HDFC Bank Ltd (HDB) 2024 Q1 法說會逐字稿

Ladies and gentlemen, good evening, and welcome to the HDFC Bank Limited Q1 FY '24 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, Bhavin. Good evening, and a warm welcome to all the participants. I want to briefly start and give a minute update on the merger. Effective July 1, as you all know, HDFC Limited has been merged into the bank. Consequently, all subsidiaries of HDFC Limited have become subsidiaries of the bank.

Earlier today, with the support of BSE, NSE, NSDL, CDSL, all HDFC Limited shareholders as on the record date have received shares of HDFC Bank. This concludes the 15 months journey for the bank and all the regulators involved, and we would like to take this opportunity to thank them for their continuous engagement and support. HDFC brand built over 47 years will now be proudly owned by the bank. It is a privilege to add on and engage with the 6,000 institutional investors and 7 lakh individual shareholders.

HDFC Limited has excelled in nurturing trust in their customer engagement over 4 decades of operation. We'd like to harness this bond with the home loan customers by leveraging our exhaustive distribution reach and comprehensive digital platform to upsell a complete bouquet of the bank's and subsidiaries products across pay, save, invest, borrow, insure and trade like the savings account, personal account and so on, including the credit card and SAPs.

Seamless integration to aid the sustained and optimal execution is undertaken, involving merging products and processes expertise, creating learning opportunities by focusing on customer engagement and experience, onboarding 4 million customers with over INR 6 trillion portfolio, onboarding 4,150 talented professionals bringing in knowledge and culture.

Now let's look at the key macro environment during the quarter before we review the earnings. Stronger-than-expected GDP growth in the March quarter has boosted sentiment. Various indicators suggest economic activity continued to be strong in the recent June quarter. GST collections have been robust in the first quarter, where INR 5 lakh crores grew by 12% year-on-year.

Manufacturing PMI at 57.8 and Services segment PMI standing at 58.5 augurs well and shows robustness. Again, the current account deficit narrowing to a 7-quarter low adds more strength. Payment systems indicate business activity continues to be robust with 14% growth in RTGS/NEFT transactions and 44% growth in UPI payments. On the consumption side, the passenger vehicle and two-wheeler sales showed robust growth, reflecting strong consumer demand.

During the quarter, our retail issuing card spends have shown robust growth of 30% year-on-year and 10% sequentially. The uneven distribution of monsoon has adversely impacted sowing. Excessive rains in North India have inundated fields already sown, while lack of rainfall in East, Central and Southwestern regions has delayed sowing. Overall, we continue to see healthy domestic demand conditions, resilience in services exports and push from government through CapEx expenditure.

These factors are estimated to result in India's year-on-year GDP growth rate of 7.7% in Q1 and greater than 6% in the full year '24, after a stronger-than-expected GDP growth of 7.2% in FY'23. However, weather-related uncertainty with the rising likelihood of El Niño causes risk to rural recovery and inflation, which remains high.

Let's go to the key themes. On the distribution, while we added 39 branches in the quarter, we added 1,482 branches over the last 12 months, which now stands at 7,860 branches. On the payment acceptance points, we have 4.6 million, year-on-year growth of 37%. That includes 2.8 million merchants accepting through the SmartHub Vyapar platform.

On the CRB side, our SME businesses are present in more than 90% of the district, expanded to 1.7 lakh villages reach and is on track to achieve the objective of over 2 lakh villages.

Gold loan processing is now offered in 4,336 branches, an increase over June '22 -- a twofold increase over June '22. In the customer franchise building, we added 2.4 million new liability relationships during the quarter. With now over 85 million customers, it provides a base to engage, enabling us to broad-base and deepen our relationships. In order to provide for this engagement, we have added 29,000 people over the last 12 months and 8,500 people during the quarter.

On cards, we have issued 1.5 million cards in the quarter. The total cards stands at 18.4 million. Our website continues to receive enormous traffic. We received on an average 109 million visits per month with over 89 million unique visitors over the quarter at an year-on-year growth of 42%.

Focusing on the granular deposit, which continues, deposit amounted to INR 19.1 lakh crores, an increase of 19.2% over prior year. On the back of a fantastic quarter in March '23, where we added INR 1,50,000 crores, we further built on this enhanced base during the June quarter with an addition to deposits of INR 30,000 crores. Retail deposits added in the quarter was INR 38,000 crores. Retail, which has been an anchor of our deposit growth constitutes about 83.5% of our total deposits, getting more granular compared to 82% in prior year June.

Retail deposits grew at the rate of 21.5% year-on-year and 2.4% sequentially. Wholesale deposits constitute 16.5%, and these grew 9% year-on-year, but were lower 2.5% sequentially. On a pro forma merged basis, retail deposits grew by 20.6% year-on-year. This is a pro forma merging -- on a pro forma basis, merging the June deposits of HDFC Limited, I'm talking about, and the retail constitutes 83% of the total pro forma.

Now moving to advances, gross of IBPC advances grew 20% year-on-year, net of IBPC advances at INR 16.3 lakh crores grew by 15.7% versus prior year. This is an addition of approximately INR 16,000 crores during the quarter and INR 2,22,000 crores in the year. Credit-to-deposit ratio as of June end stood at 84%. Our retail advances growth was robust. Domestic retail advances grew 20% year-on-year and 4% quarter-on-quarter, primarily driven by strong performance in home loans and personal loans.

