HDFC Bank - Earnings Call - Q3 19/20

Transcript

Speaker 0

Ladies and gentlemen, good evening, and welcome to HDFC Bank Earnings Conference Call on the Financial Results for the Quarter Ended thirty one December twenty nineteen presented by Mr. Srinivasan Vaidyanathan, Chief Financial Officer. We also have with us Mr. Shashi Jagdishan, Group Head and Change Agent of the Bank Mr. Jimmy Tata, Chief Risk Officer and Mr.

Rahul Shamshukla, Group Head, Wholesale and Business Banking on this call. As a reminder, all participant lines will be in a listen only mode, and there will be an opportunity for you to ask questions after a brief commentary by the management. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vedanathan.

Thank you, and over to you, sir.

Speaker 1

Okay. Thank you, Omar. Good evening to all. I appreciate the participants calling in today. We'll get to the results highlighting for the quarter and also for the nine months ended December 3139.

Let's start with net revenues. Net revenues grew by 19.1%, broadly driven by an advances growth of 19.9%, deposits growth of 25.2% and other income growth of 35.5. Net interest income for the quarter was INR14173 crores and the net interest margin remained at 4.2%. The bank's average liquidity coverage ratio increased to 140% in Q3 from 133% in Q2, in line with the strategy to continue to build on deposits, thereby filtering the liquidity position further. While the excess liquidity positions the bank to credit the potential loan demand in future, it impacts current NIM by around 10 to 20 basis points.

Again, as we have mentioned in the last quarter, this gap was offset by monetizing some of the

Speaker 2

investments in the form of

Speaker 1

trading gains, which essentially makes our year on year NII growth at about 18% or so. Moving on to the details of other income, fees and commission income constituting roughly two thirds of other income grew by 24% over the previous year to reach INR4527 crores. Of this, retail constitutes approximately 93% and wholesale constitutes 7%. FX and diluted income grew by 32.1% over previous year to reach INR526 crore. The growth was granular in nature, being driven by retail customers who contributed about two thirds of the total.

Scaling income was Rs. $6.77 crore. As mentioned earlier, this represents the current ALCO strategy of monetizing some of the gains from the excess liquidity investments. Other miscellaneous income of INR940 crores includes certain one off recoveries arising from resolution of NCNP matters, which is approximately INR200 crores and dividend from subsidiaries. Operating expenses for the quarter were INR7897 crores, an increase of 17.5% over the previous year.

We had the facilities program running through the quarter. This program was for most part a consolidation of several disparate and localized programs that we ran in the previous year. The one time centralized approach brought in dealers, retailers, merchants, manufacturers, partnerships, leading to efficient execution of the program, and it entails some marginal incremental costs. Year on year, we added three eighty two banking outlets, 70 added in the quarter, two forty two added year to date, eleven twenty six ATM cash deposits and installed machines were added, and we also added 3,421 business correspondence DCs managed by common service centers. The start count increased by 2,773 during the quarter and 17,556 during the last twelve months.

Cost to income ratio was at 38% and has remained in the stable range compared compared to the prior year and prior quarter after absorbing the investments in branches, people and technology. Moving on to PPOP. The pre provision operating profit grew by 20.1% to crore from INR7738 crore in the prior year. Getting to asset quality, GNP ratio was at 1.42% of growth advances as compared to 1.38 in the prior quarter and prior year. GNP ratio excluding NPAs in the agricultural segment was at 1.2% in the current as well as prior quarter and 1.1% in the prior year.

Net NPL ratio was at 0.48% of net advances as compared to 0.42% in the preceding quarter and previous year. Annualized core slippage ratio was at 1.7% in the current quarter as well as prior year and prior quarter. The current quarter slippage includes one off large ticket amounts. This as well as agreed has been excluded in the core slippage ratio. The coverage ratio was at 67% as against coverage ratio of 70% in the prior year.

Including Continent provisions, the coverage ratio is about 78%. There are no technical write offs included anywhere, our head office and branch books are fully integrated. At the end of current quarter, contingent portions towards loans were at INR1457 crores. The bank's floating portions remained at INR1451 crores as on December 3139, and general portions were at INR4131 crores. Total portions comprising specific, floating, contingent and general were 119% of the gross non performing loans as of December 3139, in addition to the security held of collateral in several applications.

Now getting to provisions, the total provisions were INR344 crores as against INR2701 crores during the prior quarter and INR2212 crores for the prior year. Total provisions in the current quarter included one offs of approximately INR700 crores, primarily relating to certain corporate accounts as well as accelerated promotions for some accounts, including those accounts in the regulation plan process. I agree. Some of you and it includes some, I agree. Some of you may want to know the names of these large and other and one off names.

