HDFC Bank Ltd (HDB) 2014 Q2 法說會逐字稿

Thank you for standing by and welcome to the HDFC Bank Q2 FY 2013-14 results conference call presented by Mr. Paresh Sukthankar. At this time, all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I would like to hand the conference over to Mr. Paresh Sukthankar now. Over to you, sir.

Thank you. Good evening, everyone. I've got Sashi and Bhavin with me as well. I'll try and walk you through a few numbers. I'm sure most of you have probably had a chance to look at the press release and the numbers already so I won't pull too much of detail and then we'll plunge straight into the questions.

In terms of some of the key B&M parameters, net revenue growth was up 18%. The net interest income growth was about 15.3%. The NIM for the quarter was at 4.3% as against 4.4% in the corresponding quarter of last year. The other income growth was about 25%, which took the other income to INR1,844 crores. The other income includes the fees and commissions, the FX and derivatives revenues, also includes the mark-to-market on investments. This quarter we had a negative debt of INR173 crores. This includes the portion that could have been amortized as per the RBI guidelines, which we did not amortize. So whatever was the mark-to-market on the investments, we have taken as a charge to P&L in this quarter itself.

Operating expenses, the growth was lower than the past and as a result, the cost to income ratio did improve to about 46.5%. Total provisions were more or less flat to last year. The profit before tax at INR3,000 crores was about 31.7% growth over last year while the net profit growth -- profit after tax at INR1,982 crores was 27.1% over the corresponding quarter of last year. Overall balance sheet growth was 14%. Loans and advances growth was 16%. Deposit growth was 14.2%. Savings account growth was 17.8%. CASA ratio was 45%. NPLs were 1.09%. Net NPLs was 0.3%. Again, the comparable figures for last year were about 0.9% and 0.2%. For the sequential, the earlier quarter was 1.04% and 0.3%. From a branch distribution network expansion point of view, we were at 3,251 branches so we've added about 132 branches in this quarter.

Almost 95 of these branches were in unbanked areas. So today we have almost 53% or 54% of our total branches in semi-urban and rural areas. Finally on the capital adequacy, we were at 14.6% total cap ad and Tier-I at 9.9%. These cap ad numbers do not include the profit for the half year. This is a change from what used to happen till last year where if the accounts were audited, you could take the profit for the year into your network calculation for capital adequacy ratio purposes. Although our half year results have been audited this year according to new guidelines, we have not taken the profits. So if they were to have been considered, the Tier-I would have been at 10.9% and the total cap ad would have been at 15.6%.

So those are some of the key financial parameters. We'll throw the house open for questions.

(Operator Instructions) Manish Ostwal, KR Choksey.

Congratulation on good set of numbers. My first question on the net interest margin side. On a sequential basis, the margins have declined pretty sharply from 4.6% to 4.3%. So what are the factors contributed to this margin contraction, number one? And number two, some of the banks have used the refinance in the ForEx window to protect the margins and we have seen the increase in the borrowing number on a sequential basis. So in our case, it has not been that case so how do you respond to that also?

So first of all, the sequential drop of course was from about 4.55% so it's about say a 20-odd basis points impact not 30. But the drop has primarily been because of the higher cost of funds, which came through in terms of incremental deposit cost and the cost of the LAF borrowing essentially going through to MSF rates. We have traditionally had a very good liquidity buffer that we maintain in the form of treasury bills, which therefore give us funding at LAF rates because of the measures since the amount which was available at LAF got capped at 0.5% of DTL. Although it was liquidity being raised against the surplus SLR or the T-Bills that we were holding, the cost of that overnight went up by 300 basis points so that would have shaved off a little in terms of the NIM impact.

The other was of course that we were having to maintain high levels of CRR because at 99% to be maintained every day, we were effectively maintaining 105% to 107% of our requirements at CRR. So naturally there was a further shaving off of a couple of basis points of NIMs from that. So combination of two, three factors which essentially resulted in the immediate impact on NIM. Obviously, there is also a repricing on some of the corporate assets because as money markets were tight and short-term rates went up in terms of say commercial paper rates or generally rates in the market, short-term lending rates also went up. But when you look at a particular quarter, the increasing costs happened suddenly overnight, say July 15.

And whatever corporate assets kept coming in for whatever the periods that they were on the books during that quarter would have seen the higher yield, but there's a lead and lag. So some of that would probably have some mean reversion as you get into the next couple of quarters. So these were the couple of elements on the NIM side. But broadly, I think what we have said for the longest time is that 4.1% to 4.5% is the range that our NIMs will be maintained within. We are roughly in the middle of that range right now. Whenever there is a positive or negative swing, it might move 10, 15 basis points in a particular direction and it tends to mean revert a little over a period of time and that's how we have maintained this range. I think we will still maintain the NIMs within that range of 4.1% to 4.5%.

Is there an opportunity to borrowing at the refinance window, ForEx window, can that opportunity protect our margins?

Well, if you're looking at it [along with] the new window which is borrowing up to 100% of net worth, that one?

Yes, sir.

So we have traditionally not borrowed too many. In fact, we have not even been at 50% of -- so the earlier entitlement or the earlier eligibility which was there to borrow up to 50% of net worth in foreign currency, we have by and large not even availed of that so far. Right now, I think given the concession swap, could we look at some amount of borrowing? We could. But I think in any case as the money markets have tended to ease off and as the MSF rate has come down and I think we're counting on the fact that over a period of time as the currency volatility tends to essentially stop being a major concern, you should see the LAF rate once again becoming the effective rate. And then at that point of time, whether we would still want to borrow in foreign currency to swap and fund our local currency book is something that we will look at at that point of time. So while we are extremely enthused with the FCNR part of the new measures, we are not as (inaudible) on the borrowings to manage the liquidity and the funding costs.

And secondly, in terms of growth outlook. I mean this quarter we have seen that loan book growth slow down to 16% in line with the system. We have articulated HDFC Bank will grow slightly premium to the system. So this time, in line with the system. So it is the (inaudible) decision in this environment to grow slowly or maybe in line with the system, that could be the strategy?

No, there is no change in strategy. I think our strategy remains, as I said, it's a two-step strategy. One, we believe the banking system itself typically grows at a multiple of 2.5 to 3 times real GDP growth. That's normally the core growth rate for the banking system for loans and the fact that we would grow at a few percentage points faster than the system. Both of these elements remain part of our core strategy. Tactically in this quarter, we did decide to moderate the growth rate a little for two or three reasons.

