HDFC Bank Q1 24/25 Earnings Call Transcript

Quartr
Provided by Quartr
July 20, 2024

There are 6 speakers on the call.

Operator

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q1 FY 'twenty five Earnings Conference Call on the Financial Results presented by the management of HDFC Bank. As a reminder, all participant lines will be in a listen only mode and there will be an opportunity for you to ask questions after the brief commentary by the management. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank.

Operator

Thank you and over to you, sir.

Speaker 1

Okay. Thank you, Nivas. Good evening and a warm welcome to all the participants. We have Prashiv Jagdish and our MD and CEO with us today. Without much ado, I'll hand it off to him to get meeting started and

Speaker 2

then we'll take it from there.

Speaker 1

Sashi, over to you, please.

Speaker 3

Thank you, Shini, and good evening to all of you.

Speaker 1

Yes,

Speaker 3

sort of engaging with you all after a quarter. Just wanted to recap some of the guidance that we have been giving in the past couple of quarters. One of the things that we have been mentioning is that we would like to deduce from providing any guidance of any form as it is providing a distraction from our long term objectives. So we would like to stay focused. This is a period of transition post merger, a year of state focus and ensure stability of some of the key metrics and achieve some of the objectives in the medium to long term.

Speaker 3

I know that the most important part of our strategy is deposits. And are we happy with the kind of numbers that have been that has come about? Not really. It has fallen short of our expectations. But frankly, if you see this, this is not something new.

Speaker 3

There is a seasonality in the system and the bank has been tracking this seasonality being a large player in the system. Our net accretion to deposits normally is in the range that is similar to what is there in the system. But this time around, obviously, we were a little bit surprised on the period end numbers because of some unexpected flows in the current accounts, which was more than what we had anticipated. Of course, I would like to recap to all of you all that we did sort of give you a heads up during the earnings call out in the Q4 that we did sort of see lot more unanticipated transitory close in the current account, if you recall. And that is what has gone out.

Speaker 3

So, a combination of this larger outflow because we do have relatively higher share of the market in current account. And so as the balance sheet has been growing, the velocity of inflows and outflows have also been increasing in current accounts, which is the nature of the beast because for us, a high economic activity in the current accounts is a sign of good is how we will achieve more larger transactional balances in the current account balances. But on a period end, you will see this kind of a high velocity. So a combination of outflows and current accounts and a combination of fees, dollars 160,000,000,000 sorry, not dollar, R160 1,000,000,000 of the NERSFAL HDFC non retail deposits, which ran down has given us a very tepid kind of a net accretion on a period end basis. Now if you have noticed, you may be surprised that we have started to even disclose in one of the decks in our investor decks, which probably you may have access to on average deposits as well.

Speaker 3

You may be wondering why have we done that. And let me be honest as to why we have done it. It's not something to tell you that, okay, this is not so the teetered end is not good. So try and show something which is very good, not really. I think this is messaging not just for the investor fraternity, but also to my people at large, because we realize that the we want our ground level teams in our large distribution footprint to focus on basic the ground level on a day to day basis.

Speaker 3

Focusing on certain period end numbers is leading to some unintended performance related pressures, which we want to avoid. And that is the reason why we want to converge the align or converge or align our internal and external metrics, so that there is no unintended pressures that builds up in the ecosystem. If you've seen the numbers and want to digest the average numbers on a quarterly basis, which we have given from quarter 1 FY 'twenty two to quarter 1 of FY 'twenty five, that will give you a reasonable amount of comfort that there is steady buildup, secular trend, upward trend in the momentum. Of course, there is some seasonality in some of the quarters, but that's fine. But largely, the secular trend is visible and that's what we want to focus on.

Speaker 3

So much as all of us are used to looking at the period in numbers, I think looking at a longer trend on the averages seems to suggest that the resiliency of the organization is intact and will continue to be so even in the future. On the I have mentioned in the annual report recently, which was released to the world at large that we will be growing slower in our advances as against our deposit growth. This is not something new. If you've seen our track record over a long period of time, this is something that has been there. Probably, in the last couple of external forums or the public forums that we have come on, we did sort of affirm that our focus is going to be on profitable growth and not just on growth.

Speaker 3

And yes, in the bargain, it is in our interest to bring down the loan deposit ratios much faster than what one would have anticipated. It is in our interest and I'll explain that to you probably when one of you has questions. If you see the track record right from the time we merged on 1st July 2023. There was a starting pro form a financial, the day 1 financial as one calls it and probably this is also there and visible to each one of you in the investor deck. If you look at some of the key metrics, whether it's the NIMs, whether it is the CASA ratios, whether it is the cost to income, whether it's the GNPA, from that starting point, to 30 June 2025, it's been range bound, rather stable and range bound.

