HDFC Bank Limited
Q1 2017 Earnings Call Transcript

Published: 25 Oct 2016

[Operator:]

Ladies and gentlemen, good evening and welcome to HDFC Bank Earnings Call on the financial results for the quarter and half yea-ended 30 September 2016, presented by Mr. Paresh Sukthankar, Deputy Managing Director and Mr. Sashi Jagdishan, Chief Financial Officer. As a reminder, all participant lines will be in the listen-only mode and there will be an opportunity for you to ask questions after a brief commentary by the management. [Operator Instructions] please note that this conference is being recorded. I would now like to hand the conference over to Mr. Sukthankar. Thank you and over to you sir.

[Paresh Sukthankar:]

Good evening, everyone and welcome to this earnings call. I know many of you are jumping from calls-to-call. So we’ll try and keep this as short and sweet as possible. Very briefly, a few financial parameters and then we’ll jump questions. Net revenues for the quarter were INR10,894 crores an increase of 18%, NII growth was at 19.6%. Net interest margin for the quarter at 4.2%, other income, which was about 27% of net revenues grew by 13.7%. Operating expenses were up 16.2%, which meant that the cost to income ratio was at 44.7% as against 45.4% in the corresponding quarter. Provisions were at INR749 crores as against INR681 crores for the corresponding quarter. Profit before tax at INR5,275 crores was up 21%, profit after tax net profit was at INR3,455 crores up 20.4%. For the half year, if you look at the first half, net profit was up 20.3% at INR6,694 crores. On the balance sheet side, overall balance sheet growth was at 19.5% touching INR788,000 crores. Advances at INR494,000 crores grew by 18.1% and deposits at INR591,000 crores grew by 16.7%. The CASA ratio was at 40%, CASA deposits grew by about INR10,000 crores sequentially, savings account growth year-and-year was at 21.6% current account deposits grew year-on-year at 13.4%. Branch network at 4,558 and 54% of these are in semi urban and rural areas, we have a presence now in 2,596 cities. Asset quality gross NPA is that 1.02, net NPAs at 0.3%, restructured loans at 0.1%. Total capital adequacy at 15.4 and Tier-1 capital adequacy ratio at 13.3%. You have probably seen some of these numbers already but I just though I'll take a quick snap shot of these and I'll open the call for questions now.

[Operator:]

Thank you very much sir. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions]. First question from the line of Mahrukh Adajania of IDFC. Please go ahead.

[Mahrukh Adajania:]

Hi, just wanted to a few details. So your all-in cost of FCNR deposit all in domestic cost would be around 6.5%. Would that be a correct estimate?

[Paresh Sukthankar:]

No, the all-in cost of the FCNRs including the swap cost would have been close to about 8.4%, 8.5%, let's say 8.5%.

[Mahrukh Adajania:]

Right but then RBI paid something, right. So?

[Paresh Sukthankar:]

No, no, no. RBI didn't, the RBI offered us is swap, which was off market, so if you look at the basic deposit, the interest that we're paying on the deposit plus the swap which we paid to RBI to essentially convert that to rupees, which was of course lower than. So what RBI paid was a difference between let's say the market price on that swap - for the market cost from that swap and what we had to pay.

[Mahrukh Adajania:]

Right, okay, so that would be 8.5%?

[Paresh Sukthankar:]

Yes, roughly.

[Mahrukh Adajania:]

And your average cost of funds currently would be underlying six. So if you replace these deposits, would there be a margin accretion or the yields have also fallen, so they wouldn't be?

[Paresh Sukthankar:]

No, the in whatever you would replace these at would be the marginal cost of funds for us. Right, this is incremental to - you don't increase your deposits at the average cost necessarily, because whatever we could get as CASA and so we would have got. So I don't think, there is a movement of any meaningful amount, in terms of the cost of the original deposits and the cost of the replacement liquidity may be a marginal reduction. Also remember, if it is deposits, while the deposit rates currently would be lower than that. You would have the reserve cost which would gross up, if you remember the FCNR fees did not have the reserve cost. And of course those deposits came with benefit in terms of PSL, which alternative funding in the form of deposits would not have. Of course, we've replaced these with borrowings with the infrastructure bonds that we have issued which also has some PSL benefit partially. So it's a mix of various liquidity sources, but from our basic cost point of view, I don't think there is mix for difference at all.

