HDFC Bank - Q2 23/24
October 16, 2023
Transcript
Operator (participant)
Ladies and gentlemen, good evening, and welcome to HDFC Bank Limited Q2 FY 2024 earnings conference call on the financial results presented by the management of HDFC Bank. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. 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.
Srinivasan Vaidyanathan (CFO)
Okay. Thank you. Thank you, Neerav. Good evening, and a warm welcome to all the participants. Our MD and CEO, Mr. Sashidhar Jagdishan, has joined us today to provide an overview of the business before we get into the quarterly results. Sashi, over to you to get started, please.
Sashidhar Jagdishan (Managing Director & CEO)
Thank you, Srini. Thank you for allowing me to steal your talk time. I'll keep it as brief as possible. This being the first results post the merger, I thought of sharing my thoughts. It's such a pleasure to connect with you all after a very long time. As you know, we just consummated one of the largest mergers in recent times, with seamless integration of people, process, and systems. And that, too, without any external help, this showcases the power of our execution. The day one merged balance sheet was audited by the thirty-first of August, and the team disclosed this to the world at large around mid-September. The presentation which they did to the analysts brought out some of the one-offs on account of the debt-funded liquid assets to meet the liquidity coverage ratio, the LCR, per banking norms.
As you know, sometimes the assumptions and cash flows that an NBFC does is gonna be, is different from that what a bank would do. So therefore, there was some amount of buildup of liquidity to be to meet those liquidity coverage ratio norms, and also provide an extra cushion to take care of contingencies. You know, as luck would have it, there was an incremental CRR, which was announced, and this cushion came in extremely handy. Obviously, it came with a cost, which is approximately 25 basis points between the liquidity buildup and the ICRR impact. I think Srini will talk about it more in detail in his call.
The presentation also brought about the day one adjustments to equity, which was one of the asks of all you of this fraternity, to say what will be the day one equity and with all the adjustments that one would do on merger. I think a lot of people probably mistook some of them to be destroying of value, the equity, but it's not. If you look at it deeply, and I'm sure most of you would realize, that these are all accounting and timing differences, which means that these benefits will accrue over time from here on. A lot has been spoken about the non-retail book of HDFC Limited. Surely, there was a bit of a spike, incremental spike in NPA in an account, which was standard but had to be restructured.
As per the norms, when you restructure, even if it's a performing asset, it tags, it gets tagged as an NPA. Yes, there could be some tail remaining from this book, which could slip into substandard in the future, but the impact to the overall bank's gross NPA will not be significant at all. In fact, I can categorically say that the bank will not incur any incremental costs or losses on account of this book into our P&L going forward. And this is something is because of the realizable value of security. The provisions that we have made is gonna be adequate enough to cover some of the exposures that we have inherited. A lot of questions and question marks have come about: What are we planning to do on the construction finance? It is gonna be extremely important.
It's gonna be an important part of our mortgage business. We have just absorbed the contours of this book. You will now start to see the construction finance book growing steadily from here on, and that will sort of help in building not only the top line, but also some of the margins back. If you've seen the results, which has been released a couple of hours ago, I think it showcases the execution capability, which is what we're known for. Which is what we have constantly spoken about as well, and even demonstrated. Let's look at some of the key metrics. Look at the deposit accretion of INR 110,000 crore.
You know, that translates on an apple-to-apple basis of a sequential growth of 5.3%, which, if you analyze it, it's upwards of 20-21%. And mind you, this is almost 83%-85% of that is retail. Now, one would wonder, and one, probably one of the questions that you may have is: What happened in June? You know, which is, which I think, we may have explained, but let me articulate it slightly better, is that when the liquidity cushion was being built on the other side, that is in HDFC Limited, we decided that we will not roll over some of the large ticket deposits, even for a few basis points as well.
So we let some of them grow, and that has masked these outflows in the larger ticket deposits, the non-retail deposits, masked the outflow of the core momentum of the retail ones. So we are very sanguine and very confident that funding is never going to be an issue, and you will see the kind of execution that we are capable of going forward as well. Look at the loan growth. We've also accreted on an apple to apple basis, INR 100,000 crore during this quarter. These are high quality assets, whether it is corporate, whether it is CRB, the commercial rural, or the MSME book, or the retail book, is extremely high quality book, where we are extremely comfortable from the quality of the book now and into the future.
But look at the kind of sequential apple to apple growth rate. At 4.9%, it's an annualized growth rate of 19.6%. So when you look at these two metrics, it's a very strong, very healthy numbers, which is what we have mentioned several times over, that even on such a large scale, that the bank will have the energy to continue to grow at a pace that we have done in the past, even on such a large book. The NIMs. You know, I think the presentation in the mid-September called out that there will be a kind of an impact because of the liquidity cushion and the incremental CRR impact of about 25 basis points.
We had said that we will the core margins on a total asset basis, on a pure arithmetic, should be somewhere between 3.7-3.8. So when you adjust for this 25 basis points, we are at the lower band of the 3.6. That's all right. I mean, that's something that I'm sure with time, we will recoup some of the margins as we substitute the high-cost bonds with deposits, and the changing mix of our business loans mix more and more towards retail. Look at the return on assets. Despite that, I think the company maintained the return on assets around the 2% mark, and the ROE at the 16.2% mark.
