HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HDFC Bank conference call hosted by Macquarie. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Suresh Ganapathy, Head of Financial Research at Macquarie. Thank you, and over to you, sir.

Yes. Good afternoon, everyone. Welcome to the Macquarie India Insights Conference Call with HDFC Bank management. We have with us today, Mr. Sashi Jagdishan, Group Head and Change Agent of the bank; and Mr. Srinivasan Vaidyanathan, the Chief Financial Officer of the bank. Also, we would like to take this opportunity to congratulate Sashi, who is slated to take charge as the new MD and CEO of HDFC Bank from Mr. Puri on October 27. Without any further ado, I would like to hand over the call to Sashi. Over to you, Sashi, for any brief comments and outlook that you want to present. Thank you.

Sure. Thank you, Suresh, for the warm wishes. Thank you, investors, for joining us on this call today. I'm sure -- I probably have received a lot of wishes from all of you, so thank you once again on the call. I think we are going through one of the most unprecedented times ever in our lifetime. We still are not too sure how long this pandemic will last. I guess, this is -- this has had a kind of a serious impact on the economy. And I think it is quite visible in the kind of GDP growth or contraction that has happened thus far. But we have a slightly different view as to what is expected with the outlook of post -- whenever this particular pandemic gets flattened. Whilst we -- there are experts who say that this will probably start to see in a declining mode around October, November, but we still are seeing the economic activity. People realize that livelihoods is much more important or the strains or the COVID mutant -- the mutancy or -- the intensity of this particular virus is now going down. So even if they are going to get impacted or infected, a bit of a discipline on quarantining oneself, either at an institution or at home, with the basic medication is good enough. So people have realized that livelihood is important. So we are seeing slightly more people now going out, whether for work or even institutions calling people back on work. This is some of the feedback that's coming about in multiple areas of our customer base. We are seeing, in fact, even on the -- our activity in the bank in terms of its businesses, we are seeing slowly the activity increasing in multiple areas of the bank, which I will elaborate as we go by. So we do expect a bit of a normalcy from October, November, December onwards. We should see levels of businesses, especially on the consumer side of business, whether it's consumer spend, whether it is some of the asset product sales, disbursals, whether it is in terms of even the activity on the collections because that's going to be a very important activity as we come out of moratorium in August. So all that should revert back to the pre-COVID levels during that period. So we are expecting October to November to be a very key indicator for us in multiple areas, both the business side and also in the collection efficiency side as well. Wholesale, as you know, we have -- stood us in good stead. We have not been chasing growth. We have been actually picking and choosing growth. As we had mentioned in the call, post the earnings, the quality of portfolio that we have put up at the margin on the corporate side is actually better than the stock. So I think we have been fortunate, thanks to our distribution, thanks to the fact that we've had a reasonably good capital adequacy ratios, very high funding ability with a higher liquidity ratio. The asset quality continues to be pristine, and all that has helped us to wean away a lot of our AAA corporates and some of the strategically important government companies, which are guaranteed by the central government into our fold. So that has helped us to keep us in good stead thus far. It does not mean that things will continue the same way in terms of going forward. Obviously, you will see lesser of that as we move until we see economic activity really picking up maybe from the second half. On the SME side, I think, thanks to the government guarantee scheme, we are seeing reasonable amount of disbursals, which have happened thus far. I think we may see some more post -- maybe by September with the new relaxation or redefinitions that have come about by the government. So I think overall, I think SME, by virtue of the government guarantee scheme, not only have we -- will we get that a little bit of a lift from a growth perspective, but also sort of helps us to derisk some of the high-risk customers we had identified at the beginning of the lockdown. So this is where we stand. In terms of liabilities, I think we are seeing reasonable amount of traction on the branch banking momentum. The level of engagements have been reasonably high than what we would have otherwise seen on a physical mode. So the virtual engagements are pretty much high, which is very encouraging. We have also stepped up a lot of digital acquisition of liabilities during this particular period. One good thing that has happened is the pace at which we could sort of build solutions. The digital solutions were much, much faster during the lockdown than otherwise. We have been able to leverage on that to have an acquisition run rate, which is more or less 80% of what we had seen in the similar period last year. So we are on track to maintain our customer acquisitions for the year. That is translating into a very healthy momentum on the retail granular deposit mobilization despite the fact that the time deposit rates have been fast coming down, both in the system and even for us. I guess that shows that I think people are being very cautious to keep the liquidity. We have also had a lot of initiatives on the digital side, which have been able to hold back a lot of outflows from our stack. I think that is -- we have a project called the Predictive Attrition Project, which I will talk about it in much more detail as we go by. So this is where we stand. Our asset quality, as you know, even prior to the pre -- the COVID levels were even though the economy was on a downward slide, we still had a reasonably steady asset quality. All of you probably know the impact of COVID in terms of what we have done in terms of moratorium. The moratorium 2, as we speak, is still much, much lower than what we thought in moratorium 1. The numbers were around the early -- 9% of the number that was as of -- when we went on to the earnings call in July. As you know, we were probably very conservative. We sort of -- people who had not taken the moratorium, people who had not paid off -- as you know, out of the INR 100, which was in moratorium 1, 70 of them had paid. That out of the balance 30, some went into moratorium 2. Some basis analytics, we sort of -- where the analytics showed the recoverability is going to be a bit low, we accelerated the recognition in the NPA. As Srini had mentioned some time ago, the impact was about 30 basis points in gross NPL levels. Otherwise, we showed about 1.36. If I have not done that, we would have been 1.06. And the balance went to the collection bucket where we believe -- where the analytics showed that probability of recovery is reasonably high. So that's where we stand. I think collection efficiencies now are touching about 90% of the pre-COVID level resolution rates, which is reasonably comfortable despite the fact that we still have a lot of areas where there are administrative hurdles because of the lockdowns in the pandemic zones, even as we speak, in some of the pockets of the country, in large pockets of the country. So this is a good situation to be in. That's why we are saying October to November, I think we should see a fair amount of pickup that's coming about. Let me pause here so that I can take more questions. Srini and I will be happy to take more questions.

