HDFC Bank Ltd (HDB) 2016 Q1 法說會逐字稿

Thank you for standing by and welcome to the Q1 FY16 results presented by Mr. Paresh Sukthankar, Deputy MD of the Bank. At this time, all participants are in a listen-only mode. There will be an opening remarks followed by question-and-answer session. Now I would like to hand the conference to Mr. Paresh Sukthankar. Over to you, sir.

Thank you. Good evening, everyone and thanks for being on this call at this relatively late hour. Must apologize for having to start at 7:30 odd because we had our AGM earlier in the afternoon, which just about got over about half an hour -- an hour back. So, that's why we've had to hold this call a little later than usual. Let me briefly take you through some of the highlights of the quarter's results and then we will of course, throw the call open for questions.

Net revenue growth for this quarter was 26%. Net revenues were at INR8,850 crores. The net revenues are of course a combination of net interest income, which grew by 23.5% to INR6,388 crores and the other income, which was about 28% of net revenues, so it was a 28%, 72% mix between other income and net interest income. The other income grew by 33% to INR1,850 crores. The 23% growth in net interest income was driven by an average asset growth of about 26% -- 25.9% and net interest margin of 4.34%.

If you look at the components of other income, fees and commissions, which is the major portion of the other income is INR1,713 crores, grew by about 21.7% over the corresponding quarter of the previous year. Foreign exchange revenues were up from INR224 crores to INR348 crores. And the gain on revaluation and sale of investments was from INR25 crores to INR125 crores. Of the INR125 crores, roughly INR70 crores was on account of profit on units -- on deck units, which the bank had been very liquid and had invested in these. So, rather than get that revenue as dividend income, this was on the growth options. So, this was a capital gain on an asset which otherwise could have accrued. So, if you really look at that more as an accrual income, if you were to add that back to interest income, the margin would have been about 4 basis points higher. So, other than that, the rest, of course, was the regular bond gains.

If you then look at miscellaneous income, that was up from INR195 crores to INR275 crores. The INR195 crores of last year had a INR36 crore element for dividends from our subsidiaries. This year's INR275 crores had a INR78 crore dividend from subsidiaries. So, those were the components of the other income.

Operating expense growth was about 26%. Cost-to-income ratio was at 45.2%, which is more or less flat to last year at 45.3%. Total provisions and contingencies for the quarter were INR728 crores. Of that, there was a general provision of INR96 crores as against INR63 crores last year and there was a floating provision created of INR65 crores as against a utilization of floating provision of roughly INR70 crores in the corresponding quarter of the previous year. The remaining INR557 crores of course was specific provisions.

So, PBT was up 22.6% at INR4,121.9 crores and after providing for tax, which of course was a little higher, that's on account of the fact that the statutory tax rate is up from 33.99% last year to 34.61% this year. That's the marginal or the statutory tax rate. The effective tax rate, therefore, for us, in June of 2014 was 33.6%. In June of 2015, for this current quarter which has just ended, was at 34.6%. So there was an increase in the effective tax rate as well. So, post the tax provision, the net profit was at INR2,695.7 crores, which was up 20.7% over the corresponding quarter of last year.

Moving on to the balance sheet numbers, total deposit growth was 30%. Both current and savings accounts also saw fairly healthy year-on-year growth with current account growth being at 23%, savings account growth year-on-year was at 18.3%. Time deposits growth was -- saw a particularly high spurt and in fact grew by 37.8% to INR292,311 crores and because of the huge spurt in the fixed deposit and therefore, the total deposit growth, the CASA ratio was just a shade below 40%. Again, I would reiterate that the savings and current intrinsically grew at healthy rates way over the system is just that fixed deposit growth was even faster.

Advances growth was 22.4% over the corresponding quarter of last year. And if you look at the bank's internal classification, the way we manage the businesses, the retail business, including business banking grew by 26% and the wholesale business grew by about 13.5%. If you go by the regulatory Basel II segment classification, the growth rates were about 24.5% and 18.5% respectively between retail and wholesale.

On the capital adequacy front, the total capital adequacy as of June 30 was 15.7% as compared to 15.1% last year, and Tier 1 capital adequacy was at 12.8% as against 11.1% in June last year. On the branch network, we've touched 4,101 branches and we are just a shade below 12,000 ATMs at 11,962 ATMs. We added another 87 branches and 196 ATMs in this quarter. And overall mix still remains at roughly 55%, semi-urban and rural.

Finally, on asset quality, gross NPAs were at 0.95% as against 1.07% in June of 2014. Net NPAs were flat at 0.3%. Total restructured loans were at 0.1%. Those are some of the key numbers. We'll be happy to take your questions now.

I'll open the lines for the Q&A. (Operator Instructions) Suruchi Jain.

Two quick questions actually. Can you detail a little bit about the benefit you have from the relationship with HDFC Limited on buying home loans in a piecemeal fashion? And what is the benefit you get from not only recording them on your balance sheet and just making a fee commission on it? Is it to avoid sort of pricing pressure from changes in yields because it's a very competitive product, or if you can just explain?

Yes. So, this is of course nothing which is specific to this quarter or anew. We've had this arrangement with HDFC now for a number of years where to ensure that there is no confusion in the marketplace there is one home loan product for the group, which is the HDFC home loan product. We sell the HDFC home loan product to our customers and in the open market. All the loans that we originate go through the evaluation process and the normal approval process of HDFC. So, all of these loans are booked initially by HDFC. As per our arrangement, we have an option to buy thereafter up to 70% of the loans that we have originated. And, therefore, these loans come back on our books after they've been processed by HDFC and disbursed.

