HDFC Bank Ltd (HDB) 2023 Q1 法說會逐字稿

Ladies and gentlemen, good evening, and welcome to HDFC Bank Limited Q1 FY '23 Earnings Conference Call on the Financial Results Presented by the Management of HDFC Bank. (Operator Instructions) Please note that this conference is being recorded.

I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you. And over to you, sir.

Okay. Thank you, Faizan. I appreciate. Good evening and a warm welcome to all the participants. We can get started with providing the context on the environment that we operated in the quarter so that gives the backdrop of what was going on. Much of this quarter has been about inflation and price surges, as you know. Energy and fuel have been at the center. Supply chains have been disrupted, which created a major demand and supply gap. As we progress further in the year, we'll keep a careful watch on the development. We see opportunities in the marketplace in the current environment, supported by dynamic fiscal and monetary policy.

Activity indicators released during April to June quarter indicate that economic activity continues to hold up well despite global risk. GST collections, manufacturing PMI, IIP, credit, rail freight, services PMI, et cetera, et cetera, showed robustness and opportunities in the economy. The RBI raised the policy rate by 90 basis points in the quarter taking the repo rate to 4.9. The Monetary Policy Committee also voted to remain focused on withdrawal of accommodation in a calibrated fashion to ensure inflation remains within the RBI's upper band while supporting growth. Accordingly, we have responded with appropriate lending rate increases.

Now let's start -- let's got to -- let's talk about the 5 themes at a high level now. On the distribution expansion, that's the first thing, we added 36 branches during the quarter, and 250 more are in various stages of readiness to be rolled out. We have 15,618 business correspondence, an increase of 277 over prior quarter. Gold loans are now processed at just over 2,000 branches as against 1,340 branches in the prior quarter. It is well on the way to be a product offering in most of our branches. Payment acceptance points have grown to 3.2 million, a year-on-year growth of 42%. Wealth management is now offered in 357 locations through hub-and-spoke model. We have expanded to 141 new locations in the quarter. This is in accordance with our plan to take this to deeper geographies in over 900 locations in the current financial year. In commercial and rural banking, SME is now offered in 640 districts in our drive to expand the SME market share.

Next, let's talk about a few comments on the customer franchise building. During the quarter we added 10,900 plus people and 29,000 people over the year -- over the past 12 months. Our people have acquired 2.6 million new liability relationships in the quarter, exhibiting a phenomenal growth of 59% over the same time last year and 10% over prior quarter. They've also acquired 1.9 lakh MSE accounts in the quarter. On cards, we have issued 1.2 million new cards during the quarter, highest ever with a 47% growth over prior quarter. Total card base now stand at 17.6 million.

Moving on to next, our focus on the granular deposit. Deposits at INR 16 lakh 4,000 crores increased by approximately INR 46,000 crores in the quarter as against an addition of approximately INR 11,000 crores in last year's June quarter. Deposits reflected a year-on-year growth of 19.2%. Retail deposits increased by approximately INR 50,000 crores in the quarter, up 19% year on year and 3.9% sequentially. CASA deposits recorded a strong growth of 20% year-on-year, ending the quarter at INR 7 lakh 34,000 crores with a CASA ratio at 45.8%. Term deposit grew by 18.5% year on year, ending the quarter at INR 8 lakh 70,000 crores.

Next, moving on to advances. Total advances were INR 13 lakh 95,000 crores. Growth of sell-downs, we grew 22.5% year on year. Our retail advances growth continued during the quarter as well. Retail advances grew 21.7% year-on-year and 4.9% quarter-on-quarter. Excluding auto, and also 2-wheeler, loans which faced supply chain disruptions during the quarter, the year-on-year retail growth excluding these 2 were 25%.

Card spends have grown by 24% over prior quarter. Payment business advances, payment business loans has grown 27% over prior year and 4.4% over prior quarter. The bank has a market share of 22.4% in cards, 48.9% in card receivables, 27.7% in card spends and 47% in merchant acquiring volumes. Commercial and rural banking, which drives our MSME and PSL book, continued its momentum with a year-on-year growth of 28.9%.

In the wholesale segment, with the rate dislocation, we let go assets aggregating to INR 40,000 crores to INR 50,000 crores. Despite that, the book grew 15.7% year-on-year. And lastly, on technology and digital, as promised, the bank commenced digital launches to enable smooth customer experience. MyCards, which is a microservices architecture that is stateless and deployed on cloud, making it highly scalable. This has emerged as a preferred service tool for our customers, with a simplified login and self-service features. We now have over 2 million registered card users, a growth of 1 million over prior quarter. We had 33 million customer service addressed digitally during the quarter on this platform. This microservices architecture design principle derisks and removes clutter on our digital platform and enhances customer service.

Xpress auto loans is an end-to-end digital service, which enables instant and hassle-free car loan disbursals for existing and new-to-bank customers. 60% of our loan decisioning through this service are processed in less than 5 minutes with the disbursals taking less than 30 minutes. Within a month of launch, Xpress auto loans volumes have already reached more than 5% of our new car loan volume.

