HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the Crédit Suisse HDFC Bank Group Investor Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Ashish Gupta. Thank you, and over to you, sir.

Thank you. Good morning, and good afternoon, everyone. Many thanks for joining this HDFC Bank speakers' corner. We are glad to have with us for this event today. Srini, who is the CFO of HDFC Bank and Arvind who heads the medial asset piece of the bank. Given over the last 3 months, we have seen a significant pickup in the economic activity, we thought it would be very useful to get perspective of actually, the lender that is putting out the maximum amount of new credit into the economy to understand how they are seeing the macro and also, in particular, the consumer activity. In terms of format for the call, I will initially request Srini to make a few brief opening remarks, after which we will open the floor for Q&A. Srini?

Yes. Yes, Ashish, can you hear now?

Yes, I can.

Okay. Line is open, yes. Thank you. Thank you, Ashish for giving the opportunity here. I Appreciate it. Let's start with the opening. Briefly, maybe 30 seconds, I don't need to repeat what all of us read on the economic front or the macro front. A lot of these leading indicators that we see in the market is picking up and showing greater momentum, which is good news. And that coincides with the festive time period, October, November being the top peak of the festive time period, it is coinciding with that. So that is also another silver lining that comes around this time. And in terms of the COVID, whether the COVID is fully behind us or not, we can never say that it is because at this moment, while the number of cases, et cetera, are plateauing to slightly down, but the hope is that it doesn't start to pick up at any point in time, which we have seen in the eastern countries, having in some of them second wave, some of them third wave, that's not what we want. So there is at some level of restraining things that are happening, which is including the mass or working from home being the norm of the day. Many of those kind of stringent measures not to spread it around that have been implemented, they continue, which means there are some restrictions through which we operate, but more or less now given that it's the eighth month or something, it has become a kind of a norm or a business as usual, and that is the way of life that things are operating of late right now. So that's something on the background to keep in mind that we can't call it everything is back to usual or whatever. But within the constraints, we seem to be reasonably operating well, right? And then the next thing, from an opening point of view, I do want to -- what will be in the minds of people in terms of the transition. Yes, the transition has happened in the last week of October. Sashi has taken over in charge. And it's pretty smooth, but as you know that over the last couple of years, he has been playing this role of the change agent, which is getting the inside view of various business activities in person sitting with Mr. Puri and making visits to various branch locations, various smaller towns, big towns, cities and so on and meeting clients. So those kind of experiences have been gathered. So the transition is pretty smooth and kicking right from day one in a good manner. And then Sashi makes the rounds of calls and meetings with various clients, the small retail clients or the big corporate clients, all of them are in progress. As always some of them already happened, some of them are in progress. His round of meetings with the people with the management team, those are all happened a round or 2 in terms of improvising. Then that takes us to the third aspect, which also briefly in less than a minute, I will cover, which is, is there a change in strategy? Is there a change in approach with the new CEO in? Is the thinking same, similar, different what it is, right? So that's on many people's mind in which people ask. There's nothing that has changed in terms of the strategy that we laid out and which we have been executing for the last 2, 3 years, the 5 point, the 5 item, 5 pillars of strategy that we have always talked about. They continue vehemently driving those even COVID, no COVID, across all the time periods. That has been one of the things that -- which is what SURU has been focusing on is to ensure that the strategy is fully embedded from top to the bottom to the last person touching the customer. The strategy is well understood and being executed. So that continues. But then what is slightly different, which COVID has done or made us do, is accelerate a kind of a dimension to all of these 5 pillars of strategy, which is bringing in a stronger and in an accelerated manner, a digital tone to all of these, right, in terms of -- even if it is brands you think about the in-store account or the video KYC or if it's the VRM getting in new dialers and enabling people, our relationship managers to work from home and do the calls to the customers to have the relationship management or in terms of getting some of the ecosystems, the health care ecosystem to network, which is what -- there are several of them, even Arvind will talk about a few of them, but I mentioned the eco health care because as the COVID was coming in, we have several relationships with various health care ecosystem people, which we try to tie it together to make it a wholesome offering. So that's -- we try to accelerate on that. And in terms of the digital itself, right, which over the last 3 months, 4 months, we have talked about how we do a bank within a bank and that means how do we develop and implement a completely digital stack, digital bank within the overall bank, which operates as a challenger to the existing traditional conventional banking model, which we are almost there. And at some point in time, we'll talk in more detail or you will see it live in the market in action, but that's something that's also in play. And we have put on the elements of digital into various, let it be the marketing aspect of it or the collection aspect of it and across all of these are the payment aspect of it, the payment ecosystem, the rural ecosystem, all of that with the digital too, let it be [ CF6 ] are bringing the merchants by giving them the CASA or making them the hyperlocal offering, all of that, how do we get through the digital process. That's where we have accelerated many of those, and some of them are still in the pipeline. And so from a strategy point of view, while all of the 5 elements of strategy remain in place, we have added or accelerated and brought in some kind of a digital tone to each one of them to make it current and relevant and so that we are able to move at great speed with that. So maybe that's -- with that, Ashish, if you want to cover anything specific, we will, but those are 2, 3 minutes of opening remarks I want to make, yes.

Thanks, Sri. I know we'll pick up the other pieces in the Q&A. So maybe to start off with and maybe we can start off with some questions around the retail and even as our question queue builds up. I had a couple of things to ask. One was that our retail growth in 2Q, although disbursement picked up, was only about 2% sequentially. And this is in line or, in fact, lower than some of the peer private sector banks. Given the strong commentary on collections, this seems a bit counterintuitive. Is there anything holding us back in any of the segments?

