HDB

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.

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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.

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q3 FY '26 Earnings Conference Call. [Operator Instructions] 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. Thank you, Nirav. Good evening, and a warm welcome to all the participants. At the outset, I know that it's 6:15, 15 minutes behind schedule. We had another meeting we had to conclude and come. Apologies for that, but we'll take as many questions as possible and extend where required. With that, without much ado, we'll straight go into the opening remarks by our CEO and MD. And then we'll -- and we have our DMD Kaizad, any comments we'll take, and we'll go straight to Q&A after that. Sashi, over to you first, and then we'll take it from there.

Good evening, friends. Thank you very much for joining in on a Saturday evening. I know it's rather late, but always appreciate your being here on a Saturday evening. I think we've just sort of declared the results, and you probably would have seen the financial numbers. We're reasonably sanguine and happy about the outcome that has happened. It's in line with our expectations. Looking back, I think the credit growth buildup has been extremely encouraging. We set our sights on a very balanced credit across customer segments. The easing rate cycle and the benign credit has provided catalysts for the credit growth. The CRR release enabled credit deployment slightly ahead of our expectations. As regards to funding, the funding through deposits, we continue to maintain rate discipline, and that has been extremely key. Core individual retail customer segments were seen to be quite strong. For both current and savings, having focused on granular segments have given us encouraging outcomes. And more of this, I'm sure Srini will sort of give the numbers. We did, however, fall short of our strong ambitions, but we are confident that continued focus on our strengths will bring the expected outcomes. On the growth, profitable growth, as mentioned earlier, cost of funds has moved down, reflecting the tailwind effects. CASA growth has been positive. Cost has been under control as productivity improvements have brought in efficiencies. Credit, which has always been our USP, remains best-in-class, allowing us to deliver stable returns as we pivot to the next stage of growth. Looking ahead, the regulator and government continues to be focused on supporting economic and credit growth. At the same time, optimally managing external factors. During the quarter, availability of liquidity was impacted due to some of these. We saw enhanced activity in open market operations and FX swaps to combat some of these challenges. India has demonstrated stable political conditions and consistent policy regime. This has led to being one of the fastest-growing major economies in the world. Growth with subdued inflation management was at the top of the order, and hence, we believe and we are very optimistic about outpacing loan growth in the coming year in FY '27, as we had sort of mentioned to you all along for the last 18 months. Liquidity and benign credit costs provides us a lot of runway to grow. Overall, liquidity in the country is expected to stabilize post trade deals. The foundations are in place to build deposits to fund loan growth. We are expanding our -- we continue to expand our customer base. We are now intensifying customer engagement primarily and largely focused on granular mobilizations. We are aligning pricing with segmented approach, and we shall see that in the coming quarters as well. There's been a lot of talk on the CD ratio. We did sort of drop our CD ratio to significantly since the merger to March '25. As you know, the kind of indicator is not necessarily on the radar for the -- from a regulatory perspective. Having said that, we believe that our glide path to lowering of CD ratio will continue. It's an important focus for sustainable profitability. I completely acknowledge. The cycle -- the easing cycle with credit growth focus in the country surely needs our participation. So the speed of CD ratio movement depends on how we are able to provide funding in the system at rational rates. But having said that, we're very confident that whatever we seem to have committed in the last 2 years, I think by March, I think we should see and by March '27 -- '26 and '27, we should sort of achieve all the -- most of the committed metrics that we have laid out for. I would like to say that under the current scenario, we don't think that we shall be constrained by the CD ratio. To reiterate, we are confident that it will be on a downward glide path. I would also like to reiterate that we shall meet the glide path that we had indicated earlier in terms of the growth, our top line growth, which is in line with the system this financial year and faster than the system in the next financial year. In summary, I have a great appreciation for our customers for partnering with us, and I have the greatest gratitude to all our 200,000 staff who are pillars making this place work successfully. We are confident of the path forward that we have set for ourselves. Thank you very much, and we have all of us here, Kaizad, Srini, and the team here to take on any questions that you may have. Thank you.

[Operator Instructions] First question is from the line of Mahrukh Adajania, an analyst.

Sir, my first question is on the LDR. You did allude to it. But when do you think now you would reach an LDR, say, close to 90% or below 90%, like any time frame? So that's my first question. And my second question really is on agri compliance. So two large banks have been asked by RBI to make provisions on a certain agri portfolio because of noncompliance issues, provisions of INR 12 billion to INR 13 billion. So as we stand today in terms of your agri portfolio, do you think there is full compliance or there could be some issues somewhere given that it's a large portfolio, it's spread out across the country. And do you think you would be liable to such provisions in the future?

Okay. Thank you, Mahrukh. I'll take that. The first thing you touched upon is the LDR from a timing point of view. I think Sashi alluded to that we are committed on the glide path of taking it towards the downward glide path, and we continue to be in that. But on a quarter-to-quarter basis, it is slightly different. And that's because of the seasonality and the opportunity. And you know that in the recent time period, the further opportunity was also provided with the easing cycle and the credit growth focus in the industry as well as the CRR release, which provided that ample opportunity to do that. So given that, we do expect that over the next 1 year to 2 years, we would be getting down further into the levels that we had previously been there, call it, the 90s or low 90s and so on. And that's the level of confidence we have and the pillars that are required to drive that are in place to do that. That's one. The second one is in terms of the agri that you asked about, the regulatory kind of impact, if any. Our regulatory inspection is also complete. And whatever required according to the regulatory requirement, there was about INR 5 billion or so thereabouts, which have been taken in the overall context of our book and our results, if you see, they have been absorbed within that, and there is no special and we have had certain other things that were there. And so in future, we need to operate in a model that is acceptable with the regulatory. So that -- whatever is that, that's an ongoing process of what we do. Any one-time is already subsumed and it is there. And as far as the calibration that we need to do on the agri consequent to those kind of things, recalibration of our book due to the scale of finance, so that what is indeed an agri and what is outside of the scale of finance, scale of finance is the one that determines how much is required for the farm and how much of that is over and above the farm requirement by the farmer. Those evaluations we will take and go through that process to calibrate that. That's in terms of the future impact on that.

But did the INR 5 billion come this quarter only then?

Yes, it is already subsumed in December.

In December. Okay. And what would be the size of the portfolio? Any such indication you could give?

Our agri portfolio is published. You'll be able to see the...

No, the size of the portfolio on which the provision was taken.

No, that's not something -- that's not consequent to this at all because it depends on loan item and what is the scale of finance on each one and so on. But at an aggregate level, that's the kind of level.

Next question is from the line of Kunal Shah from Citigroup.

Yes. So again, getting on to the question on LDR and deposit growth in particular. So if we want to get the LDRs down and still want to grow loans above the industry average comfortably, then we need to see the acceleration in the deposit growth. And you said like pillars which are required are very much in place. So any reason maybe for a slightly slower deposit growth this quarter? Otherwise, we will need like almost 500, 600 basis points higher than the industry average deposit growth now to get the LDRs down. And any rundown in the bulk deposits, which have been there in this quarter? And if you can quantify that?

See, let me take this and maybe Srini and Kaizad can add into this if required. Kunal, if you recall, we gave a broad range. Number one is there is no regulatory what shall I say, benchmark or a requirement to meet a loan deposit ratio. Was it there as a bit of a nudge when the outlook was negative or when the system outlook was a little tight, liquidity is tight in the period when inflation was moving up and rates were moving up and there was a little bit of a concern on the credit quality of the system. There were certain preventive measures that the regulator had said that try and ensure that you bring down the LDR or maintain a certain stability in LDR. That is the -- at that point in time. Whether that -- whether there is a number that you need to meet, I don't think there is any compulsion. But in our own interest, we had given a kind of a glide path wherein we had said that we will come to a certain number in FY '25, which we achieved. We said we will try and be in a range of somewhere between 90% to 96% in the year FY '26, which is what we will be is what we are very confident about. And then maybe by FY '27, by the natural growth and even with the growth in the way we are expecting in terms of faster growth rate, I think we should land somewhere around the 85% to 90% for FY '27. We continue to believe that this is going to be there. It's not an easy thing, as we have said, of course, but we know what are the strategies we need to do. There were certain tactical measures we could have taken in the third quarter. We chose not to, but that's all right. I mean these are sometimes learnings we probably may have missed, but we know what are the things to be done to bring about these kind of meeting our glide paths that we have committed in the broader sense on a longer -- medium- to longer-term basis. So as regards the kind of deposit growth that is required, I think the pace at which we are growing deposits in line with the top line growth that is more or less matching 11-plus percentage in the second year -- in this year should -- and probably slightly faster, which is what we normally do in the fourth quarter, like most -- what we have done in the past, should lead us to the kind of range that we are -- we have committed to. And we are very confident that, one, as we have a clear cut, as I said, all things remaining same with whatever we are seeing in the macro, we should believe that the growth runway opportunities for growth and hence, in the deposit requirements other than certain events that may happen, which you and I will not be able to predict now, we are reasonably confident that we will land -- and as Srini mentioned, don't look at quarter-to-quarter movements. We are on a -- you look at on an annual basis or on a medium- to long-term basis, the trends will be in that kind of period. So I think the inflection has started. We had to contain ourselves in FY '25 for all the right reasons. I think now we are opening up, the engine is opening up, and you will start to see this kind of a consistency in the trajectory that we have laid out for ourselves.