And as it happens when you compare that to the system, the system has seen an aberration of perhaps higher than the normal 3-times GDP growth rate because at 4.5% or thereabout in terms of GDP growth, you should have seen the banking system loan growth at about maybe 13% or 14% if at all. But because you've seen perhaps some of the commercial paper or other market borrowings come back into the banking system, you've seen the banking system loan growth a little higher than what the normalized system loan growth is. Having said that, the reason why we've grown a little slower this quarter I would say two or three reasons.

One, on the wholesale side, there were opportunities to lend at slightly higher rates, but the marginal asset yield vis-a-vis the marginal cost of funds because deposit rates had also gone up were not so attractive from a NIM perspective or a spread perspective. So it made sense for us not to chase too much of that asset growth, recognizing also that the higher corporate lending rates were likely to normalize within a couple of months while the higher deposits that you might have to contract to fund that could be slightly longer tenure. So you would get stuck when the repricing happened a couple of months down the line. So there was some slightly clearly deliberate holding back of the amount that we could have grown and we were growing on the wholesale side.

Second, when you look at the retail side, some of the underlying loan demand is a function of the pace at which the underlying products are growing. So depending on car sales or commercial vehicle sales and so on, you'll see there is a demand for those products. And while therefore we have continued to grow, if there has been a slower growth in sales of some of the underlying products, the loan growth while still healthy would have been slightly lower than what you could have done if the demand was higher. And that is where I think the slow growth in the economy is translating into slightly lower demand for specific products and therefore for those specific loans, there is a slightly slower growth rate.

And thirdly, is really more of a timing issue where in this quarter we did not purchase the normal home loan purchases that we do. As you're aware, we originate roughly say about INR800 crores to INR1,000 crores of home loans a month. So typically, we would have purchased about say INR1,200 crores to INR 1,500 crores of home loans in a quarter. We didn't do that this quarter, I'm sure it will happen in the next week or two, it's a question of when the pool is put together and when we do the purchase. So that would have been again something which would have made a difference of about a 1% or 1.5% in terms of rate of growth.

And last question, deal date how has been the festival season so far? Early comments could you give us?

I think it's really too premature to comment. I think there's a lot of mixed feedback from different markets and for different products so fingers crossed at this point of time.

And secondly two data points I require, one is the basic link to loan book size and the second the wholesale deposit outstanding numbers.

Roughly between 20%, 25% of our loan book would be linked to base rates. And as far as wholesale deposits, approximately maybe 30% of the fixed deposits maybe what you would call wholesale.

So maybe it is stable from June levels?

Yes, it's not changed.

And what is the RWA?

If you don't mind, can we come back because this is the first question and some data points you can even take offline. So as far as the risk, the risk weighted assets since you're asking for that, it's INR3[lakh]41,000 crores.

Thank you, sir. Thank you so much.

And my request to everyone, if you can probably restrict yourselves to two questions and then come back again if you don't mind not because I don't want to answer all the questions, but because I think everybody should get a quick chance.

Kashyap Jhaveri, Emkay Global.

Good evening. My question in on the operating cost, which has hardly grown at about a double-digit number. If I look ahead, your cost to core fees (inaudible) that has also now reached about 12 quarter low. So what's the guidance on the cost front? And second question would be on your slippages, which for H1 under your Basel III disclosures is about INR1,600 odd crores or about 120 basis points. Last call you had mentioned that CV would continue to give us pain for about two more quarters. So how has it behaved in this quarter and what's the outlook for next two quarters or so?

So let me answer two, there's a question on operating expenses and then on slippage. As far as operating expenses are concerned, the two main points that we've been making is that we do see an improvement in the cost to income ratio primarily on the back of operating leverage, which is to say that we have made investments in particular in branch expansion, but also in terms of rolling out of products across larger geographies in semi-urban and rural areas in the last couple of years. And as those revenues come in, the incremental cost to drive those revenues should not be so much and therefore as some of those branches breakeven or as some of those other investments start paying off or generating revenues, we should see that happening.

While we expect this to happen in a gradual manner, obviously currently in the current environment of slightly muted growth, there is also a further focus on cost and productivity, which will give some short-term gains as well, which are showing up in fact in the last couple of quarters. For instance, our staffing is more or less stable between the June and September quarters so virtually to the last two employees so we really effectively had the same employee base in the last quarter. At the same time we've added about 132 new branches so it's not that we are cutting back on the investment side, especially where it's part of our strategic plan. In fact, 95 out of this 132 branches are in unbanked areas as I mentioned earlier.

So I think that expansion piece will continue, but I mean there is a focus and we do see therefore cost to income ratio now being under a tight leash. As far as asset quality is concerned, like you rightly mentioned, last quarter also we had said that some of the main drivers of the slippages or the higher NPL creation, especially on the retail side, were the commercial vehicle and construction equipment portfolios. The increase that we have seen in terms of basis points last quarter was about 7, 8 basis points and this time we've seen about 5 basis points. And the reason for that is last quarter, that is the June quarter, we had seen an increase in couple of these retail products and a little bit on the wholesale side. In this quarter we haven't really seen any meaningful slippages on the wholesale side, which could have moved the needle.

So we have seen continued stress on the same two product portfolios and I think that is reflective of the environment in terms of slow growth as well as delayed payments that some of these customers are facing. I mean think about it. If these are customers, even within the commercial vehicle and construction equipment portfolios which everybody has been talking about, if these are customers who in the last two or three years of the slowing economy still were managing to keep themselves regular and it's only now that they are becoming non-performing, it's clearly therefore not a lack of intent or it's not to do so much with say (inaudible), underwriting, and so on. A lot of this is therefore customers who have managed the stress in the initial slowdown period.

But as the economy has continued to slow down and as the recovery has taken that much longer and perhaps exacerbated by the fact that some of them have got large or extremely highly delayed receivables that are not being paid on time; that is where the strain is ultimately showing up even on relatively good borrowers. So I do believe therefore that as and when you have a pickup or a recovery and as therefore the operating environment for these customers and these segments tends to pick up, which like I said last time could be a couple of quarters away at least depending on when you see the economy bouncing back to whatever measure, then some of these are customers who as their own liquidity situations improves will probably start paying.

And in that particular portfolio, any spillovers yet left or are we sort of done with that portfolio?

These are large retail portfolios so you will have customers who are today maybe 30-plus or 60 and who might slip into 90s. It's not a [zero-one] situation. I'm not saying that things are getting significantly worse in terms of the rate of slippages or anything of that sort, but I don't think we have seen the peaking of NPL creation in some of these products.