Okay. Let me start with a few things on this data that you mentioned and then Arvind will speak in much more detail. But what I wanted to say is that when you talk about 2%, I think you're talking about the book, the retail book, end-of-period balance up sequentially 2%, right? But Arvind will talk about the disbursals right on the ground, so we'll leave it to the side. The book is 2%. The 2 things to keep in mind, when you think about the peer group, we have to see which peer group, maybe there's somebody, whether the mix of the retail products that the rest of them have, is it a similar mix that we have? For example, we have mortgages, which is a long tenor book, where the runoffs are pretty limited in any given time period in a quarter, right? Whether -- our book is 10%, 12% of the mortgage book. Some people are -- 1/3 of their book is mortgage on retail side. And for some people, 50%, 60% of the retail book is mortgage. So it depends on which peer group that we are benchmarking you will see different kind of results because it's the end of period is what you are seeing. The paydowns will not be as much in the mortgage book. And with the mortgage book being of that size, you will see that there is a continuation of the end-of-period growth, right? So that's something to keep in mind. But in terms of -- there's nothing that is holding us back, but I will invite Arvind to talk about the momentum and the kind of the market matters and how he is operating, he'll probably articulate better. Arvind, do you want to talk about the retail assets?

Yes, yes. Thanks, Srini. Hi, Ashish, Okay. Ashish I think -- let me give you a quick sense on, I think, momentum. So let's give you guys a sense on how the dispersals are going. If you look at the retail assets, all 11 businesses that I had, right from SLI mortgage, LAF, right up to the biggest books of personal loans, business loans and auto and the vehicle loans. Even if you look at the last 3 months, we've been growing -- can you hear me?

Yes, sir, we can.

Sorry, there was a pin drop silence for a second, I probably. Okay. So if I look at -- even after coming back from the pre-COVID, let's start with the month that just went by. We've been growing continuously at 10% sequential growth on disbursals. And as a matter of fact, in October, we have started crossing our pre-COVID levels on the disbursal side. And from this month onwards, we are expecting -- November onwards, despite more holidays in the month due to Diwali and stuff, we're expecting it to grow further around 5% to 7% sequentially. And December probably will grow another 10%. So we are planning almost between September and March, we're looking at -- probably just to give you guys the momentum sense, almost a 40% to 50% growth in monthly run rate. So that's the kind of stuff, which will all finally lead onto your book increase. If you look at the kind of focus we have in our books is obviously predominantly historically been higher on the unsecured piece and auto is also beefing up big time now. In fact between last month and this is the disbursal figure for us in auto [to] [indiscernible] is almost 35% up. So between these 10%, there are a couple of businesses are moving more aggressively. Other than that, in the earning call, I also announced that we are also going by Jan 15th or Jan end, we will go live with a very complete digital product on auto, probably will be the first in India for sure, maybe in the world to go something called as auto first, which will probably -- I'll go to the media around 1.5 months from now after the testing is done. And the whole idea is that when I launched 10-second loan in unsecured, it picked up speed and the conversion rate and productivities and the cross-sell businesses completely shot off the roof, and that's what we're expecting in auto as well. So I think our focus is to go on a massive growth trajectory, we're doing 2, 3 things. One is we are identifying businesses to immediately grow basis our physical distribution. We are getting ready with identifying pockets of massive digital scale. For example, in auto, we are planning a complete both for 4-wheeler and 2-wheeler. We are completely making a product which is fully end-to-end digital. We've already given the request to RBI for approval because we're also very keen to put a test drives and service in it, which is normally, technically needs an RBI approval because it kind of borderlines the banking act so it needs that. Otherwise, we are ready with a pure digital and assisted modules with that. We're also going to be focusing on the open market, unsecured pieces because especially in auto there's 90% of the leads actually are coming online. Problem is in the industry, there's no closure right now. You don't have an option to close the network. So that's what we're trying to create with all our relationships and manufacturers. And even on the unsecured piece, which is almost 82% salary, which I wanted to mention to all of you because a lot of times I see this coming up that the bank is growing on its unsecured piece. But if you really notice balance of the salary to business loan, we've kept a salary profile which is consistently low delinquency over the last 7, 8 years and has never gone beyond the level. Even in corona, we found a fantastic response, even on the collections and on our delinquency trends of the salaried profile. Strategically, I might -- or rather, I will shift the 82% to 85% over the next 1 year to 1.5 years as a strategy to book building as well. So I'm just giving you that insight so that we make it more robust and much more sound on our delinquencies. We will also be putting in an extra thrust. We see a bigger opportunity. And when I say opportunity for me, the word opportunity means market size plus sensible risk. So when I ever use the word opportunity, it means I have evaluated that the risk is completely within what we are comfortable with, and I'm going for the opportunity. And so for retail working capital that I handle, I'm going to substantially beef up the teams because I think we're getting massive growth there as well. And the whole idea is like 7 years back, we've kind of grew unsecured in a particular manner. I think here, while there's a lot of property collateral I think there, our delinquency trends are looking very encouraging and very well controlled and our quality is good. We're focusing more on the granularity of the business. And we see a bigger opportunity there. Even on the LAF, the way we are looking at the granularity of LAF, I think there's a great opportunity there as well for us. And incrementally, of course, even on home, we are seeing a much bigger opportunity because, of course, home we are none of the builders. So that's the only difference. So that's broadly to quickly get you a sense on the whole ecosystem. In the earnings call, I had quantified, so I'm not repeating it. I have given probably a detailed kind of a quick sense at the ground level, that we are finding with our sales guys talking to the business guys, we're finding capacity utilizations very visibly going up. And in many, many industries for SMEs, that's a lead indicator normally we keep, whether it's the faster industry, whether it's even simple like bicycles or gardener tools. So city by city, we gather and we have a fair sense on which way it's going. Even on the salary, because we've got a very large portfolio, we keep a very close watch on the quality of profile that we are positioning ourselves with. And I think right from auto, where we are beefing our full distribution between physical and digital, in unsecured, our strategy is clear that we are very strong on the physical market. So we virtually get the best credit to pick in the market. And we are beefing up our open market online space to further strength both on business loans as well as on personal loans. So that our turnaround times for better credit actually moves extremely fast at a clip. And I shared with you my retail working capital plans are to beef up the team. So we're almost looking at a substantial growth to beef up the teams by March, so that we see a substantial growth thereafter. So we've kept our 2-year plans in place, and I see a robust delivery from the bank and a very good quality of portfolio. Because I think we're almost getting the first right to take all the better quality because the big will get bigger in this game the way I see it across businesses and across the markets in India. So that's probably my kind of a ship sense snapshot, Ashish.

