HDB

Ladies and gentlemen, good day and Welcome to HDFC Bank Limited Q2 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 will 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, and over to Mr. Vaidyanathan.

Okay. Thank you, Nirav. Good evening and a warm welcome to all the participants. Today, we have with us Sashi, Anup and Kaizad. Without much ado, we will get the meeting started with Sashi for your opening remarks first, please.

Thank you, Srini, and thank you, everyone. Let me start with the economic environment. The GDP growth in Q1 FY 2027 has been better than anticipated in high frequency indicators such as industrial production, strong e-way bill, cargo activity, credit growth reflects sustained momentum. Retail consumption growth has also been robust with passenger vehicles, two-wheeler sales all growing upwards of 30-plus percentage. Even consumer durables grew at about 11% YoY. This all bodes very well for the economy, especially with the festive season underway. The broader policy environment has been supportive of economic activity. Alongside this, measures in the form of credit guarantee support to MSMEs have also been effective. RBI's proactive response through measures like the special FCNR swap window generated record inflows, about $133 billion, and helped stabilize the currency. With that background, let's take a quick look at how the business has been shaping up.

We continue to strengthen our liabilities franchise, and it has been delivering with great vigor. Deposits increased 18.8% YoY on a reported basis, including a 4 percentage point lift from special FCNR window. As you will see in our published deck, CASA grew at about 10.8% on an overall basis, and within this, retail CASA growth was about 11.2% YoY compared to 9% year ago, reflecting improving momentum. We added about 1.7 million liability relationships in the second quarter, which is 25% higher than Q1 and 33% higher than the fourth quarter of last year. Building on these new acquired relationships and deepening our existing relationships will enable the liabilities engine to step up further in the coming days, even as we keep adding newer relationships at a rapid pace.

The asset side of the balance sheet also continued to get stronger. Total AUM grew 15.3% year-on-year, including a 1.9% impact of FCNR leverage, with SME and retail assets leading the charge. The pace of retail disbursements is accelerating and has crossed INR 90,000 crore during Q2 FY 2027 as against INR 76,000 crore in Q1 of this year. Growth has been balanced across all lines, whether it is personal loans, the wheels business, gold and agri, and other MSME business as well.

This is also reflected in the rising growth trend in EOP loan book, especially for retail assets ex-agri. September 2026 annual growth is about 11.2% compared to 9.1% as of June 2026 and 7.4% as of March 2026. New credit card issuances at 1.4 million have grown by nearly 19% quarter-on-quarter, indicating the expansion of the growth runway. On the MSME and mid-market business, growth momentum is also improving rapidly.

September 2026 EOP loan growth has grown 23.5% year-on-year compared to 17%-18% year-on-year growth level seen in the last few quarters. Of course, this quarter, we have the ECLGS 5.0 scheme that also created significant opportunities we successfully leveraged. Our ECLGS disbursements of INR 41,000 crore were highest across all banks, and as of August 2026, when the scheme achieved targeted levels. What is driving this momentum? Since May of 2026, the entire retail and MSME business and channel supervisory architecture across the country have been focusing on daily operating rigor across frontline, the credit and operations and service verticals, all working from one view across products and across all channels to ensure a same day, same time resolution of delivery of products and services, queries, and complaints as well. The focus has been on digital adoption and straight-through processing, which is moving up significantly.

The turnaround times on product deliveries have come down anywhere between 10% and 15% in a short span of time, while service delivery TATs have come down by 30% during the quarter. Which means the front line can touch more customers within the same work hours. This is reflected in the customer visits per resource per day going up significantly compared to the prior quarter, almost up by about 50%. This will have an impact on growth, and that is pretty much reflected in the early signs that we have seen on the momentum. For example, the savings accounts per branch per day have gone up by 19% in the last few months, between a Q2 and a Q1. Core incremental deposits per branch per day is up 2.3 times from Q1.

Sometimes, of course, extraordinary one-off outflows may mask this underlying momentum, but at some point in time, this will start to reflect as we move forward. Daily disbursal run rate of key retail and MSME products are up by 10%-20% versus the prior quarter. Our asset quality remains pristine, with GNPA at 1.11%, 13 basis points lower than year on year. Credit costs remain low at 44 basis points. The risk weights total assets at 69%. Our industry-leading asset quality metrics reflect the top quartile credit quality choices we have consistently made. The bank's well-balanced performance translated to ROA of 1.8%, which has been the range that we have been there for a very long time, and quarterly PAT of INR 19.5 billion, which is a growth of 12.7% approximately if you exclude the trading gains. We have a solid platform to reap the. Sorry.

On technology, I would like to spend some time. HDFC Bank has always incorporated cutting-edge technologies into its operations, and we are now bringing AI into the heart of how the bank operates. In the quarter gone by, we introduced applications and apps and features in various areas that will help enhance customer experience and protection. In the area of digital safety for customers, we introduced Edge Security. Very mindful of the fact that a lot of our citizens in the country are being subjected to digital frauds. I think this is going to be a game changer in terms of cutting-edge technology that we can offer to customers. A unified protection stack and tools like Kavach and Secure Lock. We launched several apps to increase customer convenience, including product journeys, AI conversational banking, and AI collections bot that helps customers stay repayment-ready.

We also strengthen our real-time fraud prevention capabilities as well. As my long innings at HDFC Bank come to an end, I would like to say that it has been an absolute privilege to lead this organization that brings together some of the most brilliant minds and over 200,000 extremely committed and focused professionals. A cutting-edge technology, a solid brand that binds the 100 million customers, and the collective zeal to consistently deliver top-class results for all our stakeholders. While leaving this organization is an emotional moment for me personally, I take comfort the fact that I'm leaving behind a solid platform which has demonstrated strength and resilience to navigate regulatory embargoes and unprecedented COVID event, a large complex merger when the economic outlook warranted monetary tightening, and other governance matters of the recent past having been settled completely.

A platform where we invested over the past few years in re-architecting and reinforcing our technology from the core to AI layer, ready to be harnessed in our product and service deliveries. A distribution strength which will deliver as a vintage of branches mature. An optimism stemming from the fact that the net interest margins, which in recent times has borne the brunt of faster repricing of assets and a lag in cost of funds in a down rate cycle, is also positioned for a reversal as we enter the upward rate cycle. This will get further enhanced as the proportion of retail and MSME assets outweigh the proportion of corporate and home loans over a period of time. I'm sure that the bank will keep scaling greater heights, which will be a matter of immense pride for all of us.

I'll also leave behind the hands of an able team spread across various levels in the organization throughout the country, led by a new and an able leader, and I welcome Anup at this juncture heartily to the institution as well. Thank you for all the support over all these years, and I wish you and families a very happy Dussehra and festivities, and I'm sure you will continue to provide the same kind of support and affection that all of you have showered on us over these 30 years to the new leadership team, and take it to its rightful glory over a period of time. Thank you so much.

Thank you. Thank you, Sashi, for that very passionate and a good recount of recent and the decades that you have served the bank. Thank you very much for all of that. Now we have with us today Anup. We are delighted to have you, sir, here with us. Welcome, and over to you for a few sentences that you want to share.

Thank you, Sashi. Thank you, Srini. Thank you, Kaizad. I am really grateful to the board for the trust placed in me as MD and CEO. I look forward to working with the board, chairman, leadership team, and colleagues across the bank and the group to build on the group's very strong foundations. It is indeed a privilege and a responsibility I hold with deep respect.

The group's rich legacy, market leadership, and reputation within India's financial ecosystems are exceptional. I thank Sashi for his impactful six-year leadership, successfully navigating the post-pandemic phase, completing the landmark HDFC Limited merger, scaling our branch network, and strengthening the core technology capabilities. The clear long-term goal is to deliver sustainable long-term value for shareholders, employees, and clients. In the near term, I will engage with regulators, customers, shareholders, and other stakeholders to gather insights that will be a key input to our organizational priorities.

As macroeconomic dynamics evolve and AI technology and digital infrastructures accelerate, we will focus on capturing these opportunities with prudence and discipline. I will soon present a perspective on growth, margins, quality, and productivity built on disciplined capital deployment and a strong execution culture grounded in governance excellence and trust. I look forward to all your support. Over to you, Srini.

Thank you, Anup, for that, and welcome again. Hearty welcome again. We look forward to, as an organization, partnering in delivering all that you drive too. Thank you. With that, Nirav, let's open it up for question and answers, please.

Thank you very much. We'll now begin the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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. 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 for a follow-up. First question is from the line of Mahrukh Adajania from Tara Capital Partners. Please go ahead.

Yeah. Hi, good evening. Thank you, Sashi, for all the guidance and interactions. Thanks a lot, and congratulations, Anup. I had a few questions on the results. Firstly, Sashi, you did outline the various efforts and progress you've made on retail deposits, savings, core deposits. When do you see the proportion of retail deposits inching up now? Because it's come off a bit over the last few quarters. When do you see that proportion inching up? That's my first question. My second question is that you do have a sizable agri book. There have been droughts, so any impact you see either on your small business loans or on your agri/agri-related loans from that? My third question is for Anup. I know it's early days, but if at all he sees any strategy changes in HDFC Life.