Speaker 3

For example, the NIMs had been in the range of 3.4 to 3.5 with an increase in bias. The CASK ratio has been in the range of 36% to 38%. The COF to income has been in the range of 40% to 41 with a decrease in bias. The GNPA has been in the range of 1.2 to 1.4. And if you exclude the seasonality of Agri, in fact, it's been properly on a declining trend.

Speaker 3

And the ROAs have been in the region of 1.9 to 2.1. And as you know, it may be this is not a new number, new metric that we have encountered. We have seen for a long period of time this number of 1.9 in the pre merger levels as well. So what does it mean? The fact that we have maintained stability means that the inherent resilience of both the organizations is intact.

Speaker 3

So it's a period despite the kind of change environment in terms of liquidity, in terms of competitive intensity, in terms of the our so called urge to slow down our loans so that we can get down the CD ratio, the loan deposit ratio faster than what we had anticipated. Despite that, I think we are maintaining stability in some of the key metrics. I think that's something that I just wanted to reiterate and want you to sort of appreciate. I guess these were some of the things that we wanted to mention as top of the mind recall. I think we'd be happy to sort of take questions from any one of you.

Speaker 3

Over to you.

Speaker 1

Okay. Thank you, Sushy, for the opening Neeraj. With that, we can open it up for questions. I do want to draw all the participants' attention that if you do need to refer to a deck, I think it's on the website. You can refer to it if you need to at any time.

Speaker 1

Miro, you can please

Operator

The first question is from the line of Maru Gertrzhania from Nomah Wealth Management. Please go ahead.

Speaker 4

Yes, hi. Sashi, my first question is on LDR. So when you say you wanted to possibly LDRs could come down faster than than anticipated. Or in the last private banks, of course, one is at above 90%, but most of them are on average of 83% to 87%. So is that kind of an LDR you are hinting at and over what time frame?

Speaker 4

Because that really sets things very clear, right, in terms of what loan growth to anticipate. And also in terms of loan growth, right now if you see other than CDs, most of retail and most other segments have grown below 2% QoQ. I do understand the Q1 seasonality, but if you wish to have a focus on profitability over growth and growth remains kind of weakish relative to your historical trends, would it be very easy to then regain market share once you think your balance sheet has cost corrected, right, because you're possibly giving up share? You can do much better on growth, but obviously we know the constraints on deposits. So that's my question on HDFC Bank and if you could explain the high provisioning on HDB for financials as well.

Speaker 3

Okay. Thank you, Maruk. Number 1 is, we don't have or rather, if at all you're expecting that is there a prescription from anybody, including the regulator, whether there is prescription for a loan deposit ratio, not at all. As I mentioned, it is in our interest to have a glide path. 2, you're absolutely right.

Speaker 3

It's theoretically, I would love to do this in 1 year. But is it feasible? Is it practical when you have an objective of a profitable growth? Absolutely. You're absolutely right that it's not something that I can do where I can just drop it in one go.

Speaker 3

And then be done with this, etcetera. It's not practical. Now let's go segment by segment. We have a machinery. We have to there is a lot of buoyancy there.

Speaker 3

You know this much better that funding or providing financing or loans to customers, whether it's the retail segment, whether it is the MSME segment, whether it is the corporate segment, is actually a feeder for us in terms of the primary banking and hence liabilities as well. So, there is an optimal level that you can work with. You cannot drop the level. So therefore, we have to this is a play that we have to manage very gingerly. There is the reality is there is a tight liquidity environment.

Speaker 3

There is, as I mentioned to you and if you really look at the averages, the EOP period numbers are not a reflection of what is the underlying resiliency, in fact, of deposits. In reality, the deposit momentum, when you look at it maybe at some point in time, Srini will explain that. The gross inflows across the multiple products and deposits have actually been increasing. It's a very healthy trend. And as I mentioned to you, one of the things that we do not have some of the controls is the velocity of the flows in the current accounts and which is what has created this kind of a little bit of what should I it unsettles you, it unsettles us in terms of a number on a particular date.

Speaker 3

It has never happened before. Of course, there may be some instances where it has happened before. But so all of you rightfully so are seeing a little bit of a disappointment there. But when you look at the averages, which I'm sure you will compute, it's rather pretty steady over a longish period of time. So it's not that and even on the Advances side, the what has happened in quarter 1 is not a reflection of what we plan to do.

Speaker 3

This is a kind of an adjustment that's happened. It's a matter of time that you would see in the next three quarters what we do. We will be our relationship since you spoke about market share, you spoke about relationships. We are very clear. We have one of the best relationships in the corporate side.

Speaker 3

Even though you are seeing a little bit of a negative growth in just, we have high amounts of already great penetration levels to the best set of conference in the country. What we are losing is transactional business consciously because it's not meeting our pricing thresholds. We are all right to do so because we maybe this is the best time for us to adjust our mix, which is what you are seeing a bit of a flavor in this particular quarter. We want to continue this kind of a mix change over a longer period of time. Of course, it cannot be forever.

