HDFC Bank Ltd (HDB) 2017 Q4 法說會逐字稿

Good evening, ladies and gentlemen, and welcome to HDFC Bank Earnings Call for the Financial Results of Q4 FY '17 presented by Mr. Paresh Sukthankar, Deputy Managing Director; and Mr. Sashi Jagdishan, Chief Financial Officer.

(Operator Instructions)

Please note that this conference is being recorded.

I now hand the conference over to Mr. Sukthankar.

Thank you, and over to you, sir.

Good evening, everyone, and welcome on this call.

As always, I'll walk you through some of the key financials and we will be happy to take your questions thereafter.

So for the quarter ended March 2017, our net revenue growth was 21% and net revenues touched INR 12,501 crores.

Of the net revenue growth, almost 73% was net interest income, and net interest income growth was 21.5% on the back of asset growth of about 19% and a net interest margin -- a core net interest margin of 4.3%.

This NIM was up from 4.1% in the December quarter and as against 4.2% in the corresponding quarter of last year.

Other income, which was 27.6% of net revenues, was up 20.3%.

This includes fees and commissions, FX and derivatives revenues, gain on revaluation and sale of investments and miscellaneous income, which includes recoveries as well as dividend income that we receive from our subsidiaries.

Of each of these components, the largest component tends to be the fees and commissions, which was INR 2,500 crores, which increased by 16% for the corresponding quarter of last year.

Operating expense growth was at just under 14%, 13.9% to be precise.

And as a result, the cost-to-income ratio, the core cost-to-income ratio, which exclude the impact of the bond revenue, the bond income, adjusted for that, the core cost-to-income ratio was at 42.4% as against 44.9% in the corresponding quarter of last year.

Provisions and contingencies for this quarter were at INR 1,261 crores.

That's as against INR 662 crores in the corresponding quarter of last year.

Of this INR 1,261 crores, so there was a INR 280 crore general provision for standard assets, which was driven by the increase in loans and advances during this quarter.

The rest of it was largely relating to specific provisions.

Again, when you look at the growth from either the corresponding quarter of last year or the sequential quarter, you will need to keep a couple of things in mind: the absolute provisions that have been made, specific provisions for NPLs do have a spike relating to NPLs, which slipped into this quarter from the previous quarter where, because of the dispensation for small loans and overdraft facilities of less than INR 1 crore, there was a 60- to 90-day dispensation, which was permitted.

And as a result, NPLs of INR 245 crores basically launched, which would have crossed 90 days in the previous quarter, but which got a dispensation and therefore were not recognized as NPLs in the previous quarter.

Those became NPLs in this quarter, and obviously, those which crossed 90 days in this quarter were also recognized.

So the specific provisions on these lower NPLs as well as NPLs for this quarter are all provided for in this quarter.

To the extent that some of them, if you continued with the dispensation, would have become NPL in the next quarter, that we have also recognized in this quarter itself.

So that was the distortion, if you might, in terms of the provisioning vis-a-vis on a sequential basis, clearly therefore you will need to toggle some of that.

And when comparing it with the INR 662 crores of last year, you need to bear in mind that the INR 662 crores of last year was lower to the extent of INR 150 crores because we had utilized floating provisions in the March 2016 quarter.

So like-for-like, if you added INR 150 crores, it would have been more like INR 815 crores or so and that would have been the comparative number if you look at the corresponding quarter of last year.

So, so much on the provisions.

Moving on from there post tax, our net profit growth was at 18.3%, and the net profit for the quarter was at INR 3,990 crores, taking the full year net profit to INR 14,549 crores.

Again, the full year profits were up 18.3% over the previous year.

Balance sheet growth in this quarter was particularly strong, especially when compared with where the system has been growing at.

Total balance sheet size was at 8 lakh, 63,000 crores.

Deposits were at 6 lakh, 43,000 crores, an increase of 17.8%.

To look at the components of those deposits, current accounts and savings account deposits grew by a little over 30% each.

Fixed deposit growth was just under 8% at 7.9%.

And the CASA ratio as of 31st of March, therefore, was at 48%.

Advances were up 19.4%, this is total advances.

Domestic advances grew by 23.7%, and the growth during this quarter came through in almost equal measure from both wholesale and retail.

This is in terms of the wholesale and retail segments as the way we manage it as a business.

If you look at it from a regulatory classification or the Basel II classification, then the retail loans grew at close to 26.5% and the wholesale loans grew at 21%.

But from a business perspective, they both grew at very similar growth rates of about 26%, 27% each.

This is the domestic piece alone.

The capital adequacy ratio was at 14.6%, and the Tier 1 ratio was at 12.8%.

Dividend declared was INR 11 per equity share of INR 2 face value as against 9 rupee, 50 paisa per equity share of INR 2, which has granted -- which was declared last year.

Our network increased by 195 branches in this year, so we're at 4,715 branches.

We're in 2,657 cities, and we opened a few more branches in urban areas as well this year.

So the mix is 52% in semi-urban and rural areas and 48% in urban and metropolitan areas.

Employee strength is at 84,000 as against 87,000 in March of 2016.

Asset quality, gross NPAs were at 1.05%, which is flat sequentially, is up by about 10 basis points from March of last year.

Net NPAs were flat at 0.3%.

We have 2 subsidiaries.

HDFC Securities, which as you're probably aware, is one of the leading retail broking firms.

Bank has about a 98% stake in HDFC Securities.

Their net profit growth was at 61%, and the net profit for the year was INR 216 crores.

HDB Financial Services, which is an NBFC, owned 96% by the bank.

It has about 1,151 branches in about 815 cities, has a balance sheet size now of INR 33,000 crores, a loan book of about INR 32,000 crores.

And net profit for HDB Finance was at INR 684 crores, up 28% over the previous year.

Gross NPAs for HDB Finance were at about 1.5% and net NPAs of 0.9%.

Their capital adequacy is at 20.8% with Tier 1 at 15.3%.

