HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the HDFC Bank Limited conference call hosted by ICICI Securities Limited. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Kunal Shah from ICICI Securities Limited. Thank you, and over to you, sir.

Thanks, Faizan, and good morning, good afternoon, and good evening, everyone, for all the investors across the globe who have joined the call. So on behalf of ICICI Securities, I, Kunal Shah, would extend a warm welcome to all the participants on HDFC Bank's group investors call. Today, from the senior management team of HDFC Bank, we are honored to have Mr. Srinivasan Vaidyanathan, Chief Financial Officer; and Mr. Ajit Shetty, Head of Investor Relations, to have a strategic level discussion about the bank. Without much ado, I would like to hand over the floor to Mr. Srinivasan. This is a follow-up call post their earnings announcement. So we'll have more of a strategic level discussions out there. Thank you. Over to you, sir.

Okay. Thank you very much, Kunal, for this opportunity. We really appreciate this. And we also welcome the participants and we thank for getting on this line to talk to us. A few things we'll cover as an intro, Kunal, if you're all right. One is very, very briefly, I'm not going to go into detail as much as everybody is reading the news. We read on the macro, 1 to 2 minutes, that's it, and then I will get on to the CEO succession for a couple of minutes. And then we'll cover the strategic thrust, those 5 pillars of strategic thrust that we had, where are we and what is the flavor of that right now in terms of that. Then we'll hand it back to you, then you can see how to take it forward with the next stage, right? Then in terms of the macro, you all know the kind of -- the high-frequency indicators that are indicating some level of durability, right, in terms of how things are picking up during the festive season and post the festive season, right? Some of these things that we are seeing, let it be the PMI Manufacturing, which is reading at 58, 59 or so. Anything above 50 is an expansion. The power consumption growth, which is in double digits or the GST collections, which exceeded INR 1 trillion in October for the first time in this year. The passenger sales, the vehicle 2-wheeler sales, et cetera, which has been happening right from August or so that we've been seeing good double-digit teens, getting into 20s in terms of increase. These are some of those positive things that we are seeing. And all of this, of course, in the backdrop of all through the COVID time period aided by the excellent crop season that came and the previous crop season and then now the sowing season and the next crop season that's coming. All of this seems to be the bedrock on which things are happening well from that sense. And then that says certain things, these things are going, then where is the kind of -- what is our house view in terms of the growth outlook and so on, right? The first quarter, as you all know, was a minus 24, and the estimate for the second quarter is maybe minus 11 thereabouts. But we expect the full year to be perhaps between minus 8 and minus 9. That means Q3 is maybe either a scratch or slightly negative to kind of number. And Q4, we think slightly positive. So it might be -- the full year is perhaps 8 to -- minus 8 to 9 or so. And then the following year, '21 -- '22, going into '22, perhaps it's a positive 9% to 10% or so. So that's the kind of a house view in terms of the growth outlook that we are having. Then -- well, there is the kind of a monetary kind of a backdrop to all of these inflation worries continue. There are some things that are happening in inflation, mostly originally driven by the supply disruptions. But then you see that it's broad-based and it's also in the protein basket. And we do expect that the inflation will settle between 5% and 5.5% or so by the time we get into the last quarter. And as we go into FY '22, perhaps it will hover between 5%, 5.5% or so. That's the kind of house view that we have in terms of what the inflation will look like, right? And then the monetary policy, the RBI has come very well and very accommodative policy from keeping the liquidity in the system extremely at high level. And from a rate reduction, while in the recent times, it has not happened, we do expect a possibility. We do see a possibility of another rate cut perhaps in the first half of '21, could be February, could be April policy meeting thereabouts. It can happen. But then the more important is that while the rate cut space is limited, RBI has operated in managing the yields through the open market operations. So that continues, and there are a lot of programs that are running, including the operation twist that are keeping the curve in a moderated level. So that also -- and what does that do? That keeps the borrowing power of corporates at a pretty lower level, right, pretty low level of corporate borrowing. That -- then if you think about the last aspect of this is the credit and the deposit growth, 5%, 5.1% thereabouts is what the last reported credit growth was, and about 10% or so on the deposit growth. And our view is that, yes, the market will have something between 5% and 6% in the second half of this year, largely aided by the government schemes too. And also on the deposit side, perhaps it will sustain