HDFC Bank Limited Q1 2027 Earnings Call

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q1 FY 2027 earnings conference call on the financial results presented by the management of HDFC Bank. As a reminder, all participant lines will be in the listen-only mode, and there'll be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you. Over to Mr. Vaidyanathan.

Thank you, Niraj. Good evening, and warm welcome to all the participants. We have today with us our CEO, Sashi Jagdishan, and our Deputy MD, Kaizad Bharucha. I'll hand off the call to Sashi. We can take it forward from there. Please. Thank you, Srini, and thank you all for joining in on this investor call for the Q1 results for FY 2027.

As you know, we navigated this during this period, certain challenges over the last four months. Our people have kept steadfast focus on customer needs and further build the franchise. It's been a very tough period, but I really am proud of them, and thank you to each one of them who really stood behind in continuing the strength and resilience of the institution. I also sincerely thank the board for their guidance and more so Keki Mistry for chairing as the interim Chairman during this period. I also heartily welcome our new Chairman, Rajiv Kumar. We look forward to taking the franchise to the next growth stage.

With appointment of Mr. Rajiv Kumar, there is a sense of stability and a clear signal to minimize uncertainties in a very short time period. Coming to some of the accomplishments in Q1. The deposit growth continues to be relatively better than the historical Q1 trends. We continue to gain market share both on an incremental basis and on a stock basis as well. Our productivity at the branch continues to move up, and we realize benefits of the investments that we've done over the last five, six years. Advances, as we had envisioned a while ago, I think we are on the verge of pressing the pedal. As you have seen, the advances have done very well over the last three, four quarters, and the trajectory continues. We are focusing on certain customer segments to manage more longer-term opportunities.

Our focus now, as I may have mentioned in the past and also in our annual report, we are trying to take customer service to a different level, especially in focusing on the turnaround time of our product and service offerings. We are now measuring it at a more granular level across the length and breadth of the country. We are reimagining our digital journeys and analytics so that we are able to have new levels of adoption. That should sort of bring in fair amount of efficiencies in the quarters to come. As regards to environment, we see our policy responses have been very timely and effective. There is a very healthy credit demand that we are seeing in the system as we speak. We believe that the FCNR policy window that has been offered to the banking system is a great opportunity, and we are focusing on that.

We have spent a large part of the month of June in completing the documentation and approvals necessary from our side and also from the counterparty banks across various jurisdictions. The ECLGS scheme 5.0 is also a very good opportunity, and you will see a fair amount of growth that we will pick up in the mid-market segment. Competition has been very intense both on the corporate side, where the spreads continue to be very thin, and we have been rather selective. What we are also looking at a holistic primary relationship engagement. The deposit rates on the granular side has been reasonably stable, but on the non-granular side, I think rates have continued to remain elevated. This quarter, you may see some amount of mix change in terms of more non-retail, shorter-term asset mix, the cost of funds moderation.

These are all elements which I believe are just tactically being managed. Fundamentally, the franchise continues to be extremely strong, and we will be stepping up the multiple product offerings and one customer view, and you will see the changes happening in the quarters to come. Productivity is a very key focus, and you would see the outcomes of the efficiencies from our focus on digital adoption, the process re-engineering, the kind of customer focus by the senior supervisory architecture, which will ensure that we are able to turn around the delivery times much shorter than what we have ever enjoyed and what the best-in-class market is offering today. We have provided a fair amount of tools for deeper customer engagement, as I did allude in terms of technology.

We are on the cusp of really harnessing some of the GenAI technologies on our processes, and we do have a fair amount of lighthouse programs that will go into production during the course of the year. Obviously, all of us realize that security is going to be an extremely important part of our strategy, and we are focusing on seeing how we can leverage on AI to augment our defense mechanisms as well. Of course, there are risks in the horizon in terms of the weather-related disruptions like El Niño and also the geopolitical situation in West Asia. I think the country has weathered these reasonably well. I think we continue to remain very sanguine. We are prepared for, as a country, and hence as a company, in terms of weathering any such challenges in the near future.

I once again thank everyone for a wonderful performance, despite a lot of challenges that have happened over these several months. I think good times are here to come, and we stay committed towards customer and other stakeholders in terms of what HDFC Bank has always been to all these stakeholders over these last 30 years. Thank you so much, and over to Srini and Kirti.

Thank you, Sashi. Neeraj, with that, let's open up the line for questions. We'll go straight jump into the questions relating to the earnings of the quarter. Please go ahead. Thank you very much.

We now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Please note, participants are requested to restrict to two questions per participant and rejoin the queue for a follow-up question. First question is from the line of Mridula Jania from Tara Capital Partners. Please go ahead. Yeah. Hi, good evening.