Sure. And anything on bulk deposits rundown, quantification, if possible?

More than quantification. I mean, Kunal, that's part of the business. There are certain segments that we patronize. I think Sashi mentioned about where rate discipline has been the key. And to some extent, we participate for relationships and certain extent, we don't need it, we don't go there. But on the whole, if you look at the retail or non-retail, retail, there are individuals in retail, which have been phenomenally growing and growing. There are certain non-individuals in retail, which is branch related. It could be institutions, trusts and HUFs and whatnot. Examples of some non-individual but branch related, where we have had some lower levels of growth. And there are certain other customer segments which we have seen, particularly capital market segments where it has been low, where we have not paid rates as much as what the market has demanded or what the competition has offered. And that is what you see that is reflected in our cost of funds. If you look at our cost of funds is down by about 10 basis points, 11 basis points or so in the quarter. So we're trying to manage it growth with the profitability, and that is what you are seeing, right? So segment to segment, time to time, it changes, but at least you've got a color of how we operated in the recent time period.

So you're right, Kunal. Just to supplement what Srini is saying. The focus -- the good part is retail has grown very steadily and very -- and all these are the granular ones. I'm very happy with that. If the non-retail, tactically, we did not sort of offer the kind of market rates that were there. And we said it's all right because we did sort of know for the kind of growth that we needed, that is good enough.

Got it. And one last question on labor code. So the impact of almost INR 8-odd billion, looking at our employee cost and then comparing maybe the labor code impact vis-a-vis the employee cost for others. For us, it seems to be relatively on the higher side, more than 10% of the employee cost, not so much for the other banks. So is this more of an estimation which has been done? And what would be the recurring impact which would be there on the cost as such?

Good point. Thanks for raising that. One, it is an estimate given whatever information that we have. And that estimate is driven through an actuarial process, right? So you go through the normal process of how you do and there is an actuarial valuation and determination of how do you do. Again, that is -- there is some signs in that, but it is based on certain assumptions that come. That's the second thing. The third thing is that variables. When you look at these variables, the definition of what is wage, what are determined to be wage inclusion, exclusion, the rule-making on that is pending. You know that, right? So there are some assumptions that go for one of the variables that go into those assumptions, and that is not based on determined rules, that is based on some assumed things. So that's the second -- third thing. The next item is the -- that individual organizations can be very different because of the longevity of the staff that you see there. So that determines on how long and what is the kind of tenure and so on and so forth, both historical and anticipated. And so many other factors like that go into play. So at this time, I would just ask you to take it as a higher estimate based on best available information and through a scientific actuarial process that has come. And as and when the rule-making evolves, as and when more information is available, this will be evolved. And again, we can -- I can't venture to come out with a forward-looking or what impact on an ongoing basis, cannot do at this time. And the reason being that we need to have all of these in place before we can get there. And that is why this is not determined at an employee level to say next month when somebody retires, this is the kind of amount that it can come or what will be the amount determined for a provident fund and so on and so forth. It cannot be determined at this stage. This is a really high level based on best estimate.

Next question is from the line of Chintan from Autonomous.

May I get into the LDR again, please? So Sashi, please, did I hear you correctly when you said 85% to 90% by FY '27? That seems to be aggressive to me. If I look at consensus numbers, it's expecting 13% loan growth and 93% LDR. If you are going to achieve kind of the 90% in the next fiscal year, that suggests a very strong deposit growth number. And I know you've kind of said that you want to prioritize growth now. So it's not piling up. So if you could help us...

Chintan, thanks for asking. Maybe then let me -- I've given you a broad range because I don't want to box myself with a narrow range. But having said that, we have been operating in a range of around the 87%, 88% in the premerger level, 3 years before the merger. And so when I say 90%, of course, I would have meant somewhere around the plus or minus in that particular range of 90%, maybe around the 88%, 89%, et cetera, or it could be 90% to 91% as well. But why I mentioned this, at least the trend lines that we are saying, if it's -- it can be 96% for FY '26 or a 95%. We are all right. At least the direction is what we are looking at for. We just gave a broad one so that we know what -- if we are lucky to really step up growth or the liquidity changes and we have more benign liquidity and no FX operations or FX swaps or open market operations, maybe then it will be wonderful. So that is why I'm saying since I do not know what's going to be the liquidity condition in this, therefore, I gave a broad range. But even if I achieve these kind of directions directionally going there, that's something that we can achieve. As I said, there is no regulatory number to comply to. It is just a direction that I think we need to achieve for ourselves, let alone the regulator asking us to do. It is something that we believe just by doing what we are supposed to do will lead us to that kind of thing. I don't have to do anything extra to measure that metric. It will happen. So when we did sort of forecast a faster growth rate for ourselves than the system, we also -- as we have seen, we have been having deposit growth rates in line with normally the top line growth, slightly faster than the loan growth. So estimating that is what we believe where we will land for FY '26 and '27. So don't take it literally that we may be on the lower end of that range. It could be anywhere in that range. Practically speaking, it will be somewhere -- if it's 90% is that range, then somewhere around the 90% is something that we'll be happy with. Similarly, somewhere around the 95% is something that we'll be happy with for FY '26.

Appreciate that. I mean if you're trading off EPS growth for slightly slower ROE improvement, that's fine. I mean that's not the issue, especially if the opportunity is there in the market. So -- but I just wanted to make sure because we have an occupational hazard to kind of do our due diligence in our model. So I just wanted to get that flexibility that you have highlighted now. The second question was around asset quality. Could you -- you've got a unique vantage point, second largest bank in India. Could you give us some idea about any pickup in growth momentum, any pickup -- any issues in asset quality, particularly due to the U.S. tariff or in the MSME area? So it's a combination of is growth improving? And are there any asset quality concerns more broadly, if not in your book?

So if I got the question right, you want to know the trend for asset quality and how it is looking. Across segments and even first at the sectorial, you're well aware that the banking industry right now to borrow a term is going through a Cinderella phase where you've got very strong balance sheets when I refer to that from an asset quality point of view. We have the lowest accretion of gross NPAs and net NPAs are at decadal lows. Mirroring this trend has also been reflective on our books. We have seen very low accretion to gross NPAs. And none of the particular portfolios have indicated any stress building up. So I think the economic environment with the kind of GDP growth that one has seen, the kind of consumption growth that one is seeing as well as the wage increases that one has seen on one hand and on the other, the lowering of the interest rates and affordability, therefore, going up, including the fiscal benefits that were given to not take up much time, I would say the asset quality continues at the bank to be pristine. And as of -- as we see it, there is no particular segment which is showing any major signs of concern. Srini, would you like to...

Perfectly good. There will be seasonality in agri specifically...

That is separate...

Outside of that, every segment, including the agri segment period-to-period, if you see, is lower, both from a leading delinquency and into the slippages, which are far lower. And then from there, going into loss given default is also lower. You're seeing that the recoveries wherever we are there, that is also on an absolute level, good level. Chintan, I hope that gives you a perspective on both sides.

Yes. And just on growth momentum, are you seeing things improve generally in the economy?