So the top line growth and the profitability has been intact, and it is something that will only improve going forward. This being the first quarter, we wanted to ensure that the fabric of HDFC Limited's profits on mortgages is maintained, especially on the retail mortgages. We wanted the teams to settle down, and we wanted them to slowly but surely start to energize themselves and galvanize the home loan retail dispersal momentum. We have mentioned in the early release that they did the highest ever retail mortgage loans of 170,000 in numbers and INR 40,000 crore of disbursements, the highest ever. This demonstrates that this is the start, this is the tip of the iceberg.
It's just now a matter of time where we now will start to sweat the franchise, both the distribution and the customer franchise, to take this forward. But what is gonna be exciting is when we launch our digital journeys for bundling products, during this quarter. That will be incremental in terms of icing on the cake. So the innate strength of the institution to galvanize energy, to execute consistently, even on a larger base, is what we have demonstrated year after year for 28+ years. As one can see in the recent results, the bank is poised to silently deliver the core growth that you have just seen in this quarter, and I'm very confident and sanguine that it'll continue to do so quarter after quarter, even on a larger scale.
Maintain the profitability in the range of 1.9%-2.1%, as in the past. So without much ado, I just wanted to tell you that we are extremely excited about this merger, and we will slowly but surely demonstrate to the world that how we will execute the way we have done in the past. So over to you, Srini. Thank you so much.
Srinivasan Vaidyanathan (CFO)
Okay, thank you. Thank you, Sashi, for those opening remarks. Now let's get on to the main. I want to start with the macro content, context, provided that it provided a good, healthy tailwind in the quarter, right? We continue to see good domestic demand conditions and push from government through CapEx. But you know well that the GST collections were healthy, and manufacturing services, PMI and expansionary zone. The key logistics indicators were quite healthy and good. RBI kept its rate unchanged at 6.5, and, as we look ahead, we see the environment is for good for robust growth. We...
Our estimate of the GDP growth for this year, FY 2024, is 6.3%, which will demonstrate that it's one of the fastest growing economies in the world. Now, if you look at some of the key factors in the bank's growth journey, on the distribution footprint expansion, the our branch network stands at 7,945 outlets as of branches as of September 13. Overall, there has been an increase of 1,446 branches over the last 12 months, including 85 branches in the quarter. In addition, we are operating over 400 branches of erstwhile HDFC branches as under the bank banner now, and they're progressively developing other banking product capabilities as we go through the year.
Our payment acceptance points are currently at 4.9 million, and year-on-year growth of 43%, as adoption of Vyapar App builds momentum there. In the CRB, which runs the SME businesses, the rural business reach expanded to 1.85 lakh villages, and it's on track to go to the objectives of over 2 lakh villages, in the near term. Gold loan processing, you know, that we started this vehemently a few quarters ago, is now offered in 4,544 branches, an increase of 53% over prior year. In the customer franchise building, we added 2.7 million new liability relationships during the quarter. Our customer base stands at 91 million, including those added on the merger.
This provides the opportunity to further engage and deepen the customer relationships. In order to position this for greater engagement with those customers, we've added 16,000 people during the quarter. On cards, we issued 1.7 million cards in the quarter, taking the total base to 18.8 million. The granularity on the deposit focus continues, with total deposits currently at INR 2,170,000 crore, grew by INR 110,000 crore in the quarter, on a comparable basis, 5.3% sequentially. Our term deposits have been the bedrock of this growth, given the interest rate scenario and the customer preferences, aggregated to INR 1,360,000 crore, resulting in healthy growth of 7.8% sequentially.
Savings account deposits stands at INR 570,000 crore and grew by INR 9,000 crore or 2,000 or 2% sequentially. Current account stands at INR 250,000 crore and it and that's INR 18,000 crore over prior year. Retail of this current account constitutes 72% and grew by 3% sequentially. So we are focusing more and more on the retail current account as we go along, because as the corporate or the wholesale current account gets managed professionally through various treasury, the retail current account offers us the biggest opportunity there. Overall, CASA deposits ended the quarter at INR 820,000 crore, resulting in a CASA ratio of 37.6.
This is after the impact, coming from the merger, which came from HDFC Limited, the time deposits that got added into our base. On the advances side, the gross advances at INR 2,350,000 crore reflects a sequential momentum of about 4.9%. Retail advances grew 3.1% sequentially. CRB advances grew 9.7% sequentially. The wholesale segment grew, excluding the non-individual loans of HDFC Limited, grew 5.8%, and the non-individual loans of HDFC Limited is now at INR 103,000 crore compared to INR 109,000 crore as of the beginning of the quarter. We continue to pursue the technology and digital kind of a foray.
PayZapp 2.0 currently has 3 million registered users and handles a daily volume of 250,000 transactions. SmartHub Vyapar platform handles monthly transactions of INR 19,190 crore and provides monthly disbursals of INR 650 crore. Xpress Car Loansbrings in, contributes almost 30% of our car volumes. HDFC Bank One, the customer service hub, the AI-driven channel platform serving contact centers nationwide, serving 30 million engagements as interactions with 15 million customers monthly through email, social care, WhatsApp, and chat banking and phone banking services. Balance sheet remains resilient. LCR for the quarter was 121% after absorbing the 4+ percentage points coming from the ICRR. Capital adequacy ratio is at 19.5%, with CET1 at 17.3%.
