HDFC Bank Limited (HDB) Q3 2024 Earnings Call Transcript

HDFC Bank Limited (NYSE:HDB) Q3 2024 Earnings Call Transcript January 16, 2023 7:30 AM ET

Company Participants

Srinivasan Vaidyanathan – Chief Financial Officer

Conference Call Participants

Mahrukh Adajania – Nuvama

Pranav Gundlapalle – Sanford

Suresh Ganapathy – Macquarie Research

Rahul Jain – Goldman Sachs

Kunal Shah – Citi Group

Chintan Joshi – Bernstein

Nitin Aggarwal – Motilal Oswal

Abhishek Murarka – HSBC

Anand Bhavnani – White Oak Capital

Operator

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited’s Q3 FY ’24 Earnings Conference Call on the financial results presented by the management of HDFC Bank Limited. [Operator Instructions] Please note that this conference is being recorded.

I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, sir.

Srinivasan Vaidyanathan

Okay. Thank you, Nirav. Good evening, and a warm welcome to all the participants. There is an earnings presentation deck published on our website. Please refer to it as appropriate. As you get to it, in the meantime, let’s cover a brief on the macroeconomic environment that operated during the quarter before we review the earnings. We continued to see healthy domestic activity — economic activity driven by robust common spending, primarily in capital expenditure, improvement in domestic manufacturing and resilient services sector performance. As you know, the GST collections grew 13% year-on-year.

Manufacturing and services PMI continued to remain in the expansionary zone and the consumption side improved consumer demand driven by sector spending resulted in robust growth across various sectors. Our [indiscernible] rate unchanged at 6.5% and retained its stance and changed at withdrawal of accommodation and modestly reduced its inflation forecast in the second half of the year. As we look ahead, the economic environment is poised for strong growth. India’s year-on-year GDP growth for financial year ’24 is estimated at about 7%. And for financial year ’25, GDP growth rate is expected to be around 6.5%, continuing to be one of the fastest-growing major economies in the world.

Let’s go through the key factors of the bank’s growth journey. Advances can be referred to on Page 7 and 8. Gross advances are at INR 24.7 trillion as of 31st December, reflecting the sequential momentum of INR 1.1 trillion or 4.9%. Retail advances grew 3.3% quarter-on-quarter, primarily driven by strong performance in the mortgage business.

Retail mortgage disbursements of INR 460 billion during the quarter grew 18% over prior year. In the CRB business, it continued its strong momentum, registering a quarter-on-quarter growth of 6.7%. Wholesale segment, excluding non-individual loans of HDFC grew 1.9% sequentially. Non-individual loans of HDFC aggregated to INR 0.99 trillion compared INR 1.03 trillion as of last quarter end.

Focus on the primary deposits continued. Looking at Pages 7 and 9, total deposits as of December end amounted to INR 22.1 trillion, primarily comprising of retail deposits, which is at 84% of total deposits. Retail deposits, which are the bedrock of the franchise, grew well over INR 530 billion or 2.9% during the quarter, while non-retail deposits reduced by INR 118 billion quarter-on-quarter resulting in total deposit growth of INR 411 billion or 1.9% during the quarter. Current account deposits ended the quarter at INR 2.6 trillion, registering a growth of INR 80 billion or 3.2% sequentially or INR 280 billion, 12.3% over prior year.

Savings deposits as of December end at INR 5.8 trillion grew INR 99 billion or 1.7% sequentially and over INR 430 million or 8.3% year-on-year. Overall CASA deposits ended the quarter at INR 8.4 trillion, resulting in a CASA ratio of 37.7%. Term deposits aggregated to INR 13.8 trillion as of December end and grew by INR 232 billion or 1.7% during the quarter.

On the distribution footprint expansion, referring to Page 10, it reflects our branch network, which stood at 8,091 outlets as of December end. Overall, there has been an increase of 908 branches over the last 12 months. During the quarter, we added 146 branches, which is at the rate of 1.6 branches per day.

Payment acceptance points are at 4.8 million, a year-on-year growth of 25% as adoption of Vyapar app built momentum. In CRB, our rural business reach expanded to 210,000 villages, a growth of 60,000 villages over last year. In the customer franchise building, we added 2.2 million new customer liability relationships during the quarter and around 7.4 million relationships so far in the current fiscal year.

Our customer base stands at 93 million customers. This provides an opportunity to further engage and deepen our relationships. In order to position us for greater engagement, we have added 41,000 employees over the last 12 months and 10,000 during the quarter. On cards, we issued we issued 1.6 million new cards in the quarter. Total card base stands at 19.9 million.

You’ll see on Page 11, balance sheet remains resilient. LCR for the quarter was 110%, capital adequacy ratio was at 18.4%, Tier 1 ratio at 16.8%. Let’s start with net revenues on Pages 12 and 13. Net revenues for the quarter were at INR 396 billion, grew by 25.8% over prior year. Net interest income for the quarter, which is 72% of net revenues and is at INR 285 billion, grew by 23.9% over prior year. The core net interest margin for the quarter was at 3.4%, and on an interest earning asset basis, net interest margin for the quarter was at 3.6% and was flat to prior quarter.

Getting to details of other income on Page 15. Total other income at INR 111 billion. Fees and commission income, which is almost close to 2/3 of the other income was at INR 69 billion and grew by 15% over prior year. Retail constitutes approximately 94% of fees and commission. FX and derivatives income at INR 12 billion was higher by 12% compared to prior year of INR 11 billion. Net trading and mark-to- market income were at INR 15 billion for the quarter, prior quarter was at about INR 10 billion. Other miscellaneous income of INR 15 billion includes recoveries from written-off accounts and dividends from subsidiaries.

Referring to Page 16 on operating expenses for the quarter, which were at INR 160 billion, an increase of 28% prior year. Cost-to-income ratio for the quarter was at 40.3%. Cost to assets was at 1.9%.