So, the whole logic is very simple. Each one of us has our strengths. We have strengths in terms of our distribution, our customer base, our ability and the need to meet our customers' requirements for home loans, and HDFC of course is the market leading provider of mortgages and is by far the most efficient processor of mortgages.

So, we are really leveraging our respective strengths. We don't earn only a fee on this, because on the 70% or whatever proportion of the origination that we take back on our books, it does show up as an asset on our books and we earn the net interest income on that. So that's part of our retail loans in our balance sheet. The proportion that we don't take back, 30% or whatever proportion of our origination that we don't take back, on that we earn a commission like any other sales or origination team would. So, it's really a win-win for both of us and it enables us to meet our customers' needs in the most efficient manner.

So, just a follow-up on that. So what you're saying is on the 70% you earn a fee as well as interest, but on the 30% you only get fee. But from what I understood from the way, the data structure is that, not on the deal, but the option, you have the option to take 70% and it's not that you always take 70% of everything you originate, is that correct?

That is correct. And the reason is that when we look at as an asset opportunity, we would have different products that offer us an opportunity to grow our balance sheet across our wholesale, retail lending businesses. So when we are looking at whether a home loan makes sense for us to put on our balance sheet, we would look at what are the comparable other asset opportunities that we have. Separately, perhaps for regular asset opportunities and separately for PSL opportunities. So we do take -- in the past, we've been taking less than 70%. In more recent quarters, we've been taking closer to 70%, but that's a choice that we would make depending on our liquidity position and the alternative asset opportunity that we may have.

Sure, I understand that, but I just -- I mean, if you can elaborate a little bit on, is it mainly to bring down, say, risk weighted assets or is it to sort of balance out your interest fee?

No, I don't think -- mortgages are not a very high-risk-weighted asset. I would really have very little to elaborate because this is really something which is very similar to what our -- is identical to what has been happening for several years. So, if it's okay with you, I would like to move on to the next question because I'm sure there are others waiting. If there is a further clarification, we can take it offline.

The next question I had was on your digital space. In terms your 32.7 million customers currently registered, how many are currently registered for alternate channels like mobile online? And what are the initial trends that you're seeing in this space, like how many are registered versus actually using those platform?

So, depending on -- we have various alternative channels, right. So, we have everything from net banking and mobile banking, which has been something which we've traditionally offered to our customers for a long time. The digital offering is really not a product or a service in isolation. It's the entire approach of trying to meet the customers' needs, giving the customer a choice across channels and working with specific offerings, which either substantially reduce our turnaround times, like for instance for a -- one of our offerings being a 10 second personal loan to customers who have had a relationship with us and where we have enough information to other offerings which are tailored to individual customers because we have had information about those customers in terms of our data warehouse and our analytics and so on.

So, when you look at the usage of various channels and the customers don't necessarily have to be registered on each of these channels. Net banking would certainly be one channel where customers would have to come on board as registered users of the net channel, but there are others where they could download an app, let's say for Chillr or use our PayZapp, which is our wallet and so on.

So, in terms of the actual transaction volumes, these are relatively early days. So, the growth seems almost exponential, because you're coming off a very, very low base. I think the fact that this is something which has been embraced by our customers most willingly is evident in the numbers, but we really don't want to go into percentage growth numbers when the base is very small, it looks very heartening.

No thorough numbers even on how many are registered?

We would not -- I don't think we want to put that in the public domain right now.

[Mahrukh].

Just a couple of questions. Firstly, on your CV loan growth, which is looking better every quarter, that's driven by replacement demand, so how long would you see that sustain? Any outlook on that, because I guess for most other companies it's been driven by replacement demand. So that's my first question.

Sure. So, you're right. The growth is really more in the M&HCV segment and within that, driven by essentially replacement demand. Tough for us to try and conjecture on how long this will continue, because it's, I guess, just the second quarter really that we've seen this momentum picking up. And if you really look at how long this segment was seeing a contraction, it's been almost 2.5 years, maybe three years that this segment was really not growing. So, what sort of pent-up demand has been unmet over the last couple of years and therefore is fueling this slight spurt, I wouldn't really want to conjecture, but the fact is that clearly the growth has come from the wholesale part of the CV business, which means the slightly middle and larger transport operators, especially those who are going in for medium and large commercial vehicles.

And my other question is really on deposit growth. So, in terms of the strong growth in term deposit, which bracket has seen the most growth? Is it the [INR1 crore] or which bracket is really seeing the most growth? And how would you think of rates from here on, since your accretion seems to be much stronger than competition, would you be in a position to cut rate faster than competition?

So, clearly, the fixed deposit growth spurt was extremely strong, perhaps much more than what we would have loved to see and this really happened -- much of it tended to happen in the last couple of weeks of June. And clearly indicating that at least -- and this growth has really come from both the retail and the wholesale segment. So, there was clearly a spurt there.

Have fixed deposit rates come off from where we were, the answer is, yes. We have dropped our rates. Already our wholesale rates were marginally lower. They've been dropped. Then the retail rates, they have been dropped and so has the retail rates since then.

Is there room for further dropping of deposit rates, I would think so. And certainly from our liquidity position point of view, we are more than comfortable in terms of liquidity. The 37%, 38% fixed deposit growth was clearly -- probably partly an indication of the expectation in the market that rates will come down and customer therefore are locking into rates.

The good part of course is that it wasn't so much of cannibalization of our own savings and current to fixed deposit. I mean, some of that might have happened at the margin, but a fair amount of it was actual flows coming in, which is why you'll see that the total deposit growth itself is at 30%. As I said, since then we have dropped fixed deposit rates by 0.25% across several tenors and it is likely that depending on how the overall competitive environment is, we might look at whether there is room for further cut in the fixed deposit rates.

