HDFC Bank- we understand your world

Standard Chartered Credit Conference 2022


Thanks for posting this - is the presentation available anywhere? I couldn’t find it on the HDFC Bank site in the Investor section.

Interesting point he made about the importance of having physical branches for customer acquisition. Not that surprising, but good to hear that validation from their experience. Similarly, the opportunity to grow deposits as the branch vintage increases. Also good to hear that he is expecting consumer book to pick up, which they had reduced focus on, post Covid.

Few other insights I picked up - LCR requirements not being a cost anymore given the compression in interest rates, proportion of unsecured loans going down with HDFC Limited acquisition + opportunity to grow unsecured loans to that customer base, cost to income to come down a bit. Priority sector assets - some costs may go up. Enough capital (CET1 ratio, a new term I learnt) till FY28-29, as HDFC Limited is overcapitalized - ROE will go down a bit post merger. Need for dollar bond funding quite limited now, and not in plans currently. Ambition to continue to be in the 2% ROA zone. Don’t see profitability hit post merger though NIM will be lower, as home loan NIM is lower.


What a performance :grin: King of banks. Hoping it will revert to it’s mean pb ratio of 4.5 presently at 3.23 (screener)

Disclosure: Invested with 6% of pf


Q3FY22-23 Results

Earnings Call

Call Transcript

Press Release


HDFC Bank Historical Numbers (Last 10 Years)
Credit: Mr Gurvinder Singh Kharbanda (Ex HR L&D Head, HDFC Bank with his due permission)

1 Like


  • NP(cons): 11.1KCr YUP 22.3%
  • Adv(cons): 15.2LCr ← 12.5LCr YUP 22.8%

---------- Standalone Revenue --------------

  • Core net Rev: 29KCr YUP 18% [excl T&M2M gain/losses]
  • NII: 21KCr YUP 19%
  • NIM(TA): 4.1% / NIM(IBA): 4.3% / TA - total assets IBA: Interest bearing assets
  • Other Income: YUP 17% [excl T&M2M losses]
    • Fees & commission: 5.8KCr
    • Forex & Drv : 0.95KCr
    • Investment gain/loss: -0.25KCr
    • Misc(recoveries & div): 1.1KCr

----------- Expense & Profit ------------

  • OpEx: 9.3KCr YUP 21%
  • CIR: 39.2%
  • PPOP: 17.4KCr [excl T&M2M loss] YUP 16.6%
  • Provision & contingencies: 3.2KCr ← 3.9KCr (FY22/Q2)
  • Total credit cost: 0.87% ← 1.3%
  • PBT: 14.2KCr / Tax: 3.5KCr
  • PAT: 10.6KCr YUP 20.1%

----------- Liabilities --------------

  • BS Size(T): 22.3LCr <–18.4LCr YUP 21%
  • Deposits(T): 16.7LCr YUP: 19%
  • CASA YUP 15.4% / SA: 5.3LCr / CA: 2.3LCr / TD: 9.1LCr YUP 22%
  • CASA Ratio: 45.4%

----------- Assets ------------------

  • Advances(T): 14.8LCr YUP 23%
    incl IB participation certificates+bill discounting: YUP 25.8%
  • Domestic retail loan: YUP 21.4%
  • commercial & rural banking loan: YUP 31.3%
  • corporate & other wholesale loans: YUP 27.0%
  • Overseas/Total Advance: YUP 3.1%

----- Branches & Employees ---------

  • Branches: 6.5K ← 5.7K
  • ATM: 18.7K ← 16.6K
  • CDM cities: 3.2K ← 2.9K
  • #Employees: 1.6L ← 1.3L

----- Risk Profile -------------

  • GNPA: 1.23% ← 1.35%
  • NNPA: 0.33% ←
  • CAR: 18% ← 20% / Reg.Req: 11.7%
    T1 CAR: 17.1% ← 18.7%

-------- HDFC Securities (HSL) [96% holding]

  • Rev: 468Cr ← 489Cr
  • PAT: 191Cr ← 240Cr
  • #branches: 215 / #Cities: 147

---------- HDB Financial Services (HDBFSL) - NBFC [95% holding]

  • Rev: 2.2KCr ← 1.9KCr YUP 15%
  • PAT: 471Cr ← 192Cr
  • Loan Book(T): 63KCr
  • S3 Loans: 4.9%
  • CAR: 20.8% / T1 CAR: 16%
  • #branches: 1.4K / #cities: 1K

Link to NR
YUP - YoY Growth


Highlights of the Earnings Call that took place yesterday:


Shrinivasan Vaidyanathan – CFO

• Global market conditions are improving
• RBI raised the policy rate by 100 bps in the quarter taking the repo rate to 5.9%
• RBI has raised rates by 190 bps since May 2022. The stance is unchanged.
• We estimate GDP growth will be around 7% for FY23
• On distribution expansion, we added 151 branches during the quarter, and 500 more branches are in the pipeline to be opened in this Financial Year
• 2960 branches now offer gold loan processing – and increase of 900 branches in the current quarter.
• We expanded by 145 locations in the quarter for Wealth Management.
• Our people have acquired 2.9 million new liability relationships – a healthy growth of 11% QoQ.
• Retail advances growth was robust. Retail constitutes 83% of total deposits. Retail deposits have been the anchor of our deposit growth.
• Commercial and Rural book grew
• CASA book was at 7.59 lakh crore
• Term Deposits grew by 22% YoY at 9.13 lakh crore.
• Advances side was at 14.79 lakh crore – grew by 6.1% QoQ
• We have issued 1.2 million cards in the Quarter – reaching 16.3 million total cards – we closed 2.4 million cards during the quarter during inactivity – as per RBI circular.
• Card spends grew by 9% QoQ.
• Objective is to reach 2 lakh villages. We are at 1.42 lakh villages.
• Technology and Digital transformation is yet in momentum.
• Vyapaar app was formally launched for instant digital merchant onboarding
• Platform is adding more than 60,000 merchants every month
• Over 1.6 million businesses are on this SmartApp Platform.
• In Q2, there were ~30 million unique customers a month on the website on average.
• Balance Sheet remains resilient.
• NIM at 18000 crore. NIM = 4.1%.
• CET 1 is at 16.3%
• PPOP grew by 16.6% YoY and 5.8% QoQ – at 17, 393 crore
• PPOP is 5.37 times of total provisions
• GNPA was at 1.23%
o Core GNPA was at 1.04%
o NNPA was at 33 bps
• Slippage ratio is at 36 bps – 5700 crore
• Recoveries and Upgrade = 2500 crore
• 6499 branches, 18688 ATMs
• C-I Ratio was at 39.2%
• Write-offs in the quarter were ~3000 crore – 22 bps
• Restructuring under the RBI Resolution Framework stands at 53 bps. 7851 crore.
o Not restructured – 9bps
• Total Provisions = 3200 crore
• PCR was at 73%
• General provisions were at 6800 crore
• Total Credit Cost Ratio net of recoveries was 64 bps – compared to 103 bps last year

Mahrukh Adajania - Nuvama

Q: On liability growth going ahead. This quarter was impressive with strong retail growth. Closer to the merger, how will the liability strategy change? Would it be focused on wholesale borrowings and deposits? What kind of borrowings would these be?

• Focus is on execution
• Relationship based growth continues to remain the focus
• We are building momentum in retail
• Branch network is there – and the pipeline for the next 3 years continues to remain the same
• Currently, it is about harvesting and utilization of branches
• 50% of those branches are shifting from 1 vintage bucket to another vintage bucket
• There are other market borrowings that opportunistically happen – and that will continue as per the market

Q: Any outlook on margins on a standalone basis 2-3 quarters down the line? As we know, Merger will put pressure on margins.

• Think about what the margin means -
• We have typically operated between 3.14 and 4.45%
• In this range, the mix of products is very important – retail mix between 53-55% and the wholesale mix will be 40-45%
o Overall, in the last 4-5 years, it has switched.
o Retail is now 45% - wholesale is at 55%
• And now you can see a pickup in the margin as rate cycle has gone up as the pass on is laggard.
• 45% is fixed rate – the rest is floating
• You have seen pickup in the margins due to a switch in the mix
• You will continue to see the mix change
• And now momentum is picking up
• Economy is 60% consumption led
• We have had need in the retail.
• Last quarter retail book advances growth was at 5% and was similar in the June quarter
• As long as you can see that move up, you will also see the mix moving – this gives opportunity for the margin to move up
• These are the 2 aspects to think about when projecting margins

Suresh Ganpathy – Macquarie

Q: On deposit rate…RBI has hiked rates by 190 bps. None of the banks have hikes their rates even by half the amount – they have only gone up by 50-60bps in the last 6 months. There is a significant gap in terms of monetary policy transmission. What is the outlook on deposit rate? How do you see that panning out?

And the 2nd question is on branch growth? You have a target to 1500 – 2000 branches every year. Do you think 2nd half is going to very strong?

And what about NCLT guidance to conduct a shareholders meeting? Does this mean the pace of approvals are better than expectation?

• CASA is a different aspect – the way we earn time deposits – we think about public and private sector peers
• The way we approach deposits – we have to be competitively priced
• We are in line with the private sector banks – not at an advantage or disadvantage. It is only about the execution capabilities.
• It is not a sales-based process but a relationship based one.
• If you think about public sector peers, there are certain points of the curve where we are higher – typically in the medium to long term; and in the short term, in some places we are lower. Not by our design – our term deposit yield curve is upward sloping.
o That is how we monitor that.
• There is no formula for repo pricing or other kind of t-bill or g-sec kind of pricing.
• It is about the demand – and that’s how we approach it


• We have been a bit slow in the first half and it is typically like that.
• We do see a ramp up happen in the 2nd half of the year – in terms of branches
• It is medium-long term goal – but as you open a bank – you track the New Account Value
• We have more than 500 branches in the pipeline in various stages of readiness and completion


• Are we on the timeline? Yes. Maybe there is a scope for a few months early.
• NCLT goes to various agencies in the country –and that is a long-drawn process – after shareholder meeting
• There are callings for comments, hearing in newspapers, etc.
• After shareholders’ approval it will take 7-8 months – after which we will get approval.
• Continue to be in dialogue with RBI for exemption.