That's it from my side, I will come back in the queue again.

Mahrukh Adajania, Standard Chartered.

Hi. Just wanted to check (inaudible) possibly breakdown of provisions, investment depreciation would have gone through the trading gains line, is that correct?

Yes, that's right.

And then in terms of loan loss provisions?

So about INR60 crores is the general provisions and the rest are these specific provisions.

Okay. And in terms of the CD ratio, sir, what ratio would you be comfortable with? Obviously, the deposit rates have been tight over the last quarter, but where would you like to bring it down to? What will be the target?

See, ultimately we have to see our CD ratio in -- if I look at it not just in terms of CD, which is in terms of in proportion to deposits; but also when I look at the capital and the sub-debt and so on, right, and the fact that we also have roughly about 3.0%, 3.5% of the book now in foreign currency which obviously is funded from borrowing, the 85% would roughly come to about 76%, 77%. So at this point of time we are looking to more or less match the loan growth in absolute terms with the deposit growth net of the reserves. So that is what we would be comfortable continuing to grow. Right now in this quarter, I guess the main swing factor will be what happens on the FCNR because clearly that is something that we are focused on because it's not just a source of funding at a lower-than-market rate because of the swap that is being offered by the RBI, but also has benefits in terms of the reserves and PSL that RBI's announced. So apart from the normal deposit growth, there will be a rub off of what happens on the FCNR front. But broadly, Mahrukh, it's fair to say that we are looking to pace our loan growth to what we are comfortable doing on the deposit side while maintaining a certain mix.

Okay. Thank you.

Kunal Shah, Edelweiss.

Yes. Hi, Paresh. Nilesh here. Just on this entire thing on the OpEx, any reversal of provisions that we would have done in that line item in this quarter?

Reversal on provisions, no, there was no reversal.

On the OpEx side?

No, there has been no reversal on the OpEx side. There have been operating expense cuts, but there's been no reversal.

Okay. And the other question is on the margins. So you've said that the guided range is now about 4.1% to 4.5%. Last quarter, was it 4.3% to 4.6% was something that you (inaudible)?

The range has actually been, if you go back to the earlier days before we recast the margins, it was 3.9% to 4.2% or so, right, or 4.2%, 4.3%. The recasting of the origination costs from the NIM line to the operating costs has resulted in about a 20 basis points shift. So that 3.9% went to about 4.1%, 4.2%, whatever you may call it to about 4.5%. Last quarter was a peak at 4.55%. Therefore in terms of one decimal, it was at 4.6%. But even last quarter, we were really talking about somewhere between 4.1%, 4.2% at the bottom end and 4.5% at the top end. The point I'm making is not whether one is trying to push the either extreme by 10 basis points in either direction. I don't think I'm trying to guide to a particular range. I think the point I'm trying to make is that there is a range and there will be fluctuations of 15, 20 basis points; 10, 15 basis points in either direction within that range.

But there tends to be a bit of a mean reversion because whenever something suddenly causes the NIM to go up, then there are factors which tend to pull it down towards a little bit of a median or a mean. And similarly when there's a shock like what happened right now where there's a sudden impact, which impacts say the cost before it shows up and goes to the asset yield side, then maybe there is a timing difference where you take a bit of a hit and then the repricing tends to play out and you tend to then have the NIM improving again. So all I'm saying is that I don't think we're going to see a unidirectional move in NIMs in either direction and that the broader range of somewhere in this 4.1% to 4.5% is still a reasonable range. And right now, we are roughly in the middle of that.

Sure. Just one thing on that, you mentioned the MSF rates going up so there was an impact in terms of the margins. If you can just quantify that out of the 20 bps decline that you've seen, how much would have been contributed specifically in the LAFs moving from the report to the (inaudible)?

Yes. See, I think there were twin impacts there. One was the fact that we were keeping therefore a little higher levels of CRR, right, because effectively as against the requirement, we were keeping about 105% to 107% of CRR that would have had a couple of basis points impact. And then the actual impact of the LAF borrowings for all practical purposes being made at MSF rates would have had another roughly 8 or 10 basis points impact. So I guess in combination you would have probably seen about a 10, 12 basis point impact of these two measures.

Okay. And since the previous quarter we saw (inaudible) September, we've seen at least the MSF rates have come down about 50 bps. So probably that impact can reverse this to an extent?

Yes. I guess progressively that would tend to come off. Like I said earlier, I mean it's not that we have been borrowing MSFs. Traditionally, MSF was borrowing over and above your surplus T-Bills, right? So we really may not have to remove that really, right? So it's a question of as you go back to really the LAF rate being the effective rate and yes, you're right, to whatever extent that cost would go down that would certainly be a bit of a relief. And also I guess beyond that so that is a more direct impact to whatever extent is the borrowing. But I think as a signal, if that has also triggered a moderation in deposit rates, that also is generally a positive both for the system and for us because when you look at the time when deposit rates and CD rates and market rates have all gone up, while the corporate lending rates also went up fairly sharply perhaps to a similar extent, the retail lending rates for various reasons did not go up to the same extent. So a normalization of deposit rates is definitely therefore welcome.

Okay, great. Thanks.

Manish Karwa, Deutsche Bank.

Just wanted to check on your Treasury. Would you explain how this INR173 crores have come and what is the position as of current yields?

Well, the INR170-odd crores, it's a combination first of all of mark-to-market losses and some actually booked or realized losses. The mark-to-market portion, which was eligible to have been amortized, was INR135 crores; which is really from some of our corporate bond portfolio, which was mark-to-market given what happened to market yields, but where we did not avail of the dispensation given by RBI to amortize that. Of course, yields have come off a little from where they were, but not substantially and I guess since some of these are slightly longer tenure, it really depends on how the long-term yield outlook will be before we figure out how much of the mark-to-market gets reversed out this quarter. So that's where the market-to-market piece was and that's where the INR173 crores is; INR135 crores is the mark-to-market, the rest was realized.

Okay. And assuming where yields are today, does it mean that in the next quarter we see a reversal of at least some part of that INR173 crores?

Yes, there would be some pullback from where they were, there is no doubt. Of course, what is relevant as you can imagine is what yields will be on December 31. But yes, I mean see, the point is very simple. AFS does need to be mark-to-market, right, so that's what we have done. The RBI dispensation is that you would still have to mark it to market, but you account for it in your books; you can, whatever, apportion that on an equal basis. So it could either have been apportioned in three parts I guess over three quarters or one-seventh and then for the remaining six months of the year. That is a portion that we have not done. So all we have said is mark-to-market as of September 30, with that entire piece coming into P&L. Obviously therefore, if some of that mark-to-market or the yields sort of recover from there, then I mean come off from where they were as of September, there would be some relief on the bond portfolio.

