HDFC Bank Limited (HDB) Q2 2023 Earnings Report, Transcript and Summary

Ladies and gentlemen, good evening, and welcome to HDFC Bank Limited Q2 FY '23 Earnings Conference Call on the Financial Results Presented by the Management of HDFC Bank. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you. And over to you, sir.

Thank you, Rutuja. Good evening to all. Let's start with a brief overview for the context. We believe that the continued recovery in domestic demand boosted with the onset of festive season and higher government CapExprovides support to the growth. While there are risks coming from the possibility of global slowdown, higher inflationary pressure and an uneven monsoon, consumer demand and fiscal spends are likely to keep the economy stimulated. Geopolitical instability, strong U.S. dollar, et cetera, continue to occupy center stage during the quarter. Active indicators released during July to September quarter indicate that economic activity continues to hold up despite global risk. High frequency and other indicators have risen so far this year and is also promising to provide further opportunity and optimism in the economy. Labor market conditions are also improving in the rural areas as seen by the fall in the Mnrega work demand and the rise in wage growth. RBI raised the policy rate by 100 basis points in the quarter, taking the repo rate to 5.9%, the Central Bank has hiked rates by 190 basis points since May 22. The Central Bank has kept its stance unchanged at withdrawal of accommodation with supporting growth. We estimate that the GDP growth to be around 7% for financial year '23. Let's go through key themes. On the distribution expansion. We added 121 branches during the quarter, and about 500 more branches are in various stages in the pipeline to be opened in the next few months. We have 15,691 business correspondence, an increase of 73% over prior quarter. Gold loan processing are now offered in 2,960 branches, an increase of 900 branches in the current quarter and up 2.2x over March 22. Payment acceptance points have grown by INR 269,000 in the quarter to INR 3.5 million and have grown by over INR 1 million versus prior year, a growth of 41%. Wealth Management is now offered in 502 locations through hub-and-spoke model. We have expanded by 145 new locations in the quarter. We plan to drive increase in market share through deepening in geographies. In customer franchise building, our people have acquired 2.9 million new liability relationships, exhibiting a healthy growth of 22% over prior year and 11% over prior quarter. Over the last 5 quarters, we have steadily acquired over 2 million new customer liability relationships per quarter, enabling us to further broad base and deepen our relationships in time to come. On Cards, we have issued 1.2 million cards during the quarter. Total card base is now $16.3 million. During the course we also closed 2.4 million cards, which have been inactive for a period of time and according to the RBI guidelines. We are focused on granular deposits. Total deposits amounted to INR 1,673,000 crores, an increase of 4.3% over prior quarter and up 19% over prior year. In retail deposits, we added INR 71,000 crores during the quarter and INR 2,35,000 crores since prior year September. Retail constitutes about 83% of total deposits. Retail deposits has been the anchor of our deposit growth. CASA deposits recorded a strong growth of 15.4% year-on-year, ending the quarter at INR 7,59,000 crores with a CASA ratio of 45.4%. Retail CASA grew by 19% and retail total deposits grew by 20.4% year-on-year. Term deposit registered a robust growth of 22% year-on-year, ending the quarter at INR 9,13,712 crores. On the advances side, which were at INR 14,79,873 crores grew by 6.1% sequentially and 23.4% over prior year. Our retail advances growth was robust. Domestic retail grew by 21.4% year-on-year and 4.9% quarter-on-quarter. Card spends have grown 9% over prior quarters. Commercial and rural banking, which drives our MSME and PSL book continued its momentum with a year-on-year growth of 31% and quarter-on-quarter growth of 9%, 9.4%. Our SME businesses are present in 90% of the districts in the country, rural business reach expanded to 1.42 lakh villages and is on track to reach project of 2 lakh villages. Wholesale segment witnessed a strong growth year-on-year of 27% and quarter-on-quarter growth of 9%. On the technology front, the bank continues its momentum on the technology and digital transformation to provide greater customer experience through the digital and enterprise factory. HDFC Bank One that is the customer experience hub was launched and we migrated phone banking, virtual relationship banking and Tele sales from this platform in the recent quarter. It enhances our customer relationship management process using LML and conversation bot enabling round-the-clock sell service capabilities into a human interaction. Phone banking voice support rollout is underway across the country, adding more cities along with multilingual support. We see this as a significant step in our journey to create an engaging customer experience while at the same time, bringing in productivity improvements to our call-center operations. We launched PayZapp 2.0 to a closed user group for performance optimization and improved payment experiences. We expect to broad base the rollout shortly. SmartUp Vyapar app, a one-stop merchant solution was formally launched to facilitate instant digital and paperless merchant onboarding and allow merchants to accept interoperable payments across multiple payment modes, including cards, tap-and-pay, UPI and QR code. The platform is adding more than 60,000 merchants every month. As of end September, over 1.6 million small businesses are on the SmartUp Vyapar app. In Q2, we received a total of 261 million visits on our website, averaging about 30 million unique customers per month with a year-on-year growth of around 12%. Our well-established distribution network, combined with our focused digital offering and relationship management continue to fuel growth. Balance sheet remains resilient. Tier 1 CAR for the quarter was at 118%, Capital adequacy ratio is at 18% and CET1 is at 16.3%, including profits for the half year ended September 30, 22. Let's start with revenues. Net revenues were at INR 28,617 crores. Core net revenues were at INR 28,833 crores excludes the trading and mark-to-market losses, which grew by 18.3% over prior year and 6.2% over prior quarter, driven by advances growth of 23%, deposits growth of 19% and total balance sheet growth of over 20%. Net interest income for the quarter at INR 21,000 crores, grew by 18.9% over prior year and 7.9% over prior quarter. The core net interest margin for the quarter was at 4.1%. Prior year was also at 4.1% and prior quarter was at 4%. Based on interest earning assets, the core net interest margin was at 4.3%. Moving on to the details of other income. Fees and commission income, constituting 3/4 of other income, was at INR 5,800 crores and grew by 17% over prior year and 8% over prior