HDFC Bank Q3 24/25 Earnings Report

HDFC Bank EPS Results

• Actual EPS: $0.82
• Consensus EPS: $0.74
• Beat/Miss: Beat by +$0.08
• One Year Ago EPS: N/A

HDFC Bank Revenue Results

• Actual Revenue: N/A
• Expected Revenue: N/A
• Beat/Miss: N/A
• YoY Revenue Growth: N/A

HDFC Bank Announcement Details

• Quarter: Q3 24/25
• Date: 1/22/2025
• Time: Before Market Opens
• Conference Call Date: Wednesday, January 22, 2025
• Conference Call Time: 7:30AM ET

HDFC Bank (NYSE:HDB) provides banking and financial services to individuals and businesses in India, Bahrain, Hong Kong, and Dubai. The company operates in three segments: Wholesale Banking, Retail Banking, and Treasury Services. It accepts savings, salary, current, rural, public provident fund, pension, and demat accounts; fixed and recurring deposits; and safe deposit lockers, as well as offshore accounts and deposits, and overdrafts against fixed deposits. The company also provides personal, home, car, two-wheeler, business, doctor, educational, gold, consumer, and rural loans; loans against properties, securities, fixed deposits, rental receivables, and assets; loans for professionals; government sponsored programs; and loans on credit card, as well as working capital and commercial/construction equipment finance, healthcare/medical equipment and commercial vehicle finance, dealer finance, and term loans. In addition, it offers credit, debit, prepaid, and forex cards; payment and collection, export, import, remittance, bank guarantee, letter of credit, trade, hedging, and merchant and cash management services; insurance and investment products. Further, the company provides short term finance, bill discounting, structured finance, export credit, loan repayment, and documents collection services; online and wholesale, mobile, and phone banking services; unified payment interface, immediate payment, national electronic funds transfer, and real time gross settlement services; and channel financing, vendor financing, reimbursement account, money market, derivatives, employee trusts, cash surplus corporates, tax payment, and bankers to rights/public issue services, as well as financial solutions for supply chain partners and agricultural customers. It operates branches and automated teller machines in various cities/towns. The company was incorporated in 1994 and is headquartered in Mumbai, India.

HDFC Bank Q3 24/25 Earnings Call Transcript

Presentation

[Operator]

Ladies and gentlemen, good day and welcome to HDFC Bank Limited Q3 FY 'twenty five Earnings Conference Call. As a reminder, all Paracel lines will be in the listen only mode and there will be an opportunity for you to ask questions after the presentation concludes. 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 Mr. Vaidyanathan.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Thank you, Nirav. Good evening to all. Thanks for participating and coming in today. I will kick it off.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

I'll request our CEO, Mr. Sashi Jagdishan to get started and give some opening remarks. Then we will go straight to any questions that you all have, we can go into that. Sashi, over to you, please.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Thank you, Srini, and thank you all for joining on this call on a Wednesday evening. We just declared our results. And obviously, as you probably know much better than all of us put together, we are in the midst of a very challenging macro environment. The with tight liquidity conditions, signs of moderating urban demand, a deficit private capital expenditure programs, volatility and depreciation of the Indian rupee, capital outflows from equity and debt markets due to uncertainty around the new U. S.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Administration. However, we also see some drivers of growth or some positive signs as well. We are seeing some amount of rural demand picking up. The government spending is picking up after a slow momentum in the hedge fund the first half of the year. We see continued strength in services exports and a gradual moderation in inflation.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Coming to the bank, we seem to be progressing well in our journey to normalize our credit deposit ratio with the deposit growth outpacing our loan growth. We've seen robust growth in our average deposits at about 15%, which continue to gain market share, and our AUM advances growth of 8% year on year basis. We have delivered a strong deposit growth despite the challenging macro environment. As probably you would know, on an average basis, I think we saw a very near neutral liquidity in quarter 3, with a peak negative of around the $2,000,000,000,000 to $2,500,000,000,000 NIMs have remained reasonably range bound and stable despite the headwinds from tight liquidity leading to tight pricing environment. We continue to add distribution, I think, over a year on year period.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

On a 12 month period, we've added about over 1,000 odd branches. But we've been able to maintain a very tight leash on the cost. Our cost growth has grown 7% year on year, which means that we have gained some amount of productivity gains there. But the most important part, which is something that we've always maintained is our credit USP. All our credit parameters, be it the slippages, be it the gross NPA, be it the credit costs, ex of some of the cyclical patterns in the agri sector, have been reasonably resilient and stable, which is something which sort of shows the strength of the institution, not just now, but for a long time that we have been in this business.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Going into the future, we are robustly positioned. We have been growing in a very balanced and manner in line with what we had committed to ourselves and to the world at large in terms of the glide path on CD ratio or the kind of growth levels that we are anticipating. As we speak, we have sufficient liquidity. We continue to grow our deposits faster than the system, allowing we have sufficient capital, allowing us to be very comfortable to grow or capture market shares in the loans when macro turns stable. I know all of you would have a lot more questions.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So let me pause out here and let us take questions from all of you. Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you, Sashi. We'll get to Neerav. We can kindly open it up and we can go straight to questions, please.

[Operator]

Please. The first question is from the line of Marukhah Chania from Nomura Research. Please go ahead.

[Mahrukh Adajania, Senior Equity Research Analyst at Nuvama]

Yes, hi, congratulations. First of all, can you give as much color as possible on how you met PSL on EHTFC's book because your OpEx does not seem to have increased? And then there doesn't seem to be much RIDF for previous shortfalls either. So just as much color as you could give on TSL, that's the first question. And the second question is that if you could separately call out the PCR excluding agri loans and if there was any tax refund in other income other interest income?