And finally, in conclusion, our consolidated results therefore had a net profit for the combined -- the consolidated, rather, entity at INR 15,253 crores and a consolidated advances of 5 lakh, 85,000 crores as of March 2017.

The net profit growth on a consolidated basis was 19.2% and the consolidated advances growth was just over 20%.

So that was the quick rundown of the results.

Let's move to the questions now.

(Operator Instructions) The first question is from the line of Mahrukh Adajania from IDFC Securities.

I just wanted to check how you would model growth from hereon, because while the sector growth has come down a lot and even retail growth appears to be under some pressure, your growth has remained similar.

I mean, your domestic growth remains very strong and so your incremental market share is increasing.

So I mean, how would you model or view growth?

And where would the incremental market share in retail be coming from, not only for you, but even for many other private banks, because they don't seem to be seeing any slowdown in retail growth, but the sector retail growth of course appears to be under some pressure.

Well, Mahrukh, don't expect me to do your work.

I thought the models were developed by all of you who have a good view of the industry and what you believe our capabilities are.

But on a serious note, I would agree that some of the elements, which we would build on, which were usually the linkage between nominal -- or real or nominal GDP to bank system growth and banking system growth plus a certain data in the immediate short term for the last couple of quarters, and I'm not sure maybe for the next couple of quarters, that relationship seems to have got fractured a little and therefore I'm not sure how long the system will continue at as lower growth rate as 5% in loans and 11%, 12% in deposits.

I would just believe that if the economy does grow at 7.5% or wherever it grows between 7.5% and 8% next year -- I mean, this financial year and depending on where this banking industry loan growth therefore is, the only thing which we have always said and we continue to believe we would do is to outpace the system.

How many -- what our delta growth would be, how many percentage points faster than the system, is something that, I'm afraid, is not something that we would be able to do because we're not sure at what rate the system itself will grow at.

The good thing for us is that, across both our wholesale and retail businesses, I think we are rather well positioned between the geographical expansion, between the product range, between the digital initiatives, between changed processes and turnaround times, partly driven by digital initiatives and partly by other process changes.

We've clearly been in a mode where we are gaining market share a little faster.

But what number that leads to, I'm afraid we don't have a guidance on.

Yes, okay.

And what would be your slippage -- standalone slippage for the quarter?

Adjusted for some extraordinary items like what Paresh had mentioned at the initial conversation, it's about 1.5 to -- 1.5.

That's after the adjustment?

After the 2.45 gross adjustment, yes.

Okay, 1.5.

So that excludes or that includes?

That excludes.

Next question is from the line of Pavan Ahluwalia from Laburnum Capital.

A little bit more on growth.

I appreciate the fact that you can't really guide us to what the delta between you and the system will be.

And frankly, while that equation may have made sense for guidance a few years ago, it's increasingly meaningless given the great divergence between corporate credit growth and retail credit growth and the fact that corporate credit is likely to increasingly flow to the bond market.

Having said that, could you give us some perspective on your emerging corporate strategy?

It appears that you're growing reasonably well with these emerging corporates.

How are you gaining share here?

Who are you gaining share from?

And what are the sorts of terms you have to offer to these corporates to come to you?

Is this sort of margin-dilutive growth because of the competition in the corporate space?

Or do you expect to be able to maintain margins while growing more over here?

And relatedly, we see PSUs obviously filing into a lower-risk lending or perceived lower-risk lending like housing finance.

Are there any areas that the PSUs are vacating that we may be able to step into and lend profitably like maybe mid-corporates, SMA banking, et cetera?

Could you give us some sense of what the opportunity is in this overall nonretail space, our strategy there, our competition and the profitability with which we might be able to lend in this space?

Okay, let me take a shot at it in brief.

So on the nonretail portion, we do have multiple segments.

So the larger corporate banking fees is something we've done from pretty much the time that we started as a bank.

And even there, we do see opportunities to continue to grow, despite what you might see as cannibalization of bank credit to -- by the bond markets or the commercial paper markets.

There is a certain amount of demand for bank credit.

And our ability to respond quickly, our ability to, in particular, where some borrowings are linked to transaction processing whether it's part of trade finance or supply chain financing and so on, to get a larger share of that business still continues.

So I wouldn't want to leave you with the impression that the large corporate business does not offer still fairly healthy opportunities for us to grow.

We will probably be gaining market share there from foreign banks and public sector banks.

The next segment, which is what we call emerging corporates, which, again, is probably the lower end of the corporate banking space or the mid-market in -- some banks might call the middle market, there again, we are well positioned in terms of new customer acquisition.

Over a period of time, the number of cities that we operate in for that business has also increased.

And we have some pipeline for that segment from our Business Banking.

So if you look at the next segment, which I talked about, the largest borrowers in that segment graduate into the ECG business.

And probably there again, the market share gains are from other private and public sector banks.

Most of the market share gains are on the back of our ability to respond much quicker, make -- offer a complete product range, strong transactional banking capabilities and competitive pricing.

Your question on margin dilutive, I think when we need to get customers through, will we have to be competitive from a pricing perspective, the answer is yes.

Would we price at a rate where we believe we are not appropriately pricing for the risk and the operations cost, we wouldn't do that.

So we are very clear about our risk-based pricing approach within a range.

And I think our primary focus is to get customers based on our superior product range and service levels.

And finally, there is a Business Banking segment where, based on the ticket size, you may have it as part of regulatory retail or as part of our nonretail business, which is largely a branch acquisition sort of led strategy, where we do have customers who have current account or other relationships with us at a branch and these may be smaller businesses which are looking for funding for their working capital or term requirements and where we are sort of gaining share probably from largely the PSU banks and maybe some NBFCs.

The next question is from the line of Vishal Goyal from UBS Securities.

So I have 2, 3 questions, so first is on NPL.

So you mentioned INR 245 crores came from the dispensation.

I'm sure there would have been some more like which was not dispensed, but kind of was (inaudible) due to demonetization and came through in this quarter, so -- and 1.5 would mean, what, roughly 20 billion?