As has been our policy and practice, we will not talk about the names now or even the q and a section. Core specific loan loss provision, I. E, excluding these owners, which is INR 2,174 crores as against INR 2,038 crores during the prior quarter and INR $17.35 crores for the prior year. Now coming to credit cost ratios. The core credit cost ratio, I.

E. Specific loan loss ratio excluding Olaf as mentioned earlier, was stable at 0.92% of the advances as against 0.9% for the prior quarter and 0.88% for the prior year. As you are aware, recoveries are recorded as nuclear net income, therefore the core credit cost ratio net of recoveries and excluding one offs were stable at 0.66% as compared to 0.68 in the prior quarter and 0.69 in the prior year. PAT and PBT, the reported profit before tax was at INR9902 crores. Adjusted for one off credit items, the core profit before tax at INR 10,402 crore grew by approximately 21.4%.

As you are aware, the tax rates were lower during the year. This change was already implemented by us in prior quarter. Net profit for the quarter grew by 32.8% to INR7416 crore. Net profit for the nine months ended December 3139 was at INR1930 crore, up by 27.2% over the corresponding nine months of the previous year. Now getting on to some balance sheet items.

The Bank's balance sheet price as of December 3139 was INR139536 crores, an increase of 19.4% over prior year. Total deposits amounted to INR1067473 crores, an increase of 25.2 over prior year and up 4.5% over prior quarter. Retail constituted 78% of total deposits. As a result of our focus on granular deposits, cost of deposits grew by 21.5% ending the quarter at INR 421,827 crores with trailing account deposits at INR 277,928 crores and current account deposits at INR143900 crores. Time deposits at INR6455606 crores grew by 27.7% over previous year.

CASA deposits comprised 39.5 of total deposits as on December 3139. Credit deposit ratio was 88% for the current quarter as against 92% in the prior year. Total advances were INR 936,030 crores, an increase of 19.9% over prior year and 4.4% over prior quarter. Advances ex vehicle segment grew by 24.4% over prior year. Retail advances, bathroom, bathroom, bathroom, grew by 14.3% year on year and 4.6% sequentially, and wholesale advances grew by 26.2% year on year and 4.1% sequentially.

Let's hear a few comments on the wholesale advances from our Corporate and Business Banking Head, Prahl Sikhl. Thank you, Srini.

Speaker 3

Good evening all. Both our Corporate Banking and Business Banking businesses had an above trend performance during the quarter. While yields have been impacted in the marketplace, most so in large corporates, wins have continued to hold up, helped also by reduction in funding costs. Both businesses have seen greater customer liabilities agreed to us for very different reasons in comparison to the marketplace.

Speaker 4

In our Business Banking vertical,

Speaker 3

we saw pickup in credit demand from existing customers since the November. During the prior period, existing customer accounts have seen a drop and overdraft due to the release of GST cash flows by the government or lack of requirement owing to profit growth. However, there is now a pickup in credit demand. The gross pickup was seen in Punjab, in Southern India, Central India and Eastern India. Trends in Gujarat and some adjoining regions have remained soft.

We expect that to pick up in this particular quarter. We also saw accelerated new to bank acquisitions last quarter on the bank of our on the back of our digital offering, especially in semi urban and rural locations, helped also by our district expansion initiative with record disbursement in November and December. Our business did well on customer liabilities as we now have a near term line of sight to a fully funded self funded business. Delinquency to date were within internally budgeted levels and below comparable period last year. More than majority of this book classified as being BFL compliant for us.

Our Corporate Banking business benefited from strong client support. We saw broad based growth in this quarter across our public sector client base and also across sectors such as material, energy, agriculture and allied activities, including fertilizer, power, discretionary, consumer, etcetera. Our focus on up tiering smaller clients continued to show positive momentum and helping us with diversification. We continue to support our corporate backed, M and P backed, PS backed and FI and bank backed NBFC clients. This lending also supported our PSL effort, given the change in RBI guidelines, which was very helpful.

Our drive towards measuring and increasing our penetration showed positive results with digital post to host integration with our clients continuing to be very helpful on the liability side. Working capital cycles have remained normal in this quarter for our clients, while overall CapEx has increased somewhat. Thank you, Srini. I'm handing back to you.

Speaker 1

Okay. Thank you, Rahul. Now let's move on to capital. With regard to capital adequacy, total CAR as the Basel III guidelines stood at 18.5% as against the regulatory requirement of 11.075%. December 2018 capital adequacy was at 17.3%.

Tier one CAR was 17.1 in the current quarter as compared to 16.2% in the prior quarter and 15.8% in prior years. CET1 capital stood at 16.2% in the current quarter compared to 14.9% in the previous year. Now from business update, during the year, we added two forty two banking outlets as I mentioned before, taking our total network to 5,345 banking outlets. Including the banking correspondence, I. E, 3,421 BCs managed by the CSCs, the total banking outlets were at 8,766.