Let's get to the net revenues for the quarter, which were at INR 38,093 crore, grew by 33% over prior year. Net interest income for the quarter at INR 27,385 crore, which is 72% of net revenues, grew by 30% over prior year. The core net interest margin for the quarter was at 3.65 on total assets and 3.85 on interest-earning assets after absorbing the debt from the cost for additional liquidity and merger management. The reported net income, net interest margin for the quarter was 3.4 on total assets and 3.6 on interest-earning assets. Getting to the details of other income. Total other income was INR 10,708 crore.
Fees and commissions, that constitutes two-thirds or 65% of other income, was at INR 6,936 crore and grew by 19.5% over prior year. Retail constitutes 92% of fees and commission, demonstrating the granularity of the fees and commission income. Fixed and derivatives income at INR 1,221 crore, was higher by 12.8% compared to prior year. Net trading and mark-to-market income was INR 1,041 crore for the quarter. Prior quarter was INR 552 crore, and prior year was -INR 387 crore. Other miscellaneous income of INR 1,510 crore includes recoveries from the written-off accounts and dividends from subsidiaries.
On the operating expenses for the quarter, which were at INR 13,399 crore, represents the cost to income for the quarter at 30.4%. Our pre-provision operating profit was at INR 22,694 crore and represents 8 times the total provision from a coverage point of view. Coming to the asset quality, the GNPA ratio was at 1.34% as compared to 1.41% on a pro forma as of July 1, that we mentioned. Out of the 1.- and last year, as you know, was 1.23%.
Out of the 1.34% as of this quarter end, we have about 22 basis points, which are related to restructured accounts, which are restructured accounts in erstwhile non-retail HDFC Limited, which are current and performing but have been classified as NPA according to the external guidelines. Net NPA ratio was at 0.335%. The specific ratio for the current quarter is at 32 basis points, about INR 7,800 crore. During the quarter, we had recoveries and upgrades that were INR 4,500 crore at 22 basis points. Write-offs in the quarter were about INR 3,250 crore, approximately 17 basis points. There was no sale of NPA accounts during the quarter.
On the provision side, the total provisions reported were around INR 2,900 crore against INR 2,850 crore during the prior quarter and INR 3,250 crore in the prior year. The specific loan loss provision was around INR 2,500 crore against INR 2,700 crore in prior quarter. The provision coverage ratio was at 74%. At the end of current quarter, contingent and floating provisions were approximately INR 15,600 crore. General provisions were INR 10,100 crore. Total provisions, comprising specific floating, contingent, and general, were about 156% of gross non-performing loans. This is in addition to securities held as collateral in several of the cases. Floating, contingent, and general provisions were about 1.009% of gross advances as of September end.
Now, coming to credit cost ratios, total annualized credit cost ratio for the quarter was 49 basis points, prior quarter was 70 basis points, and prior year was 87 basis points. Recoveries which are recorded as miscellaneous income amount to 16 basis points on gross advances for the quarter, against 19 for the prior quarter. The total credit cost ratio net of recoveries was at 34 basis points in the current quarter, compared to 51 basis points in the prior quarter and 64 basis points in prior year. The profit before tax was INR 19,790 crore and grew by 39% over prior year. After INR 1,000 crore write back of tax provisions no longer required consequent to favorable appellate orders, net profit after tax for the quarter was INR 15,976 crore, grew by 50% over prior year.
Now, few sentences on our subsidiaries before we get to summary. HDBFS, on an India basis, disbursements at INR 14,150 crore were higher by 43% over prior year. Loan book at INR 78,000 crore grew 5.8% sequentially. Customer franchise grew to 13.6 million customers, with 6.3% additions during the quarter. Quality of the book continues to see sustained improvement, with gross Stage Three at 2.38% as of September, against 4.88% prior year. The provision coverage of Stage Three books stood at 68%. The profit after tax for the quarter was INR 601 crore compared to INR 471 crore for prior year.
The ROA and ROE annualized in the quarter were 3.2% and 19.6% respectively. The earnings per share in the quarter in HDFC was INR 7.59, and the book value per share in HDFC is at INR 158. Now, getting to a few other subsidiaries, HDFC Life, on an IGAAP basis, the profit after tax for the quarter ended September increased to INR 377 crore compared to INR 326 crore the prior year. In the HDFC AMC, again, this one on an Ind AS basis, profit after tax for the quarter amounted to INR 438 crore, registering a year-on-year growth of 20%. In HDFC ERGO, this both just on an IGAAP basis, because there are different standards. Profit after tax for the quarter ended at...
For the September quarter, increased to INR 236 crore compared to INR 177 crore in the prior year, registering a growth of 33%. Securities HSL has a network of 2,203 branches, and a net profit after tax was INR 213 crore, as against INR 191 crore for same time last year. Now, I want to take the opportunity to provide a quick update on ESG. We further strengthened the integration of ESG and climate change risk assessment into our credit appraisal process for corporate borrowers. We also have finalized a sustainable finance framework to classify loans and advances as green, social, and sustainable in alignment with International Capital Market Association principles.
Now, getting to a summary, our results reflect robustness and growth after consummating the merger, 5.3% sequential momentum in deposit growth, 5.7% sequential momentum in retail deposit growth, and advances growth of a sequential increase of 4.9%. Profit after tax for the quarter at INR 15,976 crore, increased by 50% over the prior year. The consolidated profit after tax for the quarter is at INR 16,811 crore, delivering the return on assets in the quarter of about 2% and return on equity of about 16.2%. Earnings per share in the quarter is, on a standalone basis, is 21.1, it is 21.1, and at a consolidated bank level, it is INR 22.2.
