HDFC Bank Ltd (HDB) 2018 Q1 法說會逐字稿

Ladies and gentlemen, good evening, and welcome to HDFC Bank conference call for the results of Q1 FY '18 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.

Thank you.

Good evening to all of you, and thanks for making it to this call.

So my apologies that we're starting a little later than usual.

I'm sure most of you would know that we had our AGM this afternoon, so -- which is why as against the normal of 5:00 p.m.

Indian time that we start off, we're starting only now at 7:00.

So as usual, let me just walk you through very in brief, some of the key financials.

I'm sure most you would have had a chance to see the results and the press release, so I just touch upon a few items.

Net revenue growth for the quarter was up 70 -- or was 21.7% and the net revenues were at INR 12,887 crores.

Net interest income was up 20.4%, which was on the back of average asset growth of 20.7% and a margin net interest margin of 4.4%.

The other income grew by 25.3%.

And if you look at the individual components of other income, commission grew by 30.3%.

The FX revenues were down 5%, the bond gains were up 19% and the recoveries and dividends were up about 30%.

So the overall other income, which is an nonfunded revenue, was up 25.3%.

Operating expenses were up 12.6%.

So the core cost to income ratio was at 42.7% as against 46.2% in the corresponding quarter of the last year.

Total provisions were INR 1,558 crores, which consisted of INR 1,340 crores -- INR 1,343 crores of specific provisions and INR 206 crores of general provisions.

This is as against INR 866 crores in the corresponding quarter of last year.

So if you really look at the total increase in provisions for this quarter, it was about INR 692 crores.

Of this increase of INR 692 crores, the general provisions were up INR 205 crores, which is provisions for standard assets.

And INR 500-odd crores of lever, the increase in specific provisions for NPLs.

There are some other provisions also, just smaller, which are a negative there.

Of the total increase in the specific provisions of INR 510 crores, INR 371 crores, which is 72%, were on account of our nonperforming agricultural advances.

And of the INR 200-odd crores of increase in general provisions, INR 120 crores was the incremental general provision, which was made for stretch sectors as per the new guideline from RPL.

So that's some breakdown for you on the provisions side.

Net profit was up 20.2% and the profit for the quarter was at INR 3,893 crores.

The balance sheet touched 8 lakhs, 95,000 crores; deposits were up 17%; savings account deposits were up 26%; current accounts were up 34%; CASA ratio was at 44%; advances, both wholesale and retail, saw healthy growth; retail loans were up about 22%; wholesale loans were up about 25%.

Overall, loan advances growth was 23%.

At the end of the quarter, our branch network was 4,727 branches and 12,220 ATMs.

This is across 2,666 cities, and 52% of this network was in semi-urban and rural locations.

On the asset quality front, we did see an increase in gross NPAs from 1.05% in March to 1.24%.

Again, roughly 60% of the increase, about INR 800-odd crores, came from the agricultural segment.

And the rest of it is pretty much in line with the kind of slippages that we have seen in other segments over a period of time.

On the agri segment, we did make a little higher provisioning than what would have been required purely by the regulatory guidelines.

And we've got a coverage ratio on the -- we've increased the coverage on that piece.

So as a result, the net NPAs are now at 0.4%.

I'll stop here and take questions.

And if there's any further elaboration along the way, we can [do] that.

(Operator Instructions) We have the first question from the line of Sanket Chheda from IDFC Securities.

Yes, sir.

This time, you haven't given foreign loans in the press release, so can I get this now -- get debt figure?

Sorry?

Foreign loans.

Overseas loans, okay.

INR 20,100?

Our overseas book was at INR 20,100 crores as against INR 19,900 crores in March and INR 33,000 crores in June of last year.

Okay.

And so the [GNB moment], slippages, recoveries, write-offs?

So the additions during the quarter were -- well, the opening balance was INR 5,885 crores, additions were at INR 3,100 crores, reductions was INR 1,750 crores and INR 490 crores were upgradations.

So the write-offs was INR 737 crores.

Recoveries, excluding the recoveries made from updated accounts, so these are other recoveries, were INR 521 crores, resulting in the closing balance of INR 7,242 crores.

Next question is from the line of Nilesh Parikh from Edelweiss Securities.

Yes, sir.

Kunal over here.

Sir, particularly with respect to this fee income, so after a long -- we have seen this kind of attraction of some 30-odd percent, where in fact, even quarter-on-quarter, we are seeing it the better as compared to that of Q4.

So how sustainable is it?

And what is accelerating to this kind of a growth?

I'm sorry, the first part of your sentence, I lost.

If -- there were some fluctuations in volume.

If you don't mind repeating the first part, I heard the second part of your question.

Yes.

I am saying fee income was pretty strong, 30%, and even it was better as compared to that of Q4.

Otherwise, generally, we see they are deep in Q1 as compared to that of Q4.

So is there any -- maybe anything extraordinary and how sustainable is this and what is the...

So -- well, we did some higher traction overall in a couple of products.

But there were some one-offs as well.

So perhaps, do you want to walk through?

Yes.

So if you can recall, all -- most of the bank have been in discussions with the oil ministry and the oil marketing companies, finally concluded sort of given that one-off that should have come in last couple of quarters.

There's a one-off there, and there is also the fact that this quarter, we've had a very strong distribution of mutual funds, which is more equity, where a proportion of equity is much, much higher than what we have ever seen in the last many quarters.

So adjusting for that, I think it's still in the strong 18% to 20% range, and that's what it is.

Of course, even that was beyond the normal that we have seen in the past.

I think it's primarily because of the fact that we've had very strong credit cards and a strong retail active disbursements.

So that sort of led to slightly better commissions.

Okay.

And secondly, in terms of this Business Banking, so that's growing pretty strong.

So maybe considering the GST implementation and all, how are we seeing the overall growth as well as maybe any kind of -- maybe the delays or asset quality issues, which we would see in this segment?

