Release Date: July 20, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- HDFC Bank Ltd (HDB, Financial) has maintained stability in key metrics such as NIMS, CASA ratios, cost to income, GNPA, and ROEs despite a challenging environment.
- The bank has seen a steady build-up in average deposits, indicating resilience and a secular upward trend.
- HDFC Bank Ltd (HDB) has added 2.2 million new customer relationships in the quarter, showing strong ground-level activity.
- The bank's inflows from various products and deposits have been increasing, with monthly inflows up over 20% compared to the same period last year.
- HDFC Bank Ltd (HDB) has been disciplined on pricing, avoiding rate competition and focusing on engagement and service delivery to win customers.
Negative Points
- The bank's net accretion to deposits has fallen short of expectations, partly due to unexpected flows in current accounts.
- There has been a significant drop in borrowings over the last two quarters, which may impact the bank's leverage and growth potential.
- The unsecured personal loan growth has been sharply lower than some peers, indicating a conservative approach that may limit market share gains.
- The bank has faced challenges in meeting PSL obligations, particularly in the small and marginal farmer category, which could impact compliance costs.
- There has been a slowdown in fee income growth, with a significant portion of the growth coming from third-party products, indicating potential challenges in core banking revenue streams.
Q & A Highlights
Q: Shashi, my first question is on LDR. So when you say, you wanted to possibly LDRs could come down faster than anticipated. All the large private banks, of course, one is at above 90%, but most of them are on an average of 83% to 87%. So is that kind of an LDR you are hinting at and over what time frame?
A: Thank you, Mahrukh. Number one, is we don't have, rather if at all, you're expecting that is there a prescription from anybody, including the regulator, whether there is a prescription for a loan deposit ratio. Not at all. As I mentioned, it is in our interest to have a glide path. True, you're absolutely right. It's theoretically, I would love to do this in one year, but is it feasible? Is it practical when you have an objective of profitable growth? Absolutely. You're absolutely right that it's not something that I can do where I can just drop it in one go. And then done with this, et cetera. It's not practical.
Q: If I can start off with the deposit market share question. It's a historically, you've done about 18%, 19% you know, if I look at the last five, six, five, six years. Last year was about 12%, if my numbers are correct and it's a much more healthier banking system, everybody is well capitalized on the front foot asset quality, risks are low. In this environment, like would you hold yourself to taking a certain amount of incremental market share over the next two, three, four years?
A: Chintan on the market share, if you see that, yes, you are right, that if you look at us over the last three, four years, in 2020 March, we were more closer to 8%, slightly above 8%. In '24, slightly above 11%. So over a period of, say, three, four years, we have got a little more than 300 basis points out of which 50, 60 basis points came through the effect of the merger. Other than that, call it 50, 60 basis points a year is what we have added on a market share. I do want to mention that the opportunity space to gather the market share remains. I want to remind that our distribution market share, the distribution share that we have, that 6%, right? So we have a little, not exactly 2, maybe 1.8 times of distribution share is what we have from a value market share point of view.
Q: One on the (inaudible) I mean, (technical difficulty) Yes, okay, so if I'm looking at the last few years, RIDF bonds and PSLC that you bought, it's gone up 25%, right? And (inaudible) this is remember when your base is INR16 trillion and it shoots up to INR24 because of the last year's high base. Now, are you confident that, you know, you can meet some of these obligations, especially the shortfall in the SMS and still protect your margins because, it is getting a bit tougher now going higher?
A: Suresh on the (inaudible) see the way the math works is the RIDS is for the entire book, including what was the power shortfall. You cannot compare the book RIDF, the PSL series of flow through the P&L. So it's the way to compute. This is not to see whether the book RIDF and the PSLC divided by the balance sheet to see whether the growth or not. It's cumulative needs to be thought through differently. And then we'll chat offline on that one, but it's, from a direction wise, if you see annual report as well, you'll see that year-on-year, we have become much better in terms of compliance, and that's something which will continue to do.
Q: Sir, at the time of the merger and subsequent to that and in some of our communications, we had mentioned that the merger is likely to be EPS accretive for us on day one, from day one, right? Now was that, did that have certain assumptions of, you know, from either the regulator allowing us for, let's say, for infrastructure bonds or certain other classifications and those have not materialized? Or is there something else that was in terms of assumed and that has not played out.
A: Ravi, yes, at the time of merger, you know, the economic conditions, including the liquidity system, liquidity and RBI stands on how the economy and the funds in the country were managed was at one state and today it is at a different state, right? So the conditions have changed. That's that's number one. And number two, some of the forbearances, for example, be the forbearance on infrastructure borrowing, qualifying to fund the affordable housing or on certain of the deposit category, the non liable deposits category that we took over some of those assumptions are different. That's the second aspect. Third aspect, I do want to draw your attention to the EPS since you mentioned it. The EPS for the bank, June pre-merger was 21.4%, and last year, June. And in this quarter it was 21.3%. So thereabouts, right, it is a similar levels and then if you look at this quarter, it's between that 21% one 21.6%, 21.7%, 21.3% and thereabout from an EPS point of view.
Q: So the question is on PSL again. When we look at it, almost like 53%, but again, that's on last year's balance sheet. But looking at it in terms of the sell-down (inaudible), which have been there in PSL, what we have disclosed in the annual report. And the overall ERV growth also being lower. Is that giving an indication that we are relatively more comfortable on PSL? And then in that context, how should we look at the overall ERV growth vis a vis the overall loan growth?
A: So Kunal, on the PSL, two aspects to keep in mind all the time, which is, there is a small and marginal farmer. A weaker section, which could have dual qualification. If you get a small and marginal farmer, it could have dual, it will have dual qualification and weaker will be satisfied. So that is one category that is in greater demand. We need that. We need more of that. So that is something. Other than that, you alluded to CRB, that is why I'm talking about it. That particular segment is driven largely by CRB and by non CRB, which is agri segment, the SLI segment and various other business lines, which have some linkage to agri or allied agri, also bring in, but largely CRB. But however the rest of CRB, when you think about the business banking or think about
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
