HDFC Bank Ltd (HDB) 2015 Q2 法說會逐字稿

Thank you for standing by and welcome to the Q2 FY 2014-2015 results conference call presented by Mr. Paresh Sukthankar, Deputy Manager of the Bank. (Operator Instructions) Please be advised this conference is being recorded today. I would like to hand the conference over to Mr. Paresh Sukthankar. Over to you, sir.

Hi, everyone. Welcome to the call. I have Sashi and Bhavin with me as well. I was going to walk you through some of the key financials, but since the results have been with you'll for a while, I'll literally just take a minute or two just on a couple of numbers because I think most of the numbers would have been with you'll. As you know for the quarter, net profit growth was 20.1%; net interest income growth was 23.1%; balance sheet growth was 18.3%, that's the overall balance sheet where we crossed INR5 lakh crores for the first time. Deposit and loan growth were again ahead of the system. Total advances growth or loan growth was 21.8%. If you knock off the FCNR linked loan growth from last year, it was 18.8%. Deposit growth was 24.8%. Again, the core deposit growth is about 18.4%.

So, balance sheet growth has been somewhere between 18% and 19% on a core basis. Margin was at 4.5% as against 4.3% in the corresponding quarter of last year and 4.4% in the June quarter. Cost to income ratio has been more or less flat at 46.3% as against 46.4% in the September quarter of last year. And on the distribution side, we have added some branches. We have touched 3,600 branches and 11,500 ATMs and that's after having added in the first half of this year 197 branches, of which 112 were what we added in this quarter. Finally on the asset quality front, gross NPAs were at 1.02%, which is against 1.07% and 1.09% in the previous quarter and the corresponding quarter. Capital adequacy, which includes the profits for the half year, was a total of 15.7% and 11.8% Tier-1.

I've rushed through these numbers because I'm sure all of these numbers are in the press release and you probably have seen these earlier. Let's throw this open for Q&A.

(Operator Instructions) Nikhil Rungta, Standard Chartered.

This is Mahrukh here. Firstly, the operating expenses have risen just because of the branch adds or how do we look at it?

No. I mean there's been more than just branches. If you look at the total increase, there are four or five main contributors to it. On the branches, it's not just the fact that we added a little over 112 branches in this quarter, but I think what's also relevant is or for that matter on a year-on-year basis since last year September, we've added almost a total of 349 branches. But I think what's also important is that of the branches that we've started adding this year, a fair number of them are also now in metropolitan and urban areas so the cost of those branches are in fact slightly higher. So out of the 112 that we've added in this quarter, 54 are urban and metropolitan, in fact 36 are metropolitan. So yes, the branch expansion is one contributor to the higher expense.

Linked to that, but not just the new branches in this quarter, is we increased staffing. Our total staffing has gone up and as of September now, we have crossed 75,000. So the total number of employees are 75,339 as against just under 70,000, 69,662 as of September of last year. In fact from December of 2012 till June for about five or six quarters, we've remained in the 68,000, 69,000 range. We were at about 70,500 in June and we are now at 75,000 so we've added about close to 5,000 employees in the last four months or so primarily in this quarter. And again that staffing, about a little more than half of it is for the branches that we had opened for the last year and sales staffing. About 900 of that staffing is also for our SLI business, which is the sustainable livelihood business and the rest across various businesses.

So the next major contributor I mean of the three, four that I mentioned to the higher expense is the increased staffing. We then had some transactional related expenses because in this quarter we've had a few transactions relating to issues and dividends and so on where there are high costs of stationery and other stuff linked to those floats. So there were transactional floats and transactions relating to that, which resulted in operating expenses. And then because of the slightly higher retail disbursements, the DSA payments or the origination costs, which also now go into operating expenses, now meaning for the last couple of years now. So, there have been three or four of these contributors to the higher expense growth.

And the last piece is that we've also had higher costs relating to the cards payouts on the POS machines and the reward points and so on. So, there is some higher expenses relating to the cards business. So I would say a couple of these account for about 20% odd each of the growth and then some others which are 13%, 15% each of the growth. So all the four, five factors that I mentioned probably explain say about close to 80% actually of the growth. So, that's where the expense growth has come from. Of course the fact that we had significantly squeezed the operating expenses for quite a while meant that now we've had to sort of put some of that back, but ensuring that the cost to income ratio remained stable at 46.3%, which is pretty flat to 46.4% in the corresponding quarter.

So going ahead, how do we view the cost to income ratio, you would like to maintain it on a year-on-year basis every quarter or what's the right way to look at it?

I don't have a guidance to the last decimal sort of thing. I think the basic point is that we've had two objectives on the cost to income side. One is given that we've remained in a high branch expansion mode in the last two, three years; we have always held that as some of those branches breakeven every quarter or two because those branches take about roughly three years to breakeven, there'll be some operating leverage which kicks in as we get revenues to flow through the branches where the costs are largely in. So that is one trend, which will help us reduce the cost to income ratio. On the other hand, we went through almost a year-and-a-half of almost single digit operating expense growth, which meant that we were driving our productivity levels, we were tactically cutting back on certain operating expenses ensuring that though we added branches we were not deploying new staff, we were essentially redeploying existing staffing.