[Mahrukh Adajania, Senior Equity Research Analyst at Nuvama]

These are my questions.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Thank you, Maruk. First thing on the priority sector, our priority sector last year or even as we see now, at the aggregate level, we meet the target, 40 plus percent. The only area that we last year and as we speak now, we see is that smaller margin farmer and the weaker section. There are dual qualifications between them, but that normally about the percentage points we always look for opportunities.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And yes, between there are several products that go for getting that. One is organically grow on balance sheet book, that's one. We do IBPC to buy certain book or PTC's investment book we buy. We also buy PSLC in the market. So it is not just OpEx.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The cost of PSL is embedded within our overall ROA structure now and in the past and it can straddle across various lines. If you originate, you end up with certain credit costs as part of how you price it in. If you buy it, you get it in PSLC. If you buy it through investments, you're getting it through investment book or if you get it through a loan purchase, you get it through a loan. So, it can straddle everywhere.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

But yes, we do look for always we do need to find that last percentage in the SMF and AGREE has always been in the past elusive and as we see now, but we are vehemently pursuing at the right price to get that. That's part of the first question.

[Mahrukh Adajania, Senior Equity Research Analyst at Nuvama]

Just one thing, sorry, one clarification. So this time around, there was not much PSLC. Is that your fair assumption?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

There's not much. Yes, but the year is still not over. And so as the year progresses, we'll have to see where it ends. Okay. The second aspect is the PCR that you touched upon.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The overall PCR you can see is about 68. And you know that the slippages were impacted by AGREE, which is the seasonal AGREE. Excluding the seasonal AGREE, the slippages are flat period to period. And so they are since they are in the early bucket, the PCR excluding AGREE is at 71%, which is same as what it was in the prior quarter. That's the PCR.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The third aspect of it is the tax refunds or whatever. Yes, every quarter we get something. This quarter is about INR2 1,000,000,000 last quarter was about INR0 point INR5 1,000,000,000 or something. And so every quarter, there is something that comes. And the AGRE reversals, the interest reversals on AGRE also go, but that goes to the loans part of the interest on those.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Yes, correct. That is separate item, yes.

[Operator]

Thank you.

[Mahrukh Adajania, Senior Equity Research Analyst at Nuvama]

But what is the agreed reversal?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So that's again for the NPA, relating to NPA. Now you reverse the interest once an account goes to NPA. And typically, the agreed interest reversal is about 1 year interest that you reverse.

[Mahrukh Adajania, Senior Equity Research Analyst at Nuvama]

Okay, sir. Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you. Yes.

[Operator]

Thank you.

[Operator]

Participants, please restrict to 2 questions per participant. Next question is from the line of Chintan Joshi from Autonomous. Please go ahead.

[Chintan Joshi, Indian Financials Analyst at Autonomous Research]

Hi, good evening. I've got one on liquidity and then one on your contingent provisions. On liquidity, if I think about the last two quarters, on average balances, you've added about $1,200,000,000,000 $1,300,000,000,000 of excess deposits over loans, and borrowings are only down about $250,000,000,000 That excess liquidity that you have on balance sheet, at what yield have you parked that liquidity, if you can share that with us? And also, what is the weighted average cost of borrowing that is maturing over the next 2 years? Just trying to understand what the funding synergies will look like over the next 12 to 18 months?

[Chintan Joshi, Indian Financials Analyst at Autonomous Research]

And then on contingent provisions, the question is, what is the process of releasing that contingent provision? You released 3,000,000,000 You obviously have a lot on your balance sheet. Will you be using these provisions to buffer the P and L volatility? And do you kind of need to go to RBI to be able to use this? Or you can use this with your own discretion?

[Chintan Joshi, Indian Financials Analyst at Autonomous Research]

Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Thank you. First on the liquidity, if you look at our balance sheet, our bridge balance sheet, you will see that sequential quarter, the investments net of cash and cash equivalent is up by about INR 500,000,000 or INR 50,000 odd crores, right? It's up. And it gets invested by treasury at various through various instruments.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And the earning on that can range anywhere between 6.5%, 7% and depends on where it lands, right? If you to get your context, you want to know at what rate we invest, but I'll tell you the G6, the 10 year G6, sub-seven percent, right? So you get an idea of where those investments can go. And there are several instruments that we choose to be there. So I leave it with it's a period to period, it changes and gets calibrated by our treasury.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And as much as possible, they will optimize what could be done within the overall liquidity scenario. That's on the liquidity front. The second aspect on the The borrowing cost is about 7.8% or so is the borrowing cost that we have had, particularly the borrowings that have come from HDFC Limited come with those kind of costs, right, 7.9%, 8% or so. That includes the cost of the hedges and so on, fully loaded cost, It comes about 8% or so on the borrowing. And yes, we do optimize.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

It's a good point that you touched and linked it to borrowing. As part of the treasury management, we do as much as possible link to see what are the opportunities out on the borrowing. There is a maturity profile that you asked for the next 18 months. I think we published some of the maturity profile, which is there. And in the annual report, it is there.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

But in addition to that, I do want to say, opportunistically, we do look at things that we can do. For example, in this quarter, we did buy, call it, INR 44,000,000,000 or INR 4,400 crores of bonds and extinguished. That's part of the ongoing process. Treasury manages and optimizes whatever is possible, and we mix and match and do these things. So that's I hope that gives you an idea of continuously and dynamically it gets managed by our treasury.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Getting to the contingent provision as such, I mean, we do there is a science around the contingent provision. There is a process across various portfolio classes that we employ in terms of what we do and how we assess certain things. If they are NPA, they are part of specific, right? It's not the NPA is not in the contingent at all. Contingent is about it's not something that we foresee, but contingent upon certain event, it can happen or not happen.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And we assign various probabilities and we make certain judgment calls. And there is some process around it, the document process we follow. So certainly, this is something that is at a discretionary level.

[Chintan Joshi, Indian Financials Analyst at Autonomous Research]

So you released a little bit of contingent provision this quarter. So I was trying to understand what led to that release.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Good point. Current quarter, there is a large wholesale account, which in performing wholesale account, which means they're not an NPA performing account, which we had tagged for contingent provision because our credit risk assessment showed that vulnerability. So we provided and in this quarter, we received money. We collected cash and so the contingent was not required.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We recovered.

[Chintan Joshi, Indian Financials Analyst at Autonomous Research]

Okay. So we should read that as recoveries rather than okay, fine. That answers the question. Thank you.

[Operator]

Thank you very much. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.