Coming to the asset quality on Page 17 to 19, the GNPA ratio was at 1.26% compared to 1.34% in prior quarter, and 1.23% prior year. Out of the 1.26%, about 15 basis points are standard, but the core GNPA ratio is at 1.11%. However, these are included by us in NPA as one of the other facilities of the borrower is in NPA. Net NPA ratio for the quarter was 0.31%. Prior quarter was at 0.35%. The slippage ratio for the current quarter is — slippage for the current quarter is at about INR 70 billion or 26 basis points. Last quarter was at about INR 78 billion.

During the quarter, recoveries and upgrades were INR 45 billion. Write-offs in the quarter were at about INR 31 billion. No sale of NPA accounts during the quarter. On the provision side, total provisions reported were around INR 42 billion. And excluding the contingent provision, it was INR 30 billion as against INR 29 billion during the prior quarter and INR 28 billion for the prior year. As I just mentioned, the total provisions in the current quarter included additional contingent provisions of approximately INR 12 billion, and it is pertaining to investments in AIF on a prudent basis. The fair value of AIF is up by INR 5 billion, but 100% provisions are being taken at book value. The core specific loan-loss provisions for the quarter of around INR 26 billion as against INR 25 billion in the prior quarter.

The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately INR 154 billion, general provisions were INR 105 billion. The total provisions comprising specific floating, contingent and general were about 159% of gross nonperforming loans. This is in addition to security held as collateral in several of the cases. In addition, the bank holds contingent provisions of INR 12 billion on a prudent basis to AIF I just mentioned. Floating contingent and general provisions, excluding the contingent provision on AIF were about 105 basis points of gross advances as of December end.

Coming to credit cost ratio, the total annualized credit cost ratio for the quarter, excluding the contingent provisions I just referred, was at 49 basis points, prior quarter was also at 49 basis points. Recoveries, which are recorded as miscellaneous income amounted to 13 basis points of gross advances for the quarter as against 16 basis points for the prior quarter. The total credit cost ratio, net of recoveries, was at 35 basis points in the current quarter as compared 34 basis points in the prior quarter.

The profit before tax was at INR 194 billion, grew by 19.8% over prior year. After INR 15 billion of tax provisions no longer required, consequently to the favorable orders received, net profits after tax for the quarter was at INR 164 billion, grew by 33.5% over prior year.

Summaries of subsidiaries can be seen on Pages 21 to 26. On HDB — to cover on HDB, the quality of the book continues to see sustained improvement with a gross stage 3 of 2.25% as of December against 3.73% as of prior year-end — prior year end — prior year. Provision coverage on Stage 3 book stood at

68%. Profit after tax for the quarter ended December increased to INR 6.4 billion against INR 6 billion for the quarter ended September 30. ROA and ROE annualized for the quarter of December stood at 3.1% and 19.9%, respectively. Earnings per share for the quarter was at INR 8.04 and book value per share stands at INR 164.6.

Now getting to HDFC Life on an IGAAP basis. The profit after tax for the quarter ended December was at INR 3.7 billion, grew 16% year-on-year. India embedded value at INR 451 billion improved 20% compared to prior year.

On AMC, quarterly average AUM at INR 5.5 trillion grew 24% year-on-year. Profit after tax for the quarter amounted to INR 4.9 billion registering a year-on-year growth of 33%. Earnings per share for the quarter was at INR 22.9. HDFC ERGO on an IGAAP basis. Profit after tax for the quarter ended December was at INR 1.3 billion, registering a growth of 6% year-on-year. Solvency ratio at 187% as of December end. HSL, our securities company, the total reported revenue for the quarter — total reported net profit for the quarter after tax was INR 2.3 billion as against INR 2 billion in Q2 ’23. Earnings per share in the total was INR 144 and book value per share stands at INR 1,253.

On ESG, kicking up our CSR commitment, the bank has undertaken multiple projects across India, with an aim to address critical developmental issues such as sustainable livelihood, education, soil and water conservation and key ratings and awards are in Page 27 for reference.

In summary, our results reflect robustness in growth across various parameters driven by employees passionately working with our customers to execute the business model, which has resulted in an advances growth sequentially of 4.9% and 2.9% sequential momentum in retail deposit growth. Profit after tax for the quarter increased by 33% versus prior year, delivering a return on assets in the quarter of about 2% and return on equity of about 15.8%. Earnings per share reported in the quarter is at INR 21.6 on a standalone bank level and INR 22.7 at the consolidated bank level. Book value per share on a stand- alone basis is at INR 556, and on a consolidated basis, it is at INR 576.

With that, may I request the operator to open up the line for questions, please?

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama.

Mahrukh Adajania

Sir I have two questions basically, and the first one in general is on deposit growth. Sir, in general there’s a lot of noise around RBI having a discussion with banks on LDR, plus deposit growth has been very, very tight in November and December irrespective of whether you’ve had a discussion with RBI or not. So how do you view deposit growth and LDR from here on? If you could give us some sense target or guidance on how LDR will pan out, or what LDR are you looking at in FY ’25.

And a related question to that is that if deposit taking remains tight irrespective of the LDR debate, then what would you choose? Would you choose to offer higher rates compared to competition because you ask rate for deposits is on the higher side now? Or would you choose lower margins if the deposit situation remains like this for say 2 quarters?

Srinivasan Vaidyanathan

Thank you, Mahrukh, for asking. If I miss anything, come back, but let me start with your first one in terms of the deposits and the CD ratio itself, right? It probably addresses a broader point that many of them would have. If you think about — first of all, any conversations with RBI is confidential, and it is between the regulator and the bank. So we will not be able to talk about any individual conversations or anything else. So keep that to the side. That’s not your main point. Your main point is in terms of the rate of growth of deposits as well as on the CD ratio, given where it is. So let’s talk about that.

Now on the deposits if you see. Firstly, on the deposits I do want to mention that how we approached it here. At an overall level, our deposits grew by INR 411 billion. At an overall level, our deposits were at that level. Yes, yes, I am closer to the mic. I think somebody is saying they can’t hear. So INR 411 billion. That’s the total growth that we had. Within that, if you see the retail deposit growth of INR 530 billion and 2.9% during the quarter. However, nonretail deposits reduced by INR 118 billion, INR 118 billion quarter- on-quarter it reduced, almost 3.3% reduction sequentially in the nonretail deposit. Again, very price- sensitive. We chose not to participate and get that price thing up. And we wanted to focus more and more on granular there. So that’s one.