So just, Arvind, you mentioned you have 11, I think you mentioned product segments that you look at. So of those 11, is any 1 of them you are still calibrating growth? You are still not pushing for growth or it's like a full steam ahead on all 11?

No. I think on 10, we are going full stream ahead. Including gold, we are going full stream again. LAF also, we are going full steam ahead, where we are gold, we're looking at almost 60% growth. But there is 1 product, SLI which is basically micro finance, where we've gone slow deliberately, and we are beefing up step by step. So probably a quarter from now, I'll give you a better sense whether we want to go more aggressive than what we are going right now.

Okay. Okay. And maybe, Srini, this is a question for you. Arvind covered most of the products, retail side. But how the credit card portfolio performing because I think that's not a portfolio covered by Arvind. And so both from a growth as well as a delinquency perspective?

Yes. Yes. I mean, no different from actually the -- than what Arvind described because it's in the similar kind of a customer profile as what -- between the unsecured personal loan and the car loan, the customer profile is similar, right, in terms of looking -- going for the salaried customers, going for internal customers, all of them. But let me come back to answer that, right. See the card book we -- for example, the September month growth, the new cards, right, 2-point some lakhs, 2.1 lakhs, 2.3 lakhs or something, which is like -- which is the kind of a run rate that gives the 25 lakhs, 30 lakhs of cards in all of last year that we grew. We back into that kind of a run rate in terms of bringing in the new clients, right? So we are at that -- we are getting back to doing the usual things. If you think about the April, hardly any card booked in April, it hardly anything. But if you look at September, we are at that what where we were running previously. So that's in terms of getting in [ new ] In terms of getting the sales in, while the quarter sales could be in some single digits lower than last year for the quarter, but the month of September, if you look at it, is quite robust. And similarly, as we get into October, I will give you a forward-looking number, but I'll give you a feel of the Festive Treats how that has done. It has done exceedingly well, like we started with the Amazon offers and Amazon kind of a big sale. And right on first day, we surpassed all kind of targets, all kind of sales that one would expect. And now through the program it's fantastically done, so much so that it strengthens significantly our partnership with -- our relationship with our partners, right? So that's the kind of a major momentum in sales through the festive end. Last year, for example, we had about 100 tie-ups also, right, which still was the talk of the town, our festival offers was the talk of the town with 100 offers. This time, we have 1,000 right, both online and physical but mostly online, right? A lot of it is online this time around given the COVID and so on, 1,000. So we have 10x more in terms of partnerships. That means people lined up to come and join and partner with us. Right after last year, people have been coming to us to say, hey, sign us up and be part of us, and we want to work with you through your festival season this year. So we lined that up. And then one other additional thing we did is there are more than 3,000 hyperlocal offers, not just 1,000 all India. 3,000-odd hyper-local offers we have, which is phenomenally outperforming on all of those. So from an activity point of view. So the sales -- the new cards, the sales, they're looking good and nice. In terms of the delinquencies, they are no different from the great quality that we've been talking about, that Jimmy talked about in the earnings call, both the collection efficiency and in terms of the delinquency, they're perfectly doing very fine. And as Arvind alluded to that, that's not something that is worrying or bothering us. And keep in mind that the reason for that is the profile of our customers. 2/3 of the customers internal, 80% of the customers, salaried customers. These are all the kind of the silver lining that helps us to progress more and do deeper on these things.

Okay. Thanks, Srini. Operator, can we check for Q&A from the floor as well?

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

Just wanted to get some additional color on the customer profile. If you could give like an 80-20 type of a breakdown of your customers in terms of income brackets, so we know the bulk of the customer segment on the borrowing side. Is it more than, say, INR 10 lakh income or INR 20 lakh income, something like that would be very useful. And I also wanted to understand if the difference in performance between HDB and the HDFC Bank customers. Is that primarily a function of this [ Asia ] recovery that we are seeing? And kind of as a final add-on to that, I know the fact that on the macro finance side, you guys are going slow. Is that again a function of that same recovery pattern? Or is there anything else you're seeing on that segment to kind of go through on that?