The book value per share on a standalone bank level is at INR 534, and at a consolidated bank level, it's at INR 553. With that, may I request the operator to open up the line for questions, please?
Operator (participant)
Thank you very much. We will now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. Participants, you may press star and one to ask a question. The first question is from the line of Mahrukh Adajania from Nomura. Please go ahead.
Mahrukh Adajania (Executive Director)
Yeah, hello. Hi. My first question is on margins. So of course, you've explained that it's the ICRR and the excess liquidity on limited book, but would there be any other adjustments in the NII while, you know, moving from Ind AS to Ind GAAP for HDFC? Like, for instance, HDFC's NII in Q2 FY 2023 was around INR 45-46 billion, right? So, would that be restated significantly under Ind GAAP?
Srinivasan Vaidyanathan (CFO)
So, Maru, maybe we will have a session about what the Indian GAAP and Ind AS would be. There are several differences that happen. I'll give you, for example, one important. There are several of them. On the non-performing loan in Ind AS, you accrue for interest. In Ind GAAP, you don't accrue for interest if the loan is non-performing. Here, that's an example I'm giving, right? So there are several differences that happen, and so the time has elapsed, and the profile of the balance sheet, including the interest rate structure of the balance sheet, is different now versus what it was at that time. So they are not comparable as such.
They are a different regulatory regime, different accounting standards, different regulatory regime, and the composition of the balance sheet is different.
Mahrukh Adajania (Executive Director)
Correct, but most of the margin decline from pro forma 3.7% to 3.4% is largely excess liquidity and ICRR, or-
Srinivasan Vaidyanathan (CFO)
See, the way you think about it is that, the balance sheet is funded with debt, right? There is a level of additional borrowing that has been exercised, and that is a debt borrowing, right? That has come up. And debt borrowing comes in at a cost that is north of 8% or so. So that's part of how. There is a transition post the merger. As part of the merger management, we carry the additional. One way to describe this is additional liquidity, but if you think about what is there, where does it reflect? It reflects in the cost of funds. So that's where the cost of funds is higher.
Mahrukh Adajania (Executive Director)
Got it. Got it. Makes sense. My next question is on the tax rate. Given that there were favorable decisions and that's why the tax rate fell, does it normalize to 25% next quarter, or...?
Srinivasan Vaidyanathan (CFO)
Yes. There is this one-time effect. If you take it out, whatever is the normal tax rate, if you look at last quarter or the past year, we've been around that 35%, 34.9, 35, thereabout. That's where we have been.
Mahrukh Adajania (Executive Director)
Got it. And-
Srinivasan Vaidyanathan (CFO)
So there's no different from that, yeah.
Mahrukh Adajania (Executive Director)
Okay. And so just one last question. So, do you see margins... How long would it take for margins to come back up to 3.6, 3.65? Like 2-3 quarters, would the exit margin for FY 2024 be at that level, or would it take longer?
Srinivasan Vaidyanathan (CFO)
Yes. See, Maru, I think Sashi alluded to, to say that there are a few things, right? One is, the utilization of this, to a better mix of loan originations, particularly focused on the retail, shift, is, is something that would, bring, bring this to a normal level over a period of time. Then there are other, choices to make, but given, that these are... That this funding is a longer-term funding that we've chosen, part of the merger management, we need to get through, through building assets which are of a better use.
Mahrukh Adajania (Executive Director)
Got it. Thanks. Thank you.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah (Research Analyst)
Yeah, thanks for taking the question. So firstly, maybe Sashi highlighted earlier, that in terms of the rundown in the wholesale portfolio of erstwhile HDFC, is it more or less done, or should we see it getting towards-
Srinivasan Vaidyanathan (CFO)
Kunal, if I request you to slightly come closer to mic and speak up. I can hear-
Kunal Shah (Research Analyst)
Yeah.
Srinivasan Vaidyanathan (CFO)
but, not as clear.
Kunal Shah (Research Analyst)
Yes. Yeah, sorry. Now, if it's better. So I was just saying-
Srinivasan Vaidyanathan (CFO)
Mm-hmm.
Kunal Shah (Research Analyst)
Whether this rundown in wholesale portfolio, is it largely done? Because earlier we thought that it can come down to INR 80 crore, INR 90 crore, or INR 1,000 crore from INR 103,000 crore, but I think in the opening remarks, you said, like, it should largely be done, and now we should see the growth coming through in the construction finance portfolio.
Srinivasan Vaidyanathan (CFO)
So, that is the kind of a direction. If you think about it, it has got three components. One component is to do with the construction finance, which, from a bank positioning and strategic, to strategically feed into the retail, we want to grow this portfolio, right? We have the risk assessment framework, we want to grow within that framework that we have. The second component of the book is the LRD book, Lease Rental Discounting. That book is also a growth-oriented book and will be assessed and grown. The third component is the small component of a corporate loan book, that will be assessed as part of the overall exposure to various corporates that we have, and we'll take a decision about what is the overall exposure.
Yes, the direction what Sashi alluded to is on the construction finance, and it equally applies to LRG too, but all of this in the context of overall exposure to corporates that we have.
Kunal Shah (Research Analyst)
Sure, got that. And, secondly, in terms of other income, was there any one-off maybe pertaining to IGAAP transitioning for HDFC, or this is like now the overall fee income trajectory, which we should see, and there is no one-off in this line item now?
