HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Ladies and gentlemen, good day, and welcome to the group conference call with HDFC Bank. [Operator Instructions] Kindly note that this call is recorded, and an audio downloadable link of the recording will be provided to HDFC Bank. The contents of the recording shall be uploaded by HDFC Bank on the company website after the call. This is to comply with the Securities Exchange Board of India, SEBI, rule, which mandates all listed companies to record and disclose all institutional investor interactions on the exchanges and company website before the next trading day or within 24 hours, whichever is earlier. Written transcript to be disclosed within 5 working days. By registering for this call, you confirm that you are fine with the above arrangement. I now hand the conference over to Mr. Abhishek Murarka, Director, India Equities, India Bank and Diversified Financials. Thank you, and over to you, sir.

Thank you, Margaret. Hi, everyone. Good afternoon, and welcome to the conference call with Mr. Rahul Shukla and Mr. Srinivasan Vaidyanathan from HDFC Bank. First of all, thank you to Rahul and Srini for sparing their time and giving us this opportunity, and a big welcome to them on the call.

Thank you, Abhishek.

Sure. And just by way of introduction, I'll just take a couple of minutes. Rahul is actually Group Head, Commercial and Rural Banking at HDFC Bank Limited. A number of high-growth segments for the bank, so like Emerging Corporate group, Business Banking group, Emerging Enterprises, Rural Banking, Transportation, Tractor Finance, all of this falls under this vertical. So a lot of high-growth segments for the bank are actually falling under Rahul. And that makes this call very exciting. I think we are looking forward to learn a lot about what they are doing -- what Rahul is doing in this period. Rahul joined Citibank in 1991. He rose to the Head of Corporate Bank at Citibank. He was also a member of Citi's Global Corporate Banking Operating Committee. He joined HDFC Bank in March 2018 as Group Head, Corporate and Business Banking and has recently taken over as Group Head Commercial and Rural Banking at HDFC Bank. Srini is the CFO at HDFC Bank. He also joins the bank from Citigroup New York, where he was Managing Director of Finance and Deputy Treasurer in the Institutional Clients Group. Prior to this, he was the CFO in Citi's Global Treasury, New York. He joined Citi in '91 as well and has held regional global leadership positions in -- across geographies, including Singapore, Hong Kong, New York. So a very big welcome again to both Rahul and Srini on the call. The format of the call will be that we'll just have a conversation and then later on in the call we'll open it up for Q&A. So at that time, we can move over to questions from the participants. So Rahul, just to start off, the segments under you, Commercial and Rural Banking, they are as vast as it can be, and there's very little data about the segment. So it is a relatively unstructured segment, at least to outside observers like us. So can you sort of begin by giving us your top 3 priorities or focus segments in Commercial and Rural? What you are doing to achieve those targets? And any changes that you need to bring about or which are already underway to get there?

Sure.

Rahul, give me 1 minute, Rahul -- 1 to 2 minutes just for -- so that you can set that up.

Sure.

Abhishek, the way to think about it is when we announced the future-ready team in May, right, it was in the context of how the bank needs to position for the future of India, right? And the Indian goal that we all know even precedes the COVID era where we wanted to -- as a country, we wanted to take the GDP from close to [ 3 billion ] to [ 5 billion ], right? That was in 5 years' time it had to go there, almost -- close to doubling in 5 years. And if that has to come, and we know that will come because that's -- from both fiscal monetary and from the corporate segment and the individual segment, all of the reforms that have happened over the years is trying to drive there. So in terms of the bank identifying this group as one of the most significant and strategic positioning, how we capture the growth of the country and we -- with all our product suites that we have are goal-delivered. And Rahul, what he did over a period of 3 or 3-plus years in the corporate bank area, came and did exactly that to show that the corporate bank both from a relationship approach, how relationship management can make a difference. Two, introducing all of the technology and the digital capabilities through either host-host integration or API integration so much so we can dial up and down whenever we want with the volumes and be kind of a critical player in the corporate banking world as far as the relationship is concerned. So then we moved from there, not that, that is any less important, but we moved from there to bring that kind of a 25%, 30%, 35% hyper growth that happened there, and we prepared for this with bringing in similar kind of an approach that leadership that was being unfurled in the corporate bank area over a period of 3 years, bring it here and get it into this Commercial and Rural Banking, which started both the SME segment on one side and on the geography segment, both the metro-urban as well as the semi-urban and rural. So from a geography as well as the kind of a critical market segment in the country, so this is one of the key enabler. That is part of the future ready that he has come and taken. And then now I'm going to get it to Rahul to see -- how he's thinking on this strategy. Rahul? Sorry, thank you.