Okay. So there are 3 aspects. One is the customer profile, the income segmented customer profile is something that you're asking. I'll tell you. Everybody wants to know that. That's not something that we put out because that's very proprietary. That's the core to our analytics engine. There are several items that go what we describe that P27 analytical model that determines our internal scorecard for scoring the customer and making the decision, including the Arvind Kapil will describe the 10-second loan process, et cetera, which is -- and then nobody is even close to that. We haven't put out that data, something that's not something that we will do now because, as you would imagine, it's very, very highly proprietary and it's an information that we would like to keep it as part of our decision-making engine, right? So we have to be careful. And all we can tell you is that within that income segment, we have 5 or 6 segments. And for each segment, there is a different score card and there is a different decisioning that comes out of it, right? So it's not 1 segment to say 80% is less than this and more than that. Within that, we have subsegments and that's how the engines operate. So that's one. And second thing, in terms of the credit -- in terms of -- you asked HDB. Okay. HDB had 2 things, right, in HDB to think about. One, HDB operates at a segment which is a couple of notches below where the bank cuts off, right? So from a customer segment point of view, it is slightly even lower than the bank. That is 1 thing. And second thing, when you look at our HDB versus any other finance company, NBFC in the market, our NBFC -- our HDB is slightly different from the rest because from a credit process point of view, from a credit recognition point of view, our HDB follows what the bank follows. We tightened this and we came into this kind of a process sometime last year, right? So from that sense, you would see -- and that's how we've been describing that 100 basis point jump if you see, in delinquency. That's the way we started to recognize things. And then when COVID comes in, which has added some more into that, right? So that's -- even for the bank, we did have a slightly higher delinquency, a few basis points. But here, it is slightly more because we are operating on a different segment. But other than that, from an efficiency point of view, in terms of the booking, we described the 2% or so the book growth. But again, from a September month, we try to describe that it is the new disbursals are weekly getting into 90% of the pre-COVID levels. So things are bouncing back in terms of normalcy there. But from a customer segment point of view, you are right, it operates at a level, which is at least 2 notches below the bank type of segment. And your current aspect of the question was to do with -- what was the third one, please?

On the MFI, whether it's the same kind of income-related issues that you're staying away from it? Or is there something else?

No, it is more from a SLI book that Arvind alluded to, that we will take another quarter to get through before we start up. We hear -- what you hear talking is that if you are into some kind of a big double-digit type of a growth that you know that the MFI/SLI is more dispersed geographically across various places, right? So from that sense, from a reach point of view, from an ability to travel and get to the point, all of that is slowly getting back to normal, right? For example, I do want to travel to 3 other places which I've been sitting for the last 3 months unable to move. And so from those kind of logistics point of view is what in, but I'll open it up for Arvind to comment more. That's why it's going to take some time before we get to be onto that kind of a full-fledged segment to have a robust growth.

Yes. Just to add on to what Srini said, I think on the SLI first of all, there's no concern. It's just moving as in line with the industry. It's moving exactly in line with the way everybody is coming back. We're already close to 80% of pre-COVID levels. We are going back to normal. Why I said is because there are a couple of businesses we are planning to take a serious upward jump in terms from a 2-year plan. So SLI have kept a normal rate of growth, which we've been growing every year. So there's -- it's just that strategically, I have taken a call on some of the businesses to move and beef up our infrastructure digitally and physically to take advantage of the opportunity. And in SLI we take the advantage of the opportunity as our branches grow and the geographies go. So we'll grow at the same rate as we've been growing year-on-year. So there's no concern, if that's what you're asking. But I'm not beefing it up abnormally high. That said, in that context, I said it. Some of the businesses I'm planning to beef up a little higher. If I take a year-on-year, not just much. So I said I'll beef up some infrastructure until March to beef up my business to take advantage of opportunity much more. So 1 is that, secondly, on your segments. The only thing I'll say is that we keep it very, very granular. And as 1 of the very large players, we do get one of the best credits. I must confess, we do get one of the first choices to pick up the best. So our granularity is across all segments. But in the portfolio, even on unsecured is 82%, like I said, salaried, And that we're trying to grow to 85%. So we are strategically keeping ourselves sane on that. So while we're keeping an eye on the growth and levering the opportunity, we are keeping our portfolio quality well, like -- imagine, if I club my unsecured with my auto portfolio, I probably imagine the yields at which I do what probably some people our size or not even our size would do in mortgages. So can you imagine on mortgages at mortgage delinquency and the yield is probably 3x to 4x is that I run that. It's just that I got to run faster, but I think India has a huge opportunity.

I hope that answers your questions?

Yes, that's it.

[Operator Instructions]

So while we wait for the next question, Arvind, I had a couple of questions on the retail side. So Srini actually mentioned about the Festive Treats doing well. But what's been the experience on the auto side of this festival season? You mentioned overall, the momentum has been good, but if you could talk bit more about various segments. And in particular, also about commercial vehicle piece. Initially, what we were picking up in the industry was that, that piece for a little more stressed collections were taking longer to recover. So if you could address that aspect.

Sure. Just to get your question right, you want me to comment on Festive Treats only for auto segment?

No, on the festival season, not just Festival Treats.

