Well, let's cut straight away to the HDFC bank management, their CFO Shinavasan Vedinadan addressing the media on their performance.
After the opening remarks, we'll straight go to question and answer session. With that, Sash over to you please.
Thank you Shini and thank you all for joining on the Saturday for the Q1 results. I would like to first thank the people, our people and our stakeholders as we navigated over the last few quarters. Our people have kept steadfast focus on customer needs and further build the franchise. I'm proud of them. A sincere gratitude to the board for their guidance through these quarters and also to Keki Mistry for standing in as the interim chairman of the board until now. A hearty welcome to our new chairman Mr. Rajiv Kumar. Looking forward to taking the franchise to the next growth stage. With appointment of Mr. Rajiv Kumar there is a sense of stability and clear signal to minimize uncertainties in a very short time period.
Coming back to some of the accomplishments, our deposit growth has been reasonably higher relative to historical quarter one trends. We continue to gain market share both on a stock basis and also from an incremental deposit market share basis as well. Our branch productivity continues to be best in class and over the next two to three years we should realize the benefits of all the investments and distribution we have done over the last five to six years. Advances as we had envisioned, I think we are on the cusp of pressing the pedal. Opportunities do exist and there is a fair amount of buoyancy in what we are doing at this stage. The environment continues to be very healthy. Liquidity augmentation through FCNR and swap window is an opportunity that we are focusing on. We were in the first month of June and this part of July. I think a large part of our work was towards building necessary product approvals and documentation both internally and with counterparties as well. I think over the next couple of months we should see the momentum picking up. As you know the government had flagged off the ECLGS scheme 5.0 and I think that's a great booster for us and we will be a significant player in the mid-market as well. Competition continues to be very intense both on the asset and liability side but we are going to be here as we believe that we are at the cusp of offsetting some of these intense spreads through efficiencies that we will gain through better service turnaround time and also leveraging on technologies.
Coming to the efficiencies, I think that is the most exciting part of what we are all endeavoring in terms of driving a certain sense of energy in the organization across length and breadth. Customer service continues to be top focus. It was always there but now it is on a very heightened basis. Our first focus is to see how we can cut down and reduce turn times on product and service deliveries. We are trying to resequence our technologies to have better adoption of digital journeys. We are embedding AI in our digital journeys to be able to fast track some of these into a virtually frictionless backend touch. This is going to provide not only a great customer experience but also translate into efficiencies which we will start to see accruing over the next two to three years. Obviously security is also one of the top of the charts in terms of focus not just for us but at the country level and globally considering that we have seen a new set of AI attacks or potential attacks that may arise. We are also bolstering our security systems to be able to defend such AI attacks as well. While the environment seems to be reasonably sanguine, we have seen a lot of macro challenges in the recent past but the economy has been rather resilient to withstand those kind of ups and downs in terms of liquidity, the West Asia conflict, currency movements, fuel movements. I think the country's macro fundamentals have demonstrated resilience that we are very proud of, and so is the portfolio quality not just for us but also at the banking system level. So things remain reasonably healthy at a macro level and at the institution level and we are at the cusp of having a different kind of energy over the next couple of years and that's what we are all focusing on. The medium and long term short-term gyrations will be there. It is not something that is our focus area. It's the medium to long term in providing or getting the efficiencies and driving stakeholder returns is what we are all looking forward to and let me pause out here and we take on any questions from all of you. Thank you.
Thank you, Sash. We can open it up and build a queue for Q&A. Thank you.
Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star one on the touchtone telephone. If you wish to remove yourself from the question queue, you may press star two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. A request to all the participants kindly limit yourself to two questions per participant and rejoin the queue for a follow-up question. First question is from line of Ritu Singh from CNBC. Please go ahead.
Thank you very much for the opportunity. Mr. Jagdishan, I could start with your comment. You're saying you're on the cusp of having a different kind of energy over the next few years. Of course there may be some blips along the way but two of the concerns that have remained with investors since the merger in terms of synergy play out: one, margins have not come back to the kind of levels we saw pre-merger; and two, the loan deposit ratio continues to be very high. Even in this quarter, your margins, if I'm not wrong, are the lowest that the bank has ever reported at 3.26% and the CD ratio at as much as 96%. On both of those fronts, when do you see a turnaround? What is really continuing to pain the bank? And on FCNRB as well, since you have this large presence overseas, what kind of target have you set internally for the bank to raise in terms of FCNRB? What kind of leverage are you offering? What kind of impact could that have on the margins as you go ahead and raise these? And finally, Mr. Jagdishan, before I get back on the CEO reappointment, we believe the bank was waiting for the new chairman to take over which has happened. What seems to be causing a delay and when is this expected to be cleared by the board?