Sure. So Abhishek, thank you for the question. Banking in India, we always look at in terms of certain cliche, and that cliche is wholesale and retail, right? But when I joined the bank, I was given the charge of Corporate Bank, which is obviously wholesale and business banking, which is somewhere in the middle. And somewhere over a 3-year journey, we saw the potential of business banking, which was MSMEs, and it was just fantastic. What we were able to do is right price, get the NIMs, get the priority sector. And also, we were able to go out and control the NPA so much so that today our NPA is comparable to any of our best-performing businesses. Of course, Corporate Bank is going to be very, very small. But these are NIMs which are not seen in the industry at all. So if you think about it, on one side, there's retail and there's wholesale, and we have -- did exactly the same thing when Sashi in October restructured and brought the mid-market also the fold and said, okay, look at wholesale banking and then we again saw the potential. So if you step back and see, in banking, there is a very big middle, which is -- I call it is -- call it the messy middle, okay? So it's not a wholesale and it's not retail. If NIMs are basically trending towards retail, but if you are able to control the NPA towards wholesale, you suddenly have a huge amount of earnings push, right? And that's what basically the banks have gone out and done. Today, this book is about -- roughly about 35% of our advances. And so step back and see, what is my goal. Number one is commercial, I have to deliver growth. We did 4% quarter-on-quarter in the last quarter. And I said in the analyst call that historically, this was plus or minus 1% for the group, but this is still light. If you were to ask me where the growth should be, it should be a quarter-on-quarter growth significantly upwards of 5% every quarter. That is what the potential is. The second is the NIM. And the third is the priority sector because as banks grow it becomes very, very difficult to go out and continue to grow without a focus on priority sector. And if I can make this group 75% to 80% priority sector lending in terms of advances, I would be helping basically the bank to continue to grow on both sides in an unfettered manner. The second is just the credit controls and compliance. There's a lot of regulatory requirements which we have to meet, and we have to look at credit. And credit, I just learned from my early days in BBG, where I -- I often say that in 2018/'19 we had an NPA creation, which was twice of the NPA creation last year. And since then, in the last 2 years, when the NPA creation became half, the book doubled. And this year, again, the book is growing, and we are on track to maintain the same new NPA creation, so which gets even better and better. And the third strategy is basically market share because we are HDFC Bank, which effectively means that I have to go expand my geographies. The second is I have to utilize all the channels. And today, the channels is not direct sourcing or not just branch leads, but I have to source in a digital fashion, I have to look at the common service center platform and I also have to use the VRM platform of the firm to go out and basically do business sourcing. And the third is people. Because this is a huge number of people, I have to just make sure that we have a deep managerial bench, whether you're talking in, say, North Lakhimpur in Arunachal Pradesh or you're talking about somewhere in Chhattisgarh, you have a managerial level which is solid and pretty good. So those are, effectively, my goals as I look to grow this business.

Sure, Rahul, if I can ask, and this sort of connects with the commentary that Srini gave earlier. So basically, it is a very important piece that you have -- you sort of oversaw the hyper growth phase or the high growth phase in Corporate and then you want to bring some of those best practices to Commercial and Rural and especially, Srini touched upon the RM, the Relationship Management part of it. So can you elaborate on that? What practices from wholesale are you trying to bring about here? And where are you in that journey? By when do you sort of implement that and the signs start showing up -- the results start showing up?