[Operator Instructions]

Yes. Sashi, before we wait for the question queue to assemble, of course, you are slated to take charge from Mr. Puri on October 27. What are the top 3 things as a future CEO you think you should focus on? Of course, the bank has done very well in the last 25, 26 years under Puri's leadership. But do you think there are some gaps? So there are some areas where you think there is definitely a greater scope for improvement, something that you can tell the investors on the call. What could be your top 3 priorities as the future CEO?

Sure. Thanks, Suresh. It's a good question because one of the things -- let me be honest, I'm pretty much lucky that the platform that I've been given now is a wonderful platform. The depth in management and the energy level that we have in the management and just not 1 level low, but even 4 levels below, is quite enthusiastic and very energetic. That's a plus for me. Three is, a lot of you know that we have been working collectively as a team, headed by Mr. Puri on key strategies that will be game changers for the bank in the future. And these are not anymore a bird in the sky. So I'm going to be left with a kind of a platform where all I need to do is to press the pedal to get scale. So I think extremely lucky that I have such a wonderful thing on a platter. All that I need to do is to ensure that I focus on this, and I don't screw it up. Now some of the 5 things that we are focusing on, most of you know this, but let me recap for the people who probably are not aware. Number one is we had said that in the ground channel, which is the largest feeder of our businesses, with a large workforce, with the right amount of technology, right amount of sales process institutionalization, right narratives can sort of change the productivity and the momentum emanating out of that channel. So we had said that there is a scope to double the acquisition -- customer acquisition or the account acquisition, which is the bread and butter for all our businesses, that is liability acquisition. And that was a benchmark we had taken last year when we said that we will double it to about 6 million per annum from the 5,000-odd branches. We've achieved that last year. So I think the platform is well oiled, and we will continue that kind of a momentum until we have further changes in terms of technology to even better what we are doing in terms of the run rate. So that's already increased. All that is required is to continue that energy and hunger and try and just refine the tools as we go by. The second one is on the semi-urban and rural strategy. We were probably one of the few banks who started off -- who believe that rural -- semi-urban rural will be a large market opportunity for financial services. As you know, 60% of India lives there. And with the kind of economic growth that have happened over the years and the social schemes and the social spending that will happen in the rural and semi-urban parts of the country, the per capita has been growing from a few hundred dollars to now upwards of $2,000. We have predicted that that's going to happen. And that is the reason why we had stepped up the branch distribution in the semi-urban and rural parts of the country right from 2009, '10 onwards. Now we have 50% of our distribution there. It's a virgin market for financial services. The credit deposit ratio is very -- as low as 30%, 30% to 35%. So -- and if you have a proven track record of providing products and the assets have balance sheet for retail and SME, I think you have a huge runway there. We don't want the entire 60%, 70% of the population. All we are trying to focus is the top 20%, 25% of the population, which is roughly around the 12% to 15% target opportunity. That itself is a bank within a bank. Today, we have 8% on the deposit side and 9% on the loan side in terms of market share. Just imagine to have another huge opportunity of about 12% to 15%, which gives you the ability to have a large runway if you focus in that area. We've had almost 10 years of proven track record of providing credit products in this geography. The asset quality has seen multiple business cycles. The actual loss experience has been well within the expected loss in that particular geography. So we are very comfortable to step the pedal on that. So how do you do that? We realized that, a, we will continue to increase our distribution there of our own, but also try and partner with as many rural partners and -- which can act as your correspondents. We were lucky enough to have entered into a partnership with a Government of India entity called Common Service Centres. This has been a wonderful engagement. We've opened up -- there are about 500,000 Common Service Centres in the country, practically one in every district and one in every panchayat. Having said that, we have said that let's start off with the high footfall Common Service Centres. We did -- we've opened about 100,000 of these. This is not an easy thing because apart from opening accounts, you need to ensure that there is a model at the ground level. There is a very granular oversight and execution at the ground level that is required. It's a lot of hard work and you need to have a hub-and-spoke strategy. There is a branch, which will act as a mentor to about 7 to -- or 8 to 10 CSCs in -- around its vicinity and which is what we are doing today. So what it requires is, apart from we having integrated our APIs onto the CSC system, we now have to train them to understand -- to make them understand our products, how to have the right narrative for the product, how to identify what are the kind of customers we would like to have, which are the horses, which are the donkeys, and how do you motivate them to be able to -- and handle them in terms of whether it's digital