HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the conference call hosted by Credit Suisse with Mr. Aditya Puri, HDFC Bank, along with his team. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Gupta from Crédit Suisse. Thank you, and over to you, sir.

Thank you, operator. Good evening, and good morning, everyone, and thanks for joining this call today. It gives me great pleasure to have with us the management of HDFC Bank. From the bank, we have Mr. Aditya Puri, Managing Director of the bank; Mr. Sashi Jagdishan, for now titled the change agent of the bank; and Mr. Srinivasan, who's the CFO of the bank. As you know, these are unprecedented times. We have not seen the macroeconomic developments like this for a long time. And therefore, we are really fortunate to have with us Mr. Aditya Puri, who can shed some light, not just on the macro outlook, but more importantly, how the bank is positioned for it. We are also, after nearly 26 years of consistent track record of the bank, we are going to see a change in leadership at the bank. And again, it will be very enlightening for us if Mr. Puri can talk about how he has prepared the bank and the franchise for this change over the coming years. In terms of format for the call, I will request Mr. Puri to share his initial thoughts in some opening remarks before we open the floor for Q&A. With that, operator, can we hand over the call to Mr. Puri?

Thank you, Ashish. That's kind of you. Welcome all of you, and I'd like to thank you to take the time off to understand where the country is going as well as how HDFC Bank fits into it. Now as Ashish said, it is unprecedented times. But I think as time is passed, we're getting a better idea of what will happen. In March, we all thought everybody was doomed and the NPAs will quadruple and double and all of that, and everybody was going to hell in a hand basket. The fact is, yes, it's tough times. Yes, there was a health crisis that metaphors itself into a financial crisis, but there was never a financial crisis. And as we look and as we see what is happening today, yes, the lockdown has resulted in GDP going to be a figure that we had not thought of, but if you look at it my way, I say you're right off the first 6 months. There's no point talking about GDP growth for the year. What we have to see is when we reach the run rate for the balance of the year, the 4 or 5 months gone, except for HDFC Bank, and I'll tell you why we did well. So we pretty much -- we'll be running the full year. But otherwise, you can write-off 4 months or 5 months for anybody. So now as things stand, what is it that we're looking at? First, they said, there's got to be a stimulus, there's got to be monetization of the debt, there's got to be all kinds of things. Fair enough, but then people started comparing with the U.S. and what India has to do. For Christ's sake, we're 2 different countries with 2 different sizes and 2 different capabilities. But what we were lucky was that we had a lot of money with the financial system. So for the SME and the smaller people, the government said 20% government-guaranteed loan to take care of the fact that these sellers would have had a cash flow hit, and they can also get a lower interest rate over a period of time would have to their profitability. It also allowed the public sector banks to lend under this facility, because being a government-guaranteed facility, it requires no capital. And I must say this has worked very well. At the same time, before that, we went in and said, the guys who are the large company should also get money and most of the banking system was happy to give them money because these were well-rated corporates. So the top guys got it. Now you've got it with the SME, et cetera. And one of the major beneficiaries of this will also be the finance companies. And the finance companies, in the meantime, have raised a lot of capital. I'm not saying there are not some in difficulty, but most of the large ones are today well capitalized and will come out with the new model. Because as you can -- you're pretty much aware, most countries have a credit to GDP ratio exceeding 100%. We -- as I have always been saying for the last 26 years, and hopefully, my successor will say for the next 10 years, demand exceeds supply in this country. We are at some 46% or 47%, and I think even the prime minister is convinced that you do have to between uplifting the poor, and you will see some schemes coming up as well as seeing that the middle class, a lot of which -- the new middle class, which is almost equivalent to the current middle class, is brought into the demand amid by appropriate flow of credit. And I think some of this will be seeing. There is tremendous expenditure on infrastructure. I think properly structured, those projects will get the money, and the government is looking very clearly as to see how we will have a situation where we can make this bankable with the owner risk on the government so that this becomes clear and rare. But what I really want to talk about is the digitization, and I have been discussing with various people. The backbone for the digitization that has been put into the country is [ bar ] none anywhere in the world, one of the biggest explosions that's going to come. They are looking at e-signature. They're looking at e-documentation. They're looking at straight-through processing. With COVID, e-commerce has taken off. So I think digital will be another growth area, both for financial inclusion as well as demand. So we personally feel that there is a great future in terms for a well capitalized, and I'll come to that -- for a good bank that's well capitalized with technology and no strain on portfolio with the proper systems and a trained workforce, and the distribution capacity that has been established, which I should come back to. Then later on, Srini will cover this business about -- what about moratorium? What about NPAs? Oh, he should have waited till the moratorium before he took any action. My friend, when I know something, I know something. 26 years, you should have realized that I've not very -- even when I've gone into nebulous areas, I'm about 80% sure. So when he explains to you our position on what will be our NPAs, et cetera, and what -- how we have declared the -- or calculated the NPAs, then you will understand where we're coming from, plus the additional provision. So we are some 149%. Srini, correct me if I'm wrong on any other figure.

Yes. Yes.

