HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HDFC Bank conference call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ridham Desai, Managing Director and Head of Equity Research. Thank you, and over to you, sir.

Thank you. Welcome to everyone on this call. Good evening to those in Asia, and good afternoon, and good morning to those in the Western Hemisphere. We have a very, very special call today with HDFC Bank. Your host for this call, Sumeet, our banks analyst, Sanjay, who is our Co-CEO and Head of Equities, India and yours truly. From HDFC Bank, I've got Srini, who is the Chief Financial Officer; he joined the bank about 2 years ago, but has more than 27 years in Citibank, so 3 decades in the banking sector. I have Sashi who all of you know, Sashi, he's the group head and has been with the bank for almost a quarter of a century, has led various businesses, the finance division, notably. Has been responsible for the growth trajectory. Is currently the change agent for HDFC Bank, overseeing all the strategic initiatives, which will put a HDFC Bank into its next growth path. And finally, and not the least, I have Mr. Aditya Puri, who needs no introduction whatsoever. But I have to say a few things here, nevertheless. So Mr. Puri joined the bank in September '94. He -- the bank got listed in May 95. At the time of listing, HDFC Bank was about $200 million in market cap, INR 7 billion, the exchange rate was very different. What do we have today? We have the third largest listed entity in India, which is worth $83 billion in market cap. That's a compounded annual growth in wealth of about 27%. The EPS has compounded at about 28%, so I can very safely say that Mr. Puri is India's biggest ever wealth creator in history. And with those words, let me hand it over to Mr. Puri.