So, some of those operating expenses we will need to put back and which is what we started doing in this quarter, which will obviously therefore drive up the cost to income. What the net impact of both these will be is something that on a quarter-to-quarter basis we do not have a specific guidance to. But if you look ahead over a few quarters, then we still believe that there is some room for us to still improve a little from where the cost to income ratio right now is. But clearly we sort of intend to continue to manage tightly or closely this line, but not at the cost of ensuring that we have adequate resources for the growth that we hope to see in the next few quarters.

Okay. And could you also give the breakdown of provisions?

Sorry, I didn't get you.

The breakdown of provisions, total provisions breakdown?

So of the INR456 crores, the general provisions are INR52 crores and the rest are essentially specific provisions.

Okay. Thanks a lot.

Nilesh Parikh, Edelweiss Securities Limited.

Just wanted to check on the corporate credit growth. We've seen a healthy number there so just wanted to check where does that come from because this is compared to what we see in the industry clearly much higher than that here and how sustainable is that?

So first, I just want to be ensure that you're looking at the corporate or the wholesale growth number, which is the business number and not just the segmental classification based on [Basel III].

Yes, the business number.

So the actual business number, which is of course still doing being better than the system, has come from a customer segment point of view, the two segments which have contributed are business banking and corporate banking. So, it's really both the extreme ends of our wholesale business if you might. On the corporate banking side, it's mainly working capital, trade finance, and some amount of term loans; but across in fact a wide spectrum of industries so there really isn't a particular industry which has taken a large share of this increased loan growth, but it's coming across customer segments. There's a little bit of growth in the middle market and what we call emerging corporates group and the commodity finance. I guess almost each segment has seen some growth, but of the lot, the corporate banking piece has clearly grown the fastest.

So would you attribute this to slightly weak competition or improving activity on the ground level? Because this is contrary to what we are hearing from others so just wanted to get your thoughts.

Obviously this is gaining share because we all realize that the total system growth, of course the total which includes wholesale and retail, is languishing at less than 11% and that too has just come back into the double digits from whatever 9.7% or whatever it was. So overall loan growth is somewhat sluggish, but to the extent that we've had strong relationships, we've continued to be able to get our share of the lending business; we've been able to do that and this is mind you the loan growth. Some of the lending to the corporate segment is also happening through the CP market and obviously we would have also in some cases invested in the CPs and actually therefore look at that growth that would be a couple of percent what you might call the customer assets and going beyond loans. But even on the loan growth itself, there is X amount of demand in the marketplace, it's the question of what each one of us manages to bite at and get. And I think we do have a strong corporate banking franchise coupled with our transactional banking and trade franchises, we've been able to get a better share of that business from customers where we have an appetite.

The other question is on the calculated yield on investments have moved up so anything to read into that, anything specific which has contributed to that?

No, the actual SLRs have also sort of gone up during the quarter. We seem to have captured and we've also sort of rebalanced our portfolio by taking more of the high yielding securities in the G-sec side. Actually we have not sort of compromised on the duration front if that's what your next question could be. Also there is a component of non-SLR, which is as Paresh just alluded to, we have invested in some CPs too. So, a combination of these two have has given us a slight uptick in the investment yields for the quarter.

Thanks, Sashi. Thank you very much, sir.

Manish Ostwal, KR Choksey.

My question on one is loan book growth during this quarter. You have seen some pick up in the retail book compared to the last few quarters so how sustainable growth in retail book going forward? And secondly, could you give some breakup of yield differential between corporate and retail book?

On the retail side, I mean I guess the sustainability otherwise is a function of the demand in the marketplace. The fact is that if you look at the car loan business or the auto loan business, which has seen a pickup certainly sequentially and on a year-on-year basis, that is linked to what happens to car sales. We have been certainly amongst the market leaders in this business and as that underlying industry bounces back or as underlying car sales bounce back, we would certainly gain. And if we believe that that is going to sustain, which we believe is likely to be the case, then we'll certainly get our share of that loan book. Also there were one or two segments, which were not growing; in fact contracting let's say like the commercial vehicle loan business or even the gold loan business, which have started growing, they're still probably growing in single digits or just around 10% and so on.

But to the extent that they were actually contracting and now have stabilized or are growing at a marginal growth rate; to that extent, the overall retail loan growth has clearly accelerated. And finally, the reality is that having significantly expanded our footprint across what is now a 3,600 branch network, our ability to distribute a lot of these products or originate new loans is that much stronger and therefore as the underlying demand tends to pick up, we hope to capture a slightly better share of that market. So if your question is is there a one-off in any of these retail businesses, clearly not; but the sustainability is linked to what happens in the market in terms of demand for these loans and we are comfortable being able to maintain or grow our market share. What was your question on the wholesale side?

My question is what is the yield differential broad level from the wholesale loan book to your retail book?

Well, frankly the retail loan book as you know has products which are at little less than 11% going all the way up to 15%, 16% because you have a mix of everything from business banking and home loans to auto loans to personal loans to two wheeler loans and credit cards. So, there's a wide range of asset yields. On a blended basis, there would probably be a couple of percent approximately of difference in yields, but again I wouldn't want to put a number to it because as I said, it really varies from product to product and each retail product while it has a different yield, it also has a different operating cost and credit cost linked to that. So, fair to say that our wholesale book across customer segments also has a range of yields and the retail certainly across various products, both of them are profitable and growing businesses for us.