So as of now, actually, we haven't seen any immediate impact on either initial delays, which can result in asset quality issues or any increase or decrease coming out of the GST piece on demand from the Business Banking segment.

We obviously have seen some market share gains in that segment, continue to drive that, especially on the back of our -- activating more branches for that segment.

So as of now, it seems to be fairly stable for Business Banking.

Okay.

And lastly, in terms of employee cost, it's hardly growing by say 5-odd percent.

So maybe what could we do if that (inaudible) 10-, 15-odd percent or something, which should be expected for the full year or this is where it will stay?

Yes.

I think we should see a higher -- I don't have a number to guide you on, but certainly, higher than where it is right now.

In this quarter, we haven't -- the staffing has been more or less flat to March.

So while on a year-on-year basis, there's been a reduction that had happened early in the previous 2 quarters, the staffing during this quarter was more or less constant.

But with the wage inflation and the normal annual increments and so on, I think the ranges that you indicated are somewhere close to that, would be more realistic than what we're seeing right now.

Next question is from the line of Manish Ostwal from Nirmal Bang.

Yes, sir.

My question on the certain category of the retail book, so especially the loan against securities and the home loan portfolio grew very slowly this -- during this quarter.

So could you highlight the environment and how do you see growth ahead?

Well, I think the loan against securities is a very small book.

But actually, off that small base, it's of extreme healthy growth.

In fact, on a year-on-year basis, the portfolio has grown from about INR 1,900 crores to INR 2,900 crores.

But it's still a very, very small portfolio, so it doesn't move the needle.

But on home loans, the loan book went from about INR 33600 crores to INR 38,800 crores.

That's an increase of about 15.4%.

But that's really a function of how much we purchased in -- from the origination that we do.

We purchase every quarter from HDFC, so the purchase during this quarter was...

INR 2,000 crores.

About INR 2,500 crores.

So if -- and typically, based on our origination, it tends to be somewhere closer to...

INR 3,000 crores.

INR 3,000-odd crores.

So if you adjust for that, then we would have seen a higher growth rate.

There's no really -- there's no letup in the [momentum] or origination.

It's really a function of how much we have taken back on our books, which shows a slightly muted growth, which, of course, is still 15%.

Second question, more of a long-term question on the -- your cost-to-income ratio.

Now we are closer to 40%, 42%.

I know this quarter, we have seen the certain one-off of the fee income side, and the costs are also very controlled, especially in [control] side.

But on a sustainable basis, how do you see the cost-to-income ratio over the medium term to settle down?

Yes.

Again, I don't have a particular number that we are guiding to, because we don't have a guidance on any financial parameter.

But the strategy has been that while we are shifting or driving the digital initiatives, we are being able to improve our productivity on the -- at the front end in terms of our sales productivity, as well as through change processes and cutting turnaround times and reducing the touch points internally.

We're also reducing credit and operating costs from an operating perspective.

So both of those, we believe, from a medium to long-term perspective, are favorable in terms of improving our cost-to-income ratio.

But quarterly variations, of course, you will continue to see because that's the nature of the business.

But otherwise, overall, we still see that there is some room for us to maintain or even marginally improve the cost-to-income.

And one clarification on the data side, the 60% of slippages during this quarter is agriculture-related slippages, is that right?

That is right.

Next question is from the line of Suresh Ganapathy from Macquarie Capital Securities.

I just wanted to get qualitative inputs on the (inaudible) portfolio.

I mean, if it is clearly an issue of bringing this to retail, that's a far greater issue than the ability to repay.

So don't you think that this contagion is that could spread across the other parts of your agri portfolio line.

Are you confident that is really a one-off thing or the chance of recurrence is very high?

How exactly is the customer behavior changing in this segment?

And more importantly, you guys have (inaudible) priorities at the lending, so you also don't have a choice but to lend to these guys.

So any qualitative feedback would be highly appreciated.

Sure.

So this is just our assessment of this right now.

I think it's a fact that some, among the impacts on the ability to pay, might have been there initially, sort of been a result of what happened in the December quarter last year, right (inaudible).

And then you would have had the next crop income -- harvest income coming through, let's say, in April or so.

And since, by and large, it was a decent harvest, I don't think the actual income of the farmers, in most of the state that we're talking about, really got negatively impacted during that period, other than maybe a little bit on the realization side.

So the -- it is a question of the behavior, but I don't think this is necessarily reflective of a complete changed behavior, where the [model hazard] of having a potential waiver means that they stop paying completely.

What has happened is in the run-up, from the beginning of the calendar year, you had already started seeing the noises relating to cost -- to farmer demands for waivers, you had some state elections and so on.

So I think their expectations were high that there would be waivers.

In some cases, these were announced.

In some cases, the fact that they won't be available for a certain amount had been announced.

But the details of the schemes are not yet through.

As a result, the farmers, whether they believe they will receive, whether they will be eligible for a waiver or not, clearly believe that it's prudent from their point of view not to pay because, in most cases, the farmers who ultimately become eligible are those who have essentially an old or a defaulted loan, which they have not been able to pay.

So still, there is clarity on the actual waivers.

I guess, farmers, even if they had the ability to pay, might sit on the fence and not pay.

But once that is through, they know where they are getting a waiver of INR 50,000 or INR 1 lakh or whatever the amount is, then 2 things happen.

One, of course, is that the portion we are to get will likely come to the banks whenever it does to repay that portion.

But also, knowing that the balance amount is going to be payable by them, for those farmers who still have the cash flows or whenever the next crop loan -- next crop gets harvested and they get those cash flows, I think you should -- you will see some payments.

Because I think there's a recognition, I mean, amongst them that this is not -- I mean, this is something which we have got one time maybe relating to, perhaps in some case, elections or some case, some other factors.

The long-term impact on the repayment actually is difficult for anyone of us to estimate.

But are you insulating yourself from such a portfolio in a sense, from your agri standpoint, on your agri side as your perspective?