No. So there are many things, but let me just highlight, Abhishek, one thing, right? When you look at Wholesale Banking, you go out and do lending. But you know that lending is always, in a way, not the most return-accretive product, and so you go out and look at cross-sell. And when you look at retail, I think at the end of the day, the yields themselves justify in terms of the earnings that you go out and make. And net of predicted loss, I think the ROEs are pretty high, right? Those are 2 things. Now here in the middle, yes, the yields and NIMs are healthy, but if I can bring back 2 main qualities. In Corporate Bank, what do we hate or dislike is to have any NPA. Even if there is a INR 10 crore NPA, you're going to go out and feel pretty bad about going wrong in your credit judgment. And the second thing that you would like is a 360-degree relationship management. So let me tell you about a farmer today, right? You go out and do the lending, the farmer and the Ammaji and the Bhabiji, they all have savings account. They all have FDs. They may also take Gold Loans at some point of time. And today, you would be surprised at the amount of consumer durable financing that is being availed as well as 2-wheeler and 4-wheeler financing. Tractor is normal, and tractor in accessories, that is just a part of farmers' life. But the gamut of things that you can go out and do is pretty important, right? So when you start looking at it 360, then you are able to go out and add value. Of course, it is beneficial to the bank. In the bank, there is one thing we've been drilled to believe that we are underserved in terms of credit. We have to go deep into the country, and wherever we find we have to do credit expansion in a manner which is responsible. Now we found that that growth can be achieved in an unfettered manner, without any issues, and that is good because it helps with the progress. So the 360-degree relationship management is something that is the most important thing. We have begun the journey. So when you look at different segments, of course, we will look at the savings account. I mean, if you go back 3 years ago, in BBG, we were low on self-funding and we were able to take it to 100% last year when we talked about it in the month of June. And that has very significant consequences in terms of just the portfolio quality and the early warning signals, the cash flows tell you what is happening with the client or the portfolio. So this is what we're going to progress. This is what we're going to look at. It's a huge challenge because the numbers are much larger compared to Corporate Banking, right? Today, I don't have to deal with 2,500 customers. The number of farmers alone will be over 0.5 million, right? And then you talk about MSME. That's a huge, huge space. So let's see where we get to. Now it is important systemically for banks to go out and look at this space. Because if you look at the last 2 years or 4 years or 5 years, think about where the growth has happened. Rural is -- in the last 2 years, the credit growth was 11% accelerated to 14%. Semi-urban was 10% accelerated to 13%. And if you look at semi-urban and rural, the share in the overall credit pie is increasing. So it's a faster-growing pace. Now if you want to remain a metro bank, you will be basically playing in a 1% growth segment. So we have to go and basically do this, do this right. We had experimented this in BBG for 3 years. And so this is just a continuation of where we are headed. And so we're trying to bring the exact same disciplines because BBG benefited from superimposing the Corporate Bank discipline. Now we're taking BBG's discipline and superimposing into the Emerging Enterprises Group, which is a group where we look at companies with turnover up to INR 7.5 crores, right? So INR 7.5 crores and below in the credit sizes may be very, very small. So Abhishek, you would be used to deals with income of INR 75 crores, we are looking at these entities and you're going deeper and deeper into the country. There is unlimited potential. You will have an unfettered growth path for years, and it's a high growth segment. You just have to do it right. Many will basically get into it, but not all experiences will be successful unless it is done right. So we did the laboratory, and now we are transposing this into a much bigger scale, Abhishek.

So what are the critical things to get it right? Like today, practically every bank is talking about getting into Commercial, getting into the SME, MSME or Emerging Corporate space. And not just that, I think there are a bunch of fintechs also getting into that space. So what is very critical to get it right, in your view?

So look, if you look at fintechs, at this point of time NBFC, right, the NPA rates that you hear is upwards of 40%, that was what you saw. It's a different issue. But if I just quote a TransUnion CIBIL chart that I saw as of March, you look at the overall NPA rates, right, of -- and this is gross NPA. They don't have the data on write-offs, et cetera. So that for public sector banks is about 17.5%. For NBFCs, it is 11.1%. For private sector banks, this includes us, it is 6.2%, but our number is basically significantly lower than that. We don't disclose it separately. But basically, the current GNPA that we are carrying is -- I would be surprised if it is over 1%. So that is where you are. So to get that right is very important because I tell people that whichever bank has done SME, without thoughtfulness across the globe in India, different banks, there has been a credit event at some point or the other. So it's pretty important. Now when you look at an MSME, you have to have an underwriting standard that is rock solid, and it's a relationship-based. Yes, you will use digital techniques to make it faster. Even without digital, we were basically -- our end-to-end tax for disbursement was 5 days, which was significantly better. But it was brought down to 48 hours. And there is an experience that you do. There is a lot of stuff that you can go out and do digitally, which go out and compress it. So you have to basically connect the right clients through the right touch and feel, that's very important. You cannot take a portfolio approach. You cannot take a database approach because then you're going to ultimately come to grief at some point of time. The second thing is the security and the collateral that you get. That is very important. It's again the second thing. But the most important thing is a 360 relationship that you have all the banking business of Lalaji, whether you can appropriate or not, that entrepreneur basically likes to bank with you. Like you see in the last 1 year, there is an acceleration of clients joining us, right? There's an acceleration. And I tell people that whatever be the -- may be the case, the guy who's basically a hawker next to the bus stand or standing under, their aspirational brand is to go out and open an account with HDFC Bank. And what has happened in the last few years in this space, is that, look, it was very hard to go out and get new customers because they have this relationship from their great grandfather's time, and it was supposed to be good luck account. During the pandemic, the number of digital platforms that have not worked, not worked for months, have worked on a spotty basis, the guys have basically realized that for continuity of business you need basically both service and a platform that works, which is where we have come in. Now obviously, we have a platform which is very good, and the second thing that I can talk about is that we have over 5,500 branches. So service is at beck and call for someone who goes out and needs it. So it's -- the way you build the business, it's very important that it remains granular; it has a collateral cover, which, for us is roughly about 85%. When you look at self-funding, we are near about fully self-funded. But if I take asset-only customers, that alone self-funding is about 75%. And so you build it very, very thoughtfully. So that ability to look at cash flows for early warning signals, after you've given a loan, that does not exist with the NBFCs because they don't have the ability to go out and keep the account. So they will always play in areas which are at the fringe, that is a guy who is borrowing at 14%, 15%. So the moment he or she grows, they would want to move to a bank. And the acceleration of basically just the number of client additions is just a demonstration that we continue to do very well in this business. We are the second largest MSME bank in the country. And one of the third-party sources basically showed, as of March, I think we were behind the #1 by INR 7,000 crores or so. So I think we should, in this financial year, be the #1 MSME bank in the country.