[Mahrukh Adajania:]

Okay, so we did see your 20 basis points reduction in margins. Would it stabilize there in the third quarter or FCNR (NYSE

[Paresh Sukthankar:]

So let me put them to perspective. The net interest margin at 4.2 when you say 20 basis points lower from these on a sequential basis. Actually I would break that into two, 10 basis points would be actually if you were to reflect that margin on the basis of the new calculation of the balance sheet side that is required now, where you were to gross up the balance sheet for LAF. So when you gross up for LAF, last quarter would also have come down from 4.4 to 4.3, this quarter on a similar basis grossed up for LAF we would be at 4.2. So that is one piece, which is really just denominator increased, because you are adding - earlier you would add LAF would be netted from investments, now you are adding it as on both investments and borrowing. But there is a reduction of about 78 basis points thereafter, let’s say 10 basis points. And part of that is also a result of the lower margin or even a negative carry at for some portion for the excess liquidity that we have raised and we are holding in short-term instruments including [indiscernible] and so on, which we will use for paying of the maturing FCNR. To that extent, that drag will go off. But broadly, I’m just sort of explaining what would have impacted NIMs in this last quarter, I don’t have a guidance for the current quarter or the next quarter, beyond the fact that our NIMs have traditionally remained in this range of about four to 4.3. And at this point of time, I see no reason why whether it’s the FCNR impact or any other impact, we should not remain broadly in this range of four to 4.3.

[Mahrukh Adajania:]

Okay. Thanks a lot.

[Operator:]

Thank you. Next question is from the line of Nilesh Parikh from Edelweiss. Please go ahead.

[Nilesh Parikh:]

Yes, hi Paresh. Question is on advance growth, right. So we’ve seen obviously by your standards it’s come-off below 20% mark. Is there any particular segments that you know compared to past run rates, we have probably gone a bit slow on that segment and just wanted to get your outlook going forward on that?

[Paresh Sukthankar:]

Yes, sure, sure. So Nilesh, the lower growth on the advances book is a little more on the corporate side in this quarter. If you look at it year-on-year, September last year were also saw a bit of blip towards the quarter end on the wholesale side. And therefore year-on-year there is a slightly lower growth, but even sequentially the growth on the corporate side is a little muted, relative to as you said some of the rates that we have achieved in the past. The retail piece has grown at about 21.7%. And this is retail growth not by Basel, but by internal MIs. If you look at the retail growth by the Basel classification the domestic growth rate is even higher. On the corporate side, there are two points which I had mentioned, one is that although we continue to have disbursement, which are not very different from what we’ve done in the previous quarter, the immediate previous quarter, we did have some larger one of these which had been done in the March quarter, which ran off in this quarter. So those were short-term loans which were there booked in March and therefore ran off in this quarter. So it was outstanding for the March yea-end and the June quarter and this came-off before September. Secondly, some growth in the corporate book has also happened through the commercial paper growth, because clearly that’s also where some of our corporate customers are borrowing from. And we’ve seen some growth out there as well. So have we continued to grow that segment in terms of funding, the answer is yes. But the overall the rate of growth at 18-odd percent, while it might still outpace the system by about 8%, but is a little lower than what it was at the end of June.

[Nilesh Parikh:]

Sure, just on the repayments that you saw. Now, given where the rates are getting finer already fine. Do you seen this trend kind of continuing, maybe at some level you would participate through say CPs, but you know some of that would also kind of get taken out by the other participants in the market so…

[Paresh Sukthankar:]

So of course you know the fact that there is - and I think at then this last quarters as well. I mean competition frankly besides being amongst banks is between banks and market instruments. Of course, a lot of those market instrument also tend to get invested, at least some of them get invested by banks themselves. But we still continue to see opportunities to do short and medium tenure loans, some amount of refinancing, so it's not that there are no opportunities across our customer segment. Despite whatever, cannibalization might take place with bonds or with commercial paper. Part of it, we will of course participate in that growth and part of it we will grow our loan book in any case. So, I would instead of read too much into a particular and when I mentioned about those short-term loan, those who were one or six months loans which had a certain maturity, they matured and that was the end of it. It wasn't necessary to my mind replaced with commercial paper for those clients.

[Nilesh Parikh:]

Sure, Okay. Thank Paresh. All the best.

[Paresh Sukthankar:]

Thank you so much.

[Operator:]

Thank you. Next question from the line of Nilanjan Karfa from Jefferies. Please go ahead.

[Nilanjan Karfa:]

Paresh, thank you so much. I wouldn’t make you repeat this, but if I look at the broad growth and then look at the margin. Is there some kind of pricing pressure that we are seeing in some segments?

[Paresh Sukthankar:]

So, I think competition is intense at the top end of the market. Everybody is looking at the few prime customers where you have both the [indiscernible] appetite and who are borrowing. And some of it, therefore as I said is actual pricing competition from players himself and with the MCLR everybody is as competitive as each other in terms of pricing - some of the loans across the shorter tenures in particular. So, there is that increased competition. On the retail side as well, I guess with the expectation that rates are coming down. There is intensified competition, some of that intensified competition is reflecting in loan yields and some of it is also reflecting in perhaps processing fees and stuff like that being waived or especially in this festive season, one would certainly have seen a bit of it in the last quarter, you would probably tend to see that in this festive season quarter as well. But the part which I alluded to on the margin side is not relating to our investments in treasury bills, or some part of the CP growth. It’s just that remember if we have about $3 billion of FCNR maturing over the next month or so. We would have naturally raised that roughly INR20,000 crores of liquidity over the last few months. And we would have kept that liquidity in instruments which at the margin would have just about covered our cost or perhaps some of it would have even had a negative carry. That would also reflect in that lower margin. So when you talk about, is their pricing pressure? Yes, but is that what has really caused that roughly 10 basis points of NIM erosion? The answer is no. there are other factors as well.