[Kunal Shah, Director - India Banks & Financials at Citigroup]

Yes. Thanks. So the first question, again, in terms of the overall provisioning coverage, specific provisioning coverage, no doubt you indicated in terms of on agri, it's been flat on a quarter on quarter basis. But otherwise, the trajectory has been downward. So maybe have we reached the optimal level or should we see further, maybe at least provisioning coverage slightly lower considering the behavior of the portfolio that we have?

[Kunal Shah, Director - India Banks & Financials at Citigroup]

So how should we look at their entire trend because last 5 quarters it's been coming off? Yes. See, the provision been coming off?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Yes. See, the provision coverage ratio is a mix of various products that go in and go out, right? And as you know that when something enters 90, there is some level of provision we do. And as they progress through the delinquent buckets, it gets covered. And so it depends on the mix of products that come and go.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So in this quarter, if you saw the Agree product come and go, it's a secured and again, the mix of secured, unsecured is very relevant in the overall situation, right? And so now you had an Agree coming in, we'll have certain level of provision that is why ex Agree, it is the provision coverage is 71 And with the way it is reported, it is 68%. And the vintage of the NPA also matters, right, the newer vintage versus the older vintage and so on.

[Kunal Shah, Director - India Banks & Financials at Citigroup]

Okay. Got it. So maybe if you assume that maybe the stress level remains we are able to manage it well, then should it be managed at the current level or we will see the further decline out there because of this pay the movement which happens in the NPL? P.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Vijay Kumar:]

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

See, there is no one particular formula or whatever, right? This depends on the mix of products secured and secured that come in and go out. And so thereby, the provision coverage moves in or out.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So, Shukunar, there's no discretion or

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

judgment from a retail standpoint.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

It's a product program. It's a

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

mix of the product and the stage of NPA, which we'll define, A, it is not necessarily some judgmental call that we take on a quarterly basis.

[Kunal Shah, Director - India Banks & Financials at Citigroup]

Sure. And overall, if you can share in terms of the 100% provisioning policy for the unsecured portfolio, when does that kick

[Kunal Shah, Director - India Banks & Financials at Citigroup]

in

[Kunal Shah, Director - India Banks & Financials at Citigroup]

and the write off policy? And any stress in any of the segments you maybe the overall ex of agri slippages were almost flat in the absolute term, but any segments which is worrying you we are seeing few of the players talking about space evolving in some of the other segments as well. Anything that is worrying you at this point in time?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So, okay. So, two aspects of it. 1, in terms of the write off unsecured and so on. The product program in the retail area, each product program is different in terms of what it is, but we touched upon the unsecured. Unsecured gets written off at 150, which means we if an account is not recoverable at 90, there is a very quick P and L take on that.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So suddenly, you'll see that we hit to 100% provision and then it gets out. So that's something very important to note that if you're not able to collect within 90, there is a huge acceleration in terms of the provisioning that happens there. So that's in terms of a couple of unsecured that's there. And each secured will have another kind of 150, 180 and so on. But then this is the kind of a process, again part of the product program formulaic determined.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The second aspect that I touched upon is the quality of the overall book. The quality of the overall book across segments continues to remain stable, which is the retail, the retail unsecured, secure or the in the CRB book, the SME book or the SLA book or whatever or the wholesale book for that matter, pretty stable across all of those segments as we see.

[Operator]

Next question is from the line of Suresh Ganapathy from Macquarie Capital.

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

Just two questions. One is on

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

the HDB Financial credit costs having gone up quite sharply Q o Q from 1.8% to 2.5%. Can you just give us some color what has contributed to this rise, both whether it is secular or unsecured, just a little bit color on that? And the second thing is on merger synergies itself, right? So, the merger happened on July 1 last year. If I were to take a snapshot at that point in time, your margins were at 3.4% and cost ratio was 40.5%.

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

18 months down the line, the numbers are still the same. So nothing has changed with

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

respect to margins or OpEx.

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

Now when

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

can we start seeing some of

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

these numbers happening because it's 18 months already into the merger? When can we see the margins improve, the cost ratios coming down? Any color on that would be great. Not exactly I'm asking for the immediate guidance, but it's 18 months with the merger. So we thought we should see something on these two ratios.

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Thank you, Suresh. I'm going to get started and then the others can join with whatever. First is the HDB that is touched upon. Yes, the HDB did have higher levels of Stage 3 in this quarter.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The difference between this quarter and last year was lot to do with provision, including management overlays due to lowering of the economic forecast and so on. So there were higher levels of growth, in stage 3. Stage 2, which is very important because that's where the flows move in as we go along. Stage 2 improved from September to December by about 5 basis points or so, Stage 2 improved. But Stage 3 at an aggregate level changed by 15 basis points.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

But however, within that Stage 3, there are 2 categories that we look at and manage. One is loans that at some point in time, this quarter, prior quarter or even 2, 3 quarters ago, moved into NPA, but subsequently have pulled below 90 days, but have not managed to pull all the way to 0 days, which means they are no more 90 days, but still NPA because they have not come back below 0. So that particular category is higher in this quarter than what it was in September. So that means something slipped and pulled back, but not pulled back enough. So subject to that, the overall Stage 3 is up by about 5 basis points or so In this overall category segmented book, which is far a couple of notches below the bank category of segment, 5 basis points is within the reason and the provisions were based off of that purpose.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So that's on the HDB as such. The second aspect on the merger and the merger benefits and so on. See, there are several dimensions to the merger. Certain basic metrics like getting the liability accounts open, we are like 96%, 96% -7% successful for any new to bank incremental mortgages coming in. So that's part of the beginning.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And it comes with some INR 30,000, INR 32,000 balances 1 to 2 months installment. So we are making good traction on that. The second traction is that out of the 4 odd 1000000 customers, we need to get the liability accounts opened for that balance so that we get into not just the mortgage product relationship but overall banking, about 1,900,000 of them so far we have been successful to bring them on the liability relationship. We have more to do on that one, right? So that's the second.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And then we have another about 0.25000000 or 250,000 customers or so where we not only have this, we have other multiple other products like a credit card products and few other products we have started. Another dimension to the merger is also about the branches. How many branches we have to get through various, not just those 2,500, 3,000 branches, but broader. But if you look at over the last 6 months, 80 plus percent of the branches have been able to do at least 1. So depends on customer demand, but at least we made a good traction that capability at the branch level to open is there.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Now coming to the other dimension of it, which is get to the margin, the cost to income and so on and so forth. Yes, the margin we started with 3.4 has been in a stable band over the last several quarters and the good amount of the tailwind that has come to reduce the borrowing cost, which is what we have managed to get good amount of borrowing down, has been offset by the CASA, right? Again, it's a customer behavior. We have a choice to make in terms of whether we want the holistic customer relationship that includes time deposit, which grew at 22.7% in this quarter, right, or we don't get that time deposit and look for only Casa so that the margin can go up. That's a choice to make, but then I think the business leaders did make the choice to say that we need to keep the customer relationship alive and growing.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So it's not about so that in course of time, we will get that CASA coming. So that's another aspect of it. Suresh, I don't know