quarter. Retail constitutes approximately 93% of the fees. FX and derivatives income at INR 948 crores was higher by 9.3% compared to prior year. Trading and mark-to-market losses were INR 253 crores loss. The mark-to-market losses are mainly from our AFS investments in our corporate bond and PTCs due to rate movements in the front-end incurred. Prior quarter was also at a negative INR 1,312 crores and prior year was a gain of INR 676 crores, which were then opportunistic from an investment portfolio. Other miscellaneous income of INR 1,098 crores includes recoveries from return of accounts and dividends from subsidiaries. Excluding trading and mark-to-market losses, total other income at INR 7,849 crores grew by 16.7% over prior year. Moving to operating expenses for the quarter, which were at INR 11,225 crores, an increase of 21% over prior year and increased to 6.9% over prior quarter. As I mentioned earlier, we added [ 813 ] branches and 2,226 ATMs since last year, 121 branches and 248 ATMs last quarter, taking the total network strength to 6,499 branches 18,868 ATMs and 15,691 business correspondents. Cost-to-income ratio for the quarter was at 39.2%. Moving on to PPOP. -- our core PPOP grew by 16.6% year-on-year and 5.8% sequentially. Our Pre-provision Operating Profit was at INR 17,392 crores. Pre-provision operating profit for the quarter is 5.37x of total provisions. Coming to asset quality. The GNPA ratio was at 1.23% as compared to 1.35% prior year and 1.28% in the prior quarter, out of the 1.23%. About 19 basis points are standard that the core GNPA ratio is at 1.04. However, these are included by us as one of the other facilities or the borrower is in NPA. Net NPA ratio was at 33 basis points. Prior year was at 40 basis points and preceding quarter was 35 basis points. The slippage ratio for the current quarter is at 36 basis points or about INR 5,700 crores. During the quarter, recoveries and upgrades were about INR 2,500 crores or about 19 basis points. Write-offs in the quarter were about INR 3,000 crores are approximately 22 basis points. There was no sale of assets or written-off accounts in the quarter. The restructuring under the RBI resolution framework for 2019 as of September end stands at 53 basis points, INR 7,851 crores. In addition, certain subsidiaries of the same borrowers which are not restructured is approximately 9 basis points. On provisions, the total process reported were around INR 3,200 crores as against INR 3,900 crores for the prior year and INR 3,200 crores during the prior quarter. The provision coverage ratio was at 73%, up against 71% in prior years, and it was at 73% in prior quarter 2. At the end of current quarter, contingent provisions and floating provisions remained close to the prior quarter level at INR 11,000 crores, general provisions were at INR 6,800 crores, total provisions comprising specific floating, contingent and general provisions were about 171% of gross nonperforming loans. This is in addition to the security held as collateral float in several of the cases. Floating and contingent and general provisions were about 1.19% of gross advances as of September quarter end. Now coming to credit cost ratios. The total annualized credit cost for the quarter was 87 basis points. Prior year was 130 basis points and prior quarter was 91 basis points. Recoveries which are recorded as miscellaneous income amounted to 22 basis point from growth advances for the quarter at around 23 basis points for prior year as well as prior quarter. The total credit cost ratio, net of recovery was at 64 basis points as compared to 103 basis points in prior year and 68 basis points in prior quarter. Now coming to profit. Profit before tax was at INR 14,152 crores. Net profit after tax for the quarter at INR 10,606 crores grew by 20% over prior year. Now some highlights on HDB Financial Services. This is on an Ind-AS basis. The momentum in disbursements continued during the quarter, which was at INR 9,860 crores, registering a healthy growth of 29% year-on-year and 8.5% sequentially. Customer franchise grew to 10.4 million customers with a 6% additions during the quarter and an increase of 23% year-on-year. HDB Financial Services has started to augment the distribution networks and opened 4 branches in the quarter, taking it to 1,407 branches spread across 1,009 cities and towns. The total loan book as of September end stood at INR 63,112 crores with secured loans comprising 75% of the total book. Net revenue for the quarter was INR 2,201 crores, a growth of 14.9% on a year-on-year basis. Cost to income for the lending business was at 38.4%. Provisions and contingency for the quarter were INR 351 crores as against INR 398 crores for prior quarters and INR 634 crores for prior year. Quality of the book in the current quarter has sustained the improvement shown in the last 2 quarters. Stage 3, as of end September stood at 4.9% after factoring in the 1.1% impact of the new RBI guideline from late last year, reflecting sustained healthy collections. The provision coverage ratio on secured and unsecured book stood at 46.5% and 92%, respectively. Profit after tax for the quarter ended September 30 was INR 471 crores as against INR 192 crores for the quarter ended last year same time. Return on assets, slightly over 3% and return on equity, 18.5%. Earnings per share for the quarter, 5.96 5.96% and book value per share was INR 131. STP remains very capitalized with a capital adequacy ratio at 20.8%. STP also continues to augment the digital investments to enable the next level of growth in its business across segments while maintaining healthy asset quality. Now moving on to HSL. Again, on an Ind-AS basis, the physical network for the customer acquisition remains steady. HSL has 25 branches across 147 cities and towns as of end September. -- securities has grown very strongly with a year-on-year growth of 36% over prior year September, taking the overall coin base to 4.14 million. Except as digital offerings are in very good traction in the market. Over 91% of retail broking revenues from trades that are originated digitally. The total reported revenue for the quarter was at INR 468 crores as against INR 489 crore in the prior year, and net profit after tax was at INR 191 crores at against INR 240 crores in the prior year. Earnings per share in the quarter was INR 120 million to INR 120.59 million, and book value per share was at 1,084. In summary, strong momentum, coupled with our seamless execution being comprehensive range of products and services has helped us capitalize on growth opportunities. Our results reflect continued business across various parameters Advances growth, 23%. Total deposits growth of 19% and retail deposits growth of 20.4%, core operating profit growth, excluding bond sales of 16.6%, profit after tax increased 20%, delivering the return on asset of over 2% and ROE of over 17%. Earnings per share reported in the quarter is at 19.1%. Book value per share stands at INR 456.2. With that, may I request the operator to open the line for questions, please.