So some 149% coverage, so we are almost COVID-proof. And whereas we don't give forecast, but if we find that something is going wrong, we always won. So if you haven't received a warning, don't [indiscernible] it too much. Your brands are already overloaded. So that's where we stand. Now where do we stand, coming to Ashish's second point on succession? And only point where I disagree with him when he says, management is moving on. No management is moving on. One figure from the management team is moving on, but what we did do was when we decided that we want to be clearly positioned against the future in terms of -- we don't see our competition in the long run so much from banks as from the large platforms, which means we must have frictionless service and enjoyable customer journey and a technology to match that. Yes, we've had some hiccups here and there, but we are pretty much there by the end of the year, and there's some significant interview you will see also before that with global players and me. So let me summarize now where we are and where we expect to go. We sat down as a team, 2, 3 years back, and said, how do we position for the future? With the secular shift that was happening in telecommunications, technology, artificial intelligence, social mobility, we figured that the people who change their operating model to provide a more structured product to the customer in the way he wanted it, resulted in better customer service, better customer focus and a reduction in cost. These were the Apples and the Googles and the Netflix and the Amazons and all these. But none of them actually have an ambition to be a bank. And I've been saying this for a long time, and I had another investor call where I said that, that the small fintechs don't have the capacity they can partner. But the rail competition will come from the platforms. There also, it would be both collaboration and partnership, which I will come back to as to where we're going. So one was technology; two, we said we need the brand, and we are today among the top 65 brands in the world, not in banking, but across all segments; three, we said we must be very capitalized. We are at about 18.9%. Four, we said we must be very clear that we know what our target market is, how we have priced it, what provisioning is required, and consequently, what is the net profit available to us? So if you look at it, we have some gross NPA of 1.3 or 1.4, I'm not sure. Srini will give you those exact figures, and he will also tell you how we've used artificial intelligence to arrive at NPAs as if there was no moratorium. And we've had enough profit to take in provisioning that we have rarely continued to provision. To our less than responsible Chief Executive and management team would have said, let's show great profits. We said, no, let's show a great COVID balance sheet. So I'd be very thankful for any questions that you ask on the subject, but I would also be very thankful if you -- the integrity of the management and how we run is also accepted. So 1.4 or 1.3, and then we have provided, if we take provisions to at about 149% if you take all provisions. We have been through our portfolio with a toothcomb. Will they go up marginally? I think so. Will they go up less marginally than new fellows expect? I also think so. So Srini will cover that part. So we've got a very stable balance sheet. And now let's talk about what we did digital. Our digital today is functioning. What we do have is we need more bells and whistles, and we need a little more adjustment to make sure what we do in the cloud, what we do in terms of physical, how seamless those processes, changes are happening and the changes are happening rapidly. Sometimes we may cross the line and have some issues. But that, in the rapid way that we're moving, and we do see over the next 3 to 4 years at least digital as a separate source of origination and execution, somewhere between 30% to 40% of our business. And this will explode, because there are people -- I think what Prime Mister Modi has put in, and if you see the broadband coverage, if you see the coverage of what is happening, if you see what -- how government is delivering their services to the CSC, if you see how we have partnered with that, if you see how we've gone from whatever, 5,000 branches, and we are already at some 10,000 or 14,000 correspondents, which are actually as good as a branch once you use digitization. Semi-urban and rural India is a market equivalent to what we have today, and we are the kings there now. What did we do? This was not some hair brand scheme that Mr. Puri came up with. This was all of us sitting down, arriving at what we want to do, putting the strategy, putting the action plan and then making sure that every man jack in the bank understood this right to the bottom. And I'd like Sashi to give you an example of what happened in Coorg, where the branch told me that I'm underestimating and I need to know my business better. But that's fine. That's the company that we are. And so we have the trained force. We have the distribution. And none of these elements is a bird in the sky. It's all working. It's working as a plan. You will see the revenue go up. And I'm not talking about -- don't get me into this 3 to 6 months, nobody knows how it will happen with COVID, but COVID came, COVID will go. I'm talking about the long-term that you should be looking at. And in the short-term also, there's nothing much that you need to worry about HDFC Bank. So -- and then we said we must be one of the best places to work with. I forget the name of this institution that certified, which is dedicated to this and one of the global leaders. I think Srini or Sashi will cover this. So we have -- and we were the only company that had the balls to say we will not cut the increments. We will not cut bonus. We will not cut promotions, and I'm saying that again for this year because these [ b******* ] have worked their ass off, and they continue to do it as of today. So between the digitization, the distribution, our good credit processes, our understanding of our portfolio, our brand, our products and the well trained, motivated workforce where everybody is working as a team, I am just the first among equals, and there will be another first among equals, where each business has actually run this business. So I am very, very confident of where we are going. I may not have covered some of the issues that you want to ask because then you don't ask questions. So I will cover those funny issues which you're making a mountain out of a mole as and when you raise them. So with that, Ashish, I'm through.

Thank you, sir. So maybe a -- I think Srini and Sashi, if you want to add any additional...

Yes, they have to. They have to. Just Srini, Sashi, just cover the 5, 6 initiatives, where we are and cover how we get our provisioning, and then we'll take questions from there.

Okay. Srini, if you don't mind, I'll just cover one very important aspect, which we -- not many people in the Street have really grasped that. And then you can take on from there. As Mr. Puri was mentioning, especially on asset quality, I have been reading a lot of sell-side thoughts, whatever comes into my inbox, but I don't think people have grasped that really well as to what we have done. We have not just -- we are not only accelerated the provisions, but we have also accelerated the NPA recognition basis, as Mr. Puri was mentioning. This is -- analytics is in artificial intelligence. We -- so people are concerned about moratorium that has already been factored. Wherever we believe there are people who have not taken the moratorium and who are not yet 90 days past due, but we believe that there is a higher probability of them slipping into the delinquent buckets, we have accelerated the recognition. The same front, we also know the people who are -- there is a balanced part of it who have not taken the moratorium, but where basis analytics, there is a higher probability of recoverability, we have put them in the collection bucket in which currently is about 70% of resolution as we speak, not because of anything. It is because of the fact that there are still rate containment zones in the large part of the metros. So I think the recoverability of that is higher, but it's just that we need to have an access to the customer. That is one thing that I wanted to highlight and accentuate, which is the reason why it's [indiscernible]. But Srini, over to you because you have a lot more numbers.