My first question is on margin. Do you think margins have bottomed out now? That's my first question. What are the headwinds or tailwinds for margins? How would the FCNR mobilization impact them? That's my first question. My second question is that HDFC Bank does require one more ED, right? When will we hear of that appointment?

Okay. First, probably I'll take the first part of the question, how to think about the margin. There are two aspects, as you know. One is the cost of fund is the biggest opportunity on the margin where, compared to our historical norms as well as compared to what we have seen in the industry as such, there can be 40, 50 basis points change, but it is not going to change in a hurry. There are the elements of that is one is the country's liquidity scenario needs to be slightly different than where it is. For example, even in the recent quarter, the average liquidity in the system was about INR 2.08 trillion. However, the peak was INR 5.5 trillion and the trough was a negative INR 0.43 trillion. There's a big difference between the peak and the trough, and on average it is INR 2.08 trillion.

We need that standard deviation to that average to be minimal, then there could be kind of an active kind of a market where the rates can stabilize well. That's part of what the policy has also envisaged, and you've seen that FCNR or the swap window and all of that is in the direction to ensure that there's adequate flows and there is a stabilization of the rates there. It depends on that, and that's what determines both the deposit cost, particularly the non-retail deposit cost. The retail deposit cost, us as well as various players in the industry, have been circumspect and have been steady there. The non-retail deposit costs have been elevated. Similarly, the borrowing mix has not come off yet. We still remain at about 11%. That continues to be a space that we keep watching.

Again, it doesn't change in the short term and doesn't change in a hurry. CASA mix, again, we've been relentlessly following up on the CASA. On a quarter-to-quarter basis, we can't see and we don't judge, but on a yearly basis, for the year that went by, for example, March 26, for which data got published across the industry, while we grew between 9.5%-10% or so, we still gained market share on that front. We do envisage and we are positioned with our distribution and customer addition to get that. Again, that is a journey and not a kind of a shorter-term impact. That remains on that. On the asset yield, asset yield is a function of if you ask me whether the margins have bottomed out for the year, we can talk about.

Quarter-to-quarter, we cannot, and we don't manage for the shorter term. The reason is there are timing in the year through which various types of loans get booked. We have to wait for the year to see. We do think that on a full year basis, we are well-positioned, with our reach and with our customer selection to be better.

As regards the second question that you asked about enhancing the number of the full-time directors on the board. Yes, there are several milestones which the board has seized of, including with the appointment of the new chairman, new part-time chairman, some of which all of you know. I think a fair amount of action will be visible in a short time period. I would like you to sort of wait for the same.

Okay. Thank you very much. Thanks. Thank you. Next question is from line of Pranav Gundlapalle from Bernstein.

Please go ahead. Hey, good afternoon.

Thanks for taking the question. Question is largely on the branch network where we had a big boost in FY 2022, 2023. Do you think that all the branches that were added in that period are scaling up the way or have scaled up the way you would have initially expected? The related question is on the SA market shares, which the incremental market shares have largely flatlined despite the branch additions. What should change for us to once again start seeing meaningful gains in SA market share?

I'll first talk about the branch as such, right from a branch vintage model. Yes, about close to 40% of the branches are less than five years. Yes, those time periods that you mentioned, we did made a significant addition to branches. If you look at the per-branch metrics, we are about INR 330 crores per branch currently. If you go back to the 2023 time period, we were INR 266 crores per branch. If you go back even further, it's less than INR 200 crores.

The point is, the branch addition at an aggregate level, the early vintages are performing to the legacy branch vintages, and the legacy branch vintages are also progressing towards what a 10-plus years and 15-plus years will do, which is what is demonstrated in the average per branch when you see it, INR 330 crores per branch is extremely productive and one of the best in class in the industry on a per-branch basis. The branches are behaving according to the model that is envisaged. One thing I want to mention is that while it is very important that the branches are the key arm to get the deposits in, branches are a very significant part of how we grow part of the retail assets and the small and medium enterprises loans, SME loans. The wholesale and the top corporate, mid-corporate loans get centrally managed through various relationships.

The branch level is where all the other segments operate, and the growth that you see there, these branches do deliver all of those things. I just want to leave the thought there. In terms of the SA, the savings account that you mentioned, one thing that if you look at the household deposit growth in the country as such, when you look at the data that gets published by RBI across various categories, segmentation of deposits, household deposit growth is one of the lowest among various. When you look at the corporates, when you look at the government and institutions, and when you look at the households, the household deposit growth is one of the lowest. That doesn't mean that's how it's supposed to be. That it's going through that phase of how it's remaining in the single digit.