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

whether you want to add

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

cost to income, you'll tell.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Yes.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So, Suresh, also I mean, let's also look back into perspective that the environment at which which was prevailing at the time of announcement of the merger or at the time of the merger in July 2023 was completely different from where it has progressed from then on and where we are witnessing at this very moment in time. Obviously, on a static basis, I would have agreed with you, probably we could have done better. But when you look at the dynamic environment that we have been witnessing since the merger, we have seen a kind of a shift in terms of what we need to reorient ourselves. I mean, at that point in time, we were contemplating of growing our business in a manner similar to what we have been doing for a long period of time in terms of gaining market share even on loans. But then when the macro started to change, when liquidity started to tighten, when the outlook on credit started to change negatively, as we recall and you would recall that in February of 'twenty four, I think as early as February 'twenty four, we called out to say that we are changing our tack.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

We said that we will grow, we will try and bring down the credit deposit ratio as quickly as possible over a 2 to 3 year timeframe. FY 'twenty five will be lesser than the system, FY 'twenty six will be in line with the system, FY 'twenty seven will be faster than the system. So obviously, this means that in FY 'twenty five, you are, as you have seen now, with an average AUM growth of 7%, this is in line with what we had envisaged. So obviously, some of the parameters that we were talking at the time of what you were expecting or what we were expecting at the time of the merger does not hold good and we have to recalibrate ourselves. So in the light of that, to maintain stability, which is what Srini was mentioning and being range bound means that I think the company has been resilient enough instead of going northwards in some of the key metrics and matrices and parameters.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

We've been able to maintain in a range bound manner, which itself shows that as things start to get better from a macro environment perspective, from a liquidity perspective, when deposit prices start to come down and probably and you have seen, we have all seen that as prices come down, Karta ratios will also move up. You will have a kind of a shift in some of the metrices, which is in line with what you and I would be expecting, etcetera. I think that perspective needs to be factored in, in terms of why we continue to stable and not sort of having the upward trajectory on some of the metrices like margins or a downward trajectory on cost to income. On the cost to income, metrics like margins or downward trajectory on cost

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

to income.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

On the cost to income, I want to add that we are at about 40.5% or so between 40% 41%. It's been stable at that level. Two aspects to it, if you look at the rate of growth of cost, about 7.5% or so rate of growth of cost, right? The country's inflation is between 5% 6% at an aggregate level.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And depending on the wage and so on and so forth, it's getting maintained at that level, sub-eight percent. One other context to that is that is despite we have added 10 52 branches in the last 12 months. So we've added that and managing the cost in a tight leash. I will continue to make those investments in technology. The technology component of the costs are north of 10% right now.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

It used to be in single digit, high single digit. Now it's north of 10%. So we continue to make those investments that are required. Lastly, I do want to add, it's not just about the cost to income, which is a function of the numerator and the denominator. So we also talked about that margin impact there.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

If you look at the cost to assets that were about 1.93% or so, is very tight and is one of the best in class at a cost to asset basis. I just want to leave it there and hope that gives you some perspective, Suresh.

[Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie]

Thank you. Thank you so much.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you. Thank you. Yes.

[Operator]

Thank you. Participants can be restricted to 2 questions per participant. Next question is from the line of Pranav from Sanford Bernstein. Please go ahead.

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Hey, good evening. Thanks for taking the question. The first question is on your loan yields. I mean, if you look at the Bank's loan yields today, it's meaningfully lower than peers, versus the long term history where even if you include the retail vottages, the loan yields were much higher. Now, if you look forward, let's say, over the next 2 to 3 years, do you think the absolute loan yields will converge with peers?

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Or do you think only the risk adjusted yields will converge? Or

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

will a

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

lower risk adjusted yield be the price to pay for scale? So where do you see it progressing on Not the next few quarters, but more like a 2 to 3 year outlook.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Yes. See, there are 2 aspects to it. If you look at the current composition of our risk weight density, which in one of our pages that we have, it's been stable at about 67% or thereabouts, the risk weight density. That means the assets RWA to total assets at about 67 percent has been pretty stable.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

If you look at the RWA to funded and non funded post the conversion factor at 63% or so. And if you benchmark this to some of the peers, you will see that it's at least 5 to 7 percentage points or thereabouts lower. So that means the risk density on the book appears to be lower. That's one. The second aspect of it is in a strategic sense, when you look at it in a couple of years where the yield is, Yield is a function of the mix and at the retail, which over the last 12 to 18 months, we have been cautious in terms of the retail even before our overall loan book, we started to pare down the rate of growth.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The retail rate of growth was even earlier taken down, the rate of growth by our credit through calibration of credit models, they took down the retail. So it's a function of the mix. We do we have we continue to make investments in retail people and product and technology. We do expect that the retail mix will go up. And so thereby, the yield on the overall book should tend up.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And thereby, you will see that the risk weight density also move up because the retail comes up with higher risk weight assets.

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Got it, Harsh. So let's say you see a convergence in the risk density, there's no reason why we will be at a lower yield compared to peers.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

I didn't get that. Yes.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So, let's then speak to

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

the This is finally a customer segment. And we would our historically, we've been operating in a slightly segment, which is comfortable with us. And hence, you would find that historically as well our risk weighted density is lower. So the convergence to my mind would happen if the risk undertaken from all since you're saying from a market was similar or no.

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Understood. Understood. Thanks. The second question is just a little one on your trading and NTM income. You just had like 3 quarters of low gains from securities, etcetera.