Okay. Let me answer the first part of it, Mahrukh. As I had mentioned, the kind of rigor that the institution is undertaking in terms of building better customer interactions and engagement and trying to step up new account acquisitions. The fact of the matter is, a lot of our distribution, which has doubled over the last five years, will start to mature as we move to the next five years. The fact of the matter is that we are trying to enable a lot of product and service delivery journeys, which can help in having a one-click experience, including on bundling of products, depending on the needs of the customer. All this from a foundation and structural perspective, is going to have a massive impact as we move forward.

As I mentioned as well, sometimes you do have some amount of extraordinary outflows that happen because as you say in retail, we mean at the branch banking level, there could be at the catchment, some amount of small MSME customers or government deposits or some of the inherited deposits, such as what we had in the past, some leverage FCNR(B), old FCNR(B) leverage deposits, or some of the deposits that we inherited from the erstwhile HDFC Limited. This quarter, we did have a kind of an outflow of some of these large deposits in multiple such segments, which I've just alluded to, which is actually masking it. So in reality, you will see at some point in time when some of these extraordinary outflows sort of become smaller, you will start the momentum coming about very well.

I think in the presentations which the team has displayed, you will see the productivity of the branches, which is deposits per branch, continues to be very healthy and probably best in class in the banking system. As I am sure Anup in his next weeks or a couple of months time will unveil his strategy, and one of the things is how do we create less pressure on the system to minimize the intake or inflow of corporate liabilities and then ensure. These are some of the things that will be a part and parcel of his thought process as he unveils to the world at large, including yourselves, in probably a month's time or so. Fundamentally, the institution is extremely strong. The distribution is very strong. The rigor is very strong in the right direction. The underlying core momentum is very encouraging.

That should sort of reflect in a very strong momentum as we move forward. Because our balance sheet is extremely large and the fact of the matter is we have a good demand across segments, whether it is corporate, whether it is MSME or retail, the need to pick up some of these non-retail liabilities is a given. I think as we restructure and have alternate strategies on the balance sheet, including some amount of non-deposit strategies, I think we probably will have the proportion of retail becoming larger and larger, and it will have a kind of a downstream impact on multiple metrics as well.

Thank you, Sashi. Like I said, Mahrukh, in the near term, I will engage with the regulators, customers, shareholders, and all other stakeholders to gather insights, and that will be the key input into our organizational priorities. I think

Yeah

FEMA is very, very strong and we are aware of the general strategic imperatives that are required. Sashi spelled it out, and I will come back to all of you soon on those.

On the agri piece, I would like Kaizad to just step in.

Yeah. On the agriculture piece, I think we are all aware that we have had a shortfall in the monsoon, which has been also not very uniform given the peninsula as well as Northern India. Having said that, the actual sowing for the kharif season has more or less remained constant with a marginal decrease of about 1.5% or 2%. It has not had that kind of impact where the sowing is concerned. Consequently, if we look through that, one would believe that the crop therefore should have the output, give or take a variance of about 3%-5%. As of now, as of September, compared to June, our gross NPA on agri has remained largely constant. We have not seen any signs of concern or deterioration. It has held steady. We will observe the situation as it unfolds.

But as I said, what is encouraging is that the sowing has largely been about 108 or 109 million hectares, which is just a marginally lower level than previous year.

Okay. The book growth is also moderated well at this time. It is still not in a double-digit growth. A single-digit growth considering all of the-

That's right. Yeah.

mentioned. Yeah.

Yeah.

Thank you, Mahrukh. Nirav?

Thank you.

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

Yeah. Thanks for taking the question and congratulations, Anup, and thanks, Sashi, for all the interactions over the years. Firstly, with respect to margins, again, margins are down to 3.32%. When we look at it, in fact, the corporate book growth is not as substantial sequentially as we see with the other banks. But the impact on NIMs for us has almost been similar, in terms of the quantum, maybe compared to the banks which have been growing faster on the corporate side. So what is ideally leading to this? The related question is on interest expense side, particularly this time, there is a sequential uptick in the absolute term, okay? It appears like the cost of funds have actually gone up quite significantly sequentially, at least when we do the average of period end. So what is actually driving that cost further up? Yeah.

I can take that. One is coming on the interest expense side. You will see that the cost of funds has flat quarter-to-quarter at about 4.4% last quarter to this quarter. Sequentially, it has remained flat. Ideally, we would have expected that to be better. Better means lower. It didn't because of the mix of the FCNR deposits that came in. So if you look at the deposit growth that we have had, INR 1.57 trillion, almost INR 1.3 trillion is a growth in time deposit. So that outweighs from an overall cost mix point of view and has offset the kind of a repricing on any of the back book that was coming in. So that is why the cost of funds is flat.

Also one other aspect that in the cost of funds that you see is also some relief from the AT1 bonds that were called in August on the callable date. That was a relief, but then that relief was also through other because we did have a borrowing for our leverage. We did have that borrowing offset that. That is why you see at an aggregate level, the cost of fund remained flat.

That means the numerator by the denominator, you are looking at perhaps only the numerator of interest expense. But when you look at both, it is 4.4, which is on one of those pages which is published there. The second aspect of it that you asked about is the mix of the corporate bank. Yes, sequentially, the corporate bank has grown 2.8% in this quarter. Year-on-year it is about 16.4%, which you are seeing in one of those pages, page 10 or something that you are seeing.

Yeah.

But if you are asking about how that mix will evolve over a period of time, I think both Sashi had mentioned it, but Kaizad, you want to take that to say?

Yeah, sure. If you see in the slide which is there already in the investor deck, you have seen how we have brought back the entire retail space. And I had talked about it in April and then again in July on responding to questions as to where do you see growth coming from and what is going to be the focus area. I think if you look at that chart, it clearly shows you that year-on-year from 7.9 or 8%, in a year, we have grown that to 12, and we have grown also business banking significantly out over there, which consists of the MSME largely. If I take just a business banking component, it has grown very handsomely at 28%.

This, of course, has been supported by the fact what Sashi mentioned, that we had the benefit of the ECLGS 5.0. Where the bank did obtain the leadership position and we had the significant coverage, which aided the substantial growth going into the 28% year-on-year. So you will see the retail which has come back in the last year and certainly in the last three quarters. You will see business banking continuing to grow. We see the momentum there. We are seeing it in the economy and the mid MSME is certainly doing well out there. Coming to the corporate side, we have a significant presence across corporate and a good footprint. It is not that we will not grow corporate. I think we have grown it at about 16.5, 17%. Other players have been a couple of percentage more.

But we continue to approach it with a good mix of working capital term and project finance so that we have a good build in the portfolio, as well as we are cognizant of the returns on the portfolio. I hope I've given you, along with the charts, how we have evolved and what we had said, and I think this is a journey that will continue, where we will participate both in the investment part of the cycle of the economy as well as on the consumption side.

Yeah, absolutely. I understand maybe the question was particular. I do appreciate the traction on retail and SME and even within the corporate, we are cognizant of the overall mix. The only question was maybe why still our margin decline is similar to what other players are, why we are not outperforming even on a low base compared to where the other players are. The decline in margins for us is almost similar. That's the only question. Yeah.

I think you will see a change because there is a large amount of the back book which comes into play in retail. Typically given that retail, most products are up to four years and therefore about 20%-30% of the book runs off every year, you are seeing the back book effect play itself out. Therefore, I think going forward, across the next two quarters, you will see that change coming through as we also grow the volumes in retail and MSME.

Thank you. Kunal, I request you to come back for a follow-up. I request all the participants, please limit yourself to two questions and rejoin for a follow-up question. Next question is from the line of Rikin Shah from IIFL Capital. Please go ahead.

Good evening, and thanks. I had a couple of questions. First one, wanted to understand, how are you deploying the FCNR funds? How much of it will be used to retire wholesale borrowings? At what incremental yields are you able to lend or invest in the money markets until you find the loan deployment opportunities? That's the first one.

Yeah. Rikin, maybe I should go ahead. Rikin, the FCNR deposits, you can take it as deployed because we do need to deploy it as soon as possible. That is why you will get the benefit of the ANBC in the following cycle for comparison for PSL purposes. It's not just about getting an FCNR deposit. The FCNR deposit needs to be deployed to get that benefit of PSL. It has largely happened because money is fungible, as you know that. You don't need to mark, identify, tag this with that. But overall, at an aggregate level, we did have a deposit growth of INR 157,000 crores. And we had a loan growth of INR 158,000 crores in this quarter. So you can take it that the sources and users are largely matched within the quarter.

Got it. The second one is on margins, right? Directionally, I do understand where the trend can look like, but specifically in the next quarter, with the full quarter FCNR impact on your cost of funds, how do you think the margins move? The cost of funds have started to move up. So directionally, what happens in the next quarter for you in margin? Because the repo increase which has happened, that pass-through may happen only from 4Q onwards in your P&L. An extension to that is if you could just share the split of your loan book in terms of repo and MCLR and fixed, please.

I'll start, and Sashi, if you want to jump in, you do that. One is that the floating rate book is approximately 70% of the total book. The 25 basis points change that has happened in October should largely be factored in by December. Not for full quarter, for part of the quarter it should be factored in. So that's one. So there is a tailwind coming from the rate change that will be positive. The full quarter impact of the FCNR will be a headwind that will offset, but I don't want to call it a headwind. That is part of how the businesses are structured to operate. There will be some funding that will come and the choices that we make, and so there will be an offset to that through that process.

Net of that, we still think that can be neutral to positive on the margin as we go forward. I don't want to get to whether what is the next quarter and the following quarter and so on, but from a trajectory point of view, I think that it is at the bottom and will start to. You want to add something?

