HDFC Bank - Q2 24/25
October 19, 2024
Transcript
Operator (participant)
Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q2 FY 2025 Earnings Conference Call. 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)
Thank you, Nirav. Welcome to all the participants. Appreciate dialing in today. We'll start with we have our CEO and Managing Director, Mr. Sashi Jagdishan, with us. We'll start with his opening remarks and then get back to you all. Sashi, over to you.
Sashidhar Jagdishan (CEO)
Thank you, Srini, and thank you, friends. Let me first wish you a belated Dussehra festivities, and also wish you in advance the Diwali festivities that's gonna come in next week itself. Let me start with some of the macro environment which we are witnessing. Liquidity has been gradually improving over the last couple of months, so that's a bit of a good news. However, the deposit rates continue to be elevated and sticky. Probably the credit growth still outpaces deposit growth in the system, and that's maybe the reason why it continues to be sticky. As we have witnessed in the previous high-interest-rate cycle, customer preferences continue to be towards time deposits, probably to lock in at higher rates. Despite intense competition and the competitive environment, deposit growth has been very healthy.
On an average basis, we have grown around 13% year-on-year. Retail branch continues to contribute around 80%-85%, in fact, to be precise, 84% of the total deposits. Let me talk about the advances under management. We have mentioned in earlier public forums and calls that we will bring down the CD ratio faster than what we had anticipated, in the past. Let me spell out some of the glide paths of our credit, growth. FY 2025, we would probably grow slower than the system. FY 2026, we may be at or around the system growth rate. FY 2027, we should be faster than the system growth rate.
Our assumption is that from all the monetary regulatory comments in the monetary policy statements, there will be a convergence of system loan growth and deposit growth rates somewhere during this period. In the light of the above strategy, the average assets under management grew by about 10.2%, year-on-year. The margins has been stable in the range that we've been talking about, at 3.45%-3.5%, which printed at 3.46%. The gross NPA continues to be stable at about 1.4%. In fact, the gross slippages at 1.2% is better than what we had witnessed same time last year. The profit after tax grew at about INR 16,800 crores.
It shows an optical growth rate of 5.3%, but adjusted for the bond gains, and for the tax adjustments that we enjoyed same time last year, the growth rate, adjusted growth rate is about 17%. Let me pause out here, and we probably will take a lot of questions, and we have the team out here, Srini, Bhavin, who probably will also chime in for responding to your questions.
Srinivasan Vaidyanathan (CFO)
Okay. Thank you, Sashi. Nirav, with that, you can open it up, please.
Operator (participant)
Thank you very much. We will now begin with 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. Please limit to two questions per participant and join the queue for a follow-up question. Ladies and gentlemen, you may press star and one to ask a question. The first question is from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Mahrukh Adajania (Senior Equity Research Analyst, India Financials)
Yeah, hi, team. My first question is on fees. So it's growing strongly. Is there some securitization in coming fees? And if you could also refresh us with the accounting for any securitization, as in where it should come? That's my first question. And, my second question is on movement of contingent provisions. So what kind or what class of loans would they have been used for? Because I think the contingent provisions look low-key.
Srinivasan Vaidyanathan (CFO)
Mahrukh, I'll take this question on, on the fees first. Fees at about 8,000 crores grew by about 17% year-on-year. Think about the fees, third-party products, the distribution products have been quite strong. It grew by almost 32% in this quarter, year-on-year. Year-on-year, this quarter to last year, same quarter, 32%. And if you think about all of the retail categories, assets, cards, and retail liability, all of those other categories on a combined basis grew by about 15%-15.5% or thereabout. Wholesale, which has got certain episodic within that, we grew by about 5%. That's what you're seeing on a net basis, fees growing by about 17% thereabout.
Last quarter was between 14% and 15%, so it's very similar range. Anywhere between 14%-17% is what, when you look at it over several quarters, you will see that the range at which the fees grows year-on-year, and quarter to quarter, seasonality plays out. That was the first part of the question that you asked on the fees. On the securitization that you asked, comes with excess spread, and that excess spread is not part of fees. That excess spread in this quarter, you know that we did it towards almost the end of the last week, so there's not much of income or whatever is there, but that is excess spread and not a fee. Yeah.
Sashidhar Jagdishan (CEO)
It will be amortized over the life of the loan, and nothing is upfronted, so the fee item is not impacted by securitization at all.
Mahrukh Adajania (Senior Equity Research Analyst, India Financials)
Got it. And will the margins optically look higher than from next quarter, given that? Oh, no, not really, because they'll be part of investments anyway, right? Yeah. Okay. Sure. Sorry. Sorry, and on contingent provisions?
Srinivasan Vaidyanathan (CFO)
Okay. Contingent provision, you will see that there was a release of contingent provision. There's a footnote in the accounts that, AIF, provisions. We received the clarifications on AIF. We had reserved 100% of our contribution, to the AIF. The clarifications came that we don't need to provide, rupee for rupee of the amounts that we have, provided to the AIF. It is sufficient to provide on a proportionate basis, based on the AIF lending to the debtor company, and so appropriately, the provisions have been taken down.
Mahrukh Adajania (Senior Equity Research Analyst, India Financials)
Okay. Perfect. Thanks.
Srinivasan Vaidyanathan (CFO)
It has nothing to do with credit. It is, it was simply a regulatory provision that was created, and it was taken out. Yeah.