HDFC Bank One, our customer experience hub, has been launched recently on multiple channels, e-mail, social care, SMS and WhatsApp, and enhances our customer relationship management using AI-ML and conversational bot, enabling round-the-clock self-service capabilities akin to human interaction. We are continuously adding features to our SmartUp Vyapar app and see a significant increase in its adoption. Across our customer base, we now have more than 1.15 million customers since its launch on-boarded on this platform.

In Q2, that is the current running quarter, July to September, we are poised to launch further digital initiatives such as PayZapp 2.0, customer on-boarding journeys across more products, such as [FDPL], balance transfer EMI, et cetera, implementing customer experience hub across additional service and sales channels such as phone banking and tele channel -- telesales.

For enhanced customer service and relationship management, we've continued to work on developing applications for Q3 implementation, for instance, [BillTap], revamping net banking, revamping corporate net banking, and launch of new mobile banking app in Q4. In Q1, we received a total of 231 million visits on our website, averaging 28-plus-million unique customers per month, which is a year-on-year growth of about 20%.

Business growth continued to gain momentum across diverse products and segments, driven through relationship management and enhanced digital offering. Balance sheet remains resilient. Average LCR for the quarter was at 108% and was at 120% as of June quarter end. Capital adequacy ratio is at 18.1%, with CET 1 at 16.5%, including profits for the current quarter.

Let's start with net revenues. Core net revenues were at INR 27,181 crores, excluding trading and mark-to-market losses, which grew by 19.8% over prior year and 2.4% over prior quarter, driven by advances growth of 22.5%, deposit growth of 19.2% and total balance sheet growth of 20.3%. Net interest income for the quarter at INR 19,481 crores grew by 14.5% over prior year and 3.2% over prior quarter. The core net interest margin was at 4.0%. Based on interest earning assets, the net interest margin was at 4.2%.

Moving on to details of other income. First, fees and commission income was at INR 5,360 crores and grew by 38% over prior year and were lower 4.8% over prior quarter, as a seasonally strong fourth quarter. Retail constitutes approximately 92% of fees. FX and derivatives income at INR 1,259 crores was higher by 5% compared to prior year. Trading and mark-to-market losses were INR 1,312 crores, primarily owing to spike in benchmark bond yields witnessed during the quarter. Mark-to-market losses come from our AFS, HFT, and Government of India securities, corporate bonds, and pass-through certificates. Prior quarter was a negative INR 40 crores and prior year was a gain of INR 600 crores. Other miscellaneous income of INR 1,080 crores includes recoveries from written-off accounts and dividends from subsidiaries. Excluding trading and mark-to-market losses, total other income at INR 7,700 crores grew by 35% over prior year.

Operating expenses for the quarter were at INR 10,502 crores, an increase of 28.7% over prior year due to a low base of prior year COVID wave 2 impacted quarter and increased by 3.4% over prior quarter. We added 725 branches and 2,329 ATMs since last year, taking the total network strength to 6,378 branches, 18,620 ATMs, and 15,294 business correspondence managed by common service centers. Core cost-to-income ratio for the quarter, excluding trading and mark-to-market losses, was at 38.6%.

Moving on to PPOP. Our earnings trajectory improved with continued retail growth. Our core PPOP grew 14.7% year on year and 1.7% sequentially. Our pre-provision operating profit was at INR 15,368. Coming to asset quality, the GNPA ratio was at 1.2% as compared to 1.4% prior year. Out of 1.28%, about 18 basis points was standard, thus the core GNPA ratio was 1.1%. However, these are included by us in NPA if one of the other facilities of the borrower is in NPA. As we'll talk about 1.28%, we'll have to anchor with that. As you have seen in the past several years, agricultural segment has a seasonal impact in June and December cycle. GNPA ratio, excluding NPSAs in agricultural segment and one-off was at 1.03%. Prior year was at 1.26%, and prior quarter was at 1.01%. The net NPA ratio was at 0.35%. Prior year was at 0.48%, and preceding quarter was at 0.32%.

The slippage ratio for the current quarter is at 0.5%, INR 7,200 crores. Excluding the seasonal agri and one-off slippage, the slippage in the current quarter was approximately 38 basis points, call it 0.4%. During the quarter recoveries and upgrades were approximately INR 3,000 crores or 22 basis points. Write-off in the quarter were INR 2,400 crores or approximately 17 basis points. There were no sale of stressed or written-off accounts in the quarter. The check bounce rates across the products in June continues to remain lower than the peak load levels for almost all of the retail products. The restructuring under the RBI Resolution Framework for COVID-19 as of June end stands at 76 basis points, INR 10,750 crores. In addition, certain facilities of the same borrowers which have not restructured is approximately 13 basis points or INR 1,850 crores. That totals to 89 basis points.