Kunal Shah – ICICI Securities

Q: W.r.t payment products growth, it is lagging in growth compared to the industry but we are not seeing any loss in market share with respect to spend. Is it more in terms of the behavior of the transactors vs revolvers - or is it other payment product contribution that is leading to near 2% sequential growth?

• On spend, we see good amount of traction coming in.
• And it is transactor-driven – and the customers who are spending have very good liquidity.
• If you look at our card customers liability balances it is close to 5 times the loan balance of these customers – total average
• We see normal amount of liquidity
• Revolver rates have not picked up and are yet at 70-75% of pre-covid level
• In 1-2 months, we will see revolvers coming in
• We see the people who have a tendency to revolve over a larger period of time have actually come down.
• We do see something – but haven’t seen credit card customers revolvers come back up after covid.

Q: With respect to commercial banking, there is improvement as far as retail is considered. But commercial ex of agri is yet stable. Given inflation impact in industry, what is your outlook on commercial banking? And what incremental measures are we taking in such a global slowdown?

• The strength of the commercial banking – especially MSME segment – we see extremely robust growth here.
• There are origination models, management models, relationship models of the customers
• Lending is one of the value propositions.
• In may we presented, the self-funding ratio, that is the liabilities generated by this segment through their own cash management account, through their promoters’ account and through their employees’ accounts – more that 80-85% self-funded. This ensures good model for credit management.
• More than 85-90% is secondary collateral – which is very important. Additional with primary collateral. There is much more skin for the bank and the business to work together.
• Even during covid, this sector was quite unscathed and quite good.
• We see strong cashflows coming in.
• We consider these types of loans on a case to case basis.

Rahul Jain – Goldman Sachs

Q: Can we understand the headcount size? We added about 9000 in this quarter. How many more do we need to hire for this year? We may have preempted hiring for branch growth and expansion. For the next couple of years, how do we think about headcount?

• Some level of hiring will happen for new branches and has happened. This will continue as soon as the locations is signed.
• The broader question you asked, yes with digital efforts we are putting through – we are seeing a lot of traction on the digital front – so thereby, we don’t need to add at that rate.
• But we may get a few subsidiaries on board – and that may impact the total headcount number.
• We will ensure high end relationship management.
• There are about 45,000 – as reported in March – in the salesforce that is there.

Q: On credit deposit that has expanded in this quarter. Incremental share in deposits has increased in the past year or so. How can we think about the combination of credit and deposit growth? Can we sustain this incremental market share gains, because the system is rationing up efforts of deposit mobilization rates by offering higher rates, etc.? Or will we have to up the game there?

• In terms of the CD ratio, or the deposit and advances growth – I know we are in a particular interest rate cycle – but if you have to go back to 5-10 years in the past – and see what has happened then – through the interest rate cycle over a period of time – 2.5-3 times is the kind of rate of growth.

Abhishek Murarka – HSBC

Q: Going back to the NIMs conversation, you mentioned that the mix is where it is and that is why you are the lower end of the range, the rates that are going up, so suffice to figure for this that as deposit rates start catching up, we should get back to As deposit rates catch up – will we use 4% nims or is that not the case? Or will you be able to maintain the existing spread that you have got?

• If you see the rates that have changed – there is more to come in the November and March quarter
• As rates go up, there is continuation of this effect
• It is also about deposit mix funding – we have an opportunity to increase our penetration in time deposits.
• Time deposits grew by 72% - we only have 14-15% of our customers we have penetrated on time deposits
• There is an enormous opportunity here. Depends on the mix and the need and how long the rate cycle goes.

Q: With the same mix, you expect deals to be going up more…and deposit growing strategy will not be completely rate dependent – and to that extent you can gain on spreads – is that a correct understanding?

• Till the extent that we need the rate on advances and deposits it is upcoming
• It depends on market circumstances

Q: On HDB, GNPA on a sequential basis they are pretty flat. What’s happening there in terms of asset quality? What’s the restructured book there? How much provisions are you carrying on that?

• The HDB asset quality trajectory is improving and will continue
• Provision Coverage on secured book is 46% and on unsecured book PCR is 92% - and on the overall loan book – 75% of the total loan book is secured loan book – so it’s a good type of book
• And the customer segment was significantly impacted during covid as part of the NPA – as economy became stronger, there is quite an improvement – but there is more to go in that.

Q: Restructured book in HDB?

• There is some management overlay that we do have and continues to be there.
• But restructured book we haven’t published yet.

Q: We still have trading losses – you alluded to corporate bonds attributing to that. What is the reason behind that?