[Nilanjan Karfa:]

Right, and if you can kind of add on right, we talk about FCNR raising, but I think the bulk of the loans have still priced to the base rate right? And many of the large PSU banks have so far not cut rate. Now I don't know when they will start cutting or transmitting rates, but let's say in another couple of months, if they start really transmitting the rates for whatever reasons, would you believe these margins for our bank or for the broader banking system are going to sustain at these levels?

[Paresh Sukthankar:]

Well, I think our base rates itself was already on the marginal costing as far as we are concerned. Okay. Obviously the cost in other elements of that competition were a little different. But we were in any case already lower than what the larger part of the system has been. So I don't think others recalibrating their base rate downwards puts any additional pressure. And as I said earlier, at the margin, when you are talking about newer loans, the base rate is relevant. For the new loans, it is going to be at MCLR or it's a fixed rate, both of which lend themselves to whatever competitive pressures there are in the marketplace. And then of course, there are market instruments, which are competing against.

[Nilanjan Karfa:]

Right. Okay, great. Thanks so much, Paresh.

[Paresh Sukthankar:]

Thank you.

[Operator:]

Thank you. Next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.

[Suresh Ganapathy:]

Yes, hi, Paresh Sashi. Just basically on the priority sector lending fees, now that we have to maintain it on a quarterly basis, I’m pretty sure that the necessary to maintain the priorities for loans on an quarter basis actually increases rather than doing it on an yea-end basis. So two things, however are you trying to manage this better? Are you also taking the PSL route and also do you think because of [indiscernible] be some impact NIMs?

[Paresh Sukthankar:]

So I think it’s a great point Manish, the good part of course for us is that while at the margin we would have done some - sorry Suresh is that we while would have done some amount of this new PSL sort of the thing. The larger part of our PSL we’ve been doing traditionally to our own book. So the part where you are buying either earlier through the IDBC or through actually buying portfolios or now even through the BSL certificates that is the marginal piece and in that we tend to be partly a seller and partly a buyer for different supplements within the PSL requirements. To that extent, there will be some PSL low yielding assets, which come on a little earlier rather than in a particular quarter, you are going to have them on average that I guess does impact a little bit in the NIM if at all. But we really don’t see a meaningfully higher challenge, because we’ve always been doing a very large portion of our PSL ourselves through the year as part of our regular business. The cost of that Suresh, in terms of what we buy through the certificate that of course comes in our fee - now the cost comes in fees or in expense line. What we buy comes in the expense line and what we have sold comes is part of our other income. So neither of them the PSL transactions don’t affect the margin, they affect as I said either the fee line or the expense line, but to the extent that you are booking your own BSL through the year if some of that is at lower yields and actually that will impact the NIMs.

[Suresh Ganapathy:]

Okay. And especially on the LCR there has been further illustration from RBI on this aspect. Does it really make life much easier now considering or gives relaxation for adequate and you’ll not see much impact on margin, because of the LCR issue?

[Paresh Sukthankar:]

At this point in time, we are very comfortable, obviously every year when you have that additional 10% requirement going up and you move to now a daily sort of monitoring basis, I think - but at this point of time seems comfortable.

[Suresh Ganapathy:]

Just for clarity on daily monitoring, does it change from next year how is the event impact, I mean is it measure on a quarter end basis or you sort of do it on a daily basis?

[Paresh Sukthankar:]

We’ll do it on a daily basis from I think from 1st of Jan.

[Suresh Ganapathy:]

1st Jan, 2017. Okay, fine. Okay. Thank you so much.

[Sashi Jagdishan:]

You are welcome Suresh.

[Operator:]

Thank you. Next question is from the line of Seshadri Sen from JP Morgan. Please go ahead.

[Seshadri Sen:]

Hi, good evening, Paresh. Thanks for taking the question. Two things, on the growth side, I was seeing credit cards starting to tail-off, is there any particular reason, is it being cannibalized where some of your other products or revolve rates falling or is it more importantly is the trend or is just one-off blip?

[Paresh Sukthankar:]

No actually within credit cards, obviously there is a spend and revolve portion and within credit cards we also have this converting your EMI spend, your revolves into an EMI outstanding for certain period. That keeps coming off, so whenever you don’t have the same level of spend before that, there is a bit of a run-off, which offsets some of the growth. I would think that for instance this quarter which tends to be accounting for easily sometimes, close to even 40% of annual spend or 35% to 40% of annual spends come in this quarter and so if we maintain the revolve ratio, we will see slightly higher growth on the cards front. But there is a seasonality to it, there is no conscious move on our part to slow down a particular segment or a particular product. And in any case, some of you should be happy since you have kept asking that cards is growing too fast and the proportional card is going up. But unfortunately at least - if this continues for a quarter or two then there may be something underlying the momentum in that segment. At this point of time, really I wouldn't say we've spotted anything of that sort.