And coming back to your non-interest income, basically fee income and ForEx income, what we have seen ForEx income specifically compared to first half of last year there is a sharp drop. So one is last year they were having any sizable prop gains which could not materialize during this half year or is customer flow lower than the last year?

So, I think it's a bit of both although it's much more of actual flows and margins. In particular, the September of 2013 quarter was clearly a standout quarter on the FX front. One, because we had very high flows from a product that we were doing on the NRI side so we were getting large NRI flows. Two, because the rupee was extremely volatile, there were many more corporate customers who were rushing in to hedge their exposure so the flows on the wholesale side also had picked up significantly. And three, because of the high volatility, there might have been some prop gains, but also the margins on the customer flows were also higher just given the way the markets were.

Now you fast forward to this year and clearly rupee has been much more stable, flows are therefore slightly lower not necessarily because they're lower trades. Our trade flows maybe higher, but some of the hedging flows are that much lower because there's not as much of a requirement or concern on the part of corporates to hedge their exposures completely and certainly margins are significantly lower. So, that's where it is. Of course if you look at it sequentially in the last couple of quarters, this is really reflective of where the FX revenues have been. So, there's no specific further change in this quarter relative to let's say the previous quarter; but on a year-on-year basis, clearly last year was unusual because of reasons that we know when the rupee was volatile and the RBI was intervening and came out with various measures to stem the rupee slide.

And lastly, the question on fee income. This quarter we have seen 13.4% YoY growth in fee income. So one is what are the drivers of fee income in terms of retail businesses, especially origination and the distribution business, what is the trend over there? And how do you see fee income growth second half of this fiscal?

Well, there are some seasonal upticks which came in or a one-off. Therefore, the business which has really picked up after a few quarters of sluggish growth has certainly been the third-party distribution business has looked up both in terms of volumes and revenues. In fact on the back of more the mutual fund business than the -- I mean both mutual fund and insurance have grown, but clearly it's the mutual fund business which has seen a sort of strong uptick. Other than that, we've had some higher earnings on the fees and commissions on liability accounts and some on products, which are linked to our transaction banking businesses.

Okay, sir. Thank you so much.

Ashish Sharma, ENAM AMC.

Congratulation on good set of numbers. Just on the NIM trajectory, just some color as to this current uptick is sort of sustainable, I mean just some color on that.

I guess the uptick from where we were in the corresponding quarter to let's say where we were in the previous couple of quarters, I think was reasonably sustainable as much as the improvement there was more to do with the fact that the margin in the September 2013 quarter had taken a hit when the MSF rates were increased and liquidity was tightened and so on. The further increase in this quarter was driven by some higher transactional floats because again this was a quarter where we saw some large dividend and other deals happening. The improvement of about 6 basis points, 7 basis points in this quarter have really come couple of basis points each from the better deposit mix, some to do with the loan book and so on. So some of those elements hopefully will continue, some might move off. But broadly if more recently we've probably been in a range which has been somewhere between 4.1% to 4.4%, but that's been more recently. If you look over a longer period, probably from 4% to 4.3%, 4.4% was the range. This is probably one of the few quarters that we've actually stepped out of that range. I would still say in the long run the 4.1% to 4.4% is a more sustainable range.

And second question will be on the capital raising plans, I would assume that the final plan or is there sort of a contingent on the FIPB decision. Just some color on that, sir?

You're absolutely right. The timing of the decision will clearly be driven by our getting clarity on where the foreign ownership piece is. The expectation was there was to be an FIPB meeting today, we believe that our item would have at least been considered. But from what I understand, that meeting has been canceled for today so it's been postponed I don't know to what date. But clearly from our point of view, we first need to get clarity on our 74% overall cap because we need the approval to go from that 49% to 74% and once we have clarity on that and how they would treat the HDFC shareholding and so on, we would then be able to put in our application for the approval for the next INR10,000 crore issuance for which we have taken enabling approvals from our shareholders already. So, that is stage two. As of now, we haven't even applied for approvals for the issuance yet till we have clarity first on the foreign shareholding issue.

But in your opinion, likely that it would be sort of completed in second half or I mean as of now?

As of now, we remain hopeful that it should be completed in the second half. Of course, it's not that we clearly are adequately capitalized for the year in terms of what we need for our loan growth and our balance sheet growth for this year. But clearly this capital is something that we do want to raise for the next couple of years of growth. So we are keen to complete this process in the second half of the year, but if for whatever reason that does not happen, we would obviously raise it thereafter. The shareholder approvals that we get are I think have a validity for one year so that approval is certainly valid till I think around July of next year. As I said, our hope that if the approvals come through and once we have that in place, we would like to complete the process before the end of this financial year.

Perfect, sir. Thank you and all the best for the next quarter.

Jaskirat Chadha, ICRA.

I'm Jaskirat Chadha. First one is that you originate home loans, what percentage of those would be below INR50 lakh in the six cities and below INR40 lakh in other cities which will be eligible for bond issuances if you were to decide on that? And my second question is what are your plans on Tier 2 and additional Tier 1 under Basel III guidelines because most of your existing non-equity capital would be ineligible for Basel III? And then third question is the classification between retail and non-retail, maybe you addressed it earlier, I believe it is less than $1 million for regulatory purposes and internally if you can clarify basically on that point?