Like for the quarter?

Yes, roughly around.

Yes, you're right.

So that 20 billion, does it include -- I mean, does it have any corporate like slippage, any meaningful corporate slippage?

Or is it all granular?

So let me cover the -- give you some flavor of the nonslippage -- I mean, noncarryforward or what we call indeed the dispensation-related distortion, right?

In the rest of the NPL formation, there are a couple of segments which -- where we saw slightly higher NPL, which clearly were impacted in some form or the other by the demonetization effect; in particular I would say in agri, in SLI, maybe a little bit in (inaudible) as well we saw some stress, which one could relate at least in part to demonetization, because these are customers whose ecosystem really is cash-based and clearly they were affected.

And even if you then looked at their ability to start paying you again, they didn't have the -- no way that they would have the ability to pay not just what the dispensation they've got, but the actual EMIs, which were becoming due during the quarter itself.

So we did see some increase in NPLs beyond what we would normally see in a BAU scenario for these 2 or 3 segments.

Other than that, if you look at the rest of the retail portfolios, you might -- we've had a couple of segments where there were a few -- very, very few basis points, sort of low single-digit basis point increase, but that tends to waver from quarter-to-quarter so I wouldn't read too much into that, but that is across 3, 4 retail products.

On the corporate side, we've had a few slippages, but those are smaller corporates, not -- there's no more large chunky piece.

Every quarter you have a few names which might flow through, but none of which are very large or chunky.

And there was no recognition that was linked to any regulatory or other...

Divergence.

Divergence of any sort.

No ARC sell-down or so I believe.

No ARC sell-down at all.

Okay.

So now just to take it forward, so this non- sort of dispensation outside of INR 245 crores, what do you think should happen over the next 1 or 2 quarters?

Do you think there's an increasing trend on that particular bucket?

Or it's already stabilized?

Well, we're just about 20 days beyond that quarter, so I don't know what trend you want me to...

No, no.

So from January till March, like on a monthly basis, either the delinquencies are going up in those products or you are seeing some relief after things stabilized maybe somewhere in March or -- so there was an impact of cash nonavailability, correct, and which could have impacted January, February, even maybe some part of March?

No, so I would say that things which were linked purely or largely to the demonetization, these, I think -- and where it was purely driven by cash availability, I think that clearly we should have seen its worst in terms of impact.

But then that impact plays itself out for a couple of months more, but it's certainly not anywhere close to what the intensity would have been in the last quarter or certainly in the last couple of months of the previous quarter.

But if you look at something, let's say, like the impact on something like agri, right, clearly, if your ability to collect is at that point of time when the crop is harvested.

So there, even if things don't get worse, what should have got better in the last quarter, you lost that opportunity and therefore typically that's a portfolio, which where every alternate quarter you see slippages and then you see a pullback because you have earnings coming through for the farmer.

That could actually see some continued stress before it gets better, merely because you will then have to wait for the next harvest rather than anything in between.

But on the SLI or some of the other retail pieces linked to that, I think we should probably see a stabilization to the extent that these were affected by the demonetization piece.

Okay.

And so just one data point, what was the average CASA in quarter 4 and also in quarter 3?

Vishal, we don't give the average CASA.

It was clearly lower than what it was as of March.

But I'll certainly mention that this quarter, we did see some one-offs linked to pretty good activity on the capital markets floats-related businesses.

So we had a couple of IPOs, we had a couple of dividend -- large dividend distribution-related transactions, which did give some higher floats even during the quarter.

But clearly, the year-end number of 48% was a bit of a peak.

Next question is from the line of Hiral Desai from Anived Portfolio Managers.

Just wanted an update on the semi-urban and rural piece.

I think you were roughly, about 2 years back, it was about 15%, 20% of our incremental business.

So where are we from a stock and flow perspective?

And outside of demonetization, how has the asset quality in general been?

And I have a follow-up on that, which I'll ask post your comments.

Considering the fact that the top line both in urban and rural areas have been growing at a very steady pace, the ratio continues to be very similar at about 18% to 20%, even as we speak.

Okay.

So I wanted to understand that piece a little bit better now.

We've spent about 5 to 6 years on the ground trying to build up the rural presence.

We have a fairly large branch presence now, and we [ will have ] broadly cracked the business model.

So is it time to kind of up the ante and grow the piece much faster?

So when you look at it on a standalone basis, you will see the growth.

But if you are seeing even metropolitan and urban centers also growing and that book is pretty large, so that as long as the ratio is maintained, I think you should -- we should all be happy that it's growing at a similar kind of a pace.

But yes, if you would see that lift coming up only when you, over a period of time, when it starts to build and the proportion of rural, semi-urban book is as big or very close to it, it will never be as big as metropolitan and urban book.

But as of now, that's where it is.

The other question was on the personal loan book.

So we've had about 8 quarters of 30%-plus growth.

So wanted to understand what is driving this ramp.

Ticket sizes moved up, our digital products have been doing well and just if you would comment on the penetration level of unsecured products within our customer franchise.

So in the unsecured book, obviously it is a bit of better sales process at the front end.

I think we have a large internal base, which is data mined for -- which is cropped with either the external bureaus or the internal credit histories.

So as you know, we have almost about over 30 million customers in -- 38 million to be very precise.

There's a large -- with a long history.

So for a long history -- historical trends of our customer transaction trends or payment trends, we believe that there are good customers in that particular bucket, which is why we preapproved some of them.

So the sales process out of these bases have been increasing so -- which is largely the salaried customer base.

So that's where the sales is sort of coming in from.

Would you also comment on the penetration levels of unsecured within the customer franchise?

Sorry?

Would you want to comment on the penetration level of unsecured products within the...

It is still not high.

It's still about in the early teens, still a long way to go.

But at least, it's been marginally increasing over a period of time.

The second aspect is digitization.

We were probably first off the block about 18 months ago to offer what we call the instant 10-second loan -- the 10-second loan product.