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Is that a one off? Or is that something that we should expect to continue? How do you see that trend going forward?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

we had this quarter is a very modest number in terms of the growth. Yes. Where is it? B. Balaji:] So

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

we one of the things that has happened is we've inherited certain equity investment and that is also going through the P and L, which is showing up in that line that you're speaking about, the mark to market which is coming. Yes.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

In this quarter, particularly, we've had almost $2,500,000,000 or so negative mark to market on an equity position that we have inherited that we have taken through the P and L. It's a negative.

[Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein]

Understood. So, next of that, there's nothing that's changed fundamentally?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

No, fundamentally.

[Operator]

Next question is from the line of Raghun Shah from IIFL.

[Rikin Shah, Vice President at IIFL Securities Limited]

The first

[Rikin Shah, Vice President at IIFL Securities Limited]

question is on the employee expense and more specifically the

[Rikin Shah, Vice President at IIFL Securities Limited]

employee and more specifically the employee expense.

[Operator]

Reagan, sorry to interrupt you. Your audio is not clear. Can you please speak through the handset?

[Rikin Shah, Vice President at IIFL Securities Limited]

Is this better?

[Operator]

Slightly.

[Rikin Shah, Vice President at IIFL Securities Limited]

Yes. So the first question is

[Rikin Shah, Vice President at IIFL Securities Limited]

on the employee headcount. So after dipping in 2Q, the employee headcount has again gone back to 2,000,000, and we've seen that some of the peers have been trying to stabilize the headcount and letting the natural attrition happen. So how should we think about the employee headcount going ahead? That's question number 1. And question number 2, Sashid did allude to his earlier guidance that this year, we should be growing slower than system next year in line and FY 'twenty seven faster.

[Rikin Shah, Vice President at IIFL Securities Limited]

But in that context, while we are gaining deposit market share at around 16%, there is still inherent macro restrictions. And within that construct, the deposit growth can't be significantly higher. So how confident do we feel about growing in line with the system for next year? Can that does that guidance still hold?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. I'll start off on the headcount. We have about 210 or so, about 2,500, call it, around 3,000 people added in the quarter. And over a period of last quarter, we didn't actually we came down. So if you look at our 6 month or a 9 month period or even 12 month period, it is just 2,000 from last December to this December.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So we held down. Again, the reason is that we have ramped up some investments in people and maintained at that level. And we are working through various productivity models to enhance the value. Essentially, that means getting various tools to these people to utilize better for engagement. That doesn't mean to say we will not add going forward.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We take it every quarter at a time in terms of these are mostly frontline, right? In fact, even across the book, we have 85%, 90% of the book touching the customer headcount, touching the customer in some manner or the other, right? So depending on the need and the traction, we will add. But again, we are circumspect in terms of getting the right kind of productivity before we can add. So that's on the employee as such.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The second aspect of the growth rate, how do you get to the growth rate in line with the market from where we are? Again, one thing to note is that there is not a product that we have exited or a geography that we have exited. We are there in all segments, all products in all geography. I'm sitting on liquidity, right, and with, of course, capital tailwind, which is there. Currently, the rate of growth is consciously calibrated either through credit models, a good amount of the retail, I'll put it in that bucket, or calibrated through price models because we do see tightening prices, tightening spreads in the non retail.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

In the corporate world, the spreads are tightening. So somewhere between these, it has been calibrated. So it is and the resources to get these loans up at the scale at which we want, continue to be in the system, continues to be engaged. So it's a question of at the right time that we want to dial, as Sashi was alluding to in his opening remarks, as the macro turns and we feel comfortable, the dial can be taken

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

up.

[Operator]

Next question is from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

[Nitin Aggarwal, Head of BFSI Research at Motilal Oswal]

Yes. Hi. Good evening, Krishi and Srini. Thanks for taking my questions. I have two questions.

[Nitin Aggarwal, Head of BFSI Research at Motilal Oswal]

One is that you alluded to the difficult macro conditions in your opening remarks, but HDFC Bank definitely continues to navigate well through this environment as overall slippage rate remains better versus peers. So how are you looking at the credit environment with respect to unsecured loans and the commercial banking business? Because these are 2 segments that we have been still growing and given the vulnerability that you see, how confident you are to maintain this slippages run rate and the credit cost overall?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Good point. 1, as we see now, the book is pretty stable, has performed both on the unsecured front or on the commercial side that you talked about has been pretty stable. And that is part of the credit monitoring model and the collection analytics that go to be in front of the queue to do all of that. I mean, there are various factors that go in.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So, all of those factors are at play and have been a top notch in terms of keeping it pretty stable. And one other important aspect of you looking at being stable is, the ratios are stable despite the slowness of the book, which means the book is not growing at 12% like the industry grows. The book is growing at half the trade. Even when you slow it down, the ratios and the numbers look pretty stable that essentially indicates the position of the origination quality as well as the capability in terms of getting the collection accomplished very well. So I want to leave the thought.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So as we see now, going forward, we are confident of continuing our strength and displaying our strength on these portfolios.

[Nitin Aggarwal, Head of BFSI Research at Motilal Oswal]

Right. And we really appreciate that. And second question is just a data keeping one on mix of floating and fixed rate loans, like how much is repo, how much is MCLR, if you can just share that color?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We have roughly slightly under 70%, which is floating, 30 odd percent which is fixed. And on the floating side, if you see almost, call it, 45% of thereabouts is repo linked loans. We have some MCLR and some treasury bill linked loans, but mostly it's repo.

[Nitin Aggarwal, Head of BFSI Research at Motilal Oswal]

Right, Srini. Thanks so much, and wish you all the best.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you.

[Operator]

Thank you. Next question is from the line of Ravi Puruhan from SIEMBL. Please go ahead.

[Ravi Purohit, CIO at Securities Investment Mgmt. Pvt. Ltd]

Yes. Hi. Thanks for taking my question. I have two questions. One is the NPEs that we got in from the HDFC wholesale book would have been classified as NPS, they were restructured accounts earlier and they would have been classified.

