HDFC Bank- we understand your world

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.

Treasury income for HDFC Bank is subdued from the last 3 quarters although ICICI Bank has done relatively better.

Any thoughts?


Dec-22 Sep-22 Jun-22 Mar-22 Dec-21
Revenue 22147 20022 18358 17444 17090
Result 4151 3042 2609 2323 2051
% PBT 19% 15% 14% 13% 12%
Dec-22 Sep-22 Jun-22 Mar-22 Dec-21
Revenue 9551 7910 7380 7899 9192
Result 775 12 266 1384 2531
% PBT 8% 0% 4% 18% 28%
% Treasury PBT of Overall PBT 5% 0% 2% 11% 18%

Source: Quarterly Results

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Imo ppl don’t keep money in banks like hdfc icici sbi for interest rate

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Hi all,

Anyone aware of the PayZapp app of HDFC Bank may have known that it used to be the most archaic and buggy apps made by any top bank. It was there to onboard new customers to the bank (like Freecharge is for Axis Bank) but the experience was not conducive on that front. However, they have just upgraded the app and the new interface is snappy, clutter-free and pleasant. It is still a beta version at the Android app store and so have some bugs, but is worth trying. This is the first time I got this feeling that the new tech team is doing it fine. Good mobile and net-banking experience could be essential for retaining and engaging customers and attracting tech savvy populace. So, I am pretty happy as a long time HDFC Bank shareholder.


Here is a snippet from Indiabulls housing finance Q3 concall, where management mentioned HDFC will vacate wholesale business post merger.


Anybody knows why? Does that mean the consolidated entity will stop fresh lending to wholesale developer finance? Is there is any restriction that Banks should not do wholesale lending?

Personally I think it would be good to get some insider to opine on why their IT system has so many issues? It’s unusual.

Disc: long since a long time (15+ years)


Seems to be clear case of under investment. I believe their compensation lags pay available at Indian IT, MNC back offices, Foreign banks with offices in Mumbai, Start ups, Global Tech workforce in India.

Given Aditya Puri’s attitude towards technology, it is not surprising that they have not invested enough for years. Given widespread availability of Internet since 2015-16, it is coming to bite them and they continue to lag due to inadequate investments.


Pretty much. And time for RBI to do some slapping as they did earlier for the CC biz onboarding. As a shareholder and account holder, I can see their processes being hopeless. The only difference is they’re polite about it unlike SBI which will not say anything or be rude to you

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Data of 6 lakh HDFC Bank customers leaked on dark web? Here is what the bank says - India Today the tech disappoint just continues on and on … this is really disappointing and also perplexing.

Disc: long since a long time (15+ years)

Most of the things are known but well articulated
Worth 18 minutes

Maybe a basic question, but can the share swap ratio of 42 HDFCBANK for 25 HDFC be changed closer to the merger date?

Right now, there is some difference in the market price of HDFCBANK and what HDFC converts to (around 40-50 rupees discount on HDFCBANK) based on the ratio. So, if I am ready to take the risk of merger not going through and any difference in dividends, it would make sense to sell any HDFCBANK which were bought > 1 year ago and buy HDFC in lieu of them?

In theory, something could go awry and the merger ratio could change - but the probability of that happening, in this case, is effectively 0.

Since the announcement, the arbitrage has been roughly between 2%-5%
I estimate it is currently around 2.8%

That said, switching would also depend on your tax basis primarily and there is some frictional cost around commissions etc.
No point in enriching the government while actually losing money on a net basis if your tax basis is low enough.

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Aren’t there tax considerations by selling your current holdings of HDFC bank and buying HDFC? Ltcg is still 10 percent right? Do you still come out ahead?

If you are sitting on a loss on HDFC bank position, then it makes sense to capture it and buy HDFC.


I see, thank you!

In my case, I have enough long term shares to cover the cost of commissions/other taxes and still come out ahead, and not enough profit that I end up paying extra tax (as ltcg or because of taxable income crossing some threshold) so I guess it should be worth doing it.

Makes sense, thanks! I have a net profit but my booked ltcg won’t cross the exemption limit for the FY, so I won’t pay any extra tax. So I guess it is worth doing it for the long term shares in my case.

What are the commission’s and taxes associated with the merger?
I thought there shouldn’t be any or very miniscule.

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