66% of these outlets are in semi urban and rural areas. As of this quarter end, we have signed approximately 1.3 lakh common service centers, village level entrepreneurs, of which 86,000 are onboarded as business facilitators. Of these, around 41% are actively sourcing. The monthly run rate of products sourced by CACs have progressed to approximately 70,000 units. Festival Treat that we spoke of earlier was also run-in partnership with CAC, taking our festive offers to the remotest part of the country.

From a small businessman looking to avail a loan to a family booking looking to purchase a new solution, the three month long system click campaign enabled stock. Year to date, we have acquired 4,900,000 new liability relationships, an increase of 50% over the acquisition in the corresponding period of the previous year. This was driven through various strategies that we adopted and have articulated in the past. As on December 3139, we had $13,900,000 credit card base and $1,500,000 merchant acceptance points. Now in summary, we are proud of our staff who has effectively executed our strategy in the first ten years, advances growth of 20%, deposit growth of 25%, card spending increased by 28%, retail loan disposals increased by 21%, operating profit growth of 20% and cost related tax increased by 33%.

With that, may I request the operator, Aman, to open up the line for questions.

Speaker 0

Thank you very much, sir. Ladies and gentlemen, we will now begin the question and answer session. Participants are requested to limit their questions up to two per participant. If time permits, you may join the question queue for any follow-up. Ladies and gentlemen, we will wait for a moment while the question queue is handled.

The first question is from the line of Madhu Karujanya from IDFC. Please go ahead.

Speaker 5

Hi. I just had a few questions. Firstly, in your slippage, what is the total amount of slippage, and how much of that is lumpy, and how much of that is agri?

Speaker 1

Okay. The core slippage that we referred to 1.7% represents slippage of 3,839 crores. Three eight three nine. The total, which includes that lumpy one off, agree on all of them, let me see, that between them, roughly approximately 1,500 crores.

Speaker 5

And how much is the agree of that?

Speaker 1

Roughly half little more than half, 60% or so agree. Yeah. 60 maybe 65% agree.

Speaker 5

Okay. And just in terms of the additional provision that you made on a few corporate accounts, could you tell us the sectors?

Speaker 1

No. We said we don't want to talk about sectors. You can I I mean, it'll be I I don't want to get into individual names and individual types of what that is?

Speaker 5

Okay. And, just in terms of HDB, the GNPAs have improved. So is that because of recoveries or, better outlook in the geographies or or any other reason?

Speaker 1

No. HDB, you would have seen I read the number stage three in the year stage three, method of in the year slippage, that I see is 33.01, and the corresponding number for prior quarter is 2.72.

Speaker 5

Okay. Sorry. I was comparing it to GNPA. So why has it gone up?

Speaker 1

This is this is more commercial transportation Yeah. Related. Yeah. Yeah. Absolutely.

Speaker 5

Sorry. So it's basically series? Correct. Okay. And there's been no change in accounting.

Like, last time, there was some alignment to HDFC Bank's accounting. So all that is done with? This is just the cycle.

Speaker 1

Correct. Yes. It was consistent with the last

Speaker 4

what is it, sir?

Speaker 1

There's no change. Yeah. Yeah. Okay.

Speaker 4

Thank you.

Speaker 0

Thank you. Next question is from the line of Manishaw Sultan from Nemantang. Please go ahead.

Speaker 2

Thank you for the opportunity, sir. My question on our risk weighted asset to total asset ratio during the quarter, there was sharp reduction of 400 basis points during the quarter. So can you explain the reason for the same? And suddenly, on the slippage side, we gave the slippage number. Any recovery, the updation, write up in the quarter, can you share that number those numbers?

Speaker 1

See, normally, if you if you look at our capital ratios, we normally our our earnings offset the consumption, approximately. Right? But this time around, we didn't have benefit, in RWA. The RWA to assets currently at about 68% or so. The prior quarter was more than 70%, 22%, 73%.

There has been an improvement. Couple of things, we have some initiatives driving this efficiency as well as impact from mix of assets. Better market risk is one thing. Assessment of better market risk is one that improved. If you recollect, if if you have any investments in mutual funds, they're considered equity mutual funds, whereas these investments are actually debt mutual funds.

So there is a different risk weight, and we don't have any at this stage on that. So there was some optimization done there. We reduced investment in that mix, right, so that's a mix there. We also got some ratings improved. There were certain things that moved up on the ratings and brought the risk weights down.

And also some favorable lending mix at to low rated public sector like power or transport and things like that, that also contributed to better RWA.

Speaker 2

So recovery integration write off number, sir?