Provisions reported were around INR 3,200 crore as against INR 4,800 crore for the prior year and INR 3,300 crores during the prior quarter. The provision coverage ratio was at 73%. There are no technical write-offs. Our head office and branch books are fully integrated. At the end of current quarter, contingent provisions and floating provisions remained close to prior quarter at INR 11,100 crores. General provisions were INR 6,500 crores. Total provisions comprising specific floating contingent and general provisions were about 170% of gross nonperforming loans. This is in addition to the securities held as collateral in several applications. Floating contingent and general provisions were about 1.25% of gross advances as of June quarter end.

Now coming to credit cost ratios. The total annualized credit cost for the quarter was at 91 basis points. Prior year was at 167 basis points. Prior quarter was at 96 basis points. Recoveries, which are recorded as miscellaneous income, amount to 23 basis points of gross advances for the quarter as against 14 basis points in prior year and 26 basis points for prior quarter. Total credit cost ratio, net of recoveries, was at 68 basis points compared to 1.53% in prior year and 70 basis points in prior quarter. The reported PBT at INR 12,180 crores grew by 18% over prior year. Net profit after tax for the quarter at INR 9,196 crores, after factoring in the trading and mark-to-market losses of INR 1,312 crores in the quarter, grew by 19% over prior year. That is after taking the charge for INR 1,112 crores, grew by 19%.

Now some highlights on HDBFS on an Ind AS basis. HDBFS opened 29 branches in the quarter, taking it to 1,403 branches spread across more than 1,000 cities, 1,008 cities and towns. Branch addition continues to supplement the digital investments. Customer base grew to 9.8 million, with 7.7% additions during the quarter at an increase of 35% over prior year. The uptick in disbursements in March quarter was sustained in the quarter ended June '22 at INR 9,000 crores, though disbursements in Q1 are traditionally lower as compared to March quarter. These disbursements reflect a growth of 130% year on year. The total loan book as on June end stood at INR 61,814 crores, secured loans comprising 76% of the total loan book. Net revenue for the quarter ended June 30 was at INR 2,194 crores, growth of 13% over prior year and 2.4% sequentially. Cost to net income for the lending business was at 37%. Provisions and contingencies for the quarter were at INR 398 crores as against INR 422 crores for prior quarter and INR 870 crores for quarter ended last year same time.

Stage 3, as of June end, stood at 4.95% after factoring in 1.18% impact of new RBI guidelines issued in November, reflecting sustained healthy collections. The PCR on secured and unsecured book should at 48% and 92%, respectively. Profit after tax for the quarter ended June was INR 441 crores as against INR 89 crores for last year same period. Earnings per share was INR 5.58 and book value per share was at INR 125. The company remains well capitalized with a capital adequacy ratio of 20% and well positioned to sustain improvement in disbursements across segments and growing.

HSL, HDFC Securities Limited, has a wide network of 216 branches across 147 cities and towns in the country. HSL has increased its overall client base to 3.99 million customers as of June end, an increase of 41% over prior year. The total reported revenue for the quarter was at INR 432 crores as against INR 456 crores in prior year. Net profit after tax was at INR 189 crores against INR 251 crores for prior year. Earnings per share in the quarter was INR 119.5 and book value per share was at INR 1,061.

In summary, over 152,000 employees across the bank dedicated their tireless service to focus on customer engagement, product delivery and service, providing highest standards of banking experience, which results in the quarter's number of advances growth of 22%, deposits growth of 19%, core operating profit excluding the bond losses of 14.7% delivering a consistent profit after tax growth of 19% after factoring in the bond losses of the INR 1,312 crores that I alluded to earlier. Again, from a return on asset point of view, 1.8%. Excluding the impact of the trading and mark to market, it's slightly over 2%, with an ROE of 17%. Earnings per share reported in the quarter is at INR 16.6, book value per share increased in the quarter to INR 450.6.

With that, can I request Faizan to open up the line for questions, please.

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

Sir, my first question -- hello.

Yes. Can you hear us? Can you hear us now?

Yes, sir. Yes.

Okay. Go ahead.

Yes. Sir, my first question is on your CRB loans, of course, the Q-o-Q growth, excluding agri, has been good at 4%. However, we've been talking about doubling the book in 3 years. So that would probably require a higher run rate of growth. So how do you see the outlook panning out for growth in CRB? And also, if you could throw some color on -- you said that you probably gave up some corporate loan growth in the commentary. So what was that about? That's my first question. Then I have 2 more.

Okay. First, let's talk about the CRB loans that you talked about. The CRB loans had a robust growth of, call it, 28%, 29% year-on-year in the quarter. And we do have aggressive plans across various segments in CRB, both on the MSME side as well as on the agri side, on both sides where we have significant planned growth. This growth, I think we talked about this maybe a month ago in another forum that growth is predicated on, one, geographic expansion. We want to be present in more districts in the country to be able to capture the supply chain and the distribution chain flows, right? That's part of what we are trying to do, to be present everywhere so that we capture all of the chain -- distribution chain, supply chain, right, not just a part of it that we work with various other wholesale clients. We're able to capture in wholesome, not part. So that is part of what we are doing.