No. Perfect. I think you have answered that. The trajectory will be upward from the next quarter onwards.

Thank you. Next question is from line of Parag Thakkar from Fort Capital. Please go ahead.

Hello. Yeah. Am I audible?

Yes, sir. Go ahead.

Yeah. First of all, I would like to congratulate Sashi, sir, and Kaizad sir also, and great welcome to Mr. Anup Bagchi. I am a core, hard shareholder of the bank, so I wish you all the best. My basic question was, one is definitely that because of the rate cycle itself, I think for almost all banks, I think Q2 should be the bottom of the margins, right? That is what you alluded to, right? That Q2 margin is the bottom for us also, right? Like for all banks, because repo rate hike cycle has already started.

Yes. By all account, Parag, that is what we were alluding to say, that the rate cycle having already kicked in earlier in October, that is a good tailwind on repricing 70% of the loans which are floating. Large part of that is repo and some of that is other methods, but mostly it is repo. So it is already kicked in and by December it should be in. I do not want to give you exactly how much and what and how it moves, but directionally, yes.

Yeah. It should start improving from Q3 itself, right? That is something which I think everybody wants to know because all our peer banks are also hinting at that.

I don't know if you're asking for one number. That's not something that

No, not number. From Q3 onwards, it will be uptick from Q2, right? That is what I'm asking for.

Right. These are the items that are in play, positives, and the headwinds will be some full quarter impact of whatever has come through in Q2.

Okay. As Kaizad sir also highlighted that already we have seen started the growth in business banking, gold loans, personal loans, and such areas where the yield on advances are slightly higher, and while the corporate growth versus peers was slightly calibrated in this quarter itself. Can we think like that now that is the trajectory to increase our margins going ahead because that is what others have also done and demonstrated without compromising asset quality. For example, yesterday, PNB result I saw that they reduced their lower-yielding advances by INR 68,000 crore in a quarter, and they gave it to places where there was a higher yield, and that is how they were able to improve their QoQ margins by 8 basis points. Something like that can be the trajectory going ahead for HDFC Bank also?

You have to look at it in a more wholesome manner. This is not something where on a quarter-on-quarter basis you keep shifting the goalposts. There are relationships which you as a bank have to value and nature and for a 10 basis points more in a portfolio or thereabout, you don't walk away. Having said that, yes, there is a clear move as already demonstrated, and I referred to it a little earlier while responding to a question. You will see us having certainly come back with more rigor on our retail assets and MSME space. Some of those products within retail assets give you sometimes the same return as some of your products in wholesale banking. It's not to generalize it with one brush.

There are certain products in consumer bank which give you a higher yield, and we will take a calibrated approach in getting a little larger market share in those products whilst keeping our presence across each of our business segments that we operate in.

Thank you, Kaizad. One other point I do want to mention, Parag, for you to note. It's there in the detailed disclosures in our 20-F, where you will see the return on asset by broad segments. Whether it is a wholesale segment or retail segment, the return on asset is very similar and comparable. The reason is there will be certain products with high margin, some products with low margin, and then it compensates itself through cost dynamics, which are going in the opposite direction of what the margin offers. Similarly, the credit cost dynamics also operates in the opposite direction of what the margin provides, so that the return at the end of the day, the return on asset, when you look at it, is comparable.

As Kaizad said, to the extent that it is about relationship building from a returns both ROA and ROE, it would be appropriate to have the right mix there. Yeah.

Thank you. Next question is from the line of Piran Engineer from CLSA. Please go ahead.

Yeah. Hi. Thanks for taking my question. And thank you to Mr. Jagdishan and Mr. Bagchi for leading the bank since COVID. And congrats to Mr.

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

Yeah. Is it better now?

Yes. Thank you.

Yeah. Hi. My first question to you is on MCLR. In the last rate cycle, HDFC Bank cut their MCLR much more than ICICI and Axis. Just wanted to understand the reasons behind that, and in a rate hike cycle, could we expect the same?

See, there are several nuances on MCLR. It operates on certain rate dynamics that exist on the last day of the prior period, not necessarily representative of a month or a quarter or anything. Such nuances are there. You operate with day's data when you look forward and do. The second thing is also that MCLR also has got a component of the cost. You know that our cost to assets is at about 1.74, 1.73 thereabout, which again, is low. Similarly, the credit cost also plays into the dynamics of determining what the MCLR is. Having given you all of this theory of what MCLR is, the proportion of our book that is priced to MCLR is minuscule, single digit.

Understood. Okay, so you're saying you factor in the credit cost also, or the outlook on credit cost also. Sorry, am I audible?

Yeah. Go ahead.

Okay. Got it. My second question is really on asset quality. Now we are seeing slippages improve on a YoY basis for the last four, five quarters. Just wanted to understand, is it really a function about loan mix changing towards corporate? Or is it more a function that in each cohort we are seeing better slippage outcomes?

We are seeing better-

Yeah. Sorry.

Please go ahead.

Yeah. We are seeing better across most of those portfolios on the slippages.

Not a mix.

It's not mixed. That's why if you look at page 19 that we produce, we just don't do ratios, we also put numbers. We just put absolute value of slippages where you see that. Yes. If you look at the percentages, then the denominator of a low risk or a highly rated book could weigh. But we are looking at an absolute number there, which you see on page 19. So it's a combination across all of those books that contributes to that slippages. And the credit environment has also been benign for a long time and continues to be benign.

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

Hi. Thank you for taking my question. Firstly, congratulations to Sashi, Srini, and Kaizad for a long, successful career at HDFC, and I am sure the next chapter will be equally fascinating for you. And congrats to Anup for the new role. My question would be, as Anup comes into the role, what would be your guidance to him in terms of, with hindsight, what were maybe one or two or three mistakes that have happened over the last three to five years? I would not say mistake per se, hindsight is a cruel reviewer. But with hindsight, what could have been done differently, and what would you recommend Anup does differently? Would love to be a fly on the wall of that conversation. Then my second question would be on pricing policy.

I think when we started the last cycle of, say 2022, when we had the big credit boom, the industry and perhaps you as well, probably assume that CASA ratio will come back for the industry. It just has not come back. So all the calculations you do in terms of anticipating ROEs for future business probably has been out of whack for the full industry. You have many a times highlighted that pricing has been irrational in the market. Do you think that on the current spreads that the industry is making, the industry is able to make an ROA above cost of equity? Or there is a need for industry to think about repricing its cost of funds into its customer spreads. Thank you so much.

Want me to start and, yeah. Chintan, thank you for that. I will start and then I think the others will join in. Your question of whether the cost of funds opportunity through better CASA mix, is it capped at this stage due to whatever customer behavior and market situation? I do not believe so. I am not going to talk about the industry as a whole, but I am going to talk about our bank. For our bank, with the distribution that we have done and with the statistical models that we see in terms of how it progresses through the maturity model, we do think that the space to get more customers, more balances, increase the market share in certain of the districts out of the 765 districts that we are in.

More than 54% of the districts, a significant opportunity exists because we are 2-3 percentage points lower than our average market share in those markets. So those are nascent branches. When you look at whether household deposits do exist in those markets, that is what you go to look for. You may have a market share opportunity, but is it household deposits? Yes, it is the household deposits that are available in those markets to take. If you look at the companies or the banks that are there, currently incumbent banks which are there, these are some legacy banks which are there, who have been ceding market share over time, and we are confident of continuing to impress upon those customers to get to us.

I just want to leave the thought saying that it is not a saturated play, but at least the statistical model shows that there is a space there.

See, if you really look at it properly, it is not in the public domain as yet. But when we split the deposits into retail and non-retail, and you look at the retail CASA ratio, it is a very healthy number. It is in the late 40s, and that has been a kind of an average, which is pretty much stable over a long period of time. It is just that the balance sheet is so large, and the fact of the matter is that over the last three years, we have had to substitute the borrowing maturities of the Erstwhile HDFC Limited, which is almost nearing about INR 2.6 lakh crore, which necessitated the institution to take more time deposits, substituting that.

Effectively, apart from that, as all of us seen and as you have alluded as well, the incremental accretion to low-cost current and savings accounts in the system is becoming smaller and smaller due to the fact that there is a structural shift that is happening in the household savings behavior. When you put all this together, structurally, I think this is going to be an issue in the system over a period of time. But having said that, which Anup and team will unveil it in the near future, there may be certain structural adjustments that one may have to do on a, not just on a one-time basis, but maybe on a continuous basis on the balance sheet side, which will ensure that we continue to have patronized core retail deposits.

He will find alternate ways of trying to see how to keep the funding requirements to the bare minimum, which is far more affordable and far more, which does not stretch the system, which will necessitate us to take on high-cost liabilities. Hence, the CASA ratio may be protected in future. These are all blue-skying thoughts since you mentioned that this is something that, what is it that one would need to do? Having said that, why conjecture that? Anup is here. He will probably talk to you all in about a month's time to both the sell and buy side analysts. As I said, I am sure you will hear from him directly, but give him some time. Thank you.

Okay. Thank you. Next question is from Nitin Aggarwal, from Motilal Oswal. Please go ahead.