at that kind of level 9%, 10% kind of level. That's what we think from a credit and deposit market view -- point of view. Now that takes us to the other aspect of what I mentioned about the CEO succession. Yes, it's been very smooth, 26th, 27th October -- 27th October onwards, Sashi has taken over. And while he formerly took over, as you all know, over the last couple of years, he's been playing that role of a change agent and where he's been having the inside seat with Mr. Puri in all the meetings. And touring across the country, meeting the customers, meeting our own employees, getting into branches, business reviews to get used to the entire thing and as well as to ensure that the communication of the strategy is broad-based and is well understood at the bottom level and the execution of that is impeccable. right? So that -- he's been part of that all through, and so it was pretty smooth from that sense. Then that takes the strategy. What happens from a strategy? There's no change in strategy. The 5 strategies continue to play out. One, what we talked about the branch where we'll talk about some flavors to it, but we talked about the branch, the VRM channel where we have greater emphasis on the payment business, the digitization and the semi-urban and rural. These 5 pillars of strategy continue to throttle well despite COVID with -- even with the limited kind of enablement, we were able to chug along and do all of these very well. One thing that we have learned across all of these is that through the COVID and even otherwise, we have learned is that one of the pillars of the strategy is the digital 2.0. Rightfully so, we've been at it for the last couple of years or so, taking it to 2.0. Because even before that, we were highly digitized, but we came into this 2.0 to make it a much more meaningful, much more transition into a greater level of sophistication on this, which is what we learned from COVID is that, how do you accelerate this digital 2.0 across all the pillars of the strategy? For example, if you think about the branch reimagining strategy, this digital 2.0 came in very handy to play there. Within 14 days, within 2 weeks, we rolled out what we call the InstaAccount. We did have an automated account opening even in the past. But there were some handoffs if certain things will fall off and then there will be somebody picking it up and sending it again, some kind of an assisted mode is what was happening. But then in a couple of weeks since the log down came, we immediately transitioned into InstaAccount opening, it's a straight through. Then in order to supplement that, of course, supported by RBI policy and so on, we went on to digital KYC. And so these kind of things helped along the way to give a reinvigorated emphasis to this kind of a digital strategy that if you think about the accounts that we open, the liability relationships that we formed, in quarter 1, we said about 1.2 million or so. In quarter 2, about 1.8 million new liability relationships. And the context for that is if you think about all of last year, that is FY '20, we had 6.5 million liability relationships, right? And FY '20, when you compare it to FY '19, FY '19 was about 3.5 million, 3.8 million liability relationship or something. So literally, we doubled in FY '20. And then if you can see now during these time periods, the strategy that we have been trying to run around has helped us to sustain into that kind of a level in terms of how -- and all the other enablers in terms of getting the digital training and getting the standardized generators and having the analytics lineup, queue up what the RMs must engage with the customers. All of that continues in full form in terms of how it's supposed to get these things done. Similar things with the VRM. Quickly, how we moved over to enable working from home, or pushing the calls to mobile with the narrative for the VRM to be able to have an engaged discussion with the customers. So those sort of things, and even today, as we speak, more than half still continue to work from home and the productivity enhancement was enormous, when you do that, because the costs become: one, shorter and; two, more meaningful and focused both from a customer end, where they are able to focus on it because probably in the past, they had a little more activities to do. So now they are, when you call, it is very focused discussion and the productivity seems to be pretty high on that front, right? And we thought as we go along, I'm sure there'll be a few things on the payment in terms of the ecosystem, the payment ecosystem or the -- call it the broadly, the digital ecosystem, the rural ecosystem and the health care ecosystem and so on, which seems to be something where we are trying to switch various things together to ensure that we move over to that kind of entire digital approach across those ecosystem stitching together so that we are engaged with the customer on all fronts. And also, this is also a new feeder for new customers to come in and be engaged. And it brings some kind of an attractiveness why somebody should bank with HDFC Bank and enhances the relationships and makes it much more meaningful for them. So that, in a nutshell, in like 5, 10 minutes, I wanted to cover and tell you that's what we've been thinking about and working on from a strategic thrust point of view, Kunal.