Speaker 3

I yeah. Do you have the sheet here?

Speaker 1

We'll we'll get Ajith to get you that number.

Speaker 3

I don't have

Speaker 2

front of him. And the second question on the, on the retail book. So in this period compared to quarter two to quarter three, are you seeing any incremental sales build up in the any category of retail loans or mid corporate or SME portfolio? And qualitative comments will be very helpful.

Speaker 3

Jimmy? I believe you, everyone. Good to hear me. So in the retail book, I think the data went from product to product. We have, over the last year, put in filters across all products that may have showed somewhat of an uptrend.

These filters now have had some vintage and maturity that allows us to measure the recent book. And in all these cases, the recent book is showing a considerably improved performance, and that would therefore be the trend in these books going forward. I'll come to specific names in a minute. When it comes to the residual historical book, we are relatively well provided banks, so there is not a concern in terms of any adverse expectation on that front either. So I think most retail products have actually shown a slightly beneficial trend over recent times, which is to say the even automobiles, credit cards, personal loans, etcetera.

The only growing concern would be in terms of commercial vehicles and to some extent, equipment. So it is the commercial products that are continuing to be some level of concern, and you might see the trend continue in that direction. This is not to say that we have not filtered those portfolios. It is not to say that there is no improvement on new acquisition. But these do tend to have longer maturities, so the weightage in the portfolio as a whole would be a little less and therefore not visible immediately at the portfolio level.

This would take some more time to resolve. And one has to also take into consideration that these products are a function of economic climate and situation. So we continue our policies across the board of more dilution in the face of facing difficulty in generating business. If certain products do not generate the required business, we would not generate that level of business. We manage our growth on geographic, expansion, putting out a very wide product range across our extensive branch network, looking at the relatively unbanked and underbanked demographics in these areas as well as our existing areas.

To some extent, a new, variant of a product being introduced into these segments. And of course, this gives you the ability in such demographics and segments to price appropriately for the incremental risk that could manifest. So this is not to construe that we are expecting it to happen. But even should there be a ten, fifteen basis point increase in delinquency, The calculations for us internally based on probability is based on our expectations and our wide experience in analytics of all these products. We don't think it is advisable to forego such growth given the probability of this small incremental delinquency.

So that's effectively the trend across all retail products. As I said, just to answer your question in one line, CV, commercial vehicles, and to some extent, equipment might be the only concern earlier, sir.

Speaker 2

Thank you for the the quality of the assessment. And the only one small data point, YTD basis, what is the increase in the MDFC portfolio for HDFC Bank? That's it. Thank you.

Speaker 3

YTD? YTD and BFC. YTD would mean from Yeah. To yes, sir.

Speaker 2

Thirty first March twenty nineteen to thirty first December twenty nineteen, what is the increase in the NBS

Speaker 3

portfolio? Percentage increase in the NBS portfolio.

Speaker 1

We we will have the preliminary disclosure. You should see it soon. It's not out there. We'll fill it out.

Speaker 3

Sure. Thank you.

Speaker 0

Thank you. The next question is from the line of Suresh Ganapati from Macquarie Capital. Please go ahead.

Speaker 4

Yeah. Hi. I have three qualitative questions for Sachi. First, does he can you just take us through the POC business, how exactly it is shaping up, and, you know, what are the trends? If you can quantify, it would be great.

The second is what is the status on the CEO selection where we are and what has been done so far? That's the second one. And the third is there has been a repeated breakdown of online banking for the bank, title and account. So what are the steps which are being taken by the bank to ensure that the system downtime is corrected?

Speaker 6

Okay. Thanks, Suresh. On the first one, in terms of the CAC, we have about 1.3 lakh CAC accounts that we've opened. About roughly 80,000 plus have been you know, initiated as business facilitators. What that would mean is that the systems have been integrated.

They have been sort of handheld and trained so that they can discuss our products digitally. Out of that 80 plus thousand, I think roughly about 40% or or have become active in various stages of activation, which means that they've now can start sourcing products. I guess, as Shreem was mentioning, on a combined basis, I think we have touched about the 40% of that 80,000 have contributed to roughly 70,000 plus products in a month, which translates to two products for active CAC. So that's not a bad job for a start, and we believe that this is this will increase with better engagement by the hub branches going forward. So it's a lot of hard work and this is something that we will continue to do CAC by CAC, which is mapped to the adjoining branches.

In addition to that, I think one of the things that she needed mention is that the better CACs, we would also like to make them as business correspondence because you could do a lot more transactions at these centers. We have thus far appointed about 3,400 odd BCs. As we have mentioned in prior calls, I think the over the period of next six to twelve months, we would like to add or at least take the BCs total to about 25,000. So that will sort of really give us a better penetration into these into the semi urban and rural areas as we had been charged. So that's part one.

