HDFC Bank Limited Earnings Call July 2026 | Full Concall Recording | HDFCBANK

Thank you NRA. Good evening and warm welcome to all the participants. We have today with us our CEO Sashi Jagishan and our deputy MD Kais Bucha. I'll hand off the call to Sashi and then we can take it forward from there.

Okay, thank you Si NRA. With that, let's open up the line for questions. We go straight jump into the questions relating to the earnings of the quarter. Please go ahead.

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 to 50 basis points change but it is not going to change in a hurry. The elements of that is one is the liquidity scenario. The country's liquidity needs to be slightly different than where it is. For example, even in the recent quarter, the average liquidity in the system was about 2.08 trillion. However, the peak was 5.5 trillion and the trough was a negative 0.43 trillion. So there's a big difference between the peak and the trough. And on an average it is 2.08. We need that standard deviation to that average to be minimal. So then there could be an active market where the rates can stabilize well. And that's part of what the policy is 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. So it depends on that and that's what determines both the deposit cost particularly the non-retail deposit cost, the retail deposit cost as well. Various players in the industry have been circumspect and have been steady there but the non-retail deposit cost have been elevated and 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 but 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% to 10% or so we still gained market share on that front. So we do envisage and we are positioned with our distribution and customer addition to get that but again that is a journey and not a short-term impact. So that remains on that. On the asset yield, asset yield is a function of whether 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 and so we have to wait for the year to see but we do think that on a full year basis we are well positioned with our reach and with our customer selection to be better.

Yeah. What 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 and yes those time periods that you mentioned we did add made a significant addition to branches. If you look at the branch per branch metrics we are about 330 crores per branch currently and if you go back to the FY23 time period we were 266 crores per branch. And if you go back even further, it's less than 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 years plus years will do which is what is demonstrated in the average per branch when you see 330 crores per branch is extremely very productive and one of the best-in-class in the industry on a per branch basis. So the branches are behaving according to the model that is NVH. One thing I want to mention is that while it's 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. The wholesale and the top corporate mid-corporate loans get centrally managed through various relationships but 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. And in terms of 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 that's how it's supposed to be. It's going through that phase of how it's remaining in the single digit and the way we have approached to address this is there will be only certain level of savings accounts anybody will have and that is why the distribution reach and addition of the customers is about increasing the unit and thereby the unit value can marginally go up. We need the unit. So 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 and 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% to 9% to 15%. That may happen may not happen but that's not our approach. Our approach is to increase the units to get that benefit.

Okay. I'll handle the margin then. For first, 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 8 or 9 right the industry is more like a five or a six percent right. So we do think that the maturity should take care of that to some extent and the growth overall growth should also take care of it to the balance extent because as the growth happens and you don't need to fund only through borrowing so then the borrowing percentage will do off and come down. Now that's one. Second thing connected to that you asked is what is the longer term margin where does this settle right? Yeah see again as I mentioned both from a 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 and those are being...

Cost of fund benefit will play out and it is very much in the works both in our annual review of plans and 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 I was 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 and we always have thought that in India's consumption component of the GDP is at about 60% and 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 and so that mix of the asset loan 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 board is fully seized of the matter and that is work in process and as they arrive at a conclusion we will certainly make the necessary announcements in that regard. And as regards FCNR as I mentioned even in 2014 the phase started to pick up only in the second month of the announcement. The first month like in 2014. I think we have spent fair amount of time in the documentation part of it and the approvals both internally and also the respective counterparty bank and 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 but you will see a very handsome or that's the endeavor to ensure that we are reasonably strong and significant market share in the market.

Can you hear us?

of the capital markets and also the corporate segments as well. But be as it may, while 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 being same from next year, there will be the basic 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 to three years. This is how we are planning strategically and 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. So we are very focused on three or four things: customer focus to the level of obsession, writing 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 business momentum coming about which is growth. And then the very fact that we are cutting down on turnaround time efficiency should lead to better cost to earnings efficiencies as well. So this is an offset which is what we are looking at and if in the bargain we also sort of get the benefit of improved CASA ratios, CASA mobilizations over the next two to three years, I think that's going to be a jam in our strategy.

Yes, absolutely. Because 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? I mean rather he would, that's one of our key objectives: gain market share within the wall within our existing base itself or even from new to bank acquisitions as well. So that's going to be our next two to three year journey and we are all seized of this. We're not sort of too worried about the segmentation. I mean we need to be agile in any customer segment that we're participating today. 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 period of time, we have been prioritizing more on the retail and MSME segment. But 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 Su. 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. So there is an enormous opportunity for a deeper penetration on that and so it's not this or that, it's both. I just want to mention.

