HDFC Bank Ltd (HDB) 2017 Q3 法說會逐字稿

Ladies and gentlemen, good evening and welcome to HDFC Bank earnings call on the financial results for the quarter ended December 31, 2016 presented by Mr. Paresh Sukthankar, Deputy Managing Director and Mr. Sashi Jagdishan, Chief Financial Officer. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after a brief commentary by the management. (Operator Instructions) Please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sukthankar, thank you and over to you, sir.

Thank you. Good evening to all of you on the call. As usual, I'll spend a few minutes just quickly walking you through some of the key financials and then we'll move on to the Q&A. I guess most of you might have seen the results already. The net revenue growth for this quarter on a year-on-year basis was 15.2%. That was on the back of net interest income growing at 17.6% and other income growing at 9.4%. The net interest income growth was on the back of an average asset growth of around 18.6% and a net interest margin, which was down from 4.2% to 4.1%.

Within other income, 70% of other income is contributed by fees and commissions. Fees and commissions at INR2,207 crores were up 10.1% over the corresponding quarter of last year. Profit on sale of investments of bond gains were at INR399 crores as against INR328 crores last year. So this is about 12%, 13% of other income and grew by about 21.6% over the corresponding quarter of last year.

On the expense front, operating expenses were up at the same rate as revenues at 15.2%. If you look at the core cost-to-income ratio, which is excluding the bond gains, cost-to-income ratio therefore was at 43.8%, just pretty flat as against 43.7% for the corresponding quarter of last year. After provisions of [INR715 crores] and tax, the net profit for the quarter at INR3,865 crores, registered a growth of 15.1% over the corresponding quarter of last year.

On the balance sheet side, the overall balance sheet grew by about 18% to INR828,020 crores, deposit growth was at 21.1%, and total deposits were at [INR634,000 crores]. The deposit number is of course after the run-off of roughly $3 billion of the FCNR deposits. As I'm sure most of you are aware, this was a quarter in which the FCNR deposits which had been contracted three years back under the special scheme, which was then introduced by the RBI, this was if you remember around the taper tantrum time.

And these were the FCNR deposits, which were then swapped with the RBI at a concessional rate and we had also got at the same time roughly $2 billion of loans, which had been extended to NRI customers from our overseas branches. So the overall impact of the maturing deposits was twofold. One, in the overseas branches, approximately $2 billion of loans and borrowing for those loans matured and went off our balance sheet. So they would have been [roughly a INR13,000 odd crores] of impact on the total loans, but these were loans in our overseas branches. And then in our domestic books, the FCNR deposits totaling to $3 billion, so let's say roughly INR20,000 crores also matured during this quarter.

So, coming back to the deposit growth, therefore the deposit growth of 21% year-on-year is of course after accounting for this INR20,000 odd crores of maturities of the FCNR. Our CASA deposits within this overall growth was particularly strong, clearly driven by the demonetization as well, which saw a large flow of deposits coming in on the back of cash deposits. So the CASA deposit growth, which was around 18% year-on-year till last quarter in September almost doubled in terms of growth rates to about 37%. Of that, the current account growth was 36.7%, the savings account growth was 37.8%, and the savings accounts therefore touched INR186,000 crores. The CASA ratio was at about 45% as of December, partly of course on account of the increase in CASA deposits and partly because fixed deposit growth was further sort of took into account the FCNR deposits, which had run off.

Moving on to advances, total advances at INR495,000 crores, were up by 13.4% over the corresponding -- December 31 of 2015. As I mentioned earlier, this includes the impact of the overseas advances going off. So if you look at the domestic advances, to get a sense of how the domestic momentum has been, the domestic advances grew by 17.5% year-on-year as against roughly a 4.7% growth for the system. Domestic advances now are at about 96% of our total advances. So, that's the part which has grown by about 17.5%.

When you look at then this growth on the domestic loan book and the breakup is about 55:45 in terms of the regulatory or Basel segmentation between retail and wholesale, retail being 55 and wholesale being 45. The relative growth rates have also been somewhat similar, so the retail book grew at about 17.8% year-on-year. This is the way we classify it as a business and the wholesale piece grew by -- sorry, actually the wholesale piece grew by 17.8% and the retail book grew by about 16.8% from a business classification perspective. (multiple speakers) I'm sorry, I think I again sort of juxtaposed the two. Retail grew faster at 17.8%, wholesale grew 1% slower at 16.8%. The overall, of course, average growth rate was at 17.5%.

Finally, our distribution network was at about 4,555 branches and 52% of these branches are in semi-urban and rural areas. On the asset quality front, the gross NPAs were at [1.1%, 1.05%] but if you were to -- we also had an RBI circular which allowed banks to not classify customers who were less than INR1 crore and who therefore essentially might have been impacted by the demonetization. That would have added a few more basis points, which would have still kept it at 1.1%. So that was the gross NPA number. Net NPAs were at 0.3%.

