HDFC Bank Ltd (HDB) 2022 Q1 法說會逐字稿

Ladies and gentlemen, good evening, and welcome to HDFC Bank Limited Q1 FY '22 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, Aman. Although we see some queue building up, but we'll get started so we can move on. Good evening, and welcome to all. Appreciate the participants calling in today, including us. Firstly, we will go through some background environmental update, and then we'll get into the business highlights, and then we'll go to the results.

Let's start by placing on record our appreciation and thanks to all staff and associates for steadfast and tireless focus on meeting customer needs in the midst of this pandemic, particularly in this quarter, which was, for most part, impacted by COVID second wave. There were several thousands of staff who were diagnosed with COVID, more than 10%, 12% of the staff, and all the staff and their families need special admiration and thank you.

We had less than 1,000 staff vaccinated at the beginning of the quarter. Since then, we have done over 370 camps. We've also tied up with multiple hospitals to allow vaccination. We now estimate that more than 80,000 staff have had at least 1 dose of vaccination.

During the quarter, activity indicators released for the month of April and May were downbeat. This is I'm talking about the economic activity releases were downbeat, reflecting the impact of the rising COVID cases and lockdowns. High frequency indicators such as power demand, auto sales, PMIs grew sequentially in April and May. Rural demand is gauged by 2-wheeler sales, tractor sales, rural unemployment rate also took a hit. So this time around compared to the first wave, the rural was also in the thicks of this COVID.

However, in June, the economic activity improved, in line with easing COVID-related restrictions, lifting of lockdowns in various states. This provides the backdrop of the activity in the quarter, which was mixed for most of the quarter where almost, call it, 2/3 or 35, 40 days of the effective work that could happen. Otherwise, the business was muted for the rest of the time period.

While GDP numbers for Q1 might look upbeat due to low base, the sequential growth is likely to contract. FY '22, our in-house view is that it would be 9.1% brought down from a little more than 10% that we talked about 3 months ago. CPI headline inflation is steady at 6.3%, and our in-house view is that it will hover above 6% for the next 2, 3 months, needs to be seen, but we do expect RBI to continue towards supporting growth and keeping monetary stance accommodative.

During the quarter, our equity capital markets saw muted trends compared to the previous quarter as private issuers through a mix of IPOs, rights, QIPs and block deals raised a little more than INR 24,000 crores versus equity raise of INR 70,000-plus crores in Q4 '21. Retail participation in IPOs has been strong during this quarter. The equity fundraising pipeline, both in public and private markets, continued to be robust. During the quarter, we were mandated for 5 IPOs, including 1 IPO where we were appointed as left-lead merchant banker. Fundraising through the Indian bond market was approximately INR 1.25 lakh crores in the quarter, which was 49% or so lower year-on-year. Our bank is ranked #2 for Q1.

Our association -- now getting to some business highlights. Our association with CSCs is helping us offer cost-effective services in semi-urban and rural, the hub-and-spoke model, where every CSC is mapped to a branch to service. As of June quarter end, we have signed up approximately 1.71 lakh village-level entrepreneurs, of which 1.12 lakhs are onboarded as business facilitators. In the month of June, we launched a new straight-through process journey for consumer durable products at the VLE centers. It employs VLEs to issue sanction letters based on customers' eligibility, which removes the bank's intervention and enables the VLE to do end-to-end processing of the loan. We have launched our chatbot EVA for the VLE-specific queries. Through EVA chatbot, VLEs will learn about the products and services offered by HDFC Bank, which in turn will improve services offered to the last-mile customer.

Our health care initiative that we talked about in the past is building -- bank is building COVID portfolio in line with the RBI announcement of extending loans for medical equipment purchases, stockists and so on. Hospitals are being funded for their investment in vaccination efforts. We have successfully activated the patient EMI and CC and DC, credit card, debit card programs at more than 200 hospitals.

On the retail branch banking front, we focused on launching a unique initiatives that takes need-based selling to the next level. Immediate next best action is an artificial intelligence tool that studies the customer transaction patterns and digital behavior, and is able to correctly pinpoint the financial need of the customer and the contextual relevance to suggest product and timing. It provides real-time figures to the RMs on customer transaction patterns and digital behavior. The initial trends are very encouraging with a 6x higher probability of the customer to take the product based on analytics than the traditional process.

One of the significant digital enhancements that helps in greater customer service is the walk-out working journey. This is a revolution in servicing the needs of the customer. It aims to make servicing of the customer instructions paperless through the use of bitly link and 2-factor security authentication even if the customer is not active on the net banking. Paperless journey was recently launched for a few of the services, and in due course time, it will cover many more customer instructions.

On the digital front, I want to give you an update on the digital front. UPI transactions, by count, both P2P and P2M, in aggregate have sequentially grown 5% to 65.7 crore transactions, and over prior year, it has gone up by 2.4x. On a similar basis, UPI transactions per value, both P2P and P2M, have sequentially grown by 11% to INR 165,000 crores and over prior year, it has gone up again 2.4x. For the quarter, in terms of the value, our P2P market share is about 10% and P2M market share is about 14% on the UPI. Mobile banking and net banking users have grown year-on-year by 31% and 21%, respectively.

Transactions count has seen a growth of 103% year-on-year on mobile banking and 39% for net banking. We continue our focus on tele-channels for service sales and relationships. During the quarter, telesales channel grew 400% in business over Q1. Understandably, with a lot of lockdowns and this channel is the only active channel that on a remote basis could be easily operated -- relatively easily operated.

On the payment business, the bank has got 14.9 million cards in force, right, at the end of June, with the market share for cards in force at about 23.8% May number, right, slightly dated, May '21 number. Bank share in receivables stands at about 56%, right? The market share in issuing card spend stands at 28.5% as of May '21. Within issuing spend, the bank analyzes retail spend separately, which caters to a large customer base, which the bank has managed to build over the years and the bank continues to focus on deepening the relationship. The data coming from the network franchisees, spends per active card for the bank 1.4x higher than the industry. Average ticket size of the transaction is 1.2x higher than the industry, which reflects the strength of the franchise and the depth of our customer relationship.

In retail spend, we've grown 53% year-on-year, right, and lower numbers of credit card customers are now revolving. So the revolving balances are down, right, because understandably, Jimmy will probably talk about our credit actions and understandably in the market, there is a shyness, as you see the card spending is down overall, right? Given the prevalent COVID scenario, bank is cautious in extending the credit.

Another important information. While we look at retail spend as opposed to a total spend, which is the retail spend plus the business cards plus the commercial cards, that's what many people in the market see based on published data, but we analyze retail spend separately. There is a reason why retail spend is more important. About 3/4 of the bank's credit card customers hold a deposit with us, with aggregate balances amounting to 5x the card outstanding. That's the 5x the card outstanding is the deposits that are made available to us by the card customer. So that is very important to analyze the retail spend and the retail card relationship as opposed to a generalized total card spend and the total card relationship.

Merchant acquiring. The bank has 2.3 million acceptance points as of June with an year-on-year growth of 24%. Acquiring business volumes, including credit, debit, UPI, direct pay for the bank grew by 75% year-on-year for the quarter ended June. In the time of social distancing, the bank has continued its focus on digital payment solutions of various order, various payment factors. As per RBI data, previously I was quoting certain things on retail expense through the franchisee data, through the RBI data now on acquiring, the bank's acquiring market share for April stands at 50% -- 50.5% versus 44% in April last year.

On the retail assets, our book grew by 9.3%. Arvind Kapil will talk a little more in terms of how -- where we have gone through in the quarter and how we are picking up momentum on that as we are coming out of the wave 2 and how we are strengthening the digital solutions for customers on that.

On the wholesale segment, paydowns have increased during the quarter as corporates deleveraged. However, the bank continues its progress in gaining market share due to diligent adherence to sales process. Wholesale credit growth is largely from PSUs, and we continue to provide liquidity to quality and relationship-based NBFCs for on-lending as well as for PSLs. Jimmy will allude to a few things as we go.

Commercial and rural banking business largely impacted in April and May due to localized lockdowns but picked up in June. We'll have Rahul Shukla talk a little about how that's coming along now.