Mahrukh Adajania (Senior Equity Research Analyst, India Financials)
Thanks. Thanks a lot. Thank you.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Kunal Shah from Citi. Please go ahead.
Kunal Shah (Director - India Banks, Financials)
Yeah, thanks for taking the question. So first question is with respect to RBI's draft circular.
Operator (participant)
Your audio is not coming clear. Can I request you to speak through the handset?
Kunal Shah (Director - India Banks, Financials)
Yeah. Is it clear now?
Operator (participant)
Yes. Thank you.
Kunal Shah (Director - India Banks, Financials)
Yeah. So the question is on RBI's draft circular in terms of the overlap in lending with group entities. So what do you think should be the impact on HDB Financial and maybe till the time there is the final guidelines would it any which ways impact the listing of the HDB Financial that is being planned and that is required as per the regulatory requirement? Yeah.
Srinivasan Vaidyanathan (CFO)
Okay, Kunal, thank you for asking. There are two aspects to what you're asking. One is draft circular. The word is, the underlying word here is that it is a draft, number one. Number two, the comments are required to be submitted by November 20th. Our bank, and I'm sure the banking fraternity, would be providing similar comments, so we'll have to wait to see what turns out to be the final. That's second. Number three, the context to keep in mind is also that HDB is a regulated entity, operating under the license from Reserve Bank of India. So it is a licensed entity, and there are certain conditions for license. It meets those conditions for license. It is also supervised by the similar team that supervises the bank.
The policies and the procedures adopted by HDB are consistent with what the bank does in terms of, let it be income recognition, provisioning, lending, standards that are required, or where lending is prohibited, and so on. So the entity follows very similar principles, which means, there is no arbitrage between the bank and HDB. There's no arbitrage as such. There's no charge. The bank operates, as you know, for that particular product segments, so those kind of products, the bank operates on a program basis. And HDB, by nature of the customer segment, which is very different from the bank customer segment, operates with a touch and feel closer to the customer through a branch network, and operates handholding the customer on a periodic basis.
So very different model in terms of how HDB operates, and it's a necessity in this market where credit evolution is still in an early to mid stage. So that's in terms of HDB as such and the draft circular for you to fit the context. We do not know what the final will be. We'll be providing the feedback, and then we'll take it from there. As it relates to IPO, you know that there is an upper-tier circular which came in some time, couple of years ago now. That couple of years ago, a circular actually came after the white paper of this draft circular that was given about almost three years ago. So subsequent to that white paper, there was a draft circular.
The draft , the circular for the upper tier came, and that requires HDB to be listed by September 25. The process for that listing was kicked off. As you know, we put out certain press releases after various board deliberations here as well as in HDB between July and August, and the process is kicked off. As it relates to the timing or anything else, I will not be able to talk more specifically on that. That's part of the publicity guidelines as you enter into an IPO process. Publicity guidelines do not permit to talk anything more specific at this stage.
Kunal Shah (Director - India Banks, Financials)
Okay, okay. Thanks. That's helpful, and second question is on LDR, so you indicated in terms of how we should look at the overall growth compared to that of the system averages, but when we look between our own loan and deposit growth, the way we have been maybe at least contracting the LDR, in what level should we assume that we'll be so aggressive in getting the LDRs down? Would it be like 90, 95, what level, and then we will get relatively more comfortable, or would there be any time period maybe that we would have want to get it down, or maybe we will see a much higher deposit growth compared to that of loan growth for next two, three quarters, and then maybe both of them should normalize, yeah.
Srinivasan Vaidyanathan (CFO)
Yeah. Well, you know, lots of details you provided there, Kunal. The point here is that, the bank LDR was more closer to the 86%, call it even 87%, if you round it. That was the rate that we operated before the merger. We went all the way to 110%. And, rightfully so, because it was funded through longer term borrowings. Typically, a banking system, if you look at it, at least the top banks if you look at it, the borrowing mix in the funding profile is about 7%-8%. For us also, it was 8% before, and it went to 21%. So for better economics and for alignment, repositioning the balance sheet was required, and, so thereby, currently it's at about 16%.
The borrowing mix is at 16% or so and the LDR, when it will come down, the thought process we had, which our CEO had articulated over the last nine months, is that we had thought that it would take 4-5 years to be at that level of what historically we have run, which is the mid-80s to high 80s. Instead of that, there is an opportunity right now with the rate of credit growth being high over the last 2 years, and is expected to come down to maybe the deposit level rate of growth. And so in this scenario, it was appropriate for us to rethink, to say we will do it within 2-3 years to get to the high 80s, right?
You asked me is there a quarterly, as you described, two, three quarters or a year, we don't want to get into quarterly or year, but certainly an accelerated approach is what we have in mind to do. And again, keep in mind, the way we are operating is that as far as the retail lending is concerned, retail loan is concerned, if you think about our mortgages, we are full force in the market in terms of marketing and selling mortgage because it provides better customer relationship. Price, you know our price and you know the price of the legacy banks which are there, the high differential exists, and so there is a sensitivity to price there. But we grew, as you see there, almost 11.7% year-on-year.