Total capital adequacy was marginally higher than the corresponding quarter of the last year at 15.9% and Tier 1 from that 15.9% was 13.8%. So that's the overall sort of snapshot of the numbers. I think we'll move on to the Q&A now.

Thank you very much, sir. Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) Chandra Govindaraju, IDFC Securities, please go ahead.

Hi, this is Mahrukh. Just a couple of questions. The domestic growth is indeed very strong, especially even in segments which was supposed to be impacted by demonetization like say, SME, which is business banking and then even the non-retail domestic piece, the growth there has been very strong. So if you could just throw some color on the growth there. And then also on fees, obviously fees are slower than your normalized rate, but probably they are still strong given that it was a demonetization quarter and then there was sequential growth as well. So if you could just explain these two bits?

Sure. So, first of all on the loan growth piece, actually the SME loans, which is let's say, if you look at our business banking line as a combined business, I'm not splitting the business banking portfolio into retail and wholesale based on size, which is what happens from a regulatory segmentation point of view.

Then sequentially, it has actually contracted by about 3.4% sequentially and the reason for that actually is not just a slightly lower demand for incremental disbursements but the fact that we saw a certain amount of reduced drawdowns under the cash credit or the advances or overdraft facilities because there was a certain amount of repayment which happened on the back of the deposit of the SBNs of notes.

And this is something which is not unexpected because clearly for a lot of the SMEs, if their normal working capital involves using a certain amount of cash, they draw down their limits and then are using cash for their -- currency for their working capital, but now that they could not make those purchases or make those labor or other payments in cash, that currency, which was otherwise in use for their working capital was deposited in their CC accounts.

And to that extent, the loan outstanding for this segment from existing customers and existing limits came down by a few thousand crores. So, clearly that did mute the growth as far as business banking is concerned. As far as some of the other retail loan products, we did see for instance virtually no growth on a sequential basis in, for instance, two-wheeler loans and again saw a bit of a negative growth in one or two other products including gold loans and agri and so on. So, on the other hand, of course, there were other products which grew at lower rates, but -- and then some let's say like credit cards, which grew even sequentially at around 4% year-on-year at around 20%. So that product was probably not so impacted. So I think when you look at the overall quarter, you have a mixed bag. You had a reasonably good October on the back of I think good festival related demand and then of course you had November, December where some businesses or some products were more severely impacted and others less so and that's how you sort of have an overall growth rate at where it's come through.

And non-retail loans growth?

So non-retail loans, I think weren't really impacted in terms of -- I mean, I can't really relate demand impact to what was demonetization related, but generally I guess the growth on the wholesale side has been contending with the higher competition from CPs and bonds and so on given the fact that market rates were and remained lower than lending rates. Perhaps, to some extent, at least in January now that MCLRs have come down quite sharply, the gap between what -- there is still a gap, but perhaps the extent of the gap between market instruments and bank loan rates has narrowed a bit.

What I was asking about is that the growth is strong as in non-retail loans also, there's quite --

We work hard for a living, Mahrukh.

Any specific segment or --

It's not any specific segment. We have seen growth in both corporate and emerging corporate, which is middle market. So I guess that would be clearly on the back of some market share gains.

Got it. And then in terms of fees and obviously the year-on-year growth is slow, but there's still good sequential growth and then if you see the insurance numbers and for HDFC Life, they were a bit slower than industries so --

So clearly, I mean, as you're aware, there were certain fee lines that were impacted in this quarter because there were no fees being charged. So you're probably aware that ATM fees were zeroised, merchant acquiring fees on debit cards were zeroised. So there were clearly -- the normal fees that one would have earned, we did not earn and we obviously therefore did not benefit in any way from the surge in higher volumes that came through on account of higher use of digital channels in the light of demonetization efforts.

As far as the third-party distribution is concerned, we actually saw very muted growth because we clearly did not see or we did not consciously sort of allow increase in or sale of insurance through the use of deposit of cash. As a result, perhaps our growth in the third-party sales especially the insurance sales was certainly not -- was in fact very muted this quarter, but that was a conscious decision, which we are okay with.

Having said that, I think, again there was a dip on a run rate basis, clearly there was some lost business or some lost volumes, but towards the end of the quarter, you at least try to claw back in some of these businesses. So hopefully some claw back to where we would have liked to be, but for this quarter at 10%, it's clearly lower than what has been the growth rate in the last few quarters.

[Only the] sequential growth is still strong. So, it's not -- it's actually higher than expected is what I meant.