And if you think about the individual component of various deposits, we did — I talked about the current account growing at 3.2%, and within the current account, the retail current account constitutes 72% and has been growing 3.8% sequentially. And the savings account deposits I’ll come back and talk about the savings as such, right? There is something on the savings which is — we need to see that, right? Where you are seeing 2 things on savings. One, given the rate where we are in peak is the preference for time deposits. Two, in terms of the spend, we are seeing good amount of spend that is happening from the customers. In our own base, we can see 18%, 20% spend from — on the issuing side — on the acquiring side from a cards point of view.

So people are spending. And one other measure we stick, we look at our — aggregate of our card customers what is the balance that they have, right? If you look at the card ANR versus the deposit against it, almost 5.4x they have, right? That means for every 100 that I have as my card balance outstanding, I have 5.4x that in my savings — in my deposit account in the bank. So there seems to be more spending room there to go. So that’s one. And from a rate cycle point of view. And how do you overcome that is to get more customers. I talked about 2.2 million customers, 7.4 million. These are the kind of what we have. Now coming to the — what does it all do from a deposit growth…

Mahrukh Adajania

Sir?

Srinivasan Vaidyanathan

Yes. I’m here. So I’m getting — you can’t hear? Can you hear?

Operator

Mahrukh, can you hear us?

Srinivasan Vaidyanathan

Okay, I will go ahead. Probably she is — you can hear, Nirav?

Operator

Yes, sir, I can hear you fine.

Mahrukh Adajania

Hello?

Operator

Yes, Mahrukh, now you are audible.

Srinivasan Vaidyanathan

So getting to our CD ratio as such, right? Yes, the LDR, which is the CD ratio that you alluded to, it’s a little more than 110% as we close the quarter. Over a period of time, if you see in this quarter, how did we manage the balance sheet. We had INR 1.15 trillion growth in loans, if you see. And we funded that through INR 411 billion on deposits. And you had investments going down by about INR 485 billion and cash and cash equivalent by about INR 96 million. So essentially, we funded that by the balance sheet somewhat coming — not on the asset side. We got that self- funded through some lower investments. That is what we’re seeing in the LCR ratio going down 110%. So some of the securities came down and cash came down as the ICR ran down on October…

Mahrukh Adajania

I’m unable to hear you.

Srinivasan Vaidyanathan

Nirav, can you hear?

Operator

Yes, sir. Sir, line for Mahrukh has dropped. We’ll move to the next participant. Next question is from the line of Pranav from Bernstein.

Pranav Gundlapalle

I think a question, again, related to deposits, the one question. When you think about deposits this quarter instead of say INR 400 billion that you treated, if you had to double or triple that number, which is the biggest constraint? Is it the LCR, which is a constraint, or is it simply the cost of deposits, or is it the lack of good lending opportunities? Where are you seeing the biggest constraint?

Srinivasan Vaidyanathan

Yes. The biggest constraint is in the area of deposits, right? And if you look at what has happened in the system, very important to look at the liquidity in the system, how it has moved. If you see, it has been positive ever since Q1 ’20. The system liquidity has been positive since Q1 ’20. And now it has moved to a negative territory. All the way, if you look right now, this is the first quarter — full quarter that Q3 that it is a negative INR 664 billion, right? That’s the negative situation in the quarter system has gone down by, that’s the average that you’re seeing.

So it’s the lack of liquidity in the system. Rightfully so if you look at how RBI has managed, there is no rate change that has happened. But the inflation that spiked 4 months ago, 5 months ago, has been managed through liquidity constraints, right, through working on the liquidity side. That is what has happened on a temporary basis.

But over quarter-to-quarter, this is happening, but it is coming after more than 3 years, 3.5 years, right? We are seeing liquidity on the negative, which has been there. If you look at last 10 years, there have been several quarters in the past in ’13 or in ’15, 2013, 2015, where it has been negative. But this order of magnitude negative is very recent, in the last 3 months it has become negative. So that deposit is an important ingredient, that is the important constraint to growth, right? And we are at it.

And within that, I will tell you retail has done reasonable. We would have liked retail to do 50% more, 80% more than where we did. But it is the wholesale, if you see not just a lack of growth, it’s a degrowth in the nonretail on the deposit side. That is where it is very price sensitive. We chose not to participate in that price as much as possible. We have avoided that so that we can consume some liquidity that we have and at the same time, make progress on the asset side. But that can’t continue for long, as you know. LDR ratio is at 110-something. So we do need deposits to be kicking in for the loans to be operating. That also answers what Mahrukh was asking, very similar thing that you’re asking. Yes, we do need the deposits to be coming in.

Operator

Next question is from Suresh Ganapathy from Macquarie Research.

Suresh Ganapathy

Srini, so just want to understand what is going to drive the margins in the future. Because if I look at it this quarter, you sold of INR 50,000 crores, your LCR is at 110%, you can’t go below that. There is no excess liquidity assets at 110% LCR, right, and funding costs may remain elevated. So when you are saying I want to go from 3.4% to 3.7%, incremental CASA mobilization is getting to be a challenge. .

Term deposit growth is high. Your HDFC Limited borrowings are sitting there at 7.5%. So deposit growth is finding difficult to meet your own loan growth requirements. When are you going to replace the HDFC Limited liabilities. So amidst all these challenges, what will drive your margins, say, from 3.4% to 3.7%, say, over the course of next 18 to 24 months? Will it be yield on loans? Because it doesn’t look like it can go through cost of funds? That’s the first question. If you can elaborate the movement in margins. Some indication as to what will be the components and how are you going to manage the HDFC Limited liability replacement with deposits, point number one?

And the second thing is, 1,500 branches doesn’t look like it’s happening this year because we have only opened 290 branches — sorry, 270 this year. You’re going to fall short of your 1,500 branches target by a wide margin. What is the thought process there? Over to you, Srini.