The second aspect of that is also in terms of agri, again, physical distribution expansion, moving from about 1 lakh villages that -- as we do today. As I said, we want to go to close to 2 lakh villages. That's, again, part of how we want to operate and get to. There are enough opportunity. We see that they're good and that can come only by where we put our salespeople. We put our relationship people in the local place where the customer is, right? That is part of the distribution.

The second thing is relationship management, right, which is in addition to having a physical, we also want to have our relationship now because most of the CRB is about relationship management. And we are expanding more -- adding more people into that so that we could get the right kind of relationship to have that, both from acquiring customers as well as broad-basing the product that we could deliver to them.

Yes, we are confident that, that segment is poised for growth. And again, we are not talking about it in isolation, right? This is going to ride on the country's macro growth, right? That means we need the tailwind of the country growth also to be going up. And with the MSME being almost 1/3 of the GDP participation, that is where we tend to -- we're focused on doing that. And from a market penetration point of view, again, I think we told you how that growth is going to come from last time somewhere we talked, which is we have only about 20% to 25% penetrated in the banking system itself. So the rest of them are outside of the banking system. They need to move in here. And this is part of our -- both physical as well as the RM expansion strategy is to capture them and bring them into the banking system. On the CBG -- on the wholesale loans, you alluded to something which I didn't get. What was the question on the wholesale?

You said that 40 to 50 -- or maybe I heard it wrong. You said INR 40,000 crores to INR 50,000 crores was given up because of competitive rate or something like that.

Very good. Good point. Yes, I did mention that, and I specifically mentioned that so that I know that you will pick it up and ask, which is -- see, there was a rate dislocation in the quarter. Sometime around starting May, right, when the rates started to move up, there was a rate dislocation. Immediately after, our bank and so also others, started to move up on rates, and we did that. And as we move up on the rates, there were some customers who are offered lower rates by certain other market participants, and we do not want to cut back on our rates to keep them, right? We said that's fine because we do have a relationship. We do continue to have relationships with those customers, the INR 40,000 crores, INR 50,000 crores who went and took -- we continue to have, except that we didn't endeavor by price to keep increasing those shares, right? So we said that's fine to let go, so that somebody else can take it at a lower price than where we do. And that is what I alluded to.

Okay. And sir, was that PSU banks or private bank?

Broadly it was across everywhere. So let's not go into the details, but across the landscape.

Okay, sir. And sir, can you please quantify the slippage figure as in the absolute amount, if you can?

I think I gave that INR 7,200 crores or something I did mention. That's 50 basis points or 0.5%.

Got it. And sir, how much of that would be from restructured?

I didn't give that, but I can -- I alluded to that slippage amount has got -- agri and the wholesale one-off which contributed almost to little more than 10 basis points. So net of that it was 0.4 or 38 basis points I alluded to. Some of them -- not the agri piece, but the other piece is the part of the restructuring.

Got it, sir. Sir, and my last question is on this merger dispensation. So, we did see a press release on RBI approving the merger, and it said which terms and conditions. So were there any dispensations? And if not, when would one hear about dispensations applied for, and also any clarity on HDFC Life stake?

Okay. Two things you asked, one is about the conditions of the dispensation. The no objection from RBI is on our application. And the conditions I think we mentioned somewhere. These conditions are -- for example, I'll give you some nature of some of those things how you can think about. When the merger happens, the banking regulations shall apply across all the portfolios and all the business lines. So that's part of -- those were the kind of -- I'm giving you flavor of some of those conditions. That's one. And there are some entities that will merge, and the licenses of those entities that will merge will have to be surrendered and then intimated to RBI. So those are some examples.

And then when we apply and get approvals from various other authorities, we need to take those approvals to get back to the regulator with those approvals. And when we go to shareholder, whatever is the shareholder resolution and the approvals, we get it back to the regulator. So you can see that these are some -- I'll give you some flavor of how to think about those conditions. But you alluded to what about the dispensation of the glidepath of the forbearance. So that's not what it is. That is something separate, and that is handled as an item different from the application per se. And we continue to work with the regulators on that aspect.

Got it, sir. Sir, and my last question is on EBLR repricing. So basically, your reset for retail and corporate loans will be, what, 3 months, 1 month?

3 months or 6 months -- mostly I think it's 3 months.

Got it, sir. Sir, that was very, very helpful.

The next question is from the line of Hardik Shah from Goldman Sachs.

Congratulations for a good quarter. My first question is on the MTM loss. Can you share some color on AFS mix, modified duration, and under what circumstances one can use the IFR?

Okay. Hardik, thank you for bringing it up. The AFS book, broadly you can think about it as 3 components, broadly 3 components. One is the corporate bonds; the other is the participation certificate, primarily priority sector lending participation certificates; and the third one is the Government of India securities. These are 3 broad components which are there. Most of these -- the other aspect that you asked about the modified duration and how you think about it, about 2 years we can think about it is the tenure of the duration, and that's the time it takes to pull this too par. So from that sense, we expect that in a couple of years, they drift back, right, over this time period.