To be honest, I don't think it's something that -- and we just -- it is found that the cost for the risk of doing agricultural lending in India, and it's still mixed from an economic sense, from a commercial sense, it still makes sense for us to continue doing that because, one, it is a regulatory mandate, as you said earlier.

We do have a private sector lending target overall.

Within that, you have an agricultural target.

Within that, you have a smaller margin farmer target and a direct-indirect agri target.

So the flip side is that if you have a shortfall on that, you either lined up purchasing these portfolios, which come at even lower rates.

And your cost of buying, let's say, a private sector lending certificate for agri and so on would tend to be, any case, around 3% or 3% to 4%, depending on what the classification is.

So that's just the pure cost if you were to go and buy PSL, agri PSL, which lasts you for a year.

So in any case, if you were to continue to do agri with a certain amount of the cost of doing business because of the kind of extremes that we've just seen, it still makes sense because the alternative is you've got an equivalent cost, or if you have a shortfall and you could place money in RIDF, there is a certain cost that you bear to a lower NII.

And each shortfall, once you place it in RIDF, could be 3 years, 5 years, 7 years.

So it is something which is pretty much required if you want to meet your requirements of your private sector agri requirements.

And sure, I mean, you can try and you can get it by managing the portfolios, having a diversification across states.

But something like this, which has cascaded across a few states once in a few years, I think, is something you have to live with.

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

If I look at -- in the -- our March '17 disclosure on PSLC, we've basically bought small and marginal farmers.

Is it then a fair assumption that our, I won't say focus, but the ability to chase many of these small end margin farmers were lesser.

So if our balance of lending was largely to, I don't know, I mean, largely to indirect or larger farmers, then you said the class, which has -- ultimately or willingly defaulted?

No, I think our own lending is across segments of farmers, but we also do lending to small and marginal farmers.

And frankly, in this sort of a situation, almost all segments of farmers have defaulted because the small and marginal farmer, of course, rightly believes that he's most likely to be the beneficiary of a waiver.

And a slightly larger farmer, this time around, you've seen that in some states, there is a certain amount that is going to be waived for all farmers.

So with the result that even a farmer who's slightly medium sized or slightly larger, will still hold on to his payments for the balance amount until he actually knows that he's been given or is eligible for, he's been granted that waiver and so on.

So I don't think we've seen differences in behavior in reaction to or in response to this potential waiver thing based on size.

Right.

But then, we would also have retail loans to the same segment.

Do you mean to say that the problem is only in farm loans and not in the origination that was done on the retail on the same segment?

That is right.

Now, of course, what happens is the moment the farm loan or the crop loan becomes an NPA, any other exposure to that customer also becomes NPA because that's where the rules were.

But the holding back of payments has purely been on the crop loans.

In fact, we do have -- this resultant NPA of classification for loans which have not become nonperforming mainly because the agri exposure has become nonperforming for that same customer.

I'm sorry, Paresh.

I'm kind of lost.

So just let's say, of this INR 3,100 crores that we are seeing is a gross slippage, right?

Yes.

How much -- on a percentage term is fine, but how much of that is agri versus retail related to that segment?

No, the retail part is very small.

All I'm saying, the -- what I was explaining to you was that when I spoke about the 60% to the agriculture segment...

But it was a net number, right, on the net increase of gross NPA?

INR 800 crores is not a gross number?

It's not a gross a number, but if you're talk to increase, which we are seeing in NPAs for the agriculture segment, that will increase -- that will include everything that we have for that segment.

And the largest portion of that, maybe 90-odd percent of it or maybe a little more than that, would be the crop loan.

Any other exposure to those same customers is also part of -- because they're talking about all exposure to that customer, who's a farm customer.

Okay, okay, okay.

Right.

Quickly, on the second question, could you elaborate how the average CASA was for this period, because there is obviously a period end in deterioration.

And then obviously, we have, in our case, on the loan mix side a little bit higher cards, personal loans, which are typically higher rating.

I'm just wondering how the interplay of each and the cost of funds was there through last quarter, if you could elaborate?

Well, we don't share numbers on a quarterly basis of the average pieces.

But as you've probably seen the growth in fixed deposits during this quarter, it was a little higher.

So the ratio coming down is partly, of course -- March, you saw peaks, including some IPOs and so on, which were offsetting at that point of time.

So there was a slightly higher CASA, specifically in March.

But what has really moved between the March quarter and the June quarter is the fact that we have grown our fixed deposit book as well, which was seeing significantly slower growth until then.

So the ratio of deterioration is not primarily driven by a slowdown in the CASA growth, which still remains 25-odd at -- for savings account and 34% for current accounts, but the fact that fixed deposit growth has picked up.

The margin reflects the fact that a combination of what has happened on the cost of funds side as well as the mix has sort of enabled the margin to remain relative.

But while you've seen personal loans and credit cards seen healthy growth, we've seen pretty a strong growth in the 20s, low to mid-20s for auto CV, which are 2 of the large products, and 27% in the Business Banking.

So the mix overall within what retail breakup we had in March and now hasn't changed too much.

And so there really hasn't been too much of a change in the overall mix between wholesale, retail and within retail.

Okay.

Final question.

Should we expect to see the strong growth in fee, whatever core was, 18%, 20%, that was just explained?

Again, no guidance.

But I think, to the extent that even after knocking off the one-offs that we have seen some strong momentum in 2, 3 lines, and one of them, of course, was linked to the retail loan products, so if we continue to see strong retail origination, you'll see that fee growth continuing.

You had, on the payment side, on the cards usage side, again, that's hopefully something, which can sustain.

And third party, again, depends on how mutual fund distribution, in particular, equity mutual fund distribution, so it's a question of quantum and mix continues.

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

So a question really on the corporate loan book growth from a, let's say, a 12- to 18-month perspective.

So clearly, there are 3 or 4 headwinds.