Speaker 3

There will be during this period of adjustment, we may have to do it for some time before it sort of normalizes. But having said that, I don't have a specific number because then it will sort of bring in a fair amount of pressure on the system. We have an internal benchmarks for ourselves as to what we need to do. As I said, neither have we received any regulatory prescription. But at the same time, the thought processes can be, to the best of our ability, try and get this done as quickly as possible with and still maintain the objectives of a profitable growth.

Speaker 3

So all I can say is that it's best that you see what we do in the next 3 or 4 quarters. And yes, when I relate these numbers and what we are planning and relating into what we were probably thinking of at the time of announcement of the merger. Obviously, things have changed, and we realize that maybe, as you alluded to, a lot of others, there has been literature, which has been spelled out in the monetary policy literature on credit deposit ratio. So we are very cognizant of the risks that are there in the system. And instead of being nudged on that, we want to do it ourselves because it makes the most economic sense to bring it as quickly as possible.

Speaker 1

Two more things that you alluded to that I can describe is that the activity at this various distribution points, we did add the 2,200,000 new customer relationships in the quarter. So last quarter was very similar. So from that sense, the pace at which the ground teams are operating is quite strong. So we do get the new account value. It is those existing customers or the transactional balances in the current account that I've seen that flip.

Speaker 1

Now coming to the other aspect that Sasi alluded to in terms of the inflows, we measure inflows monthly to see whether the credit coming into various customers' accounts at individual aggregate branch level and so on. Then we look at the inflows that come and compare those inflows that are coming to the similar time period last year, the monthly inflows are up over 20%. So we do see enormous traction happening in the account, which means the credit flows that are coming cash that is coming in, when we say cash and then funds that are coming in is of a good order. It gets deployed in daily deals, but again, this is across current account, savings accounts, across all of these and the salary. So let me say savings that include the salary account that we have is gaining good traction from an inflow that come at a bigger level.

Speaker 1

Thank you. And then one other point, Shay, had was about the HTB IPO, do you want to HTB credit cost. HTB credit cost, okay. STB credit cost, the GMP ratio remained flat at 1.9, The Stage 3 has remained flat. The credit costs have been higher because seasonally again various reasons you can attribute to various reaching ability during this quarter has been hampered a bit due to they are far more distributed into the interlines than we are.

Speaker 1

The heat wave issues and the electrical free occupation were replaced. So there is a seasonality that was there. So the early flows have caused that and the tensions to be higher, but the NPO remains stable. So the forward flow into that NPA bucket is limited, but early they have to do more on that. That's where that good.

Speaker 1

Thank you.

Speaker 4

Okay. Thanks a lot. Thank you.

Operator

Thank you very much. Next question is from the line of Chintan Joshi from Autonomous. Please go ahead. Hello. Hi.

Operator

Can you hear me?

Speaker 1

Yes, Chintan. Yes. Thank you.

Speaker 5

So if I can start off with the deposit market share question. It's historically, you've done about 18%, 19%, if I look at the last 5, 6 years. Last year was about 12%, if my numbers are correct. And it's a much more healthier banking system. Everybody is well capitalized on the front foot, asset quality risks are low.

Speaker 5

In In this environment, like would you hold yourself to taking a certain amount of incremental market share over the next 2, 3, 4 years? Do you think like that? And if you do, then what can we expect in terms of market share? Because when you think about deposit growth, that clearly is a challenge for the system. So and of course, therefore, all the other banks all the banks will face that constraint.

Speaker 5

But in terms of market share, would hope that HDFC can show that historical trend. So that would be one question and then I have one more.

Speaker 1

Yes. Chintan, on the market share, if you see that, yes, yes, you are right, but if you look at past over the last 3, 4 years, in 2020 March, we were more closer to 8%, slightly above 8%, in 24, slightly above 11%. So over a period of, say, 3, 4 years, we got really more than 300 basis points, out of which 50, 60 basis points came through the effect of the merger. Other than that, call it, 50, 60 basis points a year is what we have added on a market share. I do want to mention that the opportunity space to gather the market share remains.

Speaker 1

I want to remind that our distribution market share, the distribution share that we have is 6%, right? So we are critical not exactly 2, maybe 1.8 times of distribution share is what we have from a value market share point of view. We do have about half of our branches, which are more than 10 year vintages, which are having a market share at least 20%, 30% more than our average. And then another half of the branches are lower vintages, that means in the last 5 years or so, which have market share far lower than the average. So with an opportunity to stay after mature to come and build.