Thanks, and welcome all of you, and I hope you're all safe and secure, which I do believe you are since you're on the call. So let me give you a different twist to this call. I was thinking that if I was to want to join as a CEO of a bank in India today, what would I look for in that bank? So when I thought about it, I said I would want to see if the fellow had a good brand name. I'd want to see if there was enough capital adequacy. I'd like to see if there was a great retail franchise, especially on the liability side. I would like to see whether cumulatively he understood his business to create a balance sheet where there was no stress or very manageable stress as expected and conceived by the bank. And I would like to see somebody -- the bank have gone through the technological change from moving from core to middleware to enterprise to Software-as-a-Service. And last but not the least, did it have the trained manpower and the team that could exercise a strategic vision which was reasonably clear? So I say -- and was in a market where market share was available for the asking. And had a medium and long-term growth potential barring COVID of somewhere between 5% to 7% would be more. So when I looked at this, then I said we have done a good job at HDFC Bank. Because when you look at all of that, there are some key decisions that we took. More than the key decision was that when there was the secular shift in telecommunications, technology, social media, artificial intelligence, et cetera. There were a bunch of companies who changed their operating models. It was the Amazons and the Googles and the Alipays and the Netflix and there were others like Border and HMV, et cetera, who said, "oh, we've got the distribution, we've got the brand, nobody can touch us." Well, when they started telling us way back, about 5 to 6 years back. When they started telling us that, "Hey, listen, the fintech fellows are going to kill you. You're going to be dinosaurs." None of us wanted that 25 years of work would leave us to be as dinosaurs. So I went to Silicon Valley. And when I looked at what all the so-called fintechs were doing, and I came back and I do remember telling them, it's not the fintech, it's the platform company that would be our competition. Because the fintechs, while doing a good job, can be your partner, but they cannot really give you that much competition because they don't have the money and the expertise that would be required to meet the technological change, which could disrupt the banks. So we came back and we said, we sat down and we figured that since most of the offerings were over the top of an established banking system, why couldn't we do it ourselves. So we formed the team of everybody. We sat down. We came out with what we needed to do strategically. This was about 2 years back. What we needed to do strategically and understand what was necessary to make it happen. And most change fails because people don't believe -- either people don't believe in the change or you don't have the right monitoring mechanism or you don't have the right people. So we brought in the people who we thought would run the bank for the future, and we also brought in a change agent to make sure that everybody bought in, this cannot be driven by mandate -- everybody bought into the concept, and we came out with our clear plans as to what would happen. The plans were very clear. We said, as far as our service is concerned, we can't talk bank, as that will be obsolete. So we want frictionless delivery with a good customer experience. And that would be something like what you would get in a Google or an Amazon. To do that, what you had to do was you had to move from an enterprise basis to service as a software, which allows you to deliver on the run embedded product to the customer across a channel of his choice with customer convenience. So that was the technology part of it. Then we said, let's look at India. What do we want. We said semi-urban and rural India, which we had actually identified 4 years, 5 years before, that is a virgin territory, 60% of India lives there. And whereas all the banks are there, they're only on the liability side of the balance sheet. And there also, they're not providing the required service level. So yes, we said semi-urban and rural is definitely a great opportunity. The payment landscape would change, we said that's a great opportunity. Offering a product to the customer, which gave him the entire range that is banking, his loans, his shopping, his advisory, his third-party products, the payment of his tax and running his business. In a manner that was convenient. Either you got it on a mobile phone, if he was a corporate, you got it on a host-to-host or he had an API integration with you. Then we would be able to get depth both into a customer franchise, which is consumer, as well as our wholesale franchise. We also looked at we said here, listen, if we want to maintain our cost of funds and our margin, then we can't keep depending on fixed deposits. We have to have an appropriate mix between current savings and fixed deposits. So that it gives us the regular cost of funds. People were crying for deposits at that point of time. And when we sat down, we figured that wherein the credit deposit ratio in urban India was about 120-odd percent. The credit deposit ratio in semi-urban and rural India was 37%. So they had money coming out of their ears. And guess what we did, 50% of our branches are there, and we have banking correspondents, Srini will give you the exact numbers. On a combined basis, we would have major touch points, exceeding over the next 1 year, 1, 1.5 years, exceeding 20,000, with a complete product range that is suited to semi-urban and rural India. So that was one. What we would do in semi-urban India, what we would do in -- with our liability franchise. We then said if we were to penetrate and have an appropriate business strategy, which would allow us to get more bang from the buck from our customers, get a higher acquisition rate as far as customers are concerned. Both for corporate as well as retail and have a faster turnaround time on our products. So our acquisition over a 2- or 3-year period, and please don't catch me, I'm getting a little old now. So please don't catch me on the exact figures. The figures will be given by Srini, and those will be the right figures. I think we went from about a new acquisition of 2 million to about [6 million,] maybe 5.7, I don't know, something like that, but that's not important. And then we also had a situation where we were able -- and we worked, and we were probably the first globally, where for even the SMEs, we could do most of our credit assessment online based on publicly available information and then the relationship manager only had a few questions to ask, and he could complete the transaction. We also decided based on our analysis of various banks all over the world that for MSME, normally, the self-funding ratio ranges from 75 to 100. If you want -- because when you go in for a MSME, you want his entire universe. You want his uncle, aunt, father, grandfather. The whole lot, who are involved in their business, all their accounts and their liquidity. That really helps when times get tough. So most of our businesses have a very high self-funding ratio. This is the other part we mentioned. Then we said, look at the payment business. We are market leaders in credit cards. Some 40-odd percent of the transactions go through us, whether it's an Amazon sale, Flipkart sale or no sale. We were leaders in the acquisition business. There were very few banks in both the origination and the acquisition business. We also figured that these merchants are a good risk anywhere in the world. They're not leveraged. They give you the liability side of the balance sheet, and they give you the assets that you want, i.e., they either want a motorcycle or they want a car or they want to -- they may want the loan against something. So that works. So we went big into the payment side of the business, which included our launching our own marketing platform. Whereby we don't deliver the products, but you can get a wide range of services and do your shopping, along with discounts. We are now moving to make sure that this marketplace will offer discounts almost throughout the year. Where -- and of course, we will do the Amazon sales, et cetera, and most of the people are willing to come onto this platform. We said we need to have our people trained appropriately because in digital delivery. You do not have a hierarchical system, you deliver the bank at the point of contract. So any of you is free to visit any of our branches, he'll give you the same story with almost as much detail as I'm giving you. So we had a trained force that was working. We had -- and Srini, which Srini and Sashi will cover. We had about 7 initiatives, and all those initiatives are not bird in the sky. There are initiatives which are working, which are delivering to plan, and now we are continuing to add scale. And we have final touches on our digital, whereby we said we want to bring our cost of revenue down, and we see a cost of revenue reduction over the next 3 years, 3 to 4 years, off of between 2% and 3% because as things move digitally. And there again, we tied up with the best in the world. So that you have your touch point at the target, you have the ability to look at -- you don't need to have structured data through a data warehouse, you can have analytics and unstructured data on the run, you give him his offer and he clicks and he goes. We also went in for banking at the edge. Where we would deal with people like Google and Facebook and all of these guys to see how we could jointly deliver a product to the customer across our strengths. We also work with people to figure out, use artificial intelligence as to see which search resulted in what kind of lead. All this is in place. The people who are going to be running each of these businesses and 2 downs are in place. So I was very amused when somebody said, "Oh my God, you're always losing senior management, you lost Nitin Chugh and you lost Rajesh Kumar, are you nuts or what?" And we had a $100 billion corporation this fellow is 4 levels down, and you think 2 of those guys is a major attrition from the bank? Or our CTO going, which was a planned exit. So we have those, and we were one of the few companies. And I've even told the guys this year that gave their increments, that gave the bonuses, that gave the promotions. We also -- in this process, what we did was we wanted to keep our delivery capability intact. So what we did was when we reduced, and I'll come to this very shortly. And then, I think, I want to sip some of my tea. We wanted to keep our delivery capability intact. So when we rapidly cut down on our retail lending only until we got clarity to see that we were only in the top tier. And all we had been -- I had been at least continuously saying, that most of our retail lending, which is clean, is in the AAA corporates, and they are not going to lose jobs in what is the health crisis that metamorphosed itself into a financial crisis, and that's how it turned out. You saw, and these guys will cover on the moratorium, what kind of risk you have. You would have also seen that we used artificial intelligence to make sure we took -- we brought our NPA recognition back to normality. And I think we may have been overconservative. But that's Sashi, so there's nothing I can do about it. He's a good guy. He works hard, so I had to allow him to have his way as he goes along. So with that, we had -- all our salespeople are trained for collections. We've also introduced work for home. So now I am very clear, we could have some fluctuations. We don't give forward guidance. We could have some fluctuations in our performance one quarter or the other quarter, depending upon how the COVID god treats us. Where by and large, I stick to what I said in the balance sheet, the best is yet to come and I would very much like the rest of my colleagues to earn their salary. And so with that, I will now only come back at question time. Thank you. Hello?