So the inflation is pretty low, there's no private CapEx happening, everybody seems to sort of want to do highly rated corporates, and there is obviously one substitution happening.

So given these sort of 3 or 4 headwinds, how do you see the corporate loan book over the next sort of 4 to 6 quarters?

So until the CapEx really picks up, I guess, it's more of a market share focus.

And some of it, of course, is the increased working capital requirements that are flowing through.

But a lot of it tends to be both on the market, both on the working capital and the term side is essentially gaining market share.

So -- and on your bond or CP substitution that is happening, actually, we ourselves had a slightly higher commercial paper holding in March than we have in June.

So we've actually been able to run off some of that CP portfolio and build an equivalent amount of loan portfolio.

So I would still say that there is enough of an opportunity depending on the relationships that you have and the response times and competitive rates for a player like us or players like us to grow at a reasonable pace.

But then, it's not in the system as a whole is growing at that pace.

Okay.

And the other is a slightly related question.

So if we -- this is related to the SME and the Business Banking piece.

So if you look at, obviously, large corporate CapEx has been weak for a fairly decent amount of time now.

And specific to the SME and Business Banking, we've had a couple of resets.

So we've had the de-mon.

We will basically have GST now.

So how long can some of these businesses sustain if their larger customers are not doing well?

So I think their larger customers are not expanding capacity.

But I think, on their core businesses right now, they seem to be doing okay.

I mean, they're not sort of booming, but you'll see that their top line growth are fine.

And with some amount of reflation, if you mind, in terms of working capital requirements because of pricing coming up a little and so on, I mean, you've not had your WPI where it is and so on..

We have seen that there is still some working capital increase, which is coming through.

And that working capital requirement implies that some of these SMEs who are feeders to larger corporates in the supply chain are seeing some increase.

So obviously, there are pockets, which are -- would have seen some impact, but a lot of them are actually seeing reasonable growth.

Lastly, on the credit cards business, about -- more from a customer perspective, if I see -- over the last 3 months or so, there has been a significant pullback on the rewards side.

This is despite the product being extremely competitive at the moment and it's been growing well for us.

So anything specific there?

Not really.

I think for each of the card variance, the product team tends to benchmark what the competitive products are and also what the -- some of these freebies, which go with each of the cards, what percentage or what the proportion of the cardholders actually utilize some of those facilities.

Because in some cases, the facility, which are provided and which the bank, therefore, mean credit cost for across the card base.

And if you have single-digit proportions of customers availing of that, for the number of customers or the number of cards where those facilities are actually or those rewards are actually being used, it doesn't become attractive for the bank to offer that.

And the bank needs to figure out something else, which it can put in the product construct to make it more attractive to the customers.

So it's an ongoing process of trying to figure out what is -- what are the facilities or what are the elements of the product which customers like and are using.

So there -- it's not of one-way street of pulling something out.

There will also be something which goes in.

Next question is from the line of Rahul Jain from Goldman Sachs.

Just a few questions.

First of all, the exchange gains, that revenue stream seems to have been kind of in a range of INR 2.7-odd billion, INR 2.3-odd billion.

What is the reason why this revenue stream is not really seeing a good traction?

Any explanation there?

Any...

Yes.

Actually, Rahul, in the FX and the relative line, there is -- there are 2 components to it.

One is the earnings from customer flows, which is growing at a midteens level, which is pretty handy.

It's a combination of spread increase and also volume increase.

But what is also there in that is the fact the trading debt undertakes swaps to fund the rupee balance sheet because the effective cost is much better.

Now obviously, we don't sort of follow hedge accounting because you need to ask for the AS-30, you need to have a far more stringent loan.

So that cost of funding the rupee balance sheet comes in as a drag, as a cost in the FX in the relative line.

So that is the reason why you were seeing a bit of a drag in this.

And if you recall, we were in the fourth quarter, we started to ramp up assets.

So we needed to provide rupee liquidity.

So there were a lot of swaps that were done by the trading desks to fund the rupee balance sheet.

That's what is dragging the FX relative line.

But if you adjust for that, it's a healthy midteen growth on the FX and relative basis from the customer flows.

Fair point.

Actually, I was asking because the growth in the nonretail has also seen -- sort of picked up.

So just wondering if this would naturally lead to some increase and earnings from customer flows.

So I guess, the trading desk has been a drag in the last few quarters or it has been phenomena over the last few quarters and...

No, it's been there for some time because we do undertake these kinds of swaps.

Because the effective rate, when you take into account the dollar rate and also the swap cost, it's a far, far -- it's relatively cheaper than going to the local markets to borrow and fund the rupee balance sheet.

So these are -- yes.

Exactly.

The second question was, again, coming back to agri NPLs, and I was just wondering if you can draw parallel over 2008 farm loan waiver, one, in terms of customer behavior as and when the loan that this particular scheme is available for a certain set of farmers and up to a certain ticket size.

And second is do we see recoveries over a course of time because these customers would want to have regular flow of credit?

So any parallels can we -- in terms of behavioral pattern?

Well, unfortunately, of course, we see -- that time, we didn't have much of a select agri portfolio.

So there's not much that we can learn from our own experience at that time.

But what you are seeing is absolutely right because the farmers know that it's the portion that is not waived.

If that is not regularized, then his ability to borrow for the next crop cycle gets impacted.

So one seems clear that this is the portion that I will get from the government as a waiver, and this is a portion that I need to solve this.

I think the farmers will end up, especially if the crops have been good, which we believe, if you've had a couple of good months, that should work through.

But the timing of that tends to be uncertain because it's not -- it's in the run-up to the expectation of a waiver that the behavior changes.

Once it is announced and it is clear, I mean, when it's announced and with scheme details of how much and who is eligible and all those details are not finalized, then you still have this sitting on the hands and not paying.

But once it is clear, this is the amount that I'm going to get and this is what it is, then I think you will start seeing that behavior.

So we have watch this over the next couple of quarters, because I guess some of these schemes have been announced and the details are known.