I think the one of the things that we the learning from this particular experiment or the kind of initiative that we have is that when you engage with these CACs on a constant and ongoing basis, which is the key, I think you would see a fair amount of activation and product distribution that is happening. So it's on track. It's at in line with the expectations that we have for this particular initiative. The second one, to your second question on CEO search process, I think in the board meeting, I think they have sort of agreed upon the search firm who's gonna help in the search process. We I I think we do have a kind of a roadmap or a glide path as to when the long list of candidates, the shortlist of candidates, whether both globally, both external and internal will happen, when the interviews will be slated.

I think that kind of a fine, you know, the granular details have all been sort of agreed upon in the board meeting today. I think as probably we may have mentioned in the past, normally we would expect the bungee in the applications for the to regulator for approval somewhere around July, August. I think that's the time that we should see, you know, we would have finalized, we would have had the chem shortlisted number one, number two, number three for RBI to approve. I think we are on track. Think the specifications, the board had untold.

Of course, we had to recuse ourselves. So there has been a fair amount of deliberations today on that particular account.

Speaker 4

Can you disclose the first one, Sashi?

Speaker 6

Not exact. I think let it be officially come out probably in the next couple of days, but I think it's the there are some small minor cost negotiations or commercial negotiations that needs to be inked out the next couple of days. So once that is done, I'm sure we will let you know that. The third part is on the technology issues. I think one of the things that we realized as a company is that we this is we have been victims of our own success.

What we did not realize is the kind of increase in businesses across liability, across assets, across payment products and within payment products, multiple channels that we have been patronizing, whether it is the cards, whether it's the UPI volumes, I think we underestimated the growth in these volumes. I mean, what one would have normally envisaged that from a base level, you normally size up for about four to five times the capacity. We realize the volumes have gone even beyond five times the five times capacity that we had originally sized up. So it's more a kind of a capacity issue. But having said that, we are we have post the December 2 incident, I think we have been able to sort of segregate the parts.

We have been trying we have derisked the part so that we can sort of have a lot more redundancies. We've been adding capacities. We hope to add more capacities. We will be rationalizing volumes. We realize that sometimes it doesn't make sense to acquire some of the marginal volumes.

So we should be in a much better state. We are in a good state at this juncture. We are far more comfortable. We diverted a lot of traffic into multiple other channels. And we hope to sort of be even more comfortable for the next three to five months with lots more capacities being added.

So thus far, I think things are very stable. We hope to sort of, you know, I wouldn't like to say too loud. We would like to keep our fingers crossed and we would like we are monitoring this practically every minute now so that the monitoring mechanism is only heightened thus far. So this is where we stand. It is a lot of questions are being asked whether there is a cyber attack, etcetera, I think categorically say, and we have said it to the regulator as well that there is no such cyber attack or incident on the December 2.

Speaker 3

Thank you, Sachin.

Speaker 6

Thank you.

Speaker 0

Thank you. Next question is from the line of Kunal Shah from Medial Vice. Please go ahead.

Speaker 4

Yeah. So firstly, in terms of this entire 200 crores of recoveries pertaining to the resolution of the MCLT matter, so that's the PNN impact. But if I were to look at it in terms of the outflow of NPLs, in terms of the recoveries, how would that number be, so in terms of the principal component? And anything in the interest income effect as well?

Speaker 1

No. There there was no book value when we had it. It's a full recovery that came

Speaker 3

into P and L. Okay.

Speaker 4

So no no impact at all in terms of the flow of NPNs. You know?

Speaker 6

Yeah. No.

Speaker 4

Yeah. Then secondly, in terms of the branch expansion, so I think earlier during the end, we also highlighted that the plan is now to move towards 600 to 700 branches a year. So are we looking at it? Maybe when we look at it, two forty or branches over the last three or quarters. So are we very much on track in terms of going in for the branch expansion?

And should we see it coming over the next one or two quarters, which will have some impact on the OpEx as well?

Speaker 1

Yes. Strategy to expand branches will continue. We are on track for both. The branches that we are planning are of different sizes, depending on locations for the past. For branch, it's not identical to what we have on both or one branch versus another, there will be a good level of differentiation.

It will also have good mix of semi urban and rural and metro. As we said, we this financial year, we targeted 600 new branches, say, plus minus a few on timing, depending on local approval for shipment and staffing. But we do expect as usual, seasonally, quite a number of branch openings in this quarter, now fourth quarter, and we anticipate that it will continue and we should be there.

Speaker 4

Okay. And in terms of the behavior of the commercial vehicle and unsecured portfolio, are we seeing maybe in the in the early or middle buckets as well some kind of rise out there in both this portfolio?