Sure. So -- and on the growth side, if you can highlight in terms of how we are seeing the -- how would we transition out there on the growth? And I think what we are hearing as a commentary from most of the management is, festive demand has been quite strong. So if you can highlight in terms of few of the products, wherein it's been better than the expectations, how sustainable do we see this as a growth? And in terms of our positioning, particularly, in this adversity, how do we look at picking up the opportunities out there in various subsegments?

Yes. So first, let's start with the festive treats in terms of the reception to that or the response that we have received has been enormous, right? This festive treat is a very unique one, which we started last year. And then extended in a grandeur scale in this year, right, almost what we had about 100 relationships, partnerships last year, we had 10 times now. We had more than 1,000 on a countrywide scale this time. And in order to supplement that, this time, we also had a little more than 3,000 hyperlocal offers, which means localized offers we have. So these kind of things enabled and very well received. The customers were looking forward to it in terms of doing transactions. Yes, the volumes, I think we alluded to, I don't particularly -- we don't give a particular outlook or a forecast, we don't do, but we can talk about the color, which we did. Also in our last month call, we did say that even the early indications were pretty good and very, very nice from a festive. But this is the kind of a scale and -- where 100 became 1,000 in terms of relationships and the hyperlocal offers, which were very far and few, 3,000-plus hyperlocal offers. So this level of engagement and the customer value proposition that we are able to bring to them was enormous and seen very well from that sense. That's on the festive. Then on the other side, on the retail lending side, Arvind Kapil had spoken about it in the past month or so, where he had said, our -- think about the personal loan, think about the auto loan and auto loan I gave you a couple of indications in terms of what they are. But the way to look at this is not year-on-year growth, right? We've been trying to focus that to say you look at the sequential momentum, how it is moving. Because if you -- if we had our first quarter pretty much from a policy point of view, from a cautious point of view, we had moved our policy -- tightened our policy on that front. By the time we were into the second quarter, we said September was almost at that level of last year, so surpassing. Then as we see in October, we are surpassing from a bookings point of view, far more than what we had in last year. So we are far ahead on those fronts. But when you look at year-on-year, you will see some modest type of thing. But then what is more important is sequentially, how is the momentum building. That is at a quite phenomenal speed at which we are seeing the customer take up on all of these kind of retail asset type of products that we're in. And anything from personal loan to auto loans to 2-wheelers to gold loans to all of them, we are seeing tremendous amount of interest. And in fact, Arvind Kapil went 1 step ahead to see -- to say, which I'm not going to repeat, but you will see it in the recording or transcript of a month-ago call. He even forecasted to say in March, where we'll be, how this trajectory is going, the momentum is going and where we will be heading towards as we go into March. If everything else, if the COVID doesn't come into play a second round or a third round COVID kind of a lockdown or restrictions, the trajectory seem to be pretty well set on that kind of a growth front.

Sure. Should we open the floor for Q&A now?

Yes. Yes.

Okay. And so Faizan, we can open the floor for Q&A.

[Operator Instructions] The first question is from the line of Rahul Maheshwary from Ambit Asset Management.

Sir, can you -- as you highlighted in your strategy regarding the payments and the ecosystem, which is being developed, which can be in the con call also, you highlighted which they -- like an auto platform, which you're developing, which can be a game changer? And recently, you had a big tie-up in terms of the health care payment system. Can you show -- give some color in terms of the example that how the health care or such ecosystem will be getting in terms of you had done a tie-up with Apollo, how the overall trajectory will flow? An example or much qualitative information will help us to understand the entire ecosystem, how you're developing?