And as it relates to non-mortgage retail, we grew 11% this year, year-on-year in this quarter that you are seeing, but we have moderated the growth purely based on credit dynamics, that our credit underwriting standards, underwriting team looks at certain standards and calibrates that. And priority sector has grown 4.7% sequentially, which is at the rate of 16%-20%. We need the priority sector, high quality, again, passing through the whatever credit filters comes in. Where there is the larger ticket size loans is where we have used this tool of calibrating, again, price conscious. If you look at even in this quarter, the bond spreads on a two-year AAA or a one-year AAA, bond spreads have moved between 15-30 basis points up.
Loans, loan spreads in the market are pressurized to come down. And so at this stage, we chose that's not the way to go, and so we moderated the growth on that. So there is no one particular target, as you saw. We talked about it for two minutes to say there is not something that over the next one, two, or three quarters that we can give you a target, but directionally, we got what Sashi has been talking about for a few months now.
Sashidhar Jagdishan (CEO)
And the reason for the change in our thought process is we also believe from the various regulatory commentaries that is, you have been listening and we all have been listening, that it may coincide over the next two to three years, a change in the credit environment. So we want to ensure, now that, we have mentioned and we have been witnessing a very stable, asset quality, we want to be extremely well-positioned when the positive cycle probably changes in the next two to three years. We want to be well-positioned to capture the kind of incremental growth that we have seen in the pre-merger levels.
That's one of the reasons why we are accelerating the bringing down the CD ratio or the loan-to-deposit ratio, which is what I mentioned at the beginning of my commentary as to what our likely path of credit growth would be vis-à-vis the system growth rate over the next three years, including FY 2025, 2026 and 2027. Thank you.
Kunal Shah (Director - India Banks, Financials)
Yeah. Thank you. Thank you, and all the best.
Operator (participant)
Thank you very much. Next question is from the line of Gaurav Singhal from Axis Management. Please go ahead.
Gaurav Singhal (Manager)
Hi, thanks for taking my question.
Sashidhar Jagdishan (CEO)
Go ahead.
Gaurav Singhal (Manager)
I have a couple of questions. So one, I get better?
Sashidhar Jagdishan (CEO)
Yes, go ahead.
Gaurav Singhal (Manager)
Hello. Yeah, so I have a couple of questions. So first is on the priority sector loan. Maybe if you can share some more detail on how much are we making organically, because I noticed that in the last few quarters, our other assets as a percentage of total have gone up a lot, like used to be 3%-4%, pre-merger, now it's like almost 6%. But this quarter, it has actually come down significantly. So I'm just curious if that is because we are making more priority sector requirement organically. So maybe if you can share some thoughts on that. And the second question is about the non-mortgage retail that you mentioned. Do we and we are just re-accelerating this and start gaining market share again?
Because a lot of our peers actually are now seeing their credit cost go up, and they were growing faster than me. So do you see, in the next several quarters, us gaining back market share as other peers step up? Thank you.
Srinivasan Vaidyanathan (CFO)
Okay. Thank you for asking again. Let's go to the PSL that you mentioned. Yes, I think, as far as the PSL achievement is concerned for March 2024, that is already published, that you'll be able to see it. It's in our annual report and various other disclosures. We are close enough, in terms of at an aggregate level, our PSL was 50 odd % aggregate level, and, the small and marginal farmer and the weaker section, we were slightly under, that's less than a % or so that we have seen that. Sequentially, you'll see some other assets going down, that's various causes that go up and down, including some RIDF maturity. So many things will happen that, that's about INR 2,000 crores or so, that's something.
You talked about the PSL as we stand today. Yes, as far as the PSL is concerned, the only PSL that we focus on organically, because the rest are naturally part of the business model to grow, is on the small and marginal farmer and the weaker section, which, typically, we are between the organic growth and the PSLC and the IBPC and the PTCs or the securitization that we do on the investment side. Across all of these sides, we operate somewhere between nine and a half, thereabout, closer to the nine. 10 is the target, as you know. So we endeavor to close that gap as much as we can organically. That is where the approach has been, do it organically.
I wouldn't say where we will end because we don't know the market availability and how we do it, but that's at least the approach is that organically we want to do as much as possible.
Gaurav Singhal (Manager)
Absolutely.
Srinivasan Vaidyanathan (CFO)
And other tools are available at a price for us to take. And that's where we are as we stand even in September. That's one on the PSL. On the non-mortgage retail, I'm going to start and then Ashish is going to say. We talked about market share, right? Despite whatever you talk about, our rate of growth slowing down. In the recent year, we slowed the unsecured loan to a rate of growth which is 10%. In the recent time periods, one to two quarters this year, we slowed it down to between 9% and 10% rate of growth. And if you look at the year before, we grew at 19%, right?
The risk calibrates in terms of the seeing it far ahead of time in terms of how to time it from a calibration, which is what has happened. If you look at the non-performing on the retail side, our non-performing loans, GNPA is at 1.36 or thereabout. Retail GNPA is about 0.8, right? 0.8, that's where the unsecured loans are also there. From a market share that you alluded to, on a PL, on the private side, that means leave the government segment to the side, we are the number one. If you look at auto, we'll be the number one, right? In cars, we are the number one. Various products on the retail non-mortgage, when you think about it, we are the market leaders across various product segments with whatever.
Even in the recent times, if you look at the high-quality customers, customers who are rated above 750, 760 score and above, which is a bureau score, which is not the model for us to originate, but that's for us to refer. We have one of the highest share both from an application, incoming, inquiries, disbursements, so across all of those segments and the stock, we are one of the highest from a higher-rated credit score segment point of view. I think that's, in terms of we continue to focus, it's credit calibrated, and we don't have one particular target for credit to achieve there.