• If you look at the corporate bond book – not the T-bills – the certificates that are predominantly PSL driven certificates which are there – the base rate that determines the valuation of the bonds and the PTC published by Suvidhaa and other associations…the base rate is the g-sec rate
• The 6-month rate is up 77bps in the quarter – the frontend part of the curve is up but long-term bonds’ rate is down by 9 bps.
• If you look at the disbursement of the bond book, it is a pretty good normal distribution around that 2-2.5 years range bucket
• G-sec rate on the frontend of the curve is one of the elements of valuation
• The 2nd aspect is the bond spreads. That have come down.
• Bond spreads in the front-end are down 6bps on a 6-month basis, 21 bps down on a YoY basis, 11 bps down 2-year basis.
• The bond spread is another element of the valuation.
• Until the bond spreads grow past that level – they can’t drive Gsec for corporate bond book
• The co-efficient portfolio at normal distribution is therefore around the 2-year mark.

Shashank Kumar – Sunidhi Securities

Q: On credit card business. What will be the impact of UPI on Rupay Credit card, transaction value due to MDR differences, or it will be settled down 2.2-2.4%? You can give some colour…

• These are variable cases
• We’ll have to wait and see how the market reacts
• We are predominant in the Mastercard issuer – and Rupay cards is a small base in our credit cards
• The growth in UPI and the pricing of the same, we’ll have to wait and see
• Currently, what we have through Mastercard and Visa, the transaction size is very good for us.

Q: On the asset quality size, what is the slippages, write-off and recover?

• Slippages in Q2FY23 were 36 bps or 5700 crore
• Recoveries and uograde were 19 bps or 2500 crore
• Write-offs about 22bps 3000 crore

Saurav – JP Morgan

Q: On corporate banking fees…on 9% QoQ growth…where it is coming from? Are you displacing some public sector banks or large corporates?

The consequence of that build-up, the NIMs should come up – but at the RoA level is it a 2% business? How do you think about it?

• On RoA, all our pricing decisions as well as business model decisions based on the returns it provides – not the NIMs it provides.
• It is quite good relationship-based businesses in the wholesale
• We have quite good traction
• Large contributors have been telecom companies, energy companies, PSUs – we will get returns in line with the bank’s overall returns
• When the price is not right, we let go of the volumes, we let go of the transaction, not let go of the customer as they are good relationships. Keep good relations, if that particular transaction doesn’t work, it doesn’t work.

Q: In an interview, you said that half the digital transformations is over and the IT cost will peak out – and you will reach about 21 million merchants from 3 million at play. How should you think about this impacting your Opex? Or you chose to reinvest any gains? On credit cost or your NIM on Opex side, how do you think about this?

• 1 aspect is in terms of digitalization itself. The context of that was that the merchant Vyapaar app that we formally launched – and has took off very well
• We get quite a good traction. We get in almost 60,000 merchants per month in the recent month. And more than 1.6 million signed up under the Smart Vyapaar app.
• It is not just a payment product relationship. It is also a liability relationship, asset relationship in addition to getting the payment relationship.
• And there is a lot of value for the merchants to do business with us.
• The 2nd part of what you asked, our cost to income before covid was about 39.5 and through covid, the retail kind of transaction, we came down to 36-37 – and now we are back to 38-39.
• It can go to 40-41% QoQ. You can imagine on the yearly basis that we will be at 40 as we make those investment to come.
• As we see…denying credit, as the average credit cost you see in this quarter…80-90bps…last quarter 90-95bps…so there is an opportunity to become lean there and get the maturity cycle up, from branch maturity cycle – which is18-24 months - to people maturity cycle – which is 6-9 months – So the thought of what the investments go do…This contributes to the overall return framework

Q: These 20 million merchants is just HDFC bank and doesn’t include your fintech partnerships?

• That is right. Merchant relationship is with the bank.

Manish Shukla – Axis Capital

Q: Can you remind us the key dispensations and relaxations you sought from RBI for the merger? And realistically, by when will you get visibility on the same?

• What I said in May stands true even today.
• SLR, CLR, side pass will continue to focus on greater and faster credit growth supported by us – That is something what we are discussing
• In terms of the priority sector lending which kicks in 12 months after the effective date – so September 2023 will be in November 2024 is where it’ll come
• We wish to organically originate
• We have moved to 1.42 lakh villages now – we were only at 1 lakh villages if you go back 12-15 months ago – come here and we wish to tap to 2 lakh villages – and that is how we go about building this.
• In terms of opening up and reaching 3000 mark on branches originating gold loan – we want to do around 5000 branches that originate gold loans – again that is a part of that initiative to ensure that we take the right kind of quality on the priority sector lending
• These are the action plans that comes for organic – but we organically do this.
• We will continue to have conversations about this with the regulators.

Q: By the time you seek shareholder approval, towards end of November, are you expecting any visibility on any of these?