And then as part of your footnote, you've also mentioned that you've transferred about INR1,930 crores from AFS to HTM and recognize a loss of INR16.9 crores. That's the total loss that you had and you had recognized that on that transfer amount?

On that transfer amount so that was the amount. So these were securities that as you can see, it's not a large amount and the impact of that is relatively small, but these were securities that we were keen to move to an HTM from an actual holding point of view. So what we have done is obviously till that time whatever was the mark-to-market, that has been accounted for. And we also indicated from a disclosure perspective that had we not transferred them, what would have been the impact if it had remained, yes.

Okay. And the ForEx and the derivative revenue, is it specific to this quarter only wherein you had massive volatility or can we expect a strong trend going forward as well?

So there is an element of one-off there, about 12% of the revenues, about roughly INR60 crores or so. Around INR60 crores (inaudible) was a gain that we made roughly in that range was the gains that were made on the swap book, which was really given the high interest rates, the sudden spike in rates while it hurt the bond portfolio gave some gains on the interest rate swap book. That was you can say a one-off. So that you obviously don't expect to happen unless there are other market opportunities which arise, but clearly that would be in many ways a one-off. Apart from that, we have seen slightly higher volumes and a slight improvement in margins relating to some part of our customer flows, including in particular some flows on the NR side.

This is not the new NRI deposit flows or the FCNR flows we're talking about not the new scheme, but some flows that we had started seeing at that point of time as well. And of course, the higher volatility did mean that there were more corporate flows or customer flows, which came in during that time because there were more customers who were looking to hedge their exposures, which had otherwise not been done. So there is typically increased customer flow, which happens when there is high volatility, and obviously if there is low volatility, customers feel that much more comfortable not covering that proportion of their exposures.

Right. And on this FCNR deposits, as banks, will we be making any fees on that in terms of exchange?

Not really, no. There won't be any fees because you're really doing the swap with RBI so there is no FX spread further on that. But it's obviously an attractive piece from a pure --.

Borrowing perspective.

Borrowing perspective, especially because of the CRR, SLR, and the PSL benefits.

Okay. Thank you.

Rakesh Kumar, Elara Capital.

Hi. Just a question from cost of fund side. Looking at the borrowings for this quarter, it remained like flat at the level and within borrowing actually other than the capital borrowings so that is close to 80% is from the foreign market. What is the replacement we have done within the deposit, basically in the term deposit, which has caused us close to 20 bps increase in the cost of fund?

I'm not sure whether I've understood the question. I mean as far as the borrowing piece is concerned, there has been really no different source or substitution of borrowing. The borrowing which was there as I said earlier continued to be either on LAF which was then at MSF rates. (multiple speakers).

Are you looking at from the balance sheet, is it, the borrowing number that you're looking at?

Yes. Like if you see the March number and if you see the September number.

Okay. Now I understand what you're saying.

So there is no change in the borrowings. And the borrowings like of the total borrowing, actually the majority of borrowing, 80% of the borrowing is from the foreign market. So there the replacement would have not happened. So whatever replacement has happened, that has happened within the deposit. Within the deposit, like how much replacement we have done in the term deposit, which has caused us around 20 bps increase in the cost of funds.

No, no. See, the borrowing that you do under LAF, it doesn't come under the borrowing there, it gets netted out from the investments. So you will not be able to see it as part of the borrowings.

Okay. So in a term deposit, like how much fresh deposit we have got and like how much replacement we have done in the term deposit?

No. Are you talking of borrowing term deposits?

No, no. Deposit total, term deposit.

Obviously whatever are the regular fixed deposits, which mature every month, right, those would have been rolled over or whatever incremental deposits we saw would have been at the rates that were happening in the marketplace. The borrowing if you're looking at the impact on the NIM when we spoke about the borrowing earlier, that borrowing as Bhavin was explaining, does not show up as a borrowing. The way the accounting for that is under the LAF window because it's a repo, it effectively shows as a net-off, you net that off from investments. So that borrowing because as I said earlier purely against the excess SLR in the form of T-Bills or whatever that we were holding, that is not being reflected here as a separate line for you to see the impact of that. But as far as actual borrowings are concerned, the borrowings as they show up here would not have changed because as you rightly said, these are essentially Tier-2 capital or other forms of borrowing which have not changed at all and foreign currency borrowings, again which have not changed. So the impact of the higher cost would have been either on the LAF piece which would come as part of investments and higher deposit costs where the fixed deposits on a monthly basis, which would come up for maturity and would reprice would be what about --.

(inaudible).

The typical deposit repricing would be at say about INR4,000 crores or thereabouts a month. That's usually. But obviously when there is a spike, you can have some higher flows which tend to get repriced because customers are looking to catch the higher rates. But that is the normalized rate of fixed deposit repricing.

With this thing, like do we expect that the cost of funds could be stable or may come down in the third quarter number?

Yes. I would imagine that partly because of some of the rate itself, MSF rate having come down and to the extent that the liquidity conditions are improving and the fixed deposit rates have also come up from where they were at peak. And to the extent further that you have some of these FCNR and other flows coming in not just to us, but in the system itself; you should see deposit rates and deposit costs and overall funding costs therefore come down slightly in the next couple of quarters.

Just one more question if I could ask. One more question on the asset side. Like this time slightly the composition has increased on the corporate side. So maybe even if we would maintain the asset and the composition, is there a likelihood that the margin could expand like next quarter or --.

Well, I mean the shift is really somewhat small, right? I mean it's 54, 53, 46, 47. So it's really not a huge change in mix. But I think the real question is on the corporate side, clearly the marginal yields tend to be lower than on retail. However, on the retail side you have different products with different rates and there is a competitive environment on the retail side as well. So the change in mix if it's a 1% or 2% change in mix may not have a huge impact on NIMs. But over a period of time if there is a swing of more than 2%, 3% in any other category, then you can have a small impact on NIM. But again, all of these factors whether it's the actual fixed deposit rates, whether it's the borrowing costs, whether it's the CASA ratio; all of these on the cost side and the loan mix, the level of competition for retail in particular, within the wholesale book the growth between working capital and terms. All of these factors tend to have pulls and pushes into the NIM in different directions. So which is why I think as I mentioned earlier, there is a range that tends to be a fairly stable range and the NIM tends to be a little bit of a mean reversion which you sort of tend to see.