Hi, good evening and thanks for the opportunity. I would like to firstly thank Sashi, Kaizad, and Srini for the valuable leadership and all the insightful interactions all these years. Also, congrats, Anup and convey my best wishes for the journey ahead. So first question is on the manpower requirement. If I look at HDFC Bank over the last three years, our employee base has been the same, which is partly the way the trend has been for all private banks to some extent. But how do you look at the trend over the next two, three years? Will the operating leverage, will the gains from digitization continue to drive a similar trend or you see some changes happening to the employee hiring run rate over the coming years?

Nitin, you will be risking asking me this question, and I hope I do not put Anup in a spot. But having said that, the view I have is, I think the technology investments is on the cusp of being harnessed much more than what we had. I think it is coming out of the investment phase. So that is part one. That is pretty much reflected in the fact that a fair amount of our product and service journeys are becoming far more straight-through, which means that the turnaround times for the deliveries of products and services has been coming down, which means that the capacities are increasing.

The way I see it is that as we see the adoption move up, as we see the overlay of AI on top of these applications becoming far more mature, the need for enabler functions, whether it is firstly the business enabler functions, whether it's the operations or the credit verticals, and maybe in future, the corporate enabler functions, will not need to have that kind of a capacity in their verticals in future. But having said that, we are still about 11%-12% of the market, which means that the runway for growth is massive. We have said this in the past, and I continue to believe, and I am sure Anup will also sort of look at these aspects. We believe there would be a kind of a mixed change in our employee composition.

We'll have more and more people in the frontline customer-facing roles, and we have lesser and lesser people in the back end. Maybe there'll be some who will move on to technology as well because technology investments are going to be extremely intense and large going forward. As we see that kind of a transition that keeps happening and which is still some more time to go, I believe the institution will try to maintain the staff count and try and move more and more people to the front line. But there will be an inflection point. The fact of the matter is when the opportunity is pretty large, they will start to hire incrementally even in the front line and maybe at some point in time, even at the back end.

I think India is going to be blessed and so will the institution, whoever adopts the digitization and AI in a very significant manner. I would say that this would be the trajectory where it'll remain flat and probably it'll start to increase over maybe three, four years' time. Anup, he says that he's also on the same page. I will now ask him as an investor like you all.

Sure. Thank you for that. Nitin, one thing, don't lose the sight that if you look at our resources headcount addition, you're talking about last one year or two years where it is modest. Any growth that we've had over a one-year period, which is at 15% or over a two-year period when you look at it, probably still in double digit, that is fully productivity realizing. But when you look at a longer period, let's say, take a five or a six-year period, we have added 10% compounded annual rate of growth on headcount. 10% we have added, and we've got volumes which are high teens, 18%, 19% thereabout, which means we've realized productivity which was single digit when you look at a long period. In the recent period, double-digit productivity. So more room there to realize the productivity there. That's what he's saying.

There are tools that he talked about that will give, but even without tools, the productivity is still in store to be realized there.

Right. Got that. The other question is on the liabilities because I believe that a liabilities accretion is something that has the most important because even this quarter, if you see the LCR ratio, CD ratio, this is a quarter wherein banks benefited from FCNR deposits, but these ratios have still not moved in the right direction. Can we really rely on to the branch productivity metric that we have historically seen over the long period in a very changing market environment? There are banks who are not investing in as many branches, but playing on rates probably and generating pretty healthy liability accretion. What all initiatives, what are levers can we pull to accelerate liability growth over the coming years? Again, this question is open both to you, Sashi and Anup.

Do not go by a quarter phenomena, Nitin. The fact of the matter is I alluded to it as well. Whilst the underlying momentum is very encouraging, unfortunately you had some large one-off outflows, which is not within our control, some planned, some unplanned as well. Which necessitated the institution to take resort to some of the Non-retail deposits which have a lesser LCR cover, and which is the reason why you are not seeing commensurate improvement in the LCR ratios.

But the institution is seized, and I am sure that over a period of next couple of quarters, you will see a strategic thought process as to what one would like to do and what they will be doing in terms of not only ensuring that the core liability momentum continues in a strong manner to what are the balance sheet adjustments one needs to do to ensure that the LCR coverage is also very healthy. Mind you, whilst you are looking at an LCR, there is another metric called liquidity, may not be visible to you all, but the institution's liquidity is extremely comfortable and probably slightly more than comfortable. I just want to leave that thought to the larger world and the audience that a low LCR does not mean a low liquidity. The liquidity is extremely comfortable.

But having said that, we hear you, and you will see a kind of a thought process in the near future from Anup and team on what they're planning to do in improving core liability momentum and the LCR flight path as well.

Thank you. Next question is from line of Ankit Bihani from Nomura. Please go ahead.

Yeah. Hi. Thank you for the opportunity. I had a question on LCR again. So at this level now we are at 113%, will this become a constraint on your incremental loan growth going ahead even if the deposit mobilization remains relatively weak? And further towards the FCNR thing, we have still seen HDFC Bank be quite active in the CD market. Why is it so? And given that what I understand is that certificate of deposits are kind of LCR positive, given that their run-off is 100% only on the month they are maturing. So if you could shed some light on that. And my second question is on the draft insurance norms. Any analysis that we have done, what could be the impact on our bank insurance income there? And the third is on the PSL front.

We have seen on the SMF side, the shortfall has widened. What are we doing to address that? Yeah.

First is the LCR question. Yes, we would like to operate between 110 and 120, which we have told you over last few years, somewhere probably in the middle, 115. Yes, we are at 113 or so. That's part of how time to time space on growth that one has to use. You know that the regulatory standard is 100 but we do want to operate between 110 and 15. Yes, we do need to keep that at that kind of a level for us to keep growing. That's one. Your thought process and assumption that we do need to use that as an important kind of a floor somewhere around that level so that we are able to grow is correct. The next question you asked is about the PSL-

CD issuance.

CD issuance, that's part of what market opportunities exist and Sashi alluded to certain outflows that we manage. Replace one large ticket with another large ticket. If you look at our total deposits, branch-driven deposits is at about 80% or so of the total, which is on one of those pages that we have published, you will see that. So within that, whatever the churn that happens has happened, and again, we'll be opportunistic to take whatever is available and at a price that is suitable there. The third one was relating to PSL-

Draft insurance.

Draft insurance policy that is there. As you know, it is still in a draft form, calling for comments by end of, sometime in November, I think the comments are due. Once that settles, we will know where it is. But one thing, yes, indeed, the cut down in the commission rates is quite high. There are three other things that one need to work with to see, as soon as we know where that commission rate settles. One is what kind of a persistency pickup it will provide. So that could be kind of a positive effect to that. The other one could be this whole exercise of better commission rates, so thereby lower cost of insurance is the goal.

It is not about the commission, it is about how does the end consumer have a cost of insurance which is low, which means higher levels of participation, which means more volumes. That's the second thing. And the third thing is, of course, the cost structure itself. One has to address if some of the commission structures are changing, we'll have to address it through some cost structures, too, right? So in terms of what do you have in terms of certain programs that we could combine and bring some efficiency there, both on our side as well as the manufacturer side. We need to work on that because there is also expense of management targets there. And for us also when the commission goes, we'll look at our structure of what we spend, particularly certain variable related. So we do have certain levers to work.

But yes, in its current form, when you look at only the commission, it is pretty strong, pretty high impact.

On the PSL, the question on PSL.

See, our PSL achievement is at aggregate level about 50% or so. At aggregate level, we are quite okay. The place where we always scramble around to make it is the last 2 mi on the small and marginal and weaker section, that we have a dual qualification. The small and marginal farmer, to the extent it's available, we are there to take, either originate organically in our book or buy it in the market. It's very scarce. It's not available. The cost is high, right? That's true. We are in the market to buy, and we are short by a few percentage points. We are trying to address it in whatever way we can, to the extent it's available. If you have anything your organization can broker to sell, we'll be happy to buy.

Thank you very much. Ladies and gentlemen, we will take that as the last question, and now hand the conference over to Mr. Vaidyanathan for closing comments.

Yeah. Thank you, Nirav. Sashi, over to you for final remarks.

Yeah. As we were in the call, I think the world would have just got another notification to the exchanges that a dear colleague, Kaizad, has requested for early retirement by end of December. I would like to really place on record his wonderful contribution of Kaizad to the institution. He's been a founding member, he's been one of the key architects of the USP of the institution, which is the credit architecture. Then moving on to a fair amount of areas of business, now handling the entire asset side of the balance sheet. It's going to be a big loss to the institution, but obviously, he has done it for the right intentions and for the love of this institution. I think we'll all miss him, but my best wishes to him and his family for such a wonderful stint at the institution.

Thank you, Kaizad, and thank you. Very best to you.

Thank you, Sashi.

Thank you very much.

Thank you. With that, we will sign off. Any other questions, comments, or other inputs that you all need, please reach out to our investor relations team and we will be happy to join and participate with you to discuss. Thank you. Bye-bye.

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

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, and 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, and then, 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, but 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, but 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 [audio distortion].

Thank you, Sashi. Niraj, 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 Mahrukh Adajania 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. And what are the headwinds or tailwinds for margins? How would the FCNR mobilization impact them? So, that's my first question. And 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 -INR 0.43 trillion. So, 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, so 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. So, 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, but 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.

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 2026, 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, but again, that is a journey and not a kind of a shorter-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. 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? And the related question is on the SA market shares, which have been, the incremental market shares have been largely flatlined despite the branch additions. So, 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, and 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 crore per branch currently. If you go back to the 2023 time period, we were INR 266 crore per branch. If you go back even further, it's less than INR 200 crore.