[Including] the case for the third quarter. You'll notice that third quarter always has a bit of -- there may be some seasonal (multiple speakers).

Slightly higher sequential growth.

Sequential growth. It's a typical seasonal thing, which we have. It sometimes can be in the back of some fees that we charge on a semi-annual or an annual basis, which may be coming through in this quarter, but you'll see that in every year.

And just one last question, if you could share the number of slippage?

Mahrukh, can I request you to come back.

Sure, sure, will do, will do.

Thank you.

Vishal Goyal, UBS Securities.

Sir, the question is actually on each line, for example NII fee and OpEx, if you could quantify the impact of the anomalies, which happened in last quarter. So, let's say the CRR impact or the cash, which were lying at your branches because [currency chests] were not accepting, but you were paying interest on the same, so you would have lost some income on that. And then on the fees line and OpEx line as well, if you can give some sense, that'll be great.

Well, you seem to already know all the sort of buttons which have been pressed, but not able to quantify each, but let me just walk you through some of the -- quickly some of the developments because I know that this is one of the things, which perhaps is of interest to everyone. So, if one looks at just the deposits first, clearly you had a surge of deposits coming in, most of it clearly in CASA and as you're aware, for the first couple of days when the CASA came in, immediately after that, I think the third or fourth day, you had [this] 100% CRR. So effectively for a fortnight, all the deposits which had come in and which would have been incurring a cost of let's say 4% to the extent they came into savings accounts and of course nothing on the current accounts, all of those deposits earned nothing for that fortnight while they were in CRR. So I think it was only around December 9 or 10 when that CRR was withdrawn. Thereafter, banks would have started earning on that incremental flow of deposits.

So assuming that it was costing you earlier about say somewhere between 3% and 4% depending on the mix of savings and current and of course some of it could have moved to fixed deposits as well after having come in. You earned -- you had a negative carry for about 14 days to the extent of whatever interest you were paying for those deposits. Thereafter, for the remaining two, three weeks of December, you would have earned depending on what you had deployed that money in whether it was in MSS or whatever, you might have earned a couple of percent depending on, as I said, what you were earning and what you were paying on those deposits.

So that was the impact of the actual incremental deposits. In all of this, I think the point that you touched was right, that is, when you collect the deposits for a few days if it was, still it was at the branch and so on, it was a dead asset because effectively you are earning nothing, its cash on hand. All of this, what I mentioned becomes relevant after that money moved to the [chest at which time it could] become part of your -- at least your CRR and so on. So that is the other element in terms of the quantum of deposits which would at any point of time have come into your balance sheet either qualifying for CRR or then towards any of the deployment that I spoke about. That's on the deposits.

On the loan side, to the extent that you would have seen some repayments or prepayments in overdraft or cash [credit] facilities and to the extent that there was a slightly muted incremental disbursement on retail in particular, you would have seen that much lower loan growth as a -- and certainly the average loan growth or the average loan outstanding during this quarter. And to that extent, you clearly earn that much lesser because you were moving from either retail or SME or whatever loans into at the margin MSS or whatever you were earning on reverse repo and so on. So there was clearly a decline in the amount that you were earning on that. And, yes finally, I think on fees, I have already mentioned the fact that there was some impact because of certain lines. So all of these and then of course on expenses finally, there was also an impact on operating expenses because there were incremental expenses incurred on things like cash handling to logistics or relating to that to --

ATM recalibration.

As Sashi is prompting on recalibration of ATMs to insurance to a whole host of items which did sort of increase operating cost for the quarter. There was a deployment of fresh -- new deployments of POS terminal and so on which will also have their own cost associated with that. So that was the overall impact. Exactly, how much impact on each of these and so on, I think I'll leave you'll to do some work for yourselves.

You didn't give me any number. You managed to give me everything but the numbers. So coming back to OpEx, if you see the OpEx line has not like grown at all, correct, like despite all this. So there was something in last quarter which didn't happen in this quarter?

No, I think the -- sort of the pain of some of the increases that I mentioned were partly offset by -- not, well, partly, I [won't] say large contribution, but to the extent that some of the retail disbursements are lower in products like two-wheeler, auto and so on. Obviously, the dealer and other pay-outs linked to those also are lower and those come in the expense line.

So that would have been lower as far as operating expenses and we also had some reduction in our staffing because we were focused on improving productivity. This was something which had started even pre-demonetization around September. We were tightening the sales and other productivity and as a result, our total staff strength, which was around 95,000 as of September-end, by December-end and of course this happened gradually through the quarter, had come down to about 90,400 odd. So combination of these two resulted in the overall cost number still not growing as much as would have otherwise happened if we hadn't had these (technical difficulty).