Was it properly -- I mean, was it equally kind of split between retail and bulk, the aggression or -- ?

There was a -- the aggression was a little more on the wholesale side, although there was a spurt in both. But clearly the -- the retail portion of course is a larger portion of our fixed deposits, okay. So, we did see a spurt there, but the growth rate on the wholesale fixed deposits was higher than on the retail portion, but of course, that base is smaller.

So, 70% of your total -- so what's the proportion of retail in the term?

It is about -- approximately 70-30.

So, what I'm trying to understand is that, would that help you cut rate faster than competition, because your growth is clearly much higher than competition, I mean, so far going by what banks have reported?

See, the point is that we have to remain on par with at least some of the larger public and private banks. So, at least within a range. So, while we would -- it probably gives us enough reason or perhaps would motivate us to look at opportunities to drop deposit rates, I don't think we would do this completely with disregard to what's happening in the marketplace because our customers, it's not just a question of attracting new deposits. We also have to remain fair and competitive to our existing customers who've got deposits with us and who have relationships with us. So, would we be able to drop rates as rates start coming down, would we probably be at the leading -- sort of leading from the front on that, there is a possibility, but right now, we haven't taken any decision to drop rates.

Okay, fair enough, and just one more question. In terms of your corporate loan, is there any big stress coming up in the next few quarters, because the macro is still weak, so there are always one-off accounts in many banks which slip even in retail bank. So, is there any large stress coming up in the next two to three quarters that you would like to highlight or any such thing on the corporate book?

Well, if you look at some -- I think there are two questions there. One, large stress and you're saying, showing up in the next two or three quarters, let me put that into perspective. Your point that the macro environment still remains challenging, I think that I certainly accept that, that is the case. Do we have a large number corporate or retail accounts that are potentially likely to become NPLs over the next two, three quarters, I think it's almost impossible to try and predict that.

On the whole, our portfolio quality has been fairly stable. We don't have major sort of land mines there, which we believe can blow up. Will there be customers who tend to be overdue 30 days, 60 days and therefore in that zone where in a particular quarter if they don't service, they could become NPAs, I think that's always a possibility. However, on the whole, I don't think we have any specific major concerns about or expectations about any sort of a meaningful or a material spurt. One-off movements can always happen, but I don't think that's something which we are specifically anticipating or expecting at this point of time.

Parag Jariwala.

In last quarter, you highlighted that you've sold down around INR210 cr of loans to ARC. I just wanted to know is there any change in the SR outstanding? Is there any further rundown or a further credit cost we have taken on that?

No. So, the valuation of the security receipt has not resulted in any further write-down in the valuation. There has therefore not been further change in the valuation of the SR.

And you mentioned that you've created INR65 cr of floating provisions.

That is right.

If we see the trend, it has been run down since past one year, two years almost. So, do we expect this trend to continue? Will you again start building up provisions quarter after quarter as you have always done in the past?

Well, the whole idea of floating provisions are essentially to be counter-cyclical. So, it's the fact that for a long time when the actual losses and the actual NPA creation was way lower than what we believed were the expected losses embedded in our portfolio, we had created floating provisions for a number of years in the last 15 months, 18 months, either because there were specific segments or specific product portfolios that had shown higher than expected losses for that period or when we had a one-off corporate NPA creation, we did use those floating provisions because those were essentially the outages from a counter-cyclical point of view.

Going ahead, again, I think for us, the prudent policy would be to create or utilize floating provisions, of course subject to what the regulatory window is, because right now, as you know, there is a window which allows us to use floating provisions. Till that window was open you needed specific approvals before you could use those. But otherwise, I think we would look to create floating provisions to increase that level once again.

Any number you have like 2% of overall advances or something like that?

No, we do have an internal board policy on where we would like to be over a period of time, but clearly the larger growth in or larger creation of countercyclical provisions has to be done when the environment is extremely benign and therefore one could argue that the loss experiences are at all time lows. I wouldn't say we are quite at that right now.

As I mentioned earlier, it's a challenging environment, although, our asset quality has remained fairly stable. So, when there are opportunities for us from a countercyclical perspective to create those provisions, we would look at doing that. Equally, if there are requirements for us to use those provisions, we would do that in line with our board approved policy and in line with regulatory guidelines.

Nilesh Parikh.

So, just wanted to understand the trend on the operating expenses. Now, we've seen that number for the last couple of quarters staying elevated, specifically the other operating expenses. So, if you can just give some color around which heads are contributing to that? And specifically, just talk about the expenditure on digital, if you can on that?

Sure. So, obviously, there is a staff cost element and then there are the other operating expenses. Quickly on the staff front, we have added about, if you look at it on a year-on-year basis, from June to June, we've added about 9,000 employees. And that's -- we've gone from about 70,400 odd employees to about 79,400 employees. And the wage inflation has been somewhere between 8.5% and 9%.

If you look at the other expenses, other operating expenses, we of course had the branch expansion, which if you look on a year-on-year basis, is about 600 branches. Specific to this quarter, has been about 87 branches. And a higher proportion of these branches as compared to the past has been in the metropolitan and urban areas. So, for instance, out of the 600 branches, we actually have about 310 branches, so a little more than half in the metropolitan and urban areas. In fact, almost a 186 branches are metropolitan. So, they're probably much more expensive than the semi-urban or rural branches in terms of operating expenses.