Okay. Is it possible to share any sort of broad numbers around how the client acceleration or in what order is it happening? Is it, let's say, at the same rate as loan growth or higher or...

No. So -- look if you see -- if you go out and see what is happening in the marketplace, your disbursements compared to 3 years ago are, today, over 100% of that, right, on a monthly basis. And the disbursements are for new-to-bank customer acquisitions. So that is pretty large. This is on the SME segment. On the mid-market segment, again, the disbursements are pretty high. On the small or retail SME segment, there again, the disbursements today, if you see last year versus -- or maybe 2 years ago versus this year, I think it's about 3x at this point of time. So increase of 2x. So that is where the numbers are growing, Abhishek. So these are all in -- multiples in terms of order of magnitude rather than a percentage-based approach.

Sure. And these customers you're getting most of them would be new to bank but not new to credit, right? Or you would have new to credit as well?

So these are new to bank, where we have a relationship history on liabilities. When we began the business focusing in terms of controlling NPAs, we looked at those with whom we had a relationship. But today, if you look at one significant thing that has changed in the economy, government policy is playing a very big role, right, in terms of supporting segments and directing credit flows. So if you look at some of the guaranteed schemes of the government like the CGTMSE, that even allows you to go out and support clients who are new to credit. At the end of the day, if you look at the total number of MSME in the country, that is about 65 million. But the guys who are taking credit is roughly about 10 million or 15 million. So there is a whole host of people who will come in and participate. Now if you can get those customers, see the history in a risk-averse fashion, why not? So I think from -- what's changed in the 3-year period is that from looking at basically new to -- not new to bank but new to credit accounts because these were existing liability customers of the bank. That is how we used to look at. Today, we are basically even looking at new to bank as well first-time credit users.

Okay. So what you're saying is the [indiscernible] is actually an existing liability relationship and then you cross-sell asset products to that person.

Absolutely.

Okay. And just to get some size perspective, now MSME or SME is just a huge number, right? So the way you also explained that 65 million customers, only 13 million or 15 million taking credit. But do you have a size in mind of the industry, which you think is a -- which can be administered credit? And then within that, whether you grow only by market share gains from other players or are you also expanding the market and giving loans to new customers?

So the MSME segment, including NBFCs is roughly about INR 20 lakh crore, right? It's about INR 20 trillion for the overseas audiences. And if you look at the semi-urban and rural by geography, right, that is roughly about INR 22.5 trillion. So these are large, large numbers. Now when you go out and take over a client in the semi-urban and rural setting, Abhishek, how do you take them over? It's not just that they have an existing credit with the bank and you just give them that amount and that is pretty much it. That bank may put some foreclosure charges, they may try to retain them. But the customer wants to move because of certain services, digital services, trade, document upload, housekeeping, and all of that, that we go out and provide, which is available to the customer and even the farmers today use the mobile apps to do a lot of stuff for us. So you go out and give them an enhancement, right, higher credit. So at the end of the day, it is not just a takeover of market share. We are expanding basically the credit out into the marketplace. Because when you take over, there is an element of enhancement of credit or larger size which we are going out and you're giving, which is how you go out and look at that. And then once the customer is with you, they will have expansion needs. They will have growth needs. They may want to expand geographically, buy some assets. There might be certain assets available in our pool which we can go out and talk to them about. And then you go out and support them. So many of the small customers today are basically customers of our ECG segment because they've grown through the life cycle, and that's what is important of the bank. That from a young customer, when they start doing commerce and a business and as they grow, the bank caters to each part of the life cycle journey of any customer.

Okay. Okay. The other common feedback we get, Rahul, generally from channel checks or speaking to other people is that there's a lot of pressure on yields in this segment. And a lot of large banks because of their cost of funds falling so low, they are actually taking out loans that are, if I were to say, let's say, yields which are not heard of before. So from a risk-adjusted return basis, is it still very attractive? How do you look at the RAROC on this business even at a lower speed compared to what it is -- was it was with other banks?