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+ years and 15+ years will do, which is what is demonstrated in the average per branch when you see it, INR 330 crore per branch is extremely 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 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, 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. 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, and that is why the distribution reach and addition of the customers is about the increasing the unit, and so 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, 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%-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, 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, like, 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. I mean, number one is, you yourself alluded the fact that we've had a fair amount of investment in distribution over these five years. So, 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 zero to five, five to 10, 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 two 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 2025, 2026, 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, in 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 an environment, digital environment, and that is what we are trying to do. So, 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 Sashi.

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 8%, 9%, so not much room left out there. Obviously, it's a competitive environment. With this franchise, where should we eventually see margins settling down? Because 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? So, 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 8% or 9%. Right? The industry is more like a 5% or a 6%, right? 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 of extent, because as the growth happens and you don't need to fund only through borrowing, so then the borrowing percentage 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?

Again, 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 and those are being [audio distortion].

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? Because somewhere, the cable.

Sir, you were mentioning that cost of funds benefit is yet to play out. Yeah.

Cost of funds benefit will play out, and 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, and we always have thought that 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 what 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 GNRC and board is fully seized of the matter, and 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, 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 month.

Kunal, can you hear us?

Thank you. We can go to the next. Thank you. 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. 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, so 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, as we will see, 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. But obviously, a world is not so perfect. Having said that also, I mean, 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, but 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 in terms, because that's where you get the advantage on deposits, that's where you down the cost of funds. But 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, 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, 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. I mean, 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.

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 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. So, 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 Ganapathy from Macquarie 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%. So, 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, I mean, 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.

So, 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. So, 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.

[Non-English content]

Niraj, just see which line and mute that line.

Hold on. 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, but 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 5%, 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. 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, and we are adding customers into that. We are more than 100 million, 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.

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? And 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% QoQ or 20% Q? So, 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%. 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. 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. 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. 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? 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%, and 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, but then here, the floor is 1% for unsecured, and for Stage 1, and then for Stage 2 it is 5%.

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.

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, 5, 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. But then, 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. So, I mean, 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. So, post-ECL transition, where we would like our coverage ratio to be maintained?

Nitin, I'll answer your first question, and Srini 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, 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. We have already, as of 30th of June, had a disbursement in that scheme of close to INR 14,000 crore under the ECLGS scheme. I think and 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, Kaizad. 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%. So, 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%-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. 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 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 FCNR (B) on the [audio distortion] time through that in terms of total quantum that HDFC Bank can [audio distortion].

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. But definitely, if the system is X, we will be a significant portion of the system as we were in the 2014, 2015 period. That is our endeavor, and I think we are all, you know, 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.

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

Thank you. Participants, kindly limit yourself to two questions per participant. Next question is from 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.

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. 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, but how do we get comfort around you all not, say, under-investing in the future of the business?

No. Piran, 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. But distribution, investment in resources, and investment in technology has been there.

Now, 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 be 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, and 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, and 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, but 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. But it's a little bit of a high risk during that period.

No, that's true, sir. But 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. And 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. But 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. Thank you.

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q4 and full year FY 2026 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 will 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, and over to Mr. Vaidyanathan.

Thank you, Nirav. Good evening, and warm welcome to all the participants. Today we have with us our Chairman, Mr. Keki Mistry, our CEO, Mr. Sashidhar Jagdishan, and our Deputy Managing Director, Mr. Kaizad Bharucha. I will hand off for opening remarks to Sashidhar. Over to you, Sashidhar. We can get on to the other agenda.

Thank you, Srinivasan Vaidyanathan, and thank you all. Good afternoon to you, and welcome to the full year FY 2026 annual results call. Let me dive straight into the key aspects of FY 2026 performance. We had estimated the system credit growth to be around 10.5%-11.5%. We did 12%, up from 5.5% last year. As you can see, there is positive momentum, as we had expected. Deposit growth rate at 14.4% continues to grow faster than the credit growth, which is what we've always been doing. The growth rate is better than the system growth rate yet again. Net income growth clocked at 11%, similar to the last financial year, while EPS growth of 10% versus 3% last year. The yield on assets had a faster transmission as against deposits on a full year basis, leading to a NIM drop.

Despite the drop in NIMs, the return on assets continued to be stable at 1.9% due to cost efficiencies, with cost to income declining from 40.5% to 39.5% on a core basis and focus on quality growth reflecting in lower credit costs. I would like to remind the sizable investments we made over the last five to six years, which will bear fruit in the coming years. These investments were despite we witnessing significant events such as COVID, a complex and one of the largest mergers in corporate history. The distribution nearly doubled to 9,700 branches. The number of customers nearly doubled to 100 million customers. Our tech investments more than quadrupled to around $1 billion. The merger with mortgage company HDFC Limited too is an investment for the future.

The bank navigated the same in a stable manner over the last three years, despite changing economic outlook and regulatory stance. The above is going to provide a huge operating leverage in the future. Sometimes all of us have short memories and forget the core business foundation, which remains our moat and strength. Customers at 100 million, we continue to acquire about 6 million-8 million customers a year. This will be the funnel for future growth. 22% of our customers are actually 30 years of age, 42% are less than 40 years of age. This enables us an opportunity to engage through their life cycle, which would be the future engine of growth. We continue to be market leaders in our core franchise offerings, such as cash management. In the capital market segment, we continue to hold about 35%-40% of the account settlements.

In the bank tranche issue, we hold about 40%-50% of the escrow settlements. In the trade part of the business, almost 18%-20% of the country exports goes through us. In the imports, 13%-15% of the country's imports goes through us. In the cards merchant acquiring, almost about 35%-36% of acquiring comes through the bank. On the issuance of credit cards, 21%-22% of the issuances of the system is from us. In the spends, almost 26%-28% of the card spends in the market is through our cards. We are a dominant salary relationship bank in the private sector. We are among the top two MSME banks in the country. As in the mortgages, we are among the top two mortgage bank in the country.

In the wheels business, whether it's auto or transportation, we're the top wheels bank in the country. The above, despite intense competitive environment, reflects the excellence and execution capability of the bank. Our financial parameters reflect strength and resilience of the bank. We have a strong capital position at 19.7%. Our asset quality is extremely healthy at 1.15% gross NPAs. This has been tested across three decades of business cycles. The bank has created a large provisioning buffer of almost 125 basis points to absorb any shocks in the future. Where this is obviously contingent upon any future events that may occur in the future, we don't have any stress in our portfolio as we speak. Our focus is on profitability while pursuing growth opportunities. The loan deposit ratio is not a constraint. The regulator has come out and talked about it.

We have demonstrated our ability to gain market share on deposits every year, almost around 30-50 basis points over the last five years. Hence, it's no longer a binding constraint. We have been building granular and sustainable deposit franchise, which is reflected thus. In the less than INR 3 crore retail liabilities, we have moved up from 31% of the net total accretion to about 47% of the total net deposit accretion for the year. This reflects the focus on granular and sustainable deposits. Having said that, the bank will continue to improve its quality of deposit franchise over the years to come. The bank witnessed an unprecedented event recently, but its strength and resilience were seen with stable and strong deposit flows.

I would like to take this opportunity to thank the Government of India, the Reserve Bank of India, and SEBI for their unequaled vocal support during that period. However, the most important strength will be our leadership in the technology space. Over the past few years, we have focused on strengthening the bank's long-term competitive position, anchored heavily in our technology architecture to operate as a technology-first institution. A large share of our investment has gone towards improving the digital front and customer experience. We have been upgrading our interfaces, simplifying acquisition and service journeys, and modernizing our digital platforms. We launched in the year our new net banking, mobile banking platforms, and also our payment platform, which we probably did it about a couple of years ago. All of them are at a population scale. Today, our mobile app serves over 16 million registered customer offering.

The features, the USP of our build focuses on security. We have an OTP-less authentication, we have a lock which is for enhanced security, and we have a full stack UPI-enabled wallet, which we call the Zapp Account. A combination of the above will make it extremely secure and probably one of the most secure offerings in the country today. The efforts have increased digital adoption to 97% for payments and service transactions, and 92% for acquisition journeys. Our goal remains simple: Offer customers a seamless, reliable, friction-free experience across all touch points. The next layer after the customer layer is the intelligence layer. This is principally to build an AI-ready engine. We have built a strong intelligence layer that brings automation and analytics to the core of our operations.

By decoupling our front end and back end through a modern API gateway and orchestration layer, we now have a strong foundation for the emerging agent-driven AI model. AI is only as strong as its data. We have built a robust data foundation anchored by a customer level, enterprise level, single source of truth from a customer perspective. We went live with our lakehouse architecture, a centralized, scalable data lake, reusable, enriched data marts. While not always visible externally, this work is essential to our long-term scalability and AI aspirations. The big story is how we created in-house the unified AI platform, which is going to be the center that spans across the entire organization. It allows us to deploy AI agents quickly without building custom interfaces, building systems. The platform brings together enterprise search, document extraction, voice-based agents, a full AI development life cycle.

It supports multi foundational and open models and includes a unified evaluation model for strong governance, compliance, and security. We have an independent unit in the risk team that adds a second line safeguard. The key components includes the Model Context Protocol, or the Agentic Studio and Agentic Mesh. This will enable us to deploy AI agent to scale, placing us amongst a small group of Indian and global banks with such advanced in-house capabilities. We already have five use cases in production and 14 more in development, improving turnaround times, first time right outcomes, and freeing mid-office and back-office capacity for customer-facing roles. The above leadership position will enable us to harness efficiencies across the organization and will be a key driver to enhance return on asset over the next one, two, three years.