Absolutely. Thank you for asking that. I'll start with the auto -- I'll start with the health care and then we can go to the other ones. One thing in context is that we made a start, and I'm going to describe the model, right? Apollo tie-up that we made is one of the arrangements that we have done. So like that, we have existing relationships with many hospitals. The entire concept is like this. So let's start with that, and then we'll get on to a little more details, I'll try to give you. We have existing relationships with various hospitals. It could be the MAX, it could be the Apollo, it could be the Narayana Health, it could be various hospitals we have existing relationships. We also have relationships with various pharma companies -- pharmaceutical companies and we have relationships with many doctors in the country and with many chemists as part of the strategy where in the branch kind of a system, the branch ecosystem, as part of one of the strategies that we have always gone around the branch circumference area defined by x kilometers. On that we have tried to bring all of them into the foray, including the chemists who are there, right? And so -- and then in between the pharma and the chemists, there is also the stockist distributors and so on. We have several of those people who are also in relationships with us. Now all we are trying to do is that how do we bring? We have various people in this ecosystem already doing business with us? How do we bring them all together, number one, and number two -- and stitch the business altogether. And two, people who are not in this, how do we make it attractive for people who are already not in this ecosystem with us to get on to this so that they are fully connected with this. So in that foray, what we have done, so we'll discuss. So this is what we call the ecosystem of stitching all of them together. And in that, what did we do? The first thing that we did is we went and signed with Apollo. Think about Apollo. They got 20,000 to 30,000 doctors. Some doctors are permanent and some doctors are visiting doctors, 20,000 to 30,000 of them at any time in various 50 cities or so across Apollo. Then they have -- Apollo has got about 300 lakh customers registered in Apollo database. Out of which, about 30 lakh customers are active, which means the footfall. That means not all 300 lakh are ill at any time, 30 lakh are visiting, footfall is happening in the hospital, right? So it makes it much more attractive for us to go get those customers at the appropriate time for their banking needs, whatever they need. Apollo also has got 3,500 pharma, pharmaceutical chemists. They have pharmacies in the hospital, outside the hospital, wherever, about 3,500 of them. And they have about 65,000 employees, Apollo employees. So we started with that relationship to offer this Health First initiative where our customers are able to draw upon the leverage of Apollo, both in terms of 24/7, you call, you get a response of whatever you need. You get access to doctors. You get the prescriptions and so on. So -- and whatever consultations you need, you get access to those kind of Apollo Health First initiatives that Apollo runs. Our customers can have and various tiers are there: bronze, platinum, gold, silver, et cetera, various tiers, right. According to that, you get various facilities and various kind of discounts to their offerings and so on. And for us also, in the Apollo site, our products are open for people to do banking. If they want to do any kind of a medical, then financing is from us. They can take financing from us. And the people who are not financing, but we can do banking relationship, savings accounts and so on and so forth, those kind of relationships. And these pharmacies and other things they run, various current account and payment mechanisms that we are trying to run. So that's one end of that one spectrum. Then if you think about other things that we have gone into, the PlexusMD. See, the PlexusMD has got -- it's a knowledge-based kind of online system, right? And they have several doctors and few lakh students who are enrolled in that, right? 70,000 students and a few lakh doctors who are enrolled in the PlexusMD. So we are networking with that through that organization to get the access to the doctors and the potential doctors, the students, 70,000 of them who are enrolled in that. Similarly, Practo has got almost 60 million-or-so people who are on Practo doing something or the other, right? And we are trying to -- again, a few lakh doctors who are in Practo. And we are trying to get that also part of this ecosystem, where we are able to get access to those kind of a potential customers and doctors to come on to this ecosystem for us to tap on. Then [ MedVol ]. [ MedVol ] is nothing, but part of the stocks and distributors, they have about 7,000 of them today in the country who are registered and operate through the [ MedVol ] system. That's an existing one which is there. So we are tying up with that to make it first this existing 7,000. And then there are several more thousands who are not even on [ MedVol, ] so it makes them attractive for them to get on to that [ MedVol ] and thereby have a banking transaction relationships with us, right? So this is -- these are the kind of initiatives that we are trying to do. And then this is, again, 1 hospital and these kind of 1 kind of each generic thing that I talked about, the Practo, which registers the prior -- patients and the doctors are brought together. The PlexusMD, which brings the knowledge base for doctors, students and others to come together. The [ MedVol, ] which brings the stockist distributors and so on. So now we are trying to get on to the rest of the other hospitals, too, to bring the other hospitals into the same ecosystem. So that is what we mean by the health care ecosystem, where our customers and the people who are having some touch points with any of these other players in the ecosystem are having the banking relationship with us. That's from a health care point of view. Then if you think about the payment ecosystem, payment in that, it is part of the merchant, where we are trying to sign up for the merchant and offering value-added services to the merchant. In the value-added services to the merchant, it is about how the merchant can manage inventory, how the merchant can manage hyperlocal offering. So that means through this system, the merchant will be able to send offers to our customers in their localized area, hyperlocal offers. So that means very specific for that day, for a particular product to the customers in that area, how that person can push through, through WhatsApp happen through other means and so on. So these are -- that's the ecosystem we are trying to develop on the merchant side, which I think we went on a press release or we went on a press meet, I think, and spoke about it 10 days ago, 15 days ago. If you refer, you will see a little more detail on the payment ecosystem through the merchant offering that we are doing, right? So that the merchant is completely hooked on to us and is able to enhance the business through our customer base and is able to make some kind of a specialized offers and we are enabling all of them for merchant to grow along with us. So that's part of the payment ecosystem. Then in terms of the rural ecosystem, Rural ecosystem we talked about before, which is to -- CSC is one aspect of the rural ecosystem. And we also -- we told you previously that we have 10 -- 12,000 agri-salespeople and about 15,000 SLI salespeople, and we have our own branch people, maybe 15,000. 30,000, 40,000, more than 1/3 of our workforce is in the semi-urban and rural. And then we supplemented with CSC, about 1 lakh of them business facilitators and about 12,000 of them business correspondents, which we want to take it up further to beyond even 25%. So we'll be the largest branch, quasi-branch kind of a network in the country soon with that kind of growth on the business correspondence. That ecosystem we are trying to develop, all of this is digitized, digital approach. Because CSC, by definition, is digital because they are the information technology output of the government of India, and they are doing digital services for the citizen -- government services. So that is why through API, we are linked up and we are working through that on the digital front doing lead. And with the business correspondence, it's not just the lead, they can even do the fulfillment. That is what is happening through that ecosystem on the rural side. And again, to announce that, what we have done is, CSC is also getting on to the e-Grameen store. So we signed up with e-Grameen store, too, where the e-Grameen store is a small store with a tremendous amount of football coming into the store. So those stores to sign up their current accounts, their payment mechanisms, et cetera, they are all linked to us. And as the football happens or the order happens, we are trying to see how we capture those kind of market share into our -- this kind of a semi-urban, rural, including the payment ecosystem. How do we do that? That's in terms of broadly the rural that we are talking about, which we will soon, I guess, go into a broader plan to discuss in the press, but that's the kind of the system. Then in the auto, which we have talked about even in the last call in the auto system, similar to what I described on the health care, which is, there is an auto manufacturer who are our customers, the dealers, distributors who are our customers. Some consumers, end users of those vehicles are also ours and some service centers are our customers, too. And now we are trying to bring all of them into one by which a customer sitting at home is able to identify through -- electronically identify the vehicle, ask for a test drive at the location and timing of the choice and is able to identify and decide on the car or any vehicle for that matter. And the same thing is also able to be -- given the service contracts and other things are also electronically given and aligned because the servicing people are also part of that ecosystem, and it could be new vehicle, old vehicle, any kind of process on that. So the fact is what we are trying to stitch all of this -- auto first together by which customer is able to access everything, any kind of model, any kind of dealer and any kind of a service center or anything they want to do as it relates to auto, it's all together in one place, driven through electronically for them and sitting at one place, they can decide all of this. So that's part of the auto system that we described about a month ago.