In the economy, the growth momentum, yes -- if you look at some of those indicators that we have seen, the -- take the crop cycle itself, very improved. The sowing cycle has improved over prior year, very healthy water reservoir levels have aided that. The manufacturing PMI continues to be in the expansionary zone with many programs that are coming in. Services sector doing very well on the consumption demand side. If you look at the recent time period for card spend, which is important for you to look at, the overall card spend up 15%, 3.4% sequentially. Within the card spend, when we look at the discretionary category of card spends, the discretionary category spends have grown 21% year-on-year. The nondiscretionary, which is the bread and butter normal activity is about 13% up. So that indicates that when the kind of a discretionary spend goes up, people do go and indulge. That's what you're seeing there. On the other side, we do see revolver rates not picking up. So which means people are spending to pay down. So there are certain other segments of the society, which is what is spending. So on an overall level, I would say that similarly, you've seen the auto and the tractors and so on. 2-wheeler has been somewhat less than expected, but then the 4-wheeler autos and the tractors type have done exceedingly well. And you're seeing some of that reflected in the aggregate level GDP output that gets reported too.

Next question is from the line of Nitin Aggarwal from Motilal Oswal.

I have a question on the branch productivity and deposits now that we are so hopeful about the deposits pickup and targeting at close to 90% kind of a number. So like if you look back as to what kind of experiences that we used to have in terms of the branch vintage and the deposit buildup, has -- is that kind of sustaining in the recent years because the deposit growth is just not picking up at the system level and that is a key constraint across banks with LDRs, the number that we are seeing across many banks. And related to this, own branch kind of over the years has been like coming off from pretty high number now to every successive year, we are opening more branches. So do we see...

Nitin repeat that. Nitin repeat that? We could not hear you.

Sorry. So I was also saying that related to this, if you look at the branch expansion run rate, every successive year, we are now opening up lower number of branches, like FY '23 versus '24 to '25, every year, we are going down in terms of branch expansion. So how do you look at this corollary between the branch vintage and the deposit buildup? And do you think that the current pace of expansion will be sufficient for us to sustain that above industry growth rate over the next 3, 4, 5 years? So just some thoughts around this.

Okay. So I'll get started with the last one first, which is to do with the branches. Nitin, you can't look at 1-year branch, but you have to look at a trend of what was it, right? So for that, if you go back to -- you look at a 5-year branch trend, I'll give you round numbers of the branch trend. We opened about 250 branches in 2020, 350 in '21, 750 in '22, 1,500 in '23, 900 in '24, 700 in '25. So if you look at this, 250, 350, 750, 1,500, 900, the opportunity space that it provided, we took that and accelerated all within the overall returns framework, right? All through this time period, if you look at our returns between 1.9 to 2, right, in that period. So where there was, we accelerated, and we don't need to do 1,500 or 900 and so on. We can be more modest, but still add to the branches. It is important to add to the branches because currently, we have only a little more than 6% of the country's branch network with us. So that means our branches 9,600-plus is about a little more than 6% of the systems branch, right? So we have -- and we have more than 11% of the market share of deposits with us. So that's one in terms of -- we have more room to run and more share to gain through that process. Next is productivity, right? What does it do from a branch productivity? If you look at the per branch productivity, we are now at about INR 305 crores or thereabouts on a per branch at an aggregate level. Despite all of these additions that I talked to you about, if you go back where we -- I just mentioned to you about how we were doing per branch, if you go to '23 or '19 to '23, that time period. For that time period, about INR 237 crores per branch, right, at that time. And I told you INR 237 crores per branch before I started to talk about those acceleration of the branches, right? Now with all of those acceleration, we are at INR 305 crores per branch. So at every incremental branch, when we add, it is also at an aggregate level added. But this is at an aggregate level. Then that takes to the next one that you talked about at a micro level, right? At aggregate level is one. Let's talk about micro level in terms of where it starts to have the pivoting point for further scale. First, the breakeven is about 2 years or so. When you look at the breakeven, branches that are in the metro and urban area typically breaks even in about 22 months. Branches that are in the semi-urban and rural area takes about 27 months, thereabouts. On an average, about 2 years, it breaks even. So that's one. And these models are in consonance with our legacy branch models, which means they are confirming to what are traditionally there. That's number one. Number two, the pivoting point where 4, 5 years ago, where we analyzed to what does a branch do in 5 years, 5 to 10 years and 10 to 15 years and so on, when you look at it, where the scaling factor is about the 5th year mark to the 10th-year mark, it moves, and it moves about 3x. Between 5 to 10 years, it goes about 3x up. And then once it goes into 10 to 15 years, 10x up. So that is very important, and that scaling factor continues to operate now. Now what is more interesting and important than that is, currently, if you look at the branches that are in the bucket, 5 to 10 years bucket, which are doing 3x than what they were doing 5 years ago, 1,232 branches, right, out of the 9,600, 1,232 branches are in that bucket, right? And if you look at the branches before that, the 3- to 5-year bucket, 3- to 5-year bucket, we have 1,300 branches. So we are entering into the pivoting point where the cohorts that are entering into the 5-plus bucket is more than the cohorts that are going to exit from 5 to 10. So that is -- again, similarly, when you look at the 10- to 15-year bucket, it got 2,499 branches. And then the 5 to 10-year branches are going to go into those cohorts. And so that's almost 43% of our branches are vintage branches, less than 5 years. So this is the cohort that needs to move through the pipe and get there. And so we are quite -- that is point, I think we said that we are positioned well with good expectations coming out of that. And that's, again, aided by several factors that go.

Okay. So...

Another data point, Sashi was just reminding me because when we reviewed it with him. On an incremental basis, when you look at it, these new branches contribute slightly north of 20% of the overall incremental that comes -- deposits that come, which is very important, right, that these things keep adding accreting as we go along. That's something I wanted to leave...

Right. See, the reason to ask this is also because while advances side is still in our control, we can maneuver the advances growth and choose the business segments we want to underwrite. But deposits, if we compare across the best and private banks also, typically, the growth kind of has its own saturation point. And if you look as to how HDFC Bank has done last year and versus what is the current year, probably we will be closer to in terms of deposit rate versus what we were last year on a good case basis. So for us to talk about that LDR can come so sharply next year, do we look at this deposit growth run rate break out from as to how the trends have been in the recent years? Can this really happen with the kind of vintage gains that we talk about?

Nitin, these get benchmarked by district, by our presence in those districts, that's how we benchmark and that's how we work our marketing and product teams, work with our distribution channels where we are present to orchestrate and move this, right? So two things I want to mention. One is new account acquisition is an important element. We are at about 100 million customers. Last quarter, we added about 1.5 million new liability relationships. It is important to get that new account value because that's how you keep building. And the change in balances. So that means the existing customers adding, accreting has been lower in the recent time periods when some kind of choices into various other financial institution they take. So some of that has been slower. But again, you beat that by getting more presence and more customers and have diversified product -- asset product because you know that in the last 2 years, our retail asset products were slow than where we are now trying to accelerate or move. For every asset product that you have, again, cards, I think not in the last quarter, but maybe a few quarters ago, we have spoken cards. For card customers spending on their card account and having 100 outstanding, at the aggregate level in the bank, we see almost north of 5.5x deposit balances from the customers. So what does it mean? We want more of our customers to have cards. And same with mortgages, which I think last time we spoke, 99% today, we have penetration. That means we are not selling a mortgage product. We want to get the customer relationship. When we are giving a mortgage product, we get the savings account and the savings account gets funded approximately today at initiation at about INR 35,000. And then when you look at the 12-month, 18 months on books, which is the kind of vintage we can measure today and see, we are seeing that it is growing 2, 2.5x. But historically, some of those category customers that we have seen, it has got the propensity to have 5x more than a customer who does not have a mortgage. So liabilities don't come only purely on just an engagement and asking. It also comes by multiple products that get sold.

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

Yes. So first question is on LCR. What would be this quarter? And how it would move post the April 2026 guideline, whether it will move up, move down?

LCR, we reported 116% in this quarter.

And post the new guidelines?

No. The new guidelines, we don't expect any material change that can impact us.

Okay. And just a question on margins itself. It's been almost 9 quarters since the merger, your margins have not gone anywhere. In fact, it is even lower than what you had reported at 3.4%. I know there are several moving parts. Are you really confident that you can get this up in the next 2, 3 years?

Suresh, if you think about the margin, the most important lever on the margin is the cost of funds, which at various points we have mentioned. And within the cost of funds, there are a few. One is the time deposit repricing, which has a lag effect. We have changed time deposit rates in line with the policy rate change, but not fully, but maybe 2/3 way, we have changed 125 basis points is what the policy has changed. We have done about 2/3 into that. We need to see what more. And again, that what's competitively priced, right? So we are not at a disadvantage anywhere there. And that takes almost 5 quarters to flow in. Part of that this quarter, you have seen 10, 11 basis points change in cost of funds. That is the lag effect of that flowing through, then that continues. So that's one element. And the second element is the borrowing. Quarter-to-quarter has remained static at about 13%. But again, more than a quarter, if you look at the year, we were at about 7%. Broadly, the industry is at about 6%, 7%. So there is an opportunity space to beat that to keep coming down. That is another important lever that provides this cost of funds change. And the third one is the CASA, which again is a customer on the other side more than we creating any action where we need to work through to bring selling within the new customers and better engagement, more products, more retail products. That's the kind of process we need to take through to get to that industry average and beat that industry average over time. Yes, there is a line of sight, and these are some of those elements we work through.