Now these are probably our best set of customers, even as after 18 months the credit behavior is pretty much as expected so far.

So the selling proposition or the marketing of this product is far more easier both from a front-line channel perspective and also from people moving on to either the net or mobile banking.

So that's where still a handsome amount of sales is coming in from.

So largely, I think these are the areas where we are seeing personal loans grow slightly better and healthier than the other products.

Is this largely on last year -- on emerging corporates, we would be present as of now in how many cities?

In our emerging corporate business, we would be operating in roughly 100 cities.

The next question is from the line of (inaudible) from Motilal Oswal Asset Management.

Two questions.

One is just wanted to understand the impact of IFRS in relation to ESOP accounting?

Will there be any impact on earnings because of that?

Yes, there will be in the sense that the -- the Ind-AS accounting will now need to take into account the fair value of the options through the P&L going forward from April 2019 onwards.

However, we will also have the previous year that is '17 and '18, which is coming this year, to also have the P&L recasted for the same.

So on an apple-to-apple basis, I think you should not see too much of an impact.

But on a standalone basis vis-a-vis the Indian GAAP and U.S. GAAP -- sorry, Ind-AS, there will be a bit of a higher employee cost because of fair value options.

And that amount is already depicted in the Director's Report, which when it comes out -- or the Annual Report when it comes out, you will see the amount that will potentially be the charge on account of -- in fact, Paresh is just whispering here, even the U.S. GAAP will have a similar number if at all you want to have a reference of what will be the potential cost on that, yes.

Sure, okay.

So just because of that, do you see any change in ESOP policy for the bank as such?

Well, we have the board and the (inaudible) of the board has kept in mind what would be an acceptable level of options to be granted, and yes, there will be some tweaking on the policy, which the board has already done and we'll be doing going forward.

Okay.

And the second question is on fee income.

As I see, retail customers are becoming increasingly reluctant to pay fees in general, card fees or transaction fees.

You have some of the other banks who've come up with products which charge 0 fees for such services.

So just wanted to have your outlook on retail fee income.

Well, we've seen the last few years, retail -- but overall fee growth, which has been probably in the low teens and certainly has been a little slower than the overall balance sheet growth.

But remember, our fees come from a variety of products including third-party distribution, some transaction fees, some processing charges linked to our loan -- retail loan disbursements and so on.

So -- well, within the environment, we certainly will remain competitive in terms of fee levels.

But we can't be completely divorced from what the competitive environment will be.

May I make a request that I am seeing there are a fair number of questions still pending, so I would request everyone to stick to one question, if possible, and if there is time at the end we'll come back and you can certainly ask more questions.

The next question is from the line of Manish Karwa from Deutsche Bank.

Just wanted to check on the employee cost, it's like only grown 3% on a Y-o-Y basis.

Sequentially, it's down.

You have shed about 10,000 employees over the last 2 quarters.

So just wanted to check what's happening here?

And what would be the future outlook on the cost front?

Yes, I think the way we would look at it is that rather than look at it from peak couple of quarters back, I think you would probably need to look at this from where we were last year in March of 2016, which was somewhere close to 87,000 employees to somewhere closer to 84,000 right now.

There are a couple of areas where we have been able to sort of rebalance the need for -- in terms of the total staffing.

We started off, if you remember, our digital initiative somewhere towards the end of 2014 when we launched the Bank aapki mutthi mein sort of slew of products.

And over the last 2 or 3 years, combination of increased digitization has given us opportunities to change processes, increase efficiency, increasing the sales productivity as well.

Some of those, shall I say, lower staffing requirements were offset by the higher staffing requirements linked to our new branches as well as our going into deeper geographies.

But clearly, we've been able to redefine some productivity and other measures to be able to rightsize the total staffing requirements.

So I think that's something which we have achieved a fair amount.

As I said, on a year-on-year basis, it's probably a reduction of about 4% or 5%.

Going forward, again, I think we will have opportunities to continue to balance what we believe our capacities are with whatever our staffing is.

So depending on what our needs are and what natural attrition is, we will keep looking at the staffing levels.

Okay.

Just a follow-up on that.

Your new branch addition has also been lower compared to what has been in the previous few years.

So is this turn -- and obviously you have reached an appropriate size as well, so should we now expect around 150, 200-odd branch openings every year and consistent improvement in cost-to-income ratios coming through because new investments may largely happen in digital, which you have been investing in?

Yes, I think in terms of new branches, certainly, something between 100 to 200 branches is a more realistic range than the 300, 400 that we had a couple of years back.

So that's -- I would agree with you there.

In terms of the cost-to-income ratio, again, a combination of reasons.

We certainly -- we don't have a guidance on a cost-to-income ratio number, but we continue to aspire to improve from where we are right now.

Do keep in mind that the cost-to-income ratio this year looks particularly lower given the bond gains and which is why I've been drawing your attention to our core cost-to-income ratio other than the total cost-to-income ratio.

But yes, we do believe that there is room for us to still improve on that number.

Next question is from the line of Jai Mundhra from B&K Securities.

You mentioned in your opening remarks that around INR 250 crores of loans were outstanding and under RBI dispensation.

But if I understand it correctly, all of them would not have slipped.

And then you also provided over and above the -- over and above, you also downgraded some accounts over and above that criteria?

So A, I just wanted to know what was the total slippages out of that dispensation pool?

And secondly, if you can also throw some highlight in terms of was there any product-specific NPA or was there any sort of geographical color to that pool?

Yes.

So of the amounts, which -- when dispensation was given for the last quarter, we had a recovery of about 25% or so.

The rest became NPA during the quarter.

And your second part of the question was linked to -- yes, did we have other where the dispensation will not continue?

Yes, because remember there were also customers who, let's say, became 30 days past due in, let's say, December last year, which would have meant that for those customers, the dispensation would have required us to recognize those customers when they became past due not after 90 days, but 90 plus 60 or 90 plus 90 depending on which category they fell to -- fell in.

So they would've then become an NPA only in April or May.