In a lot of cases, the schemes have been announced and the details are not known.

And in some cases, you still have the farmer agitating for these schemes, so you're at various stages of these potential waivers or actual waivers across different states.

But -- and hopefully, by the time the next harvest proceeds are coming in, if there is better clarity, which is, sometime I guess in October, November or thereabouts, November, December, maybe, then we should figure out really how much is the pullback over to what's possible, really depends on data clarity across these parameters.

Understood.

Just one more question on this particular topic.

So how much provisioning have you made against these slippages?

Have you disclosed that?

Or can you give me some color on that?

Well, these -- for most of these agri loans, we actually provided 50%.

Okay.

So would you reckon that this would be, by and large, fairly well covered?

Or there could be more...

It's tough to say to say, we really don't know.

All I can say that this is not the, as for the normal provisioning policy for this portfolio, we are required less than this.

But because it's difficult to predict the combination of the behavioral uncertainty and the ability when the next crop comes, we have heightened that provisioning coverage from what the normal policy for this portfolio was on a onetime basis.

Fair point.

The next question is on CET1 ratio.

Can we get that number?

Or what was the CET1 for this quarter standalone?

That's overall Tier 1. So 13.6% was the Tier 1 ratio.

Of that, the CET is how much?

12.44%.

Sorry?

12.45%.

12.45% -- 12.44%.

Okay.

And how long do you think, with this kind of Tier 1 ratio, of course, it will be coming off as we grow, we can sustain without raising capital?

Or when do you see the need raising capital over the next -- any time line that you have in your mind?

I don't think we have any time line at this point of time at all.

Obviously, the reason why we have raised Tier 1 INR 8,000 crores or [81 bonds,] just to give us that comfort and cushion.

So -- but I think CET1 itself of 12.4% is comfortable enough.

Also, the consumption of capital in this quarter tends to be slightly higher given that it's a function of the credit growth as well as the ups risk increase that happened at the beginning of the year.

So let me -- at this point in time, there's absolutely no time line or any sort of a decision that we are rolling into.

Got it.

Just one last thing.

Can I get the data point for HDB Financial Services in terms of their loan book and profits for this quarter?

Rahul, I'll call you back.

And so the advances were INR 32,929 crores.

Total AUM was INR 35,000 crores, okay.

So there's INR 32,000 crores in the advances on the book, INR 35,000 crores is AUM.

Okay.

And profits, maybe I can take it from you later.

Profits?

So we moved the NPLs to a 90-day DPD from 1st of April.

But there is a large provisioning that they had to make on account of the change in DPD.

Profit for the quarter was INR 150 crores.

(Operator Instructions) The next question is from the line of Shashin Upadhyay from ICICI Securities.

Just a quick accounting query.

In fact, the gross slippage from the equity for the quarter was INR 1,860 crores, and the outstanding loan book as indicated by you in media content was INR 28,000 crores.

So therefore, the gross slippage is almost 7%.

That is correct?

No, our gross NPA in the agricultural portfolio would be approximately 5%.

So Shashin, we didn't give the slippages.

We didn't break out slippages by the different products.

No.

So there was a question in the opening side, and you've said that 60% of the additions were -- so could you actually give me the number of slippages that have happened on the agri side that would be really more helpful.

So Shashin, we didn't break the slippages.

We didn't break into different categories.

But the increase in gross NPA, we said that 70% of that is on account of agri.

60% of the provision.

72% of the provision.

Provision is on account of agri.

We didn't break up the slippages into different product buckets.

And [INR 20,000 crores] of (inaudible) book outstanding is the correct number?

Yes, that's a (inaudible) number, that is not a breakup.

Next question is from the line of Sayantan Bhowmick from PineBridge Investments.

I have one small observation.

I noticed that our gross NPL, net NPL has been the highest in probably the last 7 or 8 years.

And also, the provision coverage has also been probably the lowest.

So just wanted to understand if -- I mean, I understand you provided much more than the RBI requirement.

But in spite of that, the provision coverage has fallen probably lowest in the last 7, 8 years.

If you could just...

Sure.

So the coverage ratio in the quarter, which there is an increase, tends to drop simply because you obviously have an increase in the substandard NPLs.

And you're going to provide for these as you -- as these sort of continue to age a little.

The coverage ratio, therefore, would have been even lower if you just went by what the coverage that you -- what the provision would have been for the incremental NPLs.

Now because in this quarter, you have seen an increase -- a large, chunky increase in the new NPL formation, you'll see that it sort of appears as the total coverage ratio has come down a little.

So basically, what I'm trying to understand is how do you decide what is the extra provisioning you're going to make?

So that is decided on the nature of the NPL itself.

So depending on whether it's a corporate, for instance, if you look at the degree of impairment and we assess what the coverage ratio for that particular loan or that -- those loans should be.

In -- for each product otherwise in the retail side, there is a time-based increase in coverage that is done based on the days past due of that portfolio.

So once when it becomes an NPL at 90 days, then there are certain coverage ratio between 90 to 120, 120 to 150, and so on and so forth.

In something like the agri portfolio, the -- after it becoming NPA for the first 3 months or 6 months as a certain coverage ratio, which not increases over a period of time.

Because as I already spoke about earlier, this case -- it's a little different from the normal flows, which tend to be a function of whether the farmer had the ability to pay or not.

In this case, we've decided to up that to about 50%.

Okay.

And second question on the additional Tier 1 that we raised, how did we decide in terms of the additional Tier 1 vis-à-vis the equity raise?

Well, we had clearly, from an ROE perspective, any increase in Tier 1 is through the [81 rule] is significantly cheaper and sort of worthwhile from improving ROE then equity.

And we had, in fact, got this is instrument rated and we were ready even earlier in the March quarter.

But once the RBI had changed its stance in terms of moving from a competitive to neutral, these have gone up.