application, how -- why things are getting rejected, how do you reduce the reject rates, how do you increase the first time right, et cetera. It's a lot of hard work. Today, roughly about -- in the pre-COVID level, of course, due to the COVID, the distribution came down to a very small number, naturally so. But at least the run rate will start to pick up post the pandemic to almost about 60,000 to 70,000 per products per month. I think the potential is that even if we have people who have become mature enough and they can do almost about 3 to 5 products per month per CSC, which will be 300,000 to 500,000 products. But that's our first milestone that we are expecting from this geography. This is something that is an area that once the platform is ready, I think my job is to ensure that we push it out. Then you have the virtual relationship management strategy. It's a very important game changer strategy for us. We realize that the more you engage with customers, the more you are able to penetrate products and get earnings out of the customer. As simple as that. We needed a far more efficient model. We have physical relationship managers and personal bankers in branches. We said, can we do remote relationship management? We tried an experiment. Now -- and that experiment was a success. So we have 3,005 VRM, virtual relationship managers, who work on our 26 -- sorry, 13 cities in the country, in different parts, largely smaller cities who cater to almost about 6 million customers. The objective is, in about 3 to 5 years' time, the earnings from each of these customers should mirror the earnings from customer from the physical RM. I think we are on track on that. So now that we are on track and we see the momentum picking up, we should sort of scale up this model. At least in 3 to 5 years' time, we should have almost about 25 million to 30 million of customers being managed at the virtual relationship management program. We do expect a fair amount of changes in the technology on that one, but I will talk about it when we talk about digital technology. The other part, which we are very much where there is intense interest happening, not just from the financial services, but also from a lot of platform players is on the virgin merchant, the small merchant category, the off-line merchant category in the country. You probably would know this better. There are about 50 million organized merchants in the country. The penetration of the acquisition of transactions on this category by the financial services has been pretty low thus far. I mean roughly around the 4 million to 5 million only as a banking system or the financial services system. We have almost closing to about 2 million or nearing 2 million here. We had ramped up from 2016 saying that is a very important part of our strategy. We do differently as against other banks. As you know probably, for whatever strange historic reasons, the merchant discount rates in India is not as attractive as it's in the west or in Singapore or in other parts of the world. Of course, Brazil has a very obnoxious merchant discount rate of almost as high as in the teens and with a float of almost 15 days. So frankly, this is not something that is attractive, at least in here, unless and until there's a consolidation, which is not something that we are expecting in the near future. But why we are so excited about this? The merchant -- when we go to a merchant, we look at the current accounts, the family accounts and whatever the retail and the SME small working capital requirements that the merchant may have. So the banking component of the merchant is what attracts us because it complements the banking businesses. And that is what is something that we have. That's the reason why we have ramped up to 2 million. We plan to ramp it up or double up in the next 3 years or so. This is an important part of it. I'll talk more about the merchants as we go by later. The last one is the digital transformation 2.0. We have done reasonably well over the last 5 years to launch a slew of digital products on the asset side, such as second loans, whether it's a PL, auto, 2-wheeler, card or even your -- do your own loan against security, loan against mutual funds. We have reached a fair amount of scale in each of the products, which is the reason why we could bring down the human touch points in our processes, and we've been able to reduce our cost to earnings from a high of 50% or 48%, 49% to about 38%, 39% now. We still believe that there is still a lot of opportunity to reengineer processes. I think when we talk about our digital transformation, which I'm going to talk about it, that is going to probably give us a more downward slide of the cost to earnings. And we are quite optimistic about that. So we are now going to step up and move into the next phase of digital transformation, what we call -- what we want to create is something that we are very excited about in terms of creating a frictionless customer journeys across all products as we go back. So this is -- these are the 5 things. And since Suresh wanted me to check out, what is this that I'm going to prioritize, we are going to turn it upside down. Our priority is going to be on the digital 2.0. So we are going to be positioning ourselves to disrupt ourselves. We disrupted ourselves in 2014 and '15 to create what a fintech can do. Now we're going to disrupt ourselves that we can counter what a platform player can do. You may say, "What are you meaning by disruption?" We have our technology stack, which is about 25 years old. We're ready. We are probably in an advanced stage to carry out a bold step of trying to create a paddle stack within the bank which will be -- which will not have too many hops, which will have a single-fuel technology stack between core and the engagement