Next question is from the line of Prakhar Sharma from Jefferies India.

Congratulations on the results. Just wanted to delve on this deposit growth part. It was an interesting color that you said that the granular retail has grown, but slightly bulkier retail hasn't. Is there any sort of a data point that you can share in terms of the growth or the mix in the two? And one alternative is, can we use the LCR deposit number and the growth there as a reference point to just get some comfort on what's the range of growth there because 4Q onwards, it gets aggressive on pricing. So if you can share some color, that will be right.

The second aspect of the question I didn't get, probably we will see. But as far as the rate of growth is concerned that you asked about the categories, certain other categories that you wanted. Yes, I mean, the -- if you look at the institutional types, they were in the mid-single digits, right? The institutional type of deposits, mid-single digits. That's what we have said. And within the retail branch, the non-individuals were much more modest. I think it was again a little more higher single digit. And the individual, individual within the branches were in the solid double-digit growth.

Sorry, the individual at the branch was at?

No, I didn't give you a number. I said it's a good double digit, and everything else was in single digit. Yes.

Okay. And is there a way to just give a context of within your total deposits, 83% is classified as retail. How much would be the granular retail and how much would be the quasi-institutional retail?

I don't think we have published that. But yes, when we say that is a branch-driven deposits where there are RMs engaged with either an individual or the individual organizations and institutions, that is what.

Next question is from the line of Abhishek Murarka from HSBC.

So Srini, going back to the branch addition question, and thanks for giving so much color. But just net-net, are you still looking to grow or add about 5%, 7% branches this year and in FY '27? Or what are your near-term plans? I understand the whole picture you painted about the scale-up of old branches and how that will accelerate deposits. I just want to know your next 1-year plans in terms of branch additions.

Yes. To answer in short, 5% to 7% implies 500 to 700 branches annual. I don't believe that, that kind of branch addition we can do in the near future. We'll evaluate as we go through the annual planning process and come back at some point in time, but it would be of a good order.

Abhishek, just to add to what Srini is saying. If you've seen the last cohort of what he just said in terms of the 4,800-odd branches over the last 5 years. Today, it is contributing, as he mentioned, somewhere around the 20-plus percentage points in terms of the incremental liabilities or the deposits that we are mobilizing. As this cohort starts to -- which we are seeing delivering and getting to a substantial number, then we know that we have the confidence to start to step up our -- the next phase of launching new distribution points. Obviously, we want to wait and watch. We are not saying we will not add any branches. As he mentioned, we will add branches, but these are probably in -- normally in suburbs where there is kind of an opportunity that is what we are now focusing on. But the -- we want to ensure and stabilize the last cohort of the 4,800 branches stabilize and start to get to a certain level of maturity and level of contribution, which is substantial, then it will -- we know that, that will be on an autopilot and then we can start to see the next phase of introduction. And obviously, at that point in time, we will have to rethink in terms of we would have probably moved far beyond in terms of our branch transformation and automation. So there will be some new thought processes in terms of what we -- how we need to add or how we need to sort of expand our distribution. It's not that it's going to be different, but maybe there will be some amount of recalibration that we will do in the next phase of branch additions.

Sure. So Sashi, as I understand, that's a great point -- for making that point. So today, about 50% of branches, which is this 4,800 is contributing around 20% of incremental deposits. Is it correct to think that when this starts contributing maybe 40%, 50% of incremental deposits, that is when you start thinking about future expansion. Is that the right way to think about it?

Whether it's 40%, 50%, 60%, we will keep on recalibrating because we are -- there are a lot of things that we are trying to do. Obviously, we also -- if you really look at it, we stepped up our distribution the moment we knew that we announced our merger. And we knew that we needed to fund not just at that point in time, the future of -- in the future. So all this is going to add to incremental deposits in a substantial way into the future. But -- so there will be a lot more dimensions that we will examine not just the extent of contribution, but probably certain events that we may have or certain other dimensions that we may look at before we start to step up the pedal on the new phase of incremental. And you look at it even over our 30-year period, there have been these phases of right from 2009 onwards to 2013, '14, we stepped up our distribution. Then we had a little bit of a pause, then we started off again. So we -- this recalibration and doing it in phases is something that we have been doing. It's not a new thing. We have been doing this for right through our 30 years journey. And I think we will continue to do. Obviously, the dimensions keep changing in terms of what we need to look at as we move ahead because the world is changing very fast. The kind of technology implementations that we are doing, as we unveil, we probably may need different thought processes as well. So let me pause out here and probably -- you probably will get the drift.

Sure. And the second thing is on credit cost. Now if I look at your net slippages, ex of the agri part, but let's say, look at the net slippages in the 9 months or last few quarters, around 30, 35 basis points. Write-offs are holding steady at INR 3,200 crores roughly a quarter. So why is the underlying credit cost around 55 bps and not coming off? I mean, don't you think that should also start coming off at some point if this kind of trends continue.

Abhishek, a couple of things. One is the slippages. If you're looking at excluding agri slippages, it's 24 bps in the quarter. Prior quarter was 23 bps. Prior year was 26 bps. So order of magnitude, call it, 25 basis points. That is the kind of a slippage in a quarter, right? That's what you're seeing. So not the 35 or something that you're talking about. That's one. The second thing is that credit costs -- also, you have to look at it, including the recoveries because when you write off certain loans as it progresses through some of the delinquency buckets, then you get it in the form of recoveries. And net of recoveries, if you see, we are at about 37 basis points or thereabouts. And when you look at, again, last quarter, last year, order of magnitude, very similar within a few basis points, 5 basis points. So it's not just about the 55 basis points. It is also about the net of the recoveries, which comes in quite handy. And it's a function of how fast you write off and how you recover.

Sure. That's what I was referring to. So net of your recoveries, et cetera, it should keep coming down because your slippage performance is -- I mean, it's improving. The book is growing and your absolute is pretty much stable. So you're seeing very good asset quality trends. And I was sort of wondering why the credit cost is not coming off.

So why will -- see, in a growing book, if the slippage is steady, the losses are steady, recoveries are steady. I don't know what you're expecting, maybe something else...

So 50, 55 is more or less BAU is what you're seeing.

No, GNPA?

No, no, no, no, credit card. Okay. I'll take this offline. I probably not saying myself clearly. No problem. Finally, just one question on cards. Overall, card receivables are pretty stable. If I look at the data that comes out in RBI, the spend market share for you is doing well, [indiscernible] market share is doing well. So why is it not reflecting in the receivables? Is it just transactors running down? Or is it something else?

No, actually -- great question, Abhishek. I think if you really look at it, the segment that we are patronizing is more the middle and upper middle segment. Therefore, slightly higher-end cards is what is in our portfolio. The proportion of that is large. And a large part of that, over a period of time, we have been -- I mean, as you know, the card -- credit card -- what shall I say, the behavior has also changed over a period of time. Today, we look at it not as net receivable from a revolve perspective, from an asset perspective and an earnings perspective, we are looking at it as an enabler for our liabilities or deposits. Srini has mentioned in the past, and that is something that we are extremely proud of, the spends in the cards actually provide a significant portion of our deposit momentum. Today, 20% to 25%, maybe in the mid of 20% to 25%, I can say, is the range at which out of the total deposit basket, the kind of momentum that you're seeing, whether it's on the healthy balances and what it contributes to total, it's somewhere around that 20%, 25%. So the credit card focus today is more not from a net receivable basis, but from a transactor basis. And as I said, I mean, whether it's a lot of you on the call or people in this room that we are, we all pay on a standing instruction basis on due dates. So this is something that we are very happy with. And so this is the kind of a new strategy that we are evolving. Obviously, we are also recalibrating some of the business model in cards. We have been doing that, and we probably are -- have come out with something which is very encouraging and something that the organization will really benefit from our card strategy.