Commercial and rural banking, which drives our MSME PSL book continued its momentum with an year-on-year growth of 29%. Wholesale segment grew 11% year-on-year, but de-grew 1.2% sequentially. The bank's advances gross of IBPC grew by 20.1% year-on-year. When we include HDFC Limited's individual home book, the pro forma core loan growth for the merged entity is 18.7% year-on-year.

Technology. We continue to focus on the technology agenda. HDFC Bank One, the customer experience hub, over 12.5 million unique customers have interacted through the platform accounting to over 22 million interactions. On the PayZapp, has handled transactions volume of over 13 million during the quarter with more than 1.6 million monthly average log-ins and 1.5x increase in customer spends. Express car loan volume now contributes 30% of our car loan volume.

We continue to be focused on these investments and expanding both the distribution as well as the digital footprint, and thereby driving the relationship management for growth. Balance sheet remains resilient. LCR for the quarter for the bank was at 126%, prior quarter was 116%, and prior year was 108%. LCR on a pro forma basis, that is including the estimated HDFC Limited book as of June 30, based on the merged entity was at over 120%. Capital adequacy ratio is at 18.9% and CET1 is at 16.2%.

Net revenues for the quarter were at INR 32,829 crores, grew by 26.9% over prior year, driven by gross advances growth of 20% and deposit growth of 19%. Net interest income for the quarter at INR 23,599 crores, which is 72% of net revenues grew by 21% over prior year. The core net interest margin for the quarter was at 4.1%. On an interest-earning asset basis, the core net interest margin was at 4.3%.

Getting to the details of other income, which was at INR 9,230 crores, fees and commission that constitutes two-thirds of the other income was at INR 6,290 crores and grew by 17% over prior year. Retail constitutes approximately 93% of fees and commission. FX and derivatives at INR 1,309 crores was higher by 27% compared to prior year, and net trading and mark-to-market income were at INR 552 crores for the quarter, prior quarter was a negative INR 38 crores. And prior year was also negative, slightly above INR 1,000 crores.

Other miscellaneous income at INR 1,079 crores includes the recoveries from written-off accounts and dividend from subsidiaries. Operating expenses for the quarter were at INR 14,057 crores, an increase of 33.9% over prior year and an increase of 4.4% over prior quarter. In this context, it is pertinent to note that we added 1,482 branches and 1,732 ATMs since last year. In the medium to long term, distribution reach is the key. This is what will provide funding through better engagement.

Cost-to-income ratio for the quarter was at 42.8%, reflecting the cost of investments, which from a timing point of view has been chosen during the benign credit environment to capture the market opportunity. This will moderate and revert to below previous levels after the breakeven and payback from the investment starts to flow through. PPOP for the quarter grew by 22%. Our pre-provision operating profit was at INR 18,772 crores.

Coming to asset quality, the GNPA ratio was at 1.17% compared to 1.12% in prior quarter and 1.28% in prior year. Out of the 1.17%, about 14 basis point are standard, thus the core GNPA ratio is 1.03%. GNPA ratio, excluding NPAs in agricultural segment, because agricultural segment has got the seasonality in June and December, so excluding the agriculture segment, GNPA ratio was at 0.94%. Prior quarter was also at 0.94% and prior year was 1.06%.

Net NPA ratio was at 0.30. And net NPA ratio, excluding NPAs in agriculture segment was at 0.23, again, same as prior quarter, which was also 0.23. The slippage ratio for the current quarter is at 35 basis points or about INR 5,800 crores. The slippage ratio for the current quarter, excluding agricultural segment, was at 26 basis points, about INR 4,200 crores.

During the quarter, recoveries and upgrades were INR 2,650 crores or approximately 16 basis points. Write-offs in the quarter were INR 2,100 crores or approximately 14 basis points. There was no sale of any NPA accounts in the quarter. Restructuring under the RBI resolution, COVID framework as of June end stands at 27 basis points, about INR 4,265 crores. In addition, certain facilities of the same borrower, which are not restructured, is approximately 5 basis points or INR 800 crores.

On the provisions reported were INR 2,850 crores against INR 2,700 crores during the prior quarter and INR 3,200 crores in the prior year. The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately INR 11,150 crores, same as last quarter. General provisions were at INR 7,150 crores. Total provisions comprising specific, floating, contingent, and general provisions were 171% of the gross non-performing loans. This is in addition to the security held as collateral in several of the cases. Floating contingent and general provisions were 1.12% of gross advances as of June end.

Now coming to credit cost ratios, the total annualized credit cost for the quarter was at 70 basis points, prior quarter was 67 basis points, and prior year was 91 basis points. Recoveries, which are recorded in miscellaneous income amount to 19 basis points of gross advances for the quarter.

The total credit cost ratio net of recoveries was at 51 basis points in the current quarter compared to 68 basis points in prior year and 44 basis points in prior quarter. The profit before tax was at INR 15,912 crores, grew by 30% over prior year. Net profit after tax for the quarter at INR 11,952 crores, grew by 30% over prior year.