player so that I'm able to offer a straight, frictionless offering on all our products. We would want to have more and more of the assisted journeys. We plan to ensure that maybe in 6 to 9 months when it goes live, we will have a lot more new to bank acquisitions happening on that. So this is going to be kind of a priority for us. The second one is we are now launching what we call, mind you, the so-called stack, let me reiterate that. We are not necessarily -- we're going to have a paddle stack. So the existing stack, we'll continue to refine. We'll continue to improve. We'll continue to rationalize. We'll continue to see how we can convert more of the technology services into micro services. We'll try and ensure we open up more and more APIs so that we can integrate our APIs onto multiple platforms. We will be constantly collaborating with a lot of platform players. That's going to be a priority for us, and you will see a lot more partnerships being announced over the next 6 to 9 months. So that will continue. In parallel, we'll try and disrupt ourselves with a new bold stack. So that's part 1. Part 2 is we are now going ahead in trying and -- we are market leaders in a lot of businesses that we operate. Let me give you an example. In the health -- let's take health care ecosystem. Today, we have -- thanks to our distribution, we have the largest suite of doctors in our portfolio. We have the largest portfolio of hospitals and nursing homes in our portfolio. Thanks to our initiatives of the brand channel, we have the largest pharma companies. We are the largest working capital banker to the pharma companies. We have the largest suite of portfolio of diagnostic companies in the company. We're the -- our diagnostic lending or the health care funding, we are the largest in that space to some of the hospitals and doctors. We have a fair amount of our customers who are the diagnostic centers. We have both e-pharmacies and off-line pharmacies. We have an open architecture on insurance, where we provide not only 3 health care companies, we have 3 general companies and 3 life insurance companies. And we have a 60 million customer base, which is increasing at a rapid pace of 5 million to 6 million now and in future, probably even faster. So what are we trying to do? What we're now trying to do, very similar to what Ping An has done in China. We're trying to create a digital ecosystem. So where we are the market -- in each of the pillars that I've just spoken about, whether it's a doctor, whether the hospitals, whether the diagnostic centers, whether the pharmacies, whether it's insurance companies and the pharma companies, the stockist, the dealers, all of that we're now stitching it together to create a kind of an ecosystem. It's going to be a 2-year journey, but it's going to create a bank within a bank. So effectively, you will be at the center. The bank will be the center of this ecosystem for payments. And even if -- ultimately, the game plan is that for our set of customers, if you want to think of medical, he will get on through my ecosystem to be able to have any kind of services that is required, including from appointment of a doctor, appointment to the hospital payment, loans, you name it, insurance, and the data is going to be all within the system. So this is going to be a big high for us in terms of what we have launched. The first semblance of what we are trying to do will be released sometime in September. That's the first baby step in terms of partnership with one of the leading hospital chains in the country. And then you will start to see progressively how this spans about. This is just one part of it. Similarly, by virtue of our dominance in the auto side, we're creating an auto ecosystem where you have the OEMs of auto companies, the dealers, their service centers, the -- our own customers, the electronics, you have lights of the car depots and a lot of other -- the electronic car companies, the car platforms that we're talking about. Now what is the objective there? So when people want to think about anything to do with car, whether buying or selling or servicing or test drive or booking appointment in the garage or he wants a loan, he wants to make a payment, he wants to have a loan for the tires, whatever, for service requirements, all that could be done through this particular ecosystem. So like this, we are embarking on creating ecosystems for health care, rural ecosystems where we have the largest pharma base, the [Foreign Language], the RPRs, the agri processors. So that's another ecosystem we are creating. And the other one, which we are now embarking, we have embarked, it's on a POC basis, is the trade or the merchant ecosystem. We have been the largest payment bank. As you know, we have almost about 40% to 50% of the country's transaction is going through our payment gateway and systems. We are planning to add value-added services in terms of creating, not just providing inventory management system to the merchants, but also creating their own accounting systems that -- and his own digital system so that -- the web services so that he is able to provide digitally to his set of 8,000, 10,000 customers in his locality, the offers and the ability to make home deliveries or payments as the case may be. This is going to be exciting. So the -- as I mentioned, whilst all of this is already implemented, all that we need to do is scale up. But since he's asked for a lot of priorities, very clear that the digital transformation 2.0, i.e., getting a new stack, ensuring that we get the ecosystems in -- implemented over a 2-year period where we start off now and creating the contact center of the future, which is very important for a virtual relationship management program, these are some of the priorities that I'm looking at.