Sashidhar Jagdishan (CEO)
All the portfolio, as I said, beginning of the commentary, the quality continues to be very stable across the board. Of course, there will be this quarterly fluctuations, but we are not overtly concerned. So it also sort of helps us to position ourselves very well when we probably are ready with the cycle changes back into a positive territory. And that's the time when we will probably pick and choose the right customers at the right price, which will be contrarian to some of the banking system trends.
Operator (participant)
Thank you. Next question is from the line of Pranav G from Bernstein. Please go ahead.
Pranav Gundlapalle (Director - Investment and Strategy Professional)
Good evening. Thanks for taking the question. The question is on the loan yields for the bank. I think if you look historically, the bank as well as the former entity has always had a higher yield versus peers, and we have a significant gap versus peers. Incrementally, is the bank's loan yields on par with peers, or are we still seeing a lower yield because of our conservative stance on underwriting?
Srinivasan Vaidyanathan (CFO)
You have to look at it by segment again. If you look at it by product on the mortgages, it's our published rates are anywhere between 8.8% to 8.9%. So the private sector peers would be more or less within the same range, within a 10 basis points range. If that is not the competition on the price, it is the legacy banks, the incumbent banks from ages, that's where the price differentials are almost 50 basis points or thereabout. That's the mortgage as such. The non-mortgage, when you look at it, on the retail side again, there is a risk-based pricing for the quality of the assets that you originate or the customer segment that you choose. The price is appropriately calibrated according to the risk models that come.
Similarly, on the CRB side, the commercial and rural banking, we have tried several price points from anywhere from 10 basis points to 20-25 basis points over the last 6 months. The price has been extremely elastic, which means the higher the price, lower the demand. Because again, this is the incumbent legacy banks have lower price in that segment, and so we haven't seen the ability to move the price up. We have not seen, and that's what we are seeing even in the system. When the repo rates has gone up by 250 basis points, the WALR, the weighted average lending rate, has moved up only half of it or 150 basis points or thereabout.
But you will see that, the public sector banks' rate movement is far below that, 120 basis points or thereabout, essentially inhibiting the private sector to price up more in line with what the repo rates are moved up. So that's a factor there. On the wholesale side, corporate larger ticket size, I talked about the credit spreads. Credit spreads move in a direction, but not necessarily. The bond spreads move in a direction, not necessarily the credit spreads are not, the loan credit spreads are not keeping up in the same direction as the bond spreads. So thereby, that's again a choice to make in terms of how we price for that.
I agree that the credit quality in that segment is extremely great, but still, we have to price for a life cycle credit cost, and not for today's or tomorrow's just credit cost. So that's where we are inhibited on that segment.
Pranav Gundlapalle (Director - Investment and Strategy Professional)
Understood. That's very helpful. Thank you. Thank you.
Operator (participant)
Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Rahul Jain (Managing Director)
Yeah, hi, good evening, Sashi, Srini, and Bhavin. Three questions. First is on the trajectory of the liquidity coverage ratio. So want to understand, we have been inching it higher. Clearly, you know, there is a draft regulation out there. So is that something that we are baking into our assumptions and pushing this LCR higher? Or what exactly is the reason, what are you thinking there? So that's question number one.
Srinivasan Vaidyanathan (CFO)
See, the liquidity coverage ratio is at 128%. We have told you that our target that we normally tend to operate is between 110%-120%, and somewhere historically, we operated at that 115% or thereabouts, ±1%, 2%. That's the kind of where one would desire to operate. However, in the recent times, last quarter was 123%, this quarter was 128%. Again, it is driven by the fact that we get more deposits, granular deposits, retail-driven deposits, which have higher value, good value. We want to get more deposits, which puts money in reserves. And we have talked about our lending value proposition, about how we are addressing the lending, loan growth as such.
So it's a fallout of how we are trying to get as much as possible the optimal level of deposits that are available, and calibrate the loan for current conditions and situations for repositioning the balance sheet as well as the credit filters. That's what it shakes out to be at that level.
Rahul Jain (Managing Director)
So just to simplify, Srini, so LCR, would it further go up, or you would run it down a bit? Because clearly now the mix is also changing, and, you know, we would want to push up our margins also because the ROA also could potentially be better. Or you will keep inching this up because there's an impending regulation that is out there or draft regulation that is out there?
Srinivasan Vaidyanathan (CFO)
Yeah. See, we like to wait. It's still in a draft form, that regulation is still in a draft form. Feedback has been provided by us and by various organizations and associations. We'll have to wait through to see. For example, if you see some of those, anybody with a digital banking capability, net banking capability, including a UPI transaction capability, which is a digital capability, and so on, so it starts to be punitive, where in a situation where we are trying to digitize many things, including day-to-day transactions. So we do not know where it will land. So that's on one side, right? Draft regulations is something which is there. The feedback has been provided. We'll have to work through it.
We do not know what that is, where it will come in again. But the second aspect of it that you asked, whether it will go up or come down or remain where it is, again, it's a function, Rahul, it's a function of what happens with the market on the deposits. As we have said, we will get, we are positioned to get good share of deposits, and we are calibrating our loan growth, so we could remain where it is, or we could go up, but that is the last of the considerations, but it is about the customer franchise of growing those deposits and getting that loans at a level that we desire.