So look, SME has become fashionable. Of course, this was -- we always believed that this is what the future is. So when we started, at that time, nobody talked about it. And now everybody is talking about commercial and rural, right? So that is what it is. So it's very easy to go out and be swayed by the market and say, okay, the rates are low, let us cut the rates, et cetera. I mean if you do that, you rightly say that the risk-adjusted margin is not going to basically cover for accessible return on equity. Now if you look at an SME who is in the outskirts of Bombay, where there are 20 banks looking at them, you can focus on retaining that account. But I always say that there are 730 districts. Today, we are at about 550 districts. By the end of the financial year, I want to be at 575. Next 2 years, I want to add another 25 districts, which is where there is no competition. Absolutely, no competition. So we have basically a runway of growing over there where you basically price it in a fair and equitable fashion. You're not supposed to basically, and that's not the DNA that you charge in a usurious fashion. And you maintain pretty good credit quality and many of these guys are expanding in terms of credit usage for a lot of consumer durables and retail assets. And you go out and go that. So the market is big enough that instead of trying to basically protect, now those who will go in with a low rate to retain an account, best luck to them. We are not basically in that particular race, Abhishek.

Okay. So basically, you are identifying customers who are relatively not so of the SME-banked, and therefore, you have some ability to keep pricing at a healthy level. And you're not going after, let's say, customers who are very well-banked, and therefore, you'd require to drop your rates significantly versus competition.

Absolutely. You go with your platform. Your platform is digital, paperless trade. You provide FX services, you provide all the online updation for their filings, et cetera. You give them the right reports. And when you continue to go out and build that, that basically is what -- the way you go out and look to do business. Now you think about it, what does an SME need, right, other than doing the transactions? Today, in our platform, in the SME digital platform, you can basically go out and any SME can put whether their financials, bank statements, application forms, KYC, et cetera, everything digitally. And we will go back and give our underwriting thing automatically and digitally. We can receive all the documents and execute all the documents basically digitally. And that's a huge thing. Today, if you were a farmer at a small place and you had a certain amount of land holding and you said that, okay, I'm going to be cropping wheat this particular season or paddy, right? So you, basically, in the mobile app put the crop, put basically your location, put your land holding, it will automatically tell him what is the eligibility of lending to that particular farmer. Now these are district-level technical committees which go out and decide and set the pattern, but the entire thing has been digitized by the bank so that the farmer can immediately know what is the eligibility, right? So that is how you sort of approach it. Because at the end of the day, this business will continue to grow. Will I continue to add manpower at 25%, 30% every year? Absolutely not, right? I mean then we are not getting leverage of the digital platform. Even in the first quarter, I think my cost-to-income compared to the plans is significantly lower because we have to continue to use more and more of digital to keep bringing down and get the leverage of the platform, which is what we are doing today.

Okay. So can I ask what is, let's say, threshold level of risk-adjusted return on capital, below which you will let go of business or you will say this business is not attractive?

So this question, our CFO can answer better. But the way I look at it is, I have a NIM threshold, right, because I can't tell you basically how much of the capital in the business. Of course, it's all there with finance and they do, you know that. But I only look at what is the NIM that I'm generating. And the second thing that I see is what is my NPA level. Those 2 levers is what I control. And if I do that well, then I think everything else, Abhishek, straightaway falls in place.

Perfect. Srini, can I forward that question to you?

Yes. No, no, perfect. I was about to jump in to any way answer. So the way to look at and the way we look at return is not a product in isolation. So it is very much a misnomer to say these are all traditional techniques of saying risk-adjusted returns, or RORAC, et cetera, where you look at a monoline and look at the risk-adjusted what it is, or even without risk adjusted on an ROA type of thing what it is, right? So that's the traditional approach. But the way we look at it is that at a client level. We look at -- because that is where the holistic -- you saw the 360 that Rahul explained how he manages that 360 relationship that comes through and then how we manage the top line and then how the cost-to-income is a significant aspect in terms of how we stack resources and how we supplement those resources with the digital kind of support there. And then, of course, the credit is another important aspect when you look at the net interest margin and when you look at the volumes, you balance those 2. I call it, the net credit margin approach in terms of managing there, and then you've got the cost-to-income parameter. That is when you look at the pure lending as such, right? You look at the lending whether that can stand alone on its leg. But the way we evaluate is not just a single product at that level. The way we evaluate is the complete customer relationship where all of the things that go into it, which is the liability relationship that goes in many of these merchants and many of these we also have payment going into that. And then you've got several products. If you think about the farmer, it could be a farm simply an agri loan and then comes a tractor loan that comes with it, and then there is a liability relationship that comes with it. And if this is a big enough farmer, that farmer is also running a shop, right? And so if you look at it, there are several things that go with it. And that's how we look at total relationship-based approach in terms of evaluating. And so if you look at a particular product, it may give you the wrong answer. And it does tell us many times to raise the flag to ask, "Hey, if this particular product for this particular customer is not good, show me the entire relationship." And that's how we evaluate.