Collections, as I mentioned, were mostly stalled with the advent of wave 2 COVID stalled this momentum as it was picking up in March. But from April and May, it stalled that momentum of pickup that we were seeing. This is reflected in the bank's portfolio as we faced severely curtailed collection workflow during the quarter due to restrictions of personnel on the field and both concern -- health and safety concerns of our staff as well as the customers.

On the -- I do want to cover a few sentences on the society and community. As its key ESG commitment, the bank pledged during the quarter, as you would have read and seen, to become carbon-neutral by year -- financial year '31, '32. The bank has three-pronged strategy to achieve its objective to become carbon-neutral; reduce consumption, transition to renewable energy, and asset carbon footprint. The bank has set clear targets on its environmental and social responsibilities, which include improving the gender diversity ratio, developing a green bond framework and emission reduction targets. On the community front, the bank has set goals that are aligned to the sustainable development goals of the United Nations, and will track progress on this front.

In response to the challenges brought forth by the second wave of the pandemic, the bank has stepped up its work on upgrading health infrastructure facilities, setting up ICU facilities, oxygen plants and distribution of nutrition and hygiene kits under COVID relief. An amount of INR 100 crores has been committed towards this.

Now some kind of balance sheet strength at a high level before we go into the micro details. COVID, as I mentioned to you, significantly impacted the franchise, but still about 1.64 million new liability relationships were opened in the quarter, an increase of 40% over the same period in the previous year.

Deposits grew 13.2%, strong contribution from retail, which grew by 16.5%. Advances growth by -- increased by 14% -- 14.4% with a strong momentum and build coming from commercial and rural banking, which grew by 25.1%. Liquidity is consistently strong at about 126%. Capital adequacy 19.1%, and CET1 17.2%.

We did build some contingent provisions during the quarter. The floating and contingent provisions totaling INR 8,000 crores helps in derisking the balance sheet. We continue to originate loans in conformity to our proven credit models. We'll cover credit as we go.

I want to provide once more context, some people joined late, so I will give a context again, then get into micro details. We will get into details. But as I mentioned in the beginning, COVID wave 2 had significant impact with people health concerns. Various bank activities were curtailed for almost 2/3 of the quarter. About 35 days to 40 days we could count where there could be certain things that could be done, otherwise significant curtailment. Lower product sales, including retail asset bookings, reduced card spends and revolvers, reduced collection activities, in summary, impacting interest income, slippages leading to interest reversals and provisions, et cetera.

COVID wave 2 is behind us for most part, and subject to -- we are hopeful of a benign COVID wave 3 -- which again, subject to the bening COVID wave 3, we see these are most parts timing of temporary. We see buoyancy. As we go in this call, we'll have our frontline business heads describe the current experiences in the market.

Let's start with revenues. Revenues grew 18% -- net revenues grew 18% to INR 23,297 crores, driven by advances growth of 14.4% and deposit growth of 13.2%. Net interest income for the quarter was at INR 17,009, which is 73% of net revenues. It is up 8.6% over previous year, and a tad lower than 1% over previous quarter. Core net interest margin at 4.1%, prior year was 4.3%, prior quarter was 4.2%. Net interest income sequential growth rate is impacted by approximately 3 percentage points due to lower yielding asset mix, including lower cards revolver balances, higher interest reversal due to delinquencies and a higher mandatory cash reserve ratio, which got implemented late March, the higher CRR.

Net interest income year-on-year growth rate is impacted approximately by 6 percentage points due to lower yielding asset mix, including lower card yield and revolver balances, higher interest reversal due to delinquencies and a higher mandatory cash reserve ratio.

Now moving on to other income. Total other income at INR 6,289 crores was up 54% versus prior year and lower 17% versus prior quarter, again, the impact of COVID on a sequential basis. Fees and commission income constituting 62% of other income was at INR 3,885 crores and grew by 74% compared to prior year and is lower by 22% compared to prior quarter across various retail product lines impacted due to the activities of sales in retail. Retail constitutes approximately 91% of this, so impacted due to the activity that was less.

FX and derivatives income at INR 1,199 crores was higher than prior year and prior quarter, reflecting pickup in activities and spread both sequentially and year-on-year. Trading income was at INR 601 crores for the quarter. Prior year was at INR 1,087 crores and prior quarter was at INR 655 crores. Some of the gains from investments were monetized in line with our ALCO strategy.

Miscellaneous income of INR 603 crores includes recovery from written-off accounts and dividends from subsidiary. I'll cover some of these more on recoveries a little later.

Expenses. Operating expenses for the quarter were INR 8,160 crores, an increase of 18% over previous year. Year-on-year, we added 327 branches bringing the total branches to 5,653 as of June end. We opened 45 branches during the quarter, on an average 1 branch every alternate day. Many days were impacted, but still on an average, 1 branch every alternate day we managed to open. Branch opening has been impacted. We have approximately 150 branches in various stages of readiness to be open soon as things improve.

Since last year, we added 1,295 ATMs, cash deposit and withdrawal machines and 204 during the quarter. As of June end, we have 16,291 ATMs, and our cash deposits and withdrawal machines. We have 15,687 business correspondents managed by common service centers, including 131 opened during the quarter. The staff count increased by 7,651 during the last 12 months and is at 123,473. During the quarter, we added 3,380 staff. We brought them onboard.

Cost-to-income ratio for the quarter was at 35%, which is similar to prior year level. We anticipate the spend levels to increase, driven by incremental volumes, sales and promotional and discretionary spends and investments as activity particularly on the retail assets front pick up. As we said in the past, the cost-to-income ratio will be reverting to 38%, 39%. In the short run once we are behind this COVID and the activities in the retail assets pick up, while our goal remains to bring this down again in the medium to long term.

Moving on to PPOP, the pre-provision operating profit at INR 15,137 crores grew by 18% over prior year.

Now coming to some colors on asset quality. The GNPA ratio was at 1.47% of gross advances as compared to 1.32% in prior quarters and 1.36% in prior year. GNPA ratio, excluding NPAs in agricultural segment, was at 1.3%, prior quarter and prior year were at 1.2%. Net NPA ratio was at 0.48% of net advances, preceding quarter was at 0.4% and prior year was at 0.33%. Again, net NPA ratio, excluding NPAs in agricultural segment, was at 0.42%, prior quarter was at 0.39% and prior year was at 0.29%.

The core annualized slippage ratio for the current quarter is 2.54% as against 1.66% in prior quarter and 1.2% in prior year. Excluding slippages in the agriculture segment -- because we did have significant slippage even in agricultural segment in this quarter, excluding slippages in agriculture segment, the slippage in the current quarter was at 2.2% against 1.61% in prior quarter and 1.17% in prior year. As you know, 2/3 of our current quarter was impacted, that's part of what we are seeing here. We believe it will take next few months to get the missed collections to a regular schedule.

Sale of NPA, INR 1,800-odd crores in the quarter. At the end of March, we had restructuring under the RBI resolution framework for COVID at about 60 basis points. At the end of June, restructuring 1 and 2 together is about 80 basis points.

On the provisions, the core specific loan loss provision for the quarter were at INR 4,220 crores as against INR 3,153 crores during the prior quarter and INR 2,740 crores for the prior year. Total provisions reported were INR 4,831 crores as against INR 4,694 crores during the prior quarter and INR 3,892 crore for the prior year. Total provisions in the current quarter included additional contingent provision of approximately INR 600 crores.

The reported specific provision coverage ratio is at 68% as against 70% in the prior quarter and 76% in the prior year. There are no technical write-offs. The head office branch books are fully integrated.

At the end of current quarter, contingent provision towards loans were approximately INR 6,600 crores. The bank's floating provisions remained at INR 1,450 as of June 30 and general provisions were at INR 5,300 crores. As on June quarter end, total provisions comprising specific, floating, contingent and general provisions were 146% of gross nonperforming loans. This is in addition to the security held as collateral in several of the cases. Looking at it through another lens, floating and contingent and general provisions were 1.15% of the gross advances as of June end versus 1.10% in March '21 and 0.99% in June '20.

Now coming to credit cost ratios. The core credit cost ratio, that is specific loan loss ratio is at 1.46% for the quarter against 1.10% for the prior quarter and 1.08% for the prior year. Recoveries, which I said I'll mention it now, recoveries, which are recorded as miscellaneous income, amount to 14 basis points of gross advances for the quarter against 26 basis points for prior quarter and 9 basis points for prior year. Recoveries were also significantly impacted for most of the quarter, again, the COVID impact. It will take a few months to get to a normal schedule to get the recoveries back on to track there.