Speaker 1

Our objective of getting the distribution reach expanded and getting the customer onboarded is to work on getting this market share up. And we are confident that that's the direction in which we have previously drawn. And the speed at which we are going now, it gives us the confidence that we are in this to get further deeper on the share. And this applies across all of them from a time deposit to the current account, we did pursue this a link to current account house. We got $530,000,000,000 in March quarter and we did have a rundown of utilization of the customers of $430,000,000,000 in the June quarter.

Speaker 1

Despite all of that, we are the largest current account bank, right? We are the largest current account. Current account constitutes currently 11% of our total deposit stack. In March, it was about 14%. So yes, it moves around that.

Speaker 1

Despite that, we are the largest between the current account or the current deposit and so on. And, Kintan, just to

Speaker 2

add, like

Speaker 1

you mentioned that our incremental market share is around 12%. I think it's a bit higher and

Speaker 2

there's a different way to complete it, but 12 doesn't seem to come through our math anyway. Understood.

Speaker 5

I was looking at the flows, but we can talk about that offline. The other question I had was in terms of just detail a couple of detailed questions. So what is your current shortfall in the SMS category ex PSLCs? And were there any impact on the NII from reclassification of investments? So was there any impact on NII from reclassification of investments and then the shortfall in SMS category ex PSLC?

Speaker 1

Yes. The SMS category as of March, which we have published in our report or in various disclosures, the SMS category target is up to 50% to 10% to 9% in the past year. But as of June, we did not see much. We tried to postpone as of June. And it's an ongoing number.

Speaker 1

I think it's a little bit different. Every quarter it changes. So that's one. Then from a reclassification, when we reclassified the new accounting on investments got adopted, On a post tax basis, it was slightly under INR 500,000, INR 4.80 crores or something that has gone to general reserve.

Operator

Reserve. Sorry to interrupt you, Chintan. Kindly come back for the follow-up question. A request to all the participants, kindly Next question is from the line of Suresh Ganapati from Macquarie Capital. Please go ahead.

Speaker 2

I have two questions. One is on the CSL itself. I mean, Okay, sure. So as I

Speaker 1

am looking at the last

Speaker 2

year's R and D abroad and PFLC that you have bought, it's gone up 25%, right? I mean, this is delivered when your base is KRW16,000,000,000 and it shifts up to KRW24,000,000,000 because of the last year's high base. Now are you confident that we can meet some of these obligations, especially the shortfall in the SMS and still protect your margins because it is getting a bit tougher now growing IH. So that's the first question. And the second question is on cost itself.

Speaker 2

Now it's been 3 or 4 quarters into the merger. Cost has been broadly very ranged for 40% to 41%. I remember, Tashi, you said giving a target. I know this was 3 targets. 3 those days, and you used to give target that longer term, you want to take it down to 30%.

Speaker 2

Are you very confident that you are well on that path considering so many pulls and pressures now the system has stopped it?

Speaker 1

Yes. Suresh, on the PA

Speaker 2

see, the way the math works is the RIDF is for the entire book, including what was the past shortfall. You cannot compare the book RIDF. The PSLC is a flow through the P and L. So the way to compute this is not to see whether the book RIDF and the PSLC divided by the balance sheet to see whether the growth or not, right? So similarly, its cumulative needs to be thought through differently and then we'll cap offline on that one, but it's from a direction wise, if you see annual report as well, you'll see that year on year we have become much better in terms of compliance and that's something we shall continue to do.

Speaker 3

So, Mr. Ganpati, on cost to income, Yes, in the medium to long term, that is the glide path that I have, and I'm reasonably sanguine that we will do. But as I said and probably if you recall, there is a period of adjustment that we have to go through where unfortunately, there are some long term borrowings where I'm sure even that those kind of maturities would be there at the annual report. So we have to wait for that fill it for the list that will come in revenues as the bond matures and get substituted by probably deposits. So we have to wait for that.

Speaker 3

But having said that, in a period of this, as you alluded, tough economic environment, Maintaining stability of the cost to earnings with downward bias is itself, I would say, is very commendable for a large organization, where we are not going to be compromising on strategic investments like distribution of technology. I'm very clear about it. So what we are trying to do is how do we juice out efficiencies out of digitization, out of better productivity. So the intensity is now there across the organization, how we can step up that. So I'm as I said, the proof of the pudding is in the eating.

Speaker 3

You have to be patient, wait for this particular FY 'twenty five for you to see it for yourself as to where we land. And then then that will give a lot of confidence to you that, yes, we are in the trajectory of having the numbers that we had envisioned in the medium to long term. Okay.

Speaker 2

And then beyond the HDFC 1 app that you can not exactly an app that you want to really cross sell and bring everything, every group product under one umbrella, are we far away from that? Are we very much in that direction to get it executed?

