HDFC Bank Limited (HDFCBANK) Earnings Call Transcript & Summary

Thanks to all the investors for dialing into the investor call that we are hosting today. My name is [ Siddharth Sharma ] and I represent the Financial Institutions Group team at HSBC India. We're delighted to have a very senior level team from HDFC Bank, and it's my privilege to introduce them to you. We have with us Mr. Srinivasan Vaidyanathan, Chief Financial Officer of HDFC Bank; and Mr. Ashish Parthasarthy, who's Treasurer at the bank. We'll start the call with a brief overview of the bank and the recent financial performance. We'll then open the line for Q&A. With this, let me now hand over the call to Mr. Vaidyanathan. Over to you, sir.

Okay. Thank you, Siddharth. Perhaps the way we go, as you described, I will give you some high-level overview and we'll talk about the quarter briefly, and then we open it up for any other questions, comments or topics that anybody wants to cover, right? The recent quarter that crossed over, we announced the results on [ 16th ], the context of the quarter and as it continues to -- as we see now, the active indicators during the quarter and now indicate that the economic activity is holding up well despite various global risks, like GST collections, manufacturing PMI or industrial production or credit growth, rail freight, services PMI, all of them show robustness and opportunities that are in the economy, okay? RBI has been quite accommodative. Rates -- the policy rates [ increased ] by about 140 basis points, now stands -- the repo rate stands at 5.4%. And it remains calibrated in such a way to manage or to allow for good -- and supporting good growth, both from a monetary and fiscal policy point of view, right? And accordingly, the lending rate increases we have passed on whatever is required from that sense. There are a few themes we can go through before we get into -- jump straight into financials. We've been focused a lot about the distribution expansion, right, over a period of several years and certainly in recent times that you've seen us grow branches as a predominant way of reaching to the customers in foreign places across the country. 36 branches in the quarter. There are 250 more branches that are in various stages of readiness. We have [ 15,600 ] correspondents, another [ 277 ] increase over prior quarter. We are opening up our gold loan offerings across various centers, now about 2,000 branches as against 1,300-odd branches in prior quarter. We intend to take this to most of our branches. Our payment acceptance points of 3.2 million payment acceptance points growing at the rate of 42% year-on-year. We are opening up many wealth management centers -- is now offered in 357 locations through hub-and-spoke model. We have expanded 141 new locations in the quarter for our wealth management offering to reach deeper geographies. In the commercial and rural, we again expanded our offering to 640 district. More than a year ago, we were 500-odd districts. Now we are at 640 districts where we are offering to drive our SME market share, right? From a franchise building point of view, if you think about the people addition, we add people to support our branch and our frontline sales force. We've added almost 10,000 people in the quarter. We brought in 2.6 million new liability relationships in the quarter. Now it's almost a run rate of 10-plus million annualized run rate, right, that's a 59% over last year. We also acquired 1.9 lakh MSME accounts in the quarter, right? And cards, we have issued 1.2 million cards in the quarter, highest ever, 47% growth over prior quarter. Total card base stands at 17.6 million. Now leading all of this into the balance sheet, so granular deposits, 16 lakhs, 4,000 crores of deposits, increased by approximately INR 46,000 crores, okay? And the deposit growth reflected a year-on-year increase of [ 19.2% ]. And this is an increase of INR 46,000 crores in the quarter. Out of which, retail deposits grew INR 50,000 crores in the quarter. We