[Ravi Purohit, CIO at Securities Investment Mgmt. Pvt. Ltd]

Now, they would have spent 12 months since then. Do we see significant reversal of provisions of those that wholesale book in the current provisioning set? And second question is on the wholesale deposits that came in with HDFC Limited book. How many so we reported 16% growth in our total deposits. But ex of let's say, would we have let go of the wholesale deposits from HDFC Limited or we would have continued.

[Ravi Purohit, CIO at Securities Investment Mgmt. Pvt. Ltd]

If you could just give some color ex of that or adjusted for that, what would have been actual deposit growth that we have actually delivered? Those are

[Ravi Purohit, CIO at Securities Investment Mgmt. Pvt. Ltd]

my 2 questions. Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. All right. Let me first talk to you about that provisioning or whatever, right? There are a bunch of contingent provisions that we have done in the past. And to the extent that I just alluded to for another question about when there is a cash recovery, we feel confident.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And until then, we remained prudent on certain things. Now then, we released the 30 odd 1000000000 that I talked about, 3,000,000,000, 3,000,000,000 that I talked about. The other aspect of it is, this is a good point that you raised. We do have almost about 15 basis points of our NPA, which are performing, right, they are performing. But historically, in the erstwhile organization, they were restructured.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

But since they were restructured for the RBI regulation, we have marked them as NPA, 15 basis points. They are performing, but it is part of the NPA which is there. So, I do want to bring your attention to that. And the last aspect that you talked about is the deposits that we brought in. And so the 16% rate of growth on deposits is net of all of that.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

There are certain categories of deposits, high cost, particularly non retail high cost type of deposits, which we did not patronize or let go because to us, I think in 2 quarters ago or so, we did talk about the value. There are certain institutional type of deposits. Example can be a trust, example can be certain other organizations where the value, the LCR value could be 100% runoff. So and for which we don't need to pay the high rate, which means the bulk deposit rate doesn't need to be paid. So if it is a bulk in nature, they have gone.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So whether excluding that, whether it will be more than 16, yes, it will be more than 16. How much? Maybe 2%, 3% better, but again, it's all part of the business and part of this overall mix.

[Operator]

Next question is from the line of Param Subramanian from Nomura. Please go ahead.

[Param Subramanian, Vice President at Nomura]

Yes. Hi. Thanks for taking my question. Firstly, going back to priority sector. So, last year, we had a shortfall in both SMF and weaker sections and the onethree requirement from HDFC Limited book.

[Param Subramanian, Vice President at Nomura]

So, both of those PSL compliance will be completed by Q4. Is that the way to

[Param Subramanian, Vice President at Nomura]

look at it? And what proportion would roughly be our idea within that?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Yes. See, the requirements are kicked in. And you know that the requirements are a third, a third, a third over a 3 year period.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So there's a glide path into that. And so whatever when we have to meet, not just for the year end, even for December for that matter, There is some proportion that kicks in and that's part of what I alluded to say at an aggregate level, we are comfortable for the 1st 9 months. There is a percentage point or so that we do need to close on SMF and the weaker section. That's part of the plan in terms of how we operate for the next 3 months to close. Available, depending on what is available and at the right price.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And of course, the first goal is to organically grow as much as we can. And we don't alternative instruments are used.

[Param Subramanian, Vice President at Nomura]

Okay. Got it, Srini. So it's a percentage point shortfall in both SMF and weaker segments. That's broadly where we

[Param Subramanian, Vice President at Nomura]

are currently on the merged book?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

That is correct,

[Param Subramanian, Vice President at Nomura]

Okay. That's helpful. Secondly, on PCR, how are we looking at PCR, say, relative to our peer group? Because if you look at it at 16%, we are lower than most of the big private banks even compared to where RBI pegs the system level at 77%. So, how are we looking at this going ahead?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. First is the 68% to 71% without the agree. That's number 1. Number 2, the PCR is not something that is benchmarkable at the aggregate institution level. We'll have to look at the composition of what the NPA is.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

If an institution has got a larger composition

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

of the wholesale book, particularly the legacy

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

wholesale booking NPA, particularly the legacy wholesale book in NPA and if it's fully provided, so the PCR is high. And if it is a retail book, it enters as it described to you, particularly the unsecured book as it enters into the 90, there is a level of provision as it enters into 120, you provide for it and at 150, you write them off. So it depends on each institution's policies of what is the provisioning at the entry stage and at the mid stage and at the end stage and what is the segment classification in the NPA. Many factors play into this. So it's not a straightforward number across the institutions you can see and make a call what that is.

[Param Subramanian, Vice President at Nomura]

Okay. Thank you so much, Srinivas.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you.

[Operator]

Thank you. Next question is from the line of Saurabh from JPMorgan. Please go ahead.

[Saurabh Gupta, Executive Director at JP Morgan]

Sir, just one question. On your cost, should we expect broadly similar cost growth for next year because you're I mean, you've largely done with your branch expansion, employees are not going too much. So should we expect this cost level to be less even going ahead? That's it. Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So, Saurabh, to answer, right? Normally, we don't give guidance or outlook. I don't want to give you an indication. But I do want to tell you the intention and how we operate now. The mindset is to be operating in a controlled manner.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Controlled means what I mean is that drive productivity as much as possible, make those investments in people branches and technology where it is required and where we are able to see opportunity space. So there is no one predetermined path, but the underlying kind of directive that I mean, Sashi is sitting here, what is given is that we circumspect and much more stringent in terms of how we allocate cost, how we give cost for spending. So we're trying to keep it as tight as we can.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Yes.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

That's right. And in fact, which means that we will it doesn't mean that we will not be investing. We will be investing in distribution, in people, in technology. But there will be overall, we would want to ensure that we get productivity gains out of this. So, if we all believe that our business growth is going to be in line with the system growth next year, our endeavor and which is what we are trying to have a goal for ourselves is to ensure that we are far more efficient in terms of how we spend and what we spend and try and have efficiencies arising out of the

[Operator]

Next question is from the line of Abhishek Murakah from HSBC. Please go ahead.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Good evening, Abhishek.

[Operator]

Abhishek, may I please turn on mute?

[Abhishek Murarka, Director at HSBC]

Yes. Hi. Am

[Abhishek Murarka, Director at HSBC]

I audible?

[Operator]

Yes. Yes. You are.

[Abhishek Murarka, Director at HSBC]

Yes. Sorry about that. Good evening. Thanks for taking my question. Good evening, Srini.