The guiding principle is return on assets, loan growth, and deposit growth, and quality of the balance sheet from a risk standpoint. All of it should culminate in a consistent EPS growth. Let me also take on the subject matter relating to some of the matters that we witnessed during the quarter, including the resignation of the former part-time chairman and the Dubai branch related matter. I and the members of the board did provide statements post the March 18th 2026 event. The government of India, the Reserve Bank of India, and SEBI came out with statements in favor of the bank. The legal review, which is what we had committed at the time when we went to the press, is in process.

As and when this happens, we shall provide a summary of the same. The audited financial statements of the bank for the year ended March 26th carry notes which are self-explanatory. On the Dubai branch-related matter, the same has been covered in the notes to accounts as well. There is also an NCDRC order which came out on the March 23rd, which highlights that the complainants are not retail in nature or are not uninformed investors, and they had a clear intent to pursue high-yield, high-risk investment products. We do not have anything incremental other than the above. We would like to pause out here and probably take on questions from here. Thank you.

Thank you, Sashi. Nirav, with that, we can open it up for questions, please.

Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone 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. Ladies and gentlemen, we will wait for a moment while the questions queue opens up. The first question is from the line of Mahrukh Adajania from Nuvama Wealth Management. Please go ahead.

Yeah, hi. I just have a few questions. Firstly, that in terms of growth next year, what would be the key driver? First of all, where do you see your growth? You'd said possibly above sector. What could that be? What range could that be? Then corporate growth has been a good driver, I guess, for everyone for the fourth quarter, and that's partly to do with yields as well. Do you see corporate growth sustaining or do you see retail growth picking up from these levels? That's my question.

Mahrukh, hi, Kaizad here. If I got your question as to what would be the growth drivers. First, on the corporate side, I think you would have seen in our release the increase that we have done over the previous year. We do see this sustaining as there has been demand. Of course, we will have to temper it given the fallout of what we see in the geopolitical area, which hopefully should not be more than a couple of months going into this financial year. We do see an opportunity in corporate across sectors in electronics, food processing, auto ancillaries, the renewable sector, and the semiconductors. Also, it opens up, as you well know and are aware of the different opportunities which are now available from an acquisition financing point of view, including what was already there for more project finance and supply chain.

We see the corporate sector, the emerging corporates and corporates, holding up in the year ahead. Coming to your point on retail growth. Mahrukh, if you really see our retail growth has certainly stepped up from where we were last year, and we have seen a better step up, if you've followed our results, in the last three quarters. This step-up has been there across our wholesale business as well as on the personal loan, business loan side. To add to that, we've also seen consistent holding of demand on the mortgage book, and that has also performed well. We've seen a growth overall, if you look at it or if you look at the balance sheet, we've been about 53%-54% in the retail and the balance coming out of wholesale.

Got it. What kind of growth trajectory should we look at for FY 2027? Because I guess the earlier guidance was of above-sector growth, but the sector growth has also moved up substantially.

Yeah. Mahrukh, if you really see our loan growth last year was 5% and our loan growth this year is 12%. I think we will continue to have a good momentum and trajectory in our growth. You have to keep in mind what the geopolitical situation and that fallout is going to be. We are confident that we see the positivity continuing. We've not seen any alarm bells go up as yet, and therefore, we will continue to focus on all these areas that I covered earlier.

Thank you. Mahrukh, I request you to come back for a follow-up question. Thank you. I request all the participants, kindly limit yourself to two questions per participant, and rejoin the queue for a follow-up question. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.

Yeah, hi. Good evening. Am I audible?

Yes, Nitin.

Hi, am I audible?

Yes, Nitin. Go ahead. Yeah.

Yes, Nitin, you're audible. Please go ahead.

Okay, great. Firstly, congrats on a good quarter in a very challenging environment. My question is two questions. Firstly, on the deposits, so how do you look at the deposit market share? We have done very well in this quarter, but if I look at it in context of how the system itself has done, we have seen a very sharp pickup in the deposit accretion for the system overall. How do you look at the market share that HDFC Bank has been able to garner this quarter in context of system number? Any color, if you can also share on what has driven this huge surge in the business numbers over the last fortnight.

Okay. Let me take that, if that's okay. See, if you look at the quarter, the INR 2.45 lakh crores of deposits that came in, typically you see that the market is pretty active and accretes maximum, almost more than close to half or slightly above half of what the year accretes in the last quarter. In this year, it's no exception. If anything, it has been more squeezed towards the last month of the quarter rather than the full quarter, because January was still tight all across. Somewhere from later part of February to March it has been quite easy and liquid, and possibility of deposit gathering is there. If you look at the composition, so that's one. There is a market tailwind that is there.

I think the system growth, as we saw somewhere reported a couple of days ago, was about, at an aggregate level, 11.5% or so system type of growth. Now, when you look at the composition of the deposits between retail and wholesale, there is some level of wholesale deposits that come in March quarter, naturally because of relationships as well as how the corporates manage their balance sheets towards the end of their financial year.

You'll see that the average of the retail versus wholesale is about a percentage point or two different in this quarter, which in our earnings check, you'll notice that there is 82% against 84% or something, 82%, 83% against 84%. Retail, I'm talking about the retail. Retail continues to power and stays ahead of the 80% mark. Within that, when we look at the composition of the deposits between the core retail. When I say core retail, I mean the higher-ticket size NRIs or certain other institutions that are managed through the branches and so on.

When you look at it, the core retail is faster and almost close to the total, despite there is a good power coming from the wholesale business, but core retail is also almost at that level. We feel quite enthused by the relationship managers gathering and engaging to get these things done. We are quite positioned for continued growth on this area.

Right. Srinivasan, also the other part of the question is any color if you can share on what has driven this huge surge in the business numbers over the last fortnight of the year? I mean, this time the pickup is exceptionally strong across the system.

Yes. If you look at it, the liquidity. Look at the system, what kind of funds that have been available in the system. I think the last time we did quite a significant volume was like INR 175,000 crore or INR 180,000 crore or something like that. This year, given that we have added much more customers and much more distribution strength and more stronger corporate relationships because we've been lending this year. Remember that we have grown corporate loans by 13%. We get higher levels of share from each one of them.

Thank you. Nitin, I'll request to come back for a follow-up question. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.

Hi.

Kunal Shah go ahead.

Thanks for taking the question. Firstly, again, touching upon on the growth side. We indicated we will try to grow in line with the industry average, but we are seeing industry average being upwards of 15%, we are still at 12%. We have been below it. Next year, would we retain the guidance of growing above the industry average or would we say we will still grow in line with the industry average because industry average itself has picked up to a very large extent? On the deposits, how much of this is the transitory nature and how much of this it can sustain? Because last year we indicated that we will more focus on the sustainable deposits even during the period end.

Just want to get the sense because the difference between the end of period and average deposit is quite high during this quarter.

Okay, let me take one by one. The first one is on the growth in the system. At least if you see through large part of FY 2026, the nominal GDP growth expected was somewhere around 9%-9.5%. One consensus until a large part of the year was a system credit growth of around 10.5%-11.5%. This is what we had expected, and we calibrated our strategies and our growth in line with that, and that is why we grew at 12%. You have said 16% or 15%, but actually, when you compare the period-end numbers as of March 31st, which is published by the Reserve Bank of India.

You sort of make the math, it comes to somewhere around the 13.5%-13.9%. That's the system growth. Obviously, it has been faster. It is something that we have to navigate, but it's not too far away from the momentum we have seen from a 5.4% growth in FY 2025 to a 12% growth. I think, as Kaizad was mentioning, we are very well-positioned to continue that kind of a momentum in a manner that we do responsible growth, and we don't want to overstretch beyond what could potentially have some landmines in future. That's the reason why we're not because of this dichotomy in terms of the growth being slightly more than what one expected in relation to the nominal GDP growth.

I think we would like to sort of just leave it as that to say that our trajectory is in the right direction, and we will do what is appropriate from our risk and reward perspective. That's part one. Part two on the, what was the second question on this?

Deposits.

On the deposits. Let me first take the granularity of deposits. The retail has always been, as a proportion of total deposits, has been about 80%-85% of the total bank's deposits. You have three significant verticals where we have a lot of close relationship being, whether it's corporate banking or whether it is the capital market segment as well. Now let's talk about the 80%-85%, which is the retail segment. Within that, there is definitely a focus on trying to see how we can garner more granular time deposits. If you see, as I mentioned in my opening remarks, the granularity of the deposits has stepped up significantly. In fact, the less than INR 3 crore deposits, which has been mobilized in 2026 on a net basis, has grown up almost about 74% over the net incremental deposits for FY 2025 on that less than INR 3 crore bucket.

What constituted 31% of the total net accretion in FY 2025 now constitutes 47%. It's a very significant number because these are all very less volatile and very sustainable, and that is something that we are emphasizing as we move ahead, and this particular number should go up even in future. As regard the-

47% is less than INR 3 crore?

On the time deposits.

On incremental.

Of the incremental.

Got it.