I want to add one thing on the card, particularly the card revolving aspect of it, right, which is if you go back to 2020 or before and compare to today's revolvers, they are slightly under 2/3 level, right, slightly under 2/3 level. So that means of the pre-2020 levels revolvers, right, at level. And so the profile of the customers, and that is why you see the deposit balances of those customers, which is a little more than 5, 5.5x was slightly under 4x at that time. So the profile of those customers are also different where they do transact, they do keep balances and the revolver balances are lower for certain other segments. And we have not liberally offered the credit line increases and made more and more revolvers to tip them off into delinquency. We've been -- credit has been cautious on that.

Next question is from the line of Jayant Kharote from Axis Capital.

Sir, one question is on your loan growth broad guidance of above system next year. Sir, I just wanted to understand when we are saying we'll grow above the system, what is our range of assumption for system growth? Because we are seeing some acceleration in the system growth itself where we are moving from this 11% to 13% band to maybe closer to 14%, 15%. If we were to move in that band, would we have accounted for that kind of system growth and we say we can grow above that?

So our understanding as of now is next year, we expect system growth to be between 12% to 13% when you look at nominal GDP and the credit growth that's required to support nominal GDP. So if we're talking about 12% to 13%, we are talking about a couple of percentage points above that going into the next year. We see distribution on the retail side, you've been seeing over the last 2 quarters coming up, our positioning also in the MSME space, given our geographic coverage as well as our suite of products that we have out over there and the wholesale piece, which you would have seen in this quarter again coming back. We do believe that we have the customer segmentation to be able to grow at a couple of hundred basis points over system growth next year.

Great, sir. I think this answers you're working with the 12% to 13% range at least. Second part is, on a broader 3-year or 4-year question. We have seen products like mortgage getting a lot of competitive intensity. PSA banks being well capitalized are probably being more aggressive in vehicle, increasingly auto. Do you see this competitive intensity eroding profitability for the larger players over the next probably 3 years, not a 6-month or 12-month question?

See, we are addressing competition only through relationship and not through pricing. Mortgage product, as you've seen that in the last 12 months, we are not leading through a mortgage product. We are leading through relationships where the mortgage product could be a fulcrum around which we can operate. Same with auto. I do want to let you know that our auto loans are almost a little more than 80% self-funded, which means the customers when they take auto loan, we want their liability accounts. We want them to have balances in that and the loan self-funds itself for the most part within the balance sheet. So it is about relationship offering, and that is part of the engagement in the branch, and it's not just a product and a loan balance sheet building approach.

Having said that, Srini, absolutely in order. I think we do continue to be the largest financiers in the auto loan space in the country. not only in terms of the disbursals but also the book size as well as if you see our year-on-year growth in the entire automobile space, I think that is reflective of what our position is and the target market that we will have. So it is relationship. It is also ensuring that we have the right pricing for the product based on the customer segmentation, and we don't feel any need to do business at price points which don't make economic sense.

And your market reading is, as of now, we are not in that situation where aggression is eroding margins for the broader system, at least in auto?

I'm sorry, I didn't catch your question. Can you repeat it, please?

So not for HDFC, but probably for broader system. Are you seeing that aggression in the auto segment from the public sector or maybe the broader system aggravating in the last couple of quarters?

Yes. We've seen it not only in auto, but also in the home loan product. So these are two products where we have certainly seen some amount of, if I may say, a bit of irrational pricing, but irrational pricing has never sustained. It will play itself out and bury itself in a couple of quarters on the outer side, if not earlier.

Thank you very much. Ladies and gentlemen, we have come to the end of the allotted time for the call. I would now like to hand the conference to Mr. Vaidyanathan for closing comments.

Okay. Thank you, Nirav, and thanks to all the participants for taking the time to attend. At the outset, I again want to mention that we did come 15 minutes late. We did extend to be there. Further questions, any more comments, Investor Relations team will be on standby to guide and help and explain or clarify anything you need today or over the weekend or next week, whenever you desire, we are available. With that, we'll sign off for today. Have a great weekend. Bye-bye.

Thank you very much.

Thank you.

Thank you all. Thank you very much for all the hard work.

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 Q2 FY '26 Earnings Conference Call. [Operator Instructions] 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 you, Mr. Vaidyanathan.

Thank you, Nirav. Good evening, and welcome to all the participants on a very busy day. Without much ado, let me get to our CEO and MD, Sashi Jagdishan, for his opening remarks before we get on. We also have Kaizad Bharucha, our Deputy Managing Director. We will also get him at some point. Yes, please, Sashi over to you.

Good evening, friends. First, let me wish all of you, Shubha Dhanteras and Shubha Deepavali. So first, let me start with the macro. Global outlook remains very volatile, thanks to the uncertainty related to tariffs and immigration policies. However, the domestic economy appears to be getting stronger. The triad of fiscal and monetary measures, whether it is the direct tax reductions, the GST reductions or the interest rate -- upfronting of interest rate cuts, I think, have galvanized the economic activity in the recent past. The food -- the headline inflation has been printing very low, thanks to the low food inflation. This probably gives the monetary policy committee to maneuver on future interest rate actions. We've had strong rainfall in most parts of the country. The GST rate changes have created a lot of buzz in the market in the later part of September onwards. And coming to the bank, the improvements in the economic activity has given us the opportunity to accelerate loan growth. We can see a lot more color as we get into Q&A. We've seen our growth pick up across segments. We continue to see market share gains in deposits, and we are very focused and disciplined pricing. As expected, due to the front loading of the interest rate cuts on the asset side of the balance sheet, we did see NIM compress by about 8 basis points. We should see over the next 6 to 12 months, the deposit repricing having some amount of tailwind effect in the NIMs. We are managing our expenses in a very tight band, and we should see our investments in distribution and technology creating an operating leverage over the medium to long term. We continue to invest in technology, not just in core platforms and middlewares, which will bring about a lot of stability and scalability in availability, in resilience and in security, but we are also embarking on creating a platform to embark on certain low-hanging new age experiments such as GenAI. Largely, these are for -- to reengineer our processes and create a kind of a great customer experience by reducing turnaround time. It will have a second order impact if it becomes successful, which is what we are all working hard towards into the -- in the bottom line of the bank. I think our USP, as probably you have seen the numbers, continues to be our very healthy asset quality. And we don't see too much of issues in that even in our early indicators as well. Our metrices, large part of our metrices, whether it's NIMs, whether it is cost to earnings, whether it's return on assets have been very range-bound, and we should see a fair amount of stability with a positive bias in the medium to long term. So let me pause out here and happy to take on any questions. We have our CFO, our DMD and other colleagues who will collectively would be answering to some of your questions. Thank you.

Thank you. Nirav, kindly open it up and kindly get to the queue.

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama Wealth.

I had a few questions. My first question is on the recoveries in the NPL movement, they look very strong. So is it that the recovery environment has improved substantially? Or is there a one-off there?

Yes. The recoveries, I have a one-off there, where there was an NPA, which performed satisfactory over 2 years and appropriate ratings were received and upgraded. And to that extent, yes, it did improve there. What we did is that, that also releases some provisions, as you know. But at an aggregate level, the contingent provisions have been added by about INR 1,600 crores or so. We have created more resiliency and strengthened the position there. So from an overall point of view, the recoveries -- more than recovery, the upgrades, I would say that upgrades have contributed to approximately 10 basis points.

Okay. So the one-off would be how much?

Yes, the 10 basis points, 140, 1.4% was the prior quarter NPA. We ended up at 1.24%, about 10 basis points was upgrade, which I would not say is recurring, yes.

All right. All right. Got it. Got it. Makes sense. And then in terms of margins, so we had been guiding that -- you had been guiding that the exit margins will be same as last year's 4Q exit core margins. Does that guidance still hold good? Is the repricing on track for that?

Okay. So let me take that. See, there are 2 things, Mahrukh. If you look at the yield on assets, yield on assets have come down from the way -- from the time it started from the beginning of the rate cycle, which is in our printed -- in our published statements, you'll be able to see it, I think, on Page #14. In the quarter, 30 basis points. But over a period of -- from December to now, almost 50 basis points has played out on yield on assets, right, which is you know that 100 basis points changed in the policy rates, about roughly 70% are on floating area. So that works out to almost -- most of that is priced in. The last some tail of kind of a partial month or a quarter kind of impact that can come in the following quarter. But otherwise, a lot of it is priced in there. Then -- from a yield point of view. From a cost of funds, the 4.9% came to 4.6%, so 30 basis points. So slightly -- about half or slightly a little more than half is what you are seeing coming through -- flowing through in the cost of funds, which is where the savings deposit change has flown through. But the time deposit change -- rate change, which is between 70 and 80 basis points or so has changed, but that takes almost 6 quarters to flow in. A little more than 1.5 quarters has gone by. In this quarter, you saw that the cost of funds improved by about 18 basis points on the page, you see about 20 basis points, I think, 19 basis points. You see a 20 basis points rounded number there that cost of funds has come down by. And so it has got another at least 4, 5 quarters to play off, which means over the next few quarters, the rate remaining constant, that means that a stable assumption level, the cost of funds starts to move down. And if the asset stabilizes at that level, you see that pickup coming. Yes, we are optimistic that with the stable rate scenario, our exit should be moving up from where it is today.