Shall we open up for Q&A?

I don't know. Ask Srini or Sashi, over to you guys.

Yes. I think we can open up for question and answers.

Okay, do whatever you want?

Yes, sure. Thank you, sir.

[Operator Instructions] The first question is from the line of Teeja Boye from Sands Capital Management.

Mr. Puri, I was wondering whether you have any thoughts on the moratorium and the Indian press is reporting that we could see that moratorium being extended, but only for certain sectors. I don't know if you have any thoughts on that on how that would impact HDFC Bank?

Okay. Srini, you want to cover the moratorium because the others will also ask the same questions as to what we did? I'll just cover that. I think there will not be a global moratorium extension. Some sectors could get it. Effect on HDFC Bank would be -- I mean, let Srini cover it? I don't think much. Yes.

See, from a moratorium point of view, we gave a number at this moment as of June end, we said 9% of the book is what availed of the moratorium. And even the moratorium is a misnomer when we think about at least our bank context, I can talk about. The reason to think about it as a misnomer for us is that the moratorium 2, which started on June 1 and the 9%. Majority of them, which is in the 90s, high 90s percentage, they are all current in the sense that people conserve, or wanted to conserve liquidity and they come and take moratorium so that they can accumulate 3 months of cash. And if anything were to come as a problem, they are having liquidity to -- at their disposal. So we have very high percentage that we have noticed of people who have -- who are 0 DPD, which means -- but they don't have overdue sitting there. And they come -- still come and take moratorium. There are some people who do take moratorium because they have strapped cash flow. And that is part of our analytics about how we analyze and how we are able to make anticipatory provisions and so on. So we've taken care of that from a moratorium extension. If another one had to come, as Mr. Puri alluded to, we should operate like a business as usual in terms of how we look at the portfolio and how we are able to contain it and work through it.

I have another question. Mr. Puri, I'll be interested also in your thoughts on the Indian macro. And as you would appreciate, even before the COVID situation, the economy was in a very difficult spot. So I appreciate that the COVID would have to be under control before you can start thinking about the economic recovery again. But people have also pointed to the fact that the government has limited resources in helping to stimulate the economy. So what do you think it would take even beyond the COVID situation for the economy to get back on its feet?

Okay. No problem. Now there are 3, 4 things. One is when -- let's cover this business about limited availability, what India has been lucky with is the banking system is flushed with funds? So they have more than enough money, and the route the government has adopted is saying that if you have issues and are not willing to lend because you're not very sure and you need some help in assessing as to how we will cross over COVID, we will give you a government guarantee. And this figure is, Sashi, how much is this liquidity that the banking system has in dollars, yes?

It's like INR 50,000 crore which would be about, call it, even if you say 10 -- close to 100 billion, we're talking about.