But in those -- for those customers who therefore became delinquent in the last quarter, but who became 90 days past due in this quarter, we have recognized them as NPAs in the March quarter itself.

So we've not consistent -- we have not continued with the dispensation in respect of recognition for those NPLs.

Sure.

So in all in all, it means including the dispensation and outside dispensation, total slippages were roughly INR 250 crores?

No, the INR 250 crores was only in respect of those NPLs which were -- which would have become NPLs in December, which completed 90 days in November or December and which means the December quarter and which were given the 60-day or 90-day dispensation.

That was INR 245 crores.

So INR 245 crores was what you would have added back to December had there been no dispensation.

Of those, as I said, about 1/4 of those got recovered.

The rest would've been NPAs in this quarter.

And in addition, whatever else became NPAs would have been in addition to that.

Okay.

And would you like to specify the over and above category, sir?

No, I cannot because what portion of those customers who became, let's say, 30 or 60 days past due last quarter would have -- I mean, in the normal course, we have customers who become -- who start becoming delinquent, right?

So we can't relate it only to demonetization.

If we had used the dispensation, you might have had again a couple of hundred crores, which one could have pushed into the next quarter.

But what was purely linked to demonetization, it is impossible to say, so we can't expect not to do that because we believe that the impact of the cash crunch or otherwise linked to demonetization is largely behind us.

So the view we're taking is that now anyone who's still not paying or is unable to pay, that -- to link it now to demonetization may not be appropriate.

And therefore, we would sort of recognize those of NPLs in any case in this quarter, which is what we have done in the March quarter.

Sure.

And as you mentioned in the opening remarks, there was -- I mean, would it be fair to say that out of this INR 245 crores pool, the stress was more into agri and some of the sector that we mentioned above?

Not only those.

What I was saying was that, I was referring to those sectors in relation to the slightly higher NPLs overall for the system, whether they were in the INR 245 crores or in which those who -- which became NPA in this quarter itself.

See there are 2 elements.

One is, customers of less than INR 1 crore across products, which would have become NPA in the normal course, there might -- some of them would have become NPAs in any case.

It's just that they did get the opportunity to pay in the next quarter as well because of the dispensation.

That is one part, which is more from a recognition or a classification issue.

The rest is, we're talking about segments whose ability to pay got affected.

And that is -- in that connection, I mentioned these 2, 3 sectors.

There, of course, those NPLs might have come in, in this quarter as well.

Next question is from the line of Rohan Mandora from Equirus Securities.

So my analysis, sir, is that within the domestic corporate segment, the growth during the quarter was close to 20% Q-on-Q based on internal classification and return is close to 40% in the second half.

So if that is correct then, sir, just if you would share some color on whether this was client-led, how much of this were led from acquisition of new models?

And if there was any one-off kind of an opportunity that came across during the quarter that led to this growth?

Well, it was -- there wasn't any one-off large customer that we acquired in this.

There were some short-term one-off transactions, couple of them.

But that was -- those were short-term needs of existing customers.

They weren't new customers that we acquired for those products during the quarter.

But were there some short-term transactions, which came in this quarter?

Yes.

Most of the growth, however, was highly dispersed across our -- a lot of -- most of them being existing customers of the bank.

And again, most of this is short- and medium-term loans to customers who are part of our corporate and ECG customer segments.

On the Business Banking piece, which does have, from a regulatory reporting point of view, some of them are -- the sizes are definitely coming to non-retail.

There, again, we saw an increased disbursement.

That was a segment, where we had seen some rundown in the December quarter, when those customers had reduced their utilization of limits as they deposited their cash back into the banking system.

Those customers or many of those customers have drawn down their limits again.

And therefore that was again a segment which saw strong growth on a sequential basis from what was a slightly depressed December to what is a normalization and growth in this quarter.

So sir, just if you could share one -- another area, what was like with respect to the outstanding loans, are there -- what proportion of the loans are still on the base rate?

We have little less than 10% of our -- no, closer to about 5% or 6% of our loans on base rate.

Next question is from the line of Adarsh Parasrampuria from Nomura.

Paresh, question on the bond substitution that you referred to, right?

I am just as well to understand from a 2- to 3-year outlook, if you know that, that share is increasing in the system and you have a fairly large share of that book as well.

So how do you look at -- how do you look at the profitability of that product in a more like 2- to 3-year time frame and the growth there?

Well, 2 things.

One is, we see that as an opportunity as well.

In fact, if you look at the DCM business we, from probably being a laggard at #5 or #6 or something like that 5 years back, this year on the lead tables, we are #1, #2.

And so we've clearly seen that as an opportunity to actually play a role in the intermediation on the debt capital market side.

Obviously, if a customer is going to access the market for term borrowings, I mean, that is an opportunity that we might decide to [ either intermediate ] in and hold something on our books, if we have the appetite at those rates.

Similarly, on the commercial paper side, to the extent that there is some cannibalization of working capital by commercial paper, we may actually decide to hold some of that on our books or go into other lending opportunities that we may have.

So there will be -- I mean that the market reality is what it is.

We, however, are in a position to grow our loan book itself.

And we will perhaps look at customer assets, which might include some amount of investment in corporate paper as well depending on what our appetite is at point of time.

There's no doubt that the market instruments are at slightly lower rates than the loans, which is precisely the reason why these corporates would go to the market.

But we look at these on a relationship basis.

So as long as our overall relationship, which covers the funding as well as non-funded and other transactional businesses makes it worth our while, we certainly look to cater to our customers' requirements on a holistic basis.

In the -- any sense of this corporate book, how large part of the corporate book you could say is something like these working capital limits to large corporates which, over time, competes with products like CPs and maybe bonds?

Well, this competition and cannibalization has been on for the 30-odd years that I've been in banking.

So what proportion of it actually migrates and what new needs come back in to the banking system is anybody's guess.

And for fringes, there will be some movement and we'll participate in that movement itself.

At the same time, the absolute levels of demand from the wholesale corporates for banking credit will also grow.