Jatinder Agarwal, CIMB.

Good evening, sir. Sir, just one question. When I do on a point-to-point basis, we get some marginal fall in yield on average loans on a quarterly basis. Was that really the case and if it was, could you explain what led to that?

Jatinder, there are two impacts to that. Retail assets, we accrue interest on a 90-day basis, [90 on 360].

Okay.

This quarter there were 92 days. So to that extent, you'll have a day that adds [to it]. The second one is we have increased the foreign currency book now during this quarter so there will be a couple of basis points of impact on that.

Okay.

These are one of the two reasons why always second quarter, you will have a slight depression in the yields on loans.

And if you go by the history, we actually raised base rates in early August if I'm not wrong. Should that pay out in terms of higher loan yields as we go into 3Q and 4Q?

The increase was actually more of a reverting to where we had been, right. So one, of course, was we had reduced base rate by about 10 basis points each in the previous two quarters so we [increased] it by 20 basis points. You're right, it was there probably for a little less than a couple of months. But the proportion of our book, which is base rate linked, is not very large. So if you look at the entire retail book other than perhaps some part of business banking, most of the others are fixed rate loans, which are not linked to our base rate, right, so that does not really change. And on the wholesale side, there are some working capital facilities, which are base rate linked or some term loans, but the rest of it is really fixed rate for that term which may be a 90-day bill or a six-month loan. So it's not really a floating or a variable rate loan linked to the base rate. So yes, as progressively if we were to change base rate further, then naturally that could flow through.

Okay.

The impact which would flow through a little more in this quarter is that whatever fixed rate loans, short-term loans that we might have put on at different points of time in the quarter. Obviously, if that had been on the books for maybe 30 days, 45 days, whatever period for the last quarter; to whatever extent it spills over into this quarter, you'll continue to derive those yields. And perhaps relative to that, if there is some drop-off in the cost because the cost impact was upfront and then you had the repricing of loans. If there is a reduction in the funding cost because of whatever we said in terms of MSF rates coming down or liquidity easing and so on, you might have the benefit of that lower cost coming through a little quicker while the assets will again reprice on maturity. So all of this is part of that mean reversion for NIMs that I mentioned earlier.

Okay. That is useful. And just briefly, are you seeing any pricing pressure in terms of retail asset yields?

Yes. I think we have seen competition fairly intense on the retail lending side. I mean not so much rates coming down, which are being spoken about right now. But if you look at this entire July 15 and onward period when clearly funding costs had gone up and the corporate yields had gone up; relative to that, the retail lending yields did not go up by more than 25 or in some products maybe 50 basis points. So clearly there was not as much of an increase in retail loan rates as there had been on the wholesale side reflecting perhaps the higher level of competition or the fact that most banks have been focusing a little more on retail perhaps in the face of wholesale not growing or asset quality pressures on the wholesale side. As we now enter this what is traditionally the festive season, traditionally you tend to have in any case some more special schemes or special offers and so on, which again directly or indirectly tend to reflect the pricing pressures given the competition. So I think we'll have to wait and watch exactly what happens. But I would say that yes, there is some pricing pressure buildup on the retail side relative to the rest of interest rate movements in the market.

And just one last question, sir, on the retail asset book. On home loan originations, how is the month-on-month traction behaving without numbers actually if you think from the start of the year to the --?

So far it's been fairly stable and we haven't seen any real movement in either direction so let's wait and watch.

Thank you, sir. Very useful.

Paresh Jain, Antique Stock Broking.

Sir, just wanted to know what the gold loan originations, have they come off sharply because I've seen a decline in the gold loan portfolio this quarter?

Yes. So two things, one is originations did come off and also as the prices have been volatile, we had made some margin calls. And because these are short duration loans if your incremental origination is off a little and as you have runoffs from the existing portfolio, you tend to therefore have a small contraction. So yes, we did see a little bit of lower origination and the runoff for the margin calls would have resulted in that portfolio on a net basis not growing.

And this has got nothing to do with the RBI or the government's effort to curb anything related to gold?

These are not products to purchase gold or anything, right, these are just loans to customers against security of gold so I don't think that has got really any linkage, but the impact of course has been there.

Okay. But the thing is the price of gold, it has again gone up from those April levels and so to say that we should be slightly maybe better off in terms of so that is just what I thought, so --.

Yes. Maybe see, it's not a large product for us so it doesn't really move the needle. So the only part which from a regulatory perspective had stopped, so this is not necessarily in this quarter sometime back, probably first quarter itself is the fact that as far as lending against gold is concerned, you can't lend against gold coins. So that in any case is not certainly so much an impact in this quarter as even in the previous quarter. But beyond that to the extent that there is a price movement, I mean if the market itself in terms of demand for that product improves, fine, and maybe the margin calls which would have reduced existing outstandings might come off a little. But we really don't look to grow our book based on an existing amount of gold based on the higher price, I think that we tend to not push.

Right. Thank you, sir. That's it from me.

Anish Tawakley, Barclays.

Two questions. One, I think you mentioned you added 132 braches, but only two employees, is that correct?

That is correct.

So is there still slack in the system or are you now sort of overutilized and what would that mean for OpEx growth, just this dynamic? The second, I had a question on loan yields similar to what Jatinder asked I think, which is on the credit card, right. Because the credit card book has grown, are credit card yields higher than the average or lower than the average when you consider the fact that some of the book doesn't pay interest, right, the transactional part? So would an increase in the credit card book push up yields or push down yields?

So Anish, one of course, the increase in the credit card book again in relative terms is as you can see very, very small. I mean in fact if you look at personal loans plus credit cards, in the last one year as a proportion of the retail loans it has increased by 1% so it's too small to move the needle. But to your question, the effective yield on our credit card portfolio, as you rightly said because there's a fair portion which is just a transactor and not the revolver on which you earn the interest, the actual interest rates would be in the mid-teens in terms of effective about 16%, 17% or something in that range, say 15% or 17%. So again, not large enough or not high enough to make a difference to the overall. What was the other question?

On OpEx, is there still slack in the system?

On OpEx, let me be honest. The primary focus of the improvement in the cost-to-income ratio remains an attempt to really sweat the investments that we have already made in terms of the branches that we have opened and where we have to get the revenues to come in and which has been happening. But therefore as the branches complete two-and-a-half to three years and they break even, obviously therefore that incremental revenue is coming from costs which are already in there. So that is the primary focus. But in addition given the overall environment, there is also a tighter control and a larger focus on operating expenses and managing costs, which is inevitable for any organization in a slightly lower or a slightly muted growth environment. That is where if there are areas where we can manage our staff productivity between the newer branches and some of these are also remember branches in unbanked areas. Like I said, almost close to 95 out of the 130 are unbanked areas.