So on the first point, we have this arrangement where we originate home loans which are all processed and booked by HDFC and then of what we originated, we have an option to take a certain portion back on our books. And the portion that we have been taking back on our books has primarily been those loans which qualify for priority sector so approximately 50%, 55% of the loans that we originate in value terms, that's the portion which we take back on our books and because these are PSL, they are clearly well within the affordable housing piece. So, almost all the home loans that we have got on our books as part of our retail loan book would be affordable housing. To your --.

Sorry, this is not complete. So there would be an additional part to home loans which would now quality for affordable housing segment because priority sector was only uptil INR30 lakhs I believe. So there would be some loans in six cities which will be INR30 lakh to INR50 lakh and some in the smaller towns will be INR30 lakh to INR40 lakh. What would be the percentage of those?

I don't have that additional percentage right now because from our point of view when we look at the various asset opportunities that we have and we would like to take on our books, we have found traditionally that the non-PSL home loans whether they are affordable housing or otherwise are not quite as attractive as some of the other asset opportunities that we have when we look at deploying our capital. So right now, we have no immediate plans to see whether we would want something more which is affordable and what the economics might work out. So right now we're looking at this of course to meet our customers' needs for home loans so we want to complete our product range, want to make good product available, and then take primarily the PSL piece back on our books.

And this thinking takes into account the housing bonds that you can issue?

Because the fact is that we can also issue bonds to fund this portion itself and this itself is a few thousand crores. So between this and our infra lending, it's more than likely that we have more assets than what we might actually want to raise through the term bonds. So, that's point number one. On the classification between retail and wholesale, yes, the segmental classification is based on the size of the loan and the turnover, both of these are criteria laid down by RBI. So it's INR5 crores and not $1 million or EUR1 million which is (inaudible), but it's INR5 crores of exposure or INR50 crores I think of turnover. So, the criteria which are laid down between wholesale and retail. And as far as your two --.

The internal classification is based on what?

Internal classification is based on the way the business is managed. I mean if you have for instance say an auto loan business or a commercial vehicle loan business, the commercial vehicle loan businesses is one, but some parts of that portfolio may get classified as wholesale if it's to a fleet operator or to a customer who has borrowed in total more than INR5 crores. But it is still for us a retail business which is say the commercial vehicle lending business or similarly in auto loans if we have a dealer financing or if we have a fleet financing, then that portion of the retail product would actually be housed from a segmented reporting perspective in wholesale. So, the internal classification is essentially mirroring the way we manage that business while from a reporting perspective, we naturally follow strictly the regulatory guidelines and we've disclosed that there's a good understanding externally of both these segments.

And finally as far as the Tier-2 and so on is concerned, yes, I mean all the issuances that we've done are obviously not with loss absorption and so on and do not qualify under Basel III. Obviously these will run off over a period of time and between whatever other capital issuance that we might do, which would prop up our Tier-1 and obviously opportunities to raise Tier-2 instruments or 81 instruments, which would qualify as capital under the Basel III. Those are options that we will explore as the market develops. As of now, it's somewhat theoretical because there have hardly been any real meaningful transactions, but we obviously would be keen to look at those options as the market develops.

But nothing in this year?

I doubt it. We haven't got any immediate plans on that right now.

Okay. One follow-up on the retail versus corporate book. Someone asked you the question that what are the relative yields and you mentioned that yields are different because cost to serve the customer and other things are different. But if we were to look at risk adjusted returns corporate versus retail, which would be a superior product range for you and do you monitor it each productwise also within retail?

We do monitor this across both the larger customer segments and across each product. I don't think we would want to go into that level of detail in terms of each of the risk reward trade-offs, but we certainly price in the operating cost and the credit cost and the risk weightages because on the wholesale side again remember depending on ratings, the capital which is committed to some of these loans is a lot lower. But overall for us, both of these do meet our threshold of capital return requirements and the [add-offs] that we track.

Okay. So, what is the threshold return?

If you don't mind, can I move on and maybe we can come back towards the end so that we give everybody a chance, please?

Okay. Thank you.

Suresh Ganapathy, Macquarie.

Just a quick thing on this FIPB thing, of course you clarified it. But now what we are hearing is that this FIPB stuff is not going to be very specific to an HDFC Bank case in the sense that they are now looking at whether in general companies which have more foreign control, how should we treat and implication for insurance and all these kind of issues. In case there is a significantly delay say for example more than 6 months to 12 months, would you think of doing some stake issuance with the domestics because that I think can always do it at any point in time, right? Would that be something which you're considering because you're already adding staffs for expansion purposes so if growth comes back, it should not be the case that you don't have capital? So, just a quick thought process behind that?

Well, you can be sure we'll have plan Bs and plan Cs and plan Ds in place. Hopefully we don't have to go down that path. I think the important thing is that at 15.7% right now or for that matter 11.8% Tier-1 even if God forbid there is a few months delay as you're indicating, I don't think there's going to be any constraint to growth from a capital perspective. And I honestly don't think that this is something which is going to be completely open-ended or which will drag on beyond. I think the reasons for perhaps today's meeting being cancelled is anybody's guess, but the fact is that we have I think at least come to a stage now where the first application in terms of our limit going up from 49% to 74%. I think that piece once it is there, then whether we want to access the domestic and international market in some proportion or what fits into the regulatory regime which is clarified to us, I don't think it should take many months. But even if it does, I reiterate that we have good capital at least in the short term.