[Operator Instructions]. The first question is from the line of Mahrukh Adajania from [ Nuvama ].

Congratulations. Sir, my first question is on the liability growth going ahead. Of course, this quarter was impressive with strong retail growth. But as we move closer to the merger? And if you assume that RBI does not give any dispensation -- then how would the liability strategies change? Would it be focused on wholesale borrowing, wholesale deposits? And even this quarter, your wholesale borrowings have also grown with deposits. So what is the color? I mean what kind of borrowings would these be?

Okay. Thank you. In terms of the deposit strategy or the funding strategy, as we have articulated over the last 3 months, including the May month or the June month when we have met and continues that, that is a very important aspect focused area for our execution. There are several components of the strategy, which is branch-led, relationship based and we articulated in terms of how self-funding across various products to deepen those relationships and get the funding is still important. So we gave you some examples of various opportunities that we go there, right? That remains and continues to be the focus. And that is why we -- you see that the retail push is there, INR 71,000 crores of growth in the quarter in retail. And the same year last quarter, retail did INR 50,000 crores of deposit growth in the last quarter. So we are building up that momentum in retail as you see. The branch network that we open, branch network with a more medium term, long term so that the pipeline in 2, 3 years' time continues to be there. That's what the branch is. Currently, it is about harvesting and utilizing those branches. 60% of those branches are migrating from one vintage bucket, to another vintage bucket, that is what is driving and including bringing in to new customers, right? So that continues to be the main stay of the strategy. There are other market borrowings that opportunistically happen, and that will continue depending on what happens in the market. I specially take to call and depends on what funding for the day is required, but that is all that is handled there.

Got it. So Sir, my next question is, if you could share any outlook on margins, not necessarily in the very near term. But where do you see margins going, say, 2 to 3 quarters down the line on a stand-alone basis? I know merger put pressure on margins. So any outlook on stand-alone margin?

I'll generally talk about margins rather than an outlook that the bank does not provide any forward-looking guidance. But I don't want you to take back a clear so that we can think about what that margin remains, right? Typically, we have operated between 3.94 to 4.45%, right? That's the typical range at which we operate. And when we operated at that range, the mix of products is very important, which is the retail mix between 53% to 55% and the wholesale next wheel wholesale component of the mix, 45% to 47%. Over the last 2, 3 years, it's switch. Retail is now at 45%. -- wholesale is at 55%, it's switched, so we're on the low end of the range and now the rate cycle is going up, right? So you're seeing some slight pickup in the margin because there's a leader lag effect. So the -- most of the wholesale products we have about 55% of the book, which is floating index-based floating rate. And we have another 45% that's fixed rate mostly is in the retail type of loans. And within that floating rate as the rates moved up, we are seeing that the lead effect on the asset pricing happens, right? That's it. So there are 2 aspects. One, the interest rate cycle moves a bit up. There is always an opportunity to the great growth up, yield and lag, lag on the deposits need on the loans that is there. And the second aspect is that we continue to see the mix change that needs to happen. As we have said, the economy is 60% consumption led. That is now over a period of 10, 20 years, we have had a need in the retail -- and now that momentum is picking up, we saw the last quarter, retail book closed over 20% on advances, call it, sequential growth close to 5%. And even in the June quarter, it was similar. So we're seeing that it is 20-plus, right? That's the kind of rate at which the retail is moving. And as long as you see that continue to pump and move up, you will see that the mix is moving. That is also the opportunity for the margin to move on. So these are the 2 aspects you can keep in mind in their models to think about how the margin moves.

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

I had 2 questions. One is on the deposit rate itself. So the Reserve Bank of India has hiked rates by 190 basis points. But none of your banks have hiked deposit rates even by half of that amount, right? So if I look at track your own deposit rates in the 1-year to 2-year category, they have only gone up by 50, 60 basis points in the last 6 months. So there is a significant gap between what RBI is doing versus what you guys are doing from a monthly policy transmission. Now that the second half is going to be a bit tighter and tougher -- what is the outlook on deposit rates itself because it is grossly inadequate compared to what the Reserve Bank Of India is doing. So how do you see that panning out? That's point number one. And the second question is on branch addition itself that you have a targeted branch opening of 1,500 or 2,000 branches every year. If I look at the first half, the number of brands is added, if I'm not wrong, is 350. So again, significant below that significantly below that target. So how do you look at the branch additions? And you think this second half is going to be very strong. I'll just squeeze in one more question with respect to the NCLT approval, which has come for convening a shareholders' meeting, does this mean that the pace of approvals are better than expectations, which means that the September deadline that we are talking about the merger, which was initially said in the presentation, can be brought forward.

Okay. Thank you for that, Suresh, very important one. First is in terms of the deposit rates as such. The way we think about the deposit, CASA is a different base, right? It's completely administered. So it leaves us to decide about the time deposits that we're talking about. -- the way we price the time deposit is that if you think about certain public sector peers and private sector peers, so the bank in its codetermined in terms of how to be competitively priced, right? And when you look at that, we are more or less in line with certain private sectors here. That's how the pricing is. So that it is not that an advantage or a disadvantage, we are there. And so it is only about the execution capability to get them. So it is not rate-based rate driven kind of a sales or a marketing process. It is more of a relationship base and the kind of our ability to go make comping the customer point of view. Then if you think about the public sector peers, there are certain points in the curve that we are higher, typically in the mid to medium to longer end of the curve, we are slightly higher. And in the shorter end of the curve, we are slightly lower. It's not by our design. If you look at our spend deposit yield curve, it is a clear upward sloping in origin to point in the curve is upward sloping, but there are other players who have different from the real management, I guess the different pricing. So that's how we monitor that and see how at which price point we need the money and thereby, the pricing is done in such a way. So there is no such formula of any repo pricing or other kind of treasury bill or a G6 type of pricing that deepens the deposit rate. It is about the demand, it's about the positioning in the market in terms of at what price point we were able to get that. So that's how we approach it in our Alcove and go through that. That's one aspect of it. The second aspect of it you touched upon the branches, yes, you are right, we were being slow in the first half. Typically, it is like that as we put the strategy together and get those places scanned and analyzed as to in terms of the -- where the maximum propensity is there for us to be present to get those customers and the deposits. We have done a lot of that, and we do see here that there is a ramp-up going to happen in the second half on the branch base. And as I told you, the branch build, it is more of a medium-term to long-term returns because the breakeven itself is 18 to 24 months. But as soon as we get the branches, there is some new accounts that come in, so there is a new account value that we measure and monitor to manage that so that there is a good traction date. And then there is an existing customer desk of relationship and so that is a secondary aspect that we monitor and manage that. So yes, you will see in the second half accelerated process in terms of the branch opening. We have, at the moment, more than 500 branches in the pipeline in various stages of completion in the coming months, we will get them to be open source. The third aspect of it in CT, one, the short answer, and then I'll give you a little explanation. So the short answer is, is are on the time line. More or less, we think we are on those time lines, maybe there is a quarter or a few months early. We had previously indicated September, call it, Q2, Q3 kind of time frame. Maybe the way it is going, it may be throughout Q1, Q2. So that's where I would put it. Maybe there is a few months, it's in ahead, but not a big deal on that front. But there are still lots of processes left, right, which is after the AGM is done, we need to file the petition with the NCLT, picking their approval. Again, the scheme should be in line with what the shareholders approved, and that's what goes finally for NCLT consideration. And once that is done, NCLT goes to various agencies in the country, right government agencies and various state agencies and so on. So to get the nose. And that is a long-drawn process, right, that happens. And then there is some newspaper advertisement and calling for hearing or calling for any comments or questions and so. So that is the big process that gets followed. And after all of that is done, that is when there is an NCLT sanction that happens. This could take 6, 7 months, 8 months to the entire process after the shareholders' approval.

Okay. I'm sorry, clarity in RBI exemption?

As regards to RBI exemptions, we continue to be dialogue on that. There is no particular line of clarity or anything, but with the conversation continues on that front.

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

Congratulations. So first question, particularly with respect to payment products growth both on a quarter-on-quarter and year-on-year. It seems to be lagging a bit to the industry, but we are not seeing any loss in market share with respect to spend credit card spend. So is it more in terms of the behavior of the transactors versus revolver? How should we look into this? Or maybe it's more of another payment product contribution that is leading to near 2% sequential growth.

Good time for asking Kunal on that. Yes, on the spend, we see a good amount of traction coming on the spend. And it's not pan-sector driven spend. We do see customers who are spending have very good liquidity. But as I think last time also I said and it's more or less at the similar level, which is, if you look at our card customers, liability balances is close to 5x the loan balance, right, of those customers. So on an average total, right, the total average. So we see enormous amount of liquidity. So the pay downs are quite high. The revolver rate have not picked up. Revolver rates are still at that 70%, 75% of the precore level. So last quarter -- this quarter, we haven't seen the revolver picking up. We do look at revolver into 3 or 4 buckets, which is, call it, for lack of another better term chronic revolvers, which means somebody will revolve more than 6x, 9x in a given 12 months. Somebody who revolve say to 6 months, somebody would revolve to 3 months, right? And so those kind of analysis we see, we see that people who have the tendency to evolve over a longer period has actually come down. And there is an early sign of a pickup. That means that 1 to 3 months revolver type of profile customers are slightly picking up. So we do see something, but it's very early. We have not seen that credit card customers who all was coming bank on post the core. We don't see that.

Sure. And secondly, with respect to the commercial banking. So again, when we look at the breakup of GNPA, there is still improvement as far as retail and corporate is concerned. But commercial ex of agri is still steady. And given the entire inflationary impact, which we are seeing some export-oriented industries might also get impacted because of global recession. So what would be our view with respect to the outlook as far as commercial banking is concerned, given that the growth is also at a rapid pace. And what incremental measures we are taking in this kind of a scenario of global slowdown... Yes.

Okay. See, the strength of the commercial banking, excluding the agree that you are seeing about the call it the SME segment more particularly to half of the SME segment. -- we see quite a robustness and that there goes to the model, origination model and management model, relationship model of the customer. Lender is one of the value proposition. I think previously, we have talked about -- we have said that even in the May month, we presented where the self-funding ratio, as we call it, which is the liabilities generated by this segment through their own cash management account and through the promoters account and to their employees account, that's the 80%, 85% self-funded, which -- that is part of the business model to ensure that there is a kind of a good monitoring process for credit management, right? That's part of that model. That's part of the stability that comes from there. And again, the secondary collateral more than 85%, 90% to secondary collateral. So in addition to the primary collateral of land or plant and machinery and stocking trade and so on. The secondary collateral is also very important. So there's a much more skin in the game for the bank and the customers to work together. That's part of how we handle. So irrespective to the cycle that you've seen even through the COVID cycle, this particular segment that [indiscernible] quite unscathed and quite good.

But are we tightening any norms over here, just looking into global slowdown or maybe exports could get impacted?

We haven't seen that we've yet we still see good cash flow -- strong cash flows coming in. And our credit takes the call on a case-to-case basis on these types of levels.

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

Send congrats to you and for good numbers. Just had 2 important questions. One is, can you just help us understand on the headcount side, we've added about close to 9-odd thousand in this quarter. How many more do we need to hire for this year? I would imagine we may have preempted or maybe preponed some hiring for the upcoming branch expansion. Is that the right way of looking at it or we need to do more hiring as we move along the year. And even for the next couple of years, how do we think about the headcount?

Okay. Good. Yes. See, yes, there is some level of hiring for the branches happened and will happen for more new branches as we determine and complete that location will start to go into higher, right? As soon as the location is signed, the hiring starts so that as the assessment in the branch is happening, the people are lined up to come. So if that happens and it will happen. But however, the broader question that you ask is how we should think about the headcount itself at the total level. Yes, we do think that with the digital efforts that we are putting through and the journey several of the journeys, I think last quarter, we talked about the calendar of various digital journeys to go through in Q3, Q4. We do see a lot of traction gaining on the digital front. So there at the rate at which it will be added, we probably don't need to add, right, at that rate. That's one. And there are certain kind of a sales force to street sales force, which may be operating even on a subsidiary. And it's necessary, we're going to bring them on our books store. So it may be simply a shift of headcount coming from subsidiary into the bank because of better management, we're going to give them a higher value relationship management, so we'll bring the need to the bank and hire. So it is not a particular number that determines limiting in terms of -- these are the 2, 3 ways in which we think can do. One, branch we need to, we need to not replace secretion from as we go into the digital journey. And as we bring people the purpose sales force into the bank for higher relationship management, there will be some addition. So that's how we should think about it.

So just if I may do a follow-on, how much would be salesforce out of this 161,000 employees? Any significant number?

There are about 45,000. I think the last number we reported, I think, was in March, but that's a similar number that 45,000 people, if you see, is the salesforce which is there. And then there are a few layers above that, that are supervising layers of the salesforce, right? And if you look at those levels, they will be levels 10 or 11 below the CEO.

Understood. Got it. Just another question was on the credit deposit, which since expanded in this quarter, and it is now at about closer to 88%, 89%. And in addition to this, when we see our incremental market share in deposits has increased quite a bit in the last year or so. So when you look ahead in the future, let's say, the next couple of quarters, how do we think about the combination of credit and deposit growth playing out? Can we sustain this incremental market share gains because the system is now ratcheting up the efforts on deposit mobilization by offering higher rates, et cetera? Or we'll also have to kind of up the game there because the CD ratio, whatever we had to juice out we have already juiced out. So how do you think about these prospects... Okay.

Okay. Good. Yes. See, in terms of the CD ratio or in terms of the deposit growth and the advance of growth and how to see that there are -- I know we are in a particular interest rate cycle. But if you -- you have to go back to 5 years or even 10 years in the past, right, when there have been 2 or 3 cycles and see what has happened over those 2 or 3 cycles, right? And if you see that, 2012 to '17, 2.4, 2.5x. That's the rate of growth on both sides. And if you go to 2017 to '22, that is the kind of a similar 2.3x, right, rate of growth. So I'll point you to -- through the interstate cycle over a period of time. Call it, a decade. We can grow on more 5-year block behind that. Or it of decade, that is the kind of the rate of growth, and that is how we are capacitized and that is how the execution happens.

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

Congratulations for the quarter to you and your team. So just a few questions. One is going back to the NIM conversation. Now you pointed out that the mix is where it is, and that's why you're at the lower end of the rails. And it's the rates that are going up, that is playing out. So suffice to sort of figure from this that as the deposit rates start catching up, we should get back to a 4% kind of level for NIM? Or is that not going to be the case and you would be able to maintain this additional spread that you've called...

As it relates to rate related, that's where we are focused on. There is a need in the large effort. Right... Which is -- so it is -- if you see the rate that has changed, 90 basis points in the June quarter and 100 basis points in the September quarter. And as the market prediction is that there is more to come in the December quarter and March quarter, right? We don't know what the terminal rate is for sure yet, right? But as these rates go up, there is the continuation of the lead and lag effect goes through, right? And that is one. And 2, it is also about the deposit mix funding, right? We have the opportunity to increase our penetration in time deposits. You see the time deposit grew by 22%. And the objective of that time deposit mix is that we have a very low penetration, 14% to 15% of our customers is where we are penetrated on time deposits, and we think there is an enormous opportunity through the engagement process that in the past, we probably didn't meet and so the engagement was light and now we are enhancing our engagement to ensure that we are able to have the right kind of a dialogue with the customer on that. So it depends on the mix of the deposit product, and it's also a different from the lead and lag effect and how long the rate cycle goes, right? So then that is determined...

Understood. So basically, what you're seeing is even with the same mix, you expect yields to be going up more and your deposit gathering strategy will not be entirely rate dependent. So to that extent, you should be able to gain on spread. Is that a correct understanding?

To the extent that we lease the rate and lag the lead the rate on the advances and lag the rate on deposits, that show see a pickup coming and that is what we will do, I will not know because it depends on market circumstances as we execute on the ground.

Got it. Got it. My second question, Sri, is on HDB. When I look at the GNPAs there on a sequential basis, they're pretty flat. Can you just give some color on what's happening there in terms of asset quality? And also, what's the restructured book there? How much of it is in [ morat ] and any provisions you're carrying on that? So just some color on asset quality for HDB.

Okay. See, the HDB asset quality, I think I'd be a lot to say in terms of the improved delinquency of the stage 3 PE from 5 to 4.9% or something. So we are in the trajectory of this improvement, and we believe that is the projector continues, right, it should continue to be there. That's one thing. The second thing in terms of the provision coverage, right, on the NPA, the secured book production coverage is 5 to 6% the unsecured book provision coverage was 92%, right? And on the overall loan book itself, 75% of the total loan book is secured loan book. So this is quite a good type of book. And the customer segment is such a customer segment that got significantly impacted in the core, that's part of the NPA spike that you see. And as the economy is stabilizing and become stronger, you see that slight improvement but more to go with that.

Okay. So in GNP also, is it 75% secured and 25 unsecured? Or that was for the full book?

That 75% secured is for the whole book for the GNPA, I don't have it in front of me, but I'm sure it at some point in time, will be publishing when they publish those see.

Sure. And restructured book in HDB, how much would that be excess provisions, anything that you're carrying over there?

There is some management overlay like the way we do have and continues to be there, that restructured book on HDB I don't think they have published yet.

Okay. Okay. No worries. Just a last question on this MTM loss. So we still have trading losses, whereas you explained or you alluded to corporate bonds and PTCs contributing to that. Can you sort of explain the reason for this? Mostly rates have gone up on the short end, and there you don't need to do any MTM on the T-bills, et cetera. So can you just explain this?