• There is no particular timeframe for this
• These conversations are private so no details about the same.
• The verdict or model is not dependent on that – it is good to have but not necessary

Q: On liabilities, once you acquire a large mortgage book from HDFC, potentially you can fund it using long term affordable housing bonds, so what are your thoughts around the same? How many of those bonds you can issue? Does that mean in the interim your LDRs as a merged entity would be higher than what you have historically seen for HDFC Bank standalone?

• That is part of the equation and we would consider opportunities to do that.
• From a cost point of view, we are indifferent – as the assets on the other side are floating rate assets, priced off the market benchmark, and there are hedging instruments in the market through which interest rate risks can be managed.
• At the same time, liquidity maturity is also managed through these affordable bonds – and they provide us and offset from CLR and SLR subject to certain criteria.


Ps. There have been certain omissions/paraphrasing in these notes. It is not a transcript word-for-word.

1 Like

Few months back remember reading what seemed somewhat opposite of this news…Everywhere it was mentioned that MF/FII would sell HDFC bank as post merger the ratio that they hold would double…now this news seem to say that weightage of HDFC bank would double and hence room to add more for FII…not sure what it means for Mutual Funds…


Chief Executive Officer and Managing Director of HDFC Bank


HDFC Bank targets issuing one million credit cards a month post RBI ban lift.

Dec’22 end Update


Dec’22 Quarterly Results

One highlight for me is the aggressive branch expansion at 7183 branches vs 5779 branches in Dec 21. Second highlight is robust 20 pc growth in Deposits. Going forward, deposit growth is one parameter which is going to differentiate between the men and the boys in an environment where the Systemic deposit growth is lagging credit growth at around 8-10 pc. The third highlight is retail loan growth coming back to 20 pc levels. This was a cause of concern for analysts.

Once the Bank is able to roll out its new Tech Stack / Tech Infra, the stock may be in for some re-rating.

Disc : invested, biased.


That is more than 20% branches. Wow. Branches take time to mature and become fully profitable. Probably we are seeing early green shoots of few years of decent growth on a very large base.

All good and great but the retail loans are only 39% of the book and the bank is able to make 18% ROE. How is this possible? Which large corporates that paying that much huge interest to the bank? Seems the bank is getting into wholesale and other very big large lending deals. Otherwise it’s almost impossible to have this kind of growth. The bank just added a kotak bank interns of deposit growth just in an year… how is this even possible in such competitive market. I’m not implying any wrongdoing but these numbers are too good to be comfortable.


All good and great but the retail loans are only 39% of the book and the bank is able to make 18% ROE. How is this possible? Which large corporates that paying that much huge interest to the bank? Seems the bank is getting into wholesale and other very big large lending deals. Otherwise it’s almost impossible to have this kind of growth. The bank just added a kotak bank interns of deposit growth just in an year… how is this even possible in such competitive market. I’m not implying any wrongdoing but these numbers are too good to be comfortable.

I don’t think increasing corporate book in this upcycle is a bad idea. In fact, it might be one of the best times to lend to Corporates given that balance sheets are relatively clean and the RBI most likely doesn’t have much further to go with the repo rate as inflation seems to be peaking out for now. If everybody chases granular retail loans, then who will lend to the corporate sector to fulfil the huge capex plans across infra and industry?


Ps. There have been certain omissions/paraphrasing in these notes. It is not a word-for-word transcript.

Srinivasan Vaidyanathan

  • Aggressive branch expansion at 7183 branches vs 5779 branches in Dec 21
  • 64% improvement in turnaround time
  • 30% improvement in engagement in digital property
  • LCR 113%
  • Provisions = 2800 crore
  • PCR = 73%
  • Total Provisions = 166% of Gross non-performing loans
  • Write-offs were 3100 crore
  • Sale of NPA – above 200 crore in the quarter
  • Total Credit Cost net of recoveries was at 52 bps
  • Secured loan book was at 73% of the total book


Q: On Operating Expense, and particularly the Employee Cost side, we have added a lot of employees over the last few quarters, but was there anything extraordinary within that? As sequential growth was also quite high…if you can highlight on that part?

• On is that normally…3rd quarter is seasonal
• There is lot of activity in that time period
• On the people cost, apart from adding of people, both for business growth and branches, there is also a tranche of 250-300 crores approx that would come in for RSU (Restricted Stock Units) – It’s not a one-time thing as it comes in usually – which would be up compared to prior year, as well as prior quarter, because the ESOPs and RSUs both were effective in around end-October

Q: And in terms of the Other Interest Income, it is at around 800 odd crores, so what is that actually to pertain to? As that is what is driving the NII – otherwise broadly if we look at the advances, investments and expenses, then NII growth seems to be about 22 odd %

• Other Interest Income – that’s the income that comes from non-lending
• It could be income that comes in from RAD (Refundable Accommodation Deposits) of Deposits – that could be one.
• The other thing I called out – which is about 6 bps – is the interest on Income Tax Refunds
• That quantum would be around 300 odd crore


Q: On Deposit accretion, if you look at Q2, Deposit accretion was 600 bn, or previous quarter is was 680 on overall deposits, the initial guidance was that you want to take it to 1 trillion rupees, with every quarter showing an improvement – but that has not happened in Q3. In fact, Q3 has shown a decline compares to Q2 in terms of absolute accretion of deposits. So, what’s happening here? Are we on track to get that 1 trillion rupees accretion?