Some highlights on HDB Financial Services. This is on Ind AS basis. The total loan book as of June end stood at INR 73,568 crores, growing 5.1% sequentially and 19% year-on-year. Secured loan comprises 72% of the total loan book. Disbursements for the quarter were higher by 42% over prior year. Customer franchise grew to 12.8 million with 7.3% additions during the quarter and an increase of 29% year-on-year.

Distribution network was augmented by 89 branches in the quarter, taking it to 1,581 branches spread across 1,100 cities and towns. Net interest income for the quarter was INR 1,501 crores, an increase of 5% quarter-on-quarter and 13% year-on-year. Provisions and contingencies for the quarter was INR 267 crores against INR 398 crores for the quarter ended last year June. Quality of the book continued to see sustained improvement.

Gross Stage 3 as of June end improved to 2.5% against 2.7% as of March '23 and 4.9% as of last year June, reflecting sustained healthy collections. Provision coverage on the Stage 3 book stood at 66%. The profit after tax for the quarter ended June increased to INR 567 crores against INR 545 crores for the last quarter and INR 441 crores for last year's same quarter.

ROA and ROE for the quarter stood respectively at 3.2% and 19.4%. Earnings per share in HDB was at INR 7.16 and book value per share in HDB is at INR 150.5. HDB remains well capitalized with a total capital adequacy ratio of 19.8% as of June end.

And a few sentences on HDB -- on HSL, our securities company, that has added nearly 0.6 million clients in the last 12 months, taking the client base to 4.6 million.

HSL has a network of 207 branches across 147 cities and towns. Digital offerings continues to enjoy good traction in the market. Around 93% of active clients utilized the services during the -- utilized the digital platforms of the company.

HDFC Securities has introduced HDFC SKY, a low cost broking platform, which is targeted at all kinds of customers, millennials, investors, traders, providing easy do-it-yourself seamless execution with a high ease and competitive flat pricing policy. The total reported revenue for the quarter was at INR 497 crores against INR 432 crores in prior year. And the net profit after tax was at INR 189 crores, almost flat to prior year. Earnings per share in the quarter in HSL was INR 119, and the book value per share at HSL is at INR 1,153.

In summary, our results reflect consistency of delivery, diligently executed to result in continued momentum in deposit growth at 19% and retail deposit growth within that, which is 21% -- 21.5%. Gross advances growth of 20% and the net advances growth net of IBPC of 16%.

Profit after tax increased by 30%, delivering return on asset in the quarter over 2% and ROE of about 17.3%. Earnings per share reported in the quarter is at INR 21.4 at the stand-alone bank level and INR 22.2 at the consolidated bank level. Book value per share, stand-alone bank is at INR 525.4 and at the consolidated bank level is at INR 542.7.

With that, may I request the operator to please open up the line for questions, please?

(Operator Instructions) The first question is from the line of Suresh Ganapathy from Macquarie.

I have two questions, Srini. One is on credit growth and deposit growth. The other is merged company profitability. So let me first touch the deposit growth aspect. So I know quarterly there can be fluctuations, but your Q-o-Q standalone deposit growth was about INR 30,000 crores, right, 1.6%. But I'm looking at the system number. Apparently, the system seems to have added INR 9 trillion of deposits of 5% Q-o-Q. So somehow I've seen on an incremental basis for the quarter, you might have lost a lot amount of market share. Anything specific which affected this quarter's deposit mobilization?

Suresh, there's nothing specific as such. Typically, Q1 is -- of all the quarters is a slow quarter, right? Across various parameters, it's a slow quarter, from branches to, deposits to, loans to, if you go back historically and see, the first quarter contribution is in single digit, typically on an average, if you see. There will be sometimes where it is in double digit, but typically single digit is what it contributes. That's one.

And two, I know that if I take you back a quarter or 2 ago, that it's not about 1 quarter, you should look at how extraordinarily it got built in March, and then we sustained it. That means we did not lose that over, and then we built on top of that because it was not a small feat and at least INR 50,000 crores came through in March quarter, more than what one would have envisaged. And we kept that and we built on top of that. And particularly, the retail if you see, we built 38,000 in retail.

Typically, the first quarter, you see the current account going down and savings account to some extent moderates due to spend. We have seen 30% increase in spends, right? Our issuing card customers' spending increased 30% and 10% up sequentially on spends, card spends, on the retail cards. So some of these factors typically contribute, but then more important is that we are confident that the building blocks that we put in place for such enormous growth remain and confident of getting that to fruition over the next few quarters.

Perfect. The other question is on advances. You reported in the pre-Q update, merged gross number, excluding wholesale of HDFC Limited, to be growing at 15%. But apparently, in the call, just now, you said it's actually grown at 18.5%. That is if I just take the retail HDFC and add the gross advances of the stand-alone entity, the number is 18.5%. What number to go by? Because what is there in the pre-Q is 15.5%, merged gross excluding wholesale.

See, the gross bank -- we put that up on Page 23 of the earnings deck that we published earlier today to be helpful on that. The bank's gross of IBPC grew by 20%. And HDFC's individual loans, the mortgage individual loans grew by 14% year-on-year. So combined, just the bank loan and the individual loans because that's -- these are the categories of loans that are managed for significant opportunities on growth. That's grown at 19% -- 18.7%, right, that's the growth.