So some of them would be two man branches and smaller branches. So from the closest hubs, redeploying the staffing or managing overall productivity levels is to offset where we might have certain areas where we may have new hires and certain areas where there may be scope for us to become that much more efficient. All of that is part of the focus that we have got right now. So not saying that we are not going to be adding more people or that there will not be an increase in operating expenses, it's just that the jaws hopefully will sort of widen because we are looking at an improvement in the cost to income ratio. I do not want you to extrapolate any one quarter because some of these measures are more definitely focused at a particular point of time. But on an annualized basis, clearly we do believe that an improvement in the cost to income ratio is one of our key priorities.

Sir, I understand that, but could you say for example, add another 132 branches by doing it this way or has this lever been almost maxed out?

I can't speak to the last bit, but I would say maxed out, but we certainly would have. Because it's not only a question of branches, it's also improving productivity in non-branch related businesses. So that is a independent focus it might converge with and therefore you can look at it you've added so many branches and so many people are now got added. But both of these are independent focus areas. The idea to improve to add branches and manage growth there, some of these are leaner branches because of the size of the branches and separately to optimize on our staffing and overall productivity levels.

Saikiran Pulavarthi, Espirito Santo.

There are two questions from my side. First one being what will be the impact in running retail lending business due to the RBI circular in September on subvention on price moratorium offered by dealers and manufacturers? And second thing is HDFC Bank deposit rates on short-end are highest when compared with the peer group. It's a little bit surprising because considering we have better large (inaudible). Those are my two questions. Thank you.

On the first one, the subvention is what in any case, whatever were the subventions we were always passing those through so to our mind it will not really have any impact on either business or the P&L for those products. As far as the deposit rates are concerned, I think the short-term rates were really a function of what the money market rates were because even if you therefore paid a certain amount, if the opportunity was to deploy that money at a higher rate, then that sort of remains attractive. So from our point of view given also that we are a large transactional banking player, sometimes there is an opportunity for us to get flows in and to get that money at that cost as long as it is still lower than the marginal cost in the market or the marginal opportunity cost in terms of a yield that you can get if you were to deploy that money. So what you're saying is still absolutely true that we as a bank are comfortably placed from a deposit franchise point of view and the fact that our core loan book is funded from our core deposit franchise. But tactically there could be opportunities which we therefore tap into looking at what the money market opportunities are and what the short-term deposit rates are.

Just a follow-up question on the point one of the subvention when you think is getting passed on in pricing, it means that it is taken into the cost kind of a thing or you are netting off against interest income in terms of the P&L perspective?

Basically to that extent, the EMI to the customer would have gone down and therefore which is why the interest cost to the customer was lower to that extent, right, which is why the customer was getting a lower effective cost for his or her borrowing. So now the question is whether you therefore do this separately or you merge it into the EMI. The effective impact to the customer or to the bank will be negligible. Even if there is a small timing difference, it will be negligible.

Thanks. That's it from my side.

Can I just take stock of how many people in queue for the questions?

We have six more questions.

So we'll answer them.

Hiral Desai, Alpha Enterprises.

Sir, most of my questions have been answered. Just wanted to get an update on the rural and the semi-urban piece, which has been a focus for the bank. So if you could comment a bit on how the asset and the liability side is shaping up? Related to that, just wanted to take a stock of given the macro environment, is the rural growth sort of holding up better and the fee income opportunity on the rural and the semi-urban piece, if you could just comment on that?

So one, you're absolutely right that in relative terms, the semi-urban and rural piece, especially the rural piece is holding up a lot better. And maybe that's partly a function of the fact that you had good monsoon and agri and so on although some of that is yet to play out. But it's also a function of the fact that we are relatively new in those markets and so for us it is a somewhat version market and therefore whatever we are growing is on a smaller or negligible base. And to that extent therefore, there is a lot more growth that we are looking to tap into. But clearly I think the branches that we have added in the last few years and our presence in these markets, we have been rather pleased with whatever progress we've seen there.

In fact to put into perspective, right now if you look at just as a percentage of the total branches, we have seen the almost 50%-odd of the total branches now are in semi-urban and rural, in fact 54%. And those are of course lower cost and therefore in absolute amounts maybe lower business, but from a cost to income or a payback period point of view, they still remain fairly attractive. I must say that whatever growth is currently coming from those branches is more balance sheet driven in the sense that it's either the deposit side or the lending side. In fact, we actually have some branches where the loan growth has outpaced the deposit growth because depending on the specific market there and some of this could be seasonal. There may be some months where ultimately, especially the agriculture related areas, you may have after harvest the branch being much more deposit-driven, but right now it's a little more asset-driven.

But the fee growth, I must confess, in some of these branches is still relatively small. So it's much more deposit in CASA and that too more than CA, it's more the SA and then it's the lending. Because what we have found is that although you have a large number of banks who may have already been in rural and semi-urban areas, a lot of these banks don't necessarily offer the complete range of products on the lending side in these branches. So when we are offering a complete retail loan suite plus of course the agriculture related products and the tractor loans and car loans and LCV loans and gold loans and the entire range of retail loans, we do find that the demand is fairly healthy for us.

The savings growth in these sort of branches have been in sync with what you've seen historically in your urban branches or the growth rate is relatively slower there?

I think what you're talking about is that the growth rates are good. The absolute amounts or the ticket sizes as you can imagine are definitely smaller, right.

So one part will be smaller by what percent is what I was trying to understand actually.

I think it depends on the --.

About 20% to 30% of what one would get in a metro and urban branch.

Okay, sir. Thanks and all the best.

Aditya Singhania, Enam Holdings.

I just had a question on the FCNR scheme. Could you give us some sense of how much you could be raising overall from the scheme and how the cost would compare versus local funding patched basis?

Well, the FCNR piece on a fully swap basis would cost somewhere closer to 8.5% or thereabouts so it's not significantly cheaper money intrinsically. I mean it's somewhat closer to a fixed deposit although it is cheaper than -- a three-year fixed deposit currently would be at clearly 9% plus. This would be somewhere between 8.25% and 8.75%, let's say roughly 8.5%. But what makes it a winning proposition is the fact that these do not have CRR and SLR and also gives some relief on the PSL side.