Srinivasan Vaidyanathan

Okay. Yes, thank you. I’ll take the second one first. From a branches point of view, yes, there are a little more than 500, 550 branches in the pipeline as we closed the quarter. And we are targeting somewhere maybe 800 to 1,000 branches or so, right? If we do 1,000 branches, it would be good. A little more than 500, 550 branches are in the pipeline. So that’s something on the branches. 1,500 is not something that will happen by March, right? 1,000 is something that is possible. But at this time, we are having about 500 plus in the pipeline, that’s 570 more precise in the pipeline.

The second aspect of it is in terms of your levers for margin and the deposits as such at total level. If you look at the mix of products that we are having, the mix of products, one of the important lever is the retail mix to be enhanced, right? Retail mix has been continuously coming down. And that is something that will help us to go. And of late, in the recent times, if you see, we haven’t had that kind of a market rate of growth on the unsecured as such. Our personal loan has been growing 2% to 3% over the last 2 quarters. So we do have opportunity space there. That’s part of our credit kind of process, where periodically, they calibrate up and down. And now we believe that the overall credit both from an NPA point of view and credit cost point of view are at a benign state. And so whatever testing and other things may do, we are positioned to have a good growth there. That’s one.

Retail asset growth, particularly the nonmortgage retail asset, where there is a yield, needs to come up. And the mortgage is another big opportunity that we have, both existing customers, where we have almost 4.8 million preapproved, prequalified database to go through, which we have done in our existing base who are eligible that we are making offers and talking about it. And also 5.6 million customers who already have somewhere we are targeting that. So that’s — in terms of the retail mix needs to go up, that is an enhancer for the margin. And to some extent, it picks up on the ROA too, right? So that’s an important mix. That’s not what we have seen in recent times. The recent times, the wholesale growth has been overwhelming the retail loan growth. We do need to reverse that. That’s part of the process in terms of what we are going through.

Now getting to what are the other levers, which you also mentioned, but there are headwinds on that, right, CASA ratio. We are at 37.7%. Even before merger, we were 42%. Over a long period of time, we were 42%, 43% thereabouts. We are confident of getting the CASA ratio back up. There are 2 aspects to the CASA ratio. One is the customer spending will abate at some point in time. And the second thing is that we are getting new customers. That is why it is important to get new customers, 2.2 million new customer liability relationships were brought in, in this quarter, 7.4 million over the 9-month period. It is important to bring new customers and get them to a maturity. So that is an important thing that we are working on to get that from a CASA ratio to go back up.

And also we’re at the rate cycle — the rates haven’t moved for several quarters now. And by all accounts, we are at the peak of the rate cycle. And the deposit repricing that needs to happen in a quarter or so should be done because the rate cycle started in May ’22, and then the CASA should be back to its normal growth, right? So that’s something on the CASA ratio. We do — we are waiting and vehemently pursuing that to come.

The other aspect that you said, borrowings, whether the borrowings can — how do you replace the borrowings with deposits? Yes, 8% of our balance sheet was borrowing, now it is 21% is borrowings. We do need to change that from — to deposit funding. But one other aspect that we have started to pursue even in this quarter is that the borrowings are — can continue as borrowing. So we got INR 7,500 crores of long-term affordable housing bonds that we have, infrastructure bonds that we issued in this quarter. The economics of that are like a deposit, not like a CASA deposit but like a time deposit, right, slightly better than a time deposit because you obviate the PSLC cost and you — because the affordable housing is tagged against it. We do have almost INR 1 trillion of affordable housing in our assets table that we can stack to. The deposit insurance cost is obviated. And so there are some benefits that come. So it equates to slightly better than our time deposits at an overall level. But that doesn’t mean we do need CASA, but there are other opportunities on the borrowings, too.

Suresh Ganapathy

Okay. And just one final question on cost saving. You guys have said you will bring down from 40% to 35% over the course of next 5 years. I know it’s a long journey, the fact that you’re opening lower number of branches. Can we get to see some benefits, not quantifying, but some benefits in that reduction next year FY ’25? At least there has to be a journey in that 500 basis point reduction, right? So we were at 40 point, I don’t know, 4 last quarter, and we are at 40.2 or something like thereabout, I mean, around the same range. Do you think it can really come down in the next 1 year or so?

Srinivasan Vaidyanathan

We are with you, Suresh, on that. Yes, we do expect normally — while we don’t give a forward-looking outlook, but on the cost to income, we have always said that we want to take it down to the mid-30s.

And that we will progressively take it down on not just towards the back end, but there should be an expectation that the cost to income should be improving. And it is a function of certain efficiencies through better digital offering, that’s one. Several things that are in the pipeline on technology rationalization is one that is a good tailwind that should account for it. And the second thing is that as we work on some of these margins, which is both the asset mix, the CASA mix and the borrowings mix moving towards deposit, as we work towards that, the numerator is also an important contributor to get to that.

Operator

Next question is from the line of Rahul Jain from Goldman Sachs.

Rahul Jain

Two, three questions. Number one, the whole debate between LDR and LCR. For you as a management team, what is it that you’re focusing on? I know you’ve put out a certain trajectory for LDR, but right now, the LCR has kind of come off to 110% as the previous participant pointed out, 110%, clearly, there’s not really much room for it to go down. So what really is a key number to focus on for you all?

Srinivasan Vaidyanathan

Okay. Listen, both are important. It’s like you need to walk and chew gum, right? You need to do both, which means LCR, as we have said before that we’d like to operate between 110% to 120%. We were at several quarters, 113%, 114%, 115% thereabouts. Then for a quarter, we went up, and then we have consumed — as we see in this quarter, we have consumed, right? So it is important around that level to keep that level of cushion to some extent, right? That’s one on the LCR.

LDR is important, right? We do want to ensure that the mix of funding moves more towards deposits. So LDR is important from that sense. And if you see, currently 110%. Then if you look at where can this go. Where can this LDR go? You look at our LDR prior to merger, it’s very important, right, a recent discussion that is developing. Prior to merger, our LDR was at 85%, right? Then now it’s at 110%. And if you remove the merger effect of the assets and the deposits on this, the LDR is more like a 89%.