Great. Operator, you can open up the floor for questions, please.

The first question is from the line of Prashant Poddar from ADIA.

Sashi, Congratulations.

Thank you, Prashant.

Yes. So very quickly, on given the -- I mean if we compare you with other banks on various parameters like cost of funds or cost of operations, clearly, your cost of operations are now -- are significantly better than others. And cost of funds are also -- I mean close to the -- having 2, 3 banks of amongst the best. Does it mean anything in terms of the mix of customers that is likely to change? We have seen in corporate, you have been operating literally at the top end of customers. If you could help us understand on the broader level, are you likely to increase or reduce risk in that portfolio in the next few years? Where is your comfort zone there? And in retail, the question was that you are -- while you're blessed with the platform, one thing you are not blessed with is competition. I mean competition is probably at the pre-COVID, I would say, at the highest that retail segment has seen in the last -- I mean forever because other banks have started to focus on retailing last...

Right. So let me take the first question. As I mentioned to you, the market runway or the opportunity for us, just by focusing on the customer segment that we are used to, i.e., for retail, the middle and the upper middle income, for the corporates, the AA and above corporates, maybe there is a finite limit on the corporate side for the timing. We need to wait and watch only where -- how the economic activity. But I'll come to that. We have no -- absolutely no reasons to go down to this ladder, I'll tell you why. See, even when I said retail, we are talking about only the top 20%, 25% of the rural markets, which means that there is a -- because of our experience over the last 10, 12 years, we know what is that particular segment in the rural areas, which sort of meets our customer segmentation. So all what we are talking about is the top 20% of that particular population, which sort of mirrors what we have -- we are comfortable with. So we -- and the runway itself is so large, you don't need to go down to this ladder. Even on a broader perspective, whether you like it or not, our strategy over the last 25 years has been to nibble away share from the other banks. Still about 70% of the banking today is still with PSU banks. It's a massive share. So even if I were to say that, okay, you say that there are top 5 PSU banks continue to grow or retain their market share, there is still a 30%, 35% up for grabs. And if you were to take the top 20% of the 35%, it's still 6% to 7%, which is still there, which means that if I have 25 years reached the market share of 8% to 9%, there is still a large 6% to 7%, which you can do without diluting risk standards. And this is a case, not just for retail, but retail, SME and wholesale. Even today, whether you like it or not, barring a few strategically important number of kind of companies which have come in, the opportunity to sweat the balance sheet of existing customers is still very large. Let's face it, we still have -- we are not necessarily the dominant share everywhere. We do have a lot of multiple banking arrangements or consortium arrangements. Our share has been steadily growing. But we have an appetite to grow even slightly more. So even if we sweat it out in terms of our penetration of middling away that extra share from even our existing comfort zone, there is still a large avenue of growth. Obviously, if it's sort of mirror or if it sort of comes in with an underlying increase in economic activity of economy moving up, then it's even much more opportunity, which means that we don't have to do anything stupid by going down to this ladder. So that's part 1. Part 2, on competition, it is the myth and a misconception that the competition is not intense. Yes, optically speaking, one would think that it is not. But when you go to the ground level, let's face it, there are pockets wherein we are given a very stiff competition. Don't take lightly some of the top 5 PSU banks or the top 3 or 4 private bank. They are a formidable lot. The good part is, if you really look at it, they have gone through a bit of a turmoil, but that's something of the past. Now as we speak, and this does not now means now during the -- only during the COVID levels. Even prior to that, it's been pretty intense. They have been slowly building their book. They have been trying to ape what we have been trying to do. Naturally, that's something that is expected. So they have been slowly bridging the gap. So we cannot be complacent. You're right. Competition is intense, and it's got to be even more intense. On the contrary, it's going to be even more where we have to look at on the other side of the fence where platform players could also come as a competition. So as a bank, one of the things that we have to do is we cannot be complacent. We cannot take anyone for granted. We have to ensure that we are hungry, but at the same time, we maintain our risk standards. And we have to transform myself as quickly as possible on the digital side because the only way that you can step up acquisition is by having a frictionless platform.

The next question is from the line of Sanjay H. Parekh from Nippon India Asset Management.

Congratulations, Sashi. And also, I really want to complement for a very transparent discussion in the quarter. Last quarter was very helpful. I have 2 questions. One is inflation is inching up. And we are sitting on huge liquidity, and I am sure there would be some gains that we would have. So how do you see the maneuvering of the investment portfolio as the credit picks up, as the big economy picks up? What would be your view essentially on interest rates if inflation is going to be [indiscernible]? That's the first question. And second question is while you very, very clearly explained in the quarter on the moratorium and how -- almost took us through where it could lead to and that was very helpful. But my question was not only for us, but more for the sector, the key question we have is what part of moratorium would lead to slippages and eventual credit cost? So if you can give us a perspective for the -- for each of the segments, and I'm not saying for ourselves, but broadly for the sector, those who are not paying, what is -- I mean is this still out of caution or is this pain? There has to be pain, which are the segments? And if you can give us some more idea of the last 10%, which is not saying in us [indiscernible] which are the segments where you feel the change is longer and how can -- your perspective will help.