I'll just give some numbers, right? Just to recap some of those that we have previously given to various groups. The moratorium, as you recall, we said 9%, right? And then the GNPA ratio, which Mr. Puri alluded to that, the [ 1.36 ]. That's what we came with the GNP [ 1.36 ]. Out of this [ 1.36 ], about 30 basis points or so NPA recognition, which Sashi alluded to, now that is the accelerated NPA recognition impact. If it did not accelerate the NPA recognition, the GNPA ratio would have been more closer to 100, 106, thereabouts, right? So 30 basis points is what is the NPA acceleration that we did. Then in terms of the provisioning. Out of the specific provisioning, INR 2,740 crores that we did in this quarter, 2/3 of that is coming from the analytical models to acceleration process, right, in terms of the total provisioning on the specific. And then in terms of the contingent, which is what Mr. Puri also alluded to saying that we have also -- not because we anticipated, but more precautionary, how do we build and make the balance sheet more COVID-proof or resilient, so whatever we had in the prior quarter, we kept those kind of contingent reserves, and we added another INR 1,000 crores to it, right? In this quarter, we put on another INR 1,000 crores of such provisions. So the total contingent provision currently is about INR 4,000 crores, right, built over a period of few quarters. Then in terms of the credit cost ratio itself, right, what is the specific credit cost ratio is 108 basis points. That includes the accelerated impact. The total credit cost provisions, right, every -- all the provisions, contingent, everything, everything, if you take, that's 154 basis points in the quarter. But 154, you have to look at it in 2 components, right? One, 73 basis points because of accelerated provisions and 40 basis points because of contingent provisions, that those are all part of the 154. So that's -- so I want to leave that to say that if -- these were the things that one had to bring it to make the balance sheet more resilient from a provisioning point of view.

Okay. Thanks, Srini, for those additional insight.

Operator, we can now open the floor for Q&A.

And while the question queue forms, maybe I can slip in the first question. Sashi, given that perhaps you are the bank, which is most open for business. And of course, because you have the largest consumer lending footprint, could you give some insights on how -- as Mr. Puri said that March, April were bad months. But how week after week we have seen improvement on the consumer side, both in terms of demand as well as collections?

Sure. I think, yes, the April was a complete washout in terms of both from a supply and a demand side, which had an impact on the demand for consumer products, especially card spends and assets as well. That continued for some time, but maybe started to see people starting to spend on the e-commerce platforms more on the essentials, more on the health care. And then later on, when we also did the summer treats, because we realized a lot of people during the summers, realize that they need a lot more consumer durables to be able to sustain during the lockdown, whether it's the air conditioners, whether it was the television, whether it was better computers or laptops or iPads as the case may be. The summer treats was a wonderful positioning and they've been came at the right time. And we got whatever we wanted in terms of spends in pushing up the spends in April, May and June. I think the -- this sort of reinforces the fact that by virtue of being a dominant player in the payment system, the partners came forward with us to be able to do that. We may still be still 20%, 30% short of the pre-COVID levels, but we have a strong belief that we should sort of touch the pre-COVID level spend numbers by September of this year. As regards to the assets, let's split into 2 parts, one is the certain amount of secured products, which we were -- where the credit policy team was very much happy to sort of push it, i.e. like the tractor loans. The -- as Mr. Puri has mentioned, the agriculture, both the harvest, the rabi harvest, which happened in May, June, and the sowing has been a record high during this period, and that is sort of reflected into the fact that we are expecting the carrot harvest also around the September, October to be even better. So we did see an indication of the tractor sales, which you have seen some of the tractor companies like Escorts Tractors and others having a bumper sales and we sort of rode on that kind of a high by having one of the best tractor loan funding during the period of May, June and continuing to do even in July. 2 is when -- as we explained in the past, during adversity, people try and resort to the gold as a part of -- put their assets into that. So gold loans is something that has taken off a rocket. We have an all-time high, a 25-year high in terms of what we are doing now as we speak in the month of July. I think this is something that is a very safe asset and because we are well positioned in the rural side of the business, in geography, I think we've been able to extract that number [indiscernible] than anyone else during this period. As far as on the 2-wheelers, I think with social distancing, people have realized that we would -- they would like to play safe. They would like to patronize more the two-wheelers, the small vehicles. So we are seeing ramp-up of 2-wheeler sales and hence, the 2-wheeler funding has now gone beyond. In fact, it's now more than 13% of the pre-COVID levels, higher than the pre-COVID levels. So that's where we stand on 2-wheeler. This is still, as I said, we are continuing to talk about the policy continuing to be tight. So it's only to those segment where we're extremely comfortable, which is, i.e., the government segment, where you -- I think all of you would know that the layoffs are not going to be that high. The fourth is on the auto loans. I think that is also the small car space, the Catia car, as they call it, has taken off very well. We are still short of the pre-COVID levels, but we are now almost about 70% of the pre-COVID levels or hopefully, by September, we should do that. The policy has been very tight for a long time on the unsecured side. And naturally, I think this is something that we would like to wait and watch. So what we have opened up or what is opened up is only the super Catia companies beyond a certain level in terms of salary. And after having a reasonable amount of assurance that these guys are still in employment, only that is going, but still, it's still way off. It's still way below the pre-COVID levels. I think it will take, hopefully, by September, October before you can come back to the pre-COVID levels. So the numbers on the retail side, I've given you kind of trends where it's going. Mr. Puri mentioned on the SME and the corporates, I won't cover that. I think we have seen a fair amount of buoyancy there, thanks to the government guarantee scheme of SME and the fact that great companies, good corporate companies, better-rated companies, high-rated companies are wanting liquidity support and some of the sectors, which are very buoyant, have sort of come forward to get incremental appetite from banks, which are very strong, and we have been one of the beneficiaries there. So this is where we are on the business side.