As far as digital is concerned specifically, I must say that it's not a huge expense line in that sense in terms of a specific product or a specific service that we are providing. We've done a whole host of things each of which individually would not really mean a high operating cost. And in fact the larger effort is in galvanizing the entire bank across branches, across customer segments to actually evangelize these services and products to our customers. So, the costs are regular operating costs, including, for instance, trying to ensure that we have demos out there, we are that much higher degree of calling, communication but the actual roll out of each of these products, while there are some costs, they are not huge in the total scheme of things.

Also, the thing that we remember on the digital front is that we already had a data warehouse in place, we already had analytical in place, we already have the marketing engines in place. So these are not costs that we have to incur when we have to go into the digital space. So, because we are already large in the retail space that we had these databases and the analytical ability to do that, we don't really have to have incremental additional large cost to bridge that gap. So, what you're seeing on the digital front from our end is actually just putting a layer on top of our existing spend that we have been doing over the period of time and leveraging that space.

Fair point, Bhavin. It's just that it'd be added at such a level growing expenses, other OpEx at 28%. So, you mentioned about -- Paresh mentioned about the 600 odd branches. I'm assuming the new branches that we've set up in the metropolitan area would obviously be of different format given that some experience that being more sales driven branches. So, I'm just trying to understand running expenses at these levels, so when does the entire leverage of the network come through here?

So, let me -- before I come to that point, let me throw an element of two other items on the expenses, because the point on these newer branches, the branches being a little more expensive because they're metropolitan and urban, offset that with earlier branches breaking even. Is there some base effect because for a while, the expense growth had been lower and now you're putting up higher, not just larger number of branches, but a larger number of much more expensive branches and that's a meaningful difference.

I mean, when you look at an urban or metropolitan branch, it would cost you more than twice what it would for a semi-urban and rural branch. So there is a base effect. But there are two other elements of cost, I think, which have also been coming in. One, when you look at the growth in retail assets, there is operating expense linked to that which has been hitting the P&L. Essentially the payouts for the sales agents, the customer acquisition costs for loans, so that -- especially because we've seen a spurt across the various retail loan products that have grown.

And also on the credit card business, where there is on the interchange side, since we are a largest acquirer and we've seen a growth which of course shows up on the commission side as well. For the interchange that we paid to the card issuers, that again has gone up, which comes as an expense. So, some of these increases in operating expenses are linked to specific businesses where those higher growth numbers show up on the revenue side, either in terms of asset growth or in terms of certain fee growth. And really that is indicative of the slightly higher level of growth momentum in certain business lines.

So, there is an operating expense linked to the entire investment cycle and which is linked to the expansion of branches, growth of our businesses across the larger geographies, staffing up for that. Therefore, people -- and then there are expenses which are more directly linked to specific revenue lines, either in terms of payouts or in terms of cost which we have to pay for on an interchange basis for cards and other businesses.

The other question was, I just wanted to confirm the LCR disclosures. Now that -- it says that the average LCR was about 85% for the quarter. Now, if I recollect the number was about 100% in Q4 for (technical difficulty) and just within that, the unsecured wholesale funding, that there is some -- is there a change in the way the non-operational deposits have been disclosed compared to [specific industries]?

Yes, there has been change in the regulations. If you recall, there have been some new regulations that have come about. So, yes, you're right, we did disclose about 100% as of March. So the impact of the new guidelines which have just come about is about 13% to 14%. So, if we had followed the early guidelines, especially in the treatment of the operational deposits or the treatment of the small business customers or the classification of what qualifies as high quality liquid assets, then the ratio would have been 99% on an apples-to-apple basis. So, the decline is because of the guideline changes.

[Anish].

Two questions. One is on the CV side. So there's a big difference in the growth in the large fleet operator and the regulatory retail segment. Does that also reflect difference in the risk environment in those segments?

More than risk, it actually reflects the underlying demand momentum, because you'll appreciate that the customer that we would lend to either on the regulatory retail side or the wholesale side of the customers for whom we still have an appetite given all that's happened in the last couple of years. So, it's really just that the demand, and I had mentioned this slightly earlier about the medium and heavy commercial vehicle segment driving a little more of it than the LCV segment. And that segment, the customers there are, again, the medium to larger fleet operator. So, I would put it more to do with underlying demand than our credit appetite.

Paresh, my second question. This time it looks like you've written off a fair amount as well, because there was a pickup in provisions, which is much more than the pickup in GNP is. Was there a -- like is it just -- is it more because it's consumer credit that you had provisions on or just old write-off? I know the numbers are small. Just wanted to get a flavor of --

I think there would have been some more write-offs. There is a regular write-off, which depending on how many loans crossed a certain number of days past due, right, which is part for the -- which is the normal routine. Apart from that, was there a little something more, which was written off? The answer is, yes. If we then look at therefore the actual NPLs, which have gone up by about say, 3 basis points, 4 basis points, that has really come from some increase in NPLs on the SME front and little bit on the agri front, but nothing which is chunky and so on.

If you look at, however, the slippages, even adjusted for the one-off that we had in the previous quarter, right, if you look at just the gross slippages, they are not very different actually. In fact, they're very, very marginally lower in this quarter than they were in the previous quarter.

And no meaningful -- I mean, apart from the large lumpy corporate stuff that you had last time, then no meaningful difference in the retail versus corporate mix also. So, there's pick up in retail?

There is a little of (multiple speakers) what happened is we had some upgradations, which had -- in the CV portfolio, which had further reduced the gross formation in the last quarter, which is why I sort of explained on slippages, rather than -- because on a net basis naturally there were some upgradations which we did not necessarily have this quarter, but the slippage per se, the gross slippage is marginally lower in this quarter, although we didn't have any meaningful upgradations, which we did have in the March quarter.