The next question is from the line of Mohit Mangal from CRISIL.

Sir, I just wanted to know the outlook of the -- of your bank, I mean, the loan outlook as to how it would grow?

Because of demonetization just less than 5%, so I just wanted to know as to how faster your bank can grow?

As compared to vis-a-vis the other private banks like CS Bank, which is actually growing at more than 30%.

I have nothing to comment on growth rates of other banks.

I would just say that the -- we do believe or we do expect that the banking industry overall growth of 5% should look up and hopefully get back to slightly higher single digits sometime later in this year.

But as far as we are concerned, our growth rate, we believe, will remain a few percentage points well ahead of the system.

But we don't have a guidance on a particular number that we are targeting or that we believe we will achieve in terms of loan growth.

The next question is from the line of Amit Premchandani from UTI Mutual Fund.

Can you help us understand what could be the likely impact of the expected credit loss under the NDS?

As per our understanding, there has been a kind of a shadow accounting which has started.

Can you guide us, how it is reflecting in the overall credit cost numbers?

Well, much of this, you are right that we've been doing some stuff in parallel for a while.

But this is not yet in the public domain, so I'm not sure whether I'd be able to share it.

But you must remember that we have had a fairly conservative provisioning policy, which has been ahead of what the regulatory minimum is.

So to that extent you -- and you also have a view of our provisioning levels under U.S. GAAP though there is this reasonable synchronization.

So I would just say that, while I won't be able to sharpen the pencil, let you know the exact number, but I don't see any huge impact.

But as we sort of get closer to putting this out in the public domain, we would do that across the board.

Just from a point of your understanding, say, not about your bank, but generally if I am lending to, say, a BBB borrower.

And as of now I'm only -- or a lower credit borrower.

I'm making, say, 40 basis points standard asset provisioning.

Conceptually, the standard asset provisioning should go up under this approach for the similar BBB kind of a borrower?

So the standard asset provisioning linked to the -- these -- each one of these could actually...

(inaudible) In the new Ind-AS, there will be just one provisioning, which is what we call the expected losses.

It will be into 3 different stages: stage 1, stage 2 and stage 3.

So effectively, whether -- today, when you look at provisions, total provisions, whether it is investment provisions, whether it is floating provisions or general provisions, all that will be one and that is what you need to compare, when we move to Ind-AS.

So as Paresh was saying that is something that is evolving because even the regulator has been revising a lot of these Ind-AS 109 for multiple areas with a lot of our fraternity as well.

They are in discussions, so we really do not know how it will be -- will be the ultimate form of Ind-AS 109 will come out as regulations effective 1st April, 2018.

So even if I say something now, I'm not too sure whether that will last as of 1st April, 2019.

As of now, it seems to be more or less similar to what we are seeing in U.S. GAAP.

We'll have to wait and watch how that pans about in a couple of months time.

Sir, and any impact on the recent RBI guidelines on standard asset provisioning on telecom, which we shall expect next quarter or any stress -- sector-related provisions?

So that's something which is (inaudible) right now because the framework for that, which sectors will need to be covered apart from telecom, which have been mandated.

And what the level of incremental provisioning will be is something which has not yet obviously been put in place.

So some increase in general provisions linked to that will naturally be done in this quarter.

And, sir, any fresh tie-up that you had on life insurance?

And if you can broadly share which companies you have tied up with?

And any stake sale -- stake buyout of that company or broad terms of tie-ups?

Yes, we have tied up with a couple of more life insurance providers apart from HDFC Standard Life on the life insurance side.

We will formally sort of put out the names in public domain at the appropriate time, maybe in a month or so.

On the general insurance side, we are -- though we can tie up two more than what we have, we probably have -- we have already concluded on one, which we will announce it probably in a -- once we have formalized the agreements with the respective players.

May I once again request the remaining participants to please stick to one question only.

And I will actually have to reinforce that a little more strictly because we're running out of time.

We've got about 10 or 15 minutes.

We've already, at 6:00, we've finished an hour.

This was supposed to be a 1-hour call, but we'll take a few more questions before we wind up.

The next question is from the line of Rahul Jain from Goldman Sachs.

Just a question on HDB Financial Services.

So how many branches would be there?

And that is one.

Second is credit cost within that business.

And lastly, the growth opportunities for that entity.

That's it.

So HDB has 1,151 branches in 815 cities.

Clearly, they've been growing off a smaller base and given the space that they operate in at a fairly healthy rate, if you look at their balance sheet growth, including their advances growth.

It's been in the roughly 30% range.

Their asset quality, where their NPLs at around 1.5%.

And which given their -- given the segments they operate in is sort of more or less okay.

It's gone up by about 20 basis points in the last year.

But net NPAs have been at around 0.8%.

So we do believe that they're on a strong track and that there's enough potential for them to grow in their existing geographies as well as to extend geography.

Got it.

Just, is it possible to know the charge-off ratios there?

I mean, how much -- how different it would be versus the bank?

No, I don't have that data and it's not in the public domain.

But it'll obviously logically be higher than what it would be for the bank.

But I don't have specifics to offer.

Next question is from the line of Deepak Sharma from AllianceBernstein.

Just a couple of questions.

Will we issue a bond in the offshore market -- are they planning to issue a bond in the offshore market?

And second, if you could provide -- if you are willing to provide the guidances for FY '18?

And what is the CET1 ratio?

Yes.

So the -- as far as the bonds are concerned, well, we don't have any immediate plan to issue any bonds in this overseas market.

I mean, from time to time, we have an MTN program.

And if we find that there is a particular need, we would do that, but there is no immediate plan on hand.

Our CET1 ratio is at 12.8%, and that is our Tier 1 ratio as well because we really don't have any AT1 at this point of time, it's all common equity.

And we don't really give any guidance on growth rate.

Okay.

And sir, the reason for the reduction in capital equity ratios, a slight reduction?

Yes, the reduction is clearly because the balance sheet has grown.