So that was quite helpful and in detail. Sir, just on follow-up on that Apollo tie-up example, which you talked in detail. So you had a tie-up and you're trying to stitch all the co-parts of that particular ecosystem. So will there be a specific part means in terms of you are giving good rates to the entire channel right from Apollo employees and pharmacies and doctors? Because my question is here, will this be replicable by any competitor bank or you find that this -- this code cannot be cracked by them because of surplus parameters? Anything can you share on that part, sir?

This is -- there is nothing that we could operate in isolation, right? Anybody can do anything. It's a question of how impeccably you are able to do it. That is all. And that is where we focus. And so there's no exclusivity. But at the same point is that we bring different kind of a banking value to the table. From a product suite point of view, are you across all the product spectrum? Are you able to turnaround in time? Are you a relationship builder or a product-oriented approach, right? Those are the kind of things that come into what kind of -- and that is why we got the RMs in the branches and the VRMs on a virtual -- on a remote basis to have the right kind of an engagement. And then in order to have the support processes, we have the payment products and other things that -- and digitized approach to dealing with all of this and the ecosystem, which gives that aura around handling these. So this is -- that's how you approach it to call it, developing a mood, so to say, right, which somebody wants to replicate can replicate, but then what sort of delivery that can happen and at what time period? So those things remains to be seen, right? But this is how we are approaching it.

Right. And sir, as you definitely talked about pharma is one where you have done quite of arrangements and you're trying to do for auto. I don't want to know the names, but any quantitative pipeline in terms of the industries you are targeting for next 3 to 5 years where you would be developing such ecosystem? It might be because there are so many industries and within the industry, there are so much subsegment, so any pipeline, which...

I'll give you an example, right? This is -- there are several of them, but I'll give you an example. FMCG is another example, right, where this payment ecosystem can operate across an FMCG corporate to their dealers, distributors to their kind of -- the last level consumer across the length and breadth of the country. So that's part of the payment ecosystem that -- where we will network all of them together. So that means payment ecosystem is not just a merchant, the kind of one that is in the other area or some other area, whatever, it's not just that. It is -- the payment ecosystem includes the trade operations and the trade connectivity across various value chains. So I just directed you to one so that you can think on those lines, but I don't want to talk more on those, but that is the kind of example you can think about, yes.

The next question is from the line of Fatema Pacha from Mahindra Mutual Fund.

Sir, 2 questions. Sir, last year, we had a stellar Diwali. I think HDFC Bank did a great job last year in terms of disbursals, in terms of retail growth, in terms of activation. I think it was the first year of the festive treat. So sir and, obviously, this year, I don't want to talk about the AUM growth because it doesn't make sense. But just the way people talk about festive to festive in auto and other sectors, so would we have managed a similar disbursal last -- this festive versus last year? Like has the demand been that good that you could do that kind of a growth? Or you think that the customer was not that forthcoming?

As of now, that is part of what we tried to describe beginning of this call as well as even in our earlier last month's call, which is the momentum point of view, we were seeing a tremendous amount of demand and momentum coming back to life. And then from a policy point of view, which we had tightened in Q1, we had opened up as we are seeing selectively opened up. And as of now, we are very much full-fledged in terms of business as usual from that sense. Yes, the momentum is quite good. And we have seen -- even in September, we said, we moved almost at the same level as the prior September. And then in Oct...

The disbursal, you're saying, sir?

Repeat your question?

Sir, you're talking about disbursal?

Disbursals, yes, correct.

Okay. So you are saying, the disbursals are pretty much recovered year-on-year?

Correct. That is what we are seeing at this moment. Yes. Again, going forward, we don't give forecast, but it's again, subject to what happens in COVID. And every 3 days, we don't want somebody to say, I'll lockdown, not lockdown. We don't want those kind of things. But the point here is that the momentum seems to be good.