Sure. Sure. So I think we can now open the -- open it to Q&A, and I request Margaret to just call for client questions. If anybody has a question, please do feel free to raise a hand.

[Operator Instructions] The first question is from the line of Mr. Gada.

Rahul, I had 2 questions. Sorry, if you've answered them already. But just in terms of sizing for the commercial bank, is it about INR 2 lakh-odd crores in terms of size as of FY '21? And if yes, then I just wanted to get some perspective around how geographically this would be split? Just trying to understand, is it concentrated in the top 8 cities or it's fairly diversified, if you could give some quantitative metric on that. And the second question which I had was, on sourcing, I was not very clear whether it's -- how much of it is branch channel driven and how much of it is through the VLE and any other channel which is involved or DSAs, if any? So if you could just comment a little bit around sourcing, that would be useful.

No, sir, in terms of size, I mean, roughly ballpark, you would say that it's about 35% of our advances, the Commercial and Rural Banking put together. And if you look at the market size, that's about INR 20 trillion for MSME, including NBFCs. If you take out NBFCs, that's about INR 16 trillion. And if you look at the rural agri credit in the country, that is roughly about INR 15 trillion. So the banking credit to MSME and agri is about slightly over INR 30 trillion. Now of course, in agri, there is about INR 10 trillion, which is 2/3, which is unsecured, which is not where we are. We are looking at the secured piece. So that is what we play with. In terms of sourcing or geography, look, we are not concentrated in any geography. Our mid-market segment operates roughly around 50 cities. By the end of the year, we are going to be over 100 cities. In fact, we are looking to add somewhere around 75 cities more. Even if there is a slippage, we would be doubling because we want to go deeper into the mid-market segment. When you look at the wholesale SME segment, I mean, 3 years ago, we were roughly at about 450 districts or so. Today, we are 550 districts, and we look at the #1 position in each one of these districts. And if I have my way and the data was available in PIN code wise, I would actually measure it like that. So you would be happy to know that we are the largest MSME bank in Gujarat or we had 100% growth in Tamil Nadu where we were light. Or if you look at basically the region of NCR, we would be #1 in the SME segment. So that is how we look at things. The third thing that I look at is in terms of village, which is today we operate at slightly over 100,000 villages, and my goal is to take this number to over 200,000 villages. That would still be slightly under 1/3 of the number of villages in the country, which is roughly about 6.5 lakhs or 650,000 villages in the country. The third piece that you talk about is where -- how do we source. Of course, we have direct sourcing, and we have branch sourcing. In different business, there is a different proportion. Mid-market, direct sourcing is more in terms of the number of people. Branch banking, business banking, again, basically, it is quite high. But as we go smaller, then I think the branch basically plays a very important role. But these are things that we know. And our goal is to basically go out and improve the other channels, which is the CSC channel or the VRM channel, or the digital channel. Now you would have seen about 3 days ago we launched a shopkeeper OD program, together with CSC, through CSC VLEs, where we would give credit between INR 50,000 to INR 1 million by just people giving us KYC documentation digitally through their portal and also a 6-month bank account statement. And then we would go out and sanction that within a period of 48 hours. So that is something that we're looking at. Because there's no point trying to get the small shopkeeper coming into the branch. They have to come at 3:00 or 2:00, which is the peak time for their business. So there, again, we've made it just much more useful. So -- In future, the VRM and the CSC and the digital channels will continue to increase. At this point of time, we don't give out data. We do measure, but we don't give out data as to how much of a proportion of sourcing is through those channels.

Understood. And just one final point related to underwriting. Could you comment a little bit around usage of GST in this segment, especially in the lower ticket segment within commercial and rural banking? How GST or any other digital available document are used, apart from the traditional bank statement and bureau data customer is existing to credit, just the usage of this and how we've been integrating on this platform? So just relative advantage versus competition on this would be useful to understand.