The HDFC's non-individual loans de-grew by 18% year-on-year, 18% it de-grew year-on-year, and which we know that there have been management actions driving that de-growth. And we'll evaluate over the next 2 quarters in terms of what is the stable level before we start to build, right? We'll get to understand it better before we get that to be building. That's down 18%. So that's why, including that, it is a 16% growth. All loans on a gross basis in is 16%.

Okay. There's some confusion with the pre-Q. Okay, no problem. And finally, are you confident that on a merged basis, when you deliver the September quarter results, you can sustain the current levels of ROA reported? I mean you exited, of course, this quarter with 2.1%. Last year also, full year, the number was 2.1%. How confident you are based on your initial assessment?

Yes. See, the level of confidence is pretty high. Typically, I think, Sashi had alluded to in some other context that we're looking at 1.9% to 2.1%. That's a range at which we'll oscillate. Quarter-to-quarter, if there is a timing on certain things, particularly if there is anything that we do will be timing. But otherwise, broadly, it is 1.9% to 2.1% that he alluded to before. That is where we are confident of driving to deliver.

We have the next question from the line of Mahrukh Adajania from Nuvama.

So my first question is on OpEx. Basically, this happened even in the last year's first quarter. So the OpEx growth in the first 2 quarters on a sequential basis is 4% to 5%. And then as branch adds pick up, basically the OpEx ratio or -- the OpEx growth, not the ratio, but the OpEx growth scales up to 7% Q-o-Q, 8% Q-o-Q. And that's -- last year, this happened because the branch adds was significantly high in the second half, right, 600 to 700 branches in each quarter of the second half.

So how do you look at the stand-alone OpEx going ahead? HDFC business moves at a steady-state OpEx, but your own OpEx, as you go on adding branches, do you see the 8% sequential growth coming back? I'm not talking more in terms of cost to income, but the Q-o-Q growth because...

No, no, that's not -- the 8% Q-o-Q is essentially the buildup of the branches that happened there. And so the way -- we try to pace it in such a way, if you think about what happened there, we started the quarter and our goal was to start building the distribution. So we created a lot of capability to build branches. And then as we were confident, because to think about it what we mentioned, which is we're trying to take the benign credit environment as an opportunity to see how we invest and during this time period, run through the maturity and try to get that when credit normalizes, when the credit reverts to mean, which is the historical mean, call it, 90, 100, 110, somewhere around that basis points. That's the kind of -- when credit reverts -- before the credit reverts to mean, we need that maturity cycle to come to fruition.

So we were waiting for that to see. And as we saw, we started to accelerate and go. And then as time goes by, you will see that the base comparison starts to lap. And then after that, you see a moderate level, right? So we have still not seen the lapping of the growth from a base comparison point of view, because we started to some extent in the September quarter to a large extent in the December quarter. And as we saw the credit bending further down -- because if you look at the credit cost last year, June quarter was 91 basis points. This quarter is 60 basis points, right? So as we saw that coming in, we started to implement that. That's essentially, in fact, not all of the credit cost is getting reinvested, but we are taking that opportunity and the environment to do that.

Got it. And my next question is on loan growth and incremental deposit growth. So just in terms of loan growth, we had kind of indicated doubling of the book. Do we see that starting FY'24? Because the run rate is a bit softer in the first quarter. So the merged balance sheet has grown 13% after including everything. And if you exclude IBPC, then it's grown 16%. So do we -- can we see a 17%, 18% growth as we end the year? Would that be a fair estimate?

Mahrukh, yes. See if you think about any time period, a 3-year period or a 5-year period, typically, which we look at 2.3x, 2.4x it moves up, which indicates about 17%, 18% kind of a growth. And that's over a period of a longer term, right, 3, 5 years time period. But over a shorter time period, yes, somewhere we have done 15%, 16%, somewhere we have done 18%, 19%. But 17%, 18% is the kind of -- our capacities are built and that is how we are gaining traction to be at that level from a consistency of growth point of view.

Quarter-to-quarter, it differs. But yes, when you were asking about the full year, our -- that's the kind of level at which. The non-wholesale -- the non-retail book in HDFC Limited will receive evaluation. And as you see, and as we deem fit in terms of growth rate, whether it takes a quarter or two before we start to pump in with that, we will see. But at least, yes, on an overall basis, we're confident that there is enough credit demand. It is for us to see which one we want and what time we will start to build in.

And at the right price, I want to mention that. Even during this quarter, there were several opportunities on loans. You look at our wholesale loans, 11% year-on-year or minus 1.6% -- close to minus 2% quarter-on-quarter. We were not shy of not participating in certain loans. If the price is not to our liking, we don't need it. And -- but we need the relationship, right? We keep it because -- around which we build several other segment relationships. But yes, broadly that's where we are operating.

Okay. Got it. And sir, what would be the -- would you be able to quantify the CRR and SLR of Limited -- HDFC Limited at the end of June? Would that be possible?

No, see, it starts to kick in. I think, in the next fortnight, it will start to kick in. And we provided you the high level in terms of how we are carrying liquidity to both -- to support the growth and support all the results that are required. The bank stand-alone LCR is 126%, on a combined basis -- which was 116% last quarter, 126% now. On a combined basis, pro forma combined a little more than 120%, after accounting for what is required for CRR and so on. So yes, we're quite comfortable with the position there to meet the regulatory requirements.