Sashi, I'll take 2 minutes. I think I should have covered also that both Sashi and me had advised you a long time back that we went into semi-urban and rural, one, because it was a virgin market. But equally important, that's where the liabilities are. So whether the credit deposit ratio for the country is 120%, the credit deposit ratio in semi-urban and rural India is about 38%. We, at the time of the crisis, were sitting on liquidity of $5 billion plus. So anybody who wanted money at our rates is good asset. We took and we acted very fast, and that's why weighted average risk rating of the portfolio has actually improved. So that's where we got our growth from. And as Sashi said clearly, now we are cautiously moving in terms of saying whether it's the government, whether it's the AAA corporates, and we were not disappointed. You guys had your own estimates as to the amount of layoffs that would happen. And we said in our segments, the layoff would not be so high, and that's what transpired. The other part that I want to be very clear with. The clean portfolio because we do cash flow lending and consequently apply policies that almost take [ Q1 ] risk rate up in terms of safety, actually behave much better than any secured portfolio. Hello?

Yes. Yes. Yes.

Okay. Thanks, Mr. Puri and Sashi. So rather than monopolize the conversation, let's take questions from the floor. Operator?

[Operator Instructions] The first question is from the line of Mickey Doshi from Crédit Suisse.

Aditya, this is my first call in 14 years at Crédit Suisse with you. And maybe I'm doing it maybe just -- it's nothing to do with call rate, nothing to do with environment. I actually want, and I'm sure even the sell-side would like to hear as shorter possible answer but...

[Operator Instructions]

Hello, can you hear me?

Much better.

Mr. Puri -- Aditya, yes, my question is not about COVID, my question is not about quarter results, as you know, I'm -- what is the one message you're leaving to your team on your retirement? I'd be curious from a management perspective. What are you leaving for them to be thinking about as you think about Aditya Puri [ to point to ]?

Okay. You know what, you almost took the words out of my mouth. Sashi, can you tell them what I told you in the message to the team day before yesterday between the digitization and why you have all your fellows actually have a non-job going forward and are going to enjoy the fruits of our labor?

Sure. Sure, Mr. Puri. I think, Mickey, thanks for the question. This is something that he has been spelling up for a long time and more -- and in black and white in the annual report, which says the best of the bank is yet to come. And the reason why he says is that as he was mentioning, the platform that he has created in terms of strategies, each and every strategy that is now very well-known to a lot of people on the call in terms of the 5 key strategy, these are something that we have been working for the last 2 years. And normally, these are strategies where people will say, "Hey, why do I need to do that?" I mean, I'm doing so well. But you need to implement that because if you have to sustain growth in the future and sustain quality growth in future, you need to provide a platform where the growth is going to come in from. So whether it is the branch distribution, which is the largest feeder of business in trying to reimagine the sales process whether it is the payment systems, wherein we said that there's [ 15 million ] merchant potential acquisition there, and we want to at least be the market leader in acquiring the small merchants in the territory of urban metropolitan and deeper in the semi urban and rural markets, which meets our customer segment because -- which is why, I mean, he has been forcing all of us to travel all over the country to understand that's the part of the economy in terms of, hey, is it something that -- how -- just because we have in rural India doesn't mean that it doesn't meet our customer segmentation. So that's going to be a big player, and we have already started to ramp up from a 200,000 after 20 years to now almost 2 million merchant touch points. The third one is to create -- we realize that more you engage with people, the more you get out of them. So effectively, we realize that we have been growing so furiously that we missed out time to connect with people. So trying to see how we can have ultimate ways of engagement where we started off and pioneered something called the virtual relationship management team. Now we had 6 million of our customers managed by 3,500 people on a virtual remote basis. In times of working from home, in times of -- this makes classical sense during this lockdown period itself. And we have already sort of started to see the fruits of that particular strategy, and you will see the scale happening in about 2 to 3 years' time. Then you have the digital platforms. We realize that we have in the digital 1.0 when Mr. Puri returned from Silicon Valley, this is -- we realized that we had to disrupt ourselves, come out with a lot of digital products. We did that with the best of our ability using our homegrown technology to be able to create a wow experience. We have found a lot of scale. Reason for -- I mean, it's -- and the outcome is that the 48% cost to earnings coming down to 38% is a resultant of that. But now what next? Now we believe that we now, as he said, these platforms are going to be your competition, not your traditional neighborhood banks. So what are we trying to do to be able to sort of compete and counter that potential threat that may be there? So whether it is refining our customer journeys, having an ultimate stack where you can have a run of [ petal ] bank within a bank to be able to have a frictionless, virtually 0 cost at the margin in terms of journeys, 3 years whether you create ecosystems by our virtual dominance in every sphere that we have made more and more ecosystems, whether we try and create a contact center because we know we have a branch channel, but we also know a lot of people are on the phone. So can we create a contact center of the future, riding on artificial intelligence and technology? So we are now preparing ourselves, which we started up 2 years ago, so that this particular theme can take us through the next 3 to 5 years' time. So when he talked about all these things in the last employee staff call, where all the people across the banks came together, I'm sure you would know for man for a person who has led the company for 25 years, the employees are going to be far more anxious than anyone outside. So I think that was a wonderful call wherein he gave that the fact of the matter is that the depth in management, the strategies, everything is in place. It's just now pure execution the way it has happened thus far. And I think there is nothing which is person dependent. It's more teamwork and more process dependent that is going to be driving the bank in the future. I think that's why we mentioned the best of the bank is yet to come.