[Seshadri Sen:]

Also a small thing on home loans, there was again no addition in the quarter, even that you have to meet PSL or a require on a quarterly basis. Can I assume that PSL situation was fairly comfortable which is why you didn't need to buy any of the home loan portfolio?

[Paresh Sukthankar:]

See, one of course we do want to buy it on an ongoing basis, it’s just that every month or two we make a pool, we have all the other formalities done and we purchase it. It's true that in this quarter the amount that we purchased was just a little shy of INR2000 crores, it was about INR1,900 odd crores. While we could have probably bought another roughly a INR1,1200 crores, But, on PSL, yes we tend to on a quarterly basis also typically meet the overall PSL requirement. So home loans which qualifies for the overall PSL doesn't qualify for any of the sub limits. So a INR1,000 crores whether it's not really moved a needle for us in terms of PSL complaints particularly. Of course, all that we need to get and which is eligible we'll ensure that we get it before the yea-end.

[Seshadri Sen:]

Okay, thanks. Thanks a lot.

[Paresh Sukthankar:]

Thanks Sesha.

[Operator:]

The next question is from the line of Manish Karwa from Deutsche Bank. Please go ahead.

[Manish Karwa:]

Hi Paresh.

[Paresh Sukthankar:]

Hi Manish.

[Manish Karwa:]

Paresh I have got few questions on the subsidiary HDB financials. Could you share some basic numbers out there in terms of loan book, loan book growth, NII, profitability in NPAs especially for the first half or second quarter, whatever?

[Paresh Sukthankar:]

Let me, may be not be all the numbers but we'll share whatever we have got sure. So, the total advances as of September were at INR28,800 crores, which is a year-on-year growth of about 39%. What else you were asking for?

[Manish Karwa:]

If you have NII profitability and that's it. NII profitability and NPA if you have?

[Paresh Sukthankar:]

Just the NPA number is at about 1.56% is gross NPA and the NII growth is yes, so net interest income was at INR472 crores which was a growth of - well the growth on a half year basis actually called 34%.

[Manish Karwa:]

And the profits?

[Paresh Sukthankar:]

Profit for the half year were - okay profit after tax for the quarter was INR 143 crores the first quarter was also about a INR140 crores.

[Manish Karwa:]

Okay. I just wanted to check on this, is there some canalization of businesses from HDFC Bank and HDB. And how independently this is run and do we also buy some loans out of HDB?

[Paresh Sukthankar:]

So one it is run completely independently except for a couple of members on the board and therefore they provide guidance and ensuring that they stick to what is their…

[Manish Karwa:]

When I say independent, I mean is there any overlap of customer base between one versus the other?

[Paresh Sukthankar:]

There isn’t, quite simply, Manish look at it this way, clearly HDB charges for the products that both of us do, would charge a rate of interest, which typically would be 100 basis, 200 basis points higher for most products. There may be an odd product that both of us might look at offering somewhat similar interest rates, but in most cases whether it is commercial with [Indiscernible] or most of these products their interest rates would be slightly higher. And therefore it would be unlikely that a customer who can get a loan from us at the lower rate would look to take the same loan for the same underlying asset from them. So clearly there is a difference in customer segmentation which is at the end of it translates into different borrowing rates for the customer and different lending rates for us across those two. Maybe in some small portion if there is some part where we are comparing their say small [pledging] (Ph), commercial durable with let’s say or card, EMI or lending for a similar product. There may be some very, very small overlap, but most products there wouldn’t be.

[Manish Karwa:]

Okay. And as of now, the overall capital is completely funded by HDFC Bank only right and do you have any proposal to raise money there?

[Paresh Sukthankar:]

Right now there is no proposal. It’s not 100%, but it would be 90%, whatever 97%, 98% there will be a couple of percent which would be not with the bank, but with their stock options and so on for those employees, but otherwise there are no current plans of raising external cap.

[Manish Karwa:]

Okay, okay. And just coming back to the bank, just one data point. What is the floating provision that we hold now and in this quarter did we make any floating provisions?

[Paresh Sukthankar:]

No, we neither made nor consumed any floating provisions and the floating provisions are about INR1,240 crores.

[Manish Karwa:]

Okay. Thank you so much, Paresh.

[Paresh Sukthankar:]

Thanks, Manish.

[Operator:]

Thank you. Next question is from the line of Manish Agarwal from Phillip Capital. Please go ahead.

[Manish Agarwal:]

Yes, hi, Paresh. Hi, Sashi. Yes, just a question on that few retail products. So what has been your experience in terms of actual credit cost and the credit cost which priced in, in last two, three years and considering the fact that if interest rates remains where it is, do you see a scope of other reduction in pricing in some of the products like Auto, CV, Credit Card or maybe say Personal Loan?