The way we have approached to address this is, there will be only a certain level of savings accounts anybody will have, that is why the distribution reach and addition of the customers is about the increasing the unit, thereby the unit value can marginally go up. We need the unit. This is about the unit economics that we need to drive, and at the same time, as we drive the unit economics, we are today a little more than 100 million customers. As we drive the unit economics, keep the cost in check and under control on efficiency so that we scale this. That's what is happening, is the scaling is happening with unit economics slightly moving because we are not counting on the household deposit growth to go from 8%-9% to a 15%.

That may happen, may not happen, but that's not our approach. Our approach is to increase the units to get that benefit. Sashi can add. Sashi, if I can just follow up, my question was largely on the relative basis.

You obviously had a very high productivity to start with, but if you see it relative to the system, it's actually come off a bit in the last three years. Same with deposit growth, SA growth, et cetera. You had, we say, a very big delta of the system with our peers. That seems to be narrowing. Some color on what has changed. Are you adding the same number of accounts? Is it balances that are coming off? Some color there that'll reassure that you'll eventually get back to industry leading growth.

Pranav, thank you for that. Number 1 is, you yourself alluded the fact that we've had a fair amount of investment in distribution over these five years. Our denominator has a fair amount of branches which will start to generate more and more customers and hence balances as we start to move into the 0 to 5 to 10 to 15 vintage of these investments, that will happen. You have seen in our presentations how the economics work for different vintage branches. Number 2 is, despite that, the productivity may have come down relatively, but it's still one of the best in class in the industry.

The second part of it is, as Srini was saying, it is a fact that in the last couple of years or more so three years, the industry and the system were also plagued with a fair amount of number of accounts which were not necessarily behaving in an orderly manner. What I meant by that is, you did see a fair amount of fraudsters using accounts as mules, and that sort of started to increase in the banking system significantly. We use a fair amount of our algorithms and rule engines to try and see how we can bring in some amount of quality acquisitions over the periods of FY 2024, 2025, and 2026.

I think these are the three or 25, 26, which is what we did, and that was pretty much reflected in the slowdown in the new acquisitions because we were gearing ourselves to the new realm of better quality acquisitions. As we now move forward, you will, and one should see a step up in the, as what Srini calls it, unit economics in terms of the numbers moving up at the quality and the kind of diligence that one would necessarily need in this kind of a digital environment, and that is what we are trying to do. I guess, it was a matter of correction to ensure that we put in a guardrail not to bring in unwanted accounts.

I think as we move forward, I think we are reasonably confident that we not only should reach reasonable, healthy numbers in terms of annual momentum, depending on the capacity of the overall 9,700 branches, but also the quality acquisition value, unit value as well. My hunch tells me that I think you should see reasonably healthy growth over a one to three-year period in the savings account as well.

Very clear. Thank you, Srini and Mahesh. Thank you. Thank you. Thank you.

Next question is from the line of Kunal Shah from Citigroup. Please go ahead. Yeah. Thanks for taking the question.

Firstly on margins, now we are almost down to 3.4% odd. Borrowing has also come off to 11% odd, and we had highlighted that it can come down to eight, nine, so not much room left out there. Obviously, it's a competitive environment. With this franchise, where should we eventually see margins settling down? Earlier the expectations were much higher, but now it's trailing a bit, and what would actually lead to this? What are the levers available for the same? That's the first question. Second is, when you look at it on the FCNR deposits, last time we were quite active. We mobilized the largest chunk.

If you can just guide in terms of, you mentioned like documentation is on, but what is the kind of number which we would look at or maybe the market share in the overall FCNR deposits that we would want to target at this point in time? Thirdly, on CEO reappointment, if you can just highlight in terms of where the process is, because it's now due. Has it been already applied to RBI, or would there be announcement from the board in terms of the approval and then we would see the application to the RBI? If you can just highlight in terms of the process, where we are in terms of the CEO appointment. Yeah. Okay. I'll handle the margin then.

First is, Kunal, thanks for asking that. One is I do want to mention that the borrowing mix, which is at 11%, we don't expect that it'll just settle at eight or nine. Right? The industry is more like a five or a 6%, right? We do think that the maturity should take care of that to some extent, and the overall growth should also take care of it to the balance of extent, because as the growth happens and you don't need to fund only through borrowing, so then the borrowing % will go off and come down. That's one. Second thing, connected to that you asked is, what is the longer-term margin? Where does this settle, right?

as I mentioned, both from when you benchmark and see against us and against the peer group and so on, the cost of fund elements that needs to play out are very much intact.

Hello? Participant, please stay connected while we check the management connection.

Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Kunal, may I request you to help sir where the line dropped, please?

Okay. Thank you. Kunal, where did it get dropped?

Sir, you were mentioning that cost of funds benefit is yet to play out. Yeah. Cost of funds benefit will play out, it is very much in the works both in our annual review of plans as well as our strategic review.