Yes. So that's the liquidity available, and that I will be -- even if you haven't asked the question, that liquidity, in my opinion, even just through home is sufficient to meet even the additional requirement of the government funding that is required without having to end. That's why you see the yields on the government securities being relatively stable, going down, no doubt, but stable. Now we come to the situation of how we see it going forward. You must realize that the drop in oil prices is a bonanza, the drop in commodity prices is a bonanza. And what we are looking at, if you see India normally reacts in a crisis. Things are moving very fast to one, what we're going to be doing with our agri sector, what we will do with semi-urban and rural India, the expenditure on infrastructure, the expenditure on the stimulus that has been put in there. So I do feel that somewhere we will at least, and that's what's being reflected. And the recovery of the economy has been faster than expected, but we shouldn't be too euphoric about that. Because we have to see whether this is a pent-up demand or the pull demand that comes. But we do feel that medium to long term, the prospects for India in the new world economic order are good. And that includes the difference that they have taken in terms of make in India, where the attitude now is what does it take to get the guy into India. So whereas I do not believe that we're going to be jumping to the 8% and 10% overnight. I do believe that within the next 12 months on a run rate, we will be around in the 5% to 6% category. Are we very safe on our balance of payments? Our reserves are just going up. So that's not an issue. And our foreign debt is limited. So as far as we're concerned, we do see a good medium to long-term growth, which, in our mind, is described as 5% to 7%. I also want to take this opportunity where people talk about, "oh, there is the financial sector risk." No, there is no systemic risk to the financial sector. The government banks are supported by the government ownership. As far as the private banks are concerned, they have a -- the larger private banks have capital adequacy ranging between 17% and 19%. So I don't think there's a systemic risk to this. As far as what is concerned is everybody started at March, oh, now we're going to have a doubling of NPA, and we will have that. I think that situation -- and Srini will cover that, if any of you ask on our portfolio as well as the country portfolio. Each one may have a different level, but it is way below all the -- what should I call it, alarm that came about after March. Those kind of NPA levels are not coming. I was talking with a state bank fellow. I think you will be happier with the results. He hasn't given me any results, but other than to say that the alarm probably was overdone. So what we feel, we feel that there's a growth between 5% and 7%. We feel that we can participate in that growth very substantially because of our product range and capital adequacy. And we think we will gain market share faster than we had ever done in the past.

The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund.

Sir, my question was you've built out such a good retail franchise, and you have an NBFC below HDB. So I just want to know what is the long-term strategic thought on this NBFC, will it exist...

I'll give you both, long term, short term, medium term very simplistically. So okay. What's the other question?

No. Sir, I just wanted to know. So is it going to be part of your long term game -- sorry, it's going to be part of your game plan...

No. Let me answer, no, you will keep asking questions on, only, let me answer that, I'll answer all your questions.

Done sir, done sir. That's the only question.

So the only question, so let me answer it now, boss. Now when we floated HDB what was happening is that the bank operates in a certain target market? The finance companies operate in a target market, which is one category below the bank. So when there was the finance crisis, I don't know whenever 10, 12 years back, we said, "look, this is risky business, but the top 20% of what they do, those guys are doing fine." So that was the genesis. So HDB is not a strategic initiative for us. HDB is an initiative for us capturing a higher section of the market. Our options, all options are open. If we want to use it as a generator of capital, if we want to use it as a generator of dividends, if we want to use it as it generate of market share. That, I'll leave the future fellows to tell you as and when it comes, what they do. But all options are open, but it's not strategically important for the bank. It is another segment where we think there is tremendous demand, and we want to be a leader there as well. And we have -- all options are open to us.

The next question is from the line of Habib Subjally from RBC GAM.

One comment and then 2 questions. The first comment is someone who's been a shareholder for many years now, maybe 8, 10 years. A big thank you to...

You didn't say happy shareholder. You didn't say happy shareholder.

Yes. Clearly, a happy shareholder.

Good. Good. I'd like to hear this as my age moves on, I'd like to hear such things.

We have been meeting for many years now. And...

I know that. I wouldn't take liberties with you otherwise. Yes.

I hope we get a chance to meet face to face.

We will. We will. We will. I'll see if I can come on the over a roadshow. Yes.

I think that would be -- I mean, just for old time sake, it's fair to say a proper thank you. My 2 questions were about, you, selecting and developing your successor? What is the process and timing on that? And secondly, you talked a lot, I was going to ask about what are the things that you're proud of that you've achieved, but I think, you've already talked about that. But what are 1 or 2 things that you'd expect from the next team over the next decade that you would want to see them do?

Okay. So let me answer the second question first. We were just talking, Ridham, Sanjay, Sashi, me, Srini. And Sashi was complaining that I'm making work too hard at this point of time. And I said it's going to be good for the company for the long term because we have strategies in place that will take us at least for the next 3 to 5 years. Now this -- but the first one I'm really amused with, and I'm very loving that you asked this question on succession. Ours has been the most talked about and most screwed up discussion on succession that I've ever seen in my life. Everybody. Yes, I got to tell you, I mean, let's be very open. Who's going to do it? Whose influence will be more? What kind of fellow you'll get? This guy's fellow will come, that guy's fellow will come. Poor me, I don't have any power. I just said the best guy for the bank will come. And as it stands, we have given our order of preference, 3 candidates, to the RBI, and we should get the approval. And till now, at least, they've never altered your order. And so whatever you propose, they normally approve. Now coming to what we have done about succession, I have been planning this for the last 4 years. I needed the 3 key things that have to happen. One, people have had to know who the guy and not necessarily know who the guy was because that was not apparent, when we went through the search committee process and all of that. But they needed to know the people who would lead the company. And they needed to have loyalty to the person and they needed to know that, that person will take care of them. Because half the thing in financial services is motivation. Two, clearly, I needed to have somebody who would be able to execute because we -- most people, as you would realize, Habib, have been an execution story. We will be an execution story. We are in a d*** good market as long as we can execute perfectly and position slightly before the rest of the market. So his execution skills must be perfect. He must love the organization, the people must love him, and he should not necessarily be my carbon copy, but he should be at least -- have the empathy, have the decision-making, have the urgency and have a fair understanding of technology. And if you ask me between the team -- and the team below him must know where -- he's the first among equals, but each of those business candidates and guys must run their business and know it inside out. And they need to work as a team because most things, if you see now, are delivered as a team. They can't be delivered alone. There are 3 parts, 3 legs or 4 legs, depending upon what kind of stool you're looking at or a table. So it has to be -- technology has to be an integral path. Credit has to be an integral part. Marketing has to be an integral part. Distribution has to be an integral part and operation. And then only would you be able to deliver to the customer. So where do I stand today? That's why I gave you my lecture to begin with. I am very pleased that -- and then I'm pleased in a way, and I'm not so pleased in a way why most of you guys couldn't see it? But I am extremely pleased with the end result that we've got a fantastic team, we will have a leader that I am very sure we'll be able to deliver. We've got -- our strategy is so clear, I mean, when we talk to the likes of Adobe or a Google or a Facebook, I mean, they're talking to us because they say, you fellows understand what we're talking about. So Habib, I'm very happy. So now tell me what more you want to know.