So we have to step back a little, and we thought the time was right in this quarter to raise that roughly INR 8,000 crores that we did.

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

I just wanted to check on the fee income, for how much was the amount from the oil marketing companies which was a one-off?

Well, that resulted in another increase of about 4.5% of the increase came through because of that.

Okay.

So then adjusting for this, the growth should have been like 24%, 25% or are there other one-offs as well?

There was 1 or 2 other one-offs because of the seasonality, but which is why Sashi indicated if you would knock up all the one-offs and some seasonal factors that will be closer to the lower-20s, 18%, 20% or just over that.

Fine.

And on the margin front, while margins have gone up by 10 basis points, your historical guidance has been between like 4% to 4.2%.

Surely, it's going up because your loan deposit ratios have gone up, CASA has been holding up well.

Should we now assume that the margin trajectory is looking better at least in the near term?

Yes.

I think we have seen this range more like 4% to 4.3% on an annualized basis for a long time.

And we have clearly, in the immediate short term, for the reasons that you just mentioned, we have seen it going up to 4.4%.

So on a quarterly basis, you will have some, some prints, which are more than or which are outside that range.

But I think in the medium to long run, on an annualized basis, I think that earlier range still seems to be realistic.

But what I'm just trying to gauge is that despite the reasonably strong growth, and coming from all facets we are not seeing much of an issue on margins, as in there is no much comparative intensity from a lending-yield perspective, which doesn't seem like, but I just wanted to gauge your thoughts on that.

I will think that the competition on the asset yield side is not -- in hedges come down on a year-on-year basis for us, absolutely.

They have, but so have the cost of funds come down, driven by the CASA and everything else.

So is that competitive intensity increasing further?

Probably not.

Obviously, as we continue to grow, I'm assuming that we are continuing to grow at a healthy pace, some of the gross funding in deposits or funding is coming from fixed deposit.

And that would, obviously, alter the CASA ratio a little.

But right now, there is no obvious trend or pressure on the NIM beyond the moving parts that you just discussed.

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

Sir, there seems to be some of the restatement on the domestic retail advantage based on internal classification for the Business Banking segment?

So just wanted to understand that.

Yes.

We have been rationalizing our businesses.

There were multiple businesses, which we're doing Business Banking in the form of commodity and et cetera.

As I said, we realize that we can rationalize these structures.

The time to market, also the number of relationship managers touching similar such customers.

So we have rationalized that particular bits.

So commodity finance, which was first hitherto classify under the wholesale segment have been clubbed under the Business Banking segment.

Okay.

And sir, on the SME or the Business Banking fees, as we get a sense from the market, the rates that HDFC Bank is offering is pretty competitive as compared to other banks and you're seeing pretty -- high competition from HDFC Bank.

So just I wanted to get your sense like, are you trailing (inaudible) In the segment or what is enabling us to go as low as 8.5% to 8.75% or 9% in the segment?

So I think we probably are one of the few banks which sort of have risk-based pricing framework.

So, of course, we can't sort of offer these with kind of competition that's there in the market we operate within a band, and that is a band that we will always respect in terms of what the pricing should be.

Yes, competition has been tough, so we have been sort of fishing for deals on this particular segment.

But, however we look at it, not just from a yield perspective, but also from a completely -- from a complete IRR perspective, which includes processing fees and the other relationship that we gain by taking away some amount of the market share from the other players.

So it is possible that the yields maybe low in year 1. But actually, on the complete holistic basis, I think we are probably in equal into the risk-based pricing framework.

We're in there.

I trying to (inaudible) in the provisioning (inaudible) 8 to 9...

It is not 8 to 9 . I think it is -- that's the kind of segment that we do for AA corporate or AA corporate book.

The yields on the SME are much, much higher than what you are just saying.

Okay.

SMA, you mentioned the stress between the (inaudible) provisioning expenses?

Sorry?

Does the provisioning, total provisioning expenses?

I understand initial comments.

So we have total provisions of about INR 1,300-odd crores, out of which general provisions is about INR 206 crores and specific provisions is INR 1,340 crores.

The standard provisions or general provisions of INR 200 crores is that we have also created additional -- includes provisions on stress factors.

If you recall, the Reserve Bank have come up with the policy, wherein they had identified telecom as a stress sector.

So we have provided for that.

And also they have said that board of the bank can choose other sectors if they believe if there is a stress.

We have elected the iron and steel sector to be under stress, we have provided the general provisions -- additional general provisions on these 2 sectors.

On the specific provisions of INR 1,300 crores, as Paresh mentioned, 70% or 72% of the growth over the Q1 of last year, which is about INR 829 crores, is (inaudible) accounts of the agriculture segment.

I think we have just about 5, max 10 minutes.

So if you could just have maybe a question each.

How many questions do we have in queue right now?

Sir, we have around 10 participants.

Okay.

I'm not sure whether we can accommodate everyone, but let's try to do at least 5 of these, if we can, just a question each, please.

Sure, sir.

The next question is from the line of Ritesh Shah from Prabhudas Lilladher.

Paresh, this is Sreesankar here.

A quick question on -- 2 parts.

Well you mentioned about agri loans.

Is it all farm loans or short-term loans?

Or have you seen any kind of stress coming into the farm-related i.e.

the tractor loans or anything?

Or the term loans out there?

No, it's primarily the farm loans, the crop loans.

Perfect.

If I can push one question more.

If I get some color on the incremental borrowing and coverage that you have whether it is CapEx, what you are seeing, or is it really working capital loans?

Most of it is working capital.

Most of it is working.

And have you seen any kind of demand slowly picking up for CapEx?

Negligible.

There isn't any demand, it's really -- if there's any growth...

Refinancing.

Mainly refinancing.

The next question is from the line of Krishnan ASV from SBICAP Securities.

I just needed your perspective on list pricing of risk in the current environment, both in corporate and retail.

Just your general commentary on what do you look for to understand whether there is any disruptive pricing in the environment?