• Good point Suresh
• Our objective was to take that 60, to 62, to 28, to 100 thousand as we go, and yes, this quarter if you look at retail, it has come at 67,000 crore – retail came in quite well, yes.
• It didn’t come in as much as we had thought
• We thought it would be north of 80,000 or above
• We did put in an audacious goal of how to get there, but we are still – the mindset and the drive and the distribution network and leveraging of our existing relationships in Q4, and we believe that more consumer spending has happened broadly in the country.
• And we see that in our own customer base too
• If you look at our card spends, retail card spend grew about 27% - so people are spending on other things that they want to do
• So that’s part of what has happened
• But we are still on track to get sequentially up

Q: On margins, your margins are flat QoQ, and even YoY as a matter of fact, so the bulk of the deposit rate hikes have happened between September to December – you can see almost all banks, SBI, yourself included have hiked deposit rates aggressively – so if you’ve not seen a margin expansion this quarter, especially when deposit rate hikes are yet to flow through, what happens in the next quarter when at least some of these deposits repricing, or at least incremental flow will be at a higher rate.

Do you think you can sustain current levels of margins, or do you think there could be any margin pressure?

• Again, very nice and very correctly you are asking that
• It is correct that, to expect that deposit pricing factoring in as we go along, will increase – because prices have started, and there will be a full quarter impact and if there is one more rate hike, there will be further coming in.
• But along with that, the loan pricing also happens.
• Our position is more or less a balance
• When deposit pricing goes up, we also get up on the pricing of the assets
• MCLR is a good indication (Marginal Cost of Funds Lending Rate) to see – while not all loans are there – but an enormous amount of retail loans go off MCLR – I mean, there are even other SME type loans that are based off MCLR – if you look at that, we have enhanced that more than the deposits funding
• The 3rd thing, the margin pick-up, I think over the last 4-5 quarters we’ve been saying, that the margin is a function of mix of products.
• To the extent deposits goes up, asset yield goes up – keep the margin constant, or thereabout within a small range – but the margin going to the middle or higher end of the 4, 4.4, 4.5 is a function of mix of wholesale and retail
• Despite, retail growing 5% up sequentially, the mix is still 45% Retail, 55% Wholesale
• And couple of years ago, before Covid, it was 53 - 55% Retail – so the mix needs to change for the margin to go up
• We are confident that we need to keep up on the yield to keep pace with the deposit cost growth opportunities

Q: With respect to RBI, have you heard anything from them about the statutory relaxations that you have sought, if not, what would you think would be the timeline to hear something on that front?

• Not yet, Suresh.
• It is expected within the next month
• There is no particular timeframe
• The merger process is progressing – the NCLT hearing is on 27th January
• Post that, there are some other regulatory processes to go through – So it will take some time


Q: Your asset growth for the quarter was just 3% QoQ, whereas you know at the time of merger, the analysts were given a guidance of 18% YoY – even on a merged balance sheet basis, so does that stay? And were there corporate loan exits at the end of the quarter?

• There are 2 aspects.
• The way you think about the loan is not Quarter-to-Quarter, but that is why we give kind of an indication to look back to see how the bank has grown the loan book over a period of time
• You can look at a 3, 5, or a 10-year bock, whichever you look at, we see every 5 years, 2.2 times or 2.3 times or above
o That is about 18-20% YoY
o That is historical yearly – but QoQ, there can be variations
• This quarter if you see, still it is 19.5% - and the growth of the IBPC, the loans grew 23.5%
• Loan growth can come and on wholesale that we touched upon, it’s a matter of how we prioritize what we want and at what price
• If you look at the wholesale, the spreads are such that – if you look at the bond spreads, in the process, bond spreads widened in the quarter, the loan has to come in catch-up over time.
• From a pricing point of view, we took a stance to, we’ll wait for the price to come up – and so the wholesale was -1%
• The bond spreads went up from 30-60 bps.
• We do have to wait and see how the loans start catching-up on the yields from an opportunity point of view, where the other banks in the country, and other financial institutions would appropriately start to price in, after looking at how the bank rates are moving – so QoQ movements will be there.

Q: My broader question was that some of the economies have already downgraded growth forecast for India. What is your sector growth assumption for FY24? And then of course you would grow above the sector to justify your 17-18% YoY for the next 2-3 years. Do you think there is adequate growth to grow at 18% with quarterly variations?

• It is fair assumption
• It is a practical thing
• We see good demand for loans – over 35,000 crore of loans – we didn’t go through with this
• Because the pipe has to catch-up with what we are seeing on the bond market – so we let go
• We do see good demand, in the NBFC sector or the PSU, Retail and infra segment
• We are also seeing good new demand from loan through PLI, or other assets we are also confident.

Q: What would be the quantum of interest on tax?