The total credit cost for the quarter annualized, including the contingent provisions created, was at 1.67% as against 1.54% in the prior year and 1.64% in prior quarter. PAT at INR 10,306 crores grew by 15.3%, and net profit at INR 7,730 crores grew by about 16% versus prior year.

Now some balance sheet items. Total deposits amounted to 1,345,829 crores, an increase of 13.2% over prior year and up 0.8% over prior quarter, which is an addition of approximately INR 156,000 crores since prior year and INR 11,000 crores in the quarter. Retail constituted about 82% of total deposits and incrementally contributed 37 -- a little more than INR 37,000 crores during the quarter, a growth of 3.5% sequentially and almost the entire deposit growth since last year, 16.5% growth year-on-year.

With our persistent focus on granular deposits, CASA deposits registered a phenomenal growth of 28% year-on-year ending the quarter at INR 611,801 crores with the savings account deposits at INR 426,000 crores and current account deposits at INR 185,000 crores. Current account increased by 24% year-on-year. However, it declined by about INR 26,000 crores during the quarter primarily because of wholesale segment.

Savings account grew 30% year-on-year or 98,000 -- a little more than INR 98,000 crores and sequentially grew by 5.6% or little more than INR 22,000 crores. Retail constituted about 88% of CASA deposits.

Time deposits at INR 734,000 crores grew by 3.1% over previous year and 2% over prior quarter. Time deposits in the retail segments grew by 6.6% year-on-year and 3.7% sequentially. Time deposits in the wholesale segment decreased by 7% year-on-year and decreased 3% sequentially. CASA deposits comprised 45.5% of total deposits as of June 30. Credit-deposit ratio was at 85% for the quarter, which is same as what it was in prior quarter, prior year it was at 84%.

Now getting to advances. Total advances were INR 1,147,652 crores, an increase of 14.4% over prior year and a sequential growth of 1.3%. This is an addition of approximately INR 144,000 crores since prior year and INR 15,000 crores during the quarter. As per internal business classification, retail loans grew by 9.3% over prior year and degrew by 0.7% compared to prior quarter. Commercial and rural banking loans grew 25% over prior year and grew by 3.9% over prior quarter. Wholesale loans -- other wholesale loans grew by 10% over prior year and grew by 1.5% over prior quarter. Maybe Jimmy Tata can give some color about the growth in the loans and the situation on the credit front.

Sure. Thanks, Srini. Hi, everyone. Thanks for coming this evening. I'll first just to go through a little bit on the retail side, discuss the credit philosophy, strategy and the portfolio management. I'll come back a little later for the SME and the commercial and rural banking and the corporate side of it.

So I think Srini alluded to it already, so I'm not going to talk too much. But yes, this has been a quarter where things were not the most orderly because of the second wave that hit us. If you recall, just to recap for a minute the previous discussions over a couple of quarters, we were talking about how the moratorium exit and the recovery of most portfolios up by December, in fact the last of them by March, and we were pretty much back to the pre-COVID levels. So that was all very encouraging till the second wave hit some time in April.

The effective impact of this was, of course, on business, which I think Kaizad and Rahul will have a little to say in a minute, but I'll just get on to how it impacted the portfolio. We found ourselves and our staff getting infected quite rapidly. So we took a decision to put safety first, and we stopped going out on recovery calls, et cetera. Most of the work that was done during those 2 months was essentially on the phone, work from home and all that. So I'll come to the impact in just a few seconds. But it's only been in the month of June that we really have had the ability to start going out. Now this is all despite the lockdown. So where there are restrictions, we still cannot do it. I'm only talking about the self-imposed restrictions over and above the other restrictions during the first 2 months.

That said, I must say that the second wave, 2, 3 differences between the second and the first wave. The second wave financially has been less severe. Health wise, of course, has been much more severe. If you look at policy, not national policy, as compared to the first wave, again, there was more of a prioritization on the health and safety initially and I think that it has been more selective in terms of not having nationwide lockdowns, et cetera, in the second wave. So all this resulted in the financial impact not being as severe. The peak bounce rates, for example, have been lower than the first wave, et cetera.

So that's the kind of backdrop in which we worked around, to just give 2 or 3 macro indicators on how things have dipped and then come up again because you'll see this moving as kind of common theme through everything that I go in. If you look at the Google Mobility Index, it tanked very badly as one would expect in April and May, very good recovery in June. And by the time we sit now almost on a daily basis in July, it's virtually recovered back to where it was before. So that means like something like March, April level.

If we look at the e-way bills in, now these start sending slightly mixed signals. The third one will send an even more mixed signal to you. So the e-way bills have been on the increase again. If you look at June over May, again, much higher, but still you're below the March levels over there. So that's not as good a story. And if you look at the Purchasing Managers Index, which is a good indicator of actual activity as it's happening, that has lagged expectations month-on-month hasn't really panned up. So as I said, the macro signals also a bit of a mixed bag out to you.

So let me get now straight to where we stand. The bounce rate essentially has held up in the portfolio. If you look at the 0 DPD bounce rate, which essentially means people who are not in default on the date of their presentation, it has actually reverted back to the pre-COVID levels despite the hitch that may have happened in April and May. If you look at the overall bounce rate, it hasn't gone back to pre-COVID levels, but there has been a pretty good recovery in the month of June. And if we go a little further into the month of July as well, there is a further recovery. So I think the trends on reversal and the speed of exit out from this are relatively encouraging for us.

I'll add that this is across products, and it essentially signals -- and I'm putting this bounce data out because it essentially signals that the inherent quality of the portfolio has not changed. And it is the safety-oriented decisions that would have had whatever impact that has happened over the first 2 months and the reversal trends seem to be quite strong.

I must also put this bounce in context with the rest of the industry. If you look at the NACH data that gets published, you will notice that HDFC Bank has consistently had a 50% better bounce ratio and this is quite consistent. It was there even before COVID and it remains there after COVID. So the space in terms of the bounce data remains intact, which once again reinforces to us, at least, that the inherent portfolio quality has not been very badly affected.

But now let me move into the demand resolution. So here what we are talking about is we define this as a presentation of a particular month collected and recovered during that particular month. This, of course, through May and April, as you will understand, hit quite badly because we refused to go out. Although demand resolution is, of course, an early bucket. I think that you do have a lot of augmentative collection that takes place, and we do need people to go out to hit those last 2 or 3 percentage points. So it did suffer in the month of April and May. There has been a bright, if I can use the word, recovery in the month of June, and I think the early periods of July continue to bring that particular point out.

So here, we are not really back to pre-COVID levels, but we are well on the way back to at least a March kind of level. And March had almost caught up with the pre-COVID levels, may have just been a percentage shy or so. So in that sense, it's the best way I can indicate to you. The team does believe that over this quarter, they will have cleared the rest of the distance and manage the mean reversal that's required.

Since there were high levels of infection emerging in the team around April, we obviously stopped before May. And that's why we saw -- we got a lot of people vaccinated. So it's not that we have compromised on the safety standards at all before moving out again. There has been a high level of vaccination, has been a high level. So we've got people actually back into the offices even for the calling, et cetera, and had people with the ability to go out. So I think that this is relatively temporary and will reverse.

While I'm saying that, I think there is one product line where I should point out a non-COVID impact item because we keep talking about how COVID has impacted things. The commercial transportation has been hit by the diesel price hikes. And our previous experience also tells us that it usually takes a couple of quarters for people to manage to pass on these price hikes and cost hikes onto their customers.

We expect in the current quarter, meaning the June-September quarter -- July-September, sorry, that a fair amount of that would get passed on. And in the quarter after that, particularly with the help of the festive season, I think people would manage to bring the -- bring things back on an even keel by passing on these increased costs, but this is an aspect where we will need to look at the developments in that particular product.

I think Srini touched a little bit on the restructuring in terms of where the levels have moved. I'd like to say a little bit on the restructuring in terms of how we have gone about it and how we are continuing to go about it because there is still some window left, and I would expect a large part of the restructuring to take place before September. We rolled out across various platforms to make it as convenient as possible for people to apply. There has been a minimal benefit of this in Q1, and we would expect to see some more of this in Q2 because we again had barely a month or so after the rollout to actually try and facilitate this.