Fair enough. And sir, second question, sir, just for my clarity, sir, when -- I'm just asking you because I'm talking to you, but in general, when banks say, that their correction efficacy for October has been 97, 98, we've also given out the numbers. Is it fair that the slippage number that can come in, in whatever in Jan, when we declare our numbers, will not be more than 3? Or there's some calculation between? I am just talking...

I will not give you a particular forecast, but all we have said is that we have given you a big range in the past that our delinquency, we've been on an average running 1.4, call it thereabout sometime 1.35, sometimes 1.43, 1.45, somewhere in that range, we've been talking about from a delinquency point of view. And we said in the global financial crisis time frame, we have touched, which is what is the most stressed. Even we look at 10, 20 years to look at the stress, we looked at it at that time, 2.08 or something. And so with that kind of a number, where we were and where during the previous stress that we could stress our book to certain models and look at 2.08, we said we'll be somewhere in between at some point in time, right? And we've been at 1.4 or thereabouts the last few quarters, not 2 quarters, but even if you look at the last 4 or 5 quarters, 6 quarters, we've been at that kind of a level. That's where we have been. It remains to be seen how the market shapes up. But yes, we don't put out a particular forecast of where we will be, but we still stand committed to the broad range that we have said. We don't see anything different that.

Sir, I'm just asking more from my interpretation perspective that when banks say the collection efficiency for October is 97, does it mean for the entire book like if INR 100 is your book, you have collected 97% in that sense and 3% at the margin is at risk, right? Is that a fair assumption?

I do not know how you define risk, that is all. If you think if you collected 97% and did not collect 3%, 3% is a risk. And then within that risk, you have to define what is the degree of risk that you're talking about, risks means...

Sir, that I understand sir. It's possible that we will not place, but is it fair that 97 on 100 is...

Listen, you can interpret what you want. If you define me, I will not know. If you say 1 day past due is a risk, it is a risk. If you think 90 days past due is a risk, then that is a different definition. So I do not know what you're asking. That's all. Yes, the 3% could be 1 day, it could be 89 days.

Fair enough. You're saying 30 DPD might be there, but may not be on 90 DPD.

It can be -- within that spectrum, it can be anything. So it depends on how you perceive the risk to be, right? For me, certain things will not be a risk because that's part of the regular business as usual.

Fair enough. And then another thing that people track is, say, maybe a bounce rate. I know for HDFC Bank, bulk of your accounts are your own ECS. And maybe I'm not sure if bounce work. But would these bounce rates be higher than pre-COVID or you think there are pretty much closer to pre-COVID now?

We did not talk about bounce rates, I think, in the last information. So I cannot put out some new data right now, yes. The SEBI regulation doesn't allow us to get new data right now.

Fair enough, sir. Okay. But you are pretty much confident that what you said right now that 2% is the worst case that you had. So you do not expect the eventual credit cost to be materially higher than that? Is that...

Yes, yes. We stand by what we have told in the past in terms of the range of where we could operate potentially, yes. But you know that we are still operating at the low end of that range, yes.

[Operator Instructions] The next question is from the line of Gurpreet Arora from Aviva Life India.

Sir, 2 quick questions, a, if you can highlight over the next 2 to 3 years, what sort of OpEx numbers are we looking at given the fact that we are transforming ourselves? That's one. B, similar to the...

No, no, what number? Your line was echoing. You have to repeat that, yes.

Yes. Sir, can you hear me clearly now? Sir, am I audible now, sir?

Yes. Audible, yes.

A, I have 2 questions. First is on the OpEx. Over next 2, 3 years, what sort of OpEx figures are we looking at given the background that we are transforming ourselves and we're looking at a digital 2.0 revamp for ourselves? That's the first question. Second is, if you can also give us some commentary on the domestic wholesale loan demand? That's it, sir.