So I think given the fact that loan growth, overall have been sluggish, I think, most players who believe for a particular product in retail or a particular segment on the corporate or a particular customer on the corporate, is a worthwhile bankable credit.

There is some pricing aggression.

NPLs have been coming down.

So to that the extent, the bank has the ability to price finally.

And again, because banks internal competing with the commercial paper and bond market, there has been some intensified pricing competition.

But from a risk perspective, I mean, most -- I think we have a framework where based on the rating of the borrower and the expected band of expected losses, we try and do it based on pricing.

It's, of course, management of portfolio.

So that the business manager, who is handling a set of customers, has the ability to remain competitive in the marketplace.

But on the retail side, because most retail portfolios have held up a little well in this last cycle, I guess, players are willing to be a little more aggressive, whether it's on the yield or on the payouts, hoping that their actual credit cost or their operating costs are lower than what they used to be.

I don't think any of this is irrational yet, but it is intensely competitive.

The next question is from the line of Pavan Ahluwalia from Laburnum Capital.

I wanted to ask on the non-retail side, we have seen a decent acceleration this quarter in the growth.

And you are talking about sluggishness in large corporate lending.

Could you give us a sense of what areas are really driving this kind of above-normal growth in the -- on the non-retail side?

And is this 16%, 17%, 18% type growth rate, a growth rate we can expect to sustain on that portion of the book?

So we are actually seeing growth on the large corporate side as well.

The point I was making was that there isn't large CapEx-rated demand or greenfield CapEx-rated demand.

But both large midsize corporates have been borrowing for their working capital and medium-term sort of funding purposes, including a little bit of downfeed CapEx.

So most of what we are getting is essentially either existing customers who are taking a larger share of their borrowing from us.

And in some cases, if some new customer acquisition such we're doing.

On the sustainability, I stop to give -- we don't have a guidance on numbers.

But I think the fact that we have a stronger competitive positioning, vis-à-vis some of these customers and some of these segments, I think that's probably positioned us -- positions us to continue to gain some share.

The next question is from the line of Adarsh P. from Nomura.

There seems to be no response.

We take the next question from the line of Sanket Chheda from IDFC Securities.

The question is on provisioning again.

So out of the specific provisioning of around INR 1,343 crore, you said INR 371 crores was on Agri NPL and INR 120 crores was on stress asset, is that, right?

No, I think you are comparing us.

No, the 13-odd crores was the total increase in specific total.

I think there are two things that we're giving.

What Sashi gave you was a breakup of total provisions between specific and general and others.

So it's basically this INR 1,343 crores and general is INR 206 crores?

Exactly.

In fact, that is at the end of the press release itself.

So actually what he was giving you is there as a breakup in our press release itself.

What I was trying to give you a further color, if you look at the increase from INR 860-odd crores to INR 1,343 crores, then if you look at that increase, or the total provision increase, in fact if you look at that increase I was trying to break up for you between the increase in general provisions and the increase in specific provisions.

So if you could look at the total provision increase, that is about INR 692 crores, and that INR 692 had broken up into INR 200-odd crores of general provision and INR 500 crores of the specific provisions.

That was the breakup we're talking about.

And of the INR 500-odd crores of specific provisions increase, we have said that 72% which is INR 372 crores roughly, was coming from the agri portfolio.

That was the color that I was giving you.

The next question is from the line of M. B. Mahesh from Kotak Securities.

I have a couple of questions.

One is on this car loan portfolio, which has grown about 25-odd percent.

Just probably trying to understand have you seen any kind of market share increase in the last couple of quarters?

Mahesh, I don't think so, because I don't think car sales have been anywhere close to 23%.

So even if you look at some improvements or some increase in the realizations on the upper end, I think there has been some market share gains there.

Okay.

In the market, just (inaudible) On this, do you have seen a marked increase in the duration of loans.

Is -- Are you seeing anything of a similar nature in your portfolio as well?

Are you talking about within individual retail loans?

In the car loans, in personal loans, because what used to be a 35, 36-month product now seems to be available in about 44 months to 50 months.

No, I don't think -- I mean, there has been some increase over a period of time, but nothing which is very drastic in our portfolio.

I mean, obviously, there would be a reflection of what happens in the marketplace, but we are not seeing it very active at the longer end of the (inaudible).

Okay.

Second is on the personal loan side.

The one of the challenges when a portfolio is going at such a fast pace is that inability to kind of understand what the underlying asset quality looks like?

Would you just broadly kind of give us some color on it as to how are you seeing that particular portfolio?

And also, if you could just give us some color as to, from a customer-profile perspective, how does it look like?

Do you have a disproportionate share of...

Can you hold on because we are really running out of time.

Let me just take a question or 2 more, and if there aren't any question, I'll come back, because I just want to try and to take 2 or 1 question each for a couple of people who are still waiting.

Sure.

Sure.

Thank you so much.

Sorry about that.

Next question is from the line of Anurag Mantry from Jefferies.

If you could just help us a with the figures for the restructured book currently and if you can help us with any other figures or other asset qualities dispensations?

There really hasn't been any movement of restructured loans in this.

So it's been 0.1% and it remains roughly at an increment pretty much at that level.

How much?

0.1%.

0.1%.

0.1%, both in the margin in the June quarter.

Other than that, there has been no other dispensation at all, I mean specific to this quarter.

Next question is from the line of Harsh Thakkar from Pinnacle Forex & Securities.

I wanted to know that for the agri-specific loans, we have written off 50% of provision, right?

Not written off.

we have made...

Yes, we have made a 50% provision.

Sorry.

(inaudible) RBI and as for the regulations, they're up to 90 days and how much is the percentage?

I think we would have need to make 20%, 20% or 25%, something like that.

20% or 25%.

And after 120 days?

So that's -- it changes thereafter, only when it becomes doubtful.

Doubtful.

Okay.

So 30% extra, we have provision?