How we are going about this essentially is, and because these questions do arise in people's mind, and we do get asked as well, so I might as well say it before it's asked, we do not restructure if liability is in doubt. We will take the pain and we will decide to move on with that. If people have lost jobs, we do take a slightly comforting view on this because most people who did lose their jobs would manage to regain employment as soon as there is some sort of revival, and there are signs now that things are reviving. So once again, one would tend to restructure that kind of a loan.

We noticed that there are a lot of people who are while delinquent staying in the same bucket. What this essentially means is they are managing to pay their monthly installments, but are not being able to reverse the trend and catch up by making multiple installment payments. Restructuring here again seems to be relatively safe because the ongoing cash flow seems to be in order. And -- so these are some of the -- just to give a little bit of an indication because we do get asked what we do and what we don't do. So I think that's perhaps the best way I can do it. It's much more complicated than this and it's much more case-specific than this. So please don't take this as some very simplistic or a product -- program-driven method. It's rather detailed, but just to give everyone a flavor of what we do and what we don't do.

I think see -- and of course, going behind our mind is the fact -- two things which I'll come to a little later. I think one, I just did touch up on myself, the bounce rate is holding up, and therefore, the inherent quality of the portfolio remaining good, we do feel encouraged to be, and we should in this environment be more compassionate and empathetic towards these kind of things. But we do feel encouraged to do this on a commercial level as well because of that.

I think the second part to it is we -- and I'll come to this a little later, the new portfolio is definitely holding up and has a better quality than the historic portfolio. And that said, it's not such a new portfolio anymore as I have been talking of the new portfolio itself now for 3, 4 quarters. So it's reasonably seasoned by now.

Moving into the actual portfolio quality in terms of the collection resolutions now. So I spoke of the bounce, the demand, and now we move into the collection resolution, where again it's pretty much the same story and a little more exaggerated because those particular buckets depend much more on physical movement, which as we said was hampered. As soon as we got back into the physical game, the recoveries have been quite sharp.

If you look -- not just at June, but if you look at early July and we compare the early days with the early days of several preceding months, it's once again even more encouraging for us. So the health-first decision that we took is likely to get reversed by the end of the current present quarter in which we are in. I think this goes across products and across buckets. So there's nothing on the downside to put out over there.

I must point out what I spoke to you about June, about July might be a little too early because there are very few ways. But the overall trend does remain in that particular direction. Recovery is again the same story, June better than May and April, and in pretty good measure if I read some of the product level data over here, which we don't really put out in public, but significant improvements June over May and April over there, compared to the 2 previous months, July once again looking more and more encouraging.

So I think that kind of covers one part of the portfolio management, and you'll have seen a kind of theme over here that April and May were problematic because of the decision that we took. Good recoveries across the board in all these things over the month of June, looking even brighter for the part of July we have covered up till now. I think the decision that we took, therefore, does seem to be vindicated. The portfolio does remain inherently correct and strong. And I think the decision that the bank took was very timely. I think it prevented a lot of lasting damage in various respects and has not really created a problem that cannot be reversed, which we'll have to see.

Again, Srini referred to the sale of assets, and I'll just add again a little more on the operational side of that. So yes, as he mentioned, around INR 1,800 crores this quarter. If you recall, it was a whisker short of INR 1,000 crores last quarter. My reason for putting this out just now is that this is going to be a consistent activity of the bank. And I don't think it is also going to be a very standard value every quarter because the way it is computed is not to make it a regular feature. We evaluate the portfolio during each quarter, and we take a decision as to whether we believe we can have a more efficient collection through our own efforts over time or whether we should take the money available instantly and close the particular account.

So each quarter, the amount that we sell depends on what we feel is emerging in those. These are rather detailed exercises. They take place virtually at a case-specific level, even for smaller granular retail assets. So I think I just should put this out over there, that this will continue quarter-on-quarter and the amounts will not necessarily be very consistent and regular. They will depend on what our view and commercial decision is with regard to collections at that time.

That kind of puts straight through the portfolio management. I'll just take a few minutes in terms of the policy and what's coming through the door right now, but I'll hand over to Arvind to really complete that piece. If we look at bureau inquiries, you'll see -- you will have noticed that across the industry that bureau inquiries are going up over the last few months, but pleased to report to you that it's going up at a faster pace for us. That, however, is quantity. So let's get on to quality.

Within what's going up in terms of inquiries, the share of HDFC Bank in these inquiries for the better-rated bureaus costs, if you take a 750, 760 kind of level, which everyone considers to be a good level, if you look at what's arising in for HDFC Bank versus the rest of the industry are inquiries, in every single product, you will see that there is a higher level of interest in HDFC Bank amongst the better credit rated retail borrowers, typically around 50% better, but there is a large standard deviation across products for this. So I don't want you to think it's just across every single product. But this once again is encouraging from the point of view of the quality of these inquiries coming in.

The proof of the pudding is obviously in the disbursement. Inquiries are inquiries. So happy to report the same story over there. Compared to the pre-COVID times, I think in every single product, we've got -- we don't put all this data out in public but significant, I mean, 33%, 40%, 50% better penetration into the higher scores across these.

While I'm saying all this, I do want to emphasize that the reason I'm comparing to bureau is only because it's the only way we can make a comparison. We do much more than the bureau. For the bureau itself, we use multi-bureau analytics. We have our own algorithms. We do a lot beyond. We have trade level diagnostics that we put into. There's a lot more that goes into it. My speaking about the bureau comparative is only for that purpose to give you a comparative. It's not really reflective of all the work that goes into our portfolio. I think I mentioned it before. Every single band of bureau score, we would have a better-than-average portfolio performance in that segment.

Do I have anything more to tell you? I think the other piece is industry comparative on delinquency, nothing very different to report from before. Across products, there is a significant differential between our delinquency and that of the market and the fundamental story of industry-leading delinquency numbers remains over there.

And I think that's all I wanted to speak to you, except that, yes, I alluded to it a little earlier. The new book is holding up well. And that obviously encourages us to move into a growth phase as the economy hopefully now turns, and we don't have too much of a third wave coming on or anything like that. And we will -- we are well prepared for these sort of things.

But I think that's all I want to put out right now. And so Arvind, why don't you go ahead?

Yes. Thanks, Jimmy. A very good evening to all of you.

On retail assets, let me start by giving you guys a quick sense on the last quarter. I think despite the 7 to 8 weeks of mobility restrictions across various states, I can fairly say that our teams have probably addressed customer needs through our contactless and digital lending solutions, which we beefed up after the last lockdown. The results, of course, the retail asset portfolio growth is showing around an 8% approximate over the June last year.

So if I had to give a sense, during the same quarter last year when there was a kind of a severe lockdown, our retail assets portfolio actually degrew by 3% to 4%. However, owing to the kind of agility and investments in contactless, digital disburse across retail asset products and the capabilities that we've incorporated, the portfolio has kind of held on, but also been able to sequentially grow the portfolio very marginally over the March 31st '21.

At this junction, let me take a minute pause and give you guys -- acclimatize you exactly with what's happening in the month of June. I'll give you a quick sense on whatever data there is on at an industry level. So if I were to look at the bureau data at an industry level and look at the demand for retail loans in the month of June '21, it's almost restored presently to 80% of the January to March quarter, quarter 4 of the last year, which is, I think, I would rate it as an encouraging sign. At the bank, we've witnessed a very sharp bounce back in the demand for most of our key products, whether it's auto loans, unsecured loans, loans against property and home loans.

If I look at the industry data also on the vehicle side, to give a quick sense because that's more precise as a reflection of the economy, if you look at the SIAM data, auto loans from quarter 4 of last financial year, which is January to March, and if you look at the last quarter, it's a decline at an industry level of 31% and 2-wheelers down to 41%. And I think on both the businesses, we have gained. I have reason to believe we've gained substantial market share.

Now with our portfolio mix, I do believe we probably have a fantastic opportunity from here on to scale up both of top line as well as these. In the unsecured loans, which is personal loan and business loans, we do believe we have a leadership position, and we intend to capitalize this loan delinquency portfolio with the increased sourcing contribution from higher-income customers, and that's already substantially showing an improvement in our mix towards the better quality customers.