So the internal capital consumption rate per year would be about roughly 150 basis points, is that true?

It may be lower than that. Remember we are generating 20% plus ROEs right now and with a payout ratio in the around say 22%, 23%, 24%; we have a reasonably healthy internally sustainable growth rate. And if you look at risk asset growth, it will outpace that; but the consumption of capital will be nowhere close to 100 basis points, 150 basis points which you suggested. It will probably be less than 100 basis points, but it really depends ultimately on the pace at which we ultimately grow.

Okay. Thanks so much.

Rakesh Kumar, Elara Capital.

On the restructured outstanding book, there is a decline quarter-on-quarter so what could lead to this?

Actually the difference is some INR20 crores, INR30 crores, it's probably some application or something which we have not decided to go ahead with. So I really don't have too much of difference, I don't have too much of information on that. But the fact is that in absolute terms, it's been about INR20 crores, INR30 crores lesser than what it was in the previous quarter.

Any reversal we have done on this restructured book for this quarter?

Sorry?

Any provision reversal we have done for this quarter on the restructured book?

Let me put this way. The general provisions on restructured loans --.

Mr. Rakesh, what we classify as restructured is not only the actual restructured, it also could be applications that are pending or being contemplated for restructuring and so probably we are more conservative when we report restructuring. So as Paresh was alluding to, there have been some of the applications we have not sort of classified as restructuring this time. So, it is a part of either a [TPT] or a NP.

Okay. Thanks a lot.

Suruchi Jain, Morningstar.

This is Suruchi here. I just wanted to know a little more about the fee income base. You mentioned that you're looking to the mutual fund and the insurance business is coming back and so third-party distribution doing better. But what are the plans for improving fee income say from transaction banking or other avenues?

A lot of these transactional banking businesses, our growth in terms of fees from there is very linked to just the volumes and therefore if we have a pickup in the underlying activity, whether it is linked to the retail asset business or the retail liability business, that would naturally actually see some improvement. The third-party distribution business has seen an increase primarily because there is increased customer interest on the mutual fund side. So volumes have gone up and these volumes are up also because remember if you go back a year, the base is really small so the percentages look extremely healthy, but then the base was very low. So when you look at for instance mutual fund volumes, those are up almost 60%, but that's because the base a year back was --.

Last year the insurance volumes --.

And the mutual fund volumes.

So actually my question is that I think you could do better so what is it that you're building out so that you can do better because I had actually forecasted a much higher fee income growth because I was hoping that irrespective of whether volumes go up or what the market outlook is or what the euphoria is in the market, what is it that HDFC Bank is doing to sustainably improve its fee income?

Well, I don't have guidance on a specific fee growth number, but if you were to break this up into first wholesale and retail and then across multiple products, a little over 80% of the fees and commissions are on the retail side and those come from processing fees on retail loans where we hope to continue to see healthy growth. We then see some from the number of transactions which are being done on the accounts because there are demand, there are draft issuances, there are transfers, and so on. Those like I said, as we add customers and we increase the penetration of existing customers, there are higher transaction volumes and the junk fees which come from that. And then there is the cards and the third-party distribution businesses where again we continue to grow in terms of number of cards issued, the volumes which are going through our point of sale terminals.

So, the entire cards business both on the insurance and the merchant acquiring side we would see growth. As far as the TPT business, all I'm saying is that yes, frankly we have a customer base, we have a distribution platform, we have a segmented offering to our customers providing all these products; volume growth there is going to be as much a function of retail customer interest in these businesses. We'll find it difficult to try and nudge you towards a particular range or a number because this is really the first quarter that we've actually seen a surge in retail volumes after a long time. And on the 20%, which is the wholesale piece, that's really linked to trade, cash management, custody; which are again businesses which we have a good market share in and we continue to grow.

Okay. And I'm not sure if I missed this, but on the cost front you mentioned that you're expecting it to be below 50% in the past, but would you continue to expect it to be above say 45% cost to income ratio say in the next five years?

Well yes, I think somewhere in the mid 40%s I think aspirationally where we would like to be. You're absolutely right that the 50% that we touched for a quarter was clearly way above what our acceptable range is. So we've come down from what was about 49% to about 45%, 46% and there may be a little bit of room for improvement, but certainly somewhere in that mid 40% range is what we would like to be.

Okay. And then just the last question. In the last quarter you had mentioned that your retail loan book was skewed slightly more towards the lower yield home loan, which caused some NIM compression. But what is the Bank doing to improve that loan mix on the retail side now?

Well, fortunately for us the other secured loan businesses have looked up, which clearly are at slightly better yields to the home loans and the unsecured piece, which is the personal loans and the credit card fees, has also grown a little faster than the home loans piece. So while we are not pushing a certain mix and we're not trying to get a certain mix to offset a certain yield decline because of home loans or whatever, the fact is that if you look at the range of products that we have and the demand and growth rates for each of these businesses, I think the NIM will overall remain in the range that we have seen for the last few years, which is somewhere between 4.1% to 4.4%-ish.

Okay, great. Thanks so much.

Nilanjan Karfa, Jefferies.

Sir, just a simple question. What's the outstanding floating we are carrying today, floating provisions?

It's INR1,730 crores.

INR1730 crores, okay. And I think you had highlighted at the beginning of the call, the increase in employees. I mean in what functions have you hired them, roughly?