Okay. Good. On the operating expenses, you saw that last few quarters that we have come in much lower than what one would expect as the variable portion kept coming down and the booking cost, booking type of cost kept coming down. So we were much better. And we've always called out to say that those are temporary, and it will go back to the previous level of 38%, 39% or so, and that is the regular level at which we would operate once things are back to kind of a normal level there. And which we still hold that the operating efficiency level will go back to 38%, 39% or so, which we have been operating on. In the short run, it will go back there. At some point in time, we have mentioned to you the previous year or even 2 years in a row we have been mentioning. This is the only item that we go out and mention from a forecast point of view. Otherwise, normally as a bank, we don't give. There, we said, we will be driving the operating efficiency to mid-30s, approximately, right, mid-30s in the medium to long term. That is the kind of a trajectory we said we will take this cost on. There are 2 elements to it. One, there will be not a linear approach to getting there. There will be up and down because as we make investments, both branch investments, technology investments and people investments, as we make, there will be ups and downs that will happen. But broadly, from a strategic direction point of view, it should go down, right? So that's one thing. And then the second thing to think about is, how will it go down? What is going to be driving the operating efficiency down. As you've correctly alluded to, the digitization is one of the key important elements of trying to get the efficiency down, which means the marginal cost of doing things hardly becomes anything, right? If you are digitized and transactions go through that, then the marginal cost is hardly anything. That is what -- is one of the prime mover into that. And then there are other traditional methods, which is, we are relooking and kind of mapping the processes to see what processes must change -- needs to change to fit the technology so that we don't change the technology to fit the process, we change the process to fit the technology. And so thereby, that itself gives this kind of energized boost into the straight-through process. So that's, again, part of what we have learned in the COVID time frame is that I explained to you about the InstaAccount where there are a lot of handoffs, how do you stitch them together. Part of that, how do you change the process to fit. So that, bank-wide we are on a process to see how we look at every process to see what is happening? And where the process is not straight-through, something is happening. Is it -- how do you change that process to fit technology? Don't change it, right, don't change the technology. So we are trying to do that kind of a process mapping to bring in some kind of an efficiency. The third one is the inertia, right, as long as which is what we are committed to, operating jaws -- keep the jaws open, which means the revenue growth outpacing the expense growth. That brings in the -- normal inertia of the widening of that brings you more efficiency. This is how we believe that we get to that kind of a level, right? The second part of your question was relating to the wholesale loan demand. One of the important things that we witnessed, we saw over a period of 4 quarters, certainly, over the last 2 quarters that we saw on the wholesale loan demand was tremendous. Again, this was not a strategy that came in just like in a quarter or so, but it has been there for more than 2, 3 years, is that how do we digitize and bring people through the digital trade? That means through -- straight-through trade, either through API or host-to-host integration or FX, right? Or even loan documents. How things that are transferred, including as simple as a board resolution or a letter of request or whatever papers that need to come. Everything, how do you move it in a digital manner. So we had integrated many of these corporates in the past. And second thing is that the key ingredients required to have wholesale growth is capital and liquidity, which in abundance, we've been carrying in the past, even last year and even in the recent past, we've been focused on continuing to carry that to support. And the corporate had preferred us for their lending needs because we were having capital and liquidity, and we were automated for most part. And so for them, it is very easy to operate with us because we are not going to joke around to say, now you come, now you don't come. right? Once you come in, we are here to do business with you. And that is one of the reasons we became a little preferred for various corporates over the last couple of years -- a couple of quarters, which is quite heartening to see that they prefer to do that. And whether at this moment, how that is? Yes, we do see good kind of demand, but we also have -- you need to look at net of repayments, what happens, there are some term loans that will get repaid at our facilities depending on what the corporates see in growth. And we are pretty much -- we are running ahead of what the 5% credit demand that you are seeing in the market, but the point is where we end up, only time will say how the corporates, how the manufacturers and the other in the value chain are able to borrow and put to use. And from a segmentation point of view, we did see quite a good demand from government-affiliated entities too in the last couple of quarters. That is reflected in some of the portfolio ratings that we've been talking about. Despite the rapid growth that we have had, which is in the 20s and 30s, the wholesale loan growth that we have had, the book rating remained at about 4.3 or so it came down from 4.6 and about 4.3, 4.4 or something. It's been stable at that level despite the rapid growth that we are having, which means at that level, that's an internal rating. That is equaling to a AA of an external rating, right, if you think about that. So that's the kind of a quality of corporates that we are operating with, and we seem to be satisfied with how we are doing that.

We'll move to the next question from the line of Seshadri Sen from Alchemy Capital.

I have one question on the payment space. We're seeing a massive surge in UPI payments and a couple of nonbank players are dominating that space. From your perspective, so if you step back and take a look at it, basically, card is losing market share. Is this a new category of payments coming up, which we are not participating in? Some earlier conversation, there was a suggestion that you're not really so keen on entering that space because these are small value transactions and the cost of carrying them is more than the value that they deliver, so the broader question is, do you see this trend continuing? And is that something that you see as a sort of a competition coming into your card business where a lot of payments are moving towards UPI. The data getting captured by these 2 or 3 players who are dominating that space rather than coming to you, how is your view on this space?