So that data is available, but you require customer consent to access that data, right? Without that, you can't do that. Now if you have the GST data on a monthly basis, you actually know turnover. And for a small guy, you can go out and look to do 15%, 20% of the turnover as credit at any point of time because you're getting real-time data. So we have integrated it, but you cannot use the data unless you have the customer consent. The Bureau data, of course, that is always available. We use that a lot. But beyond that, we look at basically just the branch or the direct relationship with the client or the [indiscernible]. And we look at a lot of other checks that we do in terms of just bureaus, databases, looking at bank accounts, looking at history of NPA tagging. There is a PAN card, which again basically gives a huge series of very good information on the promoter. And all of this sounds basically too much, but it is quite quickly done given it is all digital to come out with an underwriting decision very rapidly.

[Operator Instructions] The next question is from the line of Mr. Parekh.

I'm Sanjay Parekh. So Rahul, I just wanted to know in terms of the passthrough last year COVID and this year, while we have a very good credit selection and maybe we were in the -- we would be in the top quartile. But generally, if you were to have break them into 4 quartiles, how precarious is the scenario for the third and the fourth quartile in SME? Do you think we'll have -- I mean, just your perspective will help.

See, life is tough. If you go back and look at May last year, the capacity utilization in the MSME segment was 13%, right. You would have never ever gone out and seen such a low rate, and the impact has been basically difficult. So what we've benefited or at least whatever we were doing in terms of our belief as to how to build a pristine portfolio, we also saw that it got tested the entire of last year. And so we've come out basically all right with that. I can't say that whether it's top tier or second tier, but there are certain tools that we go out and look at. And just the continuous monitoring, right, of the number of accounts, the number of transactions, which no longer can be done, it's not humanly possible to go out and do that, that has held us in good stead and now it gives us confidence of going ahead. Now if you recall, there's so much debate on ECLGS, right, I mean whether people are going out and taking it for managing their balance sheet, et cetera. Now we've always maintained that when we gave out, obviously, there was a lot of noise in the coverage sales force saying, look, the OD is priced higher. The ECLGS is priced lower. So we said, okay, but this is a term loan. And if it's a term loan, at least there is a longevity of the asset versus OD, which is here today, gone tomorrow, right? So I think at the end of the day, we said, look, it's a win-win because if you think about it, we've given 20% extra credit to the clients. In the next 3 years, we would have to give an enhancement. We would ask for more collateral. And here, there is no collateral required. The 20% enhancement as the business grows is possible. Now when you talk about stress, you think about it, the OD utilization is still in June roughly at about 68%, 70%. So things are not basically near normal, and this is for these guys. So I mean, we expect that post September, which is when more economic activity will be there, which is when the OD utilizations will give a further taker because we've grown because of new customers, new to bank or new to credit bank customer acquisition. But as we go along, the existing base is going to basically utilize more with demand coming back, and that is going to basically be helpful in terms of our growth journey.

[Operator Instructions] The next question is from the line of Mr. Murarka.

Rahul, so back to me. So I had a question on the ecosystem approach that you have in Commercial Banking. And basically, the question is what are the key ecosystems that you are targeting? There is obviously a legacy book where you have been early movers and you have a huge first-mover advantage. But now we are seeing a lot of other banks also get into these ecosystems and approach it in the way that you've been approaching it in the past. So is a first mover advantage the only advantage that you have? Or is there something that you do differently which gives you a moat versus the new entrants?

So what is our moat, right? Okay. Let me answer that first. If you look at our June quarter, right, if you look at the entire credit expansion in the economy on a 1-year basis, I think, as a bank, we have still benefited from a 25% to 30% share of that incremental credit growth, right? If you go back and look at the data on just the semi-urban and rural expansion that proportion would be even higher, right? So that is first step. Now when you build on that first step, what is coming in our way? A lot of customers are coming our way. So I mean forget basically the health care ecosystem or the rural ecosystem or different other ecosystems. Let me just bring you back to the health care ecosystem. When this credit grows, when we try to send out a credit in a responsible fashion, now how many entities are there in this space, Abhishek, right? There are 95,000-plus hospitals and the laboratories in this country. We are a leader in that, right? There are roughly 14 lakh to 15 lakh doctors in this country. We, again, have a disproportionate share of those who have an account with us. There are about 8.5 lakh pharma companies, stockists and chemists. And these are basically in our padyatra initiative at the branch, which is what Mr. Puri and Sashi used to drive. These are all our clients in the catchment area. So when you look at it, there is about 25 lakh or so participants, right? For those who are not familiar with the Indian accounting system, it's about 2.5 million participants. Now if you say how many participants are there with me already? I would think that about 25% to 30% participants are there already. So for me -- so for someone who is building a digital platform, you can bring it, right? You can buy a Ferrari, take it into a village, where are you going to drive? I got the customers, I have the digital platform, I only have to connect the dots and basically make it move. So this is a completely different situation compared to all the hullabaloo that I hear. And at the end of the day, there is a lot of discussion that happens. But the way the bank goes about just silently and steadily doing things, measuring, seeing whether we are going deep because we don't do anything for a hobby or small, right? Everything has to be at scale on a INR 18 lakh crore balance sheet. The results come automatically. So that advantage that the bank has is incomparable today with any other player who's, again, aspiring to be. They may have a good platform or come up with something new, but the volumes when they pick up, I think it's difficult and you have to get the customers.