So of the increase of approximately 5,000; about 2,600 or little more than half of the total hiring has been in our branch and sales officer positions, about 900 have been in our sustainable livelihood initiative, and about 300, 400 each in our wholesale bank, our retail assets, and cards businesses.

Okay. And when you say the branches, is it the branches you had opened last year or is it like a deployment towards the metros and the Tier I and Tier IIs?

No, it's a bit of both. Some of the branches that we had opened even last year, if we believed that ultimately they needed say four people, we would have probably staffed them with two or three. And so this is providing staffing for vacant positions or open positions for branches that were existing including those which have been opened let's say a year back and of course the branches that we added specifically in the last six months. And in fact we may even have a few that we would have hired for branches that we intend to open because they need to be trained before they are put into branches.

Okay. Incrementally your investment towards the business, you may call it CapEx, that's looking up actually for this year. Is that a right assessment?

You're right that in this quarter in particular, whether it is increased operating expense to grow the business and increased CapEx in terms of continued branch expansion especially with a better mix in terms of urban, metropolitan, and rural semi-urban; yes, the commitment there has increased slightly and which is evident in the fact that the operating expense line has actually grown at a higher pace than you've seen in the last five quarters.

And probably a last question, Paresh. Would you start disclosing the internal classification on the loan book, is that possible or --?

In terms of individual products. Well, I mean the idea of just giving you a rough indication was to give you a sense of where the demand in the market is in terms of businesses. The products which tend to distort this or get reclassified are essentially in the business banking piece because SME exposures can be in retail or wholesale depending on the size of exposures on the turnover or the borrower and partly in auto and commercial vehicles. For the other retail businesses, they are squarely in retail, there is no wholesale reclassification which tends to happen or vice versa. So we really hadn't planned to split out this on a product-by-product basis so the external segmental reporting we will have to continue to do in conformity with the segmental reporting guidelines, which are regulatorily defined. But just to give you a sense of is the market or is the overall demand coming only from wholesale or only from retailer on mix and I think the point we wanted to make is that there is really a demand in both these segments.

And probably I'm exceeding my quota of questions. But could you talk about the pricing situation in the market maybe in some of the key segments you operate in?

Well, there has been some intensified competition and fair to say that there has been little bit of pressure on yields in some of the retail businesses, either that's in terms of actual customer yields or in some businesses, players were being a little more aggressive on payouts and so on which ultimately affects the yield in any case. So it's not an irrational market, but it's definitely more intense in terms of pricing competition than perhaps where we were a few quarters back.

On the corporate working capital side?

On the corporate side, the same would absolutely hold true. In fact again that's for different reasons, partly competition; but partly just the fact that with improved liquidity conditions and with market rates coming off on commercial paper and so on, corporates are clearly meeting a fair portion of their short-term funding requirements through CPs of the market. And as a result, these spreads over base rates I guess have been shrinking or disappearing so there is a sort of downward pressure on yields. Of course to be fair on the deposit side as well, rates have either been stable or coming off and any sort of premiums, which might have been there a few months back on larger ticket or bulk deposits have obviously come off. And of course finally CASA deposits have also gone up so the mix is a little better. So overall, I think we've seen despite that slight pressure on yields, the margins have held up.

And continue to be on a sweet spot. Thanks so much, Paresh.

Hiral Desai, ialpha Enterprises.

Just wanted to check in H1, how much of mortgage book have we bought from HDFC?

For the full half year?

Yes because I think quarter-over-quarter, the mortgage number is actually down.

See, INR800 crores for this quarter and I think quarter one was about INR2,000 crores. I'll just confirm that number back to you.

Okay. The other is just wanted to check within the business banking, what is the current split between working capital to SME and loans against property? And if you could comment on both the pieces in terms of loan growth and asset quality in the recent past?

So let me comment first on the mix, it's about close to half and half. It's about 46%, 47% where the working capital piece is the larger of the two, but it's more or less roughly half and half let's say. And the asset quality piece actually has been holding up fine for us in both. Clearly the market has got a little more competitive on the LAP front with almost every player who's looking at retail trying to push LAP. But from our point of view, it's a business which both pieces are growing although the working capital piece for us is growing at a higher rate than the LAP piece is. The actual growth rates between both of them are actually, either business and this is not splitting it between retail and wholesale, both of them are in the 20%s.

Sir, what would be the typical ticket size of the retail business banking side?

The retail business banking side, we have a large component which is business banking and what we call emerging enterprises group, which is again the smaller end of business banking. So we have one segment, which is largely sub INR1 crore and then we have about INR1 crore to INR5 crores, which is the second segment.

And the total for the first half, about INR2,000 crore in all so it's about INR1,200 crores and INR800 crores.

Okay, got it. Thanks and all the best.

Adarsh P, Nomura.

Just want to get some sense on delinquencies. There were some inch up in NPAs in the last few quarters, things looking to have stabilized now. Just want to have some views from your side?