The next question is from the line of Kunal Shah from Citi.

So firstly on the retail deposit side. So last time, it was quite encouraging of INR 1 trillion. And we have highlighted that on a quarterly basis, we would want to add that kind of number. Obviously, Q1 has some kind of a seasonality. But given the capacities which are being built and the investment in franchise, which is being done, what is the average kind of a retail deposit accretion which we can see over the next 6- to 8-odd quarters?

See, Kunal, what we see there was, we don't give one forward-looking statement, but at least I want to indicate what we have previously said, which is, yes, we have built capacities to be at that kind of a level, and that is where -- that is -- when you look at it over a period of time, yes, there has been a quarter where it was lower. Again, there are -- seasonality, it is low because there are times in this April to June quarter where typically it is low because people are away, customers are away, schools are out. Many things happened in this quarter, right? And -- but our goal and our drive is to be at that kind of a level that we previously indicated. And this will come back up and where we try to drive that forward.

Okay. So INR 1 trillion was the indication, so we should drive that back to INR 1 trillion-odd level.

Yes, thereabouts. That's what we had indicated that that's the level at which we'd like to operate.

Sure. And in terms of credit growth, what you highlighted 17% to 18-odd percent, that is again maybe not taking into effect IBPC. So is that a fair -- or maybe this 13%, which is there post-IBPC is what you're indicating to be like 17% to 18-odd percent sustainable one?

See, IBPC is typically a very transient book, right? And transient means it comes in -- it goes out and comes in, back in, right? IBPC is not a full sale. You manage it quarter-to-quarter. There are a few objectives that we achieve from a priority sector obligations point of view or from a liquidity point of view. There are several considerations that go into doing that. But when we think about the loan 17%, 18% or historical that we have done, 2.3x, 2.4x doubling every 4 years to 5 years, it is on a total basis, right?

So when do we actually expect this number to moderate? Maybe obviously, this will move out. It's a transient one. But what is the kind of number which we can look at in terms of the IBPC because that also drives at least the overall balance sheet number?

We don't have a target for IBPC. It is opportunistic. And as I told you, the purpose, not only opportunistic from a balance sheet point of view and the market demand, there are -- there was a good amount of demand in the market, right? There are certain other institutions which are wanting to put assets on. And we get a good price, we pass it on, right? That's one.

And we -- and second thing is that if there are -- when we look at the priority sector requirements and our ability to what we need to do and if it's an opportune to let that go with somebody else, that is also something. So there is no particular target we have. It completely depends on, it is opportunistic, it depends on what the market is on pricing and priority sector pricing opportunities.

Sure. And one last question. In terms of any integration costs, that would be incurred once there is a merger or there is no integration cost...

No, there will be integration cost in the form of stamp duties and in the form of certain other costs that we will have. But they are, as we said, within reason -- nothing substantial, but within reason it will be. We will call that out separately after we complete it.

Okay. But that's not a meaningful one, which will...

It's not a big mover of the overall financials.

We have the next question from the line of Saurabh Kumar from JPMorgan.

Just two questions. One is on deposit repricing. So this quarter, quarter-on-quarter, your interest cost is up quite sharply, 15%. So can you help us understand where you are in terms of your term deposit rates on balance sheet versus incremental? And the second is basically on this -- on the HDFC mortgage book, so fair to assume that in 6 months, this book completely moves out, moves into EBLR? These are two ones.

The second question I didn't understand. Mortgage book, what is it?

This will all be repo-linked now? This was all EBLR linked at HDFC Limited.

Okay. I got the question now. Okay. First, the deposit pricing. Yes, if you look at the deposit pricing over a period of time, the SA deposits haven't moved, as you know, not just for us, in the entire market it is what it is. It is the time deposit. Our deposit cost that you are seeing is simply a function of the mix that has happened, which is rightfully we are targeting to get the holistic customer relationship or deeper customer engagement. That is why the time deposit last year grew 29%, this quarter grew 26.5% time deposit. So it's a function.

So then the next question is if you're growing this time deposit, at what rate, right? It's just the market rate. If you look at our deposit pricing, it is more or less at or slightly below some of the competitors' pricing level, right? So we are not pricing to gain any deposits. We are trying to price it at or slightly below competitors level. We want that engagement. So we are not shy of that, that it is a cost, but -- because it gives better engagement and it gives a little more duration on deposits and we are okay with that.

So that's how you think about. It is not a lead pricing to get deposits. That's not what we are after. If you see any table at any point in time when you refer, across various tenors, that's what you will see that, right? And of course, we are pitched slightly above State Bank for most of the tenors, except for some short end where I think State Bank could be priced higher for whatever reason. But other than that, more or less in the private sector side, the top 2 or 3 or 4 banks, we are more or less there on pricing.

On the mortgages, you asked about the EBLR. Yes, it will move to repo-based pricing. But when it starts off, it starts off with no difference to the customer because at the end of the day, customer -- whatever is the benchmark in which you do, even today, yesterday or last year, the customer had a choice to finance anywhere the customer wants. So the price is to be pitched at the level which is, again, like the time deposit that I spoke about, competitively priced and with something differentiator in terms of engagement and better relationship with the customer, that is how we are approaching it. So yes, it will move to EBLR repo-based loans.