Paresh, could you just repeat the numbers, how much metro and urban branches you added over the year?

Sure. So, total branches we added were 613, of which 186 were metropolitan, 117 were urban, 145 were semi-urban, 164 was rural. There was one international branch that we added.

[Nitin Kumar].

My question is on your car and two-wheeler segments. Now the growth over there has been picking up every quarter. And so what is driving this and secondly, what proportion of this is contributed by our expansion in rural and suburban geographies?

So, there has of course been -- it's a two-fold thing, right. Some, there has been a slight pickup in the underlying growth in these industries in terms of number of cars being sold or number of trucks being sold in certain segments. And we do believe that it's likely that we have been gaining market share in the last few quarters, although we are already a market leader in some of these businesses. I think the increase in market share is driven partly by our growth into semi-urban and rural, partly also by our improvements in turnaround times, which has helped us get more loan origination from our existing customers.

So, across each of our product lines, we have been crunching turnaround times from days to hours and so on. And this, of course, varies from product-to-product and customer segment to customer segment and depending on how much information we have, but we have seen that making a meaningful difference to the rate of origination across almost all our retail products (technical difficulty) for both the semi-urban, rural or in particular semi-urban and urban markets. So, I don't have the exact break-up of the new origination between these two broad segments, but there has been a pickup in both these segments, maybe the relative differences, the growth rates maybe slightly different.

And as regard to our other income, the FX income on a YoY basis has grown very strongly. So, any particular reason towards that?

Well, actually the YoY growth there looks healthier simply because if you look at the last year there is a base effect. The last year was a little lower, because of lower trading revenues in the June quarter of last year. So, if you look at it, sequentially, it has still grown at a reasonable rate, but not at the -- whatever 50% growth rate that it looks year-on-year. So, it's really got more to do with the base, rather than this quarter being particularly sort of great quarter.

So, are these numbers -- is this growth trend maintainable going ahead?

The thing in the FX business is there is an element of customer flow and there is a smaller, but there is a small element of trading. Both these components, of course, have a fair amount to do with what's the volatility in the market, because customers in particular tend to hedge their exposures when they see a two-way movement or a reasonable volatility. And of course, trading opportunities can be higher, although you may get a right or wrong call there when markets are volatile.

So, assuming that you continue to see reasonable trade flows and the rupee in particular remains not in one direction or doesn't move in a particular direction but sees two-way movements, we should see reasonable growth rates, but it's tough to predict this line simply because it's not just the trading revenues which are difficult to predict, but sometimes even customer flows and the margins on that customer flows if the rupee is very stable.

Manish Karwa.

Just wanted to check on margins, especially on retail loans, would you say that margins compared to what we were getting about say six months or a year back margins are now trending a bit lower and that could have some implications on overall margins as we move forward?

I think it's fair to say that the retail lending business certainly has been increasingly competitive in the last few quarters. So, I think that's a fair observation that at the margins, the margin on some of the retail lending products could be a little lower today than what it was six or 12 months back. When you look at our own NIM overall, which has come off by about 7 basis points, 8 basis points. As I said, about 3 basis points, 4 basis points of that is just the geography shifts between other income and net interest income. But the other 3 basis points, 4 basis points would probably be partly driven by the higher growth in fixed deposit, which distorts the cost of funds a little. And perhaps a little bit on, what we just mentioned, in terms of some intensified competition on some of the retail lending products. There is also -- if you look at the overall, what we would call customer asset growth, apart from the loan growth, there is a growth in, for instance, our holding of commercial paper because a lot of our corporate customers are today borrowing through the CP route. Again, that naturally comes in at a lower yield than the loan book [code]. And of course, as you know, in the last quarter, we'd also dropped our base rate.

So, if you look at a combination of everything that's happening on the asset yield side, between the mix into a little bit of CP, the lower base rate and some competitive pressure on the retail side, offset of course by the fact that we've had a strong intrinsic CASA growth, but a sudden spurt in fixed deposit growth, you have two-way movements, but I think roughly, from our point of view, the way I would look at it is that we have always said that our margin will be in a certain range and we are clearly within that 4.1% to 4.4% range that we've had for a number of years. Movements of a few basis points in either direction are something which we are completely comfortable with. And we are clear that we are not in margin maximization strategy, but we are in a mode where we would balance our growth with a roughly stable margin in a range and acceptable asset quality.

Fair point. In the interest income line, the others portion has a -- is it a one-off, INR234 crores of -- is it some sort of a tax refund that you have got this quarter?

Okay. So, this is really more of a reclassification. There was a RBI clarification, where the holding that we had of deposits that we had to place with NABARD, NHB, SIDBI et cetera, which is part of the RIDF and other deposits that we hold for our PSL shortfall, that entire component which used to otherwise be as part of investments, has now been reclassified as other assets because this was a clarification issued by RBI. Well, basically [especially counting] a couple of days before the end of the quarter. This has been mentioned as notes in the Note 8 in the notes to the result that we are -- sorry, note number 6. So, it refers to a circular, which was issued in the month of July. So it's really a toggle and the previous year numbers have also been reclassified. So, it's really gone from investments to other assets, nothing really otherwise. The underlying things don't change. It's just a shift in line.

And just a follow-up question on the cost front. Is it also the case that retail loan commissions that you may have to pay have also gone up and probably your disbursements are also very strong on retail, which is also spiking up the cost growth, and this may continue in the near term?

Yes, that is true. In fact, I did allude to this, Manish, that when I spoke about some of the reasons for cost increases, one of them was exactly this because our payouts, while we haven't increased payout rates, the higher volumes do mean higher payouts and those are through the expense line.