Sure. Thanks, Sanjay. Thanks for your wishes. Taking the first one on inflation, the impact of rates and 3 years impact on the -- on our investment portfolio. You're right. I mean this has come as a kind of a dampener for both the government and RBI because this is the last thing that they want. I mean it forces them even from a monetary policy guidelines perspective that you cannot necessarily even hold or reduce rates. So they are going to be in a bit of a jam if this were to continue. So we have to wait and watch, I think rightfully so they paused. There are people who believe that this is primarily on account of food inflation during this period. But -- and it appears that with the rise in economic activity and the fact that you've had a decent monsoon thus far, your agriculture produce, so the harvest in September and October is going to be better. We should see slightly more better inflation numbers coming about. That's the kind of a view that we have. So we should see rates continuing to be a bit more -- continuing to be slightly more [ accepted ] at these levels, if not slightly better, rather than moving up. That's the expectation that we have. But having said that, is my portfolio -- I think we've had a large liquidity buffer. Yes, we do have a fair amount of cushion. Yes, if the rates were to move up, obviously, the gains that we have will sort of -- will go down. That is something that we are aware of. But at the same time, since we have a shorter duration portfolio in all these -- in the kind of -- in the liquidity reserves or the buffer, as the rate starts to move up, if that is the worst eventuality that would happen if the inflation continues to be persistent, then we will gain because we can start to switch over to slightly longer-dated securities with a better yield. So what we lose in the gains and the investment on the market price should come back as a slightly better yields on the net interest margin or net interest income. So -- and this is something that we have wonderfully done this in multiple interest rate cycles. I'm not saying that, of course, there will be a bit of a kind of a drag for some time. But I think these are short-term things. But in the medium to long term, I think we should sort of come out where, what we are losing now is net interest margin, which is about, Srini tells me, anywhere between 10 and 15 basis points or 20 basis points, we should cover up in the yields going forward if that eventuality were to happen. So that's where we stand on the interest portion. Though, of course, the gross incentives within our system and amongst our economists is that we are not expecting rates to move up in hurry. It's going to be tepid for the next 12 to 15 months for sure until we have -- because the amount of liquidity that is sloshing the system is so high, that you will not have too much pressure on the interest rates. The second question on moratorium, and what's the collection, what is the slippage, expected slippage is -- let me just try and take that as I did mention that you are right, you will have -- the people where you've not collected, you will have -- we have sort of accelerated the recognition. We probably may have one more round of acceleration on the other parts, depending on how the collection bucket is for September, et cetera. We -- the moratorium book is going to be an unknown. But having said that, let me give you a color. We still are seeing the salaried segment in the moratorium book continue to get a large part of it, which we had mentioned in the June-July call, the salary credit continue to happen even for the people who are in the moratorium. Yes, 90% of the people were -- 97% were all with 0 overdues when we entered into the lockdown on the 1st of March. So we are hoping that this continues to be reasonably good. I know a lot of you, since we are largely exposed to the salary segment, we track the salary credits of our customers in the 56,000-odd corporates that we have given retail loans to. The salary credits are virtually at 98% of the pre-COVID, the Jan and Feb levels now. So that's a bit of an encouraging thing. But you're right, some portion of the ones in March would also slip in. So we are expecting -- today, it's about 1.36 crores NPA. You will see a slightly higher slippages. But on an overall basis, I think the gross NPA should be in a band of what we have seen in the worst of global financial crisis. We had a peak of 2.08. Somewhere between 1.4 to a 2 is what we should see because I still have a bit of an unknown in terms of how the moratorium book is going to behave. But maybe to give you some color on the -- to give some amount of comfort. I don't know what it's going to be. So we have to -- on the corporate side, I think we don't see too much of a stress at all. On the SME, what we saw about our 9% high stress assets that now will come down to about 3% or 4% because a large part of it has been taken care by the emergency credit line of the government. On the retail side, as I just mentioned to you, the collection efficiency of the people who have not paid the non-moratorium, which are in the collection bucket, is reaching 90% of the pre-COVID level. So some amount of -- a 10% will give you a bit of a slippage there. And on this -- as I mentioned, the salary credits, so where we have a large portion of unsecured is now coming back to the pre-COVID level, almost 98% of that. So yes, the 2%, probably we need -- that's a bit of unknown. We need to see how that pans about going forward. So as I said, we are reasonably okay. But at the same time, I cannot be saying that nothing will impact. We are -- Srini and I are hoping that the range that we're talking about in terms of gross NPA level should be somewhere in the 1.4 to 2, somewhere in between 1.6, 1.7, maybe, I think that's where it settle down on a worst-case scenario. In terms of coverage, I think the amount of buffer that we're carrying in terms of the 2 credit -- the COVID provisions that we created in March, in June and what we're carrying as floating provision is roughly about 50 or 60 basis points. I think that should be more than comfortable to withstand any shocks that we may have on this one. If given an opportunity, can I create more provisions? I think Srini will be delighted to do so.

The next question is from the line of Sayantan Bhowmick from PineBridge Investments.