Right. And which are these ecosystems, let's say, any new ecosystem that you are targeting or building upon?

Look, I mean, the 3 that I am involved in, health care is one ecosystem, rural is another ecosystem because rural is not only agri. If you only look at agri and do farmer lending, you don't have a sustainable business in 5 to 10 years' time. Because if you look at the current cropping patterns where in Haryana and Punjab we grow rice, but people hardly use right -- and rice and it uses a lot of water or in Southern Maharashtra where we use sugarcane, which requires a lot of water in a water scarce area. Today, we are food self-sufficient because of our policies, but things are changing very fast because everybody has realized that there's a lot of arsenic or other things that are there in the soil, and the water tables have gone down. So that entire ecosystem is changing. So you've got to look at it holistically and be relevant because that is a place where you will always have to look to give credit responsibly for meeting your priority sector. And the third thing is basically just the corporate supply chain. The corporate supply chain, whether as it when the commercial farming will happen linked to rural or the normal supply chain finance because most of the things, whether it is a Tier 1 supplier or the next tier supplier between a corporate and supplier, they are all our clients, right? So my challenge is not to say that I'm doing supply chain finance, Abhishek. That is the dumbest thing that I can make a statement like that. My challenge is when do I operate MSME credit on the credit lines of the large corporate. The moment you do that, you have achieved nirvana, you have derisked your book very, very substantially and allows you to basically expand even further. So that is basically a project that -- those 3 projects that I'm involved in and the rest of the projects, Srini can give you a better idea.

The next question is from the line of Mr. Chutkey.

Sir, I just give you a statistic. For the year FY '21, if I look at the volume growth for the steel industry, right, the industry which has done extremely well, their entire -- sir, steel industry volume growth was about 3%, right, which is for the listed players. Listed companies volume growth was about 3%, whereas the industry volume growth was about minus 9%, which clearly means that the MSME players or the smaller players in the steel sector have seen a de-growth, right, declining growth, which means MSMEs weren't provided enough credit despite steel sector in general doing extremely well. How should one understand this? Now clearly, we're [indiscernible] return last year and therefore, this set of players were ignored. But even in the sector like steel sector, they were ignored. Now is it lack of new customer [indiscernible] from the banking system? Or how should one read this? And you -- do you expect the prospects of the MSME sector in general to get better this year? How do you foresee that?

You look at the elements of getting back growth, right? I mean, today, it is government spending and infra spending right? And when you look at elements of that, when you make a road, you use cement and you use steel. And so you're absolutely right that steel is having a revival. And the second thing is that structurally something is changing given -- because of environmental or sustainability issues in the developed world, a lot of plants and mills are closing down. So that's why you would have seen a lot of announcement for creating even more capacity. So we continue to be very supportive in this area for a lot of our players. I can't comment on the plus 3% or minus 9%. But if you look at MSMEs who are in the government supply chain, I think the prospects are very, very good. There was a point of time that there were people who were importing PPE kits and other testing equipment from China that would be supplied directly to the government, that was financing. There are other smaller players who may be importing, for example, making these oxygen concentrators, et cetera, that, again, you would go out and help finance. So I don't think -- I think the MSME will continue to remain a very vibrant recipient of growth -- of credit from the banking system, especially because in buoyant debt capital markets abroad and here and also buoyant equity markets, you had a big push in terms of deleveraging in the large corporates, right? So we've always looked at balance. We got to grow retail, we got to grow corporate and we got to grow the middle piece, which is the commercial and rural banking. But those who were focused on corporates will have to come to the middle in search of growth. And -- so this sector will be beneficiary of credit without any issues.

As there are no further questions, I would now like to hand the conference over to Mr. Abhishek Murarka for closing comments.

Thanks, Margaret. So thanks once again to Rahul and Srini for spending an hour and giving us so much context. Rahul, thanks a lot. It was great to chat, and I'm sure we got a lot of context, and it's very clear now how the bank is headed and can take advantage of the opportunity out there. So thank you, and all the best for you going forward. Thanks a lot.

Thank you.

Thank you.

Thank you, Srini. Bye-bye.

Bye.

Thank you. On behalf of HSBC, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.