The risk assets have grown substantially.

So we've consumed that capital given the strong loan growth in this quarter.

The next question is from the line of Dhaval Gala from Birla Sun Life Asset Management Company.

Just wanted to have an update on any new lines of business in retail finance, if at all, you still think is available, one.

Second, also any update on microfinance asset quality for us versus the system?

There isn't any large category of retail loans or any other business that we are not in at all.

But there are some businesses, let's say, for instance, even, say, our consumer durable business and so on, which are very small for us and fledgling, which is part of -- we do some of that linked to our card-related lending, including the EMI loans that we do from our cards portfolio.

But -- so it's really increasing variance of some of the existing products, increasing geographies and maybe, in some cases, extending the product that we offer to different customer segments.

There isn't any large product category that we are not in at all, which we yet have to make inroads into.

As far as the asset quality piece is concerned for SLI, we -- as I mentioned earlier, while we did see an increase in the delinquency and losses, relative to what the system is doing, this portfolio has been far superior.

And even in terms of the -- even at wherever we saw in terms of the collection ratios, they sort of did not come anywhere close to what we have heard some of the others have experienced in the system.

And we've already seen that some of that has started stabilizing.

So we have seen this holding up reasonably well, although, of course, for us, it's a fairly small portfolio of about INR 4,000 crores.

Last question was, what is the different product segment or whether it is a consumer segment between us and HDB Financial Services?

And outlook for HDB Financial Services growth?

Okay.

Can I come back to that?

Like I mentioned, they're not different products.

It's different customer segments, because the NBFC typically sells services to customers or segments which the bank does not, which generally banks do not and we do not.

Will the products be similar, lending product will be similar?

Yes, maybe.

And they are also pure retail financials right, no wholesale?

Yes.

And growth outlook for the same company, we've seen that book has been...

No, I don't have -- we don't have a guidance on growth or other financial parameters either for the bank or for the MBS.

The next question is from the line of Nilanjan Karfa from Jefferies.

A quick take on GST and how do you see this impacting the cost of risk or growth, mainly from the perspective of mid-corporates and SME, that'll be useful.

I think on the SME piece, in the initial stages, there is an apprehension that customers of these SMEs might move.

If these are really small SMEs and not registered GST, there may be some movement of their business to the larger players for the purpose of getting the tariffs.

It's difficult to dimension that and whether the SME that we deal in are already slightly more in the formal sector of the SMEs, and therefore, there may not be a direct impact, but it's certainly something that all of us will have to watch a little carefully for the next year or maybe even 1 year, 1.5 years.

Very difficult to try and put an fix on exactly what the impact might be.

I understand it's a little short on time, but are we already tweaking our underwriting machine to account for these changes, and therefore, there will be some impact still visible in, say, 2 quarters time?

No, I mean, the risk relating to potential impact, I mean, just as we saw some SMEs would've been impacted by, let's say, the demonetization things.

Similarly, the fact that some of them could be or would be impacted by GST, that is something which the credit buyers keep in mind when they are looking at the new or existing loans.

But whether that precipitates any issues in terms of asset quality well before the actual impact, I'm not so sure.

I don't think that will happen.

The next question is from the line of Sri Velamakanni from Investec.

I was wondering, if you could provide a reconciliation of our net worth movements for the quarter?

Net worth?

Because the change on a sequential basis is not accounting for any dividend payment or is, in fact, higher than the quarterly [ impact ] number.

(inaudible) so I just need to step in out here.

There was a new introduction in the accounting standard AS4, wherein hitherto, until last year, we used to appropriate the proposed dividend from the P&L from the reserves and treat it as other liabilities.

Now that is not required anymore, which is in line with international accounting standards.

So INR 3,900-odd crores, to that extent, will sort of hit the reserves, when the shareholders approve it sometime in the AGM, which may happen in June or July.

So it would be in the Q1 quarter that this...

Q1 quarter.

But having said that, that particular dividend, including the dividend distribution tax, has been reckoned, has been reduced for capital adequacy purposes.

Understood, sir.

But even otherwise also the sequential increase in reserves of more than the quarterly [ impact ] number by about amount of INR 450 crores, what might explain that divergence?

That could also be the fact that there would have been some share premium that would have come in because of the exercise of stock options during the quarter.

Next question is from the line of Alpesh Mehta from Motilial Oswal.

Just one question related to the earlier question.

On a Y-o-Y basis, the network accretion ex of profits is around INR 22.4 billion.

Is it only because of ESOP or any other transaction is also involved here?

Yes.

There's nothing.

Something related to FCNRB?

No, no.

No foreign currency at all...

Sashi did explain about the dividend.....

Yes, that I understood.

(inaudible)

(inaudible)

Nothing else which should impact the network.

Okay.

And just one more data housekeeping question.

What is the net worth of STB Financials?

Roughly about INR 800-odd crores, but all put together.

INR 800 crores?

Yes.

INR 800 crores seems to be too low.

We just have a look at it again.

Yes, you're right.

I'm so sorry.

It is, one second.

That is a (inaudible).

My apologies.

INR 5,300 crores.

It's INR 5,300 crores.

And everything is liquidated.

There's no preferentials in this?

There's no preferential, no.

Okay.

And are investments in 2 subsidiaries would be around INR 3,600 crores?

INR 3,600 crores.

Yes.

Our next question is from the line of Nitin Argarwal from Antique Stockbroking.

We have seen now an 8% increase in CASA mix over the past 2 quarters.

So now this is very impressive growth.

Did we really not seen much of an [ unwind ] from the D1 deposits this quarter?

And in the wake of this increase in CASA mix, would also like to revisit our margin guidance now?

In terms of -- you're talking about the absolute sales account growth not ratios?

Yes, so the ratio has increased from 40% to 48% in 2 quarters.

Okay, so there, I think, there are couple of factors.

One, the ratio improved by a couple of percent when the (inaudible) went off, right, because the denominator changed.

And what was going off was only the fixed deposits.