Sashi, congratulations, first of all, on being nominated as the next Managing Director of the bank. I have 2 questions. The first question you partly answered in your opening remarks. I just want to delve a little deeper into that. If I look at how the bank's business is getting disintermediated by various players, there are fintechs who are encroaching the space of retail lending. Project finance is something, which probably a bank cannot do with an IPP structure. Payments are being taken over by fintechs. Globally, if I see, Visa and Mastercard are probably now more valuable than traditional banks like JPMorgan. Investment products and equity investing has now been taken over by these players like Zerodha and 5 paisa [indiscernible] probably note to normalize is taking shape. So there are various -- I mean our profit pools is being attacked by various players from various different directions. And you also mentioned how the platforms are the [ trend ]. So how do we compete with a platform, which already has a 400 million customers to begin with while we are at 60 million customers? How do you compete? Because as you -- the cost of acquisition has suddenly gone for them. So that's -- this entire thing is one question. Your thoughts on this. Second question, I wanted to understand was -- in the last few months, there has been various issues with respect to auto financing division and some other issues cropping up here and there. How do we ensure such incidents don't recur? So these are my questions.

Right. Thank you, Sayantan. Thank you so much for your questions and your wishes. Let me take the second first -- second part first, and then come to the first one later. The second one. Yes, it's a bit unfortunate that we were confronted with these kind of issues. But the bank is very clear. Our conscience is clear. Any complain that comes in about -- so our visible mechanism is something that we are proud of. Any complain that comes in at any level is investigated. It's sad that we did find there have been transgressions in the code of conduct by some people in the auto loan division, for which a swift action was taken. The investigations continue. There's nothing wrong with the kind of product that they were. I mean offering GPS to a car loan customer and that too a small fraction of that, there's nothing wrong with that. It's just that there were people who probably could have done it in a transparent way. They got some gratifications from the vendor. That is where they halt it. And that is something that is nonnegotiable. We took swift action on that. The second one. So you are saying that we realize that this is something that, whilst we are proud to have communicated all along about our ethos and culture, it is a bit of a shock that such things do happen or has happened in a large organization. We have 170,000 workforce between -- 120,000 on our own rolls and about other off rolls about 50,000. We recognize it's a massive organization. We recognize that the old finger is not the same. So all that is required is that, as Mr. Puri has been mentioning, he has been, and I will continue to do so going forward, one of the key areas is constant communication of ethos and culture by the respective heads of divisions across the length and breadth of the country. We will -- we have always said that we are kind for any operation errors. We will sort of really handle. We will not sort of penalize people, but there are 2 things that we will not tolerate. It is integrity and lackadaisical attitude. Sadly, these are instances which sort of have hit us on the latter side. We are apologetic about it. At the same time, we are not apologetic to say to take swift actions. We are very proud of our processes, happy that we are encouraging the whistleblower mechanism actually. And whilst we would love to have it within the -- privately, it's sad that we also have the new trending of people leaking to the social media. Yes, it looks like some discordant elements in the system. I don't know why and what. But whoever that is, we'll try and communicate more. We hope and pray that as long as the tone at the top and the -- and we have a management layer, which sort of continues to communicate with the same passion and intensity, we hope to sort of see that grow. We are also beefing up a lot of other mechanisms to be -- to do a lot of mystery shopping within our own systems. We probably did not do that, so that instead of having a third party sort of stumble upon these things, we would at least have an alert mechanism for ourselves. The latter one is something that's a new change that they've got to do. They've got to sort of step that up across the country and across various verticals to be able to provide these kind of alerts in the eventuality that such things are happening elsewhere in the organization. But until then, we have to maintain calmness and composure to be able to confront whatever it is. We are ready to face consequences arising out of this. I know for certain that as we move into next year, we will get a wrap on our knuckles for these transgressions, even though the company has not done it, but a few individuals. But we have to take it in our stride. We have to only tighten and we have to sort of move on focusing. We cannot be defocused on the opportunities that we have. So that's part 1. Part 2 is on your question on the platform. You're right. Things are getting commoditized. There are pockets of [ billions of ] which you are seeing in various parts of customer segmentation and product offerings. There are players who are offering better than what we are, which is the reason why, as I mentioned, we are going to disrupt ourselves to be able to counter in each of the areas that our product is on par with that. So when the customers don't sort of need to have and investors need to move out. So even if it's a Zerodha or anyone that you talked about, we need to have a Zerodha in ourselves. We need to sort of disrupt our existing model. That's existing plan. And that's something once you do that, but we can also coexist and we can also sort of probably have a faster acquisition the way they are doing. But having said that, I -- we believe that this is an opportunity -- because I know for certain that none of these players would like to become a bank. These are the kind of -- they've also reached out to the bank in multiple ways, and we are happy to collaborate with them. We are on the verge of announcing a lot of collaborations, banking at the edge, which is one of our key strategies on the digital transformation is going to happen. It is -- it requires a lot of APIs, which needs to be opened up and consumed on the platform players, which is what -- that's the first step. But we want to convert that into an opportunity for us. We want to create a completely new channel arising out of the banking at the edge. So this is the game plan that we have. It's not going to be an easy run. You're right. We have to be aware of the competition. This is not going to be easy. But at the same time, we cannot be sitting, sulking on this one. We can't be an ostrich burrowing our head in the sand. We have to rise up and counter these kind of threats. That's the plan. That's why, as a part of the prioritization, what we are going to do on the new digital 2.0 is going to be very key, and that's going to be our priority and energy are going to be focused on that.