Srinivasan Vaidyanathan (CFO)
So, the fee income that you saw, which is INR 6,936 crore, yes, that is a normal level of fee. If you look at how we have in the past seen the fee, which is the 65% of the other income is the fees, right? This fee line has got multiple from asset origination fees to liability product fees to payment transaction type fees to wholesale banking fees to third-party distribution fees. There are seasonality up and down. It happens because there are certain quarters where you see for various considerations, it could be tax considerations or for origination consideration. It goes up or down.
But when you look at it over a period of time, historically, this has been in the mid- to high-teens, right? That's where the fee component has moved. And that’s where I will tell you to look at it. If you look historically, that's the range of which, right? If this quarter, if it was 19-odd%, again, quarter-to-quarter there's seasonality, but when you look at a year, two years, in the past, it's mid- to high-teens.
Kunal Shah (Research Analyst)
Thank you.
Operator (participant)
Just, Kunal Shah, sorry to interrupt you.
Kunal Shah (Research Analyst)
Yeah, sure.
Operator (participant)
Again. Thank you. A request to all the participants, please restrict to two questions per participant. Next question is on the line of Parag Thakkar from Anugrah Stock & Broking. Please go on.
Parag Thakkar (Senior Fund Manager)
Hello, am I audible?
Operator (participant)
Yes.
Parag Thakkar (Senior Fund Manager)
Yeah. Yes, Parag, yes. Yes, yes. So first of all, I would like to congratulate the entire team for bringing the deposit number to such a good number, above INR 100,000 crore. I think it required a lot of efforts and you all did it brilliantly, especially in a quarter when it was a merger quarter, and we had this one-time ICRR hit, plus the liquidity hit. So I, all in all, I'm very, very happy with the performance. So first of all, I would like to congratulate you all. And second, when we say that 1.9%-2.1% ROE is possible, the growth rate above 15% or 17%-18% of the merged entity is also possible, right?
Srinivasan Vaidyanathan (CFO)
Parag, firstly, thank you. thank you for the recognition, and, and we appreciate. These are, these are the things that, keeps us charged and, ensures that we drive to the best potential, both the market has to offer and, the people here are capable of delivering. Thank you. Thank you for this compliment. Now, getting to the question that you asked in terms of the growth rate. See, more than thinking about the, the, forward-looking growth rate, the growth rate is underpinned on, on two things, right? One, market rate of growth. Typically, in, in the past, we've seen the market rate of growth anywhere from 10%-12%.
Depending on the year, you'll see that the nominal rate of GDP times 1 or 1.1, 10%-12% is what you will see. And what we have always endeavored, and that is what historically we have delivered, is a premium on that, right? 5%-6% thereabout. So premium on the market rate of growth is what we deliver. That is where the market share gains come from that additional growth rate over the market that we do. And so now take this to what is the kind of a market share gain? If you see over a period of a 3-5 years, if you see, it's about 400 basis points or thereabout, market share gain. Either side of the balance sheet, that's a similar type of market share gain.
When you gain that, currently, if you look at the recent times, the share in the market, the market share gains is faster than what it was five years ago. Meaning, the larger distribution and the bigger the scale, the opportunity space for gaining more market share is available, and that is what in the recent times that we have done. So that's... I want to leave the thought process there. This is how we think, and that's how we are capacitized to try.
Parag Thakkar (Senior Fund Manager)
Okay. Thank you. We have opened around 2,200 branches in last two years. So when they start showing productivity, your OpEx to asset ratio will, should come down, right? Logically, because they will become more productive now.... In terms of gathering deposits as well as advances?
Srinivasan Vaidyanathan (CFO)
Yes, sir. It will come over time, but as we keep adding more and more new branches, one way or the other. But if you look at two years ago branches, very important that you touched upon. If you look at what we opened about two years ago, and look at that cohort, and when we look at that cohort of branches about how they are performing, right? Our model shows that it should break even in two years' time, and about 90+% , slightly above 90% of the branches have broken even in about 21 months. We have another 10% of the branches to break even, and when that does, that's the average of, call it 22-24 months break even.
They are all following a scripted model in terms of how they deliver. We are confident that all of them starts to pay back sooner. But we continue to add branches, right? That's why when you see a part of the cost is in the credit opportunity, credit cost, as you heard, is at about 49 basis points. And if you look back, what is the how does, where does it revert to mean, right? At what levels does it revert to mean at some point in time? Call it 80, 90 basis points or in the pre mortgage book, we would have said that it is 90, 100 basis points is the mean, where it can revert over a period of time whenever it normalizes, benign conditions normalize.
Maybe with the mortgage in, it is more closer to the 80 basis points or something reversion to, to mean. But the point I mentioned to you is that for every, every 10 basis points of credit cost opportunity, that we take from a timing point of view, right? Within the return framework or ROA framework, we take this opportunity on a timing to invest. It's about 1%-2% of cost to income that gets invested there. And, so that is, that is what... And, and we are, we are trying to say as we make those investments, it should start to pay back.
So we can, we can now look at those ones which are more than two years old, and those cohorts are performing well, and we're now starting to look at the last 12 months cohorts, and we will keep tracking them as we go.
Parag Thakkar (Senior Fund Manager)
Sir, just one last question, because everybody is concerned, well, now that you have gathered deposits of more than INR 100,000 crore, I think that concern is gone. But, in last quarter, everybody was concerned about how we will fund, and, as Mr. Sashidhar Jagdishan pointed out in the beginning that we are not concerned about the funding part now. But, going ahead, so for example, we have Credila, we have stake in HDB Financial Services. Anywhere, I think, we are mandated to list right by FY 2025, and that will also unlock some value and, of course, that will provide us some funding also. So just, can you just throw some light on direction of monetizing the stakes in various entities which we have in order to fund our growth?