Well, I think what's important for us is that you're placing the right importance on the succession. It's just that, for us, it hasn't been clear, and especially when there's such a large generational shift. I mean how should I put it, big boots to fill.

No, but I can tell you the transition is almost through, and people won't even realize both inside and outside when I collect my money and go and sit on a yacht and watch you fellows, and I think I'll be happy for that.

Well, I -- in one sense, it will be a great loss to not have you there at the helm and to have a chance to speak with you. But it's kind of unsettling when you have such a big personality, talking about exiting the stage. We don't know who the next person is. And that's something that you have to understand is a bit unsettling. Internally, you may have it worked out...

Habib, Habib, I know -- and I know you know the market and the people and the technology and the strategy.

The next question is from the line of Sumeet Kariwala from Morgan Stanley.

Mr. Puri. Thanks a deal for the detailed strategy and your insights. I had a question with respect to one of the emerging trends in financials, where the tech giants are increasingly focusing on providing various financial services. They started with payments and now they're expanding into lending, other fee-related services. As you mentioned that you've done a lot of changes to evolve into a frictionless service and you're actually -- the approach, as I see right now is more of collaboration between the tech giants and banks. I have 2 questions related to this. One, if you can talk about the initiatives that you are working on? And second is, from a 5- to 10-year perspective, do you think the approach of tech giants can change from being collaborative and turning into serious competition?

You fellows are good fellows. So why don't you ask Google, if he does want to become a bank and [ take as ours taken ]? Hello?

Yes.

You think, it's a joke to not be subject to so many regulations. So one thing and I've been talking to the CEOs of all these companies. The last thing they want to become is a bank. Could they become a finance company? Yes. Will there be competition? Yes. The issue is based on discussions that we are having just now, they have a platform. You will be seeing us come out with some joint platforms with global leaders, where each one's product -- once a fellow comes in into almost a co-branded platform, then equally he has an opportunity to go to anyone, which is the banking at the edge that I talked about. So my own view is that it will be more collaboration. I think people are too focused on Alibaba. Alibaba was an aberration of regulations in China. But once you take that regulations and take regulations that now prevail across the world, I don't think any of the platform companies would be wanting to become banks. But would they be wanting to be in the financing and payment business? Yes. We hope that this will be jointly with us. And we are also positioned to make sure that we have the customer base, we are substantially ramping up our customer base. As well as if you see what we are offering. So we will be with them, and we will be without them. They will be with us and they will be without us. So when you, for instance, talk to a Google or what's it called Facebook, et cetera, these guys don't get into exclusive arrangements. Even their arrangements with Reliance are not exclusive. So I think they'll all be wanting to look at partnerships, and we will all be looking at what works. And we are very, very focused on making sure that we are a part of that working, as well as we do have our own opportunities and strengths, which is a must. So we look at both collaboration as well as individually, head-on competition, I doubt whether they will come across most areas for the bank. They will be in the consumer side of the business, and we are there as well. We have competed with some of them, and we do believe we can take them on. We are collaborating with some of them, and we believe we will be in a good partnership. So I think we are here to stay. I think we've transformed. I was talking -- you'll be hearing about some joint almost partnerships without a partnership that we have with some of the leading companies in software, which have moved to Service-as-a-Software. There will be a joint -- hopefully, a joint interview with me and him, which will clearly explain to you where we are, where we are going, where we can work independently, where we will work in partnership, and we have the technology behind that.

The next question is from the line of Nick Cileli from Fiera Capital.