are now focused on the granularity of the deposits that we won. CASA deposits recorded a strong growth of 20% year-on-year. Time deposits grew 18.5%. On the lending side, on the loans, [ 13.95 lakh crores ], grew by 22.5%, growth of sell-downs that we did. Our retail advances continued the growth, grew by 21.7% or 4.9% quarter-on-quarter. And excluding auto and 2-wheeler, which had supply chain disruptions, the year-on-year retail growth was close to 25%, right, allowing for auto and 2-wheeler with their associated constraint behind them. [indiscernible] grew by 24% over prior quarters. Payment advances was a [ 27% ] growth over prior year, 4.4% prior quarter. CRB, which is the Commercial and Rural Banking, had a year-on-year growth of 28.9%. Wholesale segment grew by 15.7% year-on-year. So that's in terms of our top line deposits and lending type of momentum. Now, if you look at the backdrop of all of this from our capital ratio point of view, total capital adequacy ratio of 18.1%, CET1 16.5%, right, including the profits for the current quarter. Our average LCR was at about 108. At the end of June, as we announced previously, about 120%. Now if you think about the P&L lines as we progress through, our core net revenues are at INR 27,181 crores, that is excluding the trading and the mark-to-market, which can be a volatile depending on the rate moments, that grew by 19.8% over prior year. Net interest income for the quarter, which is a component of net income of the core net revenues that I mentioned, INR 19,481 crores, grew by [ 14.5% ] over prior year, and the core net interest margin was up 4%. Based on net interest margin measured with a denominator of interest earning assets, which is [indiscernible] across many places and our peers, earning was [ 4.2% ]. And now moving on to expenses for the quarter at INR 10,500 crores, an increase of 28.7%, representing the various investments that I alluded to sometime ago. The total network strength, we have 6,378 branches at [ 15,294 ] business correspondence. The core cost-to-income ratio for the quarter, that is excluding the trading and the mark-to-market classes, was at 38.6%. Asset quality, GNPA ratio 1.28% compared to 1.47% in prior year. And GNPA ratio, excluding agriculture segment, because agricultural segment has got a seasonality that every year in the month of June and December, there is a seasonality depending on crop, so the higher expectation in the quarter. But excluding agriculture segment, it was 1.03%. And I guess is 1.03% prior year was 1.26%, prior quarter was 1.01%. So it's more or less at that kind of level. Now getting to the provisions for the quarter, there was INR 3,200 crores. Last year same time, INR 4,800 crores. And prior year was at a similar level, INR 3,300 crores. That was the provisions that we had. Our provisions coverage ratio, 73%. Then at the end of the current quarter, the total of the contingents and floating and all those as provisions add up to INR 11,100 crores. And if you think about the floating and contingent of the general provisions, when you will add them up, they are about 1.25% of the gross advances as of June [indiscernible]. Coming to the credit cost ratios. The annualized credit cost ratio for the quarter was 91 basis points. Prior year was 1.67%. Prior quarter was 0.96%. And then recovery, which are actively write-off when we recover, we report them in miscellaneous income, that's about 23 basis points of advances, so [indiscernible]. Now that results in a profit after tax -- profit before tax of INR 12,180 crores which grew by 18.2%, with profit after tax at INR 9,196 crores, a growth of 19% over prior year after factoring in the mark-to-market losses of -- that means after taking the mark to market loss about INR 1,312 crores [ in the quarter ]. With that, that's the kind of high level I wanted to give you highlights of certain things in the quarter as well as we mentioned as well. With that, we'll get back to you, Siddharth for any other comments, questions and process.