[Paresh Sukthankar:]

Well, I would say broadly in the last couple of years, the actual costs have continued to be a little lower than what the expected losses or what had been priced in. In most products, we went through a phase in commercial vehicles and construction equipment where the actual costs were at or maybe for an odd quarter or two even higher than what might have been the expected losses. But on an annualized basis, we have always remained at or below for most products, but have you seen some movements up and down in each almost every product and are we off lows in almost every retail product? The answer is yes. Is there still therefore room that had interest rates come down should lending rates for these products come down. If your question is related to the funding costs, clearly that is something, which we would be happy to do. We are not looking to expand our margins nearly as rates come down on the deposit side, not transmitting that to lending rates. In any case competition, we’ll ensure that rates remain in line if not come down a little more than what happens to deposit rates. But if you’re the rates should come down because of the loss experience, I think that is unlikely to happen, because also from our point of view, a lot of our growth comes from different segments for the same product. So, some segment we might actually find our loss, our actual losses are lower than what we might have priced in. but in some segments, we might see higher credit costs, some of these are across different geographies in semi-urban and rural segments again, given the infrastructure, given the collection of the cost. You need to factor in a certain slightly different credit cost sometimes. There are segments which relate to some of the priority sector segments. Which again tend to have slightly different risk profile. So on an overall basis, I think while asset quality on the retail side remains fairly stable, I don't think there is a huge room for changing pricing based on big loss experience.

[Manish Agarwal:]

Thanks, that was useful and just one data point. What would be the RWA?

[Paresh Sukthankar:]

Yes, so risk weighted assets would be INR5,76,000 crores.

[Manish Agarwal:]

Yes, thanks very much.

[Paresh Sukthankar:]

Thanks Manish.

[Operator:]

Thank you. Next question from the line of Rahul Jain from Goldman Sachs. Please go ahead.

[Rahul Jain:]

Yes, hi Paresh. Hi, Sashi.

[Paresh Sukthankar:]

Hi Rahul.

[Rahul Jain:]

My question is on the employee hiring sides, so this quarter we have seen quite a bit of an uptick there. And if you look at the employee per branch number that has kind of again moved up to kind of up close to 20 kind of a handle. Just wanted to check what level are you doing this hiring's that, how should we think about it specially given that some bit of a digitization has also been picking up. So that is one, I have a few more so may be if you can answer this one first. Please.

[Paresh Sukthankar:]

Yes, so one of course, a lot of the hiring tends to be in the branch banking and liabilities piece and the retail assets piece. A lot of it tends to be front line and related to that some part in other segment which support that growth. Does its hiring happened on a even basis through the year, probably not, so you tend to have a chunkier hiring growth in a couple of quarter and this clearly - I mean what I am saying is that I wouldn't really extrapolate what we've hired this quarter into each of the next few quarter. And there are different functions, different geographies where we are hiring and others where we would say productivity improvements, and therefore with natural attrition some rationalization of the total staffing in some other cases. So on an overall basis what you would over a period of time see is the net addition. So admittedly this quarter has seen a slightly higher growth than what we saw in the previous quarter. I don't think you are going to see the same growth repeating, but you will continue to see some additions for either new branches or in specific products where we are seeing growth.

[Rahul Jain:]

And just an extension, so what kind of an employee cost increase we should kind of look at. This quarter of course was higher after seeing kind of a softer number for the last two quarters. So going forward , do you think this would remain around 20-ish mark, I mean 18% to 20% mark or is there is a scope for this number to kind of come down?

[Paresh Sukthankar:]

Honestly Rahul we do not have a guidance on growth rate in any particular number at all. Again, the increase in staffing because it tends to happened much more at certain slightly more front end junior levels. The numbers and the increase in cost don't sort the really - the increase in number than increase in overall cost or don't have a very direct correlation. In the first quarter, you would also seen some increase which you tend to see that impact flowing through for the rest of the year is the natural annual wage escalation. Right the increment for the year, which tend to be typically in high single digit kind of ranges. But, what that number should be, I think you'll have to make your [indiscernible]. We don't have a guidance on that.

[Rahul Jain:]

Understood. Second question was on branch expansions, so this quarter in particular I think branches we went up just by seven odd numbers. So this is kind of an one of thing where in we did not really expanded the network and look to consolidate or we’re kind of changing our overall growth expansion numbers out there.

[Paresh Sukthankar:]

So I would say a bit of both, are we moderating the overall need to open a certain number of branches, I mean I think we are coming to the core of wanting to open 200, 250 branches in the year, some of this is reflective of the fact that we have established a larger footprint that we think is appropriate at this point of time. Obviously based on how the economy does and if our overall growth rate span out over the next two years, if we need to further exit on the footprint, we will do that at that point of time. But currently at least in terms of number of cities and the spread of those cities between metro, urban and semi-urban, rural. I think we are okay there. So there is no particular sort of we wish addition to the footprint. In terms of branches themselves again, partly driven by the increase in the digital share and partly even the underlying momentum across the other channels, we feel that at this point of time 200, 250 is an adequate number for this year.

