent RBI guidelines on third-party distribution that they have come across. I mean do you see any implementation issues process changes that you have to do if the guidelines come in total?

There are some issues which would either require further clarifications or would certainly pose some operational challenges. Obviously, inputs are being shared so we are looking for some clarifications and we will be giving some feedback. So depending in how things ultimately pan out, independent of all of these regulatory changes, just given the market sentiment, clearly there has been a drop in the volumes for third-party products in the last couple of quarters. So it's a combination of I guess the performance of these investment opportunities for the customers and the higher operational and logistical challenges which would have to be catered to, but still early for us to try and predict exactly what is or is not going to be a constraint.

Okay. That's it from my side. Thank you.

Prabhakar Agarwal, Edelweiss.

Hi, Paresh. This is Nilesh here. Just wanted a quick one on provisioning coverage. So we've seen a about a drop of about 500 bps here so what should we assume to be a steady-state level on this one?

So frankly, I wouldn't read anything into this in terms of a conscious move to drop that. Simple thing is there is a framework that we have for the extent of provisioning across retail and across corporate and that's a function of on retail side the nature of the retail portfolio whether its secured, unsecured, number of days passed. So there is a certain framework there and based on that framework, whatever are the movements in NPLs in terms of new and whatever has been the earlier NPLs which move into different buckets; that provisioning coverage gets done. On the corporate side, clearly when you have new NPL creation day one, you wouldn't create for any new NPL, coverage ratios which can enable you to maintain the overall average at a 80% or whatever it might have been. So it's really if there was no further or we had had NPL creation on the corporate side every quarter, then at every point of time we would had some new, some old ones which probably cross a certain number of months as NPLs and so on and therefore the coverage ratio would be higher there and so on. So I would say that the actual coverage ratio purely on specific provisions would remain a function of the composition of that NPL creation between corporate and retail and within that across customers and also the overall NPL book between substandard, doubtful, and so on.

Sure. But considering that over the last few quarters we've been able to maintain our coverage around the 80% mark, fair to assume that the slippages during the quarter, the mix was more in favor of retail largely unsecured where we had the need to actually provide more compared to --?

No. In fact the low coverage would have actually been as I said while you had retail on a sort of ongoing basis in terms of whatever the normal NPL creation that we have had to the extent that you've had about 45% of the NPL slippages in this quarter which have been wholesale, there the framework would not support higher coverage. If you had somebody who is a customer who has become 91 days past due, you would obviously have some security, you would have cash flow, it's not a company which has stopped operations or whatever, you wouldn't be doing an 80% for a new NPL, right. So actually, it's more the new wholesale customer NPL formation, which would actually require as per the framework a lower level of provisioning day one. If these NPLs did not get recovered for a certain number of quarters, progressively would be coverage ratio for those NPLs and therefore, the average go up, the answer is yes, right. You must remember for a new NPL from a regulatory perspective, the requirement is like --

15%, 20%.

15% or 25%, right. Obviously, we would have made substantially more than that to have been at the level that we are even for the new NPLs. But would it support an 80% to reach the average of 80%? Probably not.

Okay. Fair point. Thanks a lot.

Aadesh Mehta, Ambit Capital.

Yes. Hello, sir. Sir, one question on direct charge-offs, which were earlier classified in specific loan loss coverage and are now being reclassified under operating expenses. So sir, I just wanted to understand for a loan which you would be directly charging off, would you be reversing the interest income in the interest income line item or would you be directly charging off the accrued interest also in the operating expenses?

So to be honest, I don't have that [spread] right now, but the amounts are rather small. So if you look at the amount which if you're saying could either get reversed or be charged off into operating expense line, it would be less than a single-digit crore or thereabouts. I mean I don't have that exact detail with me right now, but I don't think it would be material either which way, but we can separately confirm that if necessary.

Okay. So I'll drop in a mail, sir. Thank you.

Do we still have a large number of questions.

No, there are only two questions, sir.

Okay, fine. Let me quickly finish those.

Prakriti Banka, Pramerica.

Hi, sir. I just wanted to understand that for the last couple of quarters, most private sector banks have been seeing the growth come in corporates especially from working capital and maybe till a couple of quarters back that was because the commodity prices were rising. What do you think is driving the working capital growth even at this point of time?

Well, I think there still is some volume growth that's very marginal, but some volume growth that at least some of the better placed companies are seeing. And there has been some while clearly pricing part has reduced substantially in the last few months, the again slightly placed corporates are being -- I mean if you look at the topline of corporates, there has been some growth. While margins have been under pressure and perhaps borrowing costs have been going up, corporates have been seeing a topline growth which is translating to working capital growth. Also, I guess there is a market share shift so when you look at the fact that some of the banks are being able to grow, they are not just growing, but they are growing faster than the total system. So these are customers who are opting for other banks either because of better service or probably more competitive rates or the overall package that they get from banks like us.

Okay. Has this not been on account of elongating working capital cycles by any means?

I'm sure that if you look at the last couple of years, some part of the working capital increase, working capital borrowings would have been on the back of some slightly elongated working capital cycles. But that can typically happen when you sort of transition from a very high growth phase into a slightly slower growth phase because inventories get built up or receivable cycles get stretched. But now we've been through that for the last couple of years, I mean we've been from that 9% to 8%, 7%, 6%, 5% and wherever. So I think much of that stretched working capital driving loan growth I think is -- and the margin is not so important.

Alright. That's all from me. Thanks a lot, sir.

Jatin Mamtani, Barclays.

Hi. Thanks for taking my question. Question I had was what would be the differential in your average yield for the retail loan book and the corporate loan book so the yield difference between the two?

I don't have the weighted average of the entire retail and wholesale loan book, but to give you a range of the wholesale loan yields today would be from our base rate, these were incremental loans and the book would of course have a wider range, would be anywhere between 9.6% which is our base rate to about 11%ish or so across different wholesale customer segments. While for retail, the different portfolios range again from close to 10% to about 16% and these are of course different products with different loan yields.

Sure. Thanks.

Thank you, sir. There are no further questions.

Okay. Thank you so much for being on this call. I'm sorry we've taken a little longer. Broadly just to summarize. It is I guess a challenging environment there in terms of overall how the macro parameters are panning out. Within that, we have tried to continue to grow a little faster than the system while maintaining stable margins and maintaining what we believe is acceptable asset quality which has been priced in. That's really the crux of what we have looked to execute. Our increased expansion in semi-urban and rural are focused on increased penetration of existing customers and on better cost control are certainly priorities in an environment like this. I think largely this quarter's results reflect some progress on most of these plans. Once again, thank you for being on this call and all the best.

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