Rahul Jain (Managing Director)
The reason why I ask this question is because in the balance sheet, quarter on quarter, the deposits, you know, still went up about 15,000 crores, LCR also went up. I appreciate the point about the granularity of deposits and, therefore, the lower runoff factor. Fair enough. The other question is on the branch expansion, et cetera. So what are the fresh thoughts out there? How are you all thinking about it?
Srinivasan Vaidyanathan (CFO)
We grew 240 odd branches in this quarter. 350-something for the year so far. Last year, we grew 917 branches.
Our objective has been to make those investments in branches now, when the credit has been benign. As you know, as you see that, it continues to be benign. We have stopped giving exactly what number, whether it is a thousand or a seven fifty or a thousand two fifty or whatever, but our approach has been to grow branches, to go into more areas where we need reach, and but even in cities, to make it much more denser so that we could capture all the customers that are possible. We continue to grow. At what pace? That will be calibrated time to time.
Rahul Jain (Managing Director)
All right. Appreciate it. Thanks. The last question is on your latest thoughts on the credit quality, because I think you've got the cycle again right on the unsecured, you stayed away. Now you're starting to grow that piece while others are having, you know, denormalized experiences or elevated credit costs. So what's your latest thoughts on asset quality in general, unsecured, microfinance, any other segment that you are cautious about? Anything that we all should know from your perspective, where the credit concern will be starting to build up?
Sashidhar Jagdishan (CEO)
You know, we have been sort of mentioning this for quite some time. As Srini did mention, for a couple of years, we have been calibrating our growth depending on what we have been seeing in the early indicators. But I think the call that has been taken by our credit architecture has come out well, yet again. So as we speak today, we are in a very extremely comfortable position. Obviously, there are risks in the system. There are, you know, the impact of what's gonna happen in the macro side is something that you and I may not be able to predict, but we are well positioned as we speak, looking at our portfolio, that we don't have too much of a worry at this juncture.
Which is one of the reasons why it will take some time for the book to build the retail. As you can see, we are seeing the retail disbursements going up. This will take a little bit of time for the book to start to reflect that, because large part of the book will happen only in about if you continue this kind of a momentum over the next 12 to 18 months' time. But we definitely will be ahead of the curve and probably should capture the right customer segmentation at the right price going into the future.
So that's the thought process, but we are very watchful of what's happening in the environment, what's happening in the ecosystem, and good to say that as of now, we're not, we're not seeing any red alerts or amber alerts, and we continue to calibrate our growth depending on what pulse we have at the ground level, and just to you know supplement what Srini has been talking on the LCR, the one thing that we don't want to control is our deposit franchise. The deposit momentum is not something that you can- it's an overnight plug-and-play. You know, it's a very large franchise, and there is a momentum that it, it needs to have, and we don't want to sort of curtail that kind of a momentum.
Obviously, we are working in a very competitive environment, in a very tough, macro and liquidity environment, so there is a little bit of an uncertainty, where we want to cushion ourselves in terms of a higher LCR. In addition to that, we have just, both Srini and I just mentioned about the glide path on why and what we want to do on the credit growth rate. Obviously, that will lead to this extra amount of high-quality liquid assets, which probably, you're right, may depress in the near end, some amount of margins, which we are okay for it, because we're not here in the shorter end. We want to ensure that the balance sheet and our financial statements are very resilient in the medium to long term.
The third aspect, which you alluded to rightfully, is the fact that there is an overhang in terms of what will happen if the guidelines come into play, the draft guidelines, when it comes in circular. Obviously, we want to position for that as well. So the 129 or whatever that you're seeing is probably a kind of a temporary phenomenon, which we will watch as to how the various macro and the regulatory framework keeps evolving. And at some point in time, you know, I think it'll normalize to the median levels at which we have operated, which is what Srini alluded to. I think it's just a timing difference that we are seeing this kind of a slightly elevated LCRs. We shall adjust with that into the future.
Rahul Jain (Managing Director)
Very helpful. Thank you so much.
Operator (participant)
Thank you. Next question is from the line of Rikin Shah from IIFL Securities. Please go ahead.
Rikin Shah (SVP)
Good evening, everyone, and thanks for the opportunity. Just have one question. With the faster normalization in the LDR, we are generating excess liquidity on the balance sheet, so the cash balances have gone up almost by INR 750 billion in this quarter. In the past, we have demonstrated to prepay some of the bond borrowings, in addition to the scheduled maturity, but this quarter we didn't see that. So, just wanted to understand, do you still see those prepayment optionalities available in the quarters to come by? Or we could probably see off, for a few more quarters where this excess liquidity could sit on the balance sheet?
Sashidhar Jagdishan (CEO)
You're right. That endeavor continues to be. Our efforts are towards that endeavor. But as you know, a large part of the borrowings that we have inherited from HDFC is non-callable, so it requires a lot of negotiations across the table. Obviously, it has to find favor with the investors. It's not a done thing that this will happen. It will take, you know, it depends on their interests as well. But having said that, the efforts are on.
Also, you know, in line with what I just said just about a moment ago, in Rahul's question, we also want to ensure that we have adequate cushion and liquidity to balance off not just the probability of the sustainability of deposits going into the future, the draft guidelines that will come about, and also the fact that, you know, if there's an opportunity to bring down the borrowings, yes, why not? So we have to play this depending on the circumstances and how all this plays out in the future. But if at all, we do have an opportunity to do so and still keep adequate cushion in terms of liquidity, why not? We will do that.