Okay, but payout issues, you're saying have not increased as such?

Payout rates have not increased. It's really more to do with volumes. So, we'll be happy to see that expense growth, and it really means that obviously the underlying volumes are up.

And lastly, can you just give me the slippage number for the quarter?

About 1.35%, 1.4% annualized.

[Ashish Sharma].

This is on the previous question Manish asked, in the investment book sort of showing the higher growth, there is a credit substitute book, to be clear on that because that's why I think even the yield on investment looks optically higher. Could you just quantify the quantum of the credit substitute book, sir?

I'm not sure exactly what you're -- can you just explain what you're looking for? The size of the credit substitute book or because what I mentioned earlier was a -- what I answered Manish was the fact that there used to be the deposits placed with NHB, NABARD and so on have moved out.

I'm asking about the income on investment because even the investment book looks going quite faster.

So, even adjusted for that, the investment book itself has gone up because our investments in commercial paper in particular as part of our wholesale business have gone up. So, if you look at it on a year-on-year basis, the total investment in commercial paper would have gone up -- a little more than doubled, because it was about INR7,500 crores and today has a little more than doubled from that.

But you will typically call it a sort of a credit substitute?

Yes, it is part of our wholesale business. You would call it a credit substitute or a customer asset simply because if we are dealing with corporate customers, they are looking to raise short-term money which they do for their working capital requirements, some of that would come to the loan book, if those customers are accessing or meeting their needs partly through commercial paper, we may well be investing some of those or participating in some of their CP issuances as part of that business.

And one more thing on that. The yield on normal investment book which as per regulation we are supposed to hold vis-a-vis these CPs, what would be the difference in terms of yield?

At the shorter end, because you're comparing apples and oranges in the sense that these are obviously very short-term instruments although they are corporate paper and on the other hand, if you look at the SLR requirements, those are government securities of a slightly longer duration, there may still be roughly 50 basis points or something like that of an increase, this is an approximation. But it's really driven by what the market yield on short-term paper is and given the liquidity conditions in the markets in the last few months, those yields have been coming off.

And just one more question on your digital strategy. We've launched a few different innovative loans, I'm not talking about the loan side. The loan against shares which we do it through the net banking platform and even the personal loan, the 10 second loan, will you be able to share some sort of a initial trends in terms of the run rate you're seeing, whether -- given these platforms did -- sort of were there earlier in terms of you have to sort of go to a branch rather than doing it through these platforms, has the run rate substantially increased and if you can share the numbers?

I think it's little early to share numbers. All I can say is that are we sort of pretty happy with the way things have taken off, yes. The number, the growth rates for the pickup mean very little, because you're looking at this as an incremental segment, you're not looking this as cannibalizing necessarily what we're already doing. But I would wait for a few months before we start sharing any sort of numbers in terms of grades.

Hello, Paresh, shall I take next question?

Yes, please.

There is no response from Ashish's line.

Okay, maybe he got cut off.

[Rajeev Varma].

Most of my questions have actually been answered. So, I guess the only thing I wanted to ask you was you obviously continue to see decent growth momentum on the retail space and as you mentioned, how did you get to that, because you're increasing penetration in these semi-urban markets. So, and I just wanted to get a sense, are you also seeing -- do you see a sustained growth momentum and just your view on -- otherwise we're seeing no growth at the sector level. So, do you see this sustaining at least -- I know you don't give guidance, but you see these trend sustaining going forward or do you see this as a quarter thing?

So, I think you rightly said that we don't have a number or guidance to give. I think all I can say is that the reasons behind our ability to gain market share are very much intact and remain -- position us well, right. So, one, I'm must clarify that we are gaining market share in both wholesale and retail, because if you look at even the regulatory wholesale and regulatory retail classification, even the wholesale business has grown at about 17%, 18%, which as you know is way higher than what the system is growing at and of course the growth rate or the gap in growth rates is probably even higher on the retail side.

When you look at what is enabling us to do that, I think on the wholesale side, it still remains a fact that we do have strong relationships, we do straddle lending at the short and medium term plus specific opportunities that we are willing to tap into on the long term. Combining our transactional banking and other offerings across customer segments, which is what we call the middle market, the emerging corporates, the corporate banking and so it's across multiple customer segments. There that growth is coming partly through the loan book, partly through some of our corporate fees also which has shown some momentum and some investments, because of the CP market growing. And it's a very diversified book, so we're not looking at one or two sectors or industries, we are looking at a reasonably wide spread growth there.

On the retail side, it's a combination of our being a market leader in various products, the fact that we have further improved our positioning because of improving our service quality, reducing our turnaround times, having a more focused approach towards our existing customers, backed by the data warehouse, the analytics and the digital initiatives. Now all of these things, if you believe can sustain an advantage over a period of time, then it is sustainable in that sense, but what the volumes would be as a result of all of this, we honestly cannot predict or wouldn't really have any guidance [today].

And just one data point, maybe I missed it. How much have you bought off the -- so you've not picked up any on the home loan portfolio, right? You've just done that at the end of the year, right, from HDFC?

We have done some in this quarter as well. So, in this quarter, we actually have -- we have bought INR3,800 crores. So, that's a little lower than what we bought in the March quarter, which was about INR5,000 crores. So, INR3,800 crores, let's say about INR3,900 crores.

How many questions are still there?

[Surya], can you just tell me how many people in queue for questions, because we are roughly an hour down the line. So --

Still 14 are there.

Okay. If there are 13, 14 questions, I would only request you all to try and stick to one question if that's possible. And obviously, if your question has been asked already, that'd be great.