It's very much where we envisage and receiving the attention of various verticals to get that, right? Both from a mix of products within the deposits as well as mix of borrowings within that, very much there to get that. On the asset side, that's where I think it got cut off. On the asset side, the mix of assets is also an important contributor for a longer-term margin. Today, we are at a 52% retail mix.

At our kind of an experience that we have seen, we were at about 60% or so, we always have thought that India's consumption component of the GDP is at about 60%, that's where we want to be, as far as the retail mix is concerned because that's when we'll mirror the economic growth and fortunes in the country, so we can be going in tandem with that. So that mix of the asset is also an important contributor on that.

As regards the third question that you had on the reappointment of the MD, I can share with you that the NRC and board is fully seized of the matter, that is work in process. As they arrive at a conclusion, we will certainly make the necessary announcements in that regard.

As regards FCNR(B), as I mentioned, even in 2014, the pace starts to pick up only in the second month of the announcement. The first month, like in 2014, I think we have spent a fair amount of time in the documentation part of it and the approvals, both internally and also the respective counterparty bank. You will see in the month of July, August, September, we have certain milestones. I'm sorry, I can't sort of put a number to that in the public domain, you will see a very handsome or that's the endeavor to ensure that we are reasonably strong and significant market share in the month.

Kunal, can you hear us?

Thank you. We can go to the next. Thank you, Kunal. Thank you very much.

Next question is from the line of Seshadri Sen from Emkay Global. Please go ahead. Hi. Thank you for the opportunity.

Can you hear me? Yes, sir.

Hello? Yes, Seshadri. Yeah. Thanks for the opportunity.

A little bit of a follow-up on Pranav's question on deposits. Am I to understand that this decline in the CASA ratio is temporary or is a passing phase, and as your customer acquisition engine start to fire in, we will see a restoration also? Seeing the share of wholesale deposits rise, albeit not by a large amount, but it's gone up from 17% to 20%. You're right, that does reflect what the RBI has been talking about in change of the composition of deposits. Being a large bank, do you think that even if the system continues to gravitate towards wholesale and non-CASA deposits, you'll be able to get back to your earlier ratios once your customer acquisition engines start to bear fruit?

Okay. Let me try and attempt that, Sesh. For a start, the endeavor and our vision is to reach to somewhere near the pre-merger levels, or just around the time of the merger, which was around 38.

Post the merger, we were 38, and before that we were 40.

40. As Srini has alluded, obviously there has been a significant change in the household savings pattern over the last three years more so. What are we trying to do? We're trying to see how we can gain more incremental market share on our low-cost funds, much more than what we have as a stock share. That's the first part of it. Obviously, our appetite to grow is much more, so there is a need to even grow our time deposits. And the result is because if you need to grow, then you would need a certain amount of time deposit growth, which invariably over the last couple of years has been much higher than the low-cost funds growth rate. Therefore, the CASA ratio has been a little bit on the lower side.

The thought process that we have, as Srini did mention, is that we are probably now after putting in our guardrails in terms of what kind of customers need to come in into the institution from an acquisition perspective. I think we are now ready to press the pedal. I think that is what I think the entire franchise is driving About maybe over the next nine months, we hope to see a fair amount of change in the acquisition numbers and hence value.

If that sort of really changes the growth rates to be much better than our time deposit growth, I think that will be wonderful. Obviously, a world is not so perfect. Having said that also, if you are also 50% of your balance sheet is non-retail, which is wholesale, you cannot really ignore that particular franchise as well. We cannot sort of pick and choose what we want. We need to ensure that we are there for all the needs of the corporate customer, whether it is for deposits, whether it's for cash management, whether it's for any other type of facility, as long as the appetite is there for us.

Yes, this particular quarter is, as I said, we're now not looking at a quarterly measurement. We want to see at the medium to long term. I think while this quarter it could be a 20% mix in terms of deposits, et cetera, I guess these things then normalize, then in the medium to long term, I think it's been more or less stable, which is what we have seen over the last 10 years. Our focus is going to be on retail because that's where you get the advantage on deposits, that's where you down the cost of funds. At some point in time, from a holistic relationship perspective, we need to patronize some of the capital markets and also the corporate segments as well.

Be as it may, whilst margin is something that I think a lot of us have been focusing on, for us, there are areas that we want to first, because margin will play out as we move forward. I'm sure assuming all things remaining same from next year, the base effect will wear off, and how this sort of plays around is not something that I'm necessarily focusing. I need to be in the market. We need to be competitive, but we want to be competitive in such a way that we are able to garner a lot of efficiencies arising out of our enhanced and stepped-up focus on customer service, which will bring down turnaround time and hence will bring down the capacities, the back end, which will move to the front end, which will see a fair amount of efficiencies over the next two, three years.