Srinivasan Vaidyanathan (CFO)
That's exactly.
Rikin Shah (SVP)
All right. Thank you. That's all.
Operator (participant)
Thank you. Next question is from the line of Abhijit from Axis Mutual Fund. Please go ahead.
Abhijit Pawar (Strategic Alliances Senior Manager)
Yeah, thank you for taking my question. So the first question is, the other OpEx growth is sharply down. What is driving this efficiency? And, what is the trajectory we should expect in the near term?
Srinivasan Vaidyanathan (CFO)
Yeah, the total other OpEx is what? Expenditure, he's talking about expenses. Yeah, the total expenses is growing at the rate of about 10% or so. You've seen that, we have moderated the headcount to some extent in this quarter. It's a seasonal timing in terms of how we spend for what festival and so on. And again, certain third-party expenses of origination and so on could be calibrated. There are several plays that go into it. There's no particular strategy on that, yeah.
Abhijit Pawar (Strategic Alliances Senior Manager)
Sure. Thank you. And, second question is, I just want to understand. You have spoken about CRB, the budget play, et cetera.
Operator (participant)
We are losing your audio. Your voice is breaking.
Can I request you to come back in the question queue? Due to no response, we move on to the next participant. Next question is from the line of MB Mahesh from Kotak Securities. Please go ahead.
M.B. Mahesh (Executive Director)
Hi, just two questions from my end. One is, we have started to see a slowdown in the commercial banking space, especially on the emerging corporates. If you can give us kind of high-level as to what's happening there.
Srinivasan Vaidyanathan (CFO)
Emerging? Corporates. Oh, emerging corporates. See, emerging corporates, I mentioned to you, in some other context, Mahesh, that larger ticket-size loans are sensitive to rates, and the rates are not moving in tandem with the bond spreads that are moving in the market, right? These are good-rated emerging corporates, so we need the right kind of a price for that quality, right? So and if you don't get it, it's calibrated to a lower level. And but within that segment, we do grow, too, and there are certain in that segment which provides us priority sector and also provides, through them, partnership, certain small and marginal farmer or agricultural, allied activity loans. We patronize all of those. So it's not that, it's only one way of just look at this.
You balance across various parameters of cost, price, including the priority sector cost, price, and so on. But that's how we calibrate that. There's no, again, one particular way. Sure. Just a business line that you manage that. Sure, sir. Second question is on the deposit side and loan growth.
M.B. Mahesh (Executive Director)
Is there any number in mind when you're looking at below industry average and looking at where the sector is growing in terms of deposits? Or you don't have an opinion about it at all?
Srinivasan Vaidyanathan (CFO)
See, the deposits, what we have seen is that the industry has grown anywhere between 10.5%-11%. And we have grown more than that, gaining market share. Any time period, if you take a year, three years or five years, between 50 to 70 basis points a year, gaining market share. But I'm not sure which one you talked about where...
M.B. Mahesh (Executive Director)
No, I'm just saying, if deposits at a system level, let's say, is about fifteen, and loan growth starts to accelerate for the system, is there a number in mind as to where you want your loan growth to grow, or you're going to keep it a very flexible number out there?
Srinivasan Vaidyanathan (CFO)
There's no one particular target, Mahesh. As we said, we are not strategizing to execute that one number that we want to hit. That's not what is there.
M.B. Mahesh (Executive Director)
Okay. Just one clarification. On the savings account balances, if you look at the number of credits that are happening into the account, has there been a slowdown there? Or this is just transition to term deposits that we are looking at?
Srinivasan Vaidyanathan (CFO)
I'm glad that you asked that question. When you look at the credits that are coming into the account, they are robustly growing. Growing in 20s, right? So that means, that's again contributed by new customers, too. I'm not talking about a static customer base. I'm talking about adding every quarter, little more than two million customer base coming in, shows that the credits do increase, and we are seeing robust increase in the credits. But people do spend. We are seeing that in the card spends anywhere between high teens to low 20s. Even in our own base, the issuing spend or the acquiring spend, we have slightly under 40% share on the acquiring spend.
That also we are seeing quite robust growth where spends are happening. So it's just that people spend, and money is with the government and not coming back recycled, or going through investments through their alternatives in terms of what they are choosing to do. And time deposit is also another areas where savings is moving to time.
M.B. Mahesh (Executive Director)
Perfect. Thank you.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Saurabh Kumar from J.P. Morgan. Please go ahead.
Saurabh Kumar (Marketing and Execution, Digital Transformation, and Decisioning Architect)
Sir, just two questions. So one is on your slide 36. Your RWA to total assets is down current quarter, and you've degrown the corporate book, and the market book has also grown lower than the overall growth current quarter. So what would explain this lower RWA? And the second is just on the savings account. Again, I mean, assuming you get a 50 basis point rate cut, would you expect savings account book to go up, or do you think this is more structural this time? Thank you.
Srinivasan Vaidyanathan (CFO)
All right. Yeah. Let's talk about that RWA density. 69 last quarter went to 67 this quarter. Again, sort of that's a function of carrying higher liquid assets. If you look at our HQLA on an average basis, went up by almost 40,000 crores in this quarter. So it's a function of how the HQLA is up, and it's there on one other page on the balance sheet, where you see that we have more liquid assets. That's one. The second aspect you touched upon is if the rate changes by 50 basis points, what happens to whether the savings rate goes down?