[Rakesh Kumar].

Just to the kind of growth we have done this quarter, so could you give maybe some guidance that what kind of credit and deposit growth we are looking at for the full year because the deposit growth this quarter, especially the term is quite high, 16% quarter-on-quarter. So, full-year guidance or some number if you can throw?

Sorry. I reiterate that we don't have a guidance on any quarter [or] the full year. I do admit that the growth in particular on deposits in this quarter is perhaps even stronger than what we would have planned to or would have liked to grow. But, and the fact that we would typically on a full-year basis, you can have spurts in slightly consolidation modes at different quarters. But on a full year basis, would we just be looking at outpacing the system by a certain amount, I think that still remains a broader strategy. What the system ultimately grows at by the end of the year and how much we outpace the system by I think it will be tough to try and extrapolate from one quarter. So, all I would say is that, yes, this quarter has seen a higher than normal data growth over the system, but that by itself does not really indicate any sort of a full year growth guidance.

Just one question if I can ask. On the margin front, like we heard around 10 bps margin for this quarter. So, like looking at the ALM position and kind of front-loading the term deposit in this quarter. So, are those deposits of very short-term maturity like so that you can reprice again and something like that?

Some of them are a few months up to a year but I must only clarify that the decline in the margin intrinsically is not necessarily 10 basis points. As I said on a net basis, like-for-like, it would probably have been more like 4 basis points, 5 basis points. In fact, something in that nature. So, but the ALM itself is reasonably well matched. So, we don't have huge gaps which will position us in one way or the other as rates change. We will of course have to see as what happens to deposit rates going forward and potentially to base rate. But the fact that lending rate -- effective lending rates to customers especially on the wholesale side have certainly come off also taking into account the fact that some of the lending is really or some of the fund -- providing of funds to the corporate segment is through the commercial paper source, which is naturally cheaper. So, I would just say that margins broadly will remain in a range. Within that range, exactly how many basis points it might move in what direction, we really don't have anything specific to share on that.

Sumit Arora.

Congratulation on fantastic set of results, guys. Most of my questions are answered. Just only one thing I wanted to ask you was that our FM have basically made a statement in the US that they're going to tweak the definition of FDI and if that would happen, there could be a possibility wherein HDFC Holding and HDFC Bank would be treated as local, not foreign. So, sir, have you got any update on that?

We have no update. So, we might have seen the same things on TV screen, but we have no other update whatsoever.

Pankaj Agarwal.

Sir, a lot of your investments are funded by term deposits. So, given the cost of this term deposits and low yields on this investment and taking into account regulatory costs and operating cost on the margin, are this strategy margin accretive or ROE accretive?

So, I think, you sort of -- this attributing of specific sources of money to specific assets will not necessarily be a fair way to look at it because the fact is that a lot of our fixed deposit growth, or lot of our deposit growth ultimately is a combination of current savings and fixed deposits. And if you look at our asset growth, it's not just at the margin, some CP or at the margin, some lower yielding investments, but also growth in our retail book which has seen the highest growth followed by the corporate book and followed by the investment.

Like I said, we do want to consciously try and operate within a certain range in terms of NIMs. So, we're not looking at maximizing growth irrespective of NIMs. We are not looking at maximizing NIMs at the cost of growth. So, this is balancing within the realities of doing business in the environment, I think is what we will continue to try and manage.

[Anand Dutta].

Sir, just wanted to have some color on your Kisan Gold Credit Card. You have seen a very significant growth, 50% plus for last four, five quarters. If you can give some color in terms of what could be our average [ticket size] yield? How has been the behavior pattern in terms of slippages? Which are the states where we are growing?

So, this is what is the base of what we would call our direct agri lending. It's something that we've grown substantially in the last couple of years. And of course, a lot of it while it's spread across a few states, most of it tends to be in a couple of states including Punjab and Haryana, but beyond that in terms of asset quality, we have seen some increase in NPLs in this quarter in some part of the Agri portfolio, but again nothing very major. In fact, every year, we see that the June quarter in our case does see a bit of an increase in agri related NPLs and then some of that gets pulled back along the year. But if I look at it in terms of all the other parameters in terms of growth rates, margins, and even in terms of really asset quality in percentage terms, on a year-on-year basis, it's very similar to the corresponding quarter of last year. We obviously remain focused on this because this is primarily what qualifies for direct agri and of course, a portion of that would also be the small and marginal farmer, which is now the new sub-limit which is there. Of course, the latest clarification is that the small and marginal farmer requirement of course is the new requirement, but the older requirement of direct agri and indirect agri has been sort of indirectly reinstated. It's something which we need to maintain as well. So, when we look at this business, we're looking at it within of course our risk appetite, but we're doing this consciously to be able to cater to that segment and to meet the regulatory requirements as well.

If you can give in terms of what could be average ticket size of loan and the yield on the same, that would be great.

I don't really have those details readily available. So, I'm sorry, I won't be able to give that to you.

[Hiren Desai].

Just had a question on the entire e-commerce bit. Given that it has been growing very rapidly, how do you see that impacting your credit card business? And if you could specifically comment on the growth opportunity and the customer acquisition cost and any other aspects that you wish to touch upon?

From a growth or from a revenue opportunity point of view, for us, it would be on two sides. One, of course, we are a payment gateway for many of the e-commerce sites. And the other of course is that our customers being -- us being a market leader on the card side in particular on some of these e-commerce sites, 30%, 40%, 50% of the actual spend are from our customers. So, both these generate for us certain revenue streams linked to the actual spends on those cards or on the acquiring side on those merchants.