And if you look at our historical range of what the bank has operated LDR over a long period of time, around that 85%, 87% that’s kind of a range that’s where we operated, historically, if you think about our LDR, that’s where we operated. So the — and today, if you strip out the merger effect, it’s about 89%.

So essentially, the LDR is a function of what has happened on the merger. It’s about 2 quarters run on the merger, which we have run through 2 quarters, and we do have a kind of a path where we do want to replace borrowings with deposits and grow further loans with the deposits. That’s the kind of a thought process. And so you should expect the LDR to go down progressively over several quarters to come.

Rahul Jain

Yes. The reason why I asked this question also, Srini, is because we’ve bottomed out on LCR and we can’t really go down any further. LDR is clearly elevated. So clearly, loan growth outlook and the visibility there on is looking a little difficult given the environment that we are in. So what do we prioritize, growth or margins? Regardless, growth and clearly, the loan growth has to come off for us to start bringing these ratios to a more acceptable range. Or if you have to grow, then margins [indiscernible] off because you’ll have to offer the increase in deposit rates further. So how are you trying to balance the 2?

Srinivasan Vaidyanathan

Okay. So I do want to mention one thing, right? We are not caught up, and we are not into one level of rate of growth as such, right? If you look at our rate of growth, there are sometimes we are slower, sometimes we are faster. But all we have done is that over a period of time, we have always doubled in every 4 to 5 years. That’s what we have done, right? Quarter or even a year can be different. But over a period of time, that is what we have done. So growth is not something that we are [indiscernible] this is the rate of growth that we want. Over a period of time, we want to because that’s the investment we have done, we need to harvest returns on those.

So we are focused on returns. So that takes you to the margin, right, would you focus on margin or growth. We certainly do not want growth for the sake of growth. If you look at our wholesale growth, we had 1.9% in the quarter. Enough demand was there. There were several banks undercutting and taking, and we’ll let that move on, right? We don’t need to be participating if it does not give returns, we don’t want to be there. And so that’s something that we are focused on. We want to do the products that are going to give us the returns.

Now on the margin, very important that you talked about the margin. Margin is important, but the first passing is about the returns. What does it give from an overall ROA point of view. That’s first part.

Then it comes because when you do a product pricing or a product charge to do to a customer, you’re looking at returns more than the margins as such. Margins to the extent that the mix appropriately gets calibrated, the margins — for us, we have never had this margin conversation because our mix has been predominantly retail and the retail rate of growth over a decade, if you see, has always outstripped the wholesale.

So there was not a necessity. There was no conversation about any margin because it comes with a hefty margin. And it comes with a credit cost also. And our credit cost is at a very benign state of sub-50 basis points right now. And if you look at our credit cost, adjusted for the mortgages, you’ll see that the mortgages because of the denominator in the lower loss rates, the — when credit cost, what does the mean on the credit cost, call it 70, 80 basis points that’s the mean and pre-mortgage merger 100, 110 basis points. So what we — what — due to the mix change that has impacted the margin that has come through in the credit cost line. So certainly, we are focused on profitable growth. But I hope that answers you in some manner that you are trying to seek.

Rahul Jain

Just 2 small questions. The branches, you said this year maybe 1,000. So is this a new trajectory that we’re looking at? Or you’ll go back to 1,500 or thereabouts in the following years?

Srinivasan Vaidyanathan

See, again, I’ll tell you one other constraint that we are also working through on the branches with this URC. This URC is something that is required, right? The mix between the unbanked rural center and so on. Selecting that availability. What is that URC that is available so that we are able to get that mix appropriately. So there is a targeted percentage with a regulatory target on URC that is more internally we would do, but we need to have a mix between the URC and the non-URC so that we can grow progressively across in a balanced manner within the regulatory approval. So that is what it is.

So if you look at whether we go back to 1,500, I think Sashi has alluded to that over a period of time, we do want to get to the 13,000, 14,000 type of branches, not just for the sake of branches. It is the geographical presence that we can have so we can tap into the pockets of both the deposits and lending opportunity in that area. So it’s not just deposit, deposits and also the lending opportunity in the area. So we would be there, but there is no hard kind of — we’re not going to push ahead with only one number.

But currently, this is what we are seeing.

Rahul Jain

I will be very generous with your time. Just a small question on the infra bonds. So you raised some money in the last quarter, I think INR 7,000 crores, INR 7,500 crores. Do you have eligible assets even sitting on the balance sheet against which you can keep raising this infra bonds? And how much would that be?

Srinivasan Vaidyanathan

We have eligible assets close to INR 1 trillion, as I mentioned. So that’s part of — which is — it can have a qualification in the sense that you may have PSL benefits because we will take it off the top line to the extent that you’re able to tack the bond and the affordable housing. And you will get the other benefits that I mentioned that the cost on the PSLC or the deposit insurance, those things are obviated. But still, any day, we need CASA. But to the extent that there are time deposits, the economics is better than even — slightly better than the term deposits due to these. Yes, there are enough asset room, if that’s the question, do we have enough assets on the asset side to face off against these infra bonds, yes.

Operator

Next question is from the line of Kunal Shah from Citi Group.

Kunal Shah

So given that the overall liquidity is tight plus the deposit traction all said and done this quarter has not been very encouraging. So when do we see in terms of tweaking the rates, given that now at least the repo rates have sustained, would we ever look at raising deposit rates beyond 7.2% just to make sure that we are on our target to get the deposits and at least sustain the growth momentum even on the asset side. So will there be a thought — no doubt, you have earlier said that we will look at branch expansion that’s going pretty slow. Even in terms of like activation of the field force still not that great response.

So at what time do we look at tweaking the rates just to ensure the deposit traction is what we were envisaging earlier, yes?

Srinivasan Vaidyanathan

Okay. See, deposit pricing is not a tool that we are having in our sales and relationship process, which means it is not a driver. The conversation would never go to say, I’m the best price deposits, come here. It’s not a conversation because that’s how — if you look at some of the comparative pricing on our deposits with our peers, we are more or less in that line, right, with our top peers, that’s the kind of a pricing that we are positioned to. So we’re not trying to differentiate on the pricing. We’re trying to differentiate on other offering features. That’s one on that.