This is how we are planning strategically. If in the bargain, in the process, the outcome also sort of helps us in getting a better low-cost funds proportion and hence better margins, I think that's a kind of a bonus as well. We are very focused on three or four things. Customer focus to the level of obsession, riding on technology, especially in terms of embedding AI in our journeys. Three is trying to ensure that our daily operating rhythm just reduces the turnaround time for product and service delivery. Four is stepping up and releasing a lot of capacity at the customer-facing end to be able to engage more with the customers and hence more of business momentum coming about, which is growth. Then the very fact that we are cutting down on turnaround time, efficiency should lead to better cost to earnings efficiencies as well.

This is an offset, which is what we are looking at, and if in the bargain that we also sort of get the benefit of improved CASA ratios, CASA mobilizations over the next two, three years, I think that's got to be a jam in overall strategy.

Thanks. Just a quick follow-up. Given your investments in front-end tech and customer service, do you think there's also an opportunity to increase wallet share in existing and vintage customers? You were talking about customer acquisition being a driver, but do you think that that's also an opportunity?

Yes, absolutely. See, the moment we start to focus on that, and when we try and create a kind of best-in-class experience, why would any customer move out? Rather, that's one of our key objectives, gain market share within our existing base itself or even from a new-to-bank acquisitions as well. That's going to be our next two, three-year journey, and we are all seized of this. We're not sort of too worried about the segmentation. We need to be agile in any customer segment that we are participating in. Today, we are focusing on more and more in the retail and MSME segment. I'm sure we have a stronghold in the corporate segment, but even on that, with the implementation of new technologies over a piece of time, we have been prioritizing more on the retail and MSME segment.

I'm sure that even the wholesale corporate and capital market segment will also get that, and that will also sort of see a kind of a change in terms of the wallet share increase.

Thank you so much. Thanks, and all the best for the rest of the year.

Thank you, Seshadri. One thing I do want to add is that while there is a relentless pursuit for CASA, granular CASA, that includes current account too, from the retail merchant type of customers, time deposit continues to be a very big opportunity because only 14% of our customers have time deposits with us. There is an enormous opportunity for a deeper penetration on that. It's not this or that, it's both. I just want to mention that.

Yeah, sure. Yeah. Thank you very much.

I request all the participants, kindly limit yourself to two questions per participant. Next question is from the line of Suresh Ganapathi from Aquarii Capital. Please go ahead. Yeah, sure.

Thanks. Just two questions. One thing is your PAT growth or your earnings growth has been lacking your balance sheet growth, right? If you look at last year, if I look at this quarter, it's been just 5%. Balance sheet growth is well upwards of 13%, 14%. Are you confident over the next two, three years you can get earnings growth above balance sheet growth? Because if you're going to grow at 15%, would earnings grow well above that? Are you confident of doing that? That's the first question. The second question, one of the biggest aspects post the merger is that sharp decline in CASA down to 34%. I know there are several reasons for it. All of your peers are at 40%, and even RBI's own financial stability report has explicitly talked about that the correlation between rates and CASA is breaking down completely.

It doesn't mean that if rates are going to go down, CASA may go up or anything like that, as per Reserve Bank of India's own report. How can you go back to the levels of 40%? Just wanted an answer for these two questions.

Okay. The first one in terms of the profits, Suresh, just to mention that the headline. Nirav, just see which line and mute that line.

Suresh, can I request you to mute your line from your side, please?

Yes. Thank you. Okay, yeah.

Let's go. Suresh, you asked about the profits. The reported profits when you compare last year, this year, it does show 5%, but last year included certain one-timers like HDB gains and then we add a floating provision, countercyclical buffer that we added and some contingent provision and so on. Adjusted for that, I think in one of our reports that we filed, it shows 9.8% profit growth. Yes. 9.8% profit growth is still lower than the overall balance sheet growth. Correct. We do think that in the longer term, that the profit growth should be at or above the balance sheet growth. Yes. That's still in our plans and that's how we approach. Again, please don't look at quarter to quarter. Since you touched upon the five, I talked about the 9.8.

You should look at the full year, yes, that's part of how we envisage to do. The second aspect that you touched upon is also where CASA correlation to the rates. Yes, we are cognizant of that fact, and we have seen over the last few years about the household deposit growth and how that is functioning. We are also aware that you and me included, every individual is going to keep only certain level of their individual's working capital, so to say, the needs in the savings account. Similarly, the small merchants, which is our target for current account into their current account. The way I was describing to another person was that it is about the unit increase.

That is why the distribution is important. We are adding customers into that. We are more than 100, 101 million, 102 million customer relationships. We'll keep building on that, and that's an important ingredient to get that. Yes. Can it organically grow by the nominal rate of 10%? Yes, it can go nominally 10%, anything more gaining on the market share comes through the unit economics here, which is get more units for the same average balance.