Maybe it's 25% or 30%.

I'm off-the-cuff, I don't remember.

25% or 30%, okay.

And as for my understanding, you have your extra provision plus whatever loan amount is to be governed by -- whatever loan amount I'm going to get by the government, the balance usually is the payoffs, is what we are expecting?

Yes.

I mean, that's what the expectation is.

And in some -- I think one of the state, I know that, that is a condition of they're becoming eligible for the company and specifically for the state government.

So in fact, it will be even stronger that they repay, so they get what is due to them.

Okay.

And the same is the case for iron and steel and the telecom sector, we have been conservative and reacted like provision more than required?

Is it?

Yes, so let me explain that.

The requirement, generally, is for standard asset provisioning at 40 basis points.

The RBI circular, which came out on required banks to have higher general provisioning on specifically the telecom sector and any other sector that they believe is going through a period of stress.

So in that basis, we have made across the telecom and other sectors higher provisions, which I think in the 40 basis points, I think the GP that we have now made might range from maybe 60 or 100-odd basis point.

So that's again, based on a certain expected loss model that we did.

So that's again for standard assets, it's not for NPLs.

Next question is from the line of Pankaj Agarwal from Ambit Capital.

So any color on impact of new accounting norms on your numbers, specifically on the employee expenses?

Sorry?

Impact of accounting norms on employees.

For this quarter?

No, no, for next year.

I mean, how are you seeing the impact there?

So I think this is also Spell Talk on the U.S. GAAP financial as well.

So you will see some amount of increase in employee cost when we take the fair value options through the P&L from when India goes live.

It is expected to go live from the 1st of April.

How much of that will?

I think we have seen probably about your employee cost proportion if you have an (inaudible) May go up about 5% or so.

Okay.

Any other line items where you expect in telecom business?

This is a large one that will have an impact.

On the credit card side, probably we may not have too much of an impact.

We may have some amount of increase, but I think the general provisions that we are doing as for the NIM GAAP, probably would be higher than we do for U.S. GAAP for India.

So it may more or less offset.

Next question is from the line of Rahul Maheshwary from IDBI Mutual Fund.

Can you provide that, the 12 cases, which are being referred under the NCLT and the IBC call ? Have we any exposure towards that?

Or it is being sold or written off kind of thing?

Well, we did have 1 exposure, which we have transferred NPL and sold most of that of 2 or 3 years back.

So there's a portion of that, which had already been sold off, and whatever portion was there has been fully provided for.

So there's nothing -- no other names that we have from those 12 names.

And what is your -- can you throw color on SMA-2 book of year, because we have seen increase into the farm loan waiver because of that, but the GNP has been stressed.

So just a color on the SMA-2 book or any quantitative number?

Firstly, we don't sort of specifically put out SME-2 numbers.

But the agri fees would not have come from the SME-2 because only individual loans more than INR 5 crores would

have come under SME.

So -- But generally, our SMAs have been fairly small.

And there's really not been any material change in the last quarter in there.

We'll be taking the last question from the line of Nilanjan Karfa from Jefferies.

But is it understanding that the liquidity we generate for the corporate segment is what is driving the FX and derivative feed-down?

Is that a fair assumption to make?

No.

Not the corporate lending.

Not the corporate lending.

This is what Sashi mentioned was that there's some small component of...

FX in there.

Rupee funding.

It's done through foreign currency, borrowing of swaps and the cost of those swaps comes as a negative in the FX line.

It's not that because we are doing FX for a corporate customer, we are charging him a lower or we're charging him a high yield and getting a negative on FX.

That's not what he was referring to at all.

He was referring to funding of the rupee balance sheet of the bank and not off the corporate.

Wait, one second.

I think, Mahesh wanted one last.

You can take it.

Mahesh?

If he still has that (inaudible) Close to 8:15 p.m.

so...

Mahesh, you may go ahead.

Just wanted to understand on the personal loan side, given the fact that the pace of growth is very strong in the book, it's just kind of -- I'm just trying to understand your perspective, one.

How is the NPL moved if you looking at it on a year-wise basis on that particular portfolio?

And also, some color on the customer profile, if you have a high share of government employees, et cetera?

So as far as -- we've obviously got various segments in personal loans, because we have something, which is personal for salaried and self-employed and small business and so on.

Both for cars and for personal loans, we do focus a lot on the internal customer segments.

There is existing customers of the bank and within that on salaried.

I don't think while this mix tend to change in terms of which segment is borrowing a little more at this point of time.

Within each of those segments, we haven't really seen any change in the risk profile.

On the lag basis, given the fact that denominator has been increasing at a rapid pace, we do see the portfolio on an ongoing basis.

And again, while different segments have a different risk level, there is no meaningful change in the risk profile or the delinquency that we have seen within the same segments.

But (inaudible) I mean, this is a product, which does carry a slightly higher risk and there is also price metric.

So it's not that you would expect the same level of ultimate loss than as compared to some other product although, in the last couple of years, the unsecured products have actually -- had actual losses, not what is expected of them, but what the actual losses, have been not very different from some of the secured products.

So some increase in those products over a period of time even if it was to take place would be in line with what has been priced in.

Thank you.

I would now like to hand the conference over to Mr. Sukthankar for his closing comments.

Well, thanks for being on this call a little late in the evening.

And I do hope we have been able to address most of your questions.

I think, clearly, what you've seen is that there has been strong momentum, both on the balance sheet and the revenue side on the top line.

We've continued to be very careful on the cost side.

I think the cost-to-income improvement is in line with what we've been (inaudible) To do strategically.

There has been some increase in the provisioning.

We've discussed that at great length earlier.

I think it reflects the reality of lending to a particular segment and the environment in which we operate.

But, as I mentioned early, it is still important that we do our mandated lending and agri included.

So it is part of something that we would do on an ongoing basis.

Other than that, I think it's being just one more reasonable quarter under our belt.

Thanks, once again, and good night.

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.