[Abhishek Murarka, Director at HSBC]

So, my question is on this emerging corporate group. From last 4 to 5 quarters, the loan book has been very, very stable, not growing much. Is it that you still see risk there? Is it a function of profitability? Or why or when do we see some growth coming out of that book?

[Abhishek Murarka, Director at HSBC]

So, if you can share some qualitative commentary on that, that would be useful.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Lovely. Abhishek, as the name suggests, these are emerging corporates. That means they are growing and getting to be larger corporate size. Like the way we have seen, spreads tighten in the larger corporate space, here also we see the spreads tightening.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And that is something that we've been pretty cautious. The quality of the book is exceedingly good. Like the way the corporate book, you will see that we have seen that reported that too quite very good. However, it is we are circumspect in terms of offering at the right price. That's what is determined.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We do want that relationship with those customers, which means there are certain level of wallet share that we want. We'll continue to keep those level of wallet share. And at any price, we don't need to keep increasing the wallet share. So that's how we have looked at it and try to of course, there is no one answer that we can do it every quarter time period, but we continuously evaluate and this is how we are approaching. Right price, keep the wallet share and manage through the relationship because we do want the SME relationship and the individual relationships coming from these corporates.

[Abhishek Murarka, Director at HSBC]

Okay. So it's more a function of pricing rather than slippage or asset quality or risk?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

That's absolutely correct. Yes. Because all of those corporates are quite strong for us and across the industry, we see this quite strong.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Just reiterate, Abhishek, Srini did allude to it. The asset quality across retail, unsecured, commercial and corporate has been very stable, including your emerging corporates. So we have been seeing this for quite some time and the severity continues even as we speak.

[Abhishek Murarka, Director at HSBC]

Sure, Sashi. I really appreciate that and actually a pretty commendable job there. Just one data keeping question, for the CRT build, what would be the blended field?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We have not published that separately, but I don't know whether in our 20 F annual filings that we do know. So we don't particularly break up. We have retail wholesale segment rather than 3 segments, yes.

[Abhishek Murarka, Director at HSBC]

Yes.

[Abhishek Murarka, Director at HSBC]

Would it be higher, lower than blended book yield, just a qualitative indication that could also help?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

We haven't published that, Abhishek. That is all. At some point in time, we will consider doing that, yes.

[Operator]

Next question is from the line of Prakash Sharma from Jefferies India. Please go ahead.

[Prakash Sharma, SPEAKER at Jefferies India]

Thank you and congratulations on managing good results in a tough environment. I had just a few questions on the Agri part and you requested to probably even if you want to give a monoclonal answer that will work. So first part is, in this quarter, what sort of interest income reversal could have been there? So has there been a few basis point impact on margins because of the seasonality?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

There will

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

be. And it could be INR 1,000,000,000 to INR 1,500,000,000 or so. But that's part of part of the business as usual. Every other quarter, we get it, and it moves up and down, yes.

[Prakash Sharma, SPEAKER at Jefferies India]

Got it. And you have in this quarter versus I think even the Q1, there is a reasonable increase in the agri slippages. So is this also a seasonal pattern that 3Q agri slippages tend to be higher than the 1Q slippages? Or is there a deterioration in the environment? And is it linked to microfinance?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

It is slightly higher. Normally, the December is slightly higher than the June. And but it is within normal, but nothing connected with microfinance or anything. Our microfinance is a separate book. And that book microfinance book is less than 1% of our total book.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

And we have 5% of our workforce. There's more good social and a very stable book, well performing, lend to women in the rural area, handheld by our relationship managers to get them to produce various articles. We are quite proud of the book and performance of the book.

[Prakash Sharma, SPEAKER at Jefferies India]

Awesome. And why do you keep a lower coverage on the agri loans because I thought this is unsecured or a difficult market. Is it secured in that sense?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Yes, it will be. And at the entry level, you know that the agreed provision will be lower than the 70% or so in the first quarter.

[Prakash Sharma, SPEAKER at Jefferies India]

It is also lower.

[Prakash Sharma, SPEAKER at Jefferies India]

Is that what you're trying to say? The LGD on this book is lower than the rest

[Prakash Sharma, SPEAKER at Jefferies India]

of the book?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So the loss given default will be over the lifetime, yes, it will be. If you go through an e seal model, it will be far lower.

[Prakash Sharma, SPEAKER at Jefferies India]

Got it. Got it. And last part is the agri slippages as you report and the agri loans that you report, are they like to like or they are different cuts? [SPEAKER UNIDENTIFIED COMPANY

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

REPRESENTATIVE:] They are like to like.

[Prakash Sharma, SPEAKER at Jefferies India]

Okay, perfect. Thank you so much. Good luck.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you. Thank you.

[Operator]

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

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Good evening, everyone. Just had 2, 3 questions. So first is, you've got this business I think portfolio, which is INR 3.5 trillion or INR 1,000,000,000,000. Is it possible to get some more color on this book? What proportion would be to the individuals?

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

What proportion would be unsecured or secured in this portfolio?

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Sorry, Rahul, in Business Banking, you're saying?

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Yes.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So Business Banking Book Point is largely secured, Correct.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

It is secured.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

And it is still

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

The self employed

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

will be in unsecured in the peers, the retail part of it. Okay.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

The smaller book is Yes,

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

which is very stable.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Which is not And that's used for the business purposes?

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

That is correct. Self employed.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Okay. That is correct. How much would that be, Sashin?

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Have you given that number out?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Part of the overall portfolio, there's no change that we've seen there.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

What? Which one?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

The business, the individual business.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Fair enough. All right.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

Two more questions.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Okay, got it. Thanks, Hashi. The second one is on PASA. Appreciate the feedback on the response that you gave, Srini, about the choice of relationship that the business leaders are deciding.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

But at the same time, this is adding up to the cost of funds. So if you are losing the proportion there, are we able to pass on to the borrowers in the same magnitude, I. E, are we able to protect our spreads for the change of mix that is happening at deposit level? Because I know it is not specific to Agency Bank, it's a system wide phenomenon, but this issue has been continuously under pressure, may not or may take time to bottom out. Until such time, whatever incremental lending are we doing, are we able to pass on that incremental cost to those borrowers on a like to like basis?