Okay. And how do you view the deposit growth? So this time loan growth was very good. And while the deposit growth was good, the incremental LDR did fall, so -- I mean, did rise. So how do we think about LDRs from here on?

Okay. Yes, good question. Thank you for asking that. See, our LDR, we started the year at about 96 and change. Our strategic objectives when we laid out that the rate of growth on loans in this year will be at market and in FY '27 will be faster than the market, predicated that the LDR will come below the 90 mark, somewhere, call it, the 85 to 90 or below the 90 mark, right, which is okay. That's the kind of strategic. It's not a linear progression. And what is more important is that direction of the travel, that means coming down from 96 to below 90, direction of travel is important. The quantum, how it moves, quarter-to-quarter, it can vary because there are seasonalities that play out. In this quarter, you did see -- we did see credit demand that was good. We participated with our clients where it made sense from our engagement and profitability and total relationships. And we will continue to do that. And our strategic objective of getting to grow in line with the system this year and higher than the system in the following year continues to be there.

Next question is from the line of Chintan from Autonomous.

Happy Diwali to all. Can I start with capital. The recent draft proposal seem to suggest a meaningful reduction in risk weighted assets. You are already at a very high CET1 ratio. You have got even more contingent provisions now. You chose to put more buffers on. Your loss experiences are not going to be that bad for ECL. What are we going to do with all this extra capital, given that you are able to grow with your retained earnings even when I look out beyond FY '27?

Let me sort of come in out here. It is -- obviously, you are seeing this kind of a buildup of the capital ratios in the recent past because the bank chose to slow down in FY '25. Now we are on that upward trajectory. You're right, all the potential regulatory changes will have a little bit of a benefit in terms of -- on the capital ratios. But on the ECL side, I'm not too sure because if you really look at it, the bank has already -- has a proven track record and having a very well-established models in ECL. So that's already known to the world and known to you, I'm sure, as we disclosed U.S. GAAP results. But having said that, if you look at the draft guidelines or the fine print of that, there are a lot of prescriptions or of floors that have been prescribed, which means that the pure ECL advantages may get nullified, if not even you may have to maintain higher levels of ECL if such draft guidelines were to go through. Obviously, we need to wait and watch when this starts to come out as final guidelines. But having said that, as we have just mentioned, we are -- we believe that the change in economic cycle probably has just begun. Whilst I do appreciate that we need to wait and watch how -- whether this is sustained even beyond the festive period, but there is a fair amount of optimism in most of us out here to say that this will be sustained. And the moment we hit the trajectory that we have laid out for ourselves, that is in FY '27, we will start to grow faster than the system, we should start to consume capital. If you've looked at our long-term trajectory, we have been consuming capital about 60 to 70 basis points every year on a very steady-state scenario in the past prior to any of these events such as merger, et cetera. But -- so -- and also for a large systemically important bank, it is very imperative that we don't go down necessarily to the regulatory prescribed threshold levels. We need to provide capital or allocate capital for unknown and unforeseeable risk as well. So we do have a capital planning process, which obviously where the threshold levels are far higher than the regulatory prescriptions. So frankly, whilst optically, it may be higher today, but as we sort of get back on to the growth path, I think we would have sufficient capital as one would have when we raise capital, as you've seen in our past history, about normally, we raise capital, we have enough capital for about 3 to 4 years of growth. So I would say that from FY '27, when we get back to that kind of a growth, we should have that much of room and that much of cushion to be able to have 3 to 4 years of growth at least for consuming before we start to look at other options.

Yes. I mean the only thing I would say to that is I don't think you're in a place where you consume 60 to 70 bps of capital every year now. Given your size, even if you grow at 17%, 18%, you would be breakeven on the capital you already generate. Am I wrong out there?

See, yes, Srini.

Yes. You're right that even in this quarter, if you look at it, our capital we generated is 60 basis points and the consumption is 60 basis points, right? So -- and the 19.9% to 20%, the capital ratio change 0.1 is the surrounding. Other than that, it's about 10 basis points change in capital. So generation and consumption at this level is there. But then when you grow faster than the system, the consumption will be faster. When there is a mix which is a little more -- the mix which is a little more oriented on the retail, the consumption will be even more faster than that. So we need to cater and provide for all of those things. And so it is important to keep the capital on our side to essentially keep that opportunity space for growth as much as we can.

Having said that, if there are any opportunities that may arise in terms of other options that are available to sort of delight shareholders, we would be more than happy to do so. We will keep on exploring such options.

Yes. And my second question was on margins. On margins, LDR seems to have benefited this quarter. But when I look at cost of funds, it seems like it is not falling as fast as some of the other larger players. Is that just the timing difference in the way you built up your TD book versus the other guys given the merger and that it should unwind over the next few quarters?

Yes. Our cost of funds moved down by about 18, 19 basis points or so in this quarter. Deposit cost of funds came down by a similar amount. Yes, our time -- our savings account rate change is fully factored in. The time deposit rate change to factor in fully, the magnitude of the changes in the rates that we and many players have done are of similar order, except that it takes us almost 6 quarters to play it through into the cost of funds.

So slightly longer duration, okay.

Yes, that's right. It's -- Chintan, the -- it's also about duration. We normally -- because we need stability in our balance sheet, we tend to have a slightly longer duration to be able to -- especially on the retail side, so that is the reason why the tailwinds will be slightly longer in terms of visibility of getting -- drawing back this kind of repricing advantage.

Okay. And a quick data question. Borrowings from erstwhile limited, how much is left on your books just now?

Yes, annual report reflects the maturity profile of this over the next...

Next question is from the line of Kunal Shah from Citigroup.

So the first question is particularly with respect to deposit market share. So obviously, we would tend to maintain a particular market share on the incremental deposits, which seems to have come off. Is it largely to do with the rundown of bulk deposits during the quarter? Now we see some increase in the proportion of retail deposits as well. But the lower deposit growth this quarter, in particular, maybe just 1.2x the industry average, what could be the reason for that? And should we see the uptick going forward?

Yes. See, one, on the deposits, the market share is an outcome. And our approach is as granular as possible and as far reaching through our branch network, which is why the deposits that come from our retail network is about 83% or thereabouts. Yes, in this quarter, you have seen that where we have put the proportion went up by a percentage point, where the non-retail deposits came down in this quarter, while retail deposits did grow. Yes, I mean, that's -- in terms of the pricing and in terms of the availability and the client relationships, time to time that gets determined, right? We do participate in many of those, but we will be circumspect in how much and when we participate.

Kunal, when I sort of did my opening remarks, I did mention that there was an element of disciplined pricing, and this is what I meant, which Srini elaborated just now. But having said that, I normally -- whilst all of you look at period-end deposits, I have been maintaining every time in my call that you should also look at averages. And averages, I think we have gone really decently well at about 15% year-on-year. I think that is something that we are very comfortable on our year-on-year growth. Thank you.

Got it. And this increase in contingency provisions. So you indicated that on the recoveries, there was some provisioning release, and that was the reason for contingency or is there anything to do with maybe the ECL buildup, you already carry a very decent level of contingency provisioning and we are adding over and above that. So how should we read it? Maybe is it a particular recovery effect, which is getting nullified and that's the reason it's created?

Yes, that is exactly. There's a space -- opportunity space. Contingent provision as the name suggests, it is not -- it is precautionary and not anticipatory and where it is available and opportune space, we do. ECL provisions to the side, whatever -- whenever that comes to life and those draft guidelines are finalized, we can do the fine-tuning of what it entails. But we do feel comfortable with ECL, both from an implementation or from a requirement of provisioning and so on. But at this time, exactly as you alluded to, was the thought process on the contingent.

Sure. And lastly, on fee income side, the sequential uptick is more volume related or is there any element of one-off or some particular pickup in these segments, in any of the subsegments which we are seeing during the quarter?