The other aspect of the investment fluctuation reserve and what it means to these things, right? The investment fluctuation reserve is an appropriation of profit to set some reserves up. And we have investment fluctuation reserves which are slightly more than 2%. And at the discretion of the bank, at some point in time, we can utilize it, but we have not chosen to utilize the investment fluctuations first, because it's slightly more than 2%. It has to be I think regularly 2%. So there's no point in giving in. And given that this pulls back to par in a couple of years' time, and we're not comfortable to pull down the reserves and use it right now.

Got it. My second question is on the growth side. Growth on retail has been impressive. So what are your thoughts on its sustainability given the inflation concerns that you alluded to at the start of the call?

Okay. Again, another good point, thank you. Retail growth, ever since we came back with the credit policy getting back to pre-COVID level, if you see over a period of 2, 3 quarters having quite good -- the December quarter was close to 5% -- 4.5%, 5%. The March quarter was close to 5%, similar rate. And the June quarter is 5% sequential. So year on year it's now crossed the 20% mark, the year on year, because off the base, because we kept going down and now we're starting to build up. Sequential momentum is there.

Within the retail book, if you look at the one that I called out for, the vehicle segment, has been hampered by various supply chain issues. Despite that, they did grow well. We did have quite a good growth, but then if you put that to the side and give more time for that to grow, the retail, excluding that vehicle segment, grew by almost 25% year on year. So this is again a solid growth.

Then the other aspect of how to think about the environment and the growth, we do see good amount of demand across most of the products from unsecured product to secured product to markets product to home loans and across everywhere we do see that, including the gold loans. I think we published that list of various products and the growth rate. So you can see that it's balanced across.

Card loans, let's talk about credit cards, the last I do want to mention. The card loans do have very good spend, I think 24% or so sequential spend increase. Again, discretionary -- if you look at the discretionary, spends have gone up even more, right? This growth in the card spend is driven largely by discretion and discretion could -- you can take it as also seasonal, in the summer months or holidays months, a lot of travel, entertainment, hotels, and so on and so forth. They're all coming back to life and you're seeing pickup -- huge pickup on that.

The second aspect of the spend is that is the spend translating into loans, which to some extent it is. But to a large extent it still needs to come more. It is still not fully there from a loan growth point of view. It will take some more time, I think. Over prior year or the prior quarter sequential, 4.4% is the sequential growth rate in payment products. For it to pick up and go further, we'll have to wait for people to utilize their credit lines fully. Still the credit line utilization on cards is at, I call it, 70% to 80% of the pre-COVID level. So credit lines utilization is still left to go.

And the liquidity in hand from the customers is also there. These customers, from a relationship point of view, about 5x. Our customers have for INR 80,000 crores of payment balances -- payment business balances that we have, 5x that we have liabilities from the similar customer segments. So we do see that people have good amount of money and the line utilization to happen. So we expect that with the pickup for that is taking place right now, you need to give some more time for that to do.

Similarly, on the revolve rates, you didn't ask, but I'm sure another person would be thinking about asking, so I would allude to the same thing. The revolve rate pickup also has not happened yet. First, spend needs to happen, which is happening now, 2, 3 quarters we are seeing spend happening. Spend translating into loans, slightly picking up sequential 4.4% picking up. Then the next thing is that the line utilization happens, and then comes the revolving to come with that. So we are a few quarters away before it gets there.

Got it. As a follow up to that, sir, what are your thoughts on the sustainable revolve rate going forward in the industry?

As the economy starts to pick up and people spend, which we are beginning to see, discretionary spends you are seeing is happening. Once those discretionary spends happen, you will see that the people will get back to the previous. See, over a period of 2 years, either in our bank or in some other bank, people were, call it, for lack of some other word, chronic revolvers. That means habitually revolving for more than 6 months, 9 months out of the 12 months. It has come down because either they are having a bad score in the bureau, or they're having a bad score with us, and they have utilized their limits, so have tightened and the limits are not given because we want to be cautious. So we need to wait for the things to come back and then they will start to spend and the [revolve will start]. We're quite confident that the customer base that we have and the type of spend that they do, we will get back to what we have seen pre-COVID from their spend habits and revolve kind of attitude on that.

Got it. Sir, last question on deposit rates. You've been taking the rates higher. So how should we think about this in the next few quarters as how much hike the bank would consider taking and how is the competitive intensity increasing on that front?

The pricing -- you are talking about more the time deposit pricing, because the other cards, of course, my savings account has been stable. The time deposit we have slightly only increased over the last month to 2 months, not taking it up all the way what has happened. And the way we think about that pricing is there are 2 elements to it. One, customer -- we're able to get to the right kind of a customer to have the deposit and what is the price sensitivity of the customer to get those volumes in? So that's always kind of what we do, engaging with the frontline, who in turn engages with the customer. We get that intelligence and discussion in ALCO to say how we are able to get those volumes and at what kind of a price point that we can get.