Okay. See anything that we have to look at is from a value to the bank as well as value to the customer and ease of operation point of view. To some extent, that UPI, as exactly as you had alluded to, which we had said that the transactions on the UPI are pretty small. And while our UPI transactions have a multiple of the market average on UPI, so that means there are customers who do UPI with us. They seem to be doing slightly above average what you see in the market on an average, right? So we seem to capture a higher value, not necessarily the higher number of transactions. We are not focused in terms of trying to multiply the number of transactions for what because there has to be a business value proposition in terms of what we do, which is what from -- if you think about the UPI transactions, we address it through various other payment mechanisms that we are offering to customers, let it be the debit card or anything from a savings account, current account point of view or from a credit card point of view that they can use and operate, right? So that -- the value proposition comes from that. Any operator, including us, for that matter or any operator, which is purely a payment process doesn't make money. We have described that, right? At any lucky day, it could be a breakeven. In a good day, slightly maybe a few basis points up or mostly a few basis points down. That is the kind of a value dynamics that is there in any payment process. So because the cost of operating is there and the revenue that it generates is very marginal. So you are not into a business of doing UPI. That is one of the mechanisms you enable for people to use as a payment mechanism, this is one of that. Because doing only UPI wouldn't make sense, so rather you operate their card account, you operate their banking account relationship, and this becomes one of the mechanisms in which they are able to operate or it's one of the mechanisms. So it's not something that you go and market it. What is that going to give you for -- you market your underlying banking relationships, either a card relationship or a liability relationship, that is where we are focused on in terms of bringing the new customers and growing. And do we have UPI? Yes, we are enabled on UPI. Customer wants to use it, it is very much there. I hope I gave you the broad contours of what that is.

Yes, I have a small follow-up. Is that -- see I'm a customer, I was using my card for transactions. I'm now taking 20% of my debit card transactions and doing it through UPI. These players, these are large players, they maybe be able to offer pay later products or small credit products over time. Is that something that eats into your market potential? Or is that a completely different market, which you are not really interested in? Maybe it's a little too subprime or maybe it's too low value. I was trying to driving it -- drive at that.

Exactly. That is what I -- if somebody is using UPI for INR 50, INR 100, that perhaps is not the target segment that we are at, right? And from -- both from a lending relationship or even from a liability relationship, it's -- that doesn't mean nobody uses, right? Even I -- sometimes I use like you use to. So that -- those are -- that is why the number of -- we are not having 0 transactions, we have some, because those are marginal transactions that come and go. But otherwise, if the broad-based volumes, if they're all at that kind of INR 50, INR 100 kind of a volume, that's not going to do much to us.

The next question is from the line of Avnish Tiwari from East Bridge.

This RBI Internal Working Group Committee report. There are 2 parts here. One, they came out with what banks and their subsidiaries can do. So how does it impact, let's say, HDB versus you? And not today, but whenever this is implemented and whenever you need to comply with it? And second part was it also talks about -- like you also have HDFC Limited where you originate the home loans for them. Can that structure could also be -- needs to be harmonized? And then if yes, then how we think about that path? And the second part to this question was, there's also talks about new entry of corporate houses being allowed. Now how you see that impacting the competitive dynamics over next 3, 4 years?

A few things that you asked, right? One, I want to give an overarching comment that it's very early, right, to -- this is an internal working group. Then inviting comments from the public by 15th of January or something like that. And then, it goes into various process in terms of what the working committee will come out with a draft or an exposure draft and then there is a time frame to follow so on and so forth. So it is at a stage in which it is very preliminary. And as much as we are trying to understand, we are also trying to understand to see what it means. And whether there are several choices ahead of it. There are several choices ahead of us to manage through all of that, right, in terms of -- there is no dead-end from that point of view, but there are -- we need to put in our comments and then see where it goes. And then there are several choices we could exercise in terms of how we operate with HDB or how we operate from our mortgage originations.

Can you just help us understand like apart from merger or complete separation, is there any other choice or possible in that situation?

There are several choices possible. Not just one, several choices possible. But those choices are conjectures at this point because it's not even an exposure draft for implementation. This is a working group comment and so it will be waste for us to debate about such conjectures at this stage. That's all. But yes, there are several choices possible.

Okay. Great. And any comments, let's say, if -- this is the one component which you probably would speak once it becomes slightly more final. But let's say, if they were to go and allow some large corporate group to enter the banking space, how you think that impacting overall industry structure and you?

We can talk about us, right? It shouldn't impact us in many -- at a grand manner because we have seen a lot of banks ever since we became a bank in '95. We have seen other banks come into play. And we have already had tons of public sector banks who already existed even before us. And we've been operating in a competitive manner across various -- and our market share 8%, 9% at this stage. And we feel that we have a huge runway in terms of growing the market share as we go along. And that is where we are trying to build our capabilities. And so that we are the front runners all the time. So that's how we are trying to operate. Yes, possible. Others will come, competition will come, but then it's nothing new from what we have seen over the last 25 years.

Ladies and gentlemen, due to time constraint, we will take that as a last question. I would now like to hand the conference over to Mr. Kunal Shah for closing comments.

Thanks, Mr. Vaidyanathan and Mr. Shetty for taking time out and giving us an opportunity to host you. Thanks all the participants for being there on the call. Thank you.

It's been our pleasure. I really appreciate you as well as the participants coming on. Thank you, again.

Thank you.

Bye.

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