Why I asked this is, basically in future will HDFC's NIMs will have slightly higher volatility than what it had in the past because now you have a large potentially external benchmark in book or will just try to manage things through cycles?

Okay. Yes. So if you look at how HDFC Limited manages -- managed and that is same book that we are taking over along with the same people and with a similar kind of risk philosophy and structure, the margins were moving in a narrow band, right? It was moving in narrow band because from a duration point of view, they were fairly hedged on the duration from an interest rate risk. That is why when the repo rates went up, you did not see in HDFC Limited spread or the NIM jumping out of page, because the risk management was keeping it in a very narrow band. So in the up cycle or down cycle, it's a narrow change that will happen, but cannot go off. That's part of how the duration is managed, and that will be how -- it will continue to be managed that way.

We have the next question from the line of Rahul Jain from Goldman Sachs.

Just first question, going back to one of your statements that you're sort of making use of declining credit cost in investing in capacity buildup. So how long can this trend continue? We've seen structural decline in credit cost so far along. Is there any more leg room available out there to bring the credit cost down from here? Or how do you see that play out?

Okay. It's a very good question. There's no crystal ball when the credit reverts to mean, right? But there will be reversion to mean. When that reverts to mean? That's part of the risk management art. Our credit will tell us a few quarters ahead of time -- which is what happened, right? When we started to build those branches somewhere, November, December '21, we were looking at how our risk management was viewing, how the cycle is coming along, and then we started to get on to those branches.

So March '22, we added a little more than 500 branches. And then from then on, we've been on that cycle of building. So we will -- our risk management will evolve and tell us in terms of how the cycle is going to turn or when. And it is nothing, but it's a function of maturity. It's not about the quality of the book. The quality of the book is sound now, it was sound then, and it will be sound in times to come. It's a question of maturity cycle of the product and of the credit. And when that reverts -- reversion begins, that's when we start.

But still, by the time the reversion begins, we are confident that we will lap the base effect comparison cycle, right? That's where you want to get this through so that the base effect starts to kick in, the maturity cycle starts to come in 18, 24 months breakeven and it starts to contribute to the top line, and then hopefully, the reversion to mean stops, right? So that's the kind of process that we are going through on that. I hope it helps for you to think to how long it can, right?

Yes. So just to paraphrase, I think you've got sufficient degree of visibility at least for this year that credit costs can keep compensating for enhanced investment in capacity buildup. That's a fair understanding, right?

Yes, that's a fair understanding. And normally 18, 24 months breakeven to payback. So if you started this in December '21, January '22, that's where we started, 18 months' time that you see. And by the time, the base effect is also in.

Makes sense. That's very helpful,. The second is on the segmental growth. So we saw PL quarter-on-quarter growing, I think, had a pretty slow sequential quarter, whereas home loans have picked up. Is this because of your calibrated risk stance that PL has to slow down and the secured portfolio has to grow up? Or it is just a quarterly phenomenon?

It is simply a quarterly, Rahul. I think in some other place I alluded to, first quarter is typically a very slow quarter. If you look at 3, 5 years' time period at an aggregate level on loans, too, a little more than mid-single digit to somewhere a little mid to low double digit. That's the kind of first quarter contribution to the full year, right? So it is normally slow, but we still see a good amount of underlying demand, which is there.

And even as we speak, right, you didn't ask about this, but as we speak now as this quarter has begun and moving on, the mortgages now post merger, what we get anecdotally from various sources within our bank, and as we see some of the log-ins, right, it has to translate into full loan disbursals, the mortgage log-ins are 20% on a combined basis, 20% more than what we have seen before. So we are seeing a good amount of traction build up there. So it's a question of timing when it realizes into the balance sheet, but there is a good demand that is coming through.

Actually, I was quite curious about personal loans in particular because the Y-o-Y growth also for the last few quarters have been under indexing versus the broader systems PL growth. So I was quite curious, is this more of a conscious strategy that you are not trying to grow this portfolio or gain more share or...

Good. Thanks for asking that, right. People sometimes have asked us the market grows personal loan at 30% or 35% or whatever, high 20s and so on, and why we are not growing? We are at 18%, 20% or 22% kind of rate. What's going on? See, that's the level at which our risk management looks at how to calibrate and get that growth across. There are opportunities to do 2x that from a growth rate point of view, but I leave that respectfully to our credit to determine at what pace because every growth gets monitored, evaluated post the disbursals into the bureau to see learnings are incorporated. There are several processes they follow to calibrate it and go. And I wouldn't second guess them in terms of demanding for higher growth than what they allow.

That's helpful. Just one last question on the PSL and RIDF. Any incremental color? Did you have to buy any more RIDF this quarter? Or were you self-sufficient for the full year? Can you just throw some color on that, please?