And the second aspect of our determination of the price is also competitively priced. Competitively, pricing means looking at certain other banks to see that we are relevant in the market, and we don't want to be price leaders by pricing up anything. But at the same time, we have to be competitive within certain range. That is all. These are couple of configurations we do, and we discuss within ALCO as a team and decide how we want to pitch ourselves to the customer.

Got it. Thank you for your time, sir, and congratulations again for a good quarter.

The next question is from the line of Kunal Shah from ICICI Securities.

So firstly, again, just coming on with respect to the RBI's approval. Sir, any indication with respect to HDB Financials? Sir, when we look at it in terms of the scheme of arrangement, it says it is approved. So would we hear further with respect to HDB and HDFC Life or it's more or less there within the arrangement scheme?

The other question it was asked, HDFC Life, I didn't address it. I'll address it with (inaudible). Kunal, on the HDB, first, the RBI approval is an objection to the scheme of amalgamation that has been filed. The scheme of amalgamation doesn't have a role for HDB there. HDB is a subsidiary -- existing subsidiary of the bank and continues to be there. And so the scheme of amalgamation does not have anything to do with HDB. And so that is -- if anything we need to do, it's a separate conversation, it's a separate process and so on. So it is not combined with the scheme. We've filed the scheme and the scheme does not have anything to do with HDB.

HDFC Life is currently a subsidiary of HDFC Limited, and it has envisaged that merger that it will be a subsidiary of the bank. There are 2 things in this. One, as an RBI regulation, a bank holding life insurance has to be 30% or below or 50% or above. Currently, HDFC Life holding is about 47.8% or so. There's a 2 plus percentage point increase that is required. And that is part of another regulatory approval that we have sought that we can go to 50% plus. And whatever the regulator finally tells us, we will have to comply with that. So that's part of what we are waiting for, and it's a continuous dialog that happens to see how we can get to more than 50%. Either we get or HDFC Limited will get to 50% plus before consummation of the merger transaction. So that's on HDFC Life.

Sure. But there are no timelines in terms of where can we expect -- so the process is still on. The communication is still on.

That is correct, yes. That is correct.

Okay, sure. And secondly, in terms of the overall PSL or maybe as we look at in terms of the buildup towards the merger, so couple of points. One is in terms of the branch expansion, we have been highlighting that 1,500, 2,000 odd branches could be added. Maybe the Q1 was not -- maybe we have not seen that much of a branch addition. So when do we expect it? Is it post like consummation of the merger do we see that run rate, or we will start preparing for it from this fiscal and it will be more back ended? And the second related question is on the PSL buildup. So should we say that whatever PSL certificates were bought in FY '22 and RIDF investments which have gone up from INR 9,000 crores to INR 45,000 crores, that was maybe with respect to the earlier requirement, and we will start building up further to meet up with the HDFC Limited's merger? How should one see that?

Okay. Thank you again for that branch buildup that you asked about. This quarter, the branch buildup was lower, 36 or so, but we have about 250 branches in various stages of getting to be implemented. We're not going to wait for anything. The branch buildup is an organic process. Irrespective of any an outcomes, branch buildup with the right thing to do for the bank from a growth point of view, if that is where we are embarked on. And we see opportunity.

Branch has got -- I think we've talked about it again in the past, branch has got 2 aspects to it. One you have a branch which develops the brand in the vicinity of where the branch is and draws in customers through brand attraction. The second thing is the branch is the congregation of our salesforce. If you don't have branch, you're going to have a sales office. You can call it that we would open X thousands of sales office. So we rather open X thousands of sales because the kind of travel that sales relationship managers need to do to in their outreach to meet a customer or a prospective customer, we want to keep it to 1 to 2 kilometers rather than to 4, 5 or 6 kilometers. It gets in better productivity and gets in better influence to consummate their transactions well. That's part of what we have envisaged and we're doing. So the branch buildup will happen. It's not waiting for anything. It's a question of a process to get that implemented. It's in progress to happen. So even in this financial year you will see some substantial branch accretion that happens.

The second aspect that you touched upon is the PSL and you touched upon the RIDF on PSL. There are several strategies to grow PSL, organic buildup of loans -- PSL eligible loans is the best method to be because it gives fantastic returns. It gives great returns. Going through our credit filters, because they're tried and tested credit filters, it gives you the best returns that you can and the returns far more than the average of the banks. So we are quite enthused to do PSL organically to the extent it comes through our credit filters.

In the past year to 2 years when we have had muted retail to some extent, the PSL component is also lower because you did not get the detail as much, but as we are now opening up more retail and going, you see that the PSL comes back organically. Still, it's only one of the components, because we don't leave other components on the table. We want all of them. For example, organic is one where I think we have said that it is little more than, call it, in 30% to 35% or little more than 2/3 to 70%, 75% we get through organic. And then there are other tools that we always use and we want to continue to use them, one is the PSL certificates, we get that too; the other one is the RIDF is also something where there's always a tradeoff that is done.