Speaker 1

Taking them both

Speaker 3

separately, the unsecured exposures holding up rather well. Unsecured exposures, if you look at their essential nature, would primarily involve personal loans, which are almost entirely towards salary segments. Our segments are also not merely just the salary segments, but public sector, government and the higher rated entities amongst the private sector, and that's where it is predominantly situated. The volatility of income in these segments continues to be extremely low, and therefore, the serviceability of these loans is holding up very well. In the terms of credit cards, there has actually been an improvement scheme over a period of time in the various delinquency parameters, and this may be due to the customer selection.

Once again, a fair amount of cross sell to our own internal customers where we have the accounts, see the fund flows, see the behavior, etcetera. But that is once again holding up rather well. Commercial vehicles, I did cover briefly some while ago in as part of another question. But commercial vehicles due to the various economic factors as well as some of the auto sector factors is something that needs to be looked at, monitored very carefully. Naturally, that is what we do.

Has filters been applied into our policy? Do we have absolute micromanagement of the team? Answer is yes. Have we seen the recent book once again behaving better as a result of this as per the historic book? Once again, the answer there is yes.

But given that these loans are of a longer maturity compared to personal loans and other such transactions on an average, there will be a larger component of the historic base in the portfolio as it stays,

Speaker 4

and we might need a

Speaker 3

little more time to see a complete change or reversal. And not to say that the environment, once again, is difficult for these operators. Freight rates have come down. Freight movement has come down. The efficiencies in the systems created by Octoyevolution and GSP and the other matters have really increased the productivity of vehicles, once again resulting in lower deployment.

So these factors continue to affect, and we naturally watch this closely. And I hope that answers what you wanted to ask.

Speaker 4

Yes. And lastly, just a clarification. Was there any contingency provisioning made when we are saying this $14.57 crores of contingency provisioning at end of this quarter? So there was some $6.60 crores which was, made last quarter and $1.50 in the, q, in q one. But besides that, was there anything created this quarter?

Speaker 1

Some minor amount, less than 100 crores, I would say.

Speaker 4

Okay. And the 700 is entirely specific?

Speaker 0

Yes. That is correct.

Speaker 4

Okay. Thank you.

Speaker 0

Thank you. The next question is from the line of Deepa Kabarwar from Access Mutual Fund. Please go ahead.

Speaker 2

Yeah. Hello, sir. So I wanted to understand from a growth perspective for the bank, how much of that will be new loans versus acquisition from other banks and NBFCs policy?

Speaker 1

Other banks and NBFCs, you know It will be very difficult to

Speaker 6

sort of really we don't sort of track that at an overall level. But having said that, a large part of our SME business would be takeover of loans from other banks. In terms of corporate side, which I think you did hear Rahul say that, we have not only looked at new customers who could be banking somewhere, We've also sort of deepened our penetration into our existing customers. So there's a fair amount of deepening of relationship, which has given us a bit of a Philip to our credit growth. On the retail side, will be very difficult to conject here as to where they are coming in from.

But largely, as a philosophy, Jimmy is here, I think he's far more comfortable to sort of provide credit to people who are not necessarily new to the system, but new to bank credit.

Speaker 3

Yes. It's I would understand your question two ways. So if you're referring to assets actually acquired from banks, that's not a very significant number at all. If you're talking to facilities that are taken over from other banks, depending on which segment, and I think as Shashi articulated, it's correct. As you look more towards the SME and MSME segments, they do look at our new products, Rahul, a little bit to them.

So when you do offer us to us integration and trade facilities across the cloud corrections, etcetera, Customers do seem to appreciate this, and that does encourage movement. Our cash management facilities, trade finance, all these are definitely attractive to such customers. Our 5,300 branch network definitely also throws off these customers on a regular basis. So there would be movement from one bank to another in such facilities. It varies from segment to segment.

Speaker 2

Okay. And sir, my second question is related to the festive trading. Number you can share in terms of, say, what will be the kind of income and what will be the expense related to this campaign, sir?

Speaker 1

Sorry. Did you meant did you mention festive treat?

Speaker 2

Yes. Yes, sir. Related to the festive treat.

Speaker 1

Festive treat is not one type of an activity that runs for one product. It is a bank wide program that runs across all product segments, geography segments, customer segments. It is kind of you can think about it like both digital as well as the physical offering where a close user group where we bring the dealers, manufacturers, and the like retailers and the like to our customer base for a better shopping experience, for a better asset purchase experience, and we are intermediaries where we we finance where we should. So this is not something that targeted to X volume of assets or X number of customers and where we have. It's also relative across everything.

This is as we said, we run through the quarter and it's called the 53, but in this quarter, we called something else. And it's an ongoing effort and it was an event where we brought in several partnerships together and we continue with the partnerships as we go.