Speaker 3

Good question. I think the first step was to ensure that the franchise, especially the home loan franchise, starts to get incrementally the primary banking or the savings accounts of the home loan borrowers. And I think this has been probably in the it's in the public domain where incrementally we are now doing 1 percentage if our home loan borrowers are taking 85%. 84%. 84%.

Speaker 3

So you know this very well and still you are asking me these questions. Very good. Now, as I said, the bundling of other products such as the consumer durable loan, the credit card, the insurance and all is has commenced better the first one that we wanted to, but now we have commenced. The journey from the subsidiary companies, especially the insurance is expected shortly, then probably the seamless, frictionless experience, the frontline people to cross sell, but a one click experience will probably even enhance it even further. Whilst we are talking about this, I must also sort of add, whilst we have not put in the public domain, there has been and the reason for that is, we want to have a sizable amount of success there and then we will try and put this out.

Speaker 3

We've had reasonable amount of success in the stock of home loans, which did not have an HDFC bank account, the kind of success we have seen. I'm not sort of probably I know you will be very eager to know what's that number, knowing you very well. But give us some more time. Let us see the success at a substantial momentum and then we can sort of publish it. It's not going to be too long before we start to do that.

Speaker 3

But you will be surprised the kind of effort that's going down at the ground level ever since the announcement of the merger. Obviously, this is something that even surprised me of the efforts. And when I do that, you will see that. So obviously, the this is not something that can happen overnight in terms of the impact. But whatever we were it gives us a lot of satisfaction as to what's happening.

Speaker 3

Now coming to the other aspects of the subsidiary leveraging on our distribution strength, I think you may have since you covered the insurance sector as well, by now you should tell me that we have seen a fair amount of step up in the distribution of the subsidiary, especially on AMC, especially on the general insurance, especially on life insurance where the share of the their businesses have also been stepped up reasonably well. It's not that we are favoring 1, it's purely we continue to patronize open architecture. So it's a lot of hard work that all of them have put in together to sort of enjoy a higher distribution from our franchise. So I think it's moving in the right direction. If anyone is expecting a magic wand and it's going to be very have a geometric progression overnight, That's not a fair expectation.

Speaker 3

But there is a positive glide path, which is moving upwards. And you probably have these numbers and at some point in time, we may even call out these kind of numbers appropriately. Thank you.

Speaker 2

Thank you.

Operator

Thank you. Next question is from the line of Ravi Prahlad from Assign B. L. Please go ahead.

Speaker 5

Yes. Thanks for taking the question. So two questions. One is basically the debt reduction that we've seen in the last two quarters, there has been a significant drop in the borrowings, INR 75,000 crores in the March quarter and about INR 60 odd 1,000 crores in the June quarter. So this basically is helping us kind of deleverage the book.

Speaker 5

But can you just help us understand what is the I think in the annual report, we've mentioned that about 15% of the HDFC borrowing book is due to kind of mature every year for the next 3 years. So if you could just kind of because last 2 quarters, we've seen this big drop in borrowing. So if you could just kind of help us understand the path where these borrowings are getting repaid? And second question was on the deposit side, there was a fair bit of amount which HDFC Limited used to have. So and lot of corporates used to have deposits with them.

Speaker 5

So is it fair to say that a lot of those deposits kind of vanished the minute the merger happened? And therefore, what we are seeing in terms of deposit accretion within the system is actually is there is a large part which got taken out, which was slightly larger size or corporate deposit spend. So if you could just kind of give us some sense of where this thing has moved between then and now?

Speaker 1

Okay. I mean, your thought process and attention is correct that on the EHGSV limited deposits that came RMB1.5 trillion. Certain components of that was corporate or trust or certain institutions, which are being pricey. And you saw that over the last three quarters. In the December quarter, we alluded to some extent in March we did.

Speaker 1

And even in this quarter, we gave you even the number in one of those other questions, INR160 1,000,000,000 that went down in the time deposit. They are of the right order and we prefer much more retail branch driven. And if these are rate sensitive or if the other participants in the market pay higher price to take it, that's fine. So that is that. So that is one on the deposit that you want.

Speaker 1

2nd aspect on the borrowing, yes, even if something more needs to go, it will go because we will not be bidding for a higher and higher price to keep large fixed size deposits to us. Secondly, when the question you asked on the borrowing, yes, in the quarter, we did take down close to INR 60 or INR 600,000,000,000 of deposits down. Got it. That is down. About INR150 1,000,000,000 was commercial paper, which matured and we have to run it down anyway.

Speaker 1

We don't like that because we don't do, banks don't do. And so when the maturity came, it went out and we had enough to pay that down. And the second thing is that off the balance, borrowing roughly half an Part of the amount of it was maturity, which we paid down. And the part of it was we had an opportunity space to pay down, which was this, which is what even in the average balance sheet that we have published, you will see that it is borrowings are down by close to 600,000,000,000 dollars that this is most of that.