Because that much pressure will be lesser on the deposit engine, right?
Srinivasan Vaidyanathan (CFO)
Yeah. Your points are well taken, and appropriate timing, those will be considered for either, but of course, at the right kind of a value. Yes, your thought process are right, and from a timing point of view and from a consideration point of view, it will all depend upon the appropriate valuation.
Operator (participant)
Thank you.
Parag Thakkar (Senior Fund Manager)
Thanks. Thanks. Thank you. Thank you.
Operator (participant)
I request to all the participants, please restrict to two questions per participant. If time permit, please come back in the question queue for a follow-up question. Next question is on the line of Atul Mehra from Motilal Oswal. Please go ahead.
Atul Mehra (Joint Managing Director of Investment Banking)
Yeah. Hi, good evening, and thanks for the opportunity. So I have just one simple question. In terms of the non-retail NPA for HDFC Limited, how much of this was unanticipated at the time of the merger, and how much of it is in terms of already anticipated and built for in the swap ratio that we had? Maybe if you can throw some color on that. Thank you, sir.
Srinivasan Vaidyanathan (CFO)
Okay. Yeah. See, if you look at the book, and look at this book over a period of 6 quarters at least now, it has been on a decline, right? Which is, this book has been assessed from a bank risk assessment perspective, and it has been, there has been a degrowth that has been happening. So go back to the June 2022 quarter, it was flat, and then from then on, there was a -4% or -5%, then a -6%, then a -7%, and so on, and the recent quarter is a -6%. So the risk assessment, we want that book, Sashi mentioned it, we want to grow that book.
But before you grow the book, we have to assess in terms of the exposure for, kind of, facility and so on, so that you're balancing the risk over a period of time. And that's what has happened. And we are at a stage where we feel comfortable with the quality of the book as we see now, with the provisions of approximately what we described, provision coverage ratio of 74%, or the contingent provisions, we have 66 basis points, all in combined and this is all post-merger, right? So not just pre-merger income as well. And we are looking at a book that is strongly positioned.
Atul Mehra (Joint Managing Director of Investment Banking)
All right. Got it, sir. Just one clarification on the same point. Did any of, in terms of the incremental shares, come as a surprise to the internal management, like to the bank management? Or this was something that you had already anticipated, while you had worked out the numbers at the time of the merger?
Srinivasan Vaidyanathan (CFO)
The risk assessment, you know, is a dynamic risk assessment. That is why on every quarter basis, you see certain things slip and certain things recovers and upgrades, and it is a continuous process. What is true at a point in time is not true at every point in time. It keeps changing.
Sashidhar Jagdishan (Managing Director & CEO)
Right. Got it, sir. Thank you, and all the best. Thanks.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Suresh Ganapathi from Macquarie. Please go ahead.
Suresh Ganapathy (Managing Director)
Yeah, hi. Just two questions. One is, Sashi said 83-85, 85% of that INR 1.1 trillion is retail deposits, right? So it's about INR 85,000 crore is what you have mobilized out of INR 1.1 trillion. Is that right?
Srinivasan Vaidyanathan (CFO)
That is right. 83% is retail, yeah.
Suresh Ganapathy (Managing Director)
Yeah, so seeing it is INR 85,000 crore, which is the effective number absolute, what would be the Basel III LCR quarter-on-quarter addition? The reason why I'm asking is last quarter it was INR 66,000 crore. I want a like for like, quarter-on-quarter addition for the Basel III retail deposits, because this, this number seems to be way different from this INR 85,000 crore. Is it possible to share that number?
Srinivasan Vaidyanathan (CFO)
Yeah, I don't have it offhand. We'll look at it and share. But, Suresh, just to say that the Basel classification is different, right? And there are different factors that apply in that classification. So there is no one for one mapping.
Suresh Ganapathy (Managing Director)
Right.
Srinivasan Vaidyanathan (CFO)
The point I'm trying to say is that the retail, which is the branch managed deposits that we have, is not-
Suresh Ganapathy (Managing Director)
Yeah.
Srinivasan Vaidyanathan (CFO)
- 1-for-1 retail definition as per Basel.
Suresh Ganapathy (Managing Director)
Okay, fine. And, last question is on, you know, the synergy itself, right? I mean, of course, these are very early days. We have seen pickup, slight pickup in mortgage growth, and also what your, your subsidiary reported numbers, and apparently, the counter share has gone to 70%, in your bank branches HDFC Life. So just wanted to understand on a qualitative aspect, what are the things which where you have already started seeing, you know, not in terms of prices and quantifiable, but better traction. You know, it could be anything like cross-selling of loans or products. Anything that you can give us would be great.
Srinivasan Vaidyanathan (CFO)
Suresh, we are focused on a few things, right? One, they are our subsidiaries, and we work very closely, and the engagement level has gone up significantly since before the merger and certainly after the merger. And one is about the sales process itself, right? In terms of... So if a customer comes in into a branch and works with an RMR, and RM visits the customer for various sales processes, the sales support has significantly enhanced, right? In terms of making the product features and the product kind of a dynamic, much more articulated to the customer. So that's, that is the process.