Then you had another few percentage points impact of the demonetization, which resulted in higher CASA growth.

So when you look at the improvement of 8%, which you're talking about from 40% to 48%, and of course, 48% is a point time as of March 31, the impact on account of low fixed deposit growth will slowly come through, because we are now going to be growing our fixed deposit at 7.5% -- 7.9% or 8%, it's going to pick up, and that would imply that the CASA ratio would come [ up ]. As far as the CASA growth itself, how much of it -- how much of what came in through demonetization has gone up already, tough to say.

There has been outflows.

Every time the limits were raised and the limits were removed, there were some incremental outflows.

But we've also seen regular growth that we've been achieving through new customers and increased penetration.

So right now, the CASA ratio is clearly voided by the fact that the fixed deposit growth rate has been slow and therefore it should come up from where it is right now.

And therefore, the margin guidance also stays or?

Yes, the margin guidance generally, I mean, not that there is a guidance.

All I said is that historically, our margins have been in a range of 4% to 4.3%.

At this point of time, I think that range still seems realistic.

But I don't have a guidance within that range or on the range for this year or beyond.

Okay, sir.

And secondly, on the balance sheet.

If I look at other liabilities and provision line, there is very strong jump on a sequential basis over there, almost 50%.

So what basically explains that?

So that number has grown from nearly INR 36,000 crores to INR 57,000 crores?

So there are 2 key components which have come in [ sharply ]. As you know, during the quarter, there have been a lot of companies which have declared dividends, et cetera, and some issues that have come during the quarter.

So that sits in other liabilities, because these are all at par dividends.

And also, because of the movement in dollar rates, dollar-rupee rates as of the 31st March, the FX contracts gets translated at the new level.

So you have almost about INR 7,000 crores, INR 8,000 crores of both on the asset side and the liability side being recalibrated.

So that's the increase put together.

Okay.

Okay.

And sir, lastly, the floating provision number, if we can get.

It's 1,259.

1,248.

1,248.

Sorry.

The next question is from the line of Vibha Batra from FairConnect.

My question is on new finance, the small finance banks that have come.

How do you see them affecting your business?

Would that be (inaudible) of the market?

Or would it be more competition on retail side?

We believe the market is large enough, and most of that these players on the asset side in particular have already been operating as NBFCs or otherwise.

So they're already competition, if you might, in terms of operating in those segments.

I think the market is large enough for them and for players like us to continue to grow.

One small question.

What would be your employee attrition rate?

Well, because we've actually had some nonreplacement and so on, we've sort of have had continued some part of it, planned attrition.

So it's typically been in the teams and primarily at the lower levels of management.

Next question is from the line of (inaudible) from (inaudible)

Paresh, this is (inaudible).

Three questions.

Our advances have gone -- credit advances have gone by around INR 90,000 crores.

Now, (inaudible) 90-point-odd percent, but when the industry has grown 4% to 5%, it's a significant jump.

And what level above the industry you expect it to grow, especially on the context of you're not seeing a lot of projects (inaudible) coming up and the corporate loan book or the capacity utilization of the industry remains low?

Yes, so if we believe the system was growing at potential and at a normalized growth rate, then we have traditionally said that we would be comfortable, over a period of time, to grow at 4% to 6% or 4% to 7% faster than the system.

Right now, for various reasons, including the fact that perhaps some players amongst competition are not quite as active that they could've been or some cannibalization of credit to the market and so on, the growth rate of 5-odd percent in the banking system, we believe, is artificially depressed.

So in the short term, therefore, to try and put a certain cap on or a certain number of -- where we are comfortable growing faster than the system, I don't think is realistic.

Over a period of time, I think when the system normalizes, we would be back to looking at a certain range of incremental growth over the system, which will certainly be somewhere in that 4% to 7% range.

Clearly, therefore, right now, when we are growing faster, we are gaining market share either as a larger share of existing customers.

So they -- if those customers had borrowings from other banks or are looking to increase some borrowings, they're giving us a disproportionate share of that increase or actually shifting some of their borrowings to us.

Yes, go ahead.

Given the current kind of a growth that you have, some of the other (inaudible) banks, I know that you don't want to speak about others, but if you continue to grow at this size, you're almost growing at closer to 80% of their size today and that's a big challenge.

Again, I don't think we want to extrapolate any 1 quarter in any way.

But yes, if the opportunities are there and we obviously have a certain size, a certain presence, a certain distribution and a certain market positioning, if we do get opportunities which are within our current appetite and where we see returns are appropriate on a risk-adjusted basis, we would grow.

But we are not neither guiding nor committed to any particular rate of growth in absolute or relative terms, especially relative to the other banks.

The next question is from the line of Rakesh Kumar with Elara Capital.

Just on the overseas loan book, because of FCNR related loans outflow and other segments growing at much higher rate.

Composition in the absolute terms also it has actually come down, close to 3% now as a composition [ rates ]. So what do the banks plan there?

Is it still a focus area for us?

Or since the domestic market is doing or expected to do better, so we will keep our focus in the domestic market only?

Yes, our primary focus has been and remains the domestic market.

We see the opportunity here much larger and far more attractive in terms of returns as well.

The overseas book has always been low single digit.

It went up because of the onetime opportunity which was there linked to the FCNR opportunity, where there were some loans linked to that.

But other than that, I don't see any sharp spike in the overseas book.

If there is some other opportunistic assets which we -- which come our way, we will look at it.

But it will remain at, more or less in proportion terms, not very different from where it is.

And does this loan growth have any impact on any fee line incomes, also because some customers will also be getting some loans like foreign loans, and there will be some fee-related inflows?

So would it impact the fee income also?

The overseas loans?

Yes.

The overseas loans really don't have any impact from the kind of overseas loans that we were doing.

We have been, if at all, there were when we did those transactions at that point in time, there would have been some which were marginal, but that's not a fee earner.

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.

I think I have held you all back long enough.

So just wanted to thank you for having been on this call, and let's end the call here.

Thank you once again.

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.