Yes. And I'll also mention that we are long-term holders, too, holding the stock for over 10 years and very happy. So my first question will be, since we do have a very long-term approach. Just looking back at your Investor Day last year, could you maybe expand on whether any of those 5 key initiatives have changed? I don't know if the COVID has had any impact, I'm sure, short term, but whether long term will impact these strategic initiatives? And my second question is, overall, the tone you've painted so far has been quite optimistic on the COVID and just your operations in general. But if I just look at specifically, the numbers in Q1, the retail sales, retail loans declined sequentially, like, I think it was 4%. How do I reconcile the fairly upbeat outlook and seeing that decline in sequential both in the retail loans?

No problem. I see you fellows are all being kind to my current age by asking simple questions. So let me tell you what. Why -- I'll tell you why that is. What we saw clearly that when there was going to be a lockdown, the retail demand would fall drastically, that, we saw very clearly. So did the retail demand for loans fall drastically? Absolutely. So what did we say? The retail demand is falling. We were sitting on about $5 billion to $6 billion of liquidity, which I think we are still sitting on, we say let go and grab every AAA asset we can get before the yields start falling. So we never make, we never push demand. The demand has to be there, and we go and get it. But we don't like to push because then you will get adverse selection. So retail fell drastically and we'll compensate it by seeing the opportunity because we have the liability franchise as well as we had semi-urban and rural India where people hadn't gone on to. And we went there and we got that. So if you see the first quarter and then you will see the second quarter. So what we have is, at this point in time, retail is starting to pick up because some of the concerns that, we, ourselves had, we said, you fellows frightened us saying, "Oh, my God, you're going to have the whole world unemployed and then we're screwed." So I have to thank him for that because it's a good conservatism. So we actually said that listen what if they're right, and we sat down. And we went through a tremendous amount of analysis across some 15 years to see what was happening. And we said, "No, it's not there, but the demand wasn't there." Now the demand as the people see that the companies are also coming. So slowly, the retail will pick up. For instance, if you see our 2-wheeler demand today, it's almost back to pre-COVID levels because people want -- don't want to use public transport. Okay. So -- and our -- surprisingly, auto is also at 65%, 70%. So we are seeing that somewhere along September, we should on a run rate -- forget about analyzing what the GDP for this year is. What's gone is gone. And the 2 quarters, even if it's gone, we've come out fine. So we are thrilled with that. I mean we don't get forward, but I think we largely are fine. COVID has had a major impact on one thing, that it has really helped turn out digital push and it's taken off, and we do see more and more business coming. And we are treating digital almost like another channel, stroke bank in itself. Because once you move through straight through and processing as well as origination, then it becomes a self-contained bank. But that doesn't mean your other channels don't work. So digital, it's actually had a great fill, and we are very convinced about that. So that is something that we'll go through. Sashi, you want to talk about the 5 initiatives and whether -- I don't think COVID has affected, but is good if you just for refreshing everybody's memory because these guys have lots of companies coming to them. If you run through that, along with whether there's any?