Carol, do you want to start with the queuing process. If you could remind the investors on how to ask the questions again, please.

[Operator Instructions]

I hear a lot of echo in both your voices. So maybe I want to come closer to your microphone or just check.

[Operator Instructions] We have a question from Nitesh Joshi from Millennium.

Hello?

We are ready, but there is a lag in whatever you are talking or the operator. Go ahead in any case. Just go ahead with whatever you have.

Nitesh Joshi from Millennium, do you want to go ahead with your question, please.

Nitesh, we're not hearing you...

Am I audible now?

Now we are okay. Yes, go ahead, Nitesh.

I just want to check, what is the bank's current opinion around the high cycle from RBI, where do you see it peaking out there? And what kind of impact do you see on the loan growth portfolio going forward in the next couple of quarters?

Nitesh, this is Ashish Parthasarthy. So how on -- the rate cycle is that maybe we will end up somewhere between [ 575 ] and [indiscernible] for the delays on that, and should be more front-loaded than otherwise. But from a portfolio perspective...

Maybe on the portfolio front, at the moment, what we see is we see good demand at the field level across various business segments, right? We talked about the retail segment, sequential 4.9%, quite good on that. And excluding the auto and the 2-wheeler, which has various disruptions in the supply side, it was growing quite robustly, almost the sequential is close to 6% year-on-year, 24%, 25%. So we are seeing good momentum on that front. Consumer spending is quite high. I talked about the cost spending that continues to be a feature that we see, both from a card spending point of view as well as from various savings account customers, fund utilization, we do see spending happening. So that means people are doing the right kind of spending that they desire to do, right? So that's on that front. Then if you look at the SME segment, our Commercial and Rural segment, there also, we are seeing quite -- which is the middle market, merchants and various small businesses and the agri side, we are seeing quite a good amount of uptake on that credit also. So I also gave you the rate of growth in recent times and year-on-year on that. That is doing well, and we see continued momentum building from a growth point of view on that front. Lastly, on the wholesale front, wholesale front, wholesale front fund is a mixed bag, right? There are 2 things to think about. The working capital that keeps happening. And we are at year-on-year growth of 15.7% or something, which is good that is coming off of a very robust growth last year that we had, right? we had a sequential growth in March quarter in wholesale of 11%. So it was a strong [ offtake ] that happened in the March quarter, and June quarter was slightly subdued, but that was okay. And the second aspect of the wholesale is also the CapEx spending, which, to some extent, only we have seen. We have not seen that come back from a large extent. We are waiting and watching that space to see when there would be either capacity augmentation or investments happening, or participation in various infrastructure projects happening. We are waiting to watch that. But that's some space that we need to give a few more quarters for various government spending to take its goods and take off, and then we expect some prior participation coming in there.

That's perfect. May I just further check, among all these segments, looking out next 1 year, which would be the top 1 or 2 segments out of these that will have you a bit more concerned about the credit quality, like in terms of what you would watch for any sign of deterioration in the portfolio quality?

Okay. Okay. Then there are 2 aspects to what you're asking. One is how are we seeing. So the way to perhaps shape this answer is like this, right, more than our outlook or forecast, something which we don't give a forward looking. But I do want to tell about what is the imminent driver, so you will get an idea of what it is. See, the country's GDP has got a significant composition of consumer spending, slightly above 60% is the composition of the GDP on the consumer spending. Then you got the balance, 40%, between government and various investments that happen, right? So that's the composition. So as the economy is moving, which by all accounts, the GDP is expected to be 7-plus percent, right? Somebody gives a forecast of 7.2% GDP, call it, between 6.8% to 7.2%, that is what various kind of GDP estimates, forecasts for [indiscernible] around that level, right? So with that and what we have seen in recent times, which is the retail powering with a sequential 4.9% out of 6%, with the auto and 2-wheeler to the side and the payments -- card spending pickup that we are seeing. So we are seeing that, that is what more or less what the country's GDP composition is from a spending point of view, that is what you are seeing from a retail and the consumer spending powering that, right? So that is -- and if you think about us, we have had a composition of our balance sheet between wholesale and retail, wholesale between 45%, 47% of total; and retail between 53% to 55% of total. That if you go back about 10 years, tracking the bank, we were more or less like that. And that is how the economy competition, as I described to you about 60% also is consumer spending related. So that is the kind of composition we have had. With the major event disruption, pandemic event disruption that happened last couple of years plus, the consumer, there was a good feedback that you saw, we saw. And we also tightened on the credit to bring that down, right? And then whereas the wholesale was powering very well with very good profits, very good liquidity and with the ability to be very less debt on the balance sheet, so it is powering very well, and we are happy to be good lenders into that. So currently, our compositions again, wholesale, 55%; and retail, 45%. So now it's reverse for a period of 2-odd years. Now you're seeing that the retail momentum is picking up. And so that is how we are expecting that we will go back to what we have had over a period of last 10 years, which is move towards that kind of a predominant retail, right? That's how we have been and that's how we are structured with the branch distribution and sales force and so on. But there is no kind of a need or a particular target that we want to chase, it depends on this. Our independent credit architecture, what's the process and approve. So it will go in accordance with whatever credit fits their policies and their approval process. But directionally, over the past years, the economic kind of -- economic position like that, that's how we expect to grow. That's part A is what you asked. Part B of what you asked is from a credit point of view, right, of course, we are quite watchful across all the 3 categories of credit, right? We are quite watching across all. But at this moment, as you saw some of our credit numbers for us or for the industry, remains benign, right? Coming from the COVID where a lot of tightening happened across various segments, and coming out of that, we are seeing credit lower than the historical average. That is what we are seeing. And this is a kind of a -- we expect that for some more time to continue like that. But that's part of what the tightening credit policies of the last 2 years is what we are seeing reflected in the credit cost and the behavior currently and in short time to come.