Second, in terms of the market share, you touched upon the growth rate and the market share. I do want to allude to say that we do believe that on an incremental basis, 18%, 20% market share, we do garner, right? That’s part of the — whatever is the size that we have got, whatever is the level at which we are growing, we continue to maintain that superior rate of growth to the market, gaining market share on an incremental basis, getting that in the high teens to 20 type of incremental market share. Rates are not a play. And that is part of the reason why the non-retail deposits de-grew by 3.3% in this quarter.

Kunal Shah

Yes. Okay. And secondly, with respect to tax write-back. So last time when there was a write-back, you indicated that maybe it might not repeat and we should see it normalizing towards 25-odd percent.

But that benefit is still continuing. So if you can highlight in terms of, is it expected to continue what is leading — actually leading to this kind of — or maybe a lower tax rate, I would say? Or may this is like the investment gains, which have been there. It’s on that if you can just highlight that, yes.

Srinivasan Vaidyanathan

The tax benefits that we booked in are consequent to 2 things. One, there were certain favorable orders received relating to eHDFC Limited past assessment. So that’s one. And two, there were some favorable orders received relating to the bank for the past year. So that is based on those assessments, determine that the portions are no longer required. That’s — and it depends on time to time. And there is no such kind of a routine timing that I can predict when these orders come and when we get done. But yes, these are episodic from that sense. We receive favorable orders, the assets and we take it. And in this quarter, we have had 2 of them like that, yes.

Kunal Shah

Okay. So all orders which have been received, which have been favorable, they are more or less accounted for now and [indiscernible] spend?

Srinivasan Vaidyanathan

More or less.

Kunal Shah

Okay. And lastly, if you can highlight in terms of the maturity of the borrowing, HDFC Limited borrowing over next 1 year, which is falling due, okay? And any quarter, we would see any kind of volatility in that maturity?

Srinivasan Vaidyanathan

Maturity profile is 20,000, 25,000. There is no big maturity at least over the next 2 to 4 quarters. It is unevenly there. There’s not a spike of INR 1 trillion going away in a quarter or INR 0.5 trillion going away in a quarter that kind of profile. And I think annually, we do publish the profile of those, and you should soon get to see that, yes.

Operator

Next question is from the line of Chintan Joshi from Bernstein.

Chintan Joshi

Can you hear me?

Srinivasan Vaidyanathan

Yes, Chintan. Go ahead.

Chintan Joshi

So can I go back to the LD ratio discussion? What I’m hearing from you is that it does need to come down, but also growth will remain intact. So I’m trying to square the circle, how — like the only way LD ratios improves is if you grow deposits faster than lending. Is that what we should expect by FY ’25? And the pace of that, if you can talk about — do you have some target in mind? Or do you look at market conditions and do your best? How should we think about this?

Srinivasan Vaidyanathan

Thank you. One thing I do want to mention is that the growth rate — sustainability of the growth rate is not irrespective of what the CD ratio is. CD ratio has to improve, right? As I mentioned, typically, we have been in that mid-80s to high 80s. The merger took it to where it is today, past the 100%. And over a period of time, we do need to bring it down. So we can’t keep the CD ratio to be growing all the time. That’s not a proposition that we are envisaging. So that takes the second part of what you asked in terms of the deposit growth and how you should think about the rate of growth. Yes, we do envisage that the deposit rate of growth should outpace the loan rate of growth. And for the CD ratio to progressively come in and for the economics to work, the deposit rate of growth should be at least 300, 400 basis points higher than the loan growth, only then the economics will work better. So yes, that is kind of a thought process that we have.

Chintan Joshi

Sir, the other question I have is on borrowings and debt securities. If I look at HDFC Limited balance sheet as of FY ’23, there was about INR 1.7 trillion that was going to mature over the next year as of FY ’23.

However, we have not seen that mature. If anything, borrowings have gone higher today than the pro forma combined FY ’23 balance sheets. Is this — what was the thinking behind this? Because one way of looking at this is there was an opportunity to reduce borrowing, but it was not taken because there was profitable lending growth out there. Is that the way you thought about it? Or if you can explain that thinking would be helpful.

Srinivasan Vaidyanathan

Okay. See, in this time period, now 2 quarters have gone by after the merger. And the borrowings have remained or actually gone up in this quarter by almost INR 209 billion it has gone up, out of which about 7,500 is infra bonds, which economics work well, we have taken that. The rest are either market borrowings or other treasury-related actions, right? So it is only one item which is the infra bond, which is the borrowing as such that has gone up. The rest are market-related activities, which are there, right, in that borrowing.

The other aspect of it is that should you expect this to go down at the maturity, I think another person was asking about the maturity itself over the next several quarters. Yes, there are maturities coming, and we envisage to the extent that economics work, we will have a similar replacement. If not, it has to be replaced by deposits. And that is part of how the rate of growth of deposits need to outpace the loan growth. Otherwise, we will not be able to keep up with the loan rate of growth.

Chintan Joshi

Understood. And finally, on the CRB business, which is growing really fast. What is the overall lending yield of the CRB loan book so that we can understand what is the mix impact on the overall lending yield from the CRB given that it’s growing so fast?

Srinivasan Vaidyanathan

Okay. The CRB yield comes in about between 9% to 11%, depending on product. There are certain products that go above that. There are certain products which are around that 8.5%, 9%. But on an average, it’s slightly above 9% type of yield at an aggregate level. But there are several products, as you know, within the CRB segment from business banking to emerging corporates to agriculture loans to SLI loans to the commercial vehicle and so on and so forth. So it’s a different price point. But on an aggregate average, if you look at it, it’s north of 9%.

Chintan Joshi

So it is in line with the overall group lending yields. It’s not above the average of the balance sheet, it is in line with it.

Srinivasan Vaidyanathan

It’s a good assumption. Yes, it is not above the average. It is at that level, not dragging the overall average down as such in any meaningful manner, yes.