Sure. Mr. Puri did mention or allude to the 5 strategic initiatives, which we launched 2 years ago, collectively, as a team. As he mentioned, I think, all of them are not a bird in the sky. They're all in progress, and it is implemented. The momentum has picked up and we should see the scale over the next 3 to 5 years. So when we met you last, I'm sure, on the call, we've been meeting a lot of people over the last 1 year, there were a lot of commitments that we had given. For example, the first strategic initiative was, we have the brand channel, which is one of our largest feeder of business. We said that we will reimagine this channel, we will institutionalize a sales process, we will ride on technology, we'll ride on analytics to be able to provide, a, a great narrative to the customer -- a value proposition to the customer and also a reasonably frictionless, assisted frictionless experience to the customer. With that, we said that we will take the acquisition, as Mr. Puri was mentioning, doubling it from the 3 million about a year ago to about 5 million to 6 million. And we did achieve 5.7 million in the March '20. So that is something we -- is on track. Now with COVID, one of the fear factors that we had is that now, how are we going to engage with the customers. Now this is where I think the energy levels of the team really amaze us. I think they swang into action, we have now made all our touch points, the customer touch points to be digitally enabled. They have the customer relationship management programs on their mobiles, and their ability to interact with the customers on the mobile, on a voice. And at the same time, provide not just services but products on a seamless basis, which Mr. Puri mentioned, one of the biggest things that have happened is the fast adoption of technology, both from our side in terms of trying to make it more frictionless. And even from the acceptance from the customer side to say, yes, I'm willing to sort of deal with you digitally, sitting at home or wherever he is or wherever he or she is. So Mr. Puri did mention in the call on the 18th of July. What amazed us was the brand channel by June 30, we had about 6.8 million interactions. Out of which, we did about 1.2 million customer -- new customer acquisitions during this quarter. This would be probably about 80% of the normal run rate that we saw last year, which is a pretty happy situation to be, considering the fact that people thought that there will be paralysis during a lockdown. So that's point one. Point two is on the digital front. As Mr. Puri was mentioning, we did a lot ever since the wonderful day that he returned from Silicon Valley. I mean since then, I think, with the launch of a slew of digital products over the years, and getting scale is one of the key reasons why we could sort of get our cost to earnings from 48% to 38% as we speak. Having said that, as we said, we are now at an inflection point wherein we are collaborating with a lot more people, a lot more platforms, and we should be sort of seeing that and deal with that over the next couple of months, which will take full war task to the next level in terms of frictionless customer journey. I mean this is something that we are pretty proud of what's happening in the background. But I think at the appropriate time, we will do that. So banking at the edge, which means that we open up our APIs and integrate them with the platform is already certain things in the process. But in terms of better collaboration, greater collaboration, better stacks, synergies within what we can offer from a banking perspective and what the platforms can get it from a customer acquisition perspective and also from a frictionless entity perspective, I think this is going to be a great collaboration going forward. On the third aspect is our semi-urban and rural journey. As Mr. Puri mentioned, one of the things that has been least impacted. I'm not saying there's 0 impact, but there have been relative to the other parts of the country, the rural and semi-urban India has been relatively least impacted by the pandemic. The good harvest of May, June, and the fact that the monsoon seem to be on track, and it's been a great sowing season for the next harvest. I think we believe that the economy is going to be having a wonderful run on the agri side, where 60% of India is subsisting. So contrary to -- so this is where we had invested a lot over a period of time. We have 52% of our distribution. As Mr. Puri mentioned, we had, as a part of the strategic initiative. We said we will ramp up our partnerships with a lot of business correspondents so that we can integrate digitally with them to be able to source and service our customers in outreaches where it's very difficult for our branches to set it up. The -- you will amazed to know that the 5,000 or 6,000 business correspondents, their entire averages virtually double of what we have in terms of branches, were all active, probably active beyond what we had seen in the pre-COVID levels, which is sort of gives us a fair amount of comfort in terms of the distribution capability going forward. Yes, we have been a bit conservative on the retail asset side. So what the rural and semi-urban businesses that are coming in is more on the liability side on the payment side. I think once we have a bit of a comfort at a policy level, we should be sort of opening this as well. The fourth aspect is on the merchant, on the payment side. Yes, there were a couple of things. We have said that we would like to, over a period of time, ramp up our merchant platform. As Mr. Puri mentioned, we are a market leader in that particular space with almost about 40% to 50% of the country's transactions going through our ecosystem. We said there are 50 million merchants in the country today, which are not penetrated by the banks financial systems. This is where by our presence in the semi-urban or urban, and our dominance in the urban market, we felt that we have -- we are one of the few banks to be on both sides of the payment system, both on the issuance side of the cards, and also acquiring the transactions from a merchant. So we will ramp it up. We had such close, we wanted to touch about a 2 million merchant touch points by March. We were -- we fell short by about -- I think we reached about 1.8 to -- 1.7 million to 1.8 million. But that was pretty much all right because we did get whatever we wanted in terms of complementing our banking strategy. Having said that, during the COVID, whilst we did not -- because the feet on street, you need a lot of feet on street to go there, which is constrained, but we used this opportunity during the COVID period to start engaging with that 2 million customer touch points or the merchant touch points that we have acquired. Objective is that when you start to engage even during times of adversity it is -- this is what relationship is all about. We believe that once it opens up, I think we should see the ramp-up happening as we had envisaged over -- in our strategic vision.

Sashi, also tell them about the hyper local, your idea on hyper local and where it is.

That's right. So one of the things that we did during this period is that, look, we do see a fair amount of people. There was a very somber mood that was enveloping the entire economy. I think it is -- Mr. Puri and the team said that let's try and break this. All the merchants, both off-line and online merchants said that we would like to partner with you. We probably were one of the few people to come out with summer treats, and you will be amazed that the lift that we've got, whatever little lift that we have got in consumer in discretionary spends during the -- in the economy has -- a fair amount of share is coming in from that particular initiative. So the hyper local, which is the off-line merchants, is what we are now trying to -- like how we are trying to -- we have partnered with the online merchants or e-commerce players like an Amazon or Walmart or others, we are also doing a similar thing in the local catchment offline merchants as well, wherein a customer spends digitally -- sort of order a particular, any discretionary spend or any essentials, at least, maybe vis-a-vis great offers for our customers, and he can make a loan and he can sort of make the payments digitally as well as also take a small loan for the sale. So these are certain things that is already in place. You will see the scale happening as we see -- as we go into the future. The last aspect of it, which we have been working on is on the...

Corporate. Corporate.