Thank you. Thank you. Thank you very much.

Next question is from the line of Abhishek Murarka from HSBC. Please go ahead. Yeah. Hi, good evening, and thanks for taking my question.

I'll just squeeze in four direct questions. One, can you quantify how much of the bonds are maturing this year and probably this quarter? What is the rate differential? What is the rate benefit you are getting on the maturing bonds versus the retail TD rates? That's one. The second one is, if I look at your interest income breakup, and if you look at the interest on balances with RBI and others, there are pretty high balances over there. Is there any one-off or some kind of refund or anything else? Why is that growing at 50% quarter-over-quarter or 20% Q? That's just some explanation around that.

The third is, on ECL, can you quantify what would be the one-time impact and also on an ongoing basis, how much would your credit cost be impacted? Yeah, those are the three quick questions. Thank you. Sir, can you hear us?

I believe you're on mute.

Yeah. The annual report we just published a few days ago will show you the profile of maturity of borrowings. You'll see that INR 40,000 crore or INR 50,000 crore over the next couple of years, you'll see that. It does have a differential in rate. It's little more than 7% to, if you get a retail, it could be 6-odd percent. You can pick up 100 basis points, 125 basis points, depending on the source of the time deposit. If you just replace borrowings with time deposit. You envisage to replace with a mix of time and CASA, but only time, little more than 100 basis points you will see. Second question, we didn't get that second question. You can repeat, but we'll go to the third. On the ECL method, see, there are two aspects.

On the ECL method, the overall provision that we are carrying seems adequate and sufficient for the ECL methodology, which is going to kick in in 1st of April 2027. One thing on the ECL that you need to take into account is that, at that time, it depends on the pool position, it depends on the behavior, historical behavior, of that pool position. That is various pools of assets I'm talking about. You look forward from there for 12 months, right? That means whatever is the various categories of pools, from that you look forward for 12 months from then on, you have a modeling. On top of that, there is a flexibility for management overlay, there are floors to take into account.

Considering where we are today and looking 12 months down the line, we do believe that our reserving process and the reserving methodology is quite adequate, right? For us to think about the Stage 3 assets, which is equivalent to the NPA today that you have, that coverage is quite adequate there. Stage 1 and Stage 2, which are in various buckets of delinquencies, Stage 1 is not in any delinquency, Stage 2 could be in various buckets of delinquency. The floors that are there, for example, the floor in the unsecured category is 1%, the floor in the secured category is 5%. No, Stage 2 is 5%, and so on. If you look at that, the standard asset carries a 40 basis points provision, here the floor is 1% for unsecured, and for Stage 1, and then for Stage 2 it is 5%.

There will be enhancement. Those enhancements are adequately covered in various manner through various contingent provisions and others that we have. We feel confident of working through this process on the reserves. The second question we didn't get it, you can repeat, yeah.

Sure. Just to clarify on ECL, at the time of transition, you don't see much of an impact. You have enough provisions for that.

Yeah. After transition, on an ongoing basis, do you think there will be a material increase in credit cost, like, I don't know, five, 10 basis points or 15 basis points, anything of that sort?

I don't think there will be anything material, but there will be some because as exactly I described, standard assets today are approximately 40. There are some 25 basis points, some 100 basis points, but on an average, 40 basis points standard assets. That, by definition, because of the floor which are there, unsecured floor is 1% in Stage 1, which is standard. Stage 2 in any delinquency bucket, the floor is 5%, and so on. Because of the floor, there will be enhancement. The way we look today and look forward from here, it would be some impact, but nothing material in terms of the impact.

Thank you. I request all the participants kindly limit yourself to two questions per participant. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead. Yeah. Hi, good evening, everyone, and thanks for the opportunity.

I have two questions. One is around growth. Now with this, we have started 1Q on a healthy note with this FCNR opportunity that is there. Are we looking at an improved growth run rate this year? We earlier talked about that we want to grow higher than the system, but I believe with the system in a different tangent. I'm not sure we'll want to really go by that. Any number if you can share our growth estimate outlook that we are targeting at? That's one. And second is on the PCR provisioning coverage. We have seen some downward drift in this number over the last few years. Post ECL transition, where we would like our coverage ratio to be maintained?

Nitin, I'll answer your first question, and Akshay need to take the second. In terms of growth, we've seen growth if you see the fact that we've already released and the advances made. We have seen very good growth happen in our corporate and wholesale segment. We've seen that grow at about 18%, and this is continuing from the growth that we had seen in the previous quarter as well, which was around those levels. We've also continued to see very good growth come in our MSME segment. Out over there, we have seen business banking, which is the largest component of our MSME segment, grow at 22.3% this year. This even tops what we had done in the March quarter.