Operator

Next question is from the line of Nitin Aggarwal from Motilal Oswal.

Nitin Aggarwal

Srini, 2, 3 quick questions. One is on the Bandhan Bank stake sale that has happened in this quarter. So if you can quantify the gains on the sale, how much has flown in this quarter from that?

Srinivasan Vaidyanathan

See, I talked about that INR 15 billion or so on the overall, I mentioned. So not necessarily — I won’t talk about any individual particular item, right, but from an overall point of view, I did talk about the mark-to- market and trading treasury investment portfolio income INR 14.7 billion, INR 15 billion, right, which is there.

Nitin Aggarwal

Right. So this is included in the total, but you’re not like giving the separate number for that.

Srinivasan Vaidyanathan

It is included. Yes.

Nitin Aggarwal

Okay. And secondly, on the Credila, have you booked the gains in this quarter or it will come in 4Q? Like how are you looking at that?

Srinivasan Vaidyanathan

Okay. No, Credila, nothing has been booked in the December quarter. We are waiting for regulatory clearance before the transaction can close. So we are working through — or the potential purchaser is working through certain things to provide. And we are hopeful to close soon, but there is no particular concrete time that I can give, right? They have to go through approval process before it can conclude.

Nitin Aggarwal

Okay. And lastly, on contingent provisions. This quarter, we have made INR 1,200-odd crores of contingent. So any particular levels you want to reach or is it just like the flowback of the excess gains that we are having right now that we are using that? So any thoughts around how do we look at this contingent provision number?

Srinivasan Vaidyanathan

Okay. See, the contingent provision that we built in the quarter, INR 12.2 billion, we attributed on a prudent basis towards the AIF, right? There is RBI regulation to account for and look at AIF in a specific manner. So we took the chance to say on a prudent basis, we need to provide, and so we did build a contingent provision against this. As I mentioned, the fair value of the AIF is almost INR 5 billion more than the carrying book value, but we made 100% provision on a prudent basis. So again, we evaluate this quarter-to-quarter. But that’s the process, that’s a regimented process to look at it quarter-to-quarter.

There is no such targeted level of build or release that we have. We will assess it every quarter and certainly at every year-end.

Operator

Next question is from the line of Abhishek Murarka from HSBC.

Abhishek Murarka

Okay. So one question is on the unsecured loans. So after the RBI circular on risk-weighted assets and all. So there’s much that has been happening NBFC as well. What is your approach? So part one, what is your approach to unsecured loans, especially personal loans? Will that slow down? If yes, when you were talking earlier about bringing up the yield on nonmortgage retail assets, how does that affect that strategy? And second, on NBFCs, again, what’s the approach? Will you limit the percentage mix? Or will you sort of limit the absolute exposure? How do you plan to move ahead?

Srinivasan Vaidyanathan

Okay. Yes. Let’s look at the retail unsecured that you alluded to. See, the retail unsecured is extremely profitable product, and we like it. And it has to go through our credit filter. And we’ve been in that for a long time. And one of the best scorecards we believe we have that. If you look at the delinquency profile on that, it’s fantastic. The delinquency profile, the NPA profile is better than the secured book that we have. So we like it. There are times it gets calibrated up and down, and we are confident of growing the book. And let me tell you one important thing on that unsecured as such. Premerger, on the retail book, our unsecured component was 41%. Postmerger, it is about 22%. So if anything, we created more kind of a runway for faster growth.

But when we say faster growth, we are not talking about something that is a 25%, 30% thereabouts kind of rate of growth. For us, faster growth is to go into high teens to 20% type of rate of growth. That’s what we have had in the past. That’s why I’m more than telling you what we will do and trying to tell you what we have done. And we think that, that is what we will do rather than do something new about it. So we have enough headroom, enough runway and opportunity on that. It’s an extremely profitable product. So that’s something to keep in mind on the unsecured.

NBFC, see, our approach to NBFC has always been one for lending, we do want that. For corporate houses, part of various NBFCs affiliated to corporate houses, something that we work with because that’s a much broader relationship across the corporate group that we have. So that is quite profitable, and we like it and we work through that. One thing that I do want to mention is that, yes, the risk weights do add in terms of the capital that is required for it. Irrespective of that, we look at the profitability. They are quite highly profitable at the enhanced risk weight, both ROA or ROE that you see, and we like to go with that.

Abhishek Murarka

So there will be no sort of approach to limit the, let’s say, percentage of overall exposure to NBFCs in light of whatever nudges have come from the regulator, or caution, let’s say, that would have come?

Srinivasan Vaidyanathan

Correct. The way to think about it is that where it is to be directed lending, which is priority sector is #1 preference, right? And by the way, some of our NBFCs are government-sponsored NBFCs, right? So — and they’re not into consumer lending at all. And so I do want to distinguish. Of course, the circular does not distinguish between different categories of NBFCs. So our NBFC does not necessarily need to be lending only to consumers or of segmentation, which is lower than the bank-targeted segmentation for lending, no. NBFCs are also government-sponsored, government-linked NBFCs are there, where we have a good relationship with them.

Abhishek Murarka

Okay. And just another one on the cross-sell. At the time of the merger, we were talking about how you benefit from cross-selling your products to the customers who are coming to the fold. How do we track that? And when do we start seeing those cross-sell benefits, either in terms of high retail fee or can you start disclosing some sort of cross-sell metrics? So how do we track whether that’s really accruing or it’s taking time?

Srinivasan Vaidyanathan

Very good. Thanks, you touched upon that. I’ll touch you — I’ll give you one and I’ll tell you 2, 3 things that we will start to publish and show it to you. One is that, we said we want savings accounts. That’s one, because we want to offer the bank not just a mortgage product. So if you look at one month, the last month, the December. In October, we showed to the broader world in terms of how various digital approach that we have taken to offering this bundling of products. Savings account is an important part of the product suite that we offer.