• 6 bps would be around 300 crore


Q: Could you comment on the revolve rate on the card? What would be the LCR growth on average for the period end? Coming back to NIMs, this time HDFC bank has shown lower NIM sensitivity when you look at private sector peer growth – as will this continue going down the line?

• Revolve rate – we haven’t seen any pick-up in revolve rate – we are still at 65-70% of the pre-covid levels
• We don’t see pickup in revolve rate
• It is slightly down by a percentage point or so in this quarter
• It normally goes down when you see higher levels of card spend due to various festivals
• We are not seeing a pickup in revolve rate – it is drastically lower than what we have seen in the past
• We are confident that the industry will come back
• About LCR, I did allude to 113% LCR in the quarter
• You asked about the NIM in the context of the rate move - you can think about our NIM over the last 3 years – before the rate started to god down and now in the current period – it operates normally between 3.94 to 4.4
o And the function of NIM going up or down is a function of product
o More retail composition of the portfolio gets you higher NIMs and comes with higher credit cost, credit cost comes with a sight lag – that is the model
• The cost of funds other than the yield and lag effect will move more or less on QoQ variation.
• If the rates were to go down in the 2nd half, we would still continue to manage NIMs in the steady state manner


Q: Coming back to deposit growth, for the whole industry really, it is not showing any acceleration – and banks and all are kind of increasing the rats. There is clearly pressure from alternate channels. Do you think banks will have to reach the savings rate as well in the next couple of months? Based on deposit mobilization?

• I usually don’t want to take a guess – but that has been something over a longer period of time has been more or less within a small range – so that is not something that has generally happened
• We don’t lead with this, but we will follow the leader on this front.
• But we price slightly above the largest bank player in the country on the savings

Q: What measures can bank take? Or eventually the growth will have to take a knock. How will y’all imagine a growth kind of mix?

• The growth of deposits – one is that market itself grows at a certain rate; and the goal is to grow faster than the market to gain the share
• The share is slightly under 10% and grows at 80-100 bps in the last year – and in the last 5 years you see that is 400+ bps market share gain
• We strive by expanding our distribution to get closer to the customer and form better relationships
• It is all about getting the customer in and deepening the relationship
• It takes about 21-24 months for customer maturity cycle to peak
• With a market share slightly under 10%, it is a long runway to go and get that.

Q: On the cost side, you opened more than 700 branches in this quarter. How many more do you want to add in this quarter? And what are the kinds of costs that are yet to accrue with respect to branch expansion – is it reflected in the numbers, or will there be a spillover in the 4th quarter as well? Plus whatever, you’ll open up in this quarter…

• The branches we intended to open – the 1500 to 2000 branches – we probably will open…in the pipeline we have another 600 branches
• We keep adding into that
• We know the locations and the number of branches we have to open – it’s about getting the leads in an appropriate manner
• Yes, we are pursuing the branch build strategy
• Costs will mostly come in the following quarter.
• Cost will spill into the following year itself for whatever takes place in the latter part of this quarter
• From a cost point of view, it depends on the timing

Q: Did we do any buyouts in the Priority Sector?

• We do buy in the market – different products
• One is to do with the core growth
• Core PSL growth is 35% up YoY – book we originate on the books and keep
• This gives good RoA – that is the priority and the push
• Continuous evaluation happens between different strategies

Q: Do we have any shortfall there?

• Excess gets determined at the end of the year
• Typically, the overall PSL is 40%
• That is where we are always there – and even now we are there
• It’s a question on how we get to the right kind of composition in the agricultural and the Micro
• We look for organic growth – It is tough to get organic growth; when we can’t find it, we go to the market

Q: On Consumer Behavior, our personal lending growth has been strong QoQ, but we see inflation is high, EMIs have gone up – how do you see this portfolio shaping up? Asset quality seems strong but do you think growth will take some knock due to these factors?

• Retail card spend growth is at 27% - that is good
• Acquiring spend is also in the 20s – which is robust
• You are seeing, people are spending
• There is enough liquidity within the customer base; the card customers’ liability balances in the bank is over 5x.
o That means that if there is 100 Rs of a card receivable balance on an aggregate level, the deposits from that bunch of customers is like 5 times.
• Pre-covid it was 3.5-4 times
• People have built up liquidity and it seems to be there
• We do see good amount of spend happening
• Therefore, personal loan book should grow


Q: Can you provide some colour on credit card acquisition strategy? We recently talked about doing 1 million cards per month, how are you planning to achieve that? What is the timeline?

• We acquired 1.2 mn cards in the quarter, and I don’t we think we’ve said 1 mn per month.
• If anything, it’s more of a strategic call that I can tell you about 1.2 mn this quarter; and the prior quarter was slightly less than a million > That’s the kind of rate at which we are acquiring cards

Q: This quarter, we have consumed small amount of contingent provisions, so what is your approach to utilization of these provisions going ahead?