No. The fee element, if you look at it, the fee has grown by about 9% or thereabouts. One of the areas -- in fact, the proportion by various products, if you see, is almost consistent where you have to look at prior year more than prior quarter because one quarter to another quarter, there are seasonalities of various products, but it is consistent and that's part of the regular growth.

Okay. Got it. Some element of wholesale would be there because that proportion is going...

No, not wholesale, not wholesale. Kunal, the fact of the matter is you started to see the asset buildup happening. The disbursals would have started to kick in during this quarter. So there would be definitely better earnings arising out of the asset disbursals as well.

Next question is from the line of Anand Swaminathan from BofA.

I have a couple of questions. One, we have just crossed the 2-year mark post-merger as well. If we can give some key success metrics in terms of synergies and what has worked out the best? And also, if you can highlight what has been lagging versus what we had envisaged 2 years back? And number two, in terms of the line of sight of ROAs, what kind of time frame are you thinking about now to get back above the 2% ROA mark, which we used to do consistently before?

So let me try and attempt this and maybe later on, Kaizad or Srini can just jump in. Number one is, let's face it, this is one of the most complex mergers in recent history. Two is, as you know, the bank had to do much more than what it was normally doing in terms of trying to step up the pace of raising funds to meet the incremental reserve requirements, the other LCR requirements that happened on their liabilities, which we inherited and also the funding for the incremental priority sector requirements as well. In addition to that, obviously, when we realized that the economic outlook was changing post the merger, it was -- we took a strategic call that we would like to relook at our glide path and we said we want to bring down the credit deposit ratio much faster than what we had envisaged at the time of announcing the merger. So that meant that you needed to step up the pace of deposit growth much more than what one would have done, even though the liquidity environment is extremely tight. So I think these were all extraordinary events that we went through post the merger. And I think doing all these slightly more than what the organization's capacity was, we still maintain reasonable stability in terms of margins right from the time we had our day 0 or day 1 financial metrices, whether it is in NIMs, whether it is cost to earnings, whether it is the asset quality or whether it's a return on assets. If you have looked at it over the 2-year period, I think it's been reasonably stable and range bound and that itself is very commendable for a population scale kind of an organization. Having said that, we -- during this period, we continue to invest into the future, into technology, into distribution and into resources because we believe that the impact -- if you need to really harness the opportunity of the merger, we need to ensure that we have enough funding to be able to fund the future growth as well. So I think that said, so we were not too focused on managing the cost to earnings during this period. We said, let us invest and let us start to -- and this will harvest itself over the next 3 to 5 years pace. As we see, one of the most important things is on the home loan space. Home loans, as we mentioned, is a very emotional product and the kind of relationship that comes about is going to be long term in nature, far more -- having a better emotional motion, and it is going to have a far more far-reaching impact than some of the consumption -- short-term consumption products. The process has commenced. I think the team has done a fabulous job of trying to ensure that we try and sell home loans from a larger distribution than what we were doing premerger. I think two is when we started to -- start to offer home loans, we said that we will try and cut down the turnaround time so that -- of sanctions. I think now it's in the public domain. For individual loans, we have now brought down the turnaround time to 2 days and for self-employed, it's about 3 days. Three is we will have journeys, which will ensure that we have a one-click experience in offering a bouquet of products when we sell a home loan. So in terms of the upsell, whether it is in terms of having a savings account attached to every home loan disbursal, happy to say that there is almost -- you -- let me have Kaizad sort of speak about it because he runs this very passionately.

So thank you, Sashi. Without going through all the pointers that Sashi mentioned, I think one of the advantages that we brought apart from changing the turnaround times was opening the segment to the self-employed base, which was not there previously when home loans were being done. And that's opened up a larger segment for us. It's also ensured that we are in a position to upsell far more products, including at the liability side of it. Empirical data has shown that whenever a customer has a home loan and he brings with it the check-in account, there is a change in the value of the relationship that comes. So I think we've been already able to start implementing that. We've seen good results over the last 1 year. So with increased distribution, changing our turnaround times, being able to offer home loans and customized products in home loans to different customer segments based on geography as well as their demographics. And in addition to that, the upsell that we have been able to do across a whole range of products, which is the credit cards that go along with it, when a person buys a home loan, the consumer durable loans that go along with it as well as being able to offer them our brokerage services and insurance. So when you look at the whole gamut of the upsell along with the check-in account and an emotional product like a home loan, which is a good duration product, it's already started playing out what we had envisaged as the road map, and I would say that we are on track.

I'll add one just to Kaizad so that this number we can keep talking and tracking these things is credit cards for when a new mortgage is given, the credit card penetration, we have been successful, as Kaizad alluded to, is now a little more than 14%. We are able to get that penetrated. On the consumer durable sanction, we are -- our penetration is in the mid-30s. And on a brokerage account, we are like a 15-plus percent penetration. And so we are progressing on those -- each of those products on the scale of how we want to hit. On the savings account, I think we alluded to, we are 98%, 99%...

That's right.

And the end result in terms of the balance buildup in such accounts are far higher than the normal savings account where we don't sort of place in a home loan. But having said that, as we have mentioned in the call, we believe that from FY '27, when we get back our trajectory, when we start to ensure that all our distribution outlets start to sell home loans, you will start to see the benefits getting more visible over a 3- to 5-year period. And more than that, even the operating leverage on the kind of investments that we have done in both in distribution and technology will also start to play. So I see a fair amount of positive bias in the key financial metrics over the next 3 to 5 years.

Any comments on the ROA trajectory? Our intention always was to go back to the upper end of that 1.8% to 2.2% ROA range. Where are we in that journey now? What time frame we should think about?

Yes. Anand, those opportunity space on the ROA, we are -- yes, we are between 1.8% to 1.85% to 1.95%. That's where we've operated over the last 8 quarters or so, as you see. The space on the ROA comes from cost of funds, because that's where the ROA -- the merger benefits of the -- comes a lot on the P&L through the cost of funds because you replace the borrowings, you change the mix of the deposits from time deposits to CASA as we have so far last 2 years had predominant growth in time deposits. So these are some of those levers. They remain intact, and they remain the opportunity space for us to get there. And yes, that's -- these are the drivers. And it is about the cost of funds, which changes that trajectory.

Next question is from the line of Rikin Shah from IIFL Capital.

Two questions. First one is on cost of fund improvement in this quarter for us, has been marginally lower than peers. Is that only due to the longer duration of liabilities, which means that it's just a timing problem and a lot of that could be back ended for us vis-à-vis front-ended for the peers? Or is it due to higher TD mobilization for HDFC in the reset last 1 year and hence, this difference could potentially persist in the near term?

Rikin, sorry to interrupt, your voice is coming muffled.

Is this better by any chance? Hello?

If you can speak a little bit, go ahead.

Yes. So I was asking on the cost of fund trajectory in this quarter for us relative to the peers. It has been marginally lower improvement. So I wanted to understand whether it is solely due to the longer duration of liabilities, as Sashi alluded to in the earlier point, which means that it would be a bit more back-ended for us? Or is it due to the fact that we have mobilized higher quantum of term deposits in the last 1 year, and hence, this difference may persist? So that's the first question. The second one, just Srini, if you could quantify the additional provisions that we made in the quarter through the P&L against that onetime recovery upgrade that you mentioned. That's it.

Yes. Rikin, the first thing is in terms of the cost of funds, every balance sheet has got a structure, a duration and that determines -- and the mix of time deposit CASA and so on. These determine how the cost of funds move. I think in some other question, maybe 10 minutes ago, we did talk about the space, which is there in the cost of funds and the time that it takes to factor that in. And so that's -- you'll have to wait for some time for that to play it out. And we are focused on getting the core business of franchise of deposits growth and thereby the customer relationship, and it will play out the cost of funds. That's the first thing. The second aspect that you talked about is the provision. I think that also to Mahrukh or somebody I had mentioned that we did add -- if you look at the provisions are on Page #19 of the deck that is there, you'll see that the right side block, where you see the contingent provision of almost about INR 1,600 crores, which is there added there. We also have added general provisions of about INR 600 crores. That's general provision is we have a loan growth that we need to support and various other things. And so our -- effectively, the general provisions is about 41 basis points of loans coming up from about 40 basis points. And similarly, the contingent provision is also up by a basis point or 2. So we have augmented that.

Next question is from the line of Abhishek Murarka from HSBC.