Typically, June is a little softer quarter, what we have done in June in the MSME segment tells you the traction that we are seeing out over there. We've also, in the MSME, as you would be aware, the scheme of ECLGS 5.0 was launched. We have participated in that scheme. We have already, as of 30th of June, had a disbursement in that scheme of close to INR 14,000 crores under the ECLGS scheme. I believe that's amongst the highest in terms of the participating banks because of the spread of customers and the quality of the portfolio that we have out over there.

We have seen even the MSME segment grow very robustly, and I mentioned to you the pace of growth that has taken place over there. In addition to the wholesale and MSME, we have seen good growth also come through in our core retail segment. We have seen, on a year-on-year basis, very strong growth in our disbursements in the wheels business. We've also similarly seen a strong growth in our unsecured business on disbursements in terms of the personal loans and business loans that we do out over there. As well as, touching upon finally the mortgages piece. Again, we have seen a growth of close to 14% in terms of disbursements on mortgages on year-on-year. The earlier two pieces that I talked about, we have seen disbursement growth approximately of about 20-odd%.

That should give you a flavor of how we have participated in each of these segments, and we do see credit demand holding. We do see a lot of resilience, which has been there in the economy, even post what we have seen in terms of the geopolitical situation. Yes, we have to wait for the full impact of the El Niño and see, because that does have a bearing which plays out in the third quarter of the financial year. Therefore, we are well-positioned across most of our business segments in terms of how we have approached them, and there continues to be an opportunity and a relationship which we will continue to mine, whether on the wholesale segment or in the mid-market and retail segment.

Okay. Thank you, Caesar. I want to take your second part of the question relating to the coverage. The overall coverage that you see now is 66%, right? I would draw your attention to go back to 2019. The reason for that is in between there could be COVID, somewhere up, somewhere down in terms of coverage, and subsequently, there was a merger, somewhere up, and then subsequently down. Right? In terms of various coverage. There are several other nuances in between. You go back to a longer term, what the coverage is. It was 71, now it is 66. Right? That is the headline coverage.

Yeah. If you peel that and get to what is it, if you look at the coverage excluding the agricultural book, agricultural is the secured part of the book.

At that time, 71 was the total. Today, excluding agri, it is 70. It's a proportion of the agriculture book which is at a higher proportion right now. That is the difference that you are seeing in the coverage. That's number one. Number two, in the shorter term. Shorter term means when you look at a quarter or a year, kind of a shorter term, it is the secured-unsecured mix that shows the difference. If you look at the unsecured mix, the portion coverage will be in the mid 70s or higher. The unsecured will be lower.

No, secured will be lower.

Secured will be lower. The unsecured is in the mid 70s or above. The reason for that is if you look at our rate of growth that we had over a two-year period on some of those retail type of unsecured loans have been modest. Right. Even now, when you look at the book growth on cards is 2.3% or something, while the spend grows at 13%, but the book grows at 2% to 3%. Similarly, the unsecured on personal loan and so on still remains in the single digit there. Right. The disbursements are in a healthy double digit, but is yet to catch up on that. The PCR is a function of the composition of the book and where there is a necessity to build reserves, it is there. It's formulaic. It doesn't go through any kind of discretion.

It goes through a formula and gets it done. Same when we benchmark this to an ECL method also, which is the stage 3 ECL provision. We seem to be adequate there, too, even in the go-to model.

Right. Thanks for this. I have one small question, one more question, if I can squeeze in.

Go ahead. Sorry. The other question is on the FCNR.

You talked about that this will gain traction, but how should we benchmark whatever quantum we raise, what number should we benchmark that to? Should it be to the outstanding deposit share? Should it be to you raised in FCNRB on the time through that in terms of total quantum that HDFC Bank can.

Nitin, sorry to interrupt. We lost your audio in between.

Hello. Am I audible? Nitin, we're just commencing the drive.

While demand is there, we just don't want to commit any number. Let it start to flow, and you will see it. Definitely, if the system is X, we will be a significant portion of the system as we were in the 2014/15 period. That is our endeavor, and I think the entire team is quite gung ho to mobilize that. We are all energized, and I think we are on track towards that.

I'm sure. Thanks, Sashi, everyone, so much. Thanks a lot. Thank you.

Participants, kindly limit yourself to two questions per participant. Next question is from Manav Piran Engineer from CLSA India. Please go ahead. Yeah. Hi.

Thanks for taking my question and congrats on the quarter. Firstly, just on cost of funds, can you highlight how much cost of funds are down quarter-on-quarter as well as year-on-year?

I believe you're on mute.