If we have mobilized INR 3.9 lakh crore for the full year, 47% is that. Now, in terms of the volatile or the high-frequency deposits, it's quite natural when you have corporate as a significant part of our corporate and capital markets, which contribute 55% or 53% of the balance sheet, you will have large relationships which you need to patronize. That aspect of the 15% of the total deposits will be volatile in nature. You will see that moving out and probably coming back during every month-end or quarter-end as well. The endeavor is to try and see how, on a full year basis, we try and inch upwards the net incremental mobilization, and that is what we are all working towards.

That gives the confidence on LCR at 114-odd percent because now we are below 115%. How would we look at LCR? Because now LDR is not in focus, but obviously we would want to manage LCR. What range we would want to sustain the LCR within?

Kunal, in the past, we have mentioned that our endeavor for LCR is to be between 110-120. We are somewhere in the middle. Last quarter, I think we were about 116, now we are 114. Thereabout, that's the kind of range at which we intend to operate, to be in the middle. Sometimes it goes higher, sometimes it comes below, but somewhere in the middle is where we endeavor.

Got it. Thank you. Yeah.

Thank you. Next question is from the line of Pranav from Bernstein. Please go ahead.

Hi. Thanks for taking my questions. My first question, Sashidhar Jagdishan, is more on guidance. I think if I heard you right, you said LDR is no longer kind of relevant or a constraint. I also heard you saying that loan growth, you would rather focus on improving momentum rather than benchmarking the system. Is there one metric that you use internally to assess performance which kind of captures some of these pushes and pulls you have on the different metrics? That would also be helpful for, I guess, going to track performance. That's the first question. Second question is on your NIMs. The borrowings have come off almost 11% year-over-year. The NIM trajectory is broadly similar with what some of your peers have reported. Is that something you expected a year back, meaning borrowings comes up, but NIM doesn't really get impacted?

Has something changed in there? More importantly, will a reduction in borrowings have a meaningful impact on NIM, going forward? Is that even a lever that you are thinking about? Those are my questions. Thank you.

Okay. Let me talk about what you ascribed to the borrowings mix changing. Yes, changing of the borrowings mix is a favorable item, where costs that are higher, essentially the spreads that you pay, you can save on that and get to the bottom. However, if you see what has happened, the rate cycle, when you go back about a year, when you were in March, April of last year, the rate hiking cycle had just started in February, and there was no kind of an indication that it would end up 125 basis points in the cycle so far.

Rate reduction.

Rate reduction. Not hiking, the reduction. Rate reduction cycle, 125 basis points was not something that was anticipated last March, last April. When that happens, and little above 70% of the loans are floating rate and immediately the transmission takes place, deposit, as you know, is managed. Within the deposit, when there is a higher propensity for time deposit, which we have seen, the time deposit rate of growth was 15.5% year-on-year when you see now. When the total deposit rate of growth was 14.4%, the time deposit was 15.5%. This is a higher propensity towards the time deposit, which is again, on a relative basis, higher price than the CASA, of course.

That is where it is sitting, and it needs to unlock itself both from how the rate cycle plays out as well as how the mix of the deposits change. Essentially it is moved from one type of funding, which is borrowing, into another type of funding, which also in the funding stack is of a higher order than the CASA. That is where it has gone to be and still needs to unlock fully. That's on the borrowings and where it is. On the question of the NIM, I think we talked about how to think about NIM, which is, see the policy rate, when it started to come down, the assets came down faster and more or less fully there. The deposit has moved.

The pricing on the deposit, if you look at the transmission that has happened, is only about 40-50 basis points that has come into that so far. It's not fully compensated for what the asset pricing has moved down. As we see now, due to the geopolitical situation and uncertainty that is there, the rate cycle is currently paused. If anything, the tendency, at least we are seeing from the G-Secs market, is that the rates have gone up a bit, right? While we don't want to hazard a guess whether the rate reduction cycle is done and it's bottomed and now it's going to start going up, I don't want to hazard. At least by all indications, looking at the G-Secs market, it seems to be going up.

Depends on how the geopolitical situation settles, and so thereby, countries' liquidity and borrowing needs, depending on how the oil prices settle, will determine our trajectory of the NIM. More important, I think what Sashi alluded to in his preamble, in his opening remarks is that what we are focused more than on the NIM is on the returns.

When any of those on the NIM that we manage as best as we could, given the market environment, we do have those levers of enhancing our efficiency both from an operating side as well as from the credit side to realize. That is what in the recent time periods you have seen, where when the NIM has been in a small range-bound, minus or plus, the offsets have come from these to keep that return stable in that range. The quarter was 1.96%, but the year was 1.94%, similar to the full year that you saw last year on the return on asset.

Understood. You see, just if I may just ask a follow-up. My question is more on relative. Hypothetically, if let's say, borrowings were declined by 75%, right? Let's say your borrowings just come down to 6% or 7% of liabilities today, do you think NIM will improve very significantly?

Yeah. If all else remaining same, that means no other factors play in, borrowing percentage coming down will change the NIM trajectory upwards and all else on the other side also remaining same will boost the returns.

Okay, got it. On the first questions on the metric, I think I heard you say that you focus more on returns rather than just NIM. So is some version of PPOP the metric that would be appropriate? What would be your best metric then?

ROA is what we should focus on. PPOP is an intermediate, right? You take higher risk and take it in the top line. You give it away on the credit cost below the PPOP. PPOP doesn't determine what returns you can get, so we focus on the return on asset.

Okay, but that doesn't capture growth, right? I mean.

Yeah. I'd say growth, right? Profit growth and returns. EPS.

Top line growth.

Top line growth and returns.

The combination and EPS.

EPS. That's what we always look to.

Okay. Understood. Thank you, sir. Thank you. That's helpful.

Thank you.

Thank you.

Thank you. Next question is from Seshadri Sen from Emkay Global. Please go ahead.

Seshadri, can I request you to unmute your line and proceed with your question?

Sir, can you hear me?

Yes, go ahead.

Am I audible?

Yes.

Yes, Seshadri.

Hi. Thank you for the opportunity. Two questions. One is, I was hearing Sashidhar with interest in terms of the investments that has been made in the last five years. Are we now entering a cycle where the cost-income ratio has peaked, and we can expect significant benefits to come through? I know part of it will come from revenue growth itself because loan growth is bouncing back. This should be a better year for margins, et cetera. On the OpEx side, is there a possibility that the overall OpEx could slow down from here because a large part of these investments that you made are done? Or do you think this is an ongoing process and there are not too many levers?

Yeah. Seshadri, yes. If you look at the cost growth that we have, we have seen that at a level, almost at, call it 6.5%, 7% or so is the full year, right? Quarter-to-quarter variations happen, but full-year, call it 6.5%, 7% rate of growth is lower than the top-line growth. You're seeing that benefit coming in. Having said that, the cost to income is a relative ratio, as you know, as you also just alluded to. Even the top line moves faster, you get that relative ratio. More important is also to look at cost to assets. Cost to assets is at about 1.9 or so. We do think that the cost to assets at 1.9 is best in class. However, we do see that there is an opportunity space even in that aspect of it due to various technology implementations.

Which is what I mentioned, Seshadri, that if we just focus on the investments that we have made in technology and implement them across the organization, you should see operating leverage kicking in and enhancing your ROAs.

Thanks. The second question is on retail loan growth. You've done well in terms of recovering the overall loan growth, but retail is still at, I think it's in the single digits. I think it has some upside for a franchise like yours. Going forward, what would be the levers to accelerate retail loan growth? Which products, which channels, more harvesting of cross-selling within your existing customer base? Should we expect some forward momentum in that part of the business in the coming FY 2027 early in the year, and would it be back-ended or front-ended?

I think, I did cover it in my opening response to Mahrukh. We have seen good traction across our products in wheels, personal loans, as well as in the mortgages space over the last three quarters sequentially. In terms of levers today, if I just take mortgages, we were doing mortgages earlier out of about 6,800 locations. We are now covering mortgages from more than 7,800 locations, closer to 8,000. One is we are using distribution. Two is we've got our digital channels working very well, and we have seen a higher utilization of our 10-second loans, both in our Xpress Loans in auto loans and personal loans. We've also seen more addition to the customer acquisition base. That is what Sashidhar referred to earlier, as well as the foray that we have done in the salary accounts.

These salary accounts create the base for us for better cross-sell and penetration of our retail products. We are the leading bank in salary accounts and the quality of the franchise we have out over there. If you look at our physical distribution of branches, if you look at the better penetration and utilization of our digital channels, as well as you look at the increasing acquisition that we have in what we call our pre-approved base because we have the history of the client, because of the salaried relationship, has obviously created the momentum without going down the asset quality ladder.

One is disbursement.

Yeah. Okay, I'm being prompted by Sashi on a very important metric. We have seen our disbursements go up quarter-on-quarter, which is another parameter on the retail space. We do know that on the mortgages side, I do believe that we would be among the top two with hardly a gap in terms of the quarterly disbursements that we have been doing. In the auto loan space, we have grown well. We continue to be market leaders, and we have the largest engagement with all the OEMs as well as their dealer base, which acts as the real feeder for the retail loans. Between the physical channels, between the digital channels, between the customer acquisitions, and across the set of our core retail products, we do see that growing well.

We also see ourselves doing well in a product that we have launched over the last year and has come up very well, has been our gold loan business. We've built a good quality book out over there, and I do see that also continuing to contribute. The last lever I may touch upon, to give you a sense, has been on our SME business. We have been market leaders in our SME business, and today we are number one in the country on the entire SME space or MSME space. To give you some granularity, we are number one in 15 out of 28 states, and we are number one in the top two in 25 out of the 28 states in MSME. If you also see the pack which my colleagues have put out, we've grown our business banking, which is mainly representative of our MSME.