So what would that sort of benefit give you 100 basis points or more?

Yes. I mean from a management point of view, one could easily attribute that much if not a little more than that. And from the amounts point of view, I mean it's still early, everybody is trying to scramble to get as much as possible. We've done about roughly 300 million or so, so far on the FCNR side. Hopefully in the next couple of months, we should land up doing maybe at least 3 times that by the end of the scheme.

So maybe 1 billion or so?

Thereabouts, yes

And the second one, just in terms of the funding, your current account piece is obviously quite slow given the economy. How much on a weighted average or a daily average basis would the CAR funds have gone down over the last, let's say, four to six quarters?

Well, you're saying on what basis?

I'm saying on a daily average basis.

On a daily average basis, it should have come down by almost --.

Only CAR, yes.

About 4% or 5%.

400 basis point?

Yes, right, because we think the growth has just now been about flat, yes. See, because if you look at year-on-year, September of last year and this year. Last year of course on September 30, there was a bit of a one-off which was mentioned in the press release for last year September because we had done our securitization piece for our -- this was the first deal that we did again for purchase of the home loans. There were some floats which were linked to that which are still with us. But if you knock that off, the current accounts in the last one year have grown by about 5%. And our total deposit growth has been, let's say about 14%, 15%. So obviously on an incremental basis, if you look at the 15% growth and that has dropped from what was the CAR proportion as a percentage of total deposits used to be roughly about 17%, 18%. It's now about a fourth of that or thereabouts. So there would have been --.

Sorry, 17%, 18% of deposits has become 15% odd of deposits, right?

Correct, approximately.

So 200 basis points, 300 basis points?

Yes.

Right. If I may just add one more question? These refinance plans, one of your competitor banks reported yesterday and they mentioned a significant increase in the use of refinance lines from NABARD, SIDBI, et cetera. Have you not had the opportunity to use those lines given that you also have a fairly large MSME business and PSL business?

We have not really drawn these lines to any material extent at least.

And I mean would there not have been a big cost arbitrage last quarter especially?

Well, I'm not so sure whether we have a sizeable amount which would have been eligible, but we certainly did not draw the (inaudible).

Aditya, what you're specifically asking, I will get back to you on this. If there were any opportunities at all. As Paresh is saying, we did have our limits utilized perfectly, but we'll just check this up

Subramaniam P.S., Sundaram Mutual Fund.

One question on how much was the outstanding floating provisions that we had at the end of the quarter?

The floating provision is not changed. It's at INR1,855 crores so it's not changed in this quarter.

Okay, fine. And the other question is earlier you had mentioned that you didn't grow your wholesale book because you felt that the incremental split on the business was not great enough. As things stand now, how are you seeing this?

So clearly while a little bit of the yields have come off, the costs have also come off to a larger extent. So we are better off putting on some of the assets now, slightly better environment than what we had seen 45 days back. So we would be happy to grow it a little better in this quarter than last.

Okay. Fine, sir. Thank you and all the best.

Hiren Dasani, Goldman Sachs.

Two very small points. Is the effective tax rate for us now moved to 33.99% or --?

Yes, because the --

33.8% on a full-year basis. For the quarter, it's [33.9%].

Yes, so it's pretty much 33.8%, 33.9%, 34%. Basically the surcharge has gone from 5% to 10%. So last year was about 32.4% and now it's closer to 34%.

I mean just if I look at effective tax rate of the earlier years, prior years, you were never close to the marginal tax rate if you were to calculate in terms of the surcharge and all so you probably had some benefits which are no longer there?

We had some tax free income because we would hold some mutual funds and so on, which would give us some tax spread income. That is obviously not worthwhile right now or there is no income, which is tax free really. So we are pretty much at the marginal tax rate.

Amit Premchandani, UTI Mutual Funds.

If I see the branch addition during the quarter and the location addition during the quarter, they are virtually the same, almost 131, 132 roughly. So is it safe to assume that most likely the branch addition going forward will be location based rather than greater penetration in the same locations?

That is absolutely true. That's right because a lot of these are not just new locations, but also a lot of them are unbanked or underbanked.

So in terms of what is the kind of set of location you're looking at because at around 3,200 branches, it appears that you're not going to increase the branches in same city or metro areas. So how big can be the branch strength for you? Is TNB a benchmark or is SBI a benchmark?

No, I don't think we are looking at benchmarking to a particular bank, but I think we do believe that there are opportunities. When we have got say branches in some of the rural areas, some of the semi-urban areas and we look at the catchment area beyond say 20, 30 kilometers from there almost in a hub-and-spoke sort of a method, we do believe there are opportunities for us to add; could be a couple of 100 branches in a year where a good 70%, 80%, or maybe even 90% of the new branches tend to be in these newer locations. So partly driven by the business opportunity in different areas and partly driven by the fact that you do need a certain number of your total branches in unbanked areas as a percent of the total branches, we will continue to add to it. But we don't have a certain number or a goal to sort of speak. And also what happens is every year as the economy grows, you tend to have maybe 30, 40, 50 new centers, which were below the threshold of what you felt attractive, which would then come into your radar for expanding business. So it's really a moving target in some ways. As long as these branches have a certain amount of potential and as long as in our minds, in our workings, they can generate a certain amount of business and breakeven in a certain period, we would continue to grow those.

And sir, how does it kind of then relate to the M&A strategy if any? Because generally people and banks acquisition happen in India because of the branch network and all that stuff. Now since you almost covered the entire location kind of whatever M&A target will be there, say a bank X will have say 500 branches and most of the locations be covered by you. So is it safe to assume that the reason for M&A is no longer applicable for say HDFC Bank because you have almost covered all the locations.

All I would say is that purely branch network or distribution may not be a key driver of looking at M&A or evaluating M&A opportunities. From our point of view, in the last few years as we have grown organically from a branch network point of view, that has been a preferred mode of growing our distribution. It does not mean that we will never look at or we would not evaluate inorganic opportunities if they came our way. But clearly purely acquiring a certain branch network or locationally wanting to cover certain part of the market would not be a huge driver for evaluating M&A opportunity.

And in terms of provisions that you have made during this quarter, the entire provision is specific?

No. About INR60-odd crores is general provisions and the balance is specific.

General means standardized?

Standardized.

Thank you, sir. That's it from my side.

MB Mahesh, Kotak Securities.