So let me take on the CD ratio. Number one is, I think not just you may have seen the monetary policy in the past, it's very amply clear the CD ratio is not an indicator that is going to be focused on at least in the near future. It's going to be the liquidity coverage ratio. So that is exactly what we are also focusing. We are reasonably comfortable from a liquidity coverage ratio and that's a metric. So CD ratio is not something that we will be focusing for some time. That's number one. In terms of the margins, do you want to?
Yeah, let me take the margin. The margin, there are two aspects. One, the current margin that you're talking about. We would urge you not to look at quarterly. We have mentioned that in the past. At the minimum you should look at annually in terms of margin because quarter to quarter there are several customer needs that we will meet. If we start to focus on short term, we will not be able to meet the customer needs and appropriate franchise growth for the medium to long term. So we urge you not to bother with anything to do with quarter. That's one. Second, you touched upon in terms of longer term whether the margin post merger and from then when we get to pre merger and so on. That aspect of it continues to remain an opportunity space that we pursue both from a cost of funds as well as yield. Cost of funds is the mix of the borrowings and deposits as well as the CASA depending on how the household savings move. Irrespective of what goes on in household savings, that is the kind of investment we saw through a few years ago and started to expand the distribution. We are in 4,100 towns and cities for a reason that we want to make the unit economics work because you and I will maintain savings account balances only to certain level. We are not going to have disproportionate level of savings account balances. If we have, we will go and make other investments. So the way to operate, which we have invested and we are executing to, is the unit economics, which means we need more kind of a base. We are a little more than 100 million, 102 million customers and per branch we keep adding almost last quarter was 1.2 to 1.3 million liability relationships. We keep plowing this to get that unit economics work and when we do this, we are cognizant of the cost because once you play the unit economics it could result in disproportionate cost increase which is where we try to keep that lid for efficiency, both branch productivity and people productivity in our sight to drive that. So that's from a liability side from a mix of products. On the asset side, the margin opportunity remains to be in the mix of products. Today we are 52% of our book is retail; long-term we have been at 60%, we envisage to get there because India's GDP composition has got 60% of consumption spending. In order to be moving in tandem with how the economy is moving, we need to be 60% and that's part of the journey and it is not something that goes in a hurry. That's part of our annual plan and strategic plan to get that mix up over time. So these are the two plays on the margin.
As I alluded to here regarding your question on the reappointment of the CEO, as you mentioned, the new chairman has just taken over, which is as recent as yesterday and today. The NRC and the board are seized of the matter and it is work in process. As soon as they are able to conclude, we will come out and inform all of you and the exchanges as to the outcome of the exercise.
You know, my questions on FCNRB have not been answered. Mr. Jagdishan, if you could also add on in terms of loan growth, incremental loan growth where that's coming from. Of course we're seeing corporates coming back to banks away from the bond markets, that's a trend we're seeing across banks, but for you in particular, where do you see the opportunity and FCNRB what's the target?
Okay, let me answer this FCNRB and then Ka will answer on the loan part of it. Number one, there are three streams of FCNR that we are targeting. Number one, at 6% plus it's extremely attractive even for someone in different parts of the world who are probably getting four to four and a half percent. So even without leverage it is very attractive and you'll be surprised how small ticket NRI customers are also lining up to this kind of opportunity. So we are focusing on that. We have raised a substantial amount even in just the last few days. The numbers we don't want to declare at this juncture but you will see over the next 3 months at the right time when the issue closes we may put it up in the public domain. Number two is on the leverage part of it. There are two types of leverage. Number one is our own leverage and number two is the leverage that our customers can take from foreign banks in certain jurisdictions. The own leverage is a function of how much we get in as inflow through our borrowings and as you know we have already raised about 750 million, maybe the first to begin with, and we do have plans to raise further borrowings to be able to provide own leverage to our best set of customers. That is a work in progress. In terms of leverage, since the amount is rationed, we would want to provide at this juncture somewhere around nine times leverage. If there is a need to step it up, we will re-examine and recalibrate going forward. As regards the third stream, which is customers going and taking leverage from our counterparty banks where we have tied up, the leverage ranges between 9, 12, and 15 or 19 depending on the jurisdiction. This is dependent on country regulations and also the counterparty banks' thought processes. We have a fair amount of relationships which we are harnessing with counterparty banks to be able to provide this kind of leverage to our customers. All in all, the momentum will start to pick up now. It is just a matter of time. We have time till September and I'm not going to disclose the number that we are aiming for but it should be a very healthy number vis-à-vis what the system is going to be mobilizing over the next couple of months. Thank you.