Saurabh Kumar (Marketing and Execution, Digital Transformation, and Decisioning Architect)
Yeah.
Srinivasan Vaidyanathan (CFO)
It's too early to speculate on the direction of what it would be.
Saurabh Kumar (Marketing and Execution, Digital Transformation, and Decisioning Architect)
We watch it.
Srinivasan Vaidyanathan (CFO)
We'll watch the system in terms of how.
Sashidhar Jagdishan (CEO)
Yeah. You know, we have seen that change in rates is rather inelastic for savings balances build up. So having said that, we cannot sort of, you know, do it in on a standalone basis or assume auto. We have to watch how the system plays out, how the banking fraternity plays out, because it is something you know we wouldn't like to sort of jerk that at this point in time. So we're not committing anything. I think we would like to wait and watch on that particular front, how it plays out in future.
Saurabh Kumar (Marketing and Execution, Digital Transformation, and Decisioning Architect)
Thank you.
Operator (participant)
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Abhishek Murarka (Director)
Hi, Sashi, Srini, and Bhavin. Good evening. So two questions. One is a data-keeping one. Can you share the loans that are linked to repo, PLR, MCLR, and fixed rate? And I can come back, circle back for the second question.
Srinivasan Vaidyanathan (CFO)
The loans that are floating or external benchmark is, I think roughly about, 69%-70% or thereabout, which is similar to what last quarter or the previous quarter that we had mentioned. So it is pretty at that level.
Abhishek Murarka (Director)
Srini, this includes MCLR as well, or this is all external, entirely?
Srinivasan Vaidyanathan (CFO)
MCLR is a tiny piece of that.
Abhishek Murarka (Director)
Okay, and the rest is fixed?
Srinivasan Vaidyanathan (CFO)
Yep.
Abhishek Murarka (Director)
Okay, thanks. And the second question is on NIM. So it seems, you know, if I sort of assimilate all the comments that Sashi, during the call, it seems like there are positive factors, there are negative factors as well, like liquidity buildup, CD ratio, and all of that is keeping NIM where it is. Going forward, there will be a repo cut at some point, and that will sort of drag it down. What can you do to offset that? If you want to keep it here or increase, what is now in your hands, you know, what levers are there in your hands to offset that?
Srinivasan Vaidyanathan (CFO)
See, while Bhavin and Srini will sort of supplement what I'm planning to say, all along, we have maintained a very matched modified duration of our balance sheet. So our view is that we should not have too much of an impact in the range at which we've been operating the margins in the near term. Of course, you know, it's not a perfect, it will not be the change or the delta for rate movement is not gonna be in a perfect sync, so there will be quarterly variations, but broadly, we should not see too much, don't go by two and three with the decimal points, please. We have been operating in a certain tight range. I think that should be maintained.
In the medium term, I think we should be able to manage this, margins in this particular range. If we have clarity as to how the sustainability of liquidity in the macro environment, the sustainability, and hence of our deposit mobilization, the fact that, hopefully by then the draft guidelines will also sort of bring in clarity, then you will, and we normalize the LCR to levels where we have operated in the past. I think you should see some amount of kicker that we have always experienced in the past.
Abhishek Murarka (Director)
All right.
Srinivasan Vaidyanathan (CFO)
Thank you.
Abhishek Murarka (Director)
Thank you.
Operator (participant)
Next question is from the line of Prakhar Sharma from Jefferies India. Please go ahead.
Prakhar Sharma (India Research - Banks, Non-Lending Financials)
Good evening, and congratulations on the results. I just want to ask on the credit cost part. You know, generally, one, two tends to be a seasonally heavier quarter from the agri side. So generally, slippages tend to come off in second quarter, adjusted for the seasonality, and same for, credit cost. But if I look at the slippage ratio, it's kind of flat QoQ, which, I wanted to ask for clarity. And, similarly, if I look at the provision number of about 2,700 crores, and add back the reversal that would have been done, of the AIF, it will probably go to 3,300 crores. So can you just explain, if there is any other moving part in the credit cost line? Thank you.
Srinivasan Vaidyanathan (CFO)
Okay. Prakash, it is, yes, your observation that, the NPA is stable, but the question of whether it should be improving is a relevant question. Historically, there has been some level of improvement, whether it can be, we can debate whether it is a three or a five basis points, it has improved. That is the kind of range that we are talking about here. Also, keep in mind the context that we made forays into small and marginal farmer and into deeper geographical segment over the last, one to two years. So the seasonality operates differently at different years, right? Particularly when you move into different segments, that-
Prakhar Sharma (India Research - Banks, Non-Lending Financials)
Yeah.
Srinivasan Vaidyanathan (CFO)
organically. Yeah.
Prakhar Sharma (India Research - Banks, Non-Lending Financials)
Understood. Thank you so much.
Srinivasan Vaidyanathan (CFO)
Thank you. Yeah.
Operator (participant)
Thank you. Next question is from the line of Chintan Joshi from Autonomous Research. Please go ahead.