Festival season, okay. If you look at the Bureau inquiry levels also, Ashish, I think if I can comment on that, both auto and home are showing 4-wheeler, I'm talking 4-wheeler and home are showing fairly steady, positive back to the pre-COVID level growth rates from a year-on-year perspective. Other businesses, I feel we are doing better than probably the inquiry levels are going. So I tend to probably -- in my limited opinion, believe that probably we are penetrating in the market share gain, but it's difficult to comment precisely on it with the data that's available because our rate of growth seems to be faster than the disbursals compared to the inquiries are catching up month-on-month. And they are, by the way, catching up now every month. And this is a comment [indiscernible] for last month, I'm talking. I think the festival business [ now pretty much engross ] our gambit of products. You'll be surprised, right, from retail working capital getting fantastic response. I'm getting response on the personal loan side in a big way, on the salaried side especially where we are focusing on a big way. From the 4-wheeler side, like I shared with you some 35%, 40%, we've grown sequentially, and I can see the growth rate on a robust level even in this month. So we are seeing a great response there. On the 2-wheeler, we seem to be growing on the disbursal side. But I think overall, on the retail side, we still have to be more watchful on the 2-wheeler piece. Predominantly, what I'm hearing at the ground level, and I'll share that with you. On the 2-wheeler side, a lot of people, my sales guys and customers when they talk to them, you know what's happening in your IT parks? [ SEZ ] are closed. Your urban centers, your schools are shut. Your colleges are shut and your -- the entire working migrant population working in the IT, IT is working from home. The construction activity in the urban centers are still a little subdued. I think as far as also the home delivery of the food is still to see the pre-COVID level. A couple of these things are veering on the 2-wheeler side. Auto, I think we are seeing a huge amount of first-time buyers that's coming into the gamut and buying the entry-level cars, and it's pretty visible there. Semi-urban and rural is doing particularly well. Even a couple of indicators like your housing in the 10 lakhs to 25 lakhs has seen a could flip upwards. I think there's an upward tick there. I think the scooter segment is witnessing a little degrowth but the motor cycle, obviously is seeing a much better impact because the whole growth is driven by the rural and semi-urban piece right now. And so I think overall, Festive Treats has been extremely positive for us. It's built a fantastic momentum in November for me, for my confidence to keep up our growth rates another -- I think it will sort of go probably up 10% in December. So I think we are -- I could safely say that we should be on a very strong footing from here on to capture the opportunity.

And Arvind on commercial vehicle?

Commercial vehicles, I don't handle, Ashish.

So let me touch on the commercial vehicle. See, Ashish, the disbursals on commercial vehicles for the September quarter was almost 2x -- a little more than 2x what we saw in the June quarter. So there was a big momentum picked up in the disbursals. The book -- overall book did not grow actually on a Basel basis, if you see, is slightly down. But on an internal MIS basis because of the reclassification, which we do for Basel purposes, internal reclassification, they're 1% or something up. So there is a big runoff. That means the paydowns happen quite at a good speed, the paydowns happen. That's also part of our book paydowns that you need to keep that in your mind is happening at a greater speed. And the bookings are happening quite well. The bookings for September quarter, as I said, a little more than 2x and almost 80%, 90% of last year's level. But so from that sense, there's a good momentum in September. And as we go into October, we have been seeing a little more robustness into that. But the way we would direct or at least we'll get the attention directed to is to look at the momentum in terms of the disbursals that are happening and then sequentially, how things are moving rather than year-on-year.

Okay. Sure. And Srini, given the trends you have highlighted with such strong pickup in activity on the retail side. Initially, in the March and the June quarter, our loan growth were driven a lot by the corporate segment picking up the slack. And with clearly now our retail coming back on and probably the mix will shift more towards retail. Firstly, is that likely? So are we going to see a bit more rebalance of the portfolio in that direction? And secondly, what implication does it have on the net interest margins?

See, yes, you should see that as the momentum in the retail has already picked up and it is picking up even more speed as we go along. You will see that the mix of wholesale versus retail comes back to the equilibrium that we have been running a year ago or something. It will come back, right? Over a period of 3 quarters. It was slowly -- the wholesale share was slightly higher than the retail, and it will come back and the pendulum will swing back and we'll come back to the old it will take. And how long it will take? It could take anywhere from 2 to 4 quarters, right? It has taken 2, 4 quarters to swing it this way, and it will take another 2, 4 quarters to swing it back. It will take from that time. From a NIM point of view, a net interest margin point of view, when this mix shift happened, not necessarily there was a big impact on the net interest margin, right? Yes, it can be 5, 10 basis points, can always be there. That is why we operate in this range of 4 to 4.4, 4.5, that's kind of a 40, 50 basis points bid and off spread, which is there in the NIM range that we operate over a period of long time, 10 years. We will continue to operate there. As we did not see a big deal of a shift in NIM when the wholesale was bumping up by 3, 4 percentage points more. When it comes back in, you should not look at that, though. That's part of the ALCO pricing strategy, we take into account both the mix as well as the cost in terms of how the asset must be priced in relation to the NIM segment that we operate in. So all of these parameters are into the pricing model to determine kind of an optimal NIM that we need to maintain within a given range. So that's how I would think about the net interest margin to then. You can't suddenly start swinging back up to 4.4 or 4.5. Now do I see it to go down. So it's within a band, it will operate and pricing is adjusted to take care of that band.

Okay. And just speaking on the NIM side, you have been running very high LCR conservatively if I recollect correctly, at the end of last quarter, it was 153% or so. So as you start using some of that equity. So firstly, are you going to be looking to moderate that or normalize that a bit? And again, the same question, where does it have an impact? Because while your NIM is always in the range currently, it's really at the lower end of that range.