In the last few quarters, we've actually had one or two quarters of reduction and one or two quarters of increase. So in the June quarter we had seen 7 basis points, 8 basis points increase; in this quarter we have seen 5 basis point, 6 basis point reduction; and again if you go back to the March quarter, we had seen a decrease. So, I wouldn't really say that we had a few quarters of increase and then sudden reversal in trend. But specifically in this quarter we had seen some pullback in NPLs and delinquencies in the commercial vehicle and construction equipment business, which had been going through a slightly higher pain. They still have elevated levels of delinquencies and losses and [NPAs] so it's not that the business has completely bounced back. But certainly relative to the stress that it was seeing, there's been a bit of pullback there. The wholesale book has been more or less flat. I mean it's been more or less stable, it's not really seen -- there's 1 basis point sort of a difference there. So, I think the improvement has come through a little more on the retail side while the wholesale book has been stable.

And do you think that looks more sustainable now or is it to early still to --?

I don't know what you define as sustainable because frankly I think a movement of 5 basis points or 7 basis points in either direction is something that I would still regard as highly sustainable or highly stable. But we've had NPLs now in the range of say about 1% to 1.2% in the last couple of years and if you look at the average for the last 18 years, the average has been about 1.3% to 1.4% at rate. So, I would say that there is no reason at this point of time why we believe the gross NPL level would be outside a range which is between where we are and the historical average. But there really isn't any trend. Yes, there's been a few basis points improvement in this quarter, I wouldn't read any trend into it just as I didn't read a trend into the few basis points of deterioration in the previous quarter.

One more question on personal loans. So, I just wanted to understand lap as a product is been doing very well, a lot of players growing aggressively. Do you see the overlap between the personal loan segment that you will do and a bit of lap or you think it's completely different segments altogether?

By and large these will be distinct segments. The large part of the PL business is salaried employees who are borrowing while the LAP business is often a self employed business type profile and obviously if somebody has an asset to provide you getting a lower rate, that would be for a customer who has a mortgage to give would be a cheaper source of money and a longer duration loan for the customer. So there are in many ways I would say different customer segments or different customer profiles of the typical borrower and of course the loan structures are also slightly different.

And because LAP is seeing some yield changes on the downward side so that won't be true for personal loans?

Well, personal loans also in the last few years, the yields have come off for certain segments because the portfolio quality as a system and certainly for us has in some cases even done better than the secured businesses. So I think depending on the customer segment, I think it's a competitive market, but will generally PL yields obviously be higher or any unsecured loan yields including PL be higher than secured loans, that's the general rule and that's probably true in most cases. But depending on the actual customer profile, the stability of the income and various other factors, you will have yields which should have come off from where they used to be a few years back.

Thanks. That was helpful.

Before we can take the next call, could I figure out how many more requests do we have?

Sir, there are more six requests.

Okay. So because we are about an hour through so we'll just try and quickly move through the remaining six.

Aditya Singhania, ENAM Holdings.

Paresh, I just wanted to check on the margin issue because the way I see it, CASA is actually down both year-over-year and sort of flattish QoQ and even on the loan mix bit, wholesale has actually grown faster than retail, which would suggest a sort of lower margin in that segment and still the margins have increased. So just wanted to check any other trends here that I'm missing?

So, two things. One is that when you compare it with last year, the higher cost of borrowings is not there so which is one, there really isn't any borrowing and the cost of borrowing which really hurt in the September quarter of last year is not there so that really gave a relief. Of course that's a relief which came through in the last couple of quarters so it's not specific to this quarter, but when you look at it year-on-year, then that is one factor. The other is that there has been a slight pickup in yields on the investments, which has improved including in this quarter. Thirdly, although the quarter-end CASAs and so on may not look very different, the average CASAs certainly have looked up. And within CASA, again if you look at it, the current account portions have done certainly better than what they were doing earlier.

So if you really look at each of these factors, I mean each one of them has certainly given some bit of a pickup and although looking at the retail overall business has not increased in proportion, that's the way we are reporting it from a segmental point a few. But if the retail component from a business point of view has actually continued to grow, the yields are more linked to the underlying business. So just because we have say a retail auto fleet for which we have therefore given car loans or a dealer finance loan, those are getting classified as wholesale; but the asset yields are still similar to the retail loans. So to that extent, the yields actually have come out marginally better.

Okay. And just wanted to check on the capital QoQ increases because retained earnings are not included?

That's right. It's essentially because right now we have included the half-year profits. There is a guideline based on which depending on the variance and so on we're allowed to use, we're allowed to include that. And in any case, the half year results have also been audited.

Thank you so much.

M.B. Mahesh, Kotak Securities.

One on the credit cards business, this strong growth that you're seeing about odd 30%, does it reflect a higher share of rollovers by customers or just spends converting into personal loans or they are just simply spends which is happening out there? So, that's the first question.

Absolutely right. We've seen pretty healthy increase in actual spends in the last few months so our card base has been increasing, but the spends have certainly picked up and while the reward percentage has not gone up meaningfully, it has held up or gone up very marginally, but it's essentially all a function of the higher spends ultimately trickling down to the [asset].

Okay. The second question, if you look at the car loan portfolio which has grown by about odd 16%, we've already seen some amount of softening in terms of volume growth at the industry level. Just trying to see whether the growth numbers that you've seen out here, does it reflect some changes with respect to market share or have you seen some change between your used and new vehicle finance portfolio?