Speaker 5

So can we sustain this run rate or would bulk of it has already been kind of done for the

Speaker 1

There is a maturity profile for the year, which we have published. For the year, I think the maturity profile is about $650,000,000,000 for the year that is scheduled maturity, dollars 600,000,000,000 for the year, out of which maybe INR 225,000,000,000 or so INR250,000,000,000 were maturity that got paid in June quarter. And we did pay in on top of that maturity, we did do set another payment. We exercised certain options to do that, certain other borrowings with it. And so there will be more to come in the year, but start off the publishing annual report profile.

Speaker 1

Over the next 3, 4 years, we published that profile of maturity.

Speaker 5

Okay. My question for Mr. Jagdishan. Sir, at the time of the merger and subsequent to that in some of our communications, we had mentioned that the merger is likely to be EPS accretive for us on day 1 from day 1, right? Now would was that did that have certain assumptions of from either the regulator allowing us for, let's say, for infrastructure bonds or certain other classifications?

Speaker 5

And those have not materialized? Or is there something else that was in terms of assumed and that has not played out? If you could just kind of help us understand a little bit on that, it will kind of appreciate why what deviations have happened between then and now. Those are my questions. Thank you very much for giving me this opportunity.

Speaker 1

Yes. Yes. Ravi, yes, at the time of merger, you know the economic conditions including the liquidity, system liquidity And today, it is at a different state, right and today it is at a different state, right? So the conditions have changed. That's number 1.

Speaker 1

And number 2, some of the core variances, for example, the core variances on infrastructure borrowing qualifying to fund the affordable housing or on certain of the deposit category, the non deployable deposit category that we took over. Some of these assumptions are different. That's the second aspect. 3rd aspect, I do want to draw your attention to the EPS since you mentioned it. The EPS to the bank June pre merger was 21.4 and last year June and in this quarter it was 21.3%.

Speaker 1

So there about it is similar levels and then if you look at this quarter, it's between that 21.1, 21.6, 21.7 and 21.3 and thereabouts, right, from an EPS point of view.

Speaker 5

Okay. Thank you and all the best.

Speaker 1

Thank you, Rohini.

Operator

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

Speaker 2

Yes. So the question is on ESL again. When we look at it almost like 53%, but again that's on last year's balance sheet. But looking at it in terms of the sell downs also which have been there in CSL, what we have disclosed in the annual report and the overall PRD growth also being lower, is that giving an indication that we are relatively more comfortable on CSL? And then in that context, how should we look at the overall PRD growth vis a vis the overall loan growth?

Speaker 1

Kunal, on the PSL, two aspects to keep in mind all the time, which is there is a smaller marginal farmer, a different section, which could have dual qualification. If you get a smaller margin farmer, it could have dual it will have dual qualification and weaker will be satisfied. So that is one category that is in greater demand. We need that, we need more of that, right? So that is something.

Speaker 1

Other than that, you alluded to CRB, that is why I'm talking about it. That particular segment is given largely by CRB and by non CRB, which is Agree segment, the SLI segment and various other businesses, business lines which have some linkage to Agree or Avide Agree also bring in, but largely CRB. But around the rest of CRB, when we think about the business banking, think about certain emerging enterprises and commercial vehicles and lot of other categories, which are also enormously PSL driven book. It qualifies as total PSL, but we are quite comfortable. We are surplus in all of those categories.

Speaker 1

So our focus, if you think about PSL for us, which we've always said is that our focus is how do we get as much as possible to small and marginal farmer and with the dual qualification for weaker. That is where. And it's not that we are reaching out to 225,000 villages to get that reach to be there. But even if you get in all of those small and marginal farmers, the ticket prices that we could offer to them, that's what our credit will offer, cannot be offering outside to the land, just a smaller margin farmer is having a small farm. So the critics could be only to ship the farm and not 2x, 3x, 5x the farm requirement.

Speaker 1

So that's where the constraints what CRB is in PLS. It is only a component of the CRB small and margin farmer that we are more focused on.

Speaker 2

In terms of the oversupply, are we more confident in terms of the achievement? We have been the net sellers of PSLC as well.

Speaker 1

We have good amount of confidence to be there where it is available. It's a cushion of supply, right? We are there creating the demand. We are there to buy. We are there to originate.

Speaker 1

It's the question of availability. That's where we are constrained. And last year, we managed close enough. This quarter, we managed growth enough. But future, I will not be able to talk what's available and but we are fulfilled.

Speaker 1

That's all.

Speaker 2

Yes. And secondly, on the deposit side, as you mentioned, like not really. So, Sashi also in the opening comments highlighted not really happy and it has fallen short of the expectations. Earlier, we alluded in terms of the aggression on the field staff plus the expansion in the branches. That is something which will drive the deposit, but somehow it's not coming through.