Correct. Correct. Yes. It is at the lower end of the range, Ashish predominantly because we ran LCR at about 150% to 153% or so, which was phenomenally high. And so that means every marginal type of funding that we have had has had no impact to NIM or actually a negative impact, right? So that's what has just happened. So it did not provide any positive impact, every marginal funding that we brought in. So we did not stop, right? We could simply turn out -- price out the deposits to say we don't need, but that's not part of franchise building. So as far as the franchise building, we have said we want to continue at the same speed at which we work. And the intent at which we work with the customer to build the relationship with the customer is bringing deposits, savings on time deposits, we want it. Time deposits, we're not turning it away, because we want the penetration on the time deposit to go to 4x where we are today, right? It's in the high teens, penetration of time deposits. We want to go to pretty high number. And so at any point in time, we will take the deposits and our RMs will have engagement with the customer to bring in more deposits. And sometimes, it will have that effect of not giving much to the NIM actually driving the NIM down, so be it. So from -- but from a medium-term strategy point of view, are we going to operate at 150, 152? No, it is not. right? Then what is the floor? See, technically, the floor is 110. That's the technicality in the sense that RBI is 100, the bank would like to operate at 110. So that is technically 110. Then there are kind of an action trigger, which is slightly above that. Then there's a discussion trigger, which is slightly above that. And so that we are able to take action without media reactions at the last minute, right? So there are -- there are different levels of triggers at which we operate. And now what level will be settled at the moment? I don't know because as we go along, it depends on the kind of a customer preference to bring the money in and we put in under our success rate in terms of bringing that in. And in terms of the asset takeout also, right, in terms of the growth of assets, we are seeing good momentum. And so I don't expect it to be 150 as we go along. It has to come down because we are seeing good asset momentum coming in. And certainly, our goal will be to move the deposits further. That means the rate of growth on deposits have to be more than the rate of growth on assets. That will be -- that has been what we have seen. And in the short run, that is what we will see. So while we will still consume the liquidity from 150 down to something, but I don't see it come back all the way down to maybe the desired 110, 120 type of level. I don't see it at this stage. But that is because of our kind of relationship management to bring in and deepen the relationships.

Okay. Sure. Operator, do we have any questions on the floor?

Yes, sir, we have the question from the line of [ Jain Karodi ] from Crédit Suisse.

Actually, I had 1 question on the corporate loan book growth. We've had some of the PSU banks guiding for a really strong pipeline on the PSU corporate or PSU linked entities of nearly INR 50,000 crores, INR 60,000 crores in the second half itself? So do we see increased competition in that space from -- given the lower rates that even some of the large PSU banks [indiscernible]?

From a competition point of view, even when we grew, there was a tight competition, even when we were growing in the last 6 months to 12 months, our corporate book has been robustly growing. We do see competition on that. But 1 thing that we did not let go is the pricing. So we are not in the market to cut the price to get the volumes in. We want the right kind of quality. It means the risk profile within our appetite. And if it is a PSU type, which is what we have had a lot or the big corporates, very highly rated corporates, which is what we have had, we have done well in that segment, right? We were 1 of the first movers with very good liquidity in our hand and with a good capital in our hands, and we were able to go and make that offering. And it was not just now. We have been working at it for the last few years in terms of diversifying the products that we will make it available. And when they all wanted to buffer up the liquidity, it was natural to come because we had both liquidity and capital at our levels. And so we were able to work with them to get it augmented. So that's how we grew. Going forward in the pipeline, how it is? Yes, it is reasonable, but I wouldn't comment on the outlook or forecast in terms of where we will end or how we will go. But we have no less interested. We are equally interested as we were in the past. It depends on the right kind of pricing, we will be there.

[Operator Instructions]

Okay. While we are waiting for questions on the -- from the floor. Srini, maybe if I can ask you on capital. I think your last couple of results have demonstrated that you're actually creating some bit of capital and the Tier 1 levels are very strong. But what is the thought process in terms of what threshold do you want to work with, right? So have the recent COVID experience in the way the bank thinks about the capital level that it will need to operate at the changing mix of book lead to any recalibration of that?

Yes. So I'll give you 1 kind of an indication, right? When we issued capital 2018, the middle of 2018, it added about 230 basis points or so. Now since then, over a period of 18 months plus something, 24 months, we have added a little more than around number 130 basis points. So we're talking about almost 400 basis points of capital we have added since we last issued, right? And we've not consumed any of them. And so from that sense, if you see, we are some way away from looking at capital for growth because we have not even used what we issued some time ago, and we have been accreting even more cash. For various reasons, we've been accreting. We have had robust growth, but we've been accreting capital. So I don't see any deal of a near-term requirement. But again, it depends on the asset growth, the mix of the asset growth as we go along over the next 4 quarters -- 2 to 4 quarters, we need to wait and watch to see at what mix and what kind of profile we get it. And then we have to start thinking for maxing plan further.

Okay. And initially, in your comment, you mentioned a platform approach that you are following up and you recently talked about even in your earnings call, the tie-ups you are doing in the health care space. So firstly, could you elaborate a bit on that tie-up? And secondly, what are the other opportunities you see for a similar approach?