Speaker 6

So I think she did mention the business growth rates arising out of during the period of October, November, December. I think we've had a substantial lift in both asset disbursals and also in terms of payment cost spend. We wouldn't like to sort of put the income arising out of the same, neither do we want to even disclose the kind of an expenditure. Of course, there was a bit of a lift in expenditure because of the which is completely baked into the 17.5% growth in this quarter's expenses. But it would not be appropriate for us to feel the numbers of the test or treat program.

Speaker 4

Got it. Yes. Thank you. Thank

Speaker 6

you.

Speaker 0

The next question is from the line of Rahul Chen from Goldman Sachs. Please go ahead.

Speaker 6

Yes. Hi, everyone.

Speaker 7

The first question actually, I've got two, three questions. The first question is on slippages. You've talked about the core and agri stroke, you know, any specific corporate account. Is it possible to get a similar number for last quarter as well as last year? Either the core slippages or the bifurcation that you provided this quarter.

Speaker 1

The core slippage last quarter was same. Right? Three four three seven one four at 1.7%. That is last quarter. Mhmm.

Last year, the core slippage was three three. $3.02 $9.00 is what I have, again, at 1.7%.

Speaker 7

Okay. So so last year, the gross was about INR 4,000 of which the core was INR 3,002 and 90 crores?

Speaker 6

Yes. That's right. INR 3,300 Okay.

Speaker 7

Got it. Got it. The second question is, so in the latest FSR report, the RBI talked about increasing SMA two loans for the whole banking industry, which saw a jump from 4% to 7.5% in the month of September.

Speaker 4

May I

Speaker 0

have your attention, please?

Speaker 7

Sorry about this. Have you seen a similar trend in the SMA two portfolio as well in your books? Or it is much lower than what we reported in terms of the delta?

Speaker 6

No, it's been pretty much stable for quite some time now. Not seeing any impact, even on absolute level, it's pretty low compared to what we see in other banks. And even from a growth perspective also, we're not seeing too much of a growth in the SME2 numbers.

Speaker 8

Got it. Got it. Just one

Speaker 7

last question, Sashi. So the fee income growth, which has, again, come on quite impressive. The retail loan growth, though, was tepid. So what explains this fee income growth? Was there any specific items there that may not continue?

Or this is a result of a, you know, sustained pickup in the corporate book as well, which is where we are benefiting by deepening the relationships, etcetera?

Speaker 6

No. I think, you know, we have been mentioning this sometimes, you know, we it's sort of we ourselves are surprised at the kind of certain runs that we've had in both in the third party distribution and also in the payment products. We have seen a decent amount of sustained growth rates in the spend, the credit card and the debit card spend, that's upwards of about 20%, 25%, which is sort of leading to this kind of a growth. You're right. I mean, we ourselves sometimes are wondering when that will sort of really beaded down, etcetera, but that is one of the reasons why we've seen a reasonably strong growth.

The other one is on the third party distribution, where while the volumes have been in the mid teens, but the yields on the products that we have been distributing, the early days have had been reasonably better for the kind of new products that they have been launching. So that has also sort of helped us in this quarter. So but if you really look at it, we have been mentioning that in the past as well. We were we normally expect about 30% to 15% of core growth in speed. Maybe we have in and we revised ourselves to somewhere between the 15% to 17% as a core growth that we can sustain over a medium to long term.

So this is a bonus that we have got, and let's enjoy when it comes.

Speaker 7

Yes. Is it possible to get the composition of credit cards in our two ks fees?

Speaker 1

Credit card, which is a payment product?

Speaker 6

Or maybe payment product. Yeah. In the same,

Speaker 4

etcetera. Yeah.

Speaker 6

We have we have a conglomerate. I mean, a holistic thing including, say, all products. I think somewhere around the 30% to 35% would be the payment products. The retail, the core retail assets and large deals will be another 35% odd. The third party distribution will be somewhere between the 1520%, and wholesale will be the balance 15% to 20%.

Speaker 8

Got it.

Speaker 7

Got it. Maybe, Sajid, just one last question if I can squeeze in. In the on the common service center, you've talked about 70,000 products have been originated. Is it possible to also know the average ticket size there?

Speaker 6

So this is a combination of both assets and liabilities. When you say Okay. They are not third party distribution product, they are accounts that they have brought in and the new customers and the balances are as for our program. We need to wait and watch how these balances or these customers behave over a period of time. But roughly, I'm saying about 60% to 70% would be liabilities, about 30% as we speak would be the asset distribution.

Maybe the things will change with stabilization. Maybe we'll have a fifty-fifty going forward.

Speaker 7

Got it. Perfect. Thank you so much. Thank you so much. Great.