[Operator Instructions] We have our next question from Joanne Huang.

I would like to ask what are the latest time lines for completion of the merger with HDFC Limited? And will the proposed merger with HDFC will have any impact on the overall funding requirements of the bank about maybe 1 or 2 years down the line? And is still likely to impact the cost of funds for the bank, please?

Thank you for the question. The first aspect is in terms of the time lines for the merger, which around the April time frame, we have shown a particular calendar based on what the attorneys had advised as a possible time frame. Or let's say, it is going in line with that kind of a time frame as we speak now, right? The application process to the competition commission has happened, and the review process is in progress. The application process to NCLT has happened, and that review process is soon to commence, right? And this journey, particularly the NCLT journey, is expected to take 9 to 12 months. So the estimate that we gave in April is to have an effective date -- consummate the process -- legal process and have an effective date sometime in September '23. Our attorneys say that, that is still a valid kind of a time frame to think about. So that's part A of what you asked. Part B of what you asked is that once the merger is consummated in 1 year's, 2 years' time, what will be the funding requirement, right? The funding requirement, you can think about what is the funding requirement for the bank, what is it for growth in the bank books, and what is the funding requirement from a replacement of the funding that will not get rolled over in HDFC Limited when it merges with the bank, right? The funding for the bank growth on a merged basis, that is part of what we generally drive, right? What drives the funding requirement is the asset growth requirement drives the funding requirement. So that is what we first to leave that in to say what is the appetite and what part of that appetite process goes through our credit process, and so thereby, what is the determinant -- what is the key determinant for what the funding is. So we're quite comfortable from a brand growth on a merged basis to fund out of our deposits, right? So that's something that -- this is a usual approach that we take. Then the aspect of what part of the funding of HDFC Limited we need to replace it with the bank funding. HDFC Limited runs quite a good matched book across various channels. So we expect 3 to 5 years -- over a period of 3 to 5 years, we expect to take as the maturity profile of HDFC Limited's funding happens to take that and replace it with the bank funding, bank deposit funding. So in order to augment that, that's part of our strategy to open branches and go into various places where we see opportunities for hitting deposits by reaching out to the customers in the catchment area, which we have already started in terms of opening balances. Irrespective of what happens, we want to get it and get the deposits in, right? So that's part of what we have started to do. And the other aspect of it is that as part of the RBI application process, we have asked RBI that the borrowings of HDFC Limited moves [ asset ] as borrowings of HDFC Bank and then follows the maturity profile that is contracted with HDFC Limited. So that's part of our process of discussing with RBI and going through the review process on that. So that is going on. The third aspect of your question is relating to cost of funds. What does it mean to cost of funds? The cost of funds, the way you think about it is it follows the interest rate cycle of up and down. So we have not historically and as our current strategy stands, we don't intend to lead the market with any price increases. So it means we are not going to buy funds by a premium pricing. That's not an approach that we have taken in the past. That's not an approach that we are taking today in terms of how we get the funds. But if the rates go up, it's a function of the mix, which is -- at various interest rate cycles, you get higher fixed deposits in one cycle, lower fixed deposits in another cycle, which is the term deposit cycle. And then due to the mix, the rates can go up or down. But from a pricing point of view, we expect to price ourselves competitively in line with our peers. So that's in terms of cost of funds. We don't expect to get out any premium pricing approach on this.

[Operator Instructions] We have our next question from [ Lu Cao ].

I would like to ask how do you see the net interest margin trajectory for the bank? And what is the likely steady-state mix between retail and corporate book for the bank?