[Operator Instructions] The next question is from the line of Apoorv Trivedi from Moon Capital Singapore.

Yes. Maybe I'll just start with one of those funnies that you mentioned that's on everybody minds.

Yes, start, start, start. I'm waiting. But don't then -- don't take my blunt answer within a front.

Not at all. I also wanted to say thank you for giving us the opportunity over the years.

I want you to ask, don't -- I want you to ask.

Yes. Could you just comment on the reasons for your significant stake sales, given your positive outlook on the bank?

Absolutely. 2 things are not connected. Firstly, positive outlook, but what about my positive outlook in life? I'm 70 years old. So that is one. Two, I would let my key adviser who actually told me what to do to give you further explanation. Without giving too much of the numbers, Sashi, can you tell them why -- what a bad Chief Executive. He knows something. couldn't be done this, couldn't be done bugger or buggers. I worked 25 years. I'm more concerned than any of you. Yes, Sashi.

Okay. So I think I'm happy that you asked this question in the sense that this is something that, frankly, a couple of us have been advising Mr. Puri for some time now. We started to think about it around December, saying that, look, when retirement happens, there is -- the scheme suggests that on retirement, a lot of options, which otherwise would have acted in the future with the time of retirement. So you need to provide a fair amount of liquidity. We cannot be timing, because this is going to be a substantial amount of liquidity that needs to be there to exercise these options. So we were planning sometime around to provide a lot of cushion so that we don't get a bit of a -- some around March, April to sort of sell some portion to provide for the liquidity, which is needed around October. But as things -- luck would have it, unfortunately, we had the COVID, and we saw the market hit by almost about 30%, 40%. So we waited for some time, and we realized that when the market corrects, the first opportunity, let's not sort of wait for the best time, first opportunity with off load and we provide for that so that he's able to exercise. Almost about 70% of what he is going to -- what he has sold, will get back into acquiring this particular option, which is going to exercise on -- in October when he retires. That's part 1. Part 2, he is one of -- he's a great Managing Director, people manager. So I don't think -- I'm sorry to say that probably he's not looked at his own finances that well. We saw a higher proportion of equity risk in that. And for a person who is reaching 70, I think we all advise that you need to lessen the proportion of equity, which is the reason why the balance 30% is going to de-risk and put it in more lesser riskier financial assets.

And actually, it's my money, my shares.

Yes, absolutely.

I'm free to do what I'm supposed to. But given the fact that you've supported us, I'm being [ purchased ].

Thank you. Maybe just one more question. Just in terms of asset quality...

And therefore, when Suresh Ganapathy should have waited after September. I didn't wait after September because I got no worry in September. Yes. Okay.

Yes, yes. Sorry, on asset quality, just wanted to understand what data or what model are you using?

Srini will explain that to you.

What data are you seeing that gave you so much confidence because the amount of uncertainty in the economy [indiscernible].

Srini, Srini, Srini. Srini will explain. No, Srini will explain. Srini will explain.

Yes. Our model has got several components, one is to do the scope, where there they're internal scoring as well as external scoring, where customers are placed. That's how we've originate, and that is how we assess and continuously monitor. One, based on that. Second, in terms of to the extent you know that in an unsecured loan, for example, in personal loan, 80% of them have an account with us, 80% of them are salaried. Almost 90% of them have some account with us, so we have cash flow visibility. So we see where there is a kind of a possible stress that is another kind of a dimension that we put in place to see what we can do, right? And these are the kind of criteria. And we have the database, the propensity, and that is how our collection models are. The predictive collection models are exactly based on going back to see how historically in which company, which customer segment at what score level, income band and whatever those kind of dimensions that we have, across those dimensions, who -- that is how we schedule our collection, and that is how we try to -- we have tried to come and estimate this kind of predictive loss.

[Operator Instructions]

Okay. Operator, in the meanwhile, can I ask another question?

Sure, sir. Go ahead, please.

So Mr. Puri, I wanted your views on the MSME credit guarantee scheme, let's say the [indiscernible] scheme that the government announced a few months ago. You guys have already done significant amount of disbursements, and you shared some numbers last week. What do you see the prospects after the recent changes where some of the eligibility norms have been enhanced?