And last question from my side is on the small businesses. So on-the-ground feedback suggest that there is problem while none of the companies are still reporting any bad numbers and I talk about the other companies let's say manufacturers and all. So what is your sense on overdues, let's say, you get to see 30-day overdue data on all these smaller businesses?

So I would say, it's a mixed bag. There are some which are -- have sort of felt the strain and to some extent are still feeling some strain. And the others who in fact forget by now, but even towards the end of December had started to seeing almost or coming to 70%, 80% of where they were pre-demonetization.

So honestly, difficult to generalize. Will there be some residual pain, which hopefully should play itself out in this quarter? That's possible, and also to the extent that there would be some who -- for any overdues in that segment below a certain cut-off of course, below INR1 crore cut-off, those which were business related, if they hadn't turned [90] -- in the normal course, they would have turned NPA, those will now become NPA only at [150] or whatever 60 days more they get. So some of that would also really reflect where there is continued pain because if it was a temporary pain, then in this extra 60 days, they should be able to pull back, but I would believe that some of it will actually still flow through.

Thank you. (Operator Instructions) Nilesh Parikh, Edelweiss Securities.

The question is around the fees, right. So this quarter, we've seen a below trend performance largely on back of -- that you mentioned that some line items were missing. Now, even if we assume that they come back because what the government in some fashion is proposing lower throughput rate in each of these line items. So, do we -- we've said that our fee income contribution from retail is somewhere around 80%, 85%. Now does that mix change as we go along? I just wanted to understand on that.

So honestly, I think in many of these areas this thing is still a little uncertain, right. I mean there are specific issues, which are being discussed or in relation to, for instance, the petrol pumps and in other cases based on ticket sizes and so on. I think the right sustainable approach that I think we are trying to get to is something where given the need and the desire to substantially increase usage in terms of wanting to incentivize consumers to use it and move from cash to non-cash I think, there's certainly a recognition on the part of the banks that in some cases the fees might need to come down, which is not to say that they should be zero, which is what was there in the last quarter, but certainly from where they might have been.

On the other hand, to ensure that there is enough of an acceptance infrastructure in terms of POS terminals whether they are physical terminals, whether they are mPOS or any other form of acceptance and the providers of that infrastructure are adequately compensated for the cost, which they incur. There is clearly -- there has to be an appropriate return for that.

So I think between all of this, in the initial stages, it is likely that the initial surge of increased volumes may be more than offset by the reduction in the fee percentages, but if you look over a few quarters I think it will neutralize and thereafter it should probably provide a healthier growth trajectory. In the medium to long-term, I think the fact that we will see a significant increase in usage of digital channels, I think is something that for us is a positive because independent of the demonetization and so on, I mean for the last couple of years, digital has been a huge thrust for us, not just in terms of channels of servicing or payments, but in almost everything that we do including on the lending side and so on.

So something like this which actually gives not just a nudge, but a huge push to adoption of digital channels is strategically valuable, but yes, I think in the short-term, well, the worst was the last quarter where you earned nothing or you even lost what you would have earned in the normal course, you will probably go through this transition phase where you have some increase in volumes, but the lower commissioned rates offset that and then, I think, you'll sort of get to a phase where it is at least reasonable returns for everyone, but tough to say exactly where it'll stabilize. We are obviously hopeful that something which ultimately emerges is healthy for all players in the industry and that's the only way it will be sustainable.

Sure, if we can get some color in terms of the split of retail fees in terms of [bank], the interchange, if you could just provide some color, it will be helpful here.

In terms of the overall mix, it is still about 80%, 85% is retail, but --

Within [that operation].

Sorry.

Within that is what --

Within that, you have about two or three sources, which are each contributing about 15% odd -- somewhere in the mid-teens, but we've not typically split out each individual item within that because you have fees coming from retail assets, from credit cards, from our retail liabilities business, which includes what we just spoke about in terms of some of the transaction-related fees in direct banking. Then we have third-party products and each one of these four categories typically contribute somewhere between 13%, 14% to 16%, 17% of our fees. So these are the four main drivers, but within that, each one of them would have probably four or five products.

Thank you. Manish Karwa, Deutsche Bank.

My question is on margins. Now, the NIMs are at the lower-end of our guidance range. However, the last quarter probably would have been a very unique one wherein you had the FCNR redemptions, probably you've been running with high liquidity, loan deposit ratios are down almost 500 odd basis points, but we are running with higher CASA, but MCLR is also there. Do you expect the NIMs to remain in this range as some of these one-off things go away as we move forward or do you see more pressures on NIMs as we move forward?

So I think there you had these short-term impact of all the various things that we discussed earlier on the CRR, the lower loans and everything else which was perhaps more directly linked to the demonetization and you also have a few basis points of impact, which is to do with just the huge overhang of liquidity, which has obviously caused yields to go down on any incremental lending and of course, sure they've come down on deposits as well, but there will always be some lead and lag. So the reduction from where we have been to where we are is a combination of both short-term and slightly -- well short-term in the sense linked to demonetization and other factors.