What is the organic that you can build within your credit filters? And if you go outside of your credit filters, what sort of a credit cost are we going to end up and so thereby what returns, what is the cost of the PSLC, what is the cost of RIDF? And so this is always an equation that happens almost -- in a quarter few times that you balance this to see where is the breakeven and which is the right way to go about. So that is how decisions are done. And when we didn't do retail, we have done more of the other things that will happen. And when we do more of retail, there will be more of organic that comes up. So that's how you think about the PSL.

Sure. So PSLC what we bought INR 1 lakh crore, maybe with HDFC there is a scope for this to go up substantially from here on, because 80,000 has already gone up to 1 lak last year and maybe with this requirement I think there will be more and more maybe purchase of PSLC which could happen.

See, purchase -- again, as I told you, these are the 3, 4 elements that happens, PSLC, RIDF, organic PSL growth, and we do participation certificates. So there are several components are happening. And we have to balance the cost versus the returns that each one gives. So there is no one particular target. If you ask me, do you know whether this INR 1 lakh crores is going to go to X or Y, there is no predetermined formula that we operate. The formula is which gives you the best returns, what is the breakeven on indifference point between various instruments. That is what drives the decision and that is -- as you know, it's a dynamic decision because the price in the market is dynamic. It's not a fixed price. And so that is how that is determined periodically. And then the outcomes is what you are seeing.

Sure, sure.

The next question is from the line of Adarsh from CLSA.

Couple of questions. On the expenses side obviously you'll have indicated investments in branches and how we see people (inaudible) within retail. Any sense on that...

Sorry to interrupt you. Mr. Adarsh, the audio is breaking from your line, sir. Please check.

Okay. Let me try once. Otherwise, I'll take it offline. So just on the cost side, any sense -- clearly you're in investment mode in branches and employees. So any path towards cost/income over the next couple of years?

Okay. Good, Adarsh. Thank you for asking. But one thing was we normally desist from giving forward guidance on anything, but let me talk through so you will get an idea of what previously we have talked and our thought process, so you will factor that in. One, from a top line point of view, the growth is picking up. You've seen that over a period of time that the top line growth -- the top line I meant the volume growth was anyway there, but the mix is also we will see this quarter, similarly last quarter, the mix is also changing to get that the top line revenue, interest income -- our interest income growth component also moving up. You're seeing that come up. That gives you little more confidence and an opportunity to make the right kind of investments that you want because you want to feed that from a growth point of view. That's one from a balancing point of view.

The second thing that also goes in our process -- are you there? You are there, Adarsh? We are not able to...

Yes, sir. I'm there. You go ahead, sir.

Okay, alright. Because suddenly we lost the control screen. That's why I asked. Okay. The second thing is in terms of the credit situation. So we've come after a pandemic credit kind of a scenario. As the credit gets benign, which is already you're seeing from benign credit environment, and when I say credit benign means I meant from a credit cost benign. That is part of what you have seen us make those investments. And making investments in people when the credit cost has been below what we have seen historically, what we have seen before the COVID, we have taken the opportunity to make those investments in expenses, both people, technology, as well as on branches. So these are the 2 considerations that we have always given, how to how to make those investments for the future by using the credit-benign conditions and how to make people opportunity of the top line growth so that you can balance the expenses.

Now coming to the last aspect, which is the crux of what you ask, saying what is the cost to income and how we should think about. If you go back to the pre-COVID, our cost to income has been 39.6%. So full year before the COVID, 39.6%. You can call it 39%, you can call it 40%. We have always said that as the retail picks up -- retail is an upfront cost and the top line comes with a lag and comes over a 2, 3-year period. So you put the cost in and it comes over 2, 3-year period. That's the nature of that retail. Once you want to grow retail, that is the way it happens. And you're seeing that pick up. And we have said that, even through the COVID period even when we wanted to spend, we did not have the opportunity to spend. And we've been saying that we have been waiting for that opportunity to spend to get that retail back up, and now that is chugging along.

And so the cost to income on an overall basis, call it, 40% or so which is the pre-COVID, quarter-to-quarter variations will happen. And if you ask Sashi I think he's told in the past in certain other meetings that quarter-to-quarter variations can happen because it's a question of a timing. But over a period of a year or 2 years if you see, you can touch 40%, but over a medium-term, 3 to 5 years, this is something as a forward guidance normally which we don't do, but for the cost to income what we see as an opportunity, we said it will get to the mid-30s, which is what we said pre-COVID but this COVID has put a halt to that -- changing the composition of the product mix as well as our spend mix. And as we get back to normalization and execute, we should get back to that kind of a trajectory over time.

Got it. Second question is related to asset quality...

Sorry to interrupt you, Mr. Adarsh. The audio is breaking from your line.

On asset quality, ex agri, safe to say that things have trended absolutely in the right direction?

Yes.

So what is the risk that credit costs (inaudible). Looks like most of the segments are (inaudible) future?

You're talking about the credit, right? You're talking about the NPA?

(inaudible).