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Okay. Rahul, the short answer is yes, you can't pass it on because if it is a retail customer, it tends to get into adverse selection. And the non retail customer is extremely sensitive and actually the spreads are tightening. It's moving on the other direction. You see the bond spreads in this quarter, the bond spreads have come off AAA or AA or whatever category, NBFC corporates, if you see anywhere between 10 to 25 basis points, the spreads have tightened in the market in this quarter, in the recent time period.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

So the possibility of a pass on, we wish, but that is not other than getting any other selection, we are very cautious. And it won't pass our credit even if the frontline goes down to different customer segments. So that's in terms of lending as well.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

How do we protect the margins on a go forward basis? How would the margins trend? Of course, I understand the repricing of the HDFCS Limited borrowings has been taking place. But just keeping that aside, what is the drift of spreads or the margins to envisage in a declining Casa environment from these sellers?

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

So, Rahul, good question. We have seen it over 30 years, how the composition of our deposit mix changes with different interest rate cycles. So in a high interest rate cycle, obviously, the CASA ratio is down. And as we expect in a couple of years, the economy trying to move northwards. We should see rates coming off.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

We should see the Casa volumes moving up, people or the TD volumes coming down, TD rates cooling off. And that will have there is a huge correlation to that and the CASA volumes in the system itself. So we should start to gain share, better incremental share, because ultimately some of us in the banking system have a such customer segment is primarily the middle and upper middle income segment, including all in this call. I mean, all the fraternity in this call of 875 participants in the call, including in the room that we are all sitting, all of us depict very similar consumer behavior in terms of trying to either move our funds to better yielding alternative assets or lock it into higher TDs with the expectation that TD rates will cool off. So therefore, at least if that's a segment we have been very consistently focusing, the accentuation or the deceleration of cost ratio will be slightly sharper for us, and that is exactly what we're seeing.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

As Srini mentioned, it doesn't mean that we sort of say no to our customer segments saying that, sorry, we don't want to take deposits, because it is not doing it's not helping our cost of ratio. That's not how we do. We offer all our products. And as it happens, it seems to be more or less we match ourselves with some of the large peer group banks. And so we do operate it.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

We are happy to take it even though it may be a slight deterioration of this. But these are very cyclical and this in the medium to long term will normalize. And as I said, you will see a kind of an uplift the moment you see the rate cycle changing. And of course, it doesn't happen very coincidentally. There will be a little bit of a lag effect, but definitely, there will be better CASA ratios coming off in the next couple of years as well.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

And that should see bounce back into the margin uptake that all of us, including yourself, had been looking for.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

In the meantime, we do add customers, dollars 1,900,000 liability relationship to get that new account value, dollars 96,700,000 customer relationships. We'll continue to focus on that to bring the new account.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Very helpful. Thank you so much. Just one more question. When we look at the employee headcount that went out in this quarter sequentially, branches on a Y o Y basis, as you said, open 1,000. Credit card market share seems to be inching higher.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

So at what stage so it seems that the bank is getting ready to tap into the growth opportunities. NDR is down to 98. So at what stage, Sashishini, would you start to accelerate the pedal to see that refined NDR is now well within the range that you wanted it to, but sequentially the growth can start now coming through. At what stage can we start the bank to get into the growth path more on a sequential basis, quarter on quarter basis from these levels?

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

I think whatever we had committed, in fact, if I remember, it was in your in a call with you, which we sort of shared it with the world at large. And that is the kind of commitment that we continue to maintain. We are on track, as I have mentioned in my opening message that whatever we are seeing is in light of the call that we have taken at that point in time. So you will see this in FY 'twenty six, you will see a step up. In FY 'twenty seven, you will see a further step up.

[Sashidhar Jagdishan, MD & CEO at HDFC Bank]

I mean, I do not know which quarter. Obviously, we have the ammunition ready in terms of capital, in terms of liquidity through a high LCR. And we continue to outpace deposit growth as we speak. So, I don't think that should be a constraint as if there is an opportunity for the economy to change positively and outlook getting better as interest rates coming off, I think we should sort of see a bit of a step up there.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Great. Thanks, Ashish.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Thank you, Ashish. Thank you, Ashish. Thank you, Ashish.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Thank you, Ashish. Thank you, Ashish. Thank you, Ashish. Thank you, Ashish. Thank you, Ashish.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Thank you, Ashish. Thank you, Ashish.

[Rahul Jain, MD & Head of India Research at Goldman Sachs]

Thank you, Ashish. Thank you, Ashish.

[Operator]

Thank you very much.

[Operator]

Ladies and gentlemen, we will take that as

[Operator]

the last question. I'll now hand the conference over to Mr. Vedanathan for closing comments.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Thank you, Nirup. Thank you all the participants for coming in today. You can get in touch with us for any other clarifications, questions or matters that you want to cover. Our Investor Relations team led by Bhavan will be available and where we can today or tomorrow or any time and we'll continue to keep engaged. Thank you.

[Srinivasan Vaidyanathan, CFO & Group Head Finance at HDFC Bank]

Bye bye.

[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.

Participants

Executives

• Srinivasan Vaidyanathan, CFO & Group Head Finance
• Sashidhar Jagdishan, MD & CEO

Analysts

• Mahrukh Adajania, Senior Equity Research Analyst at Nuvama
• Chintan Joshi, Indian Financials Analyst at Autonomous Research
• Kunal Shah, Director - India Banks & Financials at Citigroup
• Suresh Ganapathy, MD & Head of Financial Services Research at Macquarie
• Pranav Dheeeraj Gundlapalle, Senior Research Analyst at Bernstein
• Rikin Shah, Vice President at IIFL Securities Limited
• Nitin Aggarwal, Head of BFSI Research at Motilal Oswal
• Ravi Purohit, CIO at Securities Investment Mgmt. Pvt. Ltd
• Param Subramanian, Vice President at Nomura
• Saurabh Gupta, Executive Director at JP Morgan
• Abhishek Murarka, Director at HSBC
• Prakash Sharma, SPEAKER at Jefferies India
• Rahul Jain, MD & Head of India Research at Goldman Sachs