Speaker 2

So what could be the initiatives now and would rate be ever be looked upon, okay, because we are not getting the benefit from the other 2 getting reflected in terms of the incremental deposit share? And similarly, when we look at the borrowings, almost like, say, 60% of the borrowings are coming up for maturity in less than 3 years. So, on the end, we mentioned like we would weigh some pre payment opportunities as well. So, how do we gather that deposits or maybe loan growth could be much lower, yes?

Speaker 1

Kunal, the first thing is that rate is not predominant, determined or a driver for us to have an engagement. You see that if you compare our rate, we don't get into rate competition. We have priced fairly with our peers. So rate is not something that we want to use to get or gather more deposits. So that's one.

Speaker 1

So let's get the rates out of the way. That's not something that predominantly influences us. Having said that, it is about that engagement and service delivery. That is what we endeavor to distinguish, differentiate, get on more customers. And that is the reason I alluded to to talk about the inflow.

Speaker 1

That means the engagement and the service delivery should create more of our customer funds coming into our accounts, which is what I alluded to in another context of Saman's question that when we look at the June 4th, we've measured that monthly. The monthly win flows that come are in excess of 20% higher than what it was similar time period last year. So we see the traction gaming with the cushion of both environment and other opportunities and the spend levels that the customer see that buying is desired. Essentially, we are there. The opportunity is there.

Speaker 1

It is going to stick more. The probability of fixing and resting to that is far more.

Speaker 3

Kunal, do sort of look at the 12 quarter data that has been that is in front of you all and look at the quarterly momentum. That will give you a reasonable amount of confidence as to how the buildup is easily resilient. And there's a lot of hard work that the team is doing at the ground level. And that's a real reflection. Our earnings come out of these averages, the daily averages.

Speaker 3

So, this is it's unfortunately, historically, we have been reporting period end numbers. But I also realize that maybe it's not the right way to reflect things which are where there are lots of volatility. And yes, it may as I again reiterate, it's a bit disappointing to see a repeated end something very definite. But in reality, my teams have done a lot of hard work and I want to acknowledge through this particular call that to for them to continue the intensity of engagement and the kind of hard work that they have been putting, of course, so that there is no pressure on them on period end numbers. They continue to work hard on a daily basis to be able to deliver the organization goals.

Speaker 3

And I'm sure and very confident that my team is going to surprise all of us, including you all, when we publish the full year numbers.

Operator

Thank you very much. I'll request to come back for a follow-up question. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Speaker 2

Yes. Hi. Good evening, Sashesh, Shikhi and Haran.

Speaker 1

I had 3 more questions. First is on the margin trajectory, right.

Speaker 2

So the governor recently talked about again the transmission of pricing. We are seeing massive fight going on for deposit market shares. And HCC Bank has been very, very disciplined on pricing. So any point in time you need to relend and start increasing the deposit rates? So how do you see the scenario shape up for you all?

Speaker 2

And what would be the impact on margins? Because you're trying very hard to kind of maintain it or keep improving it. So in this scenario, how do you envisage this profitability to shape up for you all in the coming quarters?

Speaker 1

Rahul, if you look at the there's one public available data, it's weighted average term deposit cost, I think, that's published by the in the regulatory website or something. You can look at it. And when we look at it and you can look at it over the last 12 months by month, you can see which every bank reports. The top of the page is what you will see the PSU Bank weighted average term deposit cost going up. And the 3 line graph, if you draw, one top being the PSC banks, the second being the scheduled commercial banks and below that will be the HDFC bank, right.

Speaker 1

So we have tried to remain disciplined on price as much as possible to win over the customer through engagement and service delivery. So we have not gone into this term and in terms of the rate as such And we will have to keep that up as we go along. So that's not something. Now how do we get the margin? Again, by the way, we talked about this, CARFA, market permitting, we know that in this quarter, the market did not permit the CARFA growth.

Speaker 1

We have only done the perfect growth. And market the CASA ratio to the cycle as it changes, we'll have to move up and that is what has happened historically. That is our confidence level that our engagement will keep that cost to go up. Bring in new customers. When the customers are coming in, we are getting in good balances, savings account balances.

Speaker 1

And the cohorts, the month on book of those savings account balances of the customers we bring in are behaving quite encouragingly, and we want to bring in more of the new customers to move that up. So we keep going up on that. And we have to break it out for the cycle to turn and customer performance is to change for the Carta mix to come favorable to us. The second that and whatever the CASA mix you see today is impacted by about 3 percentage points or 4 percentage points due to the merger because when we came in to the merger, we got to time deposits only as part of the merger. So that's an impact that is coming in addition to the market dynamics of customer performances over the last 2 to 3 quarters.

Speaker 1

It is also a merger impact that is impacted there. I just want to leave it there and go to your next.