See, I wish I could tell you how much we will buy, but I want to be careful about the price in the market and not spook up or down. But at the same time, we are conscious of the requirement. We are at an aggregate level more than what is required. We always look for subcategories that we want to build. And over a long period of time, we want to be self-sufficient. That is the reason for our geographical expansion, going into deep villages and so on. That's over a period of time, right, that we need to be self-sufficient ourselves. But in the short term, yes, all of those activities, which is buying PSLC, RIDF as a compensatory where we think that the price is not appropriate in the market, IBPC that provides PSL, or the securitization which is the pass-through certificates that give qualifying assets. We are -- in addition to organically building, we are in the market for all of those all the time.

Srini, just one last question, if I can squeeze in on the merger-related costs. I mean, is there going to be any one-off that we should expect? Any qualitative color that you can give around as you move to consolidate the numbers between you and HDFC Limited for the second quarter or whatever during the year? Anything that we should be aware of?

Yes, there will be some merger-related costs. I think in the previous -- some time, 1 or 2 questions ago I did hear from Kunal asking the same in terms of the merger costs. There will be. It would be something within range and manageable, the stamp duty cost and certain other costs that requires to effectuate the merger. We will be spending that. We have spent or we will be spending that. But it is all -- they are all within reason and nothing out of the page in a big manner.

And apart from costs, there is nothing much that can spring up on account of...

No, apart from costs, there could be some capital assets that we will put in from an infrastructure point of view. And then over a period of time, it will depreciate certain assets for capacity building. But other than that, some costs will be incurred, but they are within reason and range.

We have the next question from the line of Abhishek from HSBC.

Srini, the first question is on this wholesale book of INR 1.1 lakh crores, which you are running down, the HDFC non-individual loan book. What part of that book remains to be run down still? Or now is it at a steady state and you're probably looking to build from here?

Okay. A good point. See, it has come down 18% or so over the last 12 months, right? Part of the management action in terms of how -- as we entered into the merger, a lot of rationalization, and we came down 18%. It will receive -- I don't have one number where we will settle and start to grow, but that's part of how our businesses evaluate, look at those relationship. Because you know that in our wholesale book that we have, which is the INR 4-odd lakhs or INR 4 trillion, something that we have, our wholesale book, it is simply not a lending-based value proposition.

It is a full relationship-based value proposition, which is lending with cash management, with the trade and FX, and with the salary accounts and with the supply chain distribution accounts. So it's intricately connected across all the business segments we operate. Again, here, we are evaluating all of those things, and we would like to grow this book at some point in time. But at this moment, it is getting evaluated for what is the kind of a positioning across various segments that we need to do.

Srini, the reason I'm asking this is this obviously affects your headline growth, right? And there would be part of this, which you may have earmarked that this is not the kind of business we want to do. So if we can get a sense of that, then we know except that how much we can grow. That's just the idea behind it.

It's not that we don't want to be in the business. We very much want to be in those businesses. The construction financing is very intricately connected to mortgage lending. We will be there. We'll be nurturing and growing that.

It's a question of evaluation and it's a question of picking up the right kind of relationship for a broad-based across various segments diversification and then we need to grow. So there is some level of review that needs to happen. So there is not a chance that we are thinking of that we will not be in this segment. We will be. It's like it's the auto dealer financing, which we are very, very well embedded in.

Very similar in the mortgage business. We have to be in the construction business to get that insight into the development. So we are able to finance the mortgage through that process. We will be there. The other book is the LRD book. The LRD book, we do that, and the bank already grows that. And this will add on to that, and we will continue to grow on that. So the only thing that we would not be doing is land financing types, which we will not be doing, or some of the project financing that doesn't meet the regulatory requirements, we will not be. Other than that, very much part of the growth. So I don't want you to take away saying that this is a rundown book. It is not. It is a core part of the book to grow the other retail mortgage loans.

Right. And the part that you don't want to do, the land financing and the project financing, does that run into, let's say, north of INR 10,000 crores or it's within that?

First, you take it and come, but it could be INR 5,000 crores, INR 10,000 crores or whatever. We are evaluating that in terms of what is it, what part of that we cannot or we shouldn't want to be there.

Got it. Got it. The second question, Srini, is on deposits. Now the reason -- or the point I'm trying to get to is, your incremental deposit market share requirement is roughly 25%. And if I look at a longer period acquisition rate, you're going at a 20% incremental market share, so there's still a 5% gap. Now incrementally, would you have to raise rates because you've kept your rates at or below competition mostly. But now you have this incremental requirement, right? And it can't just be fulfilled through your investments in branches. So how do you think about your rates on the DD side versus, let's say, or going forward? And will that lead to stickier rates on your cost of funds and therefore, some more pressure on NIM? How do you think about that?

Okay. Good things. Two things I alluded to, right? One is the market share. So we don't drive the business targeting a market share. So I want you to get off that thought process saying that internally we are thinking of what should be the market share and drive that. No, we don't look at that at all. We look at what is our funding requirement and how do we use our building blocks to get that. So I just wanted to -- want you to keep in mind. So there is no particular mindset target of what we need to go there from a market share point of view.

But coming to the second aspect, which is more important, hey, if you need time deposit, what sort of a pricing? We have stated in the past and we -- that's how -- not just in the last 1 to 2 years, but for a longer period of time, the bank has demonstrated discipline in pricing. We never lead by pricing to get any volumes and it is simply based on relationship. And this comes by a few things, right? We have built a brand over a period of time. We need to reach the customer. We need to be closer to the customer. That is the thought process we have.

