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ROUGH NOTES OF Q2FY24 EARNINGS CALL

Management Commentary

Mr. Sashidharan Jagdishan

• 1st result post-merger
• We just consummated one of the biggest mergers without any outside help – this shows the strength of our institution
• There was an incremental CRR that was announced and this cushion was very very helpful
• Day 1 adjustments to Equity mentioned in the presentation
• Some people mistook it to destroying equity – but they were just timing differences
• About the non-retail book of erstwhile HDFC – this restructuring brought about a spike in NPA… The accounts are yet current and performing. The bank will not see any loss from this book in the P&L. Our provisions too are adequate enough.
• Construction Finance: It is going to be an important part of our business. It will grow steadily from here on. This will help the top line as well as the margins.
• The results showcase the execution capability we are known for
• Deposits accretion of 1.1 lakh crore
• When the liquidity cushion was being built in eHDFC, we decided not to transfer some tickets – and this is what happened in June – that is why deposits were hit.
• Funding will never be an issue for us.
• Loan Growth: These are high-quality assets. Commercial, rural, MSME or retail – all are extremely high quality books. 4.9%, annualized 19.6%
• Very strong, very healthy numbers – bank will have the energy to grow at this pace
• Mid-September presentation mentioned a possibility of 25bps impact on NIMs for making the cushion. We are therefore, currently at the lower band. With time, we will recoup some of those margins. Especially with the changing mix towards retail.
• RoA: Maintained around the 2%, and RoE at the 16.2%. Therefore, topline growth and profitability is intact and will grow now onwards.
• We did the highest ever mortgage loan disbursements ever. We will now start to sweat the distribution system – along with digital bundling of products.
• The innate strength of the company is strong, we have demonstrated this year after year
• We are excited about the future

Mr. Srinivasan Vaidyanathan

• Macro Context: Good healthy tailwinds. Push from government through Capex.
• Key Logistic indicators were good. The environment is good for robust growth.
• Our estimate for GDP growth is 6.3%
• Key factors in the bank’s growth journey: Overall 10,436 branches increased YoY
• eHDFC branches we are working on building books of HDFC bank from those locations.
• 2.7 million liability relations added in the quarter
• Granularity and deposit focus continues.
• Term Deposits have been the bedrock of this growth. 7.6% growth sequentially.
• Retail accounts for 72% right now and this is our increasing focus.
• CASA was impacted due to merger
• We continue to pursue our tech foray. 3 million registered users on our app.
• Balance sheet remains resilient. CAR is at 19.5%. Core NIM was at 3.65%. Reported NIM was at 3.4%.
• Other income 10,708 crore – 65% is Fees and Commissions.
• Op Expenses 15399 crore represent Cost to Income at 40.4%.
• GNPA was at 1.34%. 22bps related to restructured account – which are current and performing but are classified as NPA
• Slippage ratio is at 33 bps
• 4500 crore of recoveries and upgrades in the quarter
• PCR was at 74%
• Credit Cost Ratio was 49 bps compared to 87 bps YoY. 34 bps net of recoveries.
• EPS (standalone 21.2) (cons 22.2)

Q&A

Mahrook Adajania – Nuvama

Q: On Margins, you’ve explained ICCR…but will there be any other adjustments while moving from IND-AS to IND-GAAP?

• We’ll have a session for IND-AS and IND-GAAP to explain it all
• There are a lot of differences that happen
• Profile of the balance sheet and interest rate structure are no longer comparable – there is a different regulatory regime

Q: So is most of the margin from excess liquidity and ICRR?

• The balance sheet is funded with debt
• Debt borrowing comes at a cost of north of 8%
• That is a part of merger management
• But when you think where it reflects, it is in the Cost of Funds

Q: There was a favourable decision in the tax rate…so does it normalize to 25% in the next quarter?

Yes. We will be at around 24.5

Q: How long would it take for the margins to come back to the 3% levels?

Utilization of better mix – focused on retail will help us bring it to normal levels.

Kunal Shah – Citi Group

Q: The Rundown in wholesale portfolio…is it largely done? As you said we should now be seeing growth…

• It has got 3 components
  • Construction Finance – we want to grow this portfolio
  • LRD book – Is also a growth oriented book
  • Corporate Loan Book – We will take a decision about overall exposure. But direction is towards the better.