So the eligibility has doubled. See, firstly, you're getting a government-guaranteed asset at a commercial MSME rate. So anybody who's not running after it as if his ass is on fire has got to be a joker. So we ran and we got whatever we can. But at a point in time that we want to go into anything that would possibly be an NPA. So the new, what has been added, as they rightly said, at the moment, we expected the utilization of the guarantee scheme is about 130 lakhs out of 300 lakhs, and they expect another 120 lakhs to come from there. And we are running, man, we want this. It's a bonanza from heaven. And by the way, it's good for everybody. It's good for the truck operator. It's good for the small businessman. It's good for the fellow who has a viable business, but has a cash flow start-up issue in terms of like in the construction [indiscernible], we have said mobilization. It's fundamentally a mobilization advance [indiscernible] 4 years, which gives them at least a 3% benefit on interest rate. So I think it damn good for everybody, and it's a very good whatever measure you want to call it in terms of putting money into the system. The second, I should have also covered that as of now, whatever is the government borrowings that have been announced, there should be no problem. And I don't understand what this monetizing deficit [indiscernible] what is an OMO. They're only doing it properly and if there is liquidity, it can be handled. So I don't think -- and the market also doesn't think otherwise, the yields have gone differently that there will be difficult gain raising the money.

Sure. And just going back to that scheme. Given that now it's -- even individuals are allowed. So will a part of your consumer portfolio also become eligible, the self-employed?

Element injection. I go by the words. Please read the words. It says all self-employed people, irrespective of incorporation, whose characteristics of his business, mid-tier regional criteria, nobody buys a truck to be roaming around.

Sure.

Yes. Okay.

Okay. And Sashi, if I can take you back to the first question. You answered the demand part of it, but if you could talk about the trends in retail collections, how they have progressed more recently?

Sure. I think we did cover that in the earnings call, but just to recap that, I think large part of the approvals bit of a washout, because of the lockdown. Not many of our feet-on-street collectors could actually reach out to customers. As you know, a large part of the collections are normally on a -- on an automated basis, 92% is on an automate basis. So we're talking about the 8% where you need -- either you need human intervention. The human intervention is in 2 forms. There are call centers, which will sort of intervene on an -- on the early buckets where they will match the customers to remind them that there is a due or there's like thee is a due happening or it's already due. And then normally, you do have a reasonable amount of success there. The balances that 4% is on account of the [indiscernible], where you're not successful on that, then you'll do the fee recoveries. So that's -- so the 92% is a bit of a good thing that the digitization of that over the period of time in collections [indiscernible] to give us that. Now coming to what you're talking about as we have been talking about, since there has been a moratorium, there was a standstill. A large portion of the moratorium when it got expired, around 1 got expired, we've elected almost 70% of what was in a standstill in moratorium one into the -- as collection they had paid off. So the balance 30%, part of it went into a moratorium too. As we mentioned, it was 9-odd percent in -- as of 30th of June. There was some, which Srini had mentioned that where we -- they have not taken a moratorium too, but there has been a reasonable amount of indications basis and fixed using artificial intelligence, that there is -- the [ required ] rupee is going to be low, but when is to activate [indiscernible]. And the balance, which is gone into the -- where the recovery fee is high, it has gone into collection bucket. The collection bucket trends have started to move up. It was 70% earlier. Now it's slowly inching back to about 80% to 85% as we speak. We have almost about the normal collection force, but that has been supplemented with a huge amount of the sales, the retail assets of the card, sales force, which were having lesser productivity. They have been supplemented into that to be able to give us this kind of numbers. We have quite -- the team is quite confident that by September, I think we should reach the pre-COVID levels in terms of the collection resolution. On the moratorium, I would like to add that I think Srini did mention in the earnings call, a large part of the earnings, of the 9%, which is in moratorium, wherever it is salaried account, almost about 98% of the salary or 97%, if I remember right, if we have got [indiscernible] credits. 98% of them are all 0 DPD. Now in that 9%, there is a 45% who actually took a moratorium despite having paid the June installments. So we have -- even though they have paid, we have refunded that. And so we know that the -- I don't think they would have any problems in paying, but I guess some are really risk averse, and they are continuing to have this kind of a safe -- to be safe kind of thought process.

And just last thing on that.

I think you're not letting the investors ask anything here.

Okay. But just one thing, Sashi, on collections. Could you talk about how the bound states have trended? Because recently, we have seen in some industry data that bound states have again gone up.

No. I think this is, again, mentioned by Jimmy and Srini in the earnings call. The bound state across and especially under retail, whether it is PL, the self-employed business loans, which is unsecured, the auto loans or the use commercial loans or the 2-wheeler loans or the commercial vehicle loans, all the mortgage loans or credit cards, the bound states have become even better than pre-COVID levels. That is where we are at this juncture. So I think -- I'm talking about the people who have not taken moratorium. The -- I'm not talking about the 9%. I'm talking about the non-9%.

Okay. And, operator, let's take questions from the floor now.

The next question is from the line of Roshan Chutkey from ICICI Prudential Mutual Fund.

Sir, how much is the interest accrued component in the interest income line? If you can just clarify that?

Sir Srini, please verify, I don't know.

What is that question? Why...

How much is the interest accrued component in the interest income line?

Well, what is new about it? Every quarter, we accrue. Every month, we accrue interest. What is new about that?

It's a very odd quarter where you have -- I want to get a very clear picture of collection efficiency, essentially. That is the reason why I'm asking this question.

What has that got to do with interest accrual? You accrue interest both on the asset side as well as on the liability side as you go along. In fact, interest accruals happens every day.

That's right. That's right. I completely understand that. But if you have a lower collection efficiency or collections -- your payments are coming in a little later, say a month later. You'll accrue the interest now, but if more of it is happening, then clearly, collection efficiency is weak. That's the point I make.

So is it any different from what it was in March quarter or last December quarter?

Should be different.

No.

Let me ask an alternate question. Is this 70% number that you talk about from the moratorium, have they paid all the 3 EMIs or whatever there is due?