We plan to focus a little more aggressively on certain segments, especially like the government segment. In auto loans, like I just mentioned to you, that in the last quarter, we have reason to believe we've gained a decent market share in the 4-wheeler segment and think we are edging towards the leadership position, which we like to capitalize over this financial year, both in new cars as well as used cars because I think that gives the semblance of a better yields as well.

In mortgages, home and loans against property businesses, we are originating and growing faster than the previous years. If I were to take any insight and share with you for the first 15 days trends for the month of July '21, HDFC Bank is echoing the projection of almost 100% of pre-COVID levels on the disbursement. And that gives me the optimism that the quarter 2, which is July, August and September, we should be in a position to scale up rapidly on the growth rates. It also gives us the confidence that the plans set for the financial year, which we have envisaged during our original assessment before the surprise second COVID wave hit us, in my view, should remain unaltered.

And our assessment and our belief is that we should be back on course to achieve the original financial year plans and should close the year on a solid growth for the financial year. So I think that should probably give you guys a sense on how the quarter was from how I see the financial year. Yes, that's all I think. Thank you.

Okay. Thank you. Jimmy, you want to talk about commercial?

Yes, sure. So this will be a little quicker than the retail one because it's relatively steady and boring. So a few quick words on the SME portfolio and then on the corporate one as well. To point out just one thing on the SME portfolio, I think the second wave was something that impacted customers quite a bit. And then I give you a few details a little later, you'll realize how. That said, the portfolio has held up well.

And I really want to thank our customers, I think, for the kind of diligence, integrity and faith that they have shown. I really think that they have got very, very well to keep their businesses well and to keep their credit quality intact. And I think a large part of the credit -- the portfolio success must be given to our customers right now.

The -- when it comes to a few headline numbers, we monitor, as I've mentioned earlier, the delinquency in various buckets. Every single bucket, the delinquency numbers are actually improving quarter-on-quarter, which is quite surprising given what happened during the last quarter. But it has been there. We have a 7, 15, 30 and 60 tiered bucket that we look at. And it's actually improved quarter-on-quarter in each of those buckets. And that's why I really want to hold out for our customers.

I think another thing one must put out for them is if you look at the utilization, despite the stress they must have faced, the average utilization remains range bound in a 70% to 75% of the limit sanctioned bracket, once again showing that people are not drawing down from us just to fund out losses or doing things like that. It's remaining very steady now for several quarters. So very, very gratifying to see the quality of customers that have come to our bank, and it's really holding us in good stead at this point in time.

Nothing very different than usual to report in terms of the portfolio distribution, extremely granular, everything under 5%, every single industry, except, of course, for the agriculture, where there is directed lending and we are required to take higher shares, which is around 10% or so of the SME book.

When it comes to the delinquency trends, I just mentioned to you that it's moving in the right direction while even during the pandemic. I need to then tell you a little on the incremental NPAs for the quarter have actually been lower than those of the previous quarter, which probably not surprising given the earlier delinquency trends I mentioned. And the gross NPA levels also remain very range-bound.

And we have then the few measures that we have to monitor the portfolio. So just to give us slightly futuristic view, the self-funding ratio I've been talking about over the last few calls, so I'm not going to describe it again, once again holding out very steadily between 67% to 72% kind of range. Collateralization of the portfolio, again, is rather high well into the 80s, mid-80s. That, if you look at the exposure, if you actually look at the outstanding on the drawn limits, we have more than 100% collateralized on the SME book.

The other thing that we monitor individually on all our customers is the net credit. Now the average net credit into the accounts obviously had dipped in April and May. And it has moved right back to the mean. There's an actual mean reversal by the month of June, and we expect July to be even better, so one more signal of strength out -- over there.

We also follow the GST trends of the portfolio and how that matches into the cash flows into the accounts. Once again, very strong correlation, and this has been going on for several quarters. The behavioral score, as you will know, I've mentioned some time back that we have this 1 to 10 behavioral score based on several attributes. These aren't really to be linked to delinquency because these are nondelinquent customers. But we look at cash flow [roofing in] relation to business, the banking habits, the manner in which the operations are carried out and all sorts of things. So it is actually a behavioral score. It is not a credit score. Those did take some sort of a dip in April or so, but have once again started recovery out again. So that's about it on the SME book.

A small update on the GECL. As you know, GECL 1, we were kind of market leaders. GECL 2 and 3 were for the stress sectors, so we don't have that much out to those sectors. But even what we do have out in GECL 2 and 3, I would regard not even 10% of that book to be in any kind of stress. It is mainly for people's business growth (inaudible).

So that kind of put stead to the SME which -- that I wanted to speak of. I think the corporate is even more stead and steady. We retained the kind of portfolio quality that we have. Growth in the corporate assets is not as strong as many previous quarters because we don't change policies, we don't change credit judgment and what we found fewer in a particular quarter, that's what we will do. But the book remains very strong.

I think now it's been 5-or-so quarters where it has been range bound into our internal rating of 4.3, 4.4. I do always mention and will mention today also that there is considerable headroom in this particular borrower grading before it even moves out of a AA kind of range. So if it were to move into a 4.5, 4.6, and I'm not going to give you the actual number, but it goes well beyond, you would still see a very strong portfolio.

The unsecured wholesale portfolio is a 3.5-rated portfolio on an average. So here, that's all I have to say. I think external ratings which you want to benchmark, I would think if you look at the AAA and AA portfolio, it would probably be close to 80% of the book. And at least 50% of our book is on an HDB 1 to 4 rated scale. So things are all right. No big slippages to report, nothing of that sort. So things are happily boring in both these segments for us, so we don't have too much of a problem.

Rahul, you want to talk about the business part of this?

Sure. I'll try and wrap up quickly because I think we are horribly over time. Commercial and rural banking had an end-of-period growth in total assets of 24% Y-o-Y and 4% quarter-on-quarter. While well below what I believe to be the potential growth rate of the underlying businesses, it was achieved under limited activity in the first 2 months of the quarter. The business broke out of historically low quarter-on-quarter growth rate for the June quarter, where it had ranged between plus or minus 1% over the last 3 or 4 years.

On a sequential average basis, growth was 6.5% over March quarter average, providing strong earnings momentum. As we look ahead, given the opening of the economy and the normal seasonality effect, growth outlook is better in both the September and December quarters. Barring third wave impact, each of the businesses are expected to do much better in the current quarter.

Within CRB, our mid-market segment, while being fully self-funded, saw a 25% Y-o-Y growth and 8% quarter-on-quarter growth. On a quarterly basis, we saw credit offtake across a broad spectrum of industries such as metals and mining, manufacturing and engineering, auto and ancillaries, agri, food, beverages, et cetera. Growth was from both existing and a very strong new-to-bank client addition. The business remains on track to expand its footprint over 100 cities by the end of the year. We see growth and CapEx demand in sectors such as steel, textiles, chemicals, durables, paper and packaging, food processing, tractors, et cetera. Impact of lifting of moratorium has been neutral in this business.

Our business banking or wholesale SME business saw an asset growth of 33% Y-o-Y and 4% quarter-on-quarter and remains largely self-funded. To be honest, I had higher expectations out of this business. We saw record customer acquisitions when you look historically at the June quarter. New NPA creation remained at a flat run rate to last year and saved 50% lower than probably 2 years ago. Overdraft utilizations were at 70% while exiting June.

Our emerging enterprises group or retail SME business had a 52% Y-o-Y growth and 9% quarter-on-quarter asset growth while being fully self-funded. June saw a record disbursement when markets opened up from COVID restrictions. We feel very good about this portfolio, which pretty much went through in agnipariksha last year. If you recall, in May 2020, the MSME sector had a 13% capacity utilization nationally, and still our portfolio has come out completely unscathed.

Our transportation and finance business, a mix of working capital and EMI businesses, remained flat over prior quarter, which was a strong quarter, the March quarter, and about 8% up Y-o-Y. Markets were opened largely in June when aggregate volumes of commercial vehicle, construction equipment and tractors increased 109% in volumes in June over the month of May. We increased our volumes by 160%. As a result, our June market share in MHCV was 29%. We remained muted intentionally on LCV and ULCV segments but increased our tractor market share to slightly over 5% from below 5%. Q2 should be steady with manufacturers expecting pent-up demand for Q2 on the back of low sales in Q1.