• We evaluate QoQ on what to do
• But broadly, during and before covid, we made some provisions according to economic considerations
• We keep evaluating the market conditions and that’s how we keep the provisions on the book

Q: On the liabilities, this quarter we have reported a strong TD growth, almost 6% QoQ, so can you share what has been the mix of savings deposits which have moved to TDs? What is the proportion of CA in incremental deposits?

• It is a mix of both
• Savings account growth was 13-odd-percent in the quarter
• Time Deposit growth is about 27% or so
• The CA growth YoY is 8% but retail current account – which is the granular account – which is a big focus for us – is a 14% YoY over the wholesale current account which de-grew by 4% in the quarter
• The CASA ratio is 44%
• The long-term CASA is about 39-40% in the long term
• And if you think about the time deposits last year, in FY22 grew only by 7%
• It’s a question of customer’s preference and the rate cycle that happens.


Q: Can you throw some light on break-up of employee addition? Branch-related and others? And within others, what are the areas where we are adding employees? Because last 9 months we are added around 25000 employees - How many were for new branches and how many much is non-branch?

• Most of the staff addition would be in front-line; i.e., asset sales (retail asset sales), branches – Out of 30 odd thousand, 60% would be simply, directly branches; and when I say assets – it is both cards and the retail assets
• We have about 84% or so of our people in the customer facing role

Q: On fee income, the share of credit cards and payment products have gone to 34% for this quarter – can you throw some light on how the contribution of fee and payments have been improving? What is the outlook there?

• The payment business was 32% of the total fees last quarter. It’s 33% in this quarter – so it is more or less in that range
• Normally, 3rd quarter it contributes higher than what is contributes historically
• Last year Q3 was an upgradation for some other things, while coming off from restructuring, a lot of risk-related type of fee – check bounce fees, or late fees, or over-credit fees, etc have now scaled down
• But otherwise, there is no particular outlook I can give, as it is a function of customer behavior


Q: What is the accounting treatment of IBPC? If and when HDFC mortgage book customer comes down to bank, how does the pricing of those loans move – as they have different interest rates regime and banks have a different interest rate regime?

  • It is mentioned in some public document somewhere in terms of what that is and we can take It offline - One of our finance team can talk to you

Q: Do they have to move to EBLR or do they have a choice to continue where they are? About the mortgage…

  • There will be a one-time change that we will do when the migration will happen
  • We are looking into the integration process – and once we reach a decision, we will communicate with the customers
  • Customer will have a choice to pick the external benchmark whatever they need

Q: So, does increase in loans through IBPC have any impact on NII?

  • It will impact NII if IBPC is done above or below the cost of funds
  • Gross of IBPC loan growth is 23.5%
  • On NII Line, there will be some impact – rate at the time could be 5 bps or 10 bps

Q: What is the definition of a retail current account?

  • Retail current account is customer managed out of the branches
  • Wholesale customer is normally a big corporate
  • Retail could be Merchant around the corner somewhere, or it could be certain institutions where the branches are managing those accounts


Q: How does the change in loan book mix drive change in NIMs? Is there a change in the relative riskiness of the segment?

  • The Change in our composition that we saw on the wholesale from 45-55% - we did see a significant improvement in quality, as they are highly rated corporates
  • Our wholesale book is at an average internal rating of AA
  • It comes with the lower risk rate
  • Retail comes with a 100% risk rate and that is why, wholesale comes with a lower margin, cost to income is very low and the credit cost
  • Retail comes with higher margins, but higher cost of origination, higher cost of maintenance, will come with a credit cost, and credit cost can come with a lag to – and that is a part of the margins
  • From a return point of view, more or less it will be matching – from an ROA it will be approximately 2% - irrespective of the segment we operate, we manage to optimize our RoA – because if the margin is low, credit cost is low and so you get to the margins, and returns you want to get.
  • As the shift has happened the RoA remains to be stable



A very pertinent factor for a NBFC to source funding at competitive rates. However, cheap (~3.5% interest expense) retail deposits (~65% of the B/S liabilities ) are the main source of funding for HDFC Bank. Hence, not a very important factor to be considered.

Wholesale lending is forte of HDFC bank and it’s good that bank is harnessing such (large deals) opportunities. Trend (both absolute and relative) of past NPA’s gives confidence that the management knows how to control risks for such a kind of lending.

HDFC’s cheap source of funding (deposits) ensures competitive lending rates (attracting more and more deals). In turn, the bank can earn NIM(~4%) that could give decent ROA(~2%) without chasing high yield/risk lending opportunities. Finally, leverage (that’s majorly contributed by retail operations, negative capital employed) of 8~9x ensures ROE of 16~18%.


From mint. After all, opening so many branches aggressively might not help. New-age banks are offering a higher rate of interest and people seem to be gravitating there… From the article

Raising retail deposits will be a challenge due to increasing competition.

Fin — HDFC Bank to miss quarterly deposit target of ₹1 trillion | Mint.pdf (6.7 MB)

It was clarified by the management that Rs 1 trillion deposits/ Qtr is their aspirational target and not a guidance. So, it has to be looked at from a 2-3 yrs perspective.

Disc : invested, Biased.