Okay. The first one in terms of the profits, Suresh just to mention that, 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 HTB gains and then we had a floating provision countercyclical buffer that we added and some contingent provision and so on. So adjusted for that I think in one of our reports that we filed it shows 9.8% profit growth. Yes. But 9.4-9.8% 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 but since you touched upon the five I talked about the 9.8 you should look at the full year and 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 and similarly the small merchants which is our target for current account into their current account. So the way I was describing to another person was that it is about the unit increase and that is why the distribution is important and we are adding customers into that and 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%, but 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.

Yeah. The annual report we just published a few days ago will show you the profile of maturity of borrowings. You'll see that 40 or 50,000 crores over the next couple of years. You'll see that and from a rate differential it is a little more than 7% to if you get a retail it could be six odd percent. So 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 or 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, 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 on 1st of April 27. 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 and from that various pools of assets I'm talking about and then 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 and then you have a modeling then on top of that there is a flexibility for management overlay and 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 and for us to think about the stage three assets which is equivalent to the NPA today that coverage is quite adequate there. Stage one and stage two which are in various buckets of delinquencies or stage one is not in any delinquency, stage two could be in various buckets of delinquency. The floors that are there for example the floor in the unsecured category is 1% and the floor in the secured category is 5%. No, no, stage two is 5%. And so on. So if you look at that the standard asset carries a 40 basis points but then here the floor is 1% for unsecured for stage one and then for stage two it is 5%. So there will be enhancement but then those enhancements are adequately covered in various manner through various contingent provisions and others that we have. So we feel confident of working through this process on the reserves. The second question we didn't get it, you can repeat. Yeah.

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 point standard assets and that by definition because of the floor which are there, unsecured floor is 1% in stage one which is standard, stage two in any delinquency bucket the floor is 5% and so on. So because of the floor there will be enhancement but the way we look today and look forward from here it would be some impact but nothing material in terms of the impact.

So Nin I'll answer your first question and actually you need to take the second. In terms of growth, you know, we have seen growth. If you see the pack that we've already released and the advances mix we have seen very good growth happen in our corporate and wholesale segment. We 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 and over there you know we have seen business banking which is the largest component of our MSME segment grow at 22.3% this year and this even tops what we had done in the March quarter. Typically June is a little softer quarter but 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 and we have participated in that scheme and we have already as of 30th of June had a disbursement in that scheme of close to 14,000 crores under the ECLGS scheme and I think 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. So 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've seen good growth also come through in our core retail segment. We've 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 and the earlier two pieces that I talked about we have seen disbursement growth approximately of about 20 odd percent. So that should give you a flavor of how we've 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 Nino and see because that does have a bearing which plays out in the third quarter of the financial year. So 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 Kaiser. I'm going to take your second part of the question relating to the coverage. See the overall coverage that you see now is 66% right. I would draw your attention to go back to 2019 and 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. So you go back to a longer term what the coverage is it was 71 now it is 66 right that the headline coverage. If you peel that and get to what is it? If you look at the coverage excluding the agricultural book, agriculture is a secured part of the book. At that time it was 71 was the total and today excluding agri it is 70. So it is 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 provision coverage will be in the 70s mid-70s or higher. The unsecured will be lower. So secured will be lower. The unsecured is in the mid-70s or above. And 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 cars is 2.3% or something while the sales the spend grows at 13% but the book grows at 2 to 3%. And similarly the unsecured on personal loan and so on still remains in the single digit there right and it is the disbursals are in the healthy double digit but is it to catch up on that. So 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 formula, it doesn't go through any kind of discretion, it goes through a formula and gets it done. And same when we benchmark this to an ECL method also which is the stage three ECL provision we seem to be adequate there too even in the go-to model.

Go ahead.

Hello audible. Nitan, we're just commencing the drive. Whilst demand is there we just don't want to commit any number. Let it start to flow and you will see it. But 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 we are all, the entire team is quite gung-ho to mobilize that kind of. We are all energized and I think we are on track towards that.

Oh it was muted. I think it's in 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 flat, a couple of basis points plus minus it's within the range. And 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. Piran, 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. So 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. So 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 and we see that also continuing to contribute in the year ahead. So 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 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 dukaan lending which is bringing up the core retail. So 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.

No. Piran, I think on the contrary, 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 fair amount of investments but distribution investment in resources and investment in technology that has been there. Now we are probably as you may have heard Shini in the past, there's always an investment phase and then a harvesting of the investment phase that will happen. So we also want to enjoy some of the things that what we have invested. This is sort of giving us the kind of returns as investors and I think you will see while investments will be slightly muted especially in distribution for now, but technology will continue 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 upfronted a fair amount of investments and therefore you don't need that kind of 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 and over the next two to three years these 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 at the same levels as we are today.

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. So yeah, 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 but it's a little bit of a high risk during that period.

Thank you. We'll give a thought to that. Yeah. Thank you.

Thank you all for participating. With this we'll close the call and 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 investment relations team will be available. We'll stay in touch. Thank you. Bye-bye.