In construction equipment, the indicators are quite positive with machine usage having improved to 42.5 hours per week for backhoe loaders and 31.7 hours for excavators mid-June, which are peak levels of last financial year. With the focus of government on infrastructure, road and mining segments, this segment remains poised for growth in the current quarter.

Our large in market share but small in size health care finance business saw a quarterly decline of 4%. Hospital overdraft utilizations came down drastically with very strong cash flows during the last quarter. Since March 2020, elective surgery is down by almost 50%. And government settling receivables promptly led to negative working capital requirement in the sector.

Lastly, our rural banking business had approximately 19% Y-o-Y advances growth and a minus 2% quarter-on-quarter growth. Negative Q-o-Q is the normal trend. But it was lower than past because of granular disbursements. While sowing is delayed in some parts, it is not derailed. With delayed sowing in certain areas, related credit offtake is postponed from June to July.

We have a strong outlook for the current quarter. Collections were impacted in early part of the quarter but are on in full swing since. This is a different collection cycle given interest and repayment dues of last 3 half yearly cycles, which is March '20, September '20 and March '21 have accumulated and are being collected. The impact of Cyclone Tauktae, which impacted 4,619 villages in mid-May, is also under observation though it does not appear to be a major concern as of now. Thank you.

Thank you, Rahul. A couple of slides on CAPAD. Capital adequacy, we have reported that. Basel III guidelines stood at 19.1% as against regulatory requirement, which was 11.075%. Prior year was at 18.9%. Tier 1, 17.9% compared to 17.5% in prior year. We know that the bank declared dividend of INR 6.5 per equity share for FY '21 that had been recorded in the capital ratios.

Now getting to wrap up on HDB, a word on HDB before we go. The disbursals in the quarter showed a growth of 66% over prior year because prior year was hardly anything. But it is down 54% over Q4. So again, significant impact on COVID. The AUM stood at INR 59,368 crores. Net interest income for the quarter, INR 964 crores, so a drop of 10% over Q1 last year. PPOP for the quarter at INR 644 crores, a drop of 15% over previous year and 35% sequentially.

Our provisions were INR 472 crores. And the profit after tax in HDB was INR 131 crores. Again, the delinquencies were significantly impacted. We'll have a couple of minutes from Ramesh to talk about that. As of June end, the gross NPA as per NBFC recognition methodology was at 7.75%. Prior quarter was at 3.89%.

Ramesh, you want to talk about -- 2 minutes about a few things on HDB, please?

Sure. I think as compared to what the bank does, we lend to a set of customers a notch below. I think the challenge -- or I mean a feature of this segment is that when there's a problem, it shows up immediately. Unlike a prime customer, where you might have some savings which you can continue to service loans for some more time, the customer segment that we service, the problems show up immediately. So I think that's what you kind of see in this quarter. So it's good in a way also because we're not -- we know immediately what corrective action has to be taken.

And one of the challenges I think for last quarter was that in some markets, and including some large markets, NBFCs are not treated as essential. So we actually have to keep our branches shut or we have to keep our branches open for barely 1 or 2 hours a day. So that impacted collections and putting feet on the ground. So we did postpone quite a bit of normal collection activity, including auctions, that we might have done of collaterals that we normally can quickly do and collect.

We have not done any asset sales or any restructuring in the last quarter. Again, we like to see some cash flows before we get into any restructuring activity. I think some of the work that we did in last year did show up in very positive momentum with customers in Q1, Q4 last year, but we will see how this quarter pans out. I think we are quite hopeful. I think the last 10 days of June and early July look much better. And just like problems show up quickly, they also get addressed quickly because customers like to come back on track.

So that's the summary. Srini?

Thank you. I just want to add a couple of more matters in terms of the -- liquidity remains pretty strong at over 200% and ability to borrow at attractive rates even now, coupled with strong capital position, which is close to 20%, as you described, well positioned for market opportunities.

With that, we can summarize, but I do want to give one last shout-out to the staff. Despite all of these COVID complexities for most of the quarter, our teams across functions enthusiastically handled customer engagement and implementing our strategy. We do need to give a shout-out of thanks to all of them.

And with that, we may request the operator to open up the line for questions, please.

(Operator Instructions) First question is from the line of Mahrukh Adajania from Elara Capital.

My first question is on slippage. So just to clarify, the absolute value of slippage would be around INR 73 billion, of which INR 9 billion would be agri. Would there be a further breakdown into SME, unsecured retail, secured retail, if possible? And also, what is the total quantum of standard restructured book in HDB Financials?

Okay. One, the numbers that you've quoted are right, but the breakup -- further breakup of the slippage is not something that we have published, and so I'm unable to provide that. In terms of HDB restructuring 2.0, Ramesh, I'm able to say that there was no restructuring done in 2.0. The team is evaluating to see looking at the cash flows in terms of what can be done and when it should be done.

But was there any restructuring last year? Like what is the restructured book, the existing restructured book of HDB?

Yes. So last year, we -- as of March 31, our restructured book stood at about INR 3,650 crores. And out of that, about INR 120 crores was [credit NPAT] as on March 31.

Okay. And was there any slippage in the ECLGS book in the main bank?

ECLGS, not material, Mahrukh.

Jimmy here. Not material, if at all, not -- I can't -- I don't have data with me, but not material.

Okay. And just one more question. In terms of fee income, if you see the absolute value, it's lower than second quarter last year, of course, because disbursals were also down. But probably they were not lower than second quarter last year. So would the -- I mean would a substantial part of it also be because of cards?

It is cards. Retail assets also is there. And third-party fees is also lower, which is the distribution of third-party products is lower. So it is -- and it will match here and there across a few lines.

Next question is from the line of Kunal Shah from ICICI Securities.

So firstly, on slippages, can you just say in terms of since there has hardly been any restructuring, say, under 2.0. So how much could be of a technical nature actually because maybe compared to the earlier run rate, when there was first wave, we had not seen this kind of slippages running through the quarter. So just want to get some sense in terms of is there any technicality and we could see a good upgrade coming in the next few quarters?

We would expect so. There is -- the slippages are elevated. And so we haven't been able to get to the market to get the collections done for most of the quarter, I alluded to 35, 40 days of where effectively we could do something. But we do believe that -- and Jimmy also mentioned about the activity in a positive light late June, early July in terms of the recoveries and in terms of the action on the feet on street that's happening.

Kunal, Jimmy here. So we do expect to have better recoveries in the current quarter. We do also expect that people in the current quarter might come for restructuring based on the basic fundamentals that I described a little earlier. We are looking at restructuring people and are looking at being empathetic about it. So the recent RBI clarification that someone who has slipped, which at this stage would have been recorded, will be upgraded as standard as well. If we found meritorious cases in those, that could also happen. But essentially, it will be on actual recoveries and collections, but we do expect that.

Sure. And in terms of restructuring compared to 0.7% under OTR 1, broadly, do we think that it can still be contained below it or maybe since that it's not existing with the moratorium? So what is the current assessment in terms of how can restructuring actually play out under 2.0?

So the way in which we would look at restructuring is has somebody had a temporary setback because of COVID. And that's the essence and spirit behind what we would really look at. If someone has had this sort of a setback, he would recover. And if we do believe that he would recover, of course, within the 2-year horizon that has been given as a maximum by the reserve bank, we will restructure such cases.

Okay. But any trends in terms of how can it be overall?

I'm sorry, I didn't get that.

No. So in terms of the trends, whether it can be lower, it can be higher, how -- maybe based on our early assessment out there?

No, I don't have any feeling right now as to whether it would be higher or not. It hasn't been -- there hasn't been a rush for it. I could -- that's all I could perhaps say.

And when it comes up, it's a case-by-case basis more than any March type of an activity or a program-based activity.

Next question is from the line of Abhishek Murarka from HSBC.

So the first question is on cards. I just wanted to check, when you said that the interest income was about 6%, would have been -- the interest income growth would have been 6% higher Y-o-Y, how much of that would have been because your card business slowed down?

Rather than looking at cards in isolation, 2 things. One is lower yielding asset mix and also contributed by lower card fees and revolver balances. If you look at the balances, we grew cards from a little more than INR 54,000 crores to INR 60,000 crores year-on-year, right? But the revolving balances are down, right? While absolute receivables are up, the revolving balance customers are down. So that means either people who have been cautious didn't revolve, we have cut back on credit line or they have been delinquent over the last 12 months and then come year or they are restructured, right? So under whatever circumstances, that's a contributory factor.