Our range has always been 4% to 4.3% maybe 4.4% for an odd quarter. So at 4.1%, we are certainly at the -- in the lower half of that range, but not necessarily bottom yet, but do I expect still the NIMs to remain in a range of 4% to 4.3%? I think so at this point of time, we believe that is possible. If you really look at the NIMs on a basis that we are now calculating, if you remember from the last quarter we had indicated that, with the grossing up of [LAS], the denominator increases a little, which has a few basis points of impact. So if I look at it on that basis, then the NIM would have been 4.2%, 4.2%, 4.3%, 4.2%, 4.1%. So it's been in that range of 4% to 4.3% as I mentioned earlier.

So which of these reverse out to what extent in the immediate near future is what we'll know I guess by this quarter-end, but other than that, I don't think there is any major change in the mix of our loan book, which is the other piece, which can impact our NIMs. On the deposit side, the higher CASA that you referred to as a ratio 45%, up from 40% in any case, about 40% to 41.5% or thereabouts would have happened if we had had the normal CASA growth and the FCNR which is fixed deposits would have come down, right?

So just as a ratio it would have improved by about 1.5% in any case. So, the 41.5% to 45% is the spurt that has happened. Again how much of that remains and how much comes off as you have further withdrawals or movement from the savings to fixed deposits or any other investment will really determine what our final CASA ratio will be which of course is also a factor which can impact NIMs, but broadly therefore, pulls and pushes in both directions. At this point of time, I think the broader range that we have enjoyed for a long time of between 4% to 4.3%, at this point of time I think still remains a good range to run with.

Sure and just on CASA, how have been the behavior over say last three, four weeks. Are we still running with this high CASA or gradually that number is coming off?

No it continues to -- at the margin, it still continues to come off a little, which is not surprising because remember some of it was an artificial boost because people could not withdraw beyond what was there. So with every passage of time, even if the limits don't change too much, the amount of currency which would go back naturally will have an impact. So, it's difficult to conjecture of the amount, which came in, how much ultimately remains, but is there a continued drift of some of the CASA which is there, absolutely.

No, I mean, so like 40% to 41% would have happened, but shouldn't this demonetization make that 41% to 43%, if not 45%. Do you expect to run with relatively more CASA now for the next many quarters than what would have happened prior to demonetization?

I think clearly some of that incremental CASA which came in, we believe will remain. I mean, it would be a shame if everything that came went off, but how much remains, whether it is 10%, 20%, 30% of what came in remains, I don't think we have any clue. It's tough to try and conjecture because it really depends on what the customer behavior will be in terms of the currency that they were using for circulation of payments and how much was just a stock. So, I can't say whether that 45% stabilizes at 44% or 43% or 42% or 41%, but is it a fair expectation that it should be something more than what would have been -- but for this, I think that's a reasonable expectation, but I can't put a number to it.

Amit Premchandani, UTI Mutual Fund.

There has been a considerable market share gain in the CASA segment if you look at your numbers vis-a-vis overall market numbers. So do you think -- what has driven this market share improvement? And if you see, there has been a huge increase in investment for obvious reason during this quarter, but beyond that, if this continues next quarter, what are the scope of deployment of this excess liquidity?

To the first point, I think, yes, we would have gained some share in CASA, but I think the actual CASA numbers for everyone in this quarter will look good, right. So, we don't know exactly how much CASA has come with everyone because if we look at a very rough market share of the total amount of SBNs which came into the system. We believe that it is roughly in line with what our market share in total deposits is. So to that extent, we can't say that we have got a disproportionately higher proportion of the SBNs and which would have suggested a significant increase in the CASA market share.

So I think in this quarter you would see probably a boost to the CASA for everyone, but clearly because we've traditionally had between our [debtor] distribution, service level, product range, the digital channels and so on, we've been able to attract and retain higher CASA levels from our customers. We are obviously hoping to do that from this flow which has come in and it's obviously heartening because it does give us an idea of the kind of liquidity that our customers do have access to or do have with them.

And therefore, it certainly gives us reason to continue to target a larger share of their wallet whether it's in their savings accounts or any other deployment that they do, but to actually deploying this money out, clearly as you pointed out in the short-term, there was -- all you could do with it was to put it into MSS or essentially to short-term paper from the government perspective and we do hope that the momentum on the loan side, which have been outpacing the system on a continued basis, that as it continues to flow through in the next couple of quarters, we should have appropriately deployed the increased deposit growth.