Operator

Thank you very much. I request all the participants. Due to time constraint, we won't be able to take more than one question per participant. Next question is from the line of Manish Shukla from Access Capital. Please go ahead.

Speaker 5

Yes. Thank you. On unsecured personal loan, your growth has been sharply lower than some of your peers. What's your thought process on that segment? And how do you think that changes?

Speaker 2

No, that was a very conscious call.

Speaker 3

I mean, as I said, we our internal early systems probably pick us up rather early. And obviously, they have been rather conservative. And that is the reason why we were all right and happy to sort of slow down growth and we were of course, this synchronizes with what the regulator has been sort of highlighting as well. It has been contrarian to what we've seen in industry growth. And we have been contrarian to not just now, but even in the past.

Speaker 3

So I guess at the right time, we will step up the pedal.

Speaker 5

Thanks. One data point was the share of Repolin book as of June?

Speaker 3

Sorry? Share of repolling book for you on the loan

Speaker 1

Market Link. Market Link is about mortgages is about for certain 30, 70 or so 36 and 70 is external. Mortgage will have about 27. Non mortgage is about subsea, which is external media labeling.

Operator

Thank you. We move on to the next participant. Next question is from the line of MB Mahesh from Kodak Securities. Please go ahead.

Speaker 5

Hi. Just one question on the non interest income line. This miscellaneous income has gone up quite sharply. So just trying to understand what's doing that. And also on the fuel income line, there's a slowdown, but largely the growth has come from 3rd party products.

Speaker 5

If you could just kind of give an explanation to that.

Speaker 1

Mahesh, 2 things happen here. The third party product is seasonal, March quarter highest, Q1 comes down, Netcellaneous income has got recoveries credit recoveries as well as it has got dividends from subsidiaries that is also seasonal and they're more or less offsetting, right, as you see there because the 3rd party seasonality comes down in the Q1 and then you have the dividends coming in and so they are operating. So these are the 2 items there.

Operator

Thank you. The next question is from the line of Sameer Bisseh from GM Financial.

Speaker 2

Just wanted to ask on the HDFC limited borrowings that you have mentioned. Is there a case for any repricing in terms of floating is fixed for what is due for repayment over the next 3 years?

Speaker 1

No. A good amount of that is fixed. Due to good amount also, we are hedged. We are hedged on some of them. And where there is a closing rate, that's again subject to periodic discussion and negotiations.

Speaker 1

Okay. But you would say

Speaker 2

a large amount is fixed in it?

Speaker 1

There are there's a combination of fixed and floating both are there. And if it is fixed, we have some hedges. If it's floating, some are negligible and some are not. And so, it's a combination. It's a quarter to quarter, bunch of months to month review in our ALCO to see how to optimize it, what are the opportunity space at Open Source.

Speaker 1

So there's no one aspect that we can think ourselves to say that what we will do.

Speaker 3

In fact, I'm not too sure whether this data is there, but when you look at the modified duration of our assets and liabilities, the very fact that the it is more or less in a very narrow band. Gaps are much lower, means that what Srini is saying is what we do. And this is not something that we are doing it now. We've been doing it for a long period of time to ensure that these are matched in a very narrow band. So that's one of the reasons why we are able to see the margins in a range bound in a band of whatever that you I have specified or laid out at the beginning of the conversation.

Speaker 1

So that's true before the merger and throughout the major. So these gaps remain very closely and tightly managed.

Speaker 2

Yes. And just one last thing on staff costs. So while there was a one off last quarter, there is a bit of a jump even on

Speaker 5

a sequential basis for this quarter.

Speaker 2

Anything to read into it?

Speaker 1

No. There's been a quarterly impact because some people additions of last quarter could have been part of the quarter coming into the full quarter this quarter. Those kind of changes will be there. And certain compensation changes could have will happen will continue to happen as we go along. So there is nothing new other than the ex ratio amount that was there last quarter and not this quarter.

Operator

Thank you very much.

Speaker 1

I do not know where you are seeing an increase, but that's a different yes.

Operator

Thank you, sir. Ladies and gentlemen, we have come to the end of the allotted time. I would now like to hand the conference back to Mr. Vedanathan for closing comments.

Speaker 1

Thank you, sir. Thank you, sir. Thank you, sir. Thank you, sir. Thank you.

Speaker 1

Thank you to all the participants for having joined today. We appreciate your time and thanks for engaging with us. If you do have more questions, comments, suggestions, any other inputs, feel free to engage with us. Our Investor Relations team headed by Darwin will be available anytime and or I will make myself available sometime. We could engage.

Speaker 1

Thank you. Bye bye. Have a great weekend.

Operator

Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us and you may now disconnect your lines. Thank you.

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Earnings Conference Call
HDFC Bank Q1 24/25
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