Yes.

They didn't pay. They would not be -- they will be in the delinquency bucket and it's accelerated or they are already provided for, because they didn't pay it.

They have fully paid all the 3 EMIs? That's okay.

Yes.

Okay. All right. And how do I understand -- okay -- Like if I look at your PL portfolio, now you mentioned 86% dip in disbursement in this quarter, right? Now when I do the math, right, opening loan books, less disbursements, minus closing loan book, and I get the repayment rate. And I -- for the PL book, average maturity will be about 3 years, roughly, right? And so repayment rate tends to be 46%. So I have done my number calculation for what the growth in the PL book should be based on the number that you have given in the call. And my PL book estimate for you is a 10% drop sequentially, quarter-on-quarter. So it is [ 86% ] which is different number that you have given, right, assuming the 3-year tenure loan. Now whereas year dip is 3.5% only quarter-on-quarter. How should I reconcile the 10% drop that I'm seeing with a 3.5% drop that you are seeing?

Can you take this offline, Srini, and answer it?

Yes. We have published our PL balances that you will be able to see unsecured loan balances are there. But if there is something that we need to talk, we'll be [indiscernible].

I'll talk to you on this a little later, maybe after offline. One last question. This INR 20,000 crores sanction that you have on the SME book, right, that you mentioned in the call. Now that means, clearly, you are -- this is targeting about INR 1 lakh crore of your SME book, right?

Yes.

You -- your SME book is about -- you have said 1.5 lakh crores. It's a good 2/3 of your SME book that you're targeting. Is -- how should I look at...

That was before -- that is before the latest changes.

Then sir, let us tell us what do you mean that, sir?

We have now individuals and limit has also been raised.

So it is more -- obviously, is there a...

It'll be more. So basically, we have targeted people in our portfolio that are eligible.

That's right.

Yes.

So this 1 lakh crore out of 1.5 lakh crore is the right way to think about it at that point in time at the time of the call? Approximately?

Yes. I think so. I think you're going into too much detail. The point is, let's put it this way. Whatever is eligible, 20% of the people who it is, is what will be covered in the guarantee. We have to apply and get it accepted by the person issuing the guarantee, and that's exactly what we've done.

So can I just step in out here?

Yes, sure.

Yes, sure. Yes. So you're right. From an SME perspective, it's about 1 lakh on 1.5 lakh. As Mr. Puri is mentioning, now that the definitions have changed, you are now -- you're including individuals who are running businesses. There will be a lot of individuals in the personal loan portfolio or the retail portfolio to be very precise who otherwise would not be in the SME definition. I think they will also be covered. So you will -- that 1.5 lakh, which is there as a denominator, that will go up more. And hence, some more the numerator would also grow.

The next question is from the line of Dhaval Gada from DSP Investment Managers.

I just wanted to understand on low-cost liabilities, how important is this part in the next version of HDFC Bank? Given that over the last few years, we've seen the bank being one of the best low-cost fund entity. And then we saw a couple of other banks even offer higher rates and then become the lowest cost of deposit banks today as they've showcased pricing power. So I just wanted to understand, given that we've lost this leadership on the funding side...

Where have we lost? Who has got a lower cost of fund than us?

So sir, Kotak has the lowest cost of deposit now at about 4.2%. So that...

So Kotak is offering higher rates than us -- 1 minute, Kotak is offering higher rates than us, and they have a much higher savings rate. So Srini, what am I missing here?

No, maybe it is equity, that is all. The higher equity levels, the cost of funds [indiscernible]...

Yes, I wanted him to say.

Cost of deposits, not cost of funds. You are looking at cost of funds.

Okay.

So sir, okay. Sir, what I was trying to get through is how important is this part...

It is very important. And this leadership has only accentuated. If you take 23% capital adequacy, but the fact is that the guys that you're talking about are paying 5%, 4% and 5% and 6% on savings, whereas we are paying -- and what are we paying now, Srini?

2.75%, 3.0%.

Yes, so which is closer to state bank. And even our deposit rates, and yet we are getting the highest deposit rates because it's moving to safety. And to some extent, you also have to see the growth rate of the others. So this is very important. And that is where I mentioned our distribution phase is looking in semi-urban and rural India, where the deposits lie, and we do not see any issue in raising deposits at the right price for any growth rate that may come. And today, we are sitting on $5.5 billion of excess liquidity.

The next question is from the line of Sandeep Bapat from Hillhouse Capital.

Yes. A couple of questions. One, so 9% is the moratorium. How much would be roughly the overdue book from the people who have taken for a moratorium 1 but have not taken moratorium 2?

Srini, can you answer this?

Yes. What we said is that in the moratorium 2, the 9% that we have in excess of 90% of them do not have overdues, right? Do not have overdues. So that means the component...

I mean -- I don't mean that. What I mean is somebody took moratorium 1, right? So for 3 months, they were not paying anything. Now they are out of the moratorium. So you would be collecting money from them. Have you collected the entire amount? Or there would be some amount which is overdue from them?

If it is not collected, that is the excess provisioning that the accelerated provisioning that Srini talked about.

Yes.

Understood. So essentially, everything else is collected or in moratorium?

Yes, correct.

And the other question is how do you define moratorium? Does the customer have to just pay June and they are out of it or they have to pay all the 3 months? Only then they come out of the 9%?

Sorry, what is meant by that? Again? Moratorium is the person applying to standstill?