So focus is on continuing to gain market share on the loan side as well. And again, this is across both wholesale and retail and some of the borrowings which came off on the SME side as those get drawn down again, as those businesses go back to normal, I think should allow us to deploy this. So clearly the deployment would have to happen through our loan book over the next couple of quarters.

And on the insurance third-party distribution side, generally if you look at over the last four, five year trend, some of your competitors have accelerated their fee income from insurance part of the business while yours has been a flattish trend except FY16 and this quarter also we see you losing out on that segment maybe on account of management decision to not go aggressively in that segment, but beyond that, do you think you need another partner on insurance front. Have you taken any decision with respect to that and when can we expect such decision?

So, I think your first part of your question I think is fair that we -- other than what we decided for in this period, we certainly are looking to increase our momentum on the third-party distribution. So it's something which has always been an important focus area for us, but if we have lost a little ground there in relative terms, we certainly plan to pull our socks up and get that momentum going once again.

Whether to do that, it necessarily requires us to have another partner. I think the two are sort of separate. On a different note, whether we would -- considering ourselves as an open platform within the regulatory ambit look for additional partner, that is something which clearly is a decision that would be taken by the Board at an appropriate time, but conceptually would we be open to something like that? The answer is yes.

Thank you, sir.

Just before we start the next question, I think since we have probably about 10, 15 minutes left, I would now request -- and I think we have covered most of the broader, larger issues at the cost of some amount of detail. So now if I would request the next few people who want to ask questions to restrict yourselves to one question if possible and then if at all we have time at the end, we'll come back, but I'm hoping that most of the broader and more important questions have already been addressed in the first few -- in about 10 minutes, 15 minutes left, I guess.

Thank you. Manish Ostwal, Nirmal Bang Securities.

My question on the disbursement trend in the retail products segment, post the demonetization, what we have seen in terms of trend of drop of disbursement, now what is the normal situation and what is your outlook going ahead?

So, clearly, in some of the underlying products where the -- for instance, if you look at something like auto or two-wheelers and so on, I think from where we had seen we were in November, December was somewhat similar for some of the products, it was marginally better for some, but I think within that month also, there was clearly a build-up towards the month-end. So if you really look at it as an exit rate, I think in most of the products that we had seen a decline in disbursements, we were back to about 70%, 80% of where normalized growth would have been. Again, I'm not comparing it with October, which for some of the products was a bumper peak month, but that was linked more to the festive season, but if you look at the normalized disbursement levels, then we were -- as I said, some products did not see much of a decline, but for those which did and which some of them saw a very severe decline by the end of December, we were looking at exit rates which were closer to about 70%, 80% of where they could have been.

So I think a normalization by maybe the first half of this quarter is something which one can expect, but I can't have a definitive guidance because there will be other factors, which will impact actual momentum.

A very small supplementary to this, are we seeing -- since you always talk about some percentage above GDP growth, now the GDP expectation has muted. Especially in this micro product segments, are we expecting the quarter four or the normalization growth to achieve or there could be some disappointment over there?

Well, I wouldn't try and fit it on the GDP growth thing. All I can say that the system loan growth, which has dropped to about 4.5%, 5%, that I think will come up by at least a couple of percent at the system level itself. It had gone down from 9% to maybe 4.5%, 5%. I would think that the system growth should at least bounce back to maybe 7% or 7%, 8%, but beyond that, I think we'll have to wait for a few months as there is too much happening for us to try and get a fix on the exact (technical difficulty).

Thank you. Nitin Agarwal, Antique Stock Broking.

Can you talk about the branch expansion plan as we have opened only 35 branches in the current nine months running versus over 500 branches that we opened last year.

Yes. So I think that's a good question. We had mentioned even in some of our last couple of calls that relative to the spurt that we had done for a couple of years, we were looking at moderating the growth rates and we had thought we would open about 150-odd branches this year. We will probably land up doing that.

So although you're right that we've only opened 35, we would have probably opened a few more last quarter which actually we kept on hold given what was happening. So what we would have opened last quarter and what we had planned in any case to open in this quarter, we will go ahead and open this quarter. So I think we should end the year with maybe a growth of roughly 150 branches.

Okay and if I can squeeze in one more question, if that is okay?

Okay, I mean quickly but --

Yes, sure. On the deposit side, can you give us some geographic color on the -- like overall deposits that you have received, so like say categorized by regions, states probably so as to give us some idea as to which states are responsible for such a huge deposit inflow, and on the CAR side, I see that the CAR growth is also as strong as [SAR], in fact even stronger on a sequential basis. So do you think that the sustainability of CAR will be lower than [SAR] or is it on a pari-passu basis?