Thank you very much. May I request to kindly come back for a follow-up question please? Thank you.
Next question is from line of Hamseni from Moneycontrol. Please go ahead.
Hi, good evening. A couple of questions. I'll start with the one on FCNRB. Dubai is turning out to be an important center for the entire Indian banking system. There is a ban on HDFC as far as new bookings are concerned from DFIC. How are you mitigating that aspect? How are the flows from Dubai particularly been? That's one and I'll come back for my second question sir.
No, absolutely right. I think we do have a little bit of a handicap there in that particular region. One is the kind of embargo that we are seeing from the UAE regulator. Two is there is a kind of advisory by the central bank of UAE on all the rep offices in the region itself. So these are some of the constraints but we are not necessarily waiting and for that we have alternate strategies which we are deploying in terms of even reaching out from India which is allowed as product specialists. That is what is happening today and we may have other strategies as well to reach out to some of the customers within the realms of the regulations. You're absolutely right about the restrictions and the constraints but we do have plan A, plan B, and plan C as well.
That's assuring. Now that Bank of Baroda has looked at settlement for one of its old pending litigations, what would HDFC Bank stand on as far as the 81 issue is concerned? Would you be open to offering the bond holders some settlement? This is more as a continuation of the second first question. Let me also put my second question here. Sashi, I'd like to understand from you what has been how has it been between you and Mr. Kumar. I'm presuming this would have been the first board meeting full-fledged board meeting that he sat through. Did the NRC meet ahead of today to discuss your reappointment? As we're getting closer and closer to October deadline, we're getting a little anxious whether it's going to be you unopposed or would your board recommend you plus some bit of color on that Sashi would be extremely helpful.
I'll do the first part, Sashi, in terms of the bonds or whatever, right? First, that's very hypothetical in terms of what is a claim or settlement or whatever because there is no established missive or anything of that sort, right? So let's be very clear and that question is very hypothetical and let's not get into conversation of things that are up in the air or just theoretical. With that, that goes to the...
Okay, on the second question, you spoke about the fact that yesterday and today was the first day of Mr. Kumar chairing meetings and also presiding over his first ever board meeting today. I talk on behalf of the other board members. It was very well received, very refreshing, and he obviously has done a lot of homework. We are very eager to see a great partnership between the board and the management over the next years and I'm very confident about the next stage of growth. As regards you know, it would be unbecoming if I were to talk about myself in terms of whatever the questions that you asked. So it is much better that I leave that question to Mr...
Sashi, thanks. Himanshu, as I already clarified in the response to Ritu earlier, the NRC and board are completely seized of the matter and this is work in process. Once we have a decision from them, we will certainly let all stakeholders know the outcome of that decision. Is it something that is being worked upon? Answer is yes and we will come back to you shortly on it. All I can tell you is that this being the first meeting, you need to give a little bit of time but my hunch and feeling, and I'm sure Sashidhar here will also share similar thoughts, that his demeanor and his endeavor is to minimize uncertainties in a very short time period. So that is a signal that came about and I'm sure as Sashidhar is mentioning, just give it a little bit of time for the NRC and tomorrow to conclude on some of the milestones that they have given themselves for all the necessary actions to be taken in the near future.
Thank you very much, Hams. Can I request to please come back for a follow-up question? Thank you.
Next question is from the line of Pu Shukla from NDTV. Please go ahead.
May I request to unmute your line and proceed with your question.
Due to no response, we move on to the next participant. Next question is from land of Saloni Shukla from Economics Times. Please go ahead.