Sorry. Yeah. Yeah. It is muted.

It was muted. Piran, I think it's whatever page the team will tell you, the cost of funds is published along with the yield too. Sequential quarter, I think it's almost there flat, a couple of basis points, plus, minus, it's within the range. Over a period of a year, I think it's about, call it, 40, 50 basis points. 40 basis points or so year to year. Yeah. Got it. Okay. Sorry.

Yeah. If it's published, I might have missed it.

I thought otherwise. Anyway, sorry for that.

No problem. Just in terms of loan growth, barring MSME, which segments are you confident that will result in a pickup in loan growth from current levels?

Because our retail growth has been fairly range-bound at 7%, 8% and, I don't know, it doesn't seem to be picking up.

Pran, the growth, as we have always said, is going to be a function of how the growth is being seen in the economy in the segments which are bankable by our credit underwriting standards. We have, I just alluded to an earlier response, where I talked about the fact that we have seen good traction year on year, on the disbursement side in terms of our core retail book, which consists of our wheels business, the unsecured, as well as the mortgage business. We do see that certainly picking up over the next several quarters. It doesn't happen overnight. It's a journey, and we are well on the path to see that really moving forward. We also seen good traction in the system on the mid-market and corporate side, and we have a very good franchise and presence in that segment where we are market leaders.

We see that also continuing to contribute in the year ahead. There are several drivers, including other products that we've got in our basket on the retail side, such as gold loans, which have started contributing. Yes, right now it's a little more smaller part of the whole retail basket, but growing very well. We've also got other microloans that we've started in terms of our dukandar lending, which is bringing up the core retail. We do see it being well diversified within the retail space, but I think both corporate and retail, along with mid-market, should continue to drive growth in the coming quarters.

Understood. Just lastly, you all have had a good leash on costs over the last two years now. Some part of it is technology, et cetera, AI. How do we get comfort around you all not, say, under-investing in the future of the business? No. Pran, I think on the contrary, I think the kind of investments that we have done over a period of five years has been one of the most, despite the fact that there have been a lot of events that have happened during these five years. I mean, whether it's the merger, whether it is COVID initially, then merger, and then a fair amount of investments. Distribution, investment in resources, and investment in technology has been there.

We are probably, as you may have heard Srini in the past, there's always an investment phase and then a harvesting of the investment phase that will happen. We also want to enjoy some of the things that what we have invested, is this sort of giving us the kind of returns as envisaged? I think you will see, while the investments will be slightly muted, especially in distribution for now, but technology will continuing because security and AI is going to be a very significant part of any organization which wants to really thrive into the future. That will continue to be there. It's just that what you're not seeing is that we have up-fronted a fair amount of investments, therefore, you don't need that kind of a large incremental investments, but the investments will continue into the future.

As I had mentioned, I think we are probably at the cusp of harnessing these investments, whether it's on the branch distribution or in terms of the technology investments. Over the next two to three years, this returns in terms of efficiencies will start to play out and which is what is going to be our key strategy, in terms of how we balance growth and efficiencies, offsetting some of the margins, if at all there is, in the same levels as we are today.

Got it. Okay. That was useful. Lastly, if I may request, I do this with all corporates, and this is probably the first chance I'm having here. If we could go back to weekday reporting rather than Saturday reporting, it would really help us a lot, and it would help you all because you all will get much more investor participation across the globe.

Okay. If you report on a weekday.

There is a reason why most of us are all doing on Saturdays. It's not that we have a joy in coming to work on a Saturday, I can assure you that, or to spoil your weekend. There is a reason why, because since the markets are closed and a fair amount of people will get exposed to this kind of information through the day, we just want to minimize some of the regulatory transgressions that may happen, if we do it on a weekday.

Yeah, I need to- All of us, a large part of the banking system, I think, is now gravitating towards weekend as a disclosure for this very reason.

It's not that we are not going to be ready on a weekday. We would be. It's a little bit of a high risk during that period.

No, that's true, sir. I think this argument is true for all banks, all companies, not just financials or all banks all over the world. I think it's just that Indian banks stand out, especially on this front. More so in an era where you all manage trillions of rupees of money and trillions of transactions per year, which are safe. I'm sure you all can keep your information safe- Sure.

-while reporting. This is just a request. I hope you all consider it with all due seriousness and thought. My questions are done, and all the best. Thank you. Thank you. We'll give a thought to that. Yeah. Thank you. Thank you very much, ladies and gentlemen.

We have come to the end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Thank you, and over to you, sir.

Thank you all for participating. With this, we'll close the call. If there are any more open questions, we'll be continuing the dialogue with any of you that you need to talk either today or any other day. Our investor relations team will be available. We'll stay in touch. Thank you. Bye-bye. Thank you very much.

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