Yes. Sashi, I think -- I know you have to rush off. So just 3 quick things from clients who have been asking me to ask you. First, can you just clarify on the Rosen Law Firm suit? What exactly is happening there? Secondly, the Experian credit bureau issue, which is all over the papers, talking about selective -- not disseminating information on time to the credit bureau. And the third part is on new current account rules, what's your view? And could this be a threat for you or an opportunity? How do you look at the new current account rules? Just 3 quick final questions.

On current account, let me answer. On the RSUs, Srini is -- [ sees of ] that very well, so he will answer that. So let me answer on the current account. The current account guidelines, let's face it, it's a final guideline. It is on par with all the banks. Yes, we will lose some, but we will also gain some. We have -- we cannot be sulking here as well. We have to convert this into an opportunity. The bank is focusing on having strategies to counter. There will be a short-term kind of a compression in some of the working capital requirements of SME customers and the current account balances because that's what the circular says, but I think we would have larger opportunities on the retail side where we have a fair amount of inroads and dominance. So I think on a net-net basis, we should be square on that one. We are seeing it positively. We don't want to really sulk about this. This is something that you have no choice. Yes, we have to reorient our strategies to cater to that. That's part 1. Srini, can you take on the Experian and on Rosen?

Yes. So fine. Let's first talk about the Rosen one, right? Rosen or anybody like that, that is their business in terms of looking to see how they could garner some support and bring some plaintiffs on their side to see how they can file. First of all, there's no lawsuit. They're trying to see if there can be a case made for a lawsuit, and they're trying to see who will be the plaintiff. They can't be the plaintiff. They're trying to see who can be the plaintiff so that they can try and make a case. And this is their profession. If you go to their website, you will see that all companies from Airbus to McDonald's to all sorts of companies are all there, several companies, global companies, American companies, all of them are there. There are several such law firms, their full-time job is this, right, how to create a litigation. That is their full-time job. What stage it is in? They have tried to advertise. This is a lawyer advertising to say, hey, guys, come over, I want plaintiffs, come over and make a case, and we'll help you to make a case. So that is what is going on at that stage. Otherwise, as far as we are concerned, we are reading the papers as you are reading, because there's no such suit, there's no such claim or there's no such issue on our side that people have raised, right? So that's one thing on the Rosen thing. In terms of the Experian. There were 2 things that you saw, one, I think, in the paper that somebody -- Experian will return to RBI, and Experian has said that there is a delay. We have clarified with Experian. They have told us there nothing has been returned to RBI. So that is what they have told us. And the second thing is that what is the delay that they have reported to any journalists. Experian has told us they have not spoken to any journalist. They have not given any statement to any journalist. I don't know from where the journalist got, but Experian tells us that they have not given. So we have gone back to Experian to say, why didn't you go and report it or why didn't you issue a press release denying. So they are looking at their internal processes to see how to go about doing that, right? So there is -- from our point of view, there is -- say that the last 2 years, there has been some delay, there has been no delay, right? That's one thing. The second thing is that during the moratorium period, I wouldn't call it a delay, but there are clarifications required. Think about it. On April 17, there is a circular that comes and that circular changes the delinquency status of the customers on 29th February, on 31st March. It changes that, what -- who's delinquent and how many days past due because the days past due gets frozen by a circular on April 17. So there has to be more clarification in terms of how you report these things. And we've been working with the bureaus to iron out how it should be done. And after the clarification and decisions are done saying this is how we report, then comes the process of amending the technology to see because it's not one by one keying in the system. We need a technology [ tape ] handover. And how do we do that? So it takes time to do that. And with a reasonable time of ironing out the process with the bureaus, we have gone and done that reporting. Keep in mind that even when the -- the last day of the moratorium period 1.0, or the last day of moratorium period 2.0, somebody can apply for a moratorium and can be granted. And when they grant, you have to freeze them from the day you granted, not on the 29th of August or on 29th of May or 30th of May. You go back to 1st of March and freeze them. And so one has to wait through this, and we are now on stream live in terms of getting the bureau data like every other bank, right? Maybe some banks are 2 weeks earlier, some banks are 2 weeks later. That is how things have happened through this process of moratorium. And even now, if we grant the customer moratorium on 29th of August, we have to go reach -- we have to refile the bureau data to change the customer's delinquency status for the past, say, June 1 or July 1. Whatever we have filed, we have to go refile and change it. So this is an ongoing process around that moratorium period, which we are aware and the bureaus are aware, and we are working through those with the technology changes.

Thanks, Srini. Yes, I think we can hand -- thanks, Sashi, and thanks, Srini, for doing the call with us, and it's been a pleasure hosting you today and all the best going ahead.

Thank you, Suresh. Thank you so much. Thank you all. Thanks, everyone. Bye.

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