And not only at the, when you go into one of the metro regions, you'll find that it is top-notch, but the process has to be broad-based across the country, which has begun very well. That's one, right, in terms of getting that. The second is also getting the quoting it out from an immediate turnaround time point of view. That has also been a great deal of a focus to ensure that a customer doesn't need to wait to get a product consummated. We are able to turn around quite fast.
That gives enormous confidence to the RMs to pitch a product to a customer, because you know that it gets, the turnaround time is pretty soon, pretty fast, and the product will be in the hands of the customer, that we could consume it. So there have been some of these qualitative or kind of a relationship process that has enhanced and it pays results as we go along.
Suresh Ganapathy (Managing Director)
Okay. Thank you.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Abhishek from HSBC. Please go ahead.
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
Yeah, good evening. Thanks, for taking my question. So the first one is, can you just quantify the LCR now on a merged basis? And also, how much of the HDFC Limited deposits were, retail as per the LCR's classification? If you can share that number, it'll be useful.
Srinivasan Vaidyanathan (CFO)
I did give out the LCR was at an average 121% after absorbing the ICRR for most of the quarter. Your second aspect of the question was to do with the retail component.
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
Of the HDFC Limited deposits that came in.
Srinivasan Vaidyanathan (CFO)
Yeah, I think the retail component was slightly above, because it merged into the total organization. There is no particular special tracking that we look at to say this is HDFC Limited and this is HDFC Bank kind of thing. It's all part of one.
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
Got it. And, in terms of conversion of HDFC Limited loans, you know, from their current PLR to repo link, what percentage has been done? And, yeah, what, just what's the progress on that?
Srinivasan Vaidyanathan (CFO)
Abhishek, all of that is done, has been done, right? And it's available for the customers who are in the bank. Already a bank customer could view it in the system, on the screen. When you log in, you will see, but yes, it has been done.
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
So I think we had a December deadline for it, right? So we should be, like, the entire book would be on repo now, or by December anyway, it would be on repo, the mortgage?
Srinivasan Vaidyanathan (CFO)
Yeah, no, it is, and the December deadline is for various customer communication and customer assertion and so on and so forth, which we are working through, various alternatives to accomplish.
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
Okay. Srini, just finally, as outside observers-
Operator (participant)
Abhishek, may I request to join back you again for a follow-up question, please?
Abhishek Murarka (Managing Director, COO, Finance, Sustainability and Group External Communications)
Okay, sure.
Operator (participant)
Thank you. A request to all the participants, please restrict to two questions per participant. The next question is from the line of Rajiv Pathak from GeeCee Holdings. Please go ahead.
Rajiv Pathak (Senior Investment Analyst)
Yeah, hi. So I think in the opening remarks, you alluded to like a 25 bits hit on the margins because of the ICRR and the excess liquidity. So you would have taken approximately, say, INR 1,900 crore a quarter of this hit. So now this will from next quarter start getting normalized, right? So next quarter should be tracking a median of 3.85, and then maybe inch up to 4% over the next 3-4 quarters. And on the loan growth, do you think a 4.5-5% quarterly run rate is possible going forward?
Srinivasan Vaidyanathan (CFO)
Yeah. No, no, Rajiv, we don't give forward-looking guidance in terms of what we will grow, but we can point to past and give the kind of how we have done and how we are capacitized to repeat what we have done. But in terms of the margin that you talked about, we did allude to that there is an impact due to the margin management, and thereby, funding certain liquidity requirement to transition and come, and it has been debt-funded. And so it's not a short-term debt-funded to enter and exit. And so that, that's it. It will take some time, and even Sashi alluded to that in terms of how we go into it in the form of better mix, higher-yielding retail products to grow.
I also mentioned about that, and which is how we will approach to get that.
Rajiv Pathak (Senior Investment Analyst)
Okay.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Saurabh Kumar from JP Morgan. Please go ahead.
Saurabh Kumar (Executive Director, Equity Research)
Hi, good evening. Sir, just on this LCR, so the excess liquidity that you are referring to-
Operator (participant)
Saurabh, sorry to interrupt you. Your voice is not coming clear.
Saurabh Kumar (Executive Director, Equity Research)
Is it better now?
Operator (participant)
No, it's still the same. Can you please speak a little louder?
Saurabh Kumar (Executive Director, Equity Research)
Yeah, sir. So the excess liquidity that you're referring to, sir, this will be the difference between LCR and
Operator (participant)
Saurabh, sorry, we again lost your audio.
Saurabh Kumar (Executive Director, Equity Research)
Will that be the excess liquidity we're referring to?
Srinivasan Vaidyanathan (CFO)
So, Saurabh, we lost you, and if you come back again, we will hear you.
Saurabh Kumar (Executive Director, Equity Research)
Hello?
Operator (participant)
Ladies and gentlemen, due to audio issue, we'll move on to the next question. The next question is from the line of Piran Engineer from CLSA. Please go ahead.
Piran Engineer (Analyst, Financials)
Yeah, hi. Good evening, and thanks for taking my question. So firstly, could you quantify what your SLR ratio is as of quarter end?
Srinivasan Vaidyanathan (CFO)
What is it?
Piran Engineer (Analyst, Financials)
Uh, SLR.
Srinivasan Vaidyanathan (CFO)
No, we don't say what it is, but we can tell you we carry more than what is required. So that is a mandatory SLR is 18%, we carry more than that. That's part of the... That's not something that we talk about.
Piran Engineer (Analyst, Financials)
Okay. Okay, fair enough. And sir, just secondly, on the branch opening, just wanted to understand, last two quarters have been a bit, weaker than expected. Why is it that branch opening is always backended?