Q: Any one-off impact due in Fee Income due to IND-AS transition?

• Fee income is at normal level
• This is from multiple products but there are seasonalities – it goes up or down
• But historically, it is in the mid to high range
• This quarter it was at 19 odd %

Parag (Inaudible)

Q: Will there to be a 2% hit to growth rate? As you had said before …

• Growth rate is underpinned on 2 things
  • Market Rate of growth from 10-12%. Depending on the growth. Nominal rate of growth x 1-1.1 will be our growth
  • We have delivered a premium on the market rate of growth
• There is 400 bps growth in market share gain
• If you look at recent times, market share gain is faster than it was 5 years ago as opportunities to gain more market share are available.
• If you look at 2 years ago the cohort of branches we could see that breakeven happens in 2 years. As we add new branches, that is the average you can expect as it follows the scripted method ahead.
• For every 10 bps credit cost of opportunity from the timing point of view, it is about 1-2% of Cost to Income. As we make those investments, it will start to pay back.

Q: Till last quarter everyone was concerned about how you will fund. But going ahead, will listing of subsidiaries provide some value and funding?

When the timing is appropriate we will consider an appropriate valuation and let you know.

Atul Mehra – Motilal Oswal

Q: In terms of non-retail NPA, how much was un-anticipated and what was anticipated in the swap ratio?

• If you look at this book from a 6 quarter PoV, it has been on a decline. Go back to the June’22 quarter it was flat, post which it has been decreasing
• We want to grow this book, but before we do that we need to assess exposure for stability and to balance the risk
• We are currently comfortable with the provision coverage and the book is strongly positioned

Q: Did any incremental stress come as a surprise? Or was it already anticipated?

• Risk assessment is a dynamic process
• And it is a continuous process. It keeps changing.

Suresh Ganapathy – Macquarie

Q: 83-85% of the book is retail right? What is the comparable Basel 3 number?

• Yes
• But basel classification is different
• There is no 1-for-1 retail definition

Q: About the he synergy itself… counter share has gone up to 70% already, so what is the qualitative aspect contributing to this, can you some give light on that?

• We have focused on a few things. Engagement level has gone up significantly.
• The process itself. The sales process is significantly enhanced.
• Process has to be broad based across the country and that has already begun.

Abhishek Murarka – HSBC

Q: Can you quantify the LCR on a merged basis? And retail deposit # on a LCR basis of HDFC deposits?

• 121% after absorbing the ICRR
• There is no special tracking now, it is all part of one

Q: In terms of conversion to repo-linked loans…?

• That all has already been done
• December deadline if for customer communication

Rajeev Pathal – G3 Holdings

Q: There has been a 3% hit on the margins due to ICRR, will it start getting normalized from the next quarter? Do you think 4-5% growth in loan book is possible?

• We don’t give forward looking guidance
• We did allude to the margins and merger management – it has been long-term debt funded
• It will take some time.
• Better mix, and higher yielding retail mix will help us get there

Kiran Engineer – CLSA

Q: What are the SLR Issues as of Quarter-end?

We don’t say what it is, but we can say that we can carry more than that number.

Q: On branch opening, why is it subdued, and why is always back-ended?

• You ask a very important question
• 1st thing that goes in is the marketing team – to decide the location
• Followed by the credit team which maps the geography to potential for advances as well as deposits
• Our branches are 4.5% of country’s branches
• Our deposit margin share is near 10%
• We see the potential in the catchment area
• Then Infra team will say if they can build or not build it
• We know where we want to open the branches, but availability of the right space is a constraint.
• Then we go through this process and bunch it up. As much as we like it to be even through the year, but there are other constraints. And this is like a machine. The prep that goes in leads to a very long lead that goes in. Therefore, it is sort of cyclical.

Q: How much of slowdown is market-led?

• Market is under-penetrated
• Our pre-approved personal loan rate is high and demand is good
• We are at a 15-15.5% growth rate. Sometimes it is higher, currently we are in this 15% range – as we go ahead our canvas on personal loans will grow even more.

Manish Shukla – Axis Capital

Q: What is Average cost of liabilities acquired from HDFC?

• Cost of funds is up by 85bps – and most of this is from incoming eHDFC book.
• So you can calculate from what is already available

Closing Comments

• We are available through the next week for any other clarifications
• Please stay in touch. Thank you.

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