Chintan Joshi (Indian Financials Analyst)
Hi, good evening, and thank you for taking my question. Can I comment on the balance sheet again? So, you know, so I kind of take a few points. You mentioned that there is limited optionality on keeping the borrowings. You are doing more securitizations, which also reduce your loan growth rate. That excess deposit that you have, so for example, this quarter it was 700 on average, average deposits versus 300 on average advances, kind of gets parked in liquidity. How would you optimize this? If you build up too much liquidity, does that give you a little bit of room to grow your loans a little bit for one quarter until that optionality on the borrowing plays out?
Is that how we should think about kind of sequentially how you would optimize that balance sheet structure?
Srinivasan Vaidyanathan (CFO)
Chintan, thank you for asking again. Similar to what I alluded to before, as far as the deposit is concerned, both our redistribution reach, addition of the customers, working with them, 96 million+ customers and two hundred and seven thousand people, are positioned to get as much as we could on the deposits with everything else permitting. So that's something. There's no calibration there, right? We want to get as much as we can. Price is not the differentiator. It's about the relationship to get. Having got that, then it goes to the other side of the balance sheet in terms of how you deploy what you do. That's where you're asking about how does the liquidity ratio or the LCR shakes out, right?
LCR is an outcome, it's not a driver. These are the drivers in terms of you get as much as possible deposits and the loans calibration that we have done. Loan calibration, again, I described that we want as much loans as possible that passes through the credit on the mortgages and on the retail side, at the price point we want and that the credit filters it passes, right? Where we have inhibition is only on the larger ticket side, where we are seeing very stubborn pricing, which is very low. That's where it gets calibrated, and other than credit and price, there, there's no other way that we are calibrating the loan, as such, and we are not targeting one such, one, one, number or one range of numbers that we want to get to there.
Chintan Joshi (Indian Financials Analyst)
So the bottom line is that if you keep growing deposits faster than loans, you don't have any issues with growing liquidity, you know, because the point here is to deliver this LDR ratio, rather than worrying about the numbers in the short term.
Srinivasan Vaidyanathan (CFO)
No, that is building of liquidity is an outcome that comes and is a good thing.
Chintan Joshi (Indian Financials Analyst)
Outcome.
Srinivasan Vaidyanathan (CFO)
- to be having, because when there is a growth opportunity, that is what it gets positioned for growth. It's a good thing to have.
Chintan Joshi (Indian Financials Analyst)
And then on the second question I have is on asset quality. The one area that has seen pretty strong growth over the last few years has been CRB and SME. You know, we are going through cycles, you know, between MFI and consumer credit. I'm wondering if there is something that might be in the pipeline in that area. You know, if not for you, then more generally for the industry.
Srinivasan Vaidyanathan (CFO)
We have not seen in our book any kind of a credit that inhibits the growth or inhibits any kind of different approach to how we operate that.
Chintan Joshi (Indian Financials Analyst)
That's good to hear, and it is heartening to see the improvement in the LDR ratio and absolutely, so thank you for taking my questions.
Srinivasan Vaidyanathan (CFO)
Thank you.
Operator (participant)
Thank you. Ladies and gentlemen, due to time constraint, we'll now take the last question from the line of Manish Shukla from Axis Capital. Please, go ahead.
Manish Shukla (Executive Director)
Good evening, and thank you for the opportunity. Srini, just to reconfirm the floating proportion of the book, corporate loans are about 19%, so I'm assuming that would be entirely linked to MCLR, right?
Srinivasan Vaidyanathan (CFO)
Yeah. No, you can't look at it like that. There are some corporate loans that could be MCLR, that could be other. Yes, good amount of that. Your assumption is, is there a majority of this EBLR? Yes, it will be.
Manish Shukla (Executive Director)
The question is purely on repo. Purely repo-linked book would be what proportion of your overall loan book, just linked to repo?
Srinivasan Vaidyanathan (CFO)
No, I don't have that particularly handy, but there are. EBLR has got repo across mortgages, across some CRB products too, and the wholesale corporate products. It's got some of them have T-bills and some of them have MCLR. So across all of that, that's that 69%-70% that we talked about.
Manish Shukla (Executive Director)
Okay, and the last question, before merger, HDFC Limited used to carry hedges on the liability side for interest rates. Are you still carrying any of that, or all those are matured?
Srinivasan Vaidyanathan (CFO)
Yes, we do carry those hedges. You know, that the hedges presupposes there is a borrowing that is attached. So to the extent that the borrowings have not been paid down, that means they're not rolled down, or prepaid, the hedges continue.
Manish Shukla (Executive Director)
Would you be able to quantify that proportion?
Srinivasan Vaidyanathan (CFO)
I think for the annual we have published, as of March, we have published in our derivative schedule. You should be able to see it in our annual report, for the annual, but not quarterly, yeah. We publish that annually.
Manish Shukla (Executive Director)
All right. Thank you. Those are my questions.
Srinivasan Vaidyanathan (CFO)
Thank you.
Abhishek Murarka (Director)
Thank you.
Operator (participant)
Thank you very much. I now hand the conference over to Mr. Vaidyanathan for closing comments.
Srinivasan Vaidyanathan (CFO)
Thank you all for participating with us today, and engaging here. Appreciate your time. Thank you, Sashi. And any of you have more questions or comments to provide, feel free to connect with our investor relations over time, and we should be happy to engage. Thank you all. Have a nice weekend. Thanks, Nirav. I can switch off now.
Operator (participant)
Thank you very much, sir.
Srinivasan Vaidyanathan (CFO)
Thank you. Thank you all.
Operator (participant)
Thank you, everyone. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the lines. Thank you.