Okay. See, the net interest margin, I alluded to the [ DuPont ] type of analysis, net interest margin, the core net interest margin was 4%. On an interest-earning asset basis, the net interest margin was 4.2%, okay? If you go back to the bank's history in terms of how the bank -- what is the band at which banks net interest margin operated, operated between 4% to 4.4%. That's the band at which it operated. And where you have the asset mix, where the retailers, call it, in the 50s, right, 53, 55, in that range retailers, and wholesale 45, 47. That is where over a period of until 2020 -- until 2019, late 2019, early 2020, it was in that kind of a range. So the net interest margin, depending on the interest rate cycle up or down, continues to be in that narrow band 4%, 4.4%. Then as the mix dramatically changed due to tightening of the retail, and still there is a good demand of a very high rated, quite good quality wholesale, it switched. Because wholesale comes with lower margin because you price for the credit, lower margin as highly rated wholesale book with extremely low operating cost because we don't need much to spend on that. And with a very low expected credit. So provided from a returns point of view, wholesale or retail does not make a difference to the bank from a return. Return on asset, approximately 2%, right? In some cycles, we go to 1.8%, 1.9%, somewhere to 2%, 2.1%, call it, roughly 2%. Even last year was 2.0%, right? So that kind of a range in which we've operated on the returns. Because irrespective of the product mix, irrespective of net interest margin cycle, 4% to 4.4%, the returns are in that narrow band of about 2%, plus minus, a small difference, right? So that's where it is. And now since the wholesale is at 55 and the retail is at 44, we are in the lower end of that range from the net interest margin. But as you see, if you notice that the retail is powering and going up, you would expect that the margin goes up. Credit costs, the expenses -- operating expenses goes up before even the net interest margin starts to come because that is the nature of the retail. It calls for upfront spending to get the volumes in and accrual comes over time. Then the credit cost, which is at the benign, normalizes over a period of time, right? So that is the kind of an operating model that operates. So as the net interest margin is coming, we see some credit costs also coming because the maturity of the products go up and operating costs come right up front. That is the kind of a model in which the retail operates. So I hope, I give you a broad picture of how to think about the net interest margin as the mixed [ post ].

[Operator Instructions] We have our next question from [ Sok Po Yo ].

Just want to clarify one thing just now. You mentioned as part of the application for the RBI process, sorry, can I just clarify, you mentioned that the borrowings of HDFC -- sorry, I just wanted to clarify how that particular point on the RBI application process on how the borrowing of HDFC would be moved over to HDFC Bank.

Yes, that is correct. See, in the merger process, we expect the assets of HDFC Limited to move to the bank. And along with the movement of the assets, we are expecting that the liability also moves to the bank as is with the profile that it exists today.

Okay. I understand. And just -- maybe 2 questions. First of all, sorry, I think it was covered a bit earlier. But can I just hear again, in terms of the specific deposit growth strategy the bank has in place, given, I mean, the scale of HDFC Limited and its wholesale funded nature, can we hear in a little bit more detail in terms of the growth strategy for the deposit replacement on the wholesale funding? And secondly, is there an intended steady-state liability mix for the merged entity?