Just a couple of questions. One, on the OpEx line, we've started seeing an instance where the unsecured loan piece, which is your personal loan, credit cards, actually kind of growing at over 20%. Just wanted to understand is there any impact of this coming in on the OpEx line because at one point of time between 2008 and 2011, you had a reasonably high collection related costs. Just trying to check as to whether this will again start to kick in in your numbers sometime soon because there will be some level of deterioration that you see in the portfolio as a normal course of event.

So actually there are two elements to this. One, you're right that any unsecured product would have a higher expected loss and therefore has smaller ticket size or slightly higher operating and perhaps a slightly higher collection cost relative to some of the secured products. And that is what is priced in when you charge a higher rate for say a personal loan as against a car loan or a home loan. But right now, the proportion of personal loans in our total portfolio or in fact if I look at even personal loans plus [debit] cards, in September 2012 it was say 20% of the retail loan portfolio and now it is 21% of the retail loan portfolio. So the change in mix at 1% of the retail portfolio is clearly not large enough where even if there is some increase in operating or collections cost to really make an impact on the operating expense line.

And as it happens on a sort of related, but different note. If I look at the deterioration in asset quality in the last couple of years, although traditionally the unsecured products are and therefore will always remain a higher risk because of the fact that you don't have security, the actual deterioration that one has seen in this cycle so far has been much more for products where the asset has been the source of income rather than where an individual has taken a loan, but has an independent source of income. So a salaried person taking a credit card or taking a personal loan vis-a-vis let's say somebody who takes a commercial vehicle and actually uses that or a construction equipment and uses that to generate income to repay the loan; we've actually seen that the deterioration in asset quality or the pressure that has been seen on the asset quality front has been higher for loans which are just secured loans, but where the asset is the source of income.

And this is I guess partly driven by what's happening in the economy and the business cycle and liquidity in the environment and all of that, but that's really been the case. So actually today, it's quite likely that the collection expense for some of the secured products might actually be even equivalent or maybe even sometimes higher than for the unsecured products. So I'm not denying the fact that the point that you made where some of these products are unsecured products would be in the longer run or over from an expected loss point of view would be higher overall cost, credit cost and operating cost put together, but that's certainly not been the experience in the recent few quarters.

Second point is, is it possible for you to give some color on what is the income that you are generating on this rural and semi-urban initiative, both either from a NII or a total income line or if it's different at the operating profit level? Is it possible to give a broad color as to how we are seeing that and how do we see this moving in the next probably couple of years or how do we start seeing this because there is a lot of investment which the bank has done on the rural side?

I think this is something which I may not be able to put numbers to off the cuff because as you rightly said this is a part of the business where we have made investments in the last say two or three or four years. The basic model has been tested in the sense that whenever we've gone to some of these, we have typically done some pilots and then expanded these along the way. So it's a model which has been tested and then we have scaled it up. But ultimately what you're going to see right now coming through is really on a flow basis to the extent that either there's deposit growth or asset growth coming from these branches and there are certain costs, which have been incurred or which are being incurred on a regular basis from an operating perspective.

So today it's quite likely that on a flow basis, you could have maybe 15% to 20% of our incremental deposits or retail loans coming from these markets. But that may be still sort of if not scratching the surface, certainly offers a long way to go in terms of further increasing that proportion over a period of time while a lot of that costs are already baked in there. So all I can say is that as these branches continue to grow, the incremental flows in terms of both deposits and loan origination will keep building up while the major portion of our expense, whether it's people, whether it's the rentals, and so on are already baked in there.

Thanks a lot.

I think we have probably run out of time. Do we have any questions left or we have hopefully finished?

Sir, we have three more questions.

Well, then it certainly doesn't add up to six. I guess it's a moving target. Okay. I think we'll do a hard stop at 6.30 so whatever questions I can take, maybe even restrict it to one question per person so we can try and squeeze in whatever we can.

Jyothi Kumar, Spark Capital.

If I look at the system level defined deposits, they have gone up by close to INR1 trillion on a YoY basis. One, how do you see this spike in defined deposits given that you have sizeable transaction? And two, more importantly, I do not see any meaningful increase in your CAR base even on a YoY basis. I think you explained part of it earlier.

So you're right that our own CAR has increased by only about, even adjusted for the base would have been maybe 5% or thereabouts. The increase in CAR at system level also tends to be I guess linked at least to two or three things. One, the level of economic activity and therefore the GDP growth actually plays a large role because when it comes to the liquidity in the system, SMEs (inaudible), payments through the entire supply chain, all of this as the growth rates come down and as the liquidity flowing through the system comes down either because of the monetary policy or because of other measures, the growth in CAR does tend to come off. Secondly, at a time when you have higher deposit rates on fixed deposits, both CAR and SAR does see a cannibalization from current or savings to fixed deposits.

Thirdly, when the market whether it's the primary or the secondary markets are going through a low ebb, again that tends to impact the transactional flows and therefore whether it's the IPOs, whether it's settlement volume in the stock exchanges; all of those again tend to be lower if the capital market activity is at a lower ebb. So all of these certainly do impact the amount of current account growth in the system and for us. To further compound it on a relative to other deposit growth point of view, I can say that when we talk about this growth in the semi-urban and in particular rural areas, while that offers very good growth opportunity for savings accounts and fixed deposits, the current account opportunities in these markets are negligible. So again, if you look at in isolation to current account, there is a bit of mismatch.

But do you see this as a sign of economy sort of netting out or bouncing back?

Well, I wouldn't say that the current account piece is really a lead indicator of the economy bouncing back. I think if anything, the current account piece might be hopefully a lagged indicator. When the economy moves up, you should see some improvement in current account, but I wouldn't say necessarily the other way round.

Nilanjan Karfa, Jefferies.

Only one question. You mentioned the FX, I mean some 12% of that is a one-off and probably if I heard it right, it's a banking swap book. Is that right?

No. See, the thing is this is FX and derivatives so it's interest rate swaps, which came into the money when the rates moved up.

So you rebooked your swaps or how did it happen essentially? Just wanted to get some understanding on that.

No. So these were the swaps, which were therefore --

These swaps were hedges against investment book.

Because we had these had hedges against the investment book, you had the mark-to-market on the bond portfolio and you had some of that as a positive on the interest rate swap.

Okay. But if it's on the investment book, shouldn't it flow through the investment line or --?

No, the investment line would have been what has happened to the mark-to-market on the investment itself. The swap would have come through whatever is the derivative line.

Okay. Thanks.

Thank you sir. There are no further questions, sir.

Great. Thank you, everyone. Sorry, it's taken a little longer than what I thought. But once again, thanks for being patient and hopefully we've been able to answer your queries. Bye.

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