Among the disbursals that we had, in 1 month, if you take 40,000-plus disbursals, first disbursals because I’m not counting for the disbursals which are ongoing, right, second installment, third installment, leave that to the side. On the first disbursals that have happened in the month — in December, roughly half-half existing to bank and new to bank, half-half of that. Among that half, which is the new bank, almost 65% of them we have penetrated with the savings deposit. So we’ve gone with the 65% penetration to start with, right? I’m talking about the December, where we are. And that penetration comes with the deposit balance, at least 1 to 2 months of EMI, which is INR 30,000 to INR 35,000 on an average we have taken from the customer base where we have opened.

So we’ll publish this. So one is savings account as a product and what is the penetration on that. That’s number one. And I give you an example of 65% of new to bank, first disbursals, we have had that, and we want to take it to 90, 95, 99. We will keep tracking and reporting that. The second one is the credit cards. We’re just beginning on that one, we will report on that as a product in terms of how we are offering credit cards. The third is consumer durable. Consumer durable, again, one is the offer.

The second one is a drawdown because the customer will not — we will make that offer on the consumer durable, customer will drawdown a month or a quarter or 6 months later as the house is ready for the person to move in and do. So — and then over a period of time, we will bring in the other products. So insurance also is something that we’ll start to disclose to see the penetration of — penetration level of insurance. The things like the demat account and the mutual funds and those sort of things, over a period of time, we will come with that. But there are 9 products that we will come up with, out of which 3 are digitally enabled. The rest will be soon, and we will start to report them and show it to you.

Abhishek Murarka

Sure. Really had to get some more granularities because that will help us figure out how the cross-sell effort is going.

Srinivasan Vaidyanathan

Thank you. We will put up a page or 2 from next time and we will have that.

Operator

Next question is from the line of Anand Bhavnani from White Oak Capital.

Anand Bhavnani

I have a question on the consumer behavior. This has more to do with seeing revolve rates on credit card being much lower than pre-COVID levels. Similarly, on the current — on the savings account side, the growth rate is weak. So, can one surmise that because of good apps available on mobile devices, consumers are now being very active and not giving in to the inertia on both the asset side, the credit cards, they are not revolving. They are just taking personal loan or something? And similarly on the liability side, the consumers are moving away their deposits to an account where they’re getting 7%, 8%, whereas we are giving, let’s say, 3.5%. So have you done any behavioral analysis on both assets as well as liability side to see how across the broad spectrum of your customers, is there any data to prove through these thesis?

Srinivasan Vaidyanathan

See, in terms of the customers — you touched upon the revolver. Thank you for touching that. See, the revolvers haven’t grown. If anything, actually, in this quarter, we do — we did see a slight reduction in revolver percentage, right? We’re not seeing that. And in some other questions, I would allude to how card bunch of customers. Customers who have credit cards and savings accounts with us and you see their balances are 5x, little more than 5x — 5.4x their balances is what they have in the deposit accounts. So that is also healthy. It was less than 4 3 years ago. Now it is 5.4. So it has grown. That’s the second thing.

The third thing in terms of whether some of the digital properties are enabling, less use of card revolving and alternatives. See, in our customer segment, that’s not something that we are seeing because it is more of — the segment that we have chosen and working on is little more higher rate. That means a little higher score customers. I think we have talked about the revolver 1 to 3 months and 4 to 6 months and 6-plus months — call it, 6-plus months revolvers. Across these 3 revolving categories, we are not seeing pickup happening. So that’s part of the customer base, and that’s part of the cash that they have, or some of them have got impacted through the COVID and come out of it and not survived and come through it and not indulging in any of these things.

And some of them who do, take it for a short period of time, right? So that’s the 1 to 3 months category if you see they take for some short personal loan or they don’t want a 2-year or a 3-year or whatever the tenor personal loan, they want it for a short period of time, they don’t mind taking it. So we do think that the category is very attractive and very nascent because you know that there are only kind of 90 million, 100 million credit cards in this country, and we would expect that to be north of 500 million. So we have enormous room to go.

The other aspect is that whether alternative payments UPI or anything, those kind of things or direct debit system, whether those things that would only increase the balances in the savings account. So somebody who is using UPI previously was drawing down cash and paying through.

So the cash was going out of the bank. Now the cash is in the bank account and is using UPI. So it only enhances — anybody using UPI only enhances balances in the account. So there are pluses and minuses across all of these. But at the end of the day, the customer segmentation that we are working with, we’re confident that, that will bring in the balances and grow as the economy grows.

Anand Bhavnani

Sure. But the question is whether the minuses are overwhelming the pluses because the account opening these days is less like an hour’s affair and if a bank is offering 7%, 8%, and we are seeing these banks which are offering 7%, 8% are seeing very high growth rates on their liability side. So is it that the smart customers of yours are now using these properties and it’s a structural change and hence, it will be a headwind to our deposit accretion targets?

Srinivasan Vaidyanathan

Okay. But there are two — again two things I want to respond to. One is the — if you look at us from a market share point of view, we have been gaining market share. Our market share is at about 10.5%, and it continues to grow. On an incremental basis, I think I alluded to our assessment is 18% to 20%. So that’s — we are keeping up with that. Yes, there may be some customers who go. But from our rate offering point of view, we offer — you’re talking about the savings account rate. But on a time savings account rate is what we offer, 3%, 3.5%.

On the time deposit, we are more or less in line with the competition, significant peers. If you see, we are more or less in line with that on a time deposit rate point of view. From a savings account, yes, we do continue to. That doesn’t mean somebody else cannot grow. We are growing. And think about it, still the public sector banks from where all of the private sector banks, including the ones that you alluded to offering 7% or 8% on savings account, those are all in the private segment — private sector segment. And the market share there is coming from some public sector because all the private sector banks are gaining market share.

Operator

Ladies and gentlemen, we will take that as the last question. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.

Srinivasan Vaidyanathan

Okay. Thank you, Nirav. Thank you all for participating. We appreciate you dialing in at this hour. If any more questions, comments or clarifications required, please feel free to reach out to us. Our Investor Relations team would be happy to connect directly to you or with me, and we can have a conversation. Thank you. Bye-bye.

Operator

Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us. You may now disconnect your lines. Thank you.