Okay. So 1 of the health care ecosystem, right, which is what we have already announced and go and then Arvind touched upon the auto first ecosystem. And then we have a rural ecosystem. And then some other meetings, we have talked about the payment ecosystem, right, we have talked about, but I'll touch up on the health care, which is what we have been live and kicking and running and even in the earnings call, we talked about the health care ecosystem, right? The health care ecosystem, the context, right, a brief context so that they'll appreciate and then we go into the individual aspects of that ecosystem. We have relationship with several hospitals in the country. We have a relationship with pharma companies, pharmacies which are branch network as part of the micro marketing and micromanaging that around -- surrounding the branch, several pharmacies are our customers. We also have in our small business banking, our ECG, EEG, business banking area, a lot of stockists and distributors who are also our customers. So if you think -- and both in our retail as well as private bank, we have several doctors who are our customers. So across various segments, if you see, and then 60 million customers, many of them would be patients of different orders, not necessarily diseased patients, but patients of different order than visit hospitals for their annual checkup or they're addressing some other family matters or whatever, but we have 60 million customers. So if you look at all of these segments, this is what we call the ecosystem. We have several customers and call them these kind of segments I described with us. Now we are trying to stitch them into a full ecosystem, calling it a platform and an ecosystem. So that how do we connect all of them who are with us, how do we connect into a greater value proposition for each 1 of them, right? And then what did we do? When we made the first beginning with the Apollo tie-up, which is what we went to the media we announced and we got that. And there is a very initially very excellent kind of -- within a month, 2 lakh sign-ups, right? Apollo has got this health first initiative. Health first initiatives is a phenomenal initiative. They have several sign-ups happening. And we immediately, within a month, got 2 lakh sign-ups into that, right? Our customers going and signing up to that for the value that it could bring to them. So the Apollo tie-up means what does it do? It means it opens up our customer base to register with the Apollo and Apollo first to get the benefits. That means anything they get priority, they get better pricing. And for us, what does it mean? We are able to finance it, and we are able to bring customers in it and I have a good relationship, deepen the liability relationship and they want a lending, here is it. They want to do some diagnostics, something big or something small or any of their family member surgery, they want to do borrowing, we are there to do the lending, right, for our customers. The next is it also opens up the Apollo customer base, right? Apollo has got, so call it about 3 crores, right? Customers are so registered with them, past 10%. About 10% of them have a footfall in a year, all the time. They have footfall. That means very actively coming and going doing something, 10% of them. So we have the entire customer base to operate with to make our banking products available to them. So that makes it. So there is a medical value proposition. There is a banking value proposition that comes with it. No, it's not just back once because then it becomes -- it's not an ecosystem if you deal with one. But it gets into the pharmacies, Apollo has got 3,000, 4,000 pharmacies, both the direct on pharmacies and affiliated pharmacies. Now to the extent some of them are not our customers, we are trying to bring them into ecosystem, including making the offering of the payment process as well as the payment process with all of the Apollo establishments also, right? So it's not that 1 lending, it's banking, lending, payment, the full -- the product suites that the bank has got gets into that system there. Then if you not work only with the pharmacies, the doctors, anywhere between 20,000 to 30,000 doctors are in Apollo. Some of them are permanent doctors and some of them are affiliated doctors. Now it opens up a greater relationship value for us. To the extent they are our customers fantastic, but to the extent that they are not, it opens up the door to bring in new relationships with them, right? Then there are -- then how do you make this ecosystem full fledged? Then there's something the pharmaceutical companies loaded into the stockist and distributors, et cetera. There is another player in the market, Medwell. So we have tied up with Medwell to get that relationship also hooked in and make it a very, very kind of seamless process between the pharma companies to these Medwell establishment, about 7,000, 8,000 or so stocking distributors who are part of the Medwell. And we're trying to network there both from a financing point of view and their banking relationship point of view. So that when the stock moves from left to right or right to left, we are able to be part of that ecosystem on that. Then there is also this Lexus MD. Lexus MD is like the in the restaurant world, which is a knowledge base where there are several lakhs of doctors who are registered and share experiences. There are medical students who are going to pass out 50,000, 70,000 students who are registered there we're going to soon pass out who are also part of that research and knowledge sharing. And we are in that ecosystem, too, as part of this, so that we have already signed with that. And so that we are able to get access to those several lakhs of doctors and to be doctors to be networked with us, right? Then there are a few more in terms of organizations, platform organizations. So this is like a platform within a platform. So we have a couple of more platforms we are trying to do. I'm not naming them because we're not tied up with them. But there are several million both the consumers, that means customers, several million who are the patients or prospective patients or customers who are registered in those platforms. And there are several thousands of doctors or lakhs of doctors who are also registered in those kind of platforms, and we are trying to bring those kind of platforms also embedded within our kind of a platform, right? So this is but 1 relationship you're talking about Apollo. Then we also have -- even today, we have relationship with the Narayana. We have the Agarwal with the MIAT or with the MAX, we have several both local and all India business. We have several such hospital relationship, diagnostic center relationships. Now we just give you the example of an Apollo. And we are working with all of the other customers, these hospitals and diagnostic centers and using homes that we have. We are trying to get that also embedded within the same network. So it's not 1 hospital, 1 registered doctors with all of these ecosystems. It is many, many, that is what is getting developed into that.

Okay. Thank you. Operator, I think we are almost up to an hour. If there's 1 last question from the floor, we can take that.

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

Can you hear me?

Yes.

Okay. Great. Just 1 question on capital. You do have a strong capital position. Just looking at the uses of that capital, could you talk a bit about your M&A strategy? If you are seeing areas where you'd like to grow the business or even buy technologies and if acquisitions could accelerate that process?

If I understand your question, it is about use of capital, how we are thinking about using capital?

Yes. And especially on acquisitions, if you see acquisitions a way of growing into certain business that you'd like to get into or even acquire businesses for the technology if you need -- if that's a possible option for your use of capital.

Each 1 of them are possible options, absolutely. But the price, right quality in the bank's framework, right, there is a certain DNA the bank has operated on in terms of how we think about risk in terms of the processes. in terms of the digitization and aligning the communication and execution. To the extent that we cannot be -- we don't want to acquire something for the sake of acquiring just because we've got capital. Then we will be -- we don't want to be spending our time to integrate and to be fixing it, right? That is not what -- to the extent that all of these elements that I'm talking about fits in absolutely, we are open. And there is nothing that prevents us from doing any of those, but there are some basic ingredients that are required. With those ingredients in, absolutely an option.

Could you talk about those parameters then? Like how do you view it just purely on return on capital? Is it getting into a certain segment that will accelerate it? Like what are the financial parameters and what's the framework?

So you're asking me what is the framework under which we will grow for an acquisition?

Exactly. A financial or just a business-wise, like what are the parameters you look at?