[Rahul Jain:]

And this would be evenly split between urban and rural, right, metro, urban and rural, semi-urban.

[Paresh Sukthankar:]

Yes, we would probably land up doing about half and half between metro, urban and semi-urban, rural.

[Rahul Jain:]

Understood. Just one data point, can I get a breakup of fixed deposits or maybe time deposit into wholesale and retail?

[Paresh Sukthankar:]

I really don’t have that breakup with me right now. if I have also take up, two third, one third or a 70/30 as an approximation.

[Rahul Jain:]

Got it, got it. All right. That’s about it from my side. Thank you so much.

[Paresh Sukthankar:]

Thanks, Rahul.

[Operator:]

Thank you. Next question is from the line of Kaitav Shah from SBICAP Securities. Please go ahead.

[Kaitav Shah:]

Good evening and thank you for taking my question. So this is more on a macro level for the mid corporate and SME space. Where do you think these [sectoral] (Ph) growth coming off. Do you think there are challenges over there?

[Paresh Sukthankar:]

In the mid market and SME space, is it?

[Kaitav Shah:]

Yes, sir.

[Paresh Sukthankar:]

But you taking from our challenges in terms of growth opportunity or credit costs, I mean.

[Kaitav Shah:]

Credit costs and growth, I mean growth clearly is not there, but credit costs are you seeing increased delinquencies and PSL?

[Paresh Sukthankar:]

So at this particular quarter, we haven’t seen any further pickup in the - our SME piece or even a little bit of the middle market, which is our business banking segment, but we are seeing this in the previous quarter and not to say that we may not see it in future quarter. So generally speaking with these slightly muted growth that some of these customers have seen, there has been some asset quality pressure, but it’s I think largely stabilized now, so that you have some small variations here and there, but I don’t think it’s getting any worse. To the extent that some of these big size and smaller players get impacted by delayed payments from either larger corporate or contracts just government payments, which have been held up and so on. Those kind of issues they tend to coming in and go cycles, but from our point of view, we still see that there are adequate opportunities to grow in those segments and especially in the back of expanded geography. Our business banking franchise has continued to grow across some of our newer branches as well.

[Kaitav Shah:]

Okay. Sure. So off the slippages, what would be the broad mix between retail [operating] (Ph)?

[Paresh Sukthankar:]

We actually don’t split it beyond the broader numbers, I would say by and large asset quality has been roughly, equally stable in both wholesale and retail in this quarter.

[Kaitav Shah:]

Sure. Thank you so much and that’s it from me.

[Paresh Sukthankar:]

Okay. Thanks Kaitav.

[Operator:]

Thank you. Next question is from the line of Sanket Chheda from ICICI Securities. Please go ahead.

[Sanket Chheda:]

Hello.

[Paresh Sukthankar:]

Yes, Sanket, go ahead.

[Sanket Chheda:]

Yes, so if I may get the breakup of the provision in terms of specific routine and general.

[Paresh Sukthankar:]

Sure. So the provisions for the quarter were 749 of which 641 was specific provisions and 101 were general provision and there were some other provisions of about seven.

[Sanket Chheda:]

Okay and what is MSI growth announcement, last quarter it was around 40 billion.

[Paresh Sukthankar:]

Yes, it about 42 million, 43 million.

[Sashi Jagdishan:]

About INR4,200 crores.

[Sanket Chheda:]

Okay sir. That's welcome.

[Paresh Sukthankar:]

Okay.

[Operator:]

Thank you. Next question is form the line of Rakesh Kumar from Elara Capital. Please go ahead.

[Rakesh Kumar:]

Hello.

[Paresh Sukthankar:]

Yes Rakesh. Go ahead.

[Rakesh Kumar:]

Yes, thanks. Just one question I had on the overseas advances books. So net accretion in the book in this quarter has it come down substantially?

[Paresh Sukthankar:]

Yes I mean first of all the overall overseas in book is not larger its about 7% of our total advances. So that, well as of September, the growth year-on-year in that book has been about 6%. In this quarter, we really didn't see much of our growth in that in this quarter. Of course, we haven't seen the meaningful part of the run offs in that starting also. Most of it will happen in this quarter.

[Rakesh Kumar:]

So, compared to INR5,000 crore net accretion number in the Q1, this quarter I think it is INR182 crore net accretion?

[Paresh Sukthankar:]

You are speaking the overseas a book?

[Rakesh Kumar:]

Overseas loan book, the net accretion Q-on-Q was INR5,000 crore in Q1 and that is INR182 crore in Q2. So, does it have to do also with some of the FCNR deposit what people had given, so against that they had taken some loans, with these markets and...