And not just in the last 1 year, 2 years. Over a period of time, if you see, that's how the branch got built. We had 2,500 branches in 2013; 4,500, 4,700 branches in 2018; then went to 7,000, 7,800 and growing, right? So the brand strategy is not something that we decided recently. We are accelerating to some extent on that, but it is about the distribution and the reach that is required, which is what we are building.

The third, once you have all this, you need to get the customers in, right? And we have built so far getting in 85 million customers and the -- out of the 4 million customers from HDFC Limited, we have opportunity to operate with more than 2.5 million, 3 million of them to bring liability relationship. This quarter, we added 2.4 million new liability relationships, so you need customers. And then we work on the customers, both the new account value. As we bring in customers, we get in certain balances and then the change in balances of the existing customers, we work through engagement to see how do we deepen that to get more balances.

And one of the ways in which we have recently got change in balances or the deposit from customers is time deposits. We have seen that our penetration has been low at 14%. We moved that needle to 14.5% right now, but the denominator has also changed, right? We have more customers now. So while we have grown 29% last year, 26% in the recent quarter, still it has made a difference of only 50 basis points higher from a penetration. We have a long way to go.

And if you look at the pricing, which is where you started this question, how far pricing is influenced by this? You can be -- at any point in time, if you look at the pricing, our deposit -- time deposit pricing versus some of the peer benchmarks that you see, they're pretty closely aligned. We don't lead by price. I want to leave the thought there. This is part of the ALCO discussion in terms of how we engage with the customer and how pricing is not the lead consideration for getting any deposits.

Got it. Got it. And just squeezing in one quick question, on your calculation actually. So the ROA that you show in your PPT, that's 2.1%. Is that calculated on quarterly average balances? Because when I calculated, it comes to 1.9%. So just trying to reconcile that difference?

I don't know how you calculate daily averages. But whatever the daily average, but you cannot get 1.9%. You send your numerator and denominator, we will tell you where there is an issue.

The next question is from the line of Manish Shukla from Axis Capital.

Firstly, Srini, are you able to quantify the crystallized liabilities of HDFC Limited at the time of the merger?

Yes. The liabilities that get crystallized is about INR 6,36,000 crores, is what is moved to the bank. That INR 6,36,000 includes the deposits, right, which is on Page 23 of the earnings deck that we showed. That includes the deposit, but INR 6,36,000 is what was moved along with the assets.

Sure. That's helpful. Secondly, on the merged basis, the loan-to-deposit ratio is at about 109%. How and when do you think you can get it down to below 100%? And basically, I'm saying that in terms of your incremental funding requirements, how do you think between deposits and...

Sir, sorry to interrupt, but the line for you is not very clear. I request to please use the handset while you're speaking.

Manish, I will get to that. See, on the -- you asked about the deposits -- credit to deposit. Yes, instantly because of the merger, it goes up. On an incremental basis, if you see, last year was 72% incremental credit to deposit. This quarter is 50-something incremental deposit. But the way we think about and operate is that, premerger on an average it was 84% -- 84%, 85% credit to deposit. We are operating at about 80% or so. That is the kind of a thought process from a credit to deposit ratio.

So even if we want, instantly it cannot be brought down because there's a maturity profile for the borrowings that we have. So it will take 3, 4 years for that to come down to a level at which the bank has historically operated. And so we have to wait for the maturity profile to go and get replaced with the deposits.

So this gap would essentially be funded via affordable housing bonds or other kind of borrowings, right?

No, because it is maturity profile. No, it will both run down. On an incremental basis is what you need to look at. And then it will play out where it comes back in 3, 4 years down to normal.

The next question is from the line of Pranav from Bernstein.

I'll just go back to the IBPC's issue, Srini. The question is, if you had -- instead of going down the IBPC route, if you had kept the loans on the balance sheet, what could have been the loss in terms of numbers? Is it ROA which would have been impacted? Or is it your LCR? Or is it your PSL management? Or in otherwise, what did you -- or what would you have to sacrifice to report a better headline number?

No, it's like this, right? When you do IBPC sell, in which case, this is what we have done, you've taken the loans off the balance sheet, and -- so the baseline for priority sector lending goes down. So you are reducing the obligations on which you need to have the directed lending at some point in time in the future. So that's something, right, very important on that front.

Then the second thing is that from a pricing point of view, if there is some better pricing and there is a demand there, it gives you a certain pickup in the spread on that. So these are a couple of concerns. Then liquidity, of course, right? You get some cash and you can deploy it. You can -- essentially, it's leveraged again, right? You've got the money, you can get more loans that you want and you are able to leverage further. So that's the kind of thought process we deployed to do this.

Thank you. Ladies and gentlemen, we have come to an end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

Okay. Thank you, Bhavin. Thank you all the participants for participating. It was good and quite a dialogue that happened. Further questions and those of you who could not complete questions or haven't had that opportunity to get on the line due to time constraints, we'll be open to having a conversation at some point in time. Please get in touch with our Investor Relations at Bhavin or anybody else with whom you are previously connected, we'll be happy to have any dialogue. Thank you. Bye-bye.

On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines.