Chintan Joshi

Chintan Joshi asked about the bank's strategy for its high capital adequacy, especially considering potential regulatory changes and the bank's ability to grow with retained earnings. He also questioned why the bank's cost of funds was not falling as fast as peers and requested data on borrowings from Erstwhile Limited.

Answer

Sashidhar Jagdishan (CEO) explained that capital buildup was due to a strategic slowdown in FY2025, and while regulatory changes might benefit capital, ECL floors could nullify some advantages. He emphasized that the bank expects to consume capital as it accelerates growth from FY2027, maintaining higher capital than regulatory minimums. Srinivasan Vaidyanathan (CFO) added that current capital generation and consumption are balanced. On margins, Srinivasan Vaidyanathan (CFO) and Sashidhar Jagdishan (CEO) attributed the slower fall in cost of funds to the longer duration of the bank's retail time deposit book, which takes longer to reprice. For Erstwhile Limited borrowings, Srinivasan Vaidyanathan (CFO) referred to the annual report.

Chintan Joshi of Autonomous Research asked for details on long-term debt maturities mentioned in the 20-F filing, the bank's Priority Sector Lending (PSL) achievement status, and whether the second quarter would represent the trough for Net Interest Margins (NIMs).

Answer

Management clarified that the 20-F filing is a consolidated report and not comparable to standalone bank figures. On PSL, Chief Financial Officer Srinivasan Vaidyanathan noted comfort at the aggregate level but acknowledged challenges in the small farmer and micro segments. MD & CEO Sashidhar Jagdishan suggested that Q2 could be the NIM trough assuming no further rate cuts, but stressed that the full benefit on the liability side would lag due to the fixed nature and duration of deposits.

Chintan Joshi of Autonomous Research asked for details on long-term debt maturities from the 20-F filing, the strategy for managing Priority Sector Lending (PSL) requirements, and whether Q2 would represent the trough for NIMs.

Answer

Management clarified that 20-F figures are consolidated and not directly comparable to standalone bank data. Regarding PSL, they are actively managing the portfolio but acknowledged challenges in sourcing the small/marginal farmer and micro-enterprise segments. CEO Sashidhar Jagdishan suggested NIMs could trough in the coming months, assuming no further rate cuts, due to the lag in liability repricing.

Chintan Joshi asked about the drivers behind the recent Net Interest Margin (NIM) expansion and the outlook for NIMs over the next year, considering potential rate cuts and funding synergies. He also inquired about how the bank utilizes short-term corporate deposits, which lack LCR benefits, especially during periods of geopolitical uncertainty.

Answer

Srinivasan Vaidyanathan, CFO, explained that NIMs have remained stable in a narrow 3.4-3.5% band, with a reduced borrowing mix offsetting the customer shift to time deposits. He stated the bank is selective with less valuable corporate deposits, participating mainly to preserve large client relationships and wallet share. Vaidyanathan emphasized managing margins for stability over a full year rather than quarter-to-quarter and declined to provide a specific forward-looking NIM outlook.

Chintan Joshi asked about the drivers behind the recent Net Interest Margin (NIM) expansion, the outlook for NIMs amid potential rate cuts, and the bank's strategy for utilizing the significant increase in short-term corporate deposits.

Answer

Srinivasan Vaidyanathan, an executive at the bank, explained that NIMs have remained stable in a narrow 3.4-3.5% band. This stability was achieved by balancing a reduced borrowing mix against a customer shift to time deposits. He emphasized that the bank has been selective with non-retail deposits, avoiding those with unacceptably high pricing. Regarding corporate deposits, he noted that while they have lower lendable value, the bank participates selectively to maintain key client relationships and wallet share, especially as the country's largest working capital bank.

Chintan Joshi questioned HDFC Bank's expectations for deposit market share in a competitive environment and asked for details on the priority sector lending (PSL) shortfall and any NII impact from investment reclassification.

Answer

CFO Srinivasan Vaidyanathan detailed that the bank's deposit market share grew from approximately 8% in March 2020 to over 11% in 2024, with significant opportunity remaining as its newer branches mature. He also clarified that the Small and Marginal Farmers (SMF) category shortfall was nearly closed as of June and the NII impact from investment reclassification was minimal at around INR 480 crores post-tax.

Chintan Joshi questioned HDFC Bank's deposit market share ambitions in a competitive environment, asking if it would hold itself to historical market share gains. He also requested clarification on the NII impact from investment reclassifications and the current shortfall in the SMF category ex-PSLCs.

Answer

CFO Srinivasan Vaidyanathan detailed the bank's market share gains over the past few years, expressing confidence in future growth driven by the maturation of its branch network. He clarified the SMF category shortfall is being actively managed and the NII impact from investment reclassification was minimal, with about INR 480 crores post-tax moved to general reserves. Executive Director Sashidhar Jagdishan also disputed the analyst's calculation of a 12% incremental market share.

Chintan Joshi raised questions about the bank's capital strategy, noting substantial credit risk reduction and high CET1 ratios. He explored if this presents an opportunity to accelerate growth and improve payouts, given that top banks appear to have excess capital. He also inquired about the impact of Expected Credit Loss (ECL) guidelines, specifically if existing provisions would prevent any negative impact and potentially make it CET1 accretive. Lastly, he asked about the proportion of salaried accounts from the IT services sector and the potential impact of unemployment issues in that area.

Answer

Anindya Banerjee, CFO, stated that the bank would take a view on capital strategy when the new guidelines become effective (approximately 1.5 years from now), depending on the balance sheet position and growth segments at that time, emphasizing that capital is not currently constraining growth. On ECL, Mr. Banerjee reiterated that given the totality of existing provisions (NPL, other, and contingency), no impact is expected on transition, though he found it difficult to confirm if it would be CET1 accretive, as it depends on final guidelines and the balance sheet at transition. He confirmed that the IT services sector accounts for a significant share of salaried accounts for any bank but noted no impact has been observed so far.

Chintan Joshi of Autonomous Research asked if improved lending yields were benefiting from competitors' actions and if this could be sustained. He also sought confirmation of no one-offs in OpEx and RWAs, and inquired about the recent credit card data breach and potential regulatory scrutiny.

Answer

Executive Director Anindya Banerjee acknowledged some moderation in competitive intensity on lending but noted it's a dynamic environment. He confirmed no one-offs in OpEx and clarified that a drop in RWA shown in the presentation was a typo. Regarding the data breach, he explained that 17,000 cards were incorrectly mapped and immediate corrective action was taken, emphasizing the bank's focus on operational resilience.

Chintan Joshi asked how the bank would optimize its balance sheet, given that excess deposits are being parked in liquidity due to calibrated loan growth and limited borrowing prepayment options. He also inquired about potential asset quality issues in the Commercial and Rural Banking (CRB) and MSME segments.

Answer

CFO Srinivasan Vaidyanathan clarified that the bank does not calibrate deposit gathering; it aims to get as much as possible. The resulting high liquidity is seen as a positive outcome that positions the bank for future growth opportunities, not a problem to be optimized away in the short term. He reiterated that loan growth is calibrated only on large-ticket loans due to stubborn pricing. Regarding asset quality, Vaidyanathan stated that the bank has not seen any credit trends in its CRB or MSME book that would inhibit growth or require a different operational approach.