[Paresh Sukthankar:]

The loans which have been taken in the overseas books for the FCNR loans as of September have not run off. They will actually all run off in this next quarter. And that total amount which is approximately $1.9 billion to let's say $2 billion. So, but none of that is has contributed to any run off in this September quarter.

[Rakesh Kumar:]

So, in third quarter when it happens, would not that we have positive impact on the margin in Q4 and thereafter may be. Because that loan would be at the lower rates.

[Paresh Sukthankar:]

It's correct that the from a volume perspective you are knocking of INR13,000 crores, INR14,000 crores in balance sheet size. Clearly that was at a lower NIM. But even the size of that book will that be large enough to move the needle for the overall NIM for the banks given the size of the balance sheet at INR7,00,000 crore plus I am not sure, but yes, in isolation is this a negative impact on balance sheet and of marginally positive impact on NIM yes.

[Rakesh Kumar:]

Okay, okay. Thanks sir, thanks a lot sir.

[Paresh Sukthankar:]

You are welcome.

[Operator:]

Thank you. Next question is from the line of [indiscernible]. Please go ahead.

[Unidentified Analyst:]

Good evening sir. Thank you for taking my question. Sir I just wanted to get your view on inclemently lending towards [indiscernible] do we see some specific assets where people be doing some refinancing or just wanted to get your view on that?

[Paresh Sukthankar:]

Yes, so we do see primarily the opportunity right now more in the nature of the refinancing which is taking place or completed projects. Clearly, transactions where the project risk is complete and therefore the borrowers are looking to refinance. And in many case with what has happened to interest rates. Apart from the project is going away there is also further opportunity for reduction in cost for the company. Those are opportunity that we are participating in. Apart from that in terms of newer transactions, we do participate selectively across the customer base that we have been dealing with.

[Unidentified Analyst:]

And so these refinancing would typically what tenure of loans?

[Paresh Sukthankar:]

Depending on what the underlying sort of asset and projects are for, but they tend to be anywhere between 10 to 12, 13 kind of tenures.

[Unidentified Analyst:]

Okay. And so other than this within corporate segment and what are the focus sectors that we are targeting right now for incremental growth?

[Paresh Sukthankar:]

See, we have a very diversified portfolio across about 22, 23 industries. From our point of view, we are looking at wherever there are customers, where we have a credit appetite and who are looking to borrow. So I don’t think we are focused on a few sectors, we are looking at the better placed players and the survivors across a multiplicity of sectors. And clearly as we are all aware, there is probably stronger underlying growth momentum and demand in the sectors relating to the consumption part of the economy relative to the investment part of the economy.

[Unidentified Analyst:]

Thank you so much. Thanks.

[Paresh Sukthankar:]

You are welcome.

[Operator:]

Thank you. We take the next question from the line of Abhijit Thakare from Kotak Securities. Please go ahead.

[Abhijit Thakare:]

Good evening. Sir, have you given the slippage number for the quarter, I think I missed that number?

[Paresh Sukthankar:]

The annualized slippage is 1.2%.

[Abhijit Thakare:]

And in terms of amount?

[Paresh Sukthankar:]

14.40.

[Abhijit Thakare:]

Okay. Okay. Thank you. And so secondly, sir have you seen a decline in investment this quarter, at least the calculated numbers tend to stay sharp [Indiscernible]?

[Paresh Sukthankar:]

Yes, there would be some decline in the investment piece.

[Abhijit Thakare:]

Sir, on account of?

[Paresh Sukthankar:]

That part of it is on account of what is happening in the market use and part of it is on account of the path that we would have at the margin added some investments, where we were holding either commercial paper or treasury bills which are short-term investments. We were holding to fund the maturities of FCNR coming up. So there is liquidity that we have maintained in the form of short-term investment, which would naturally have had a much lower yield.

[Abhijit Thakare:]

All right. Thank you so much.

[Paresh Sukthankar:]

You are welcome.

[Operator:]

Thank you. Next question is from the line of Nilanjan Karfa from Jefferies. Please go ahead.

[Nilanjan Karfa:]

Paresh, just two data questions. You talked about the slippage, what was the recovery upgrade number?

[Paresh Sukthankar:]

Upgradation and recoveries together are 764.

[Nilanjan Karfa:]

764, okay. And could you tell me what number of employees were in Q1 please?

[Paresh Sukthankar:]

90,000. So additionally 4,200 in the quarter.

[Nilanjan Karfa:]

Right. Sorry, how much you said 4,200?

[Paresh Sukthankar:]

4,200 in the quarter is the addition, 95,000

[Sashi Jagdishan:]

Close to 91,000 just 91,000 and we ended the quarter with about 95,000.

[Nilanjan Karfa:]

Okay, yeah. Great. Thank you so much.

[Paresh Sukthankar:]

You are welcome.

[Operator:]

Thank you. Next question is from the line of Hiral Desai from Anived Portfolio Management. Please go ahead.