Srinivasan Vaidyanathan (CFO)
Very, very important and good. See, what happens in a branch process, so it's very important, you asked a very important thing, right? In for opening of a branch, there are a few things that go into it. One is, our marketing team. Second is our credit analytics team, scans the geography in the country to determine our presence and some other banks' presence in the vicinity, and maps it with, with, the potential. Potential not just of deposits, but potential of even advances. There is a third, marketing looks at what is our, market share.
That means we, you look at our distribution market share is about 4.5%, which means our branches are 4.5% of country's branches, close to, getting to be close to 5, but to 4.5% of country's branches, and our deposit market share is slightly above 10%. So we have a 2x of distribution to deposit market share. So we look at to see where we are more, where we are less, and what is the vicinity of the catchment area where we can get the deposit concentration into our bank. So this analysis is done, and then there are two other constituents that enter at this stage. One is our infrastructure team that tries to scout around to see is there a property available?
Our credit analytics, both from a liability and asset analytics, are given something. Our marketing is proposing a particular location to go for it. Infrastructure team will come and say whether they can get it or not get it, because that's the availability space, which is the biggest constraint. So, I'm able to articulate that. It is not about we know where we want to open the branches. It is the right kind of property or the branch space that is availability, that is a constraint. Now, once that is done, enters our legal to ensure that the landlord who's leasing the property to us has got the title, and it's appropriately there, so that we keep up our image, that it is a, it's a property that somebody is appropriately owning, and we are able to lease it.
So these are several of these that go in, and when we go through this process and get there, it gets to bunched up in the second half, and the first half is clean. That's what we have seen over the last two years that we have seen too, right? As much as we would like it to be even through the year, there are other constraints of availability, and that makes it tough for us to get there. And this is a machine, as you know, that rate is opening not 100, 200. It's a machine that needs some... And so when we are opening 500 branches in a quarter, the preparation and the legwork for that is a pretty long lead into getting there.
Piran Engineer (Analyst, Financials)
Okay. Okay, thanks for the elaborate answer. Just lastly, in terms of personal loans, last couple of quarters, especially this quarter, has been a slowdown. Just wanted to understand how much of it is deliberate versus, you know, market-led competition?
Srinivasan Vaidyanathan (CFO)
Yeah. I believe the market is quite good and underpenetrated. We have enormous of, I think the pre-approved base, and we published that in the May month also, where our pre-approved personal loan base is pretty high, and the demand is quite good. So no question about that. In terms of the growth rate, we have about 15-15.5% year-on-year growth rate. We expect that, yeah, it has been in the... Sometimes it's been in the 20s, sometimes it has been in the high teens, but in the recent times, it has been in that 15-16% range.
But we are confident that this is a strategic growth area for us, and the more customers we bring in and more they go through the seasoning process and monitoring process, we get the canvas even more opened up for an opportunity on personal loan.
Piran Engineer (Analyst, Financials)
Got it. Got it. Okay, thank you, sir, so much, and wish you all the best.
Srinivasan Vaidyanathan (CFO)
Thank you very much. Appreciate it.
Operator (participant)
Thank you. Next question is from the line of Manish Shukla from Axis Capital. Please go ahead.
Manish Shukla (Executive Director, Equity Research)
Yeah, good evening, and thank you for the opportunity. Srini, you acquired about INR 635,000 crore of liabilities from HDFC Limited. What will be the average cost of those liabilities?
Srinivasan Vaidyanathan (CFO)
Oh, yeah, that includes the borrowing you're talking about?
Manish Shukla (Executive Director, Equity Research)
Yeah, borrowing plus deposits-
Srinivasan Vaidyanathan (CFO)
Yeah.
Manish Shukla (Executive Director, Equity Research)
-is about INR 635,000 crore.
Srinivasan Vaidyanathan (CFO)
Got it. Manish, I will direct you to what we have published, right? The cost of funds is up by about 80 basis points at an aggregate level. Most of that is driven through the incoming. You, you'll be able to see that, right? You'll be able to deduce and work it out. We published the cost of funds at an aggregate level.
Manish Shukla (Executive Director, Equity Research)
Yeah. Understood. Of these liabilities, roughly, if you can give an approximation of the maturity over either next 6 months or 12 months, if you have it. What proportion of these liabilities will mature?
Srinivasan Vaidyanathan (CFO)
So that also, I think, HDFC Limited has published, as of May or June.
Manish Shukla (Executive Director, Equity Research)
So they have as of March, but during June they have. No, we have it as of March, but during June quarter, they added a significant amount of liabilities. So which is why I wanted to know as of June. We have the data for March.
Srinivasan Vaidyanathan (CFO)
The longer term, Manish, yeah.
Manish Shukla (Executive Director, Equity Research)
Okay, understood. All right, those are my questions. Thank you.
Srinivasan Vaidyanathan (CFO)
Thank you very much, Manish.
Operator (participant)
Thank you very much. Ladies and gentlemen, we have come to an end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.
Srinivasan Vaidyanathan (CFO)
Okay. Thank you. Thank you, Nirav. We appreciate all the participants dialing in today, and spending time with us. We are available through the week or through the next week. Whenever you all need or any other clarifications we can provide, we'd be happy to do. Our... You know the contacts of our investor relations team, Bhavin, Pratibha or others. Please stay in touch and get to us whenever you need. Thank you. Bye-bye.
Operator (participant)
Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.