Well one, I think the first one, I don't have the exact details with me, but there wasn't any particular bias to any particular region. In fact, if I look at the overall distribution of our deposits, we saw a somewhat similar with maybe a 2%, 3%, 4% difference between states or regions and so on. So, I can't see any particular trend. Traditionally, yes, in current accounts, the core current accounts tend to be a little lower than the core savings accounts because there is much more volatility for business usage once operations normalize. So it's possible that you would see more going out through from what has been the growth in current accounts than from savings accounts, but that's more extending what traditionally the experience has been.

Nilanjan Karfa, Jefferies.

Let me see if you can at least give us some number because you have not talked about any number so far. So if I broadly recall the last 55 minutes, you said probably on the fee side, retail plus SME, which used to be 80% is now 85%. Assuming that is right, just help me with this, how much of credit card interchange fee plus accounts got reactivated? So I guess, you would have charged the entire penalties, which would have accrued. How much these two contributed to the overall fee?

So, I don't want to sort of change how consistent I have been for the first 55 minutes. Clearly, we are not giving breakup beyond a certain level. If it's not in the public domain, I'm afraid it will remain exactly that way and between the 80%, 85%, I must tell you that it was a range. It's not that there has been a particular change in mix between retail and wholesale.

In fact, in this quarter, much of the fees that I referred to which were impacted including for instance third-party, which is insurance and so on. All of those were actually from the retail piece. So the mix really has not changed too much. Whatever fees ultimately have come in on the retail side and a lot of those areas still remain retail, still remains -- 80%, 85% is a mix, which changes from quarter-to-quarter. Yes, there would have been some fees that we might have been able to recover from accounts which got activated, but that would have again been in single-digits proportion of the total fees.

Okay. So color on this, so let's say, you would have already taken whatever you could take. So assuming the systemic environment does not change [immaterially] or probably takes a greater part of half of this quarter, then the fees should kind of at least on a sequential basis may not improve as much as in the previous quarter, sequentially and just pure sequential comparison.

If you look at it on an -- if you look at our sort of seasonality in our fees, traditionally the third quarter has always been one of the strongest quarters, but I think if I was to again look at the year-on-year trends in fee growth and again I'm therefore changing from what you said on sequential to year-on-year.

In the last several quarters, we've had a low-teen growth to a mid-teen growth and this time with whatever we've lost, it's come down to about 10%. So the basic underlying momentum leaving aside whatever pressures might be there on specific lines because of external factors or regulatory factors, the rest of the momentum I don't see that changing too much.

Rajesh Kothari, AlfAccurate Advisors.

Hello, sir. I have only one question. Can you give us the disbursement growth for retail because what I have is the loan book that is advances growth. I don't have the disbursement growth.

See, on an overall basis we don't -- this obviously has some products which have seen a lower disbursement and some which have grown and I'm not going to be able to give this to you on a product-by-product basis, but on an overall basis, disbursements were up around 11% or so.

Compared to second quarter, how much YoY?

It would have certainly been lower than the [cost in the second quarter], but I don't have that.

How much is retail versus overall?

Sorry?

Retail versus overall?

In the overall basis, there is no question of disbursement and so on, right, because in the wholesale book, we don't have a concept of run-offs because we don't have EMI loans and so on. So whatever is the growth in wholesale, if there have been some other repayments that is not a definitive number which happens every month or every quarter.

I see. So your retail disbursement growth is 11% for the third quarter?

Roughly. Yes.

And is it possible for you to give at least home loans if possible?

No it won't be possible.

Is it higher or below 11%, any indicators?

I said it won't be possible to go into details beyond that.

Thank you. Pavan Ahluwalia, Laburnum Capital.

Two questions, you don't have to take them both. The first is if I look over the last couple of years, you've done a very good job of growing the higher yielding portion of the loan book, the credit cards, what I think is broadly called digital, personal loans, things like that. Now that's obviously highly margin accretive to you and in a way that's offset both potential slowdown in loan growth elsewhere and really intensifying competition in other portions of the loan book because we do see the PSUs and the other large private sector banks getting more aggressive on the more plain vanilla retail loans, home loans, auto loans et cetera. How should we think about the extent to which you can keep doing this?

I mean, do you have a sense of the pace at which you could grow this over the medium-term or the penetration potential because it's a pretty valuable asset that you created and something that relatively few people have the capability to do. So it will be good to get a sense of the extent to which you think this can grow so that we can juxtapose that against the increasing competition in the more commoditized portion of your retail book?

And the second is, we've seen somewhat strange behavior by the large PSUs in the last month or so. So first SBI dropped the MCLR by a much larger amount than people expected. Yesterday, Ms. Bhattacharya was saying that she might want to cut deposit rates. Do you have a perspective on -- given that the PSUs are a large portion of the system, do you have a perspective on whether overall at this point we're seeing sort of peak competitive intensity or could we see even tighter pressure on margins going forward as PSUs and large private sector banks other than HDFC are just willing to underwrite really low ROEs to get any sort of growth possible?