Okay. So you talked about the deposit strategy, which is -- let me try to be -- let me try to explain to you if that makes any sense to you. One is as part of all of this is to leverage the brand. And leveraging the brand, we are opening up various distribution centers to get that brand recognition in various geographies that we would like the deposits to come. Because customers, we believe, still want to look at the brand, identify themselves with the brand and an organization who feel comfortable because their money is sitting in the bank, right? So they want to ensure that, that brand recognition is there. So we are opening up distribution centers. Our distribution centers, we are keeping it as minimalistic as it can be, but the process in the distribution centers -- branches are digital processes. So just because we have an office, it doesn't mean that we are in a traditional type of a branch banking approach. It is a point where our sales and relationship managers locate themselves, huddle and go to the catchment areas to bring the customers. So that is part of what we've already embarked on. Now with an accelerated manner, we are moving in the direction to open branches, call it [ 1,500, 2,000 ] branches or so per year over the next 3 years, we want to open. That's one. Then the second aspect of the branches is to bring the customers in. Today, we are bringing in customers 2.6 million a quarter. Last quarter was 2.6 million liability relationships coming in. As a context, if I tell you about 4 years ago, it was 3 million customers a year that we were bringing, right 1 year, 3 million customers 4 years ago. Now 2.6 million customers in a quarter. So that's part of how we have accelerated in terms of bringing in new customers into the bank. Then when you get in the new customers, there are 2 aspects to deepening the relationship. One is the new customers bring in, that is the new account value. So you manage the new customers coming in with their value. And there is another strategy to deepen the relationship, which is in terms of the existing customers and as the maturity of the customer cycle goes, deepen those relationships, wallet share, bigger wallet share coming in. So those are 2 substrategies once we get the customers in that moves on. The third aspect of this is in terms of the branch maturity model, right? So we have branches which are open over the last [ 28 ] years, which have different vintages. There are in different cycle, different curves of the vintage model. About, call it, 60% of the branches are less than 10-year vintage and slightly under 2,000 branches are less than 5-year vintage, right? So that's the kind of a vintage model we look at. And as the branches mature, it gives much bigger value. So that means in the first 5 years of a branch's existence, say they give you x being attributable value [ per 100 ], right? In the first 5 years of a branch existence from 0 on day 0, it gets to approximately 100 in 5 years. Once it crosses and gets to 5 to 10 years, that x becomes 3x, that is the maturity model of the branch. And once it crosses the 10 years to 15 years bucket when it goes, it becomes 10x. That's the scale at which it moves, right? So we have published I think recently, a couple of months ago, how many branches are in what maturity cycle. So that means what are in that 5-year -- 0- to 5-year cycle and 5- to 10-year maturity cycle and 10- to 15-year maturity cycle and so on, we published. So that's part of harvesting investments that we have made, get that branch to do that beginning of that wallet share, bringing in new customers to get those balances. So that's probably another part of the strategy is to run that best-in-class branch operating model, right? Then one more item I want to give. There are several things that go on, but maybe one more and I will close there. Time deposits, right? It's a very critical element of our current strategy. The time deposit we have, which is our last quarters CASA ratio was [ 45% ], so 55% is time deposit. 82% of our deposits are retail, right, so that we want to continue to focus ourselves on the granular retail deposits. Now the time deposits, which is 55% of the total deposits, we have a penetration of 14% in our customer base. So we want to deepen that penetration even further, because in the asset allocation model of any customer for that matter, there are several kind of investments they do, right, something in equity, something in bonds or something in real estate and something in liquid assets like the fixed deposit and so on. So we have had this resource for a period of time when the part of the engagement with the RF. Right now, we are vehemently engaged with our customers through our relationship managers to ensure that we remain the primary banker. And if the time deposit is not with us. But as part of their asset allocation, they have time deposits somewhere else, we want to bring it in into the bank, right? So that's part of another one that we are trying to deepen the relationship by bringing in. And again, these are very granular targeted time deposits. As I alluded to earlier in this call, not led through price, not led through premium pricing. That's part of -- time deposits is another pillar of our deposit gathering strategy.

Yes, it's helpful. Just to understand a bit more detail, that's really helpful. The other question, if I may. When we think about the merged entity and given the current liability profile of HDFC Limited, is there a kind of like a steady-state liability mix that we would have in mind?

It wasn't clear. Can you -- if you don't mind to ask again, please.

Sure. Given -- I mean, post-merger of the banking entity and HDFC Limited, is there a planned liability mix? Given you're looking to replace some of the wholesale funding that sits at HDFC Limited with the retail and corporate kind of deposit funding, what would the combined entity, I guess on a 3- to 5-year basis, look like in terms of the liability mix?

I'll tell you the -- I'll tell you our approach in the way we look at it. We are focused on retail deposits. Currently, 82% of our deposits are retail. And that is part of the strategy just now I give you in terms of how we continue to focus on retail to [ fix that ]. One other element of our strategy -- that doesn't mean that's why I said 82% is retail. The other 18% is nonretail. It can go -- 18% can be 20% or thereabouts, in that range, right? And at some point in time, it was 75%-25%, but that is the order of magnitude I want to leave you with, right? So it's not that we do want wholesale deposit, but our predominant focus on drive is for granular retail deposits because that is what gives maximum value. So that's part of all the things. Then having said that, one other pillar of this, and that remains in HDFC Limited and when it comes here for us, that is how we also think about it, infrastructure kind of borrowing. When we do affordable housing infrastructure borrowing, those borrowings are quite valuable to us from both -- from a maturity profile, relationship matching with mortgages. And various other benefits that it can provide us from an effective cost of funds after various other elements that we've take into account. So that will also be part of the strategy to go. And what is the exact mix, that is market-dependent and time-dependent through the cycle. So there is no particular. But these are the elements in which we operate.