So Srini, if we try to understand, let's say, of your total income, if I combine NII and fee income, what percentage would be cards? Just trying to get a broad sense. Can you give us just some sort of understanding over there?

People have been asking us to produce cards P&L and publish it so it could be benchmarked with the monoline card businesses, but something that's not we have done so far. So we'll give a thought to your question about how -- whether we should publish the card P&L. We'll give a thought to it, but that's not something we have done.

Okay. Okay. Because separately, if I benchmark and try to calculate, it comes to a pretty huge number, which seems a little incorrect. So I was just trying to get a sense, any kind of broad ballpark. It comes to about 40% to 50% of your fee income, just the fee part, not the fund part, so just checking.

What is the 40%, 50% you're alluding to?

So just the card contribution to the fee. I know it cannot be so high, so that's why (inaudible).

So card contribution to the fee is, yes, that we've not published that I think in the past calls we have talked about. It could range from 25% to 1/3, depending on the quarter, about the robustness of how the other products. Like third-party insurance products seasonally could be quite strong in the March quarter. At that time, the card contribution can go down. In a secular quarter, think about the October-December quarter, the card contribution can go up, right? So it can swing between 25% to -- 25%, that is 1/4 to 1/3, you can think about that as the cost.

And this, you're talking about the core CEB right, commission exchange and brokerage? Or you're talking about the total noninterest income?

No, I was talking about the cards fees and commissions.

Yes, as a percentage of the CEB?

Fee income. Yes, percentage of the fee income.

Yes. Sure, sure. And just any indication from the RBI in terms of their satisfaction or in terms of their time line?

No, we are awaiting communication. I think we alluded in some other context or another call that the audit report was submitted, and it's with RBI. And it is receiving their attention.

Okay. And sorry, just slipping in one more question about restructuring. So under the older RBI scheme, how much was the restructuring and how much of it was SME?

Total restructuring is what we have shown. I think as of March, we published certain things, but most of it was, I think, relating to retail, a few which were non-retail. But as of March, we have published, the next publication we'll do in that, I think, is required to be done by September, which we'll do.

Abhishek, the bulk would be retail on that. SME would not be very large. If you look at the relative portfolio cycle, SME would not be very large.

Okay. And just one data-keeping point. If you could break up the ECLGS into 1, 2, 3 just broadly, that would be useful.

You want to do it?

No, what did you want? ECLGS in terms of amounts?

How much was -- yes, in terms...

Yes. So ECLGS 1.0 is slightly over INR 30,000 crores, and 2.0 and 3.0 put together would be about INR 2,500 crores to INR 3,000 crores in all. So that would be roughly 9% or 10% of the overall volumes. ECLGS 4.0, many of the customers of ECLGS 1.0 in our case, since they are not restructured and they don't want to be restructured, I think we'll have very limited or pretty much non-material, negligible eligibility in terms of our portfolio.

But have we increased it to 30% of loans? Because if they do that opens up a pretty big window for it.

So there was a ministry announcement. There is a detailed announcement, I think, that should have come from RBI. But what it requires is that when you go from 20% to 30%, you also have to restructure, and there is a provision that has to be taken. That is at least my understanding. So we haven't yet formulated even a policy looking at that because we don't think that prima facie our portfolio will have a lot of demand or question. We haven't got inquiries. So if it comes, we will basically take a look at that. So every single one of the ECLGS, as it moves towards the stress sector, I think our portfolio, which was eligible or people who were going to take it, it just kept dropping by as I gave you the breakup between 1.0 and the balance.

Next question is from the line of Shagun Verma from Goldman Sachs.

This is Rahul here. Actually, a couple of questions. First is on the just data keeping. What was the write-off for this quarter?

Write-off, about INR 3,100 crores or so was the write-off. Annualized, a little more than 1%, a little more than 1.05% it will work out to, yes, INR 3,100 crores.

Okay. What was it last year, Srini, full year?

Last year, I don't have it in front of me. Yes, the team will see if they have, but we'll come back, yes.

Sure. Sure. The other question is on the restructuring bit. So the retail restructuring that we have, which is about INR 55 billion or thereabout, can we get some color? Is it more unsecured? Or it is on the consumption side or the commercial side, retail, which is less than INR 5 crore loans? So just wanted to get some color on restructuring, sorry.

I already told restructuring split between unsecured and secured is like 2/3, 1/3 kind of split.

Okay. 2/3 is unsecured. Got it.

Yes, yes. That's it, yes. Rahul, on the write-off question that you had last year same time period, a little less than half of what I gave you for this quarter, it was about INR 1,500 crores or so.

Sorry, this is for the first quarter last year or full year?

Correct, June quarter.

Okay. And full year, you would have it handy, just in case?

No, I think full year is published, I think. Full year is published somewhere, yes. We'll get to you, but it is published, yes.

Sure, sure. The other question is on the margins. So just wanted to get some qualitative color. Clearly, I mean, of course, 1/3 of the operations were impacted in the previous quarter. So the impact that we may have seen quarter-on-quarter, is it largely because of liquidity or is there a pricing pressure also that we are seeing in the model?

I think the same 3, 4 items come in, right? One is the asset mix. That includes the card revolver balances. If you look at the card balances, from around INR 64,000 crores, I think we published the card balances INR 64,000 crores last quarter. This quarter, INR 60,000 crores, INR 60,500 crores or something, this quarter.

A significant piece of that reduction is the revolver balance reduction. So there are -- the revolving balances have come down. People haven't revolved as much. So that is the one significant contribution. And the lower mix, right, because you see that the retail is slightly contracted and the wholesale went up. So that gives you the mix impact that comes with it. So that is another one.

And the higher interest reversal due to delinquencies, you can see that the slippages that we gave you at about 2.54% or a little more than INR 7,000 crores do have impact on the interest income that you reversed out. And then, of course, the other one is the mandatory cash reserve ratio is predictable, and there's a loan one, which expired late March. So that is another impact.

That's really helpful. Just one last question on HDB Financial Services. So the performance over the last, let's say, 5, 6 quarters has been subpar. Now we understand the environment has been challenging. But what really is the game plan here? The ROEs have been subpar. The Tier 1 has been around 13%, 14%. So would we need to infuse capital in that? Or how are you thinking about that business now? And of course, there is still not much more clarity from the regulators on the new regulations, correct me if I'm wrong. So that was the last one from our side.

Thank you. See, what -- I can give some thoughts. I think we also alluded to at an earlier meeting today about that. We have seen that the financial service industry as such continues to be very robust and recent -- which we see through the recent capital raising of the M&A transaction types. Certainly high quality will go on growth businesses we do expect would have a good kind of take-up. And particularly HDB, which is in the segments of small enterprises, merchants and consumers is very attractive to global or domestic investors.

So we do -- in the past -- we have seen in the past domestic or international investors evincing interest in the growth plans of HDB, which suggests that we are clearly watching and noting that. And at the right stage, we'll evaluate what is the appropriate step that we need to take. But we'll ensure at any point in time, HDB is adequately capitalized (inaudible). And there is capture the growth as this COVID wave subsides that we're able to capture, right? So options, we keep the options open, and we look at appropriate time about what is possible.

Got it. So the capital raising can be met from the outside investors is what I'm thinking of from your response.

There's no decision as such, but quite possible that in the past, people have evinced interest in conversations. So we'll have to see how at an appropriate time. But at this moment, the capital ratio is close to 20%, well capitalized. We do need to see this COVID behind and the growth momentum starting to pick, then we'll have an evaluation. And we may test the market in terms of price discovery and so on at any time. And when we do that, then there will be -- any kind of methods we can use to do that, but we'll keep the options open on that (inaudible).

The next question is from the line of Suresh Ganapathy from Macquarie.

Just 2 quick questions. One is on the Mastercard ban. I mean now that you can't launch debit cards with Mastercard payment platform, will it affect liability account addition? And how do you plan to transition to Visa for all the Mastercard debit card? Credit card, anyways, you're not doing. So I'm just wondering about this debit card issue.