Okay. Good. See, if you look at the corporate bond book, it's not about fee book. It is about the corporate bond and the pass-through certificates, which are -- which are predominantly PSL driven or the qualified pass-through certificates, right, which are there. If you look at the rate, the base rate that determines the valuation of the bonds and PTCs are published by the FIMMDA various association that publishes the rate. The base rate is this technical -- the 6-month rate is up 77 basis points in the quarter, 1 year 67 basis points, 2 year, 42 basis points and so on. So that's the kind of the front-end part of the curve where the rates are up, the long-end part of the curve, if you look at the 10-year rates are down 9 basis points quarter-on-quarter, right? But these bonds and PTCs that we have, they are more on the front-end side, right? There are more. So if you look at the dispersion of the bond book, it's like a pretty good normal distribution around that 2-year type of range of bucket. That's where the normal distribution is there. That's one element. The G-Sec curve on the front end of the curve, that is one of the elements of that goes into valuation. So as a rate spike, you'll see the value coming down because, as you know, these are not economic link to market. The second aspect of it in the valuation is also the spread on spreads, right? And part of the evaluation process, the bond split has come down, right, which is -- you would imagine the bond spreads are down to some extent. And if you see the bond spreads, I think in the front end, also the bond is of down. If you see, for example, the NBFC AA spreads in the 6 months is down 6 basis points and 1 year down 21 basis points and 2 years down 11 basis points, right? It is down. Similarly, cost of AAA 1 year is 9 basis points down 2 years, 11 basis points down. So the bond price is another element of the valuation, they are also down. However, as you know, in the valuation, the bond spreads have slowed, right? They have flowed at 50 basis points. So until the bond spreads growth at that level and then starts to improve up or down, it is inconsequential on that front. So it is not driven by the G-Sec. And in this case, the position the portfolio is towards a normal distribution around that 2-year 1.5 2-year math. And so it depends on the rate that is changed in the contract.

The next question is from the line of Prashant Kumar from Sunidhi Securities.

My question is on credit card business. The public sector banks, Union Bank, CNB and Regional Bank has launched a card on EPC...

Sorry to interrupt to Mr. Kumar, but your voice is not clear. So it is breaking in between.

Hello. Is it audible?

Yes, please go ahead, sir.

So I mean, my question is the linkage of RuPay credit card on UPI. What will be the impact of credit card business on slightly on a pricing perspective, pricing for the like low-value PI on credit card or higher value transaction of -- MDR for UPI on credit card will be similar to other credit cards. I mean or it will be settled down to the incentive to given in the range of around 0.2% 2.4%. I mean you can give some color, sir.

Okay, sir. See, these are very early stages on that front. How the market sets will also wait and see what happens to that. And as far as we are concerned, we are predominant Visa MasterCard issuers on that front. And the RuPay cards are a small proportion of our card base. That's one. The second, the UPI, as it goes to UPI, -- what is the kind of how the UPI pricing itself settles and how it is going to impact. We have to wait and see where it goes, right? At this moment, it's not clear and the transaction sizes that come through these are also important. And but currently, that's what we have through MasterCard Visa, the transaction sizes, average transaction sizes are quite high and good for us.

Yes. And on the asset quality side, just on data keeping. So what is the slippages and what is the write-off and upgrade and recovery if you can give if it is handy?

Yes, I did provide that previously, but I can give that again to you. The slippages, I think the slippages in the quarter was -- the current quarter was about 36 basis points or INR 5,700 crores. The recoveries and upgrades about 19 basis points, INR 2,500 crores. The write-offs, about 22 basis points, INR 3,000 crores.

The next question is from the line of Saurabh from JPMorgan.

Hi Just can you talk about the corporate banking fees, this 9% quarter-on-quarter growth. So where is it coming from? Are you displacing some public sector at banks in some of the large corporates? Or is it just reducing the risk filters on corporate side. And just sir, regards question on that will be, sir, I mean, the consequence of that build-up, should we -- NIMs could obviously come off. But at the ROA level, it should still be a 2% business? Or how do you think about it?

Yes. To ask let me address your ROA part of it. Yes, all our pricing decisions as well as the business which are dependent, the models dependent through what returns it provides, right? The models don't go through to say what limit it provides. So the models go to the same loss return it provides. And these are quite good relationship-based businesses in the wholesale -- and we had quite a good traction again during the largely contributed, I think, by the telecom sector in the quarter. There's some energy-related that came through. There are some PSUs also on this, right, very high quality, good PSUs we do we want to have. We already have the relationships, we have done that, yes. They are priced very well, and they are priced to get the returns that is in line with the bank's overall returns, the 2% that Span which you see, which we have published for the March report also, I think you've seen that wholesale or retail, our returns are quite good, and we continue to do business on those lines.

Okay. And the second question...

Again, which I didn't mention, but I will think you have touched upon whether there is a price competition at yes, INR 30,000 to INR 30,000 crores of wholesale loans we have let go this quarter. because we have been -- you have seen our pricing, how we move on pricing right from May quite fast. And there are others who take their time or their own tempos to price to catch up. So the price is not good, we let go up the volumes. We let go of that particular transaction, not let go of the relationship of the customer because these are all good relationship business. So we keep the relationship. But if that particular transaction doesn't work, we are very clear that particular transaction does we have.