No, no, I understand that. So moratorium is 9%. If somebody pays in June and had not paid in March, April, May -- sorry, April and May, are they out of the moratorium? Or they are still in the moratorium because they haven't paid April and May?

Anybody who wants a moratorium needs to file an application. That application has got several questions to answer. And if the person has got 0 overdues, it's a shorter discussion to find out why, why not? What is the cash flow and so on? And if the person has got some overdue, he gets a longer questionnaire to answer for us to evaluate whether we need to accelerate this person, we need to do something with this person or grant the moratorium. And that is how we evaluate on a case-by-case basis.

So in this -- to answer your question, Sandeep, the -- where people have not paid any of the installments, either the basis analytics, if we believe that the recoverability is going to be low, we have actually tagged them as an NPA even if it is on a [indiscernible] DPD. Okay. Where it is -- where the recoverability is high who has not taken a moratorium and who has not paid the June installments, we have put in the collection bucket.

Understood. Understood. But for somebody to come out of that moratorium, because when you say they can reapply, they are reapplying only for moratorium 2.0. But for...

[indiscernible], let me explain it simplistically, because otherwise, we go too much into detail. What we have said is we have looked like you look in IFRS, what is the probability of default with or without the moratorium and accordingly provided and accelerated it. That is the accelerated part that Srini is talking about. So we have been over conservative and you could probably expect a write back.

The next question is from the line of Amit Kumar Premchandani from UTI.

I just have the question on -- over the last 5 years, unsecured loan, whether personal or credit card has seen an increasing trend and the profitability impact of that is definitely positive. Do you think on account of this COVID-related macroeconomic slowdown, that trajectory may reverse? And the impact of the unsecured book would be negative in the -- in, say, FY '21 and '22?

No, no, absolutely not. See, what has happened, clearly, we've always been saying, we don't push anything. It depends upon how the economy is going. At this point in time, because we cut back radically, the percentage of the corporate book has -- AAA corporate book has increased, even then we are always within the range of our margin. So we don't forecast margin, but we always forecast range. Sometimes retail will be higher, sometimes corporate will be higher, but we'll be in that range of 4.1% to 4.4%, and we don't see any issue in that.

In terms of ROA outcomes, also you think the share of [indiscernible]?

[Foreign Language] ROA, if I'm getting margin, [Foreign Language] ROA [Foreign Language]. It gets equal as the differences between the AAA as well as risk-adjusted when we -- straight line is hardly about 25 basis points.

Sure. And sir, the opportunity that you got on the corporate side over the last, say, 6 months, do you think even going forward, that kind of opportunities are available or [indiscernible]...

That kind may not be available, but hopefully, retail will pick up by then, no? So yes, there's still enough opportunities available, but retail is also picking up. So that was us performing at 75% of our capability. Hopefully, COVID will go. I don't see another lockdown. I see business recovering quite fast. Most of them are talking about between 75% and 80%. FMCG is talking about 90% capacity utilization. So retail will pick up.

Thank you. Ladies and gentlemen, that was the last question.

No, no, last question? They haven't asked all this [indiscernible] on what is happening in the auto loan. I want it cleared once and for all and very clearly. There is no issue on the lending on the auto loan. There were some individuals who did not behave appropriately, whose action has been taken. The inquiries is continuing, but without proof, we cannot take action. So wherever we have proof, we've taken action, and it has no effect on the portfolio. Number two, Abhay Aima and Munish Mittal [indiscernible] were planned. They told me long back that they wanted to go, and it's a phase this thing. The other name that you talk about are not even in the radar. So please understand, 160,000 people and $80 billion, you don't start talking about [ Nitin Cogen ], I don't know, Rajesh and some charm. So give us some credit, yes.

Okay. Thank you, sir. And I think a lot of the questions you had already answered last week on your earnings call.

But again, [indiscernible] I get, so that's very irritating me.

No, I think the only development post that which people were seeking clarification was on your stock sale, which you are [indiscernible].

That's my money. That's my money, I'm being courteous to tell you.

Yes. Actually, I think we have one last question.

[indiscernible] Integrity that has got nothing -- those 2 are not linked, the [indiscernible] performance of the bank and what I do. But I got a personal life too. Yes.

Okay. So I think we have one last question from Sameer [indiscernible] from [indiscernible].

Aditya, since talking about the mole hill questions, can you tell something about your future plans? Are you joining any fintech company or any new start-up?

No, no. My future plans at the moment are enjoying myself, and I'm looking to actually -- they're quite a few things. Sameer, I'll tell you different separately, but more in terms of giving back to society than anything else.

No. Absolutely. That is what you should do. Because we don't want protection for our bank. I mean we want protection but not competition for our bank.

Now that you see life is always uncertain, Sameer. You fellows collect so much money for what -- If so much certainty was there, then where is the issue?

Okay, good. So just only one more [indiscernible] question.

Ask. Ask.

[indiscernible] no more.

Sameer, you're cutting.

No, I'm saying, I have no more questions. I just wanted to get this last molehill question out of the way.

And thank you and thank you. I will have dinner with you next time I come to Singapore.

Okay. So operator, with that, I think we can end the call. And I would again like to thank the management for sparing the time and Mr. Puri, in particular, for frankly, answering all that for the table.

And I would like to take the time to thank all of you guys. I've enjoyed working with you. You know I'm a blunt guy. There is no offense. But I wanted to say my feelings, but thank you so much. Remain safe.

Bye-bye.

Ladies and gentlemen, on behalf of Crédit Suisse, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.