Speaker 0

You. The next question is from the line of Shri Kartik from Investec. Please go ahead. Sorry, it seems we have lost the line for the current participant. We'll move to the next question that is from the line of Amanaluwalia from Liberdent Capital.

Please go ahead.

Speaker 4

Thank you very much. Two questions. First, on the corporate lending side, know, it appears, at least on the market, that it's really you and FBI who are aggressively out there trying to grow in on the corporate side. Most of the other large banks are not doing this even if they have a sort of deep history, vintage, etcetera, in terms of corporate lending. So if you could give us some color on what it is that you're seeing and able to do that, you know, your large private sector competitors are not able to do that that, you know, would be helpful because I think that a lot of them have a similar kind of diverse, you know, product box that they can offer a range of services and good technology, etcetera.

And secondly, and relatedly, post the old eco issue, there was some harsh language used by, FBI for HPFC. And at least anecdotal evidence seems to suggest that FBI has been very aggressive even with clients trying to keep HPFC out of, clients where they are present. Any thoughts on, you know, is this a sort of minor issue that you think would blow over, you know, long term? Could we see two of the country's largest banks just being involved in a sort of corporate war? I would just be, interested to get your your thoughts on that.

Speaker 3

Hi. This is Ravi Shukla. So you're correct. FBI is a competitor, which is very active, and we respect them a lot, you know, for their judgment and the marketplace presence. And we continue to, you know, go out and learn from them.

In my travels, you know, throughout the country, I always make it a point to go out and also call on the seniors at SBI because I think they are a very large bank compared to us with a rich history, and we continue to believe that we have lots to learn from them. Secondly, on the corporate book growth, I will not be able to comment as to what the other banks don't see. What we see is there is still ability to go out and grow. The only thing that we always constantly balance is that growth should not come at the cost of credit quality, and growth should not come by dilution of my margins on the transaction. So those are two tenants.

So I have to balance growth with margins and with, you know, credit quality, which is what we have done. This is what, you know, we have table for all of you as well as the shareholders as a result in this quarter.

Speaker 4

And just to understand that better, is it fair to say that most of the business you're gaining on the corporate side is then from PSUs who are less likely to have, say, non FTI PSUs who are less likely to have the full suite of products as opposed to in place as well?

Speaker 3

Yeah. Actually, you know, that is not a correct characterization because for the bank, believe that we might be the second largest corporate lenders in the marketplace. When you grow, you have to have a broad based growth. Otherwise, you are going to creep up on your concentration of your lending portfolio. So as we see that, you know, I mean, we we comment, that in this particular quarter, yes, we did go out and see a little bit more on, you know, public sector because that is a segment of the marketplace, which continues to create capital expenditure at this particular point of time.

So we have benefited by being proactive with our solutions in front of clients.

Speaker 4

Okay. Thank you. Thank you.

Speaker 0

Thank you. Next question is from the line of Shreya Shivani from CLSA. As last question,

Speaker 4

please

Speaker 8

Hi. This is Mohit. Good afternoon, gentlemen. Thanks for taking my question. Sir, you mentioned that 700 crores of one off provisions are on account of some corporate account, and then there is some additional agreed credit cost.

Would we would it be possible to quantify them?

Speaker 1

No. Not in addition, it includes. Could be what? Of the people who qualify how much it is. Yes.

It's a small the small amount, primarily corporate related, there's a small piece of other.

Speaker 3

Okay. Got it.

Speaker 8

And, on the on the third party search firm being appointed, does it in any way mean that the search committee will look at external candidates or both internal and external candidates will be considered?

Speaker 6

I did mention that they they the philosophy is to, look at both external and internal candidates.

Speaker 8

Okay. And, lastly, in terms of this new launch of MyApp, could you throw some light on what this product can and how it will benefit the bank? Thank you.

Speaker 6

Yes. One of the USPs of the bank has been that we have a very broad based customer segmentation. And one of that segmentation are institutions, and the institutions could be in various activities and in services. The bank has been at the forefront of sort of providing solutions to these kind of institutions, it is religious bodies, it is education institutions, it's hospitals, class, advocacy, and it's just we have multiple such segmentations. So it is just to provide value added services to these institutions so that we can tap into the supply chain of these institutions both from their customers and the suppliers and the service providers to these institutions so that we have a far more integrated value offering to these kind of customer segments.

Speaker 0

Ladies and gentlemen, due to positive time, that will be the last question for today. I now hand the conference over to Mr. Vedanathan for closing comments. Thank you, and over to you, sir.

Speaker 1

Thank you, Anand. I again appreciate all calling in on a Saturday. And if you have any more questions or need more clarification, please contact Investor Relations. Adi Shetty would be able to come back to you and give you what you need. Thank you.

Speaker 0

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