[Hiral Desai:]

Hi, Paresh. Just wanted to check in the RBI classification that you guys provide the business banking number has actually I think spiked about 23% Q-on-Q. So is there some kind of reclassification there, because the number was I think flat for almost five, six quarters earlier?

[Paresh Sukthankar:]

In the RBI classification, what comes through is really the portion of business banking where the outstanding is less than INR5 crores or the turnover is less than INR25 crores, not INR50 crores. So the breakup in business banking between what goes into retail and wholesale is just a function of the composition of the portfolio at that point of time. Really, look at the total business banking piece, as we look at it across both of these segments of retail and wholesale then that actually has grown year-on-year at about 15% which is the as per what we would call the internal MIS.

[Hiral Desai:]

Yes, there is what the personal loan booked that we have for INR45,000 crores. I just wanted to check, what is the split between the salaried and self-employed within that?

[Paresh Sukthankar:]

I don't have the exact break up with me, but I would say approximately 60% odd percent would be salaried maybe a little more than that.

[Hiral Desai:]

What percentage of the sacramental sourcing would be let's say outside of top 10 cities?

[Paresh Sukthankar:]

I don't have that break up with me right now.

[Hiral Desai:]

Sure, no problem. Thanks, thanks on that.

[Paresh Sukthankar:]

You are welcome.

[Operator:]

Thank you. Next question is from the line of Nilesh Parikh from Edelweiss. Please go ahead.

[Nilesh Parikh:]

Yes, Paresh. I have just last thing. On fees, we've seen another soft quarter on this line items, so just wanted to - is there one particular screen within the overall set which is kind of disturbing this or are you kind of seeing this as general across all segments there?

[Paresh Sukthankar:]

In this particular quarter the softer line was the retail loan fees, which I briefly sort of mentioned earlier as well that given the sort of competitive pressure as well as the positioning, there might be various players on the fee waivers and so on you did see retail asset fees softer. But that’s more to do with perhaps this couple of quarters, but other than that, I don't think there is any particular line that is dragging in. generally, fee growth across most of the product lines has been in the 12% to 15% range. And that's where we have seen the overall growth at about 13.5%.

[Nilesh Parikh:]

I don’t want to kind of get a number from you, but in terms of how does it kind of play out of going forward right in terms of different segment. Because these pressures obviously I don't means that will stay awaited for an extended period of time given that your new players coming in and obviously targeting the same pie. So do we kind of break out of particular range of fee income or kind of should we expect in the similar range going forward?

[Paresh Sukthankar:]

No, I think if you look at the last few years as a combination of some lines which were affected by regulatory changes and some by refreshers. We have had for most quarter in this last few years a growth rate which has been somewhere in the low-teens. You had an all quarter where there is an annual charge of some sort which takes it to higher than 15%,. But otherwise for the longest time we've remained there, I don't see any particular reason why we would be able to break out of that low-teen kind of range. Low to mid-teens kinds of a range. The only point which I would reemphasize is that most of these fees are high quality, not linked to our loans, most of them don't even consume capital. So to that extent, whatever comes through it’s a healthy fee accretion which comes in.

[Nilesh Parikh:]

Okay, thanks. Thanks Paresh.

[Paresh Sukthankar:]

I think we will just take one last question, because I think we are…

[Operator:]

Sure sir. We take the last question from the line of Nilanjan Karfa from Jefferies. Please go ahead.

[Nilanjan Karfa:]

Thanks for the third time. Paresh if I remember, sometime I think early last fiscal year, you had mentioned about this retail fee being about 90% if I am not mistaken and this is probably…

[Paresh Sukthankar:]

80 to 90 yes, somewhere in that range.

[Nilanjan Karfa:]

Yes, it used to be around 80% I think two three years back. How is it doing right now and you probably also gave a broad range you know between third-party credit card, retail assets, et cetera being that 10% to 15% range. Is that still holding out?

[Paresh Sukthankar:]

Its more less the same, somewhere in the mid to high teen tends to be retail and in fact, much of the composition of our fee incomes has not really changed. Because, individual growth rates across a year have really not changed. You had a few products which in a particular quarter tend to show higher and then lower growth rate, so the composition has really not moved much in the last few quarters.

[Nilanjan Karfa:]

Would you see the same thing about the transactional fees?

[Paresh Sukthankar:]

Transactional fees meaning? Almost all our transactions, whether it is cash management, whether it’s trade, whether it is other than distribution, most of our fees are transactional in the nature actually.

[Nilanjan Karfa:]

Okay, okay yes. Great. Thank you so much, Paresh.

[Operator:]

Thank you. Ladies and gentlemen that was the last question. I would now like to hand the conference over to Mr. Sukthankar for his closing comments.

[Paresh Sukthankar:]

Well, I hope you have been able to - the fact that some of you got a second and third look in means that you - there is just probably too many questions pending at the end of this. Once again thanks for being on this call and we wish you all a great festive season ahead.

[Operator:]

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