There isn't a change in our mix of used and new. The softening is purely in the month of September I guess sales were off a little. I don't know how you'll see in terms of the festive season between now and December. So, how much of this is the underlying demand or the underlying growth in the industry and how much of it is market share, I don't think we have that clarity because market share numbers in this business are obviously estimates. We do have a strong presence in the auto business. We are clearly amongst if not the market leader. So all I can say is that with the increase in car sales and whatever happens in terms of change in mix of the value and the mix of cars being sold, this is a business which strong single digits is certainly into double digits. Now where in double digits it might grow is really your guess is as good as mine.

And just qualitatively, have you seen market increase in the approval rates at your end or have the scores been lowered across the board by competitors? What is your broad sense on that? You mentioned on the pricing side.

I can speak for ourselves. We haven't changed our credit policies on any front.

And my last question is on the branch expansion, you've indicated that you have moved a little bit of branch expansion back to the urban markets. Just trying to understand what is the broad logic behind it given the fact that our penetration in the urban network is fairly high at this current point in time itself? Are you seeing that kind of footfalls which kind of helps you to kind of increase your branch presence even today?

In urban and metro, these are not obviously cities that we are not in. We're obviously in all the urban and metropolitan cities that we would like to be in. But in each one of these, the market is large and it's growing and there tend to be newer suburbs at the margin these cities are growing. And certainly in the last couple of years while we were focused on extending our footprint, we had added negligible number of branches in urban and metropolitan areas. It's not to say that we are still not adding new branches in semi-urban and rural, all we are saying was that for a couple of years maybe we added almost 80%, 90% of the new branches in the semi-urban and rural areas. While now still even today, we've opened a little more than 50% in the semi-urban and rural. It's just that in fact probably more in rural as well. But from where we're adding negligible numbers, we are also adding a little over 50% is what we added in the first half of this year in metropolitan and urban. So it's just a question of once again increasing our branch presence in some of these locations where we believe we have a presence, but don't have an adequate coverage.

Thanks a lot.

Sanjay Parekh, Reliance Mutual Fund.

Paresh, just on that FIPB thing, I was there on the call, but even if they don't clarify whether HDFC has taken HDFC Bank in foreign, yet they can consider giving the fungibility and then raising that to 74%. Is it possible?

Let me just go back. The sector limit as you know is 74% and when you cross 49%, you need the approval to go from 49% to 74%, which is what we have now applied for. So you're right, they could say that okay, now your operative limit is not 49% but 74% and within that 74% whether HDFC is included or not and therefore where you are, they may not still immediately need to clarify. And that would still ensure that we would have clarity that okay, the 74% limit is now operational. And then if we were to seek approval for any capital raising, we could put in an application with whatever mix or whatever proportion which is acceptable from a regulatory point of view. So, that's where it is.

So just that from their perspective, I mean HDFC's taken HDFC Bank that clarification is not a prerequisite for them to give an approval or it is a prerequisite?

No, it's not I guess. The next logical thing is if you have a 74% limit, where are you on that. At that stage, I guess that becomes relevant. In itself you may be right that this is just a basic approval of a certain limit for which we have applied.

Thanks a lot.

Kashyap, Emkay Global.

Congratulation for a great set of numbers. Wanted to check, our fee income growth is roughly about 13.5% odd for the quarter and we would be largely retaining our fees where lot of regulatory price changes have also happened. I missed the conversation in between on fee I think some happened on the call, but does that mean that the underlying volume growth could be much more than what looks like in terms of value number?

On the retail side and we spoke a little about the distribution piece a little earlier as well, I'm not sure whether you heard that part. Clearly there are therefore portions where the volume growth has been higher than the fee growth because in most of these businesses in the last couple of years, the commission rates or the fee rates have clearly come off, lot of it due to regulatory changes but certainly some due to I guess the market itself evolving or the mix of the underlying businesses evolving. And there are some flows which are somewhat if not one-off, certainly have seen a spike which may not be sustainable and which is why if you look at fee growth in the previous couple of quarters, we were down to 7%, 8%, 9%.

I would say that even if you take off a couple of percent from the 13% growth, we would still be at least in the low double digits on a like-for-like basis. But I think we may well be in a phase where some of these including the retail assets business, the cards business, the distribution business; if there is continued buoyancy in terms of actual volume growth, then you might see some sustained growth. But the businesses have in fact really not changed, I mean the contributors to these businesses other than the fact that TPT has bounced back are not very different from what we've had in the last few quarters.

But I mean this would be across the product lines or in a sense you're talking about third-party products that could be only in that particular business.

No. We've seen actual growth in one or two other segments also in double digits. Certainly TPT has seen the highest [growth] rate because the base was really low.

We had dropped our volumes by about 20% odd last year.

But some other segments within retail assets, retail liabilities have also seen low double-digit growth, all of which contributing towards the 12%, 13%. So like I said, I mean if you were to knock out some seasonal or one-off type factors, I would still say it would be somewhere in the 10%, 11% range, maybe a couple of percent has come through just in this quarter.

And second question is a bookkeeping question. Could you share your standalone RWA number for this year as well as last year?

So the RWA for the current year is INR3,80,544. And you wanted the corresponding previous quarter, it's INR3,41,011.

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

There are no further questions.

Thank you so much everyone for being on the call and I hope we have been able to answer your questions. Let me end by wishing all of you all the best for the festive season, a very Happy Diwali and all the best for the New Year. Thank you so much.

That does conclude our conference for today. Thank you for participating on Reliance Conference. You may all disconnect now. Have a good day ahead.