So let me try and give a quick answer to that, bits of both. On the personal loans, the credit cards, while clearly they have grown faster than the other products, some of the other products let's say like auto, CV and so on. In proportion terms, proportion of the retail book, they've gone up by about only about 2%, 2.5% and the reason for that is you also had in terms of the loan book something like, [one] which is home loan which is much longer duration has actually grown as a proportion a little more than what the unsecured business has grown.

So although you've seen growth in disbursements and growth in the book, because its relatively low in duration, for instance personal loans are typically door-to-door, three year, four year monthly amortizing, clearly there is a certain run-off as well. So it hasn't -- while it continues to grow and it continues to outpace some of the other products and the mix of the loan book, it can't really grow substantially more than what it is. I mean, it will keep growing at 1% or 2% if this growth rate continues to be significantly more than for the other products.

The other thing of course is from a penetration opportunity point of view, well, cards is on an overall industry basis, I think offers huge potential. Our market share there is already fairly large but the market itself clearly whether the total number of cards, credit cards are whatever [25 million] or whatever million it may be, still a very long way to go on that front.

And even though the other commoditized products whether it's home loans, auto and so on, tend to be much more competitive, they are also a larger ticket and in some cases longer duration. So those remain an important part of the retail portfolio and more importantly for our customer remain an important part of his or her needs from a financing perspective. So we will continue to participate in both. We will hopefully maintain our leadership in PL and in cards, but we will -- and we are also an active and a market leader in some of the other products including auto.

Okay thank you. And the second one, any thoughts on competitive intensity?

The competitive landscape, I think there is clearly a higher focus on retail given perhaps the fact that you've not seen too much of private sector CapEx and the wholesale loan demand linked to the investment cycle. So I think right now, you are seeing players in retail who are focused on retail from a strategic perspective and others who are probably doing it more because that's the only piece, which is growing. Hopefully, some of that latter pressure starts waning if over the next two, three, four or five quarters, you start seeing some gradual pick up on the investment-related credit demand.

Thank you. Rohan Mandora, Equirus Securities.

I just wanted to know -- understand one thing. We had a [CMS volume of close to INR39 lakh crores] during FY16. So post this demonetization, how is the fee income from this segment going to be impacted. Like what kind of growth do we see both in terms of physical cash as well as the digital cash handling?

Yes, actually the CMS business has very little to do with physical cash. I mean very, very little, because CMS is really to do with collections and disbursements either paper-based through check and other instruments or electronic for corporate customers, for players in the capital markets and so on. So the physical cash and the demonetization and the shift to digital by retail customers will not really impact the cash management business as sort of formally done or the fees there, if at all, it could continue to have a play on the deposit flow from retail customers.

Okay. Actually, if you could share the -- if there was any restructuring done during the quarter?

Restructuring? No. We probably might have had one or two accounts.

And total risk-weighted assets in the quarter?

Total risk-weighted assets are INR581,000 crores.

Thank you, sir.

Well, we're already at [six or seven]. I think I'll take one last question before we will have to wind up on this call.

Avinash Singh, Jefferies.

Can you please provide, I mean, in terms of the 30 DPD, how 30 DPD particularly in the business banking segment SME was at October-end, at November-end and December-end? I mean was there a change of say 10%, 20%?

No, I'm afraid, we're not sort of sharing details on delinquencies of 30 DPD. It's not in the public domain.

Okay. On auto loan, I mean some of the bank peers have reported sort of higher growth, even RBI data suggest the growth is higher. So, are you sort of keep giving up market share in some of the segments like CV, auto or two wheeler? So can you please provide color on each of the sub-segment?

All I can say is that certainly in auto, we've not just been a market leader, but if I look at disbursements, even during this period, I don't think we would have lost share. In fact, I won't be surprised if we have marginally gained share. When you look at the net growth in a portfolio, it would be a function of what your existing portfolio is and therefore whatever run-offs you have and whatever disbursements you have, but in terms of disbursements, which is where you would I guess look at trying to see where your market share is, I think we would have certainly maintained our market share.

Thank you. Ladies and gentlemen, that was the last question. I would now like to hand the conference over to Mr. Sukthankar for his closing comments.

Well, I have nothing much more to add, just want to thank all of you for having been on this call and I'm sorry if -- I'm not sure how many questions there might have still been, but if there were a handful, I'm hoping that most of the -- what you really wanted to ask might have been covered earlier, but once again, thank you for being on this call. Bye.

Thank you very much members of the management. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes this conference call. Thank you for joining us and you may now disconnect your lines.