To the extent that we offer our customers multiple payment choices or payment alternatives, for instance, the fact that our wallet can then be used for a one-click payment where the customer can select to pay from his credit card or a debit card and the fact that he does not in such situations have to go through the entire process of giving the card number, the CVV and so on, so forth, essentially to make it more convenient for the customer. And of course, it's secure because the details of the card and so on remain with the bank. All of this to my mind positions us well with our customers.

So, if our customer is making purchases on the e-commerce site, he is more likely to use us as a payment mechanism. And on the other hand, if the e-commerce site is using -- is accepting our wallet or us a payment gateway, there are a revenue stream then. Beyond that, there is really nothing which has a direct linkage for us from a revenue perspective.

Just one more if I can squeeze in, the fees and commission for a couple of quarters has been in excess of 20%. So, apart from third-party, any other specific areas that you would like to highlight in terms of growth rates?

Actually, we've seen different lines showing growth. To be honest, this quarter actually third-party has declined. Of course, on a sequential basis, it always decline when March is always the peak quarter. On a year-on-year basis, it's more or less flat, it's hardly seen much of a growth. So, this time, the sources or the contributors to the commission growth have been some of the other retail products and a little bit on the wholesale side as well. So, I can't see -- while you're right that we've had two quarters of slightly higher than 20% fee growth, there have been different drivers in each of these quarters. So, for us to say that these particular or this particular product is driving growth, I think will be premature or incorrect. But the fact is that, yes, we've had slightly stronger growth in these two quarters.

[Niranjan].

A quick question. Savings account was almost flat sequentially. So, any one-off government account which did not put in money or something like that?

In March rather, we did have some wholesale savings accounts, which are essentially government and so on, which tend to have disbursements there. So, if I look at the retail savings account component, actually that year-on-year and even sequentially has shown a marginal growth, not a very high growth, but in this quarter but certainly the wholesale piece relative to March has been slightly lower, so which is why on a net basis, we've not seen a sequential growth in the savings account. But in terms of numbers and in terms of value on the retail side, you still continue to see healthy momentum. So we are pretty okay with that.

And quickly, the Tier 1 ratios are inclusive of profit and less of dividend, right?

Yes. Both are indicated. So, it's inclusive of the profits and less of dividend. There has been some impact of --

There is [32 basis points] on kind of regulatory changes, so that, that has got in and the other one is, every June, you have to -- the operations risk (multiple speakers) kicks in. So, that's another 46 basis points. So, total put together is about 75 basis points to 80 basis points out of this one-off.

Right. And what would be the risk weight for the standalone bank, please?

So, standalone bank is INR4,69,000 crores.

(inaudible).

Yes. My questions have been answered. Thanks.

Thanks, (inaudible).

Prashant Kumar.

Just a follow-up on asset quality side, you mentioned that overall gross slippages remained broadly unchanged compared to last quarter. So, I just wanted to understand, last quarter we had one large company slippages.

Yes, excluding that.

Okay, so excluding that, last quarter slippages were around INR1,600 crores. This quarter, it's close to INR1,300 crore and that account was of relatively larger side. So just wanted to understand the increases primarily because of the reasons you mentioned that agri and SME.

Yes, the slippages, the increases in this quarter I've really -- if I look at the trend, the slight increases in business banking, which is what you call SME and some agri. The increase which you mentioned was a certain number last quarter, in the March quarter, you had one chunky exposure, but you also have some upgradations in some part of our retail portfolio which is the CV business. So, if you look at the actual increases in gross NPA, there was slippages and some upgradations. In this quarter, you don't have the one-off, you don't have the upgradations and you have the slippages I mentioned.

And business banking, it would be primarily [lapping] portfolios?

No, they weren't lapping.

And just one quick data question, sir. What would be our SLR book as of June quarter?

INR1,33,000 crores.

[Apoorva Kulkarni].

Paresh, I have a question on the term-loan loans. So, basically the bank has been focusing on short-term working capital loans. So, for this quarter, has there been any major opportunity in the greenfield projects and the term-loans?

No, there hasn't been any meaningful greenfield term-loan opportunities. We would have had some opportunity that we tap [to into] on the term-loan side, so it's not only working capital or short term loans, but most of those opportunities have tended to be for not greenfield but more brownfield or maybe some opportunities where our customer is refinancing because costs have come down.

So, is there any particular target for the working capital loans and the term loan in the corporate loan book?

No, we don't want to straight jacket ourselves into specific sub targets for different segments because ultimately we are in the business of meeting our customers' requirements for the customers for whom we have -- were we have relationships and we have an appetite. If those customers do get into a stronger investment mode and if CapEx start picking up, then we would naturally see more of term lending, whether it's brownfield or greenfield in terms of their CapEx financing requirements. But right now there isn't really anything meaningful on the greenfield side.

And one quick data question. How much of the loan book is linked to the base rate?

Somewhere between 25% and 30%.

Dhaval Gala.

All my questions are answered.

Okay, great. Thanks.

(inaudible).

Just a quick question. On the margins part of it, is there any effect of the free funds or the equity effect coming in from the equity raising earlier this year?

That's already embedded in the, whatever the number is, because now, in this quarter, for instance, we would have had the equity affecting or the full year, the full quarter impact.

Yes.

So, that would been one of the contributors to holding up margins where they were. But I don't see any further impact beyond what is already there.

So, Surya, was that the last question?

Yes. Now there is no one.

Great. Once again, thanks to everyone. It's close to 9 o'clock. So I'm thankful that you all stayed up to take this call. I do hope we've been able to clarify most of your queries. And once again, thanks for being in this call. Good night.

Can I conclude the call, sir?

Yes, please.

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