[Operator Instructions] We have our next question from [indiscernible].

I would like to ask if you could throw some light on the overseas funding requirement for your international operations, both senior and AT1.

Thank you. In terms of the overseas funding requirements, I'll first start with the AT1. At this point in time, there is a regulatory restriction on how much of AT1 bonds -- banks in India can raise from overseas. We are quite close to the restrictions, having issued a total of $1.1 billion of AT1 bonds last year. So in that sense, we do not have much of headroom and this was under current regulation. So we are -- that's something which is very unlikely to be issued by us. In terms of senior bonds, as in the past, we are really a very low -- less frequent issuer. And depending on how our international operations progress in terms of tenor of advances overseas, tenor assets overseas, we would look at -- we could look at some senior bond offering. But at this point in time, most of our international operations asset side is of low duration. So at this point in time, we are more reliant on bank loans and search funding rather than to the bond market. But depending on -- we have, in the past, also been a reasonably opportunistic issuer of senior bonds, and we are likely to continue in the same manner.

[Operator Instructions] We have our next question from [ Joanne Huang ].

It would be great if you could please answer the below question. How do you see credit growth picking up for the rest of the financial year? And have you seen any compression in net interest margins in the corporate book, please?

You're talking about the credit growth in the current financial year. I think a few minutes ago, I was trying to describe the credit growth, the underlying credit growth seems to be quite robust across various segments, right? The retail was the leader of the pack for us, as you saw in the recent quarter 2 with a good 4.9% sequential growth, or excluding the auto and 2-wheeler, almost 6% sequential growth. So we continue to see the momentum. Cost spending is also another kind of an indicator. We are seeing that there is an underlying spend enthusiasm along the consumers. We see that. Commercial and rural banking, the middle market segment also we've seen quite a robust on the small merchants, which is a little more than 1/3 of the country's GDP is powered by that SME type of segment, where both new to bank customers and existing customers are having adequate and nice cash flows, growing cash flow. So we feel that a good amount of traction is gained there. Wholesale segment, I alluded to, we see quite a good growth. Last quarter was 15.7% year-on-year growth. We will see good traction there. Working capital front, that is business as usual. On the capital front, that means on the capacity augmentation, our participation in infrastructure to a limited extent we have seen, but we are waiting and watching that space because we do expect something coming there. So that's in terms of how we are seeing the underlying credit momentum. Then on the net interest margin that you talked about, I think I described that a couple of minutes, few minutes ago. Same thing. If you think about our net interest margin, it's a function of the mix of various products, right, which is the wholesale and the retail mix that we have. When the retail mix is at 53%, 54% and the wholesale is at 45.7%, the net interest margin moves in the band of 4% to 4.4%, more closer to the middle to the top end of the bank. That's where it is. And with the wholesaler at currently 55%, it is at the low end of that at 4% or so, that's where the net interest margin is for now. So we do expect that the retail, which we have seen in recent times pick up, the margin starts to pick up as soon as the mix changes.

We have our next question from Matthew Chen from Tecon.

I just wanted to follow up on a previous [indiscernible] bonds that even though [indiscernible] AT1 is trading [indiscernible] buy back from all AT1?

No, there's no plan because from a regulatory perspective, we are not allowed to buy back our AT1, so it's something which we're not going to do.

I now hand you over back to your host, Siddharth to conclude the call. Please go ahead.

Thanks, Carol. Thank you, Mr. Vaidyanathan and Mr. Parthasarthy for your time. Thanks to all the investors as well for taking your time for this call. If there are any further questions, please do not hesitate to reach out to the [ HSBC ] team. I will now close the call. Thank you.

Okay. Thank you, Siddharth, and thank you for the participants. I appreciate joining me.

Thank you. Thank you all.