So I have a couple of questions on some of the individual loan segments. First is on personal loans. Do you think all the parameters are now green and you can accelerate, is the risk appetite much better now versus earlier? And for -- or rather to accelerate, do you need to loosen any of the tighter underwriting norms you would have adopted after November '23 circular a couple of years back? Is that a requirement or even with the current norms, you can sort of accelerate? So just some sense there on how you're looking at growth and revival? The second one is on home loans. Now I think you all made very valid points about the product itself and the importance of the product for the franchise. But if I look at the overall growth, you are still 300 bps below the industry growth. I understand maybe it was due to the fact that the period was such where margins were under pressure and maybe you wanted to trade that off. But now going forward, do you see that accelerating again, and enough risk-adjusted returns there to grow at least at par with the industry? And the third is on gold. What are the yields right now? You're growing 5%, 6% Q-o-Q for several quarters over there, is that still lucrative from a return and margin perspective? Are you seeing some yield pressure there? So just these 3 things, if you could talk a little bit about.

Okay. So your first question being on the unsecured book, we've always had an approach where we will not go down our credit standards for underwriting, whatever would be the cycle that would be present. We've always looked at opportunities to grow in segments that we are comfortable. And based on the economic environment and the growth that is there in the economic environment. We've seen a steady growth come through because there has been an uptick in the credit offtake in unsecured loans, and we have appropriately participated out over there. As it unfolds and as Sashi alluded to, we see a positive traction continuing in the economic environment and we will certainly participate in our target market and ensure we capture our rightful share out over there without having to dilute any credit standards. If I move to the mortgage piece out over there, your question was on -- so on the volume rate of growth, last year, if you step back, we did a lot of corrections that needed to be carried out in terms of process, target market, the kind of yields that we wanted to participate in. From there, if you see, we have started increasing our market share. And today, we do believe that we have closed the gap between what we had about a year, 1.5 years ago, and where we are. If you see some of the participants about in the last 90 to 120 days, post the RBI reduction of 50 basis points in June, we witnessed a lowering of rates in the market by a host of players. We chose not to go down the interest rate ladder and participate at those levels because it has to make a certain level of economic sense and return as we also balance it with market share. We do believe we navigated that in a manner where we saw very quickly some of the players revise their rates and bring it back up. We do believe that over the next 18 to 24 months, this is a product that we will be with market. We've already shown that over the last several quarters, but we will not do anything only to get market share gain. That has never been our philosophy. It is a long duration product. It is a product where you connect with the customer and you want to have a customer quality where you can engage even greater across our product suite and have a relationship which lasts through the lifetime of the loans. So that's our outlook with regard to the mortgage business. The third question was on the gold.

Yes. I just had a very quick follow-up here. Is the pragmatism on pricing returning? Or is it just still quite competitive and still not the right time to press the pedal?

It is coming back to some levels of sanity, but I would think it's yet a little distance away, because it's quite an uneven market where you see different players come and accelerate their appetite on home loans and therefore, use rates as a strategy to try and meet their objectives. So we will have to see how this unfolds and wouldn't want to jump the gun where that is concerned. Very quickly, in the interest of time, I move to your query on gold loans. Yields have been good. Our experience as we are growing this book in a steady manner has thus far been very helpful. We do see us continuing on that path. We will be watchful as it is, again, a very emotional item with clients and who we deal with and the clarity of the terms on which we deal with them, we will be cautious of. But yields on gold loan book have been, I would say, pretty rich given that it is a fully collateralized exposure.

Yes. Is the yield here higher than your retail blended yield or at par, just the retail portfolio?

Abhishek, so going into one particular product rate, all I will tell you is that this is incremental to the bank's yield as well as the retail product yield.

Next question is from the line of Jayant from Axis Capital.

Sir, my question is on credit. I think the book has not grown sequentially as much. We do think...

Jayant, sorry to interrupt you, we lost your audio in between, can you repeat your question once again?

Am I audible now?

Yes.

Yes. Question is on credit cards business, when the book has not [ nice ] in this quarter, whereas we do...

Jayant, sorry to interrupt you, we are again losing your audio. Can you speak through your handset, please?

Yes, is this any better?

Yes, try again, try again, softly try again.

Yes. My question was regarding credit cards. The cards book has not grown as much in this quarter. However, the card issuances and the spends have been growing very sharply ahead of industry for the past several months. So is there a mismatch? And have we observed any uptick in the post 22nd of September period?

First on the card overall, first is that the card growth I alluded to, I think it's 1.5 million new card additions in the quarter. And we have seen that -- which we have talked over the last 4 quarters, where from a various spend categories, there are certain spend categories that we are cautious of, and we have been managing through the spend time. There are certain things we like and certain things that we have restricted. Secondly, in terms of various credit lines, we are again the circumspect on increasing credit lines for revolvers. And we have seen that the revolve rate hasn't picked up, if anything, has only come down. And so again, from an overall balances point of view, a good amount of transactors who spend and pay, especially from strategic.

See, very similar to what Kaizad and Srini has mentioned, I just wanted to add that there will be times where probably because of festivities, there will be a fair amount of offers that will be there from e-commerce platforms, and participants in that particular platform probably would have seen a fair amount of buoyancy in terms of spends and spends per card. If you look at the industry data, you would see a fair amount of spends happening on account of the festivities or the start of the festivities by some of these e-commerce platforms. And we have elected and we sort of keep evaluating this particular space to see whether it makes economic sense to participate in some of these spends or not. So if you are comparing or looking at it from an industry perspective, we -- as has been the philosophy, we try and ensure that whatever we participate largely should make some economic sense. It is a fact that we did not participate in some of the large spends that happens during just about the start of the festival on e-commerce platforms. And that's probably one of the reasons why you're seeing a very tepid additions to the net receivables on cards for this quarter.

Understood. And second question was the mix of the new acquisitions, how much would be existing to bank and new to bank? Is there any change of thought here of targeting new consumer pools through cards, because we're not seeing this kind of aggression from other players right now?

Normally, it has been between 65% to 70%, 75% or so is existing, and that has been the level at which we have operated over time.

There's no change in the last 6 months?

Yes, there's no big change.

Next question is from the line of Ravi Purohit from SiMPL.

Happy Diwali to the entire team of HDFC Bank. So I have 2 questions. Most of the other questions have been answered. One is about 2 quarters back, we had mentioned that from the erstwhile HDFC book, we had about 15 to 20 bps of stressed assets which are actually performing, but we were still classifying them as NPAs. So can you just kind of update us on the status of those? Have a lot of those gotten upgraded or some of it, if this quarter, one of the, I think, assets that you were saying that got upgraded was probably part of that eHDFC book. And is there more left there? If you could just share some thoughts there? And second is, in our advances book, we have seen healthy growth on the SME side, the medium and mid-corporate side. So if you could just share some thoughts on what we are seeing on the ground on the SME side from loan opportunities? Those are my 2 questions.

The first one is simple, yes, I did mention to Mahrukh and to another person that the upgrade -- the 10 basis points upgrade is part of that.

As regards to the SME part of it, I think we have seen at a ground level a fair amount of positivity come back. There is actual credit demand, which one is seeing in that segment. We do believe that with our clientele and our footprint, it gives us an opportunity to continue to participate, keeping the underwriting standards, but also participating out over here. And right now, it is continuing to give us the positivity on that segment. The asset quality in that segment has also held up well. So we continue to mine that space within our parameters going forward.

And sir, in the RBI policy recently, they had mentioned about Indian banks being allowed to participate in cross-border or fund cross-border M&As and also there were a lot of relaxations that have come in. So if you could just share some thoughts as to how does it kind of open up opportunities for larger banks to participate in larger cross-border transactions, which hitherto were not kind of available and most of that money was being raised in the overseas markets.

Yes. So I think this certainly opens up avenue for large banks to participate, in fact, for most banks to participate. We will await the draft -- we will await the guidelines from -- the final guidelines from the regulator as well as the draft guidelines which have to come out over here. I do believe that there is a large market available, which was being financed offshore or to a smaller extent being addressed by the NBFCs or by alternate funds. This would now be available to banks, and we will most certainly examine this and look at it and be able to participate given our clientele and the depth of our balance sheet.

Ladies and gentlemen, we'll take that as the last question. I'll now hand the conference over to Mr. Vaidyanathan for closing comments.

Thank you. Thank you. I want to take this opportune time to wish all of you a very happy festival time with your family and friends. Have a great weekend. Bye-bye. And if you have any more questions or comments and clarifications required, please feel free to reach out to our Investor Relations. We'll be happy to engage. Thank you. 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 your lines. Thank you.