We've grown at about 20% year-over-year, and that will continue to also be in that range of 18%-20%, 21%, depending upon, obviously, some of the developments in the economy. That should give you, I hope, a good sense of what will be the levers on our consumer bank and the channels through which we will get it.

Can you talk about the merger synergies as well?

That wasn't the question, but I'm happy to cover it.

Yeah.

Okay. Another aspect just to touch on the consumer side and the mortgages business as well as some of the benefits that have accrued over the last couple of years from this business that we acquired. Let me touch on a few of the levers, and I'm sure separately we could give you more color otherwise. From the book we inherited, we had roughly a penetration on the liability side, which was about 36% share. 36% of the people who had home loans with HDFC had their liabilities with us. Net of attritions, net of acquisitions over this journey, this 36% has come as high as 50% within the last two and a half years. That tells you the liability franchise that we've got.

As we'd mentioned in our calls earlier in October and January, happy to update you that we continue to have 98% of all home loans that we disburse, our customers opening a liability account with us. Therefore, you've seen this shift move from 36% to 49%-50% of stock as we sit on today. More importantly, more than the 50% stock that we sit on today, approximately a little over 60%-65% of that stock pays their EMI through my own account, which tells you the synergy which a home loan and a liability bring from a value accretion perspective as well as from a risk perspective. The second thing out over there would be apart from the actual CASA balances that have grown, and at that point in time, we roughly had about INR 50,000 gross value of the CASA balances.

We have today grown that to INR 86,000 crore. That's been the growth in the two and a half years, not only in the numbers, in terms of the engagement of the CASA accounts, mainly SA, but also of the value accretion that has happened. A thing I had mentioned in the past, which had come up and that continues to hold good as the book matures, as the engagement matures, that the average balances that we see of customers that keep their liability with us who have their home loan, goes up 2x-2.25x compared to the standard average balances that will otherwise be witnessed in the banks.

Apart from that, finally, there is what we call the cross-sell thali internally, which consists of a host of products, which while not limited to indicatively are the cross-sell that we do on the credit cards business to this portfolio, the insurance policies that they take to insure their homes, the wealth accounts that we open, as well as engagement on our digital properties, including the SmartWealth and the PayZapp accounts or the PayZapp gateway of our wallet that they use. The engagement is all around. Today, nearly 23% of our home loan customers on stock have our credit cards, which are active. I hope that rounds up, Sashi, as you were mentioning.

Yeah. Thank you

the flavor of how this has grown and in the manner it has grown and the way it will continue.

Thank you, Kaizad. Thank you. That was extremely important as to what we are looking at from a mortgage book perspective. It's not just the book, but the kind of primary relationship that we are all focusing on, and that's going to really be a large, sustainable franchise over a long run.

Quality.

Quality.

Thank you. Very concise. Appreciate it.

We have the lowest NPA percentages as we understand in the industry on a book of our size on the home loan book.

Thank you.

Thank you. Next question is from the line of Rikin Shah from IIFL Capital. Please go ahead.

Good evening. I had three questions. The first one is on the yield on investments. This number is down about 60 basis points in the last two quarters and the overall yields have gone up. Why is the interest income on investment yields going down? That's one. Second, if you could just highlight what's the cost of deposit and what is the residual repricing, if any, remaining from the current levels. Thirdly, it's on the treasury gain. Similarly, there seems to be no impact on the treasury gains or effects, despite the yield movements and the RBI move. How should we think about it as we move into the next year on this particular two points? Thank you.

Okay. One thing that you touched upon is about the investments yield. Investments yield have been coming down, as you know, until the geopolitical risk started to increase, right? At which time it started to go up. It's the effect of what some of the maturing book that goes out and what the new book comes in is one aspect of it. The second one is in terms of how the yield spike is now. You'll not see that because given the size of the book, when you pick up a new security at this new yield, it's a drop in the ocean, right? It'll take time to bring it in. All you're seeing is the effect of the previous rate cycle moving in. Yeah.

Srini, if I can. Even though the geopolitics, the yields, the 10-year G-Secs were decisively moving up, right? In the last six months specifically. The book yields have kept going down. Just wondering what's the missing part here?

See, Rikin, I do want to realize that you should appreciate that there is something called duration. In a rate cycle, up or down, Treasury manages the book they want to do. There are certain duration aspects, which is previously five-plus years of a duration goes to four-plus something. You come on the curve different parts and different cycles. That's one. Second thing is that you don't instantly see, if you look at what the last two quarters of rate that has changed, and if you look at the two quarters of accretion of investments, you will not see. That is going to be a fraction of the total book that you're seeing. Then the way you need to look at it is the movement. What is the security that is moving out?

That means maturing or participating in OMO that moves out, and what is the security that is coming in? That's the in and out. There's a different equation. It's not a simple equation of what you see on the screen of the current yield that you are seeing.

Yeah, fair enough. On the other two questions, sir?

The other one you talked about the cost of funds. I think we published the cost of funds, which is about 4.4% or so. It has marginally come down. From last year to this year, I think so far it has come down by 50 basis points or so. Cost of deposits is part of a component of that, and very similarly, it moves down in line with that.

The residual repricing, if any comments on that? Or are we already at the bottom in terms of the cost of funds?

Residual repricing, if everything else remains the same, there will be further reduction coming on the residual because the time deposit takes five, six quarters or so to go. Some residual again remains to be seen in terms of the preferences for what type of the deposits coming. Yes. All else remaining same, there is a tendency for the repricing to factor in more.

Got it, sir. The last question on the treasury and FX, any comments, if any? There seems to be no negative impact in this quarter. How do we think about it going ahead?

No, there is some negative impact. If you see that the rate of growth on the treasury income is modest. The reason for that modest is that, I'm talking about the FX component of the treasury, is modest because there is a volume impact. Due to various risks on the foreign exchange trade, there have been lower volumes and lower spreads too. Also in terms of the-

Impact of the unwinding.

There is some impact of the unwinding that is also there. Yeah.

Got it. Thank you, sir.

Thank you. Yeah.

Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.

Hi. Good evening. Thanks for taking my question. I had a question on the third-party distribution fee. Actually, if I look at it on a full year basis, the growth has been hardly 3.5%. This is lagging your overall customer growth. This is also when you compare it to the retail asset, retail liability fee growth, this is lagging quite a bit. What is really leading to this? Is it just a slowdown or cross-sell has become more difficult or you're refocusing on some product? What's really leading to this lower growth in this line? That's question number one. The other one is on margin. You said that there's some repricing of TDs left, which should be positive. On the other side, the loan mix is gradually changing more towards corporate.

How should we look at margins from here for, let's say, the next year? Does it trend down or does it flatten out?

Again, I'll first take the third-party products. Yes, the third-party products revenue growth has been modest. Both of those components, which is the volume growth, has also been modest. It's positive but modest, given that whatever preferences the customers have. I think last year there was a good amount of spike that we saw as we entered into the fourth quarter.

FY 2025.

FY 2025. There is some volume kind of tippedness that we have seen. The second thing is in terms of spreads. That is, the mix of products that determine the spreads has also impacted. We have seen that the earnings, that means our earnings on the third-party commission, is also subject to mix of products that get taken. There was a mix also had an unfavorable impact. That means lower realization of income there. That's the reason for the contribution.

Mr. Srini, on the mix, so lower life sales, is it? Is that temporary or is some change in process or something which has led to it? Is it just coincidental or nothing really to read into it? How do we look at it?

It's just a question of how our RMs are engaged as much as they are engaged today versus how they were engaged last year. It's a function of what the preference is, and that is why you saw even the product preference is somewhat different. It's a question of how we get on more customers and spread it around to be much more penetrated. We still have only a mid-single-digit penetration in our base, and the opportunity space continues to be there. Enormous opportunity space continues to be there. Again, you talked about the NIM, which is the second part of the question. Again, just to repeat, the transmission has happened on the assets, and the mix of assets can impact depending on what it is. The cost of funds, while time deposit repricing can continue to be there.

Again, it depends on the rate cycle, what happens. You see that there's a stickiness in the rates across. For the last, I think at least four months, we have not seen our time deposit rate change in the market. We are fairly priced with the competition, and we've not seen four months of any kind of a change that has happened. Which again, as one would give some time for change, you've seen that there are other things in the month of March, the geopolitical thing that's coming about, that has hardened the rates again. It remains to be seen, but it's a range-bound is what I would say, but focus more on the returns.

Because if this becomes kind of where it is continues to be within a small range-bound, then we work towards getting returns to be stable to going up through other levers.

Got it. Okay. Thank you for that.

Thank you.

Thank you, and all the best.

Thank you. Next question is from Piran Engineer from CLSA India. Please go ahead.

Yeah. Hi, team. Congratulations.

Piran, sorry, we are losing your audio.

Piran, kindly repeat because we lost your voice.

Sir, we have lost the line for the participant. Ladies and gentlemen, we will take that as our last question, as 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. Thank you all for participating today. We are closing at the appointed time, which is 5:00 P.M., because we have another meeting scheduled soon after this. If there are any more questions, comments to be provided, please feel free to contact our investor relations team. We'll be happy to engage with you over the next few days, weeks, whatever it takes. Thank you. Have a great weekend. Bye-bye.

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