Got it, sir. And sir, the second question is, there was an interview by Mr. Parag Rao, where you said after digital transformation is over and the IP costs will probably speak out. And we also mentioned that on the smart app is going to reach about 21 million merchants from approximately $3 million of pay -- so how should we think about this impacting your OpEx? Should we now hope that your OpEx at comparator we would choose to reinvest any gains you get on either your credit cost or your name on OpEx side. How should we think about that?

Okay. Again, you have 2 aspects to this. One aspect is in terms of the digitization itself in terms of -- but the context of that, I think, was the merchant Vyapar app that we formally launched. And I think I had mentioned that the merchant a Vyapar app took off earlier, had quite a good traction, right? We get in almost call it, per month, 1,000 merchants in the recent months. And we have more than 1.6 million signed up under this app, right? As a merchant, we have more than 3.5 million merchants, but 1.6 million under the smarter platform, which is the Vyapar app? That's part of what I think you alluded to. And that is where, in that context only, we said that we will go past the $20 million in terms of getting the merchant industry. Again, this is not just a payment product initiative, right? This is more of a both a liability relationship, asset relationship in addition to getting that payment relationship. That's what we do. And it helps there's a lot of value to those merchants to do business with us because there's a lot of value-added features that go with it. That's one part of what you asked. The second part of what you asked is what does it do to cost and so on. So I think in the past, we have said that our cost to income before COVID was about 39.5%. And through the COVID the retail kind of a transaction and the opportunity to do various things were lower, it came down all the way to 36, 37. Now it's past 39%. It's back to 39.5%. That's where the cost income. And I think we said it can go to 45% on quarter-to-quarter. Quarter-to-quarter is not our mission, but over a period of clear if you see 40% is not a place that you would imagine it can go to 40 as we make those investments to come because as we see the benign credit because the average credit cost that you see this quarter, 80, 90 basis points last quarter, 90, 95 basis points. So there is an opportunity to lean this and get that maturity cycle up, right, on maturity from a branch maturity cycle to people maturity, branch maturity cycle is 18, 24 months. People maturity cycle could be 6, 9 months. And so that's part of what the investments go to take this opportunity to invest it, and of course, within the overall return framework.

That's right, sir. So this 20 million merchants is us, HDFC Bank, it doesn't include your fintech partnerships or does it include?

That is right. Is the bank relationship with the bank, yes.

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

Sri, first question is, can you remind us what are some of the key dispensations or relaxations that you sought from RBI for the merger? And realistically, by when do you think you will start getting visibility on the same?

Manish, on this front, the same items, I think, that we talked upon on May 31 remains, right, which is -- is there a possibility on the CRR, SLR live part that will continue to focus on greater and faster credit growth, both in the economy and supported by us. It is something that we are in discussion, we told you. And the second thing is also in terms of the priority sector lending, which kicks in 12 months after the effective date. So in this case, for example, continue the same September kind of a time frame 23. -- thinking about December 24 kind of a time frame from when that will come. What part of report that can have for that, we could organically originate, right? So I think we have understood at 1.42 lakh villages, we have moved to now, right? We have less than 100,000 villages, if you go back 12, 15 months ago. come here and we are on track to go to that 200,000 villages to operate. So that is part of how we organically build this and certain other things that we told you in terms of opening up a little -- around the 3,000 mark now on the branches originating gold loan, and we wanted to do to around 5,000 branches. Again, part of that initiative to ensure that we get the right kind of quality on the priority sector lending. So there are -- these are the action plans that come as organic. But the kind of, call it a drive path is to get to that we organically do this. That's what -- and where are we on the state. We continue to have that conversation with the regulators.

So by the time you seek shareholder approval towards end of November, are you expecting any visibility on any of these?

There is no particular time frame Manish for this, right? The bilateral conversations with the regulators are private. So there's no details about that, but at least that is something that there's no time frame.

The other question is on the funding side.

And one thing that I do want to let which we mentioned that also, the merger is not predicated on this, right? So the model is not necessarily assume that we need to come. These are good, good to have, not necessary as such.

Sure, sure, sir. That's clear. Moving on to liabilities. Now once you acquire a large mortgage book from HDFC Limited, potentially, you can fund it using long-term affordable housing bonds. So what are your thoughts around the same? How many of those bonds you think you can issue? And does that mean that in the interim, your LDR as a merged entity could be higher than what historically we've seen for HDFC Bank standard work?

Certainly, that is part of the equation, and we wouldn't use those opportunities to get that. Because from a cost point of view, we'll be indifferent to that, right? Because we know that the assets on the other side are sorting rate assets price of the market benchmark. And there are hedging instruments in the market to ensure that the interest rate risk is managed. But at the same time, the liquidity maturity is also managed through these affordable bonds. And these affordable bonds do provide, as you know, offset, offset means relief from a subject to certain qualifying criteria, they are also further opportunities to take off the ANBC and thereby, when they reduce the PSL. Surely, that's are clear. Thank you.

Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Thank you, Rituja. Thank you participants for coming in today joining us. It was our pleasure. If you still have open questions for any other things to interact. We are open at any time we can to. Thank you. Bye-bye.

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