See, thanks for asking this very relevant topic, Suresh, on that one. See, we have only a couple of instances where we are tied to Mastercard for debit cards, right, the Times debit card, which is an age-old card, which is a co-brand; and there is one more which is there, right; the business debit card, other one. So these are the only ones where it is tied.

Other than that, we have a choice of having the Visa debit card. So -- and the alternatives are quite open for us, and we do not see any disruption or the inhibition to go to the alternatives other than where there is a co-brand in the tie-up, like the Times example I gave, right? So we do see that we have choices to make there and quite possible that we will do.

So in that, Srini, what you're saying is both RuPay or Visa can easily provide you the necessary amount of plastics required. There is a shortage of chips in the global market, but that all is not an issue. They can immediately give you a commitment that if you want to issue Visa-based debit cards, they can easily do that. You are saying that there will not be any transition time from an integration perspective or anything like that?

We don't anticipate in the short run on that one. With the inventory that we have and the orders that are in the pipeline and so on, we feel quite comfortable on that in the short term. The chip shortage continues for a longer time. It's different. It's not just for us. It's an industry-level issue at that stage, but we'd like to go through that.

Okay. And just last question on the current accounting, of course. In general, the trends have been very encouraging for the last several quarters. Is it that you're really gaining market share from MNC banks? I mean that's because they just cannot have credit-linked portfolio to current accounts, so are you really seeing a shift there? Or is it an organic growth?

Suresh, rather than basically try and forecast what will be the market share shift, at this point of time, suffice it to say that all the banks are very busy with the execution of the current account circular because this is a regulatory priority. That is where we are. The way the circular is designed is that you need to have, I mean, in a simplistic way, a 10% credit out to a company to be able to have their flows unless it's in an escrow arrangement or some other arrangement. So in that context, if you look at it, your report and the reports of other analysts that we read seem to indicate that the larger banks will have some positive flows. But this trend will become clear only over the next 6- to 9-month period.

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

Just 2 questions from my side. One is a question that Jimmy had kind of indicated earlier. You made a comment saying that the slippages were partly on account of employees and internal constraints that you had. But given that the market activity picked up from, let's say, around June, how much do you think of the slippages of the current quarter could be attributed for an internal factor?

And also, Mahrukh has asked this question earlier. If you could just kind of qualitatively at least give us some comment on what has been the nature of the slippages that have happened this quarter as compared to last year.

Let's just take the first part first, Mahesh. If you look at, as I mentioned, see the -- if you study it, the bounces are remaining consistent, so customers are not bouncing more than they used to bounce, and this is over a good few months now. During the months of April and May, because we could not go out due to lockdowns as well as our own internal decisions, you had collections moving and resolutions not keeping pace in -- across the buckets. So that would include the slippages as well.

From June onwards, we have noticed that there is a reversal in all these the moment we started going out. It was in the last 2, 3 days of May that we started preparing to go out and conduct the collections again. And we've been there for doing it for the month of June, so there has been a well-noticed recovery in all buckets of resolutions right from the very first, even into the recovery buckets, as I mentioned, even the recoveries are actually moving in the right direction. And July is further encouraging on a trend of that.

So if that answers your first question or is there anything more -- because that's the simple way to put it that the portfolio integrity remains intact, and June and July are showing that the end of April and May would be reversed.

Yes. So I just wanted to just check the fact that if you were to break the issue into 2 fronts, one is an internal issue and the other one is an external concern caused by COVID. Was internal issue a dominating factor or not of the slippages that you've seen this quarter?

Firstly, the internal issue was also COVID. We took a decision to preserve the -- the internal issue is also COVID and nothing else. It was a health-first decision that was taken. How much was due to lockdowns and how much was due to that decision, I really don't have the breakup because the lockdowns were essentially Maharashtra, Gujarat, Tamil Nadu, Delhi and some parts of Andhra, Karnataka. I don't -- we haven't really calculated it just yet.

Understandable. The second part of the question was qualitatively, if you can just give us some indication or comments on what was the difference in slippages that you're seeing in this quarter as compared to last year?

I'm sorry, could you just say that again?

Qualitatively, slippages by various subcategories in terms of -- the last year -- Mahesh, last year June quarter is not comparable at all because, one, there was moratorium. And so because of the moratorium, you will not be able to see what is what and make the comparison of what that is versus this quarter.

Srini, I was just looking at the full year because we're just looking at the full year numbers. If I were to look at the slippages which happened last year on the retail side or on the business banking side and you look at the slippages this quarter, are you seeing any noticeable differences in what is causing the two?

Business banking, no. Since you mentioned business banking, no. And if you look at last year versus this year on the retail side, last year had 6 months of moratorium followed by the option of restructuring to December, which also for the MSME segment went out into March because of the MSME scale as itself. This time, we have just emerged from the second wave with a recent announcement of restructuring which we have put into effect as fast as we could with, as we mentioned, a host of channels through which someone can apply. However, not that many have applied.

That said, it happened in the last instance as well. People do tend to apply towards the end. So whereas what you see as the slippages right now have not been mitigated so much by restructuring. There could be some request for restructuring coming during the current present quarter in which we are. We'd have to wait and see to what extent that happens.

Sorry. And then just trying to understand only the slippages, not so much of what the outcome of the slippages will be. Is there a material difference that last year was driven by certain segments and this year is different by a different segment?

No, no, no. Not at all. Not at all. Not at all. There's no change in segments, no.

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

In the annual report, there was a disclosure about MSME restructuring under the MSME 2019 window. What is the number after this quarter?

There is no further update than what is in the annual report.

So the restructuring number that you reported under the MSME window, that was also done last year or it was previous to that and just (inaudible)?

One is that the MSME window has been open even for the previous year. FY '20 was also open, and they could have come in the recent years that went by, too.

Okay. And sir, the share of public sector lending as a percentage of overall lending has moved up quite sharply over the last 2 years from around 3% to 11% of the portfolio. What is the overall impact on margins of this public lending, meaning that evaluation would be a much lower yield?

There will be -- that is part of the mix that I called out, which is these are very highly rated. From a spread point of view, they have thin spreads. right? Because if you think about AAA, AA type of spread even in the market that you see at 2 years, 3 years, has come down over the period of last 12 months, 18 months. All through the time period, there has been a tightening of spreads across all of those. There will be -- that is part of the mix that we talked about.

And the public sector enterprises to whom we have lent are the best of the best, extremely strong credit quality. And therefore, yes, they would come at a price. And I think spreads have been narrowing across the board from retail loans down to corporate loans over the last 18 months or so, but we always like to have a high portfolio quality. And that's why we would select such plans.

Is there any change from a management point of view about lending to public sector especially over the last 2 years in the sharp jump that we have seen?

If the opportunities arise and they are considered safe, we will lend. I don't think there is a philosophical change. No. If that's your question, no. We have always been ready to lend to highly rated corporates. And I think in the current environment, it would be even safer in the highly rated government companies.

So Jimmy, also to add, in the last 2 years, Amit, the growth capital formation has been driven by government and public sector. You would expect banks lending to them to go up, right?

Sure. And sir, if I can squeeze in the last question, what is the overall impact from priority sector commitments of this shift to public sector or nonpriority sector kind of segment?

The priority sector lending, the MSME that is evolving definition. We will have certain clarifications in terms of the -- particularly the traders. Rahul and the team on the MSME is working through the clarifications that have come, and we will settle on that as we go along.

But are you meeting the various priority sector deployment of 14% and small and medium partners and the MSME partners of the subcategory? Or you are trending towards more PSLC on (inaudible)?

We just couldn't hear you because the background somebody is talking or somebody is -- there's is a child in background, so I just couldn't hear.

It only always a mix of all instruments that a bank like us or large banks are going to use. Whether it is PSLC or organic or buyouts, et cetera, you would not expect a bank to go out and not utilize any one of these elements because there are certain areas where there is margin, where there is risk. There are certain areas there's a cost, but there is no risk. So the bank goes out and optimizes between the different instruments.

Thank you. Ladies and gentlemen, that would be our last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Thank you, and over to you, sir.

Okay. Thank you all participants, and Aman, thank you for coordinating this. If there are further questions or comments, we would be happy to be engaged over the next time, whatever few time period. We will see what (inaudible). Thank you. With that, have a great evening, great weekend. Bye-bye.

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