It will be quite good if you see at an aggregate level, and it is not a component of the business as usual which is extremely benign because originated with a very tight credit conditions and it is also got a component of the restructuring some of them that who could not -- to whom we have given the opportunity to redeem themselves, to come back to normal life, right. And some of them have taken this opportunity on the restructuring and used it to come back to normal life, some of them who still struggle get into NPA, but on a combined basis you are seeing that it continues to get benign and better. Another 1, 2 quarters, we should see it even more benign.

Sir, this is useful. And that's it from my side.

The next question is from the line of Abhishek Murarka from HSBC.

Srini and team, congratulations for the quarter. So I have 2 questions, one on NIM and one on OpEx. On NIM, when does the repo hike that happened in May, June, when does it fully translate into yields? Would it be by the end of August or September? And also, if you can share the EBLR repo, non-repo, and fixed and floating break up for the loan book that would be useful.

Okay, yes. First on the NIM, the repricing started in May and there's a cycle, and there's at least a 3-month cycle, and some of them are a 6-month cycle in terms of what happens. So that's on the menu. And so it is not just that. It is also got to do with the deposit cost. So just the repricing on the repo on the T-Bill just doesn't do it. It's also what happens on the cost of funds. But then we do expect that this is a tail-end of the rates going up.

And if you think about the second aspect on the NIM that you asked in terms of the fixed and variable, about 45% of the book is fixed and 55% is floating rate. And some of them call it -- out of the 55%, 48% which is called 27%, 28% of the total book is repo and a 1/4 call it 13%, 14% of the total bank book is T-Bill. So that's the kind of from a mix point of view, pricing point of view, you can think that's how it moves on.

So just extending that for the NIM outlook. Of course, you will know that there would be a certain amount of uptick in term deposit rates as well. So just generally, would we still expect a retail and CRB proportions to rise in the loan mix and the expansion that you see in the yields outpacing the TD uptick. So do we expect these 2 things to continue for the next let's say 3 to 4 quarters?

Yes. From a NIM point of view, it is also -- rightfully you're focused on the mix because that is what makes it right, because individually things can go. If the mix don't come, it takes a little more longer time. The mix, as we speak now, is still at 45%-55%, although the retail grew at 5% and the corporate was 0 and the CRB was 2.7% sequentially, the mix is more or less the same. One quarter it doesn't take -- it takes a few quarters for the mix. And last quarter we put out the chart in terms of how long it took for that mix to come, retail 55%, how long it took for that retail mix to come to 45%, and there is a path. Year by year it shows how long it took. While on the way up, it could be faster because the rate of growth on the retail and the demand in the macroenvironment we see on the retail is higher, so it could be faster. But yes, both the inherent demand we see in CRB and in retail is quite good and high.

And one other thing I want to be cautious and tell you too, just because we think we see good demand, if there is a great demand in wholesale, we are not going to turn down the wholesale loan just because the NIM has to come up. At the end of the day, what matters in terms of these decision is does it give good returns, at the end of the day, ROA, ROE, does it provide the right kind of returns. If it does, it goes through. But from an inherent demand point -- because I did mention this because March, the same conversation happened, and we saw the wholesale come in with a greater vigor for a growth in March quarter. And when it came, I was not able to go back to say, by the way, we talked about retail and CRB having a faster growth rate -- inherent growth rate but wholesale has come. So should I decline wholesale? No. So as I said, we should go with whatever the demand which is there. We like the customer, we like the credit, right pricing, gives you the return, should go. And so that is the kind of a decision making that happens. But inherently, retail and CRB are having a good amount of demand.

Got it, got it. And the other question is on OpEx. So can you share some sort of targets on how much you want to hire for the rest of the year and also what is your tech spend this quarter as a percentage of overall OpEx, where is that trending?

Okay, yes. Two things. One, in terms of the hiring, there is no predetermined -- hiring depends on the productivity. We measure all products, all geographies, branches, non-branches, customer segments in terms of the productivity, which means the RM and the salesforce to the customers or to the sales unit. So it depends on the productivity that comes, and continuously we drive the productivity up. So we have a model -- a best-in-class model, and we will periodically look at who and where it is suboptimal, and we drive the productivity. So that's part of how we do. And the people addition we do as necessary to meet those opportunities. When the productivity is saturated, we do need to add to get the more volume. So we're not shy of adding because it brings in better volumes and better relationships.

Then there are other aspects in terms of the technology. Yes, I think in the past we have said the technology spend to total expense is 8%, 9% or so. That's stable over a longer period of time. That's kind of a range in which it operates. So quarter to quarter it can move around, but broadly that's where it is.

So it would be in that 8% to 9% range this quarter as well.

Quarter to quarter it can be different, but broadly that's where it goes, yes.

Okay. Got it, Srini. That was useful and all the best for the following quarters.

Thank you. Ladies and gentlemen, this would be the last question for the day given the time. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Okay. Thank you, Faizan. And thank you to all the participants who dialed in today. If you still have more questions or need any clarifications, feel free to get in touch with our Investor Relations team. We'll be happy to engage. Thank you. With that, we'll sign off for today. Bye-bye.

Thank you. 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.