The virtual relationship management. Now this is one channel that we had thought about. It was the team's idea, along with Mr. Puri, where we said that look, [indiscernible] there are 3 million customers who were contributing to almost 60% of the retail balance sheet. So just ask one nice question. I mean if 3 million can do that, why don't you just triple the relationship managers. And that gave birth to an idea to say then, "Okay, why don't we create a virtual relationship management program, where you can engage with customers the way a physical arm does it, but with a twist, we will do it virtually." I mean, mind you, this is something that we conceptualized pre-COVID. And as you probably know, we had a decent amount of traction on that. We were -- we said that over a 3- to 5-year period, the income per customer should mirror the income per customer from a physically managed customer. So today, we have 3,500 RMs managing out of 13 locations in the country, in different languages, closer to the -- but virtually. We have 6 million customers stacked in that particular program. It is going pretty well for the productivity of calling with as much as about 28 to 30 calls, customer calls, per day for RM. During the lockdown, obviously, we could not sort of send our people to these locations. So we had to quickly move on a work from home basis. We sort of intervened and had a new software, wherein people can dial in, the way they were dialing in the office premises sitting from their home with all the -- with the security and as well as the ability to service both products and services to the customer. Mind you, the -- unfortunately, because of the telecom service providers limitation, the RMs could manage near 4 to 5 hours per day as it is 8 hours that they could do. So effectively, we had to run multiple shifts going through this particular server capacity. But despite the reduced capacity, the -- what they were doing about 28 calls in a day, these guys working from home could do about 22 calls a day. So it's been wonderful. The ability to continue as a business as usual despite reduced capacity and continue to serve the customers during the lockdown has been a tremendous achievement by the team. So these are some of the things. We are happy that we started off these strategies and the journey about 2 years ago. I think as Mr. Puri is mentioning, we are at an inflection point wherein -- with a bit of a focus and a push and some of the changes that we need to do on the digital side, I think we can probably build scale over the next 3 years as promised.

The next question is from the line of Zizheng Wang from Viking Global Investors.

I mean like the bank has a very impressive track record in the past. I'm just wondering like your like underwriting capabilities have been very strong and has been proven by the history. But how do you think about your like ultimate addressable like market or in terms of market share, like where do you think it can get to without compromising the credit quality? Can you maybe elaborate on both retail and corporate?

Yes. I think we can be like Bank of America, around the 20% plus.

This is actually -- it is for both retail and corporate?

Yes. See, let me tell you, okay, maybe I made it too concise. The fact of the matter is demand exceeds supply for financial services in this country. That's number one. Number two, 70% of the market share is with the public sector banks. And I think all of you have been hoping that one day, you'll get your price-to-book multiple, but people live in hope, there's no harm. We, on the other hand, think we can get market share. So that increase in market share, as I said in my -- when I began my call, is a given. And now as we move -- they're not moving under. If you just look at their digital preparedness. If you look at their geographical spread, if you look at the product, it's not a big deal to understand that the market share, and you would have even seen over the last 3 or 4 quarters, our market share increase has been phenomenal. Retail, if you see semi-urban and rural India, we are the only game in town. So I actually do believe that we are well positioned to double our market share over the next 5 years at a minimum.

I think you have -- we will -- sorry, we are over the time, and Mr. Puri has another meeting to go to. So can we just make this the last question, please?

I just want to follow-up on that. I mean I'm not -- I don't doubt like the bank's ability to gain market share. But I'm just wondering, like we're a little bit surprised that actually, you think 20% of the market actually can your reach credit standards?

Yes. I'll tell you why. See, Bank of America can do it in a competitive market like the U.S. The fact of the matter is, even if we grow between 5% to 7%, the number of people that will come into our addressable market will grow. If you look at the fact that 60% or 50%, 60%, whatever is the number that lives in semi-urban and rural India. And if you say or even 25% of them are, what's it called, will within the -- probably now and over the next 2 years, with the emphasis on semi-urban and rural because that's where the election comes from. That's almost a complete new market available for the bank equivalent to the existing market. And you superimpose the growth on -- of between 5% and 7%. And you'll see that the public sector banks that have been losing about 1%, I think they will soon start losing 2%.

Sanjay? Sanjay, over to you.

Well, thank you very much, Ridham. Mr. Puri, Sashi, Srini. Thank you for your outstanding insights. Mr. Puri...

Sanjay, I have to run. I've got the ministry on the other side. Yes?

We have talked to you so many times over the last number of years. And it would not be an exaggeration to say HDFC Bank [Audio Gap] and that's for entire of corporate India. And I say this on behalf of every one at Morgan Stanley and almost 400 investors on the phone. Thank you for your leadership and for your guidance always, and thank you for your friendship. And a safe and a good weekend to all the investors on the phone. Thank you.

Thank you, all. Thank you so much.

Thank you. Thanks. Bye-bye.

Bye-bye.

Thank you very much. Ladies and gentlemen, on behalf of Morgan Stanley, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.