It has to fit in with -- first is the primary requirement is it has to fit in with our business model and our risk framework. It has to fit in with that. Once it fits in with that, then whether the financial metrics, both in terms of managing us through the -- from the top line to the bottom line, which is both from a net interest margin all the way to the efficiency and I talked about the credit because that is the prerequisite for anything. And getting to the returns, right? All of these metrics should fall in line in terms of what the bank wants to operate. And once it falls in line, it makes sense to think about. Otherwise, it does not make sense for us to think about it. See, we are not -- 1 thing then this will probably answer the question better for you, which is to think about we are not interested in size. That means I do not want to add 20% of the bank, 30% of the bank somewhere to show a different kind of a bigger end size. That is not what we are -- because we are growing at 20%, 18%, 16%, 17% over if you look at over the last 4 to 6 quarters, anywhere from that kind of a range we have grown. So we don't need to get something to show 20% growth. Do you want to show in 1 quarter a 50%, 70% growth, I'd love to show it provided all the other metrics are in line along with the other things that I mentioned. But there is no need or an urgency to do a 50% or 100% doubling the size in a quarter or 2 quarters for the sake of numbers. That's not what we want to drive.

Okay. Maybe if I were to ask a different way. Is there any parameters as far as like EPS accretion or a return on investment like specifically, if you can't comment, I understand, but I was looking for the kind of financial parameters that the bank operates in to see if a deal is worthwhile.

All of them are -- when I said returns, it includes the return on assets, it includes the book value and the EPS. All of that are into play. When we talk about the returns, yes, it has to make sense on the returns, too. Unless, I mean, if you're having something in mind that you want us to look at, I'll be happy to look at, but it's not something that we are actively scouting.

The next question is from the line of Sanjay Parekh from Nippon India AMC.

So I wanted to have a question on the semi-urban and rural which has done better in the recent times. And we have taken several initiatives on the asset side as well. So considering that our cost of funds are so competitive, do you think like on the retail piece on that asset side, the traction is better and the positioning is better for a ramp-up there? What would be your perspective? Also if you can add on the government centers' initiatives that we are doing, what is the update on that?

From a semi-urban and rural, it is equally a deposit value proposition as much as an asset value proposition. The funding, when we look at the data, The credit deposit ratio, while the total banking system is around 75%, 80% or so, The semi-urban and rural is anywhere from 35% to 70%. So which means there's huge pockets of liquidity sitting in semi-urban and rural, mostly operated with the public sector banks, with not much of a credit products that Arvind will describe soon. I will try to ask a question to describe the credit products that we do there. But none of them have any of those things. So for us, it is both on the liability side, getting the strength of the liability franchise and having the relationship thereby on the asset side, right? So both sides is what we are operating. We're not operating 1 or the 2. Both sides. And in order to do this, we've had the CSC tie-up, predominantly semi-urban and rural trying to get the network for us. And we have made more than 12,000 of them business facilitators, so that they can -- so we get the right kind of reach. And then in terms of the government, both at the franchise and the quasi government organizations have run around it. Let it be the mandis or whatever, all of them. We are into all of those to do. And from a government and the government departments and functionaries, yes, we are making a great deal of inroads into that. And there is a significant traction that we have gained. And it's one of the significant priorities that we have. And maybe I'll invite Arvind to talk about semi-urban and rural asset value. Arvind?

Yes. Okay. Just to add on. First of all, we are seeing a very positive uptick on the semi-urban and rural side. Of course, we all know the rainfall level, the level, the agri spend which we have seen both in rabi. And we expect to have the karif crop. But at the ground level, even if I give you 1 example, I spoke about the complete digital auto product. I spoke about the open market strengthening our open market digital. The whole idea of all that is to run villages, even if I run it on an assisted mode, I want to create a complete digital ecosystem to connect and actually close the loans across the customer because the operating cost is too high if you run a physical distribution, to give you guys in a sense. So the whole idea of this whole digitization of the auto ecosystem and the digitization of the open market that I specifically mentioned to you, we -- and the RBI approval that we are seeking is with a very keen eye to strengthen our presence in the rural and semi-urban, especially the villages in [ bank ] Because if you look at the financial industry, there has 6 lakh villages. And if you look at over the last 6 years, the road activity, the road construction is really shot off massively. And the connectivity has gone up extremely positively. So now I think the way to tap many villages, which are far more in a decentralized manner, you need digital products with people. So they make less visits as it closes across the table and through legs and we start communicating better. So there's the SLI team for the agri people to the bank, which already could be operating in 80,000 villages. Can we take that to 2 lakh villages? Can we go further? And can we strengthen across our smaller ticket size home loans there? Can be strengthened our working -- retail working capital, Kirana stores. We are trying to make -- we've already got a 3 hours approval for a Kirana store. We are also parlay working with certain FMCG tie-ups and the whole idea of a tie-up is to strengthen our rural side. And we are trying to completely digitize that as well, okay? For example, 1 of the top FMCG companies we are working with, which is -- the whole idea is that we can service not only the wholesalers and retail in the ecosystem. We can actually give funding to the retail guy, an absolute small guy who probably could be operating in absolute deeper interior geographies of a village. So yes, the whole thrust of expansion is rural and semi-urban with a digital distribution as well.

Operator, let's make up the last question. So with this, I would like to end the call and thank both Srini and Arvind for their time and very frank responses to the questions from the outspend. And clearly, it looks like very exciting time ahead for the bank. Thanks, Srini. Thanks, Arvind.

Thank you so much, Ashish.

Thank you, all the people who gave us this opportunity. Thank you so much.

Thank you. Thank you all, Ashish. I appreciate and all the others who dialed in. Thank you for listening to us.

Thank you.

Bye-bye. Bye-bye.

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