HDFC Bank (HDB) Q4 2016 Results - Earnings Call Transcript

| About: HDFC Bank (HDB)

HDFC Bank Limited (NYSE:HDB)

Q4 2016 Earnings Conference Call

April 22, 2016 7:30 AM ET

Executives

Paresh Sukthankar - Deputy Managing Director

Sashi Jagdishan - Chief Financial Officer

Analysts

Mahrukh Adajania - IDFC

Manish Karwa - Deutsche Bank

Sameer Bhise - Macquarie

Prashant Kumar - Credit Suisse

Adarsh P - Nomura

Alpesh Mehta - Motilal Oswal Securities

Manish Ostwal - Nirmal Bang

Prerna Lotlikar - Allard Partners

Jhanvi Goradia - Motilal Oswal Asset Management

MB Mahesh - Kotak Securities

Prakash - Edelweiss

Hiral Desai - Anived Portfolio Management

Pankaj Agarwal - Ambit Capital

Sanjay Barik - Reliance Mutual Fund

Operator

Ladies and gentlemen, good evening and welcome to HDFC Bank earnings call for the results of Q4 FY ‘16 and financial year ended of 31 March 2016, presented by Mr. Paresh Sukthankar, Deputy Managing Director and Mr. Sashi Jagdishan, Chief Financial Officer. As a reminder, all participants lines will be in the listen only mode and there will be an opportunity for you to ask questions after a brief commentary by the management. [Operator Instructions]

I now hand the conference over to Mr. Sukthankar. Thank you and over to you sir.

Paresh Sukthankar

Good evening everyone. As was just mentioned, I’ll walk you through some of the highlights of the quarter’s financial results and Sashi and I’ll take the questions thereafter.

For the quarter the net revenue growth was 20.3%, with net revenues touching 10,319 crores. That came on the back of a strong growth in net interest income, which grew by 24% to 7,453 crores. Net interest income does account for about 72.2% of the total of the net revenues.

The other component of net revenues which is other income was at 2,865 crores and grew by 11.8% over the corresponding quarter of last year. If you look at the breakup of other income, of the 2,865 crores, the largest component is fees and commissions at 2,172 crores and that grew by about 18% over the corresponding quarter of last year.

The bond gains this year at 115 crores were lower than about 196 crores in the corresponding quarter of last year, so those were down 41%. FX was also down about 14% and which is why the overall other income was up 11.8%.

Although, as I said, therefore the composition of the other income was fairly healthy, within the fees and commissions the 18% growth, there wasn’t any meaningful work treaty or one offs and we did see some increases, healthy increase on a year-on-year basis in third party distribution, a little bit in retail assets and some wholesale commissions as well.

Again the increase in commissions on the third party from a distribution side came with pretty strong volume increases in the insurance piece and the mutual fund piece, all of which sort of contributed to some growth in the fees and commissions line. So that was on the other income.

Moving on to the cost line, operating expenses were up by 18.9% and that meant that the cost to income ratio for the quarter was at 44.4% as against 44.9%. So I just go back for a second to the net interest income growth which I mentioned, that was on the back of an increase in average assets of about 23.8% and a net interest margin - a core net interest margin for the quarter at 4.3, which is how we had translated to a net interest income growth of about 24%.

So coming back, provisions at 662 crores included specific provisions for non-performing loans at 490 crores, general provisions at 161 crores and other provisions of 11 crores. The increase was meaningful in the general provisions in particular because of the stronger loan growth. So as against 118 crores of general provisions in the corresponding quarter of last year, this quarter we had 161 crores of increase in general provisions for standard assets.

The other assets actually includes also a contingent provision that we’ve made in relation to what was required regulatorily in relation to a state government exposure which is we know all about the papers, where all banks who have the exposure to that state government were required to make provisions, although it remains a standard asset.

For us that contingent provision has been created and to that extent we have used floating provisions and therefore there really isn’t any change in the other provision line, because both of those are within the same section or portion, same portion of the overall provisions.

Other than that the specific provisions are in relation to the NPAs for the quarter. We’ve also used for the full year therefore. If you look at the floating provision movement, we’ve had an opening balance in floating provisions of 1,523 crores, during the year we’ve made - we made earlier in the year floating provisions of 115 crores, we’ve also utilized 300 crores, so the closing balance of floating provisions are about 1,336 crores.

That’s from the provision line, after providing for taxation the net profit growth for the quarter was at 20.2% and the net profit of course was 1,698 crores. On a full year basis as far as the P&L was concerned, net revenues for the full year were up 22%, net interest margin for the year as a whole was at 4.3%, cost to income ratio for the full year was at 44.3% and net profit growth at 12,296 crores on a standalone basis was up 20.4% for the full year.

On the balance sheet side, we had seen a fairly strong growth even up to December and we saw that momentum continuing in this quarter. In fact, we saw a bit of a short [ph] towards the last couple of weeks of the year as well. And which is why the - if you look at the overall balance sheet growth, was around 20% at 7,08,000 crores. So for the first time the overall balance sheet crossed 7,00,000 crores at 7,08,000.

Total deposits at 5,46,000 crores were up 21%, this I think is against a system deposit growth of just under 10% about 9.2% or 9.5%. Within our deposit growth of 21%, CASA growth was at 20%, savings deposit growth was about 18% and the CASA ratio therefore as of yearend, which of course tends to see a bit of a spike towards the yearend, but even with that the CASA ratio was at around 43% as of March 31.

The loan growth was even stronger at 27%, of course, this is year-on-year, point-to-point growth. I did mention that the average asset growth was closer towards lower 23 odd percent, so we did see some spike towards the yearend, but the good part was that this asset growth or this loan growth came at very similar growth rates from both the wholesale and the retail businesses. And the mix of the loan book as of the yearend was roughly half and half with 51% retail and 49% wholesale.

So again strong loan growth and across both wholesale and retail businesses. If you sort of peel the onion there the wholesale business saw pretty healthy growth across each of the customer segments. On a relative basis, the fastest growing segment within wholesale was what we call the emerging corporate group which is in a sense the upper end of the middle market. The corporate bank was the next fastest growing and then some of the other niche segments sort of were slightly slower growth rate, although they were themselves in the 20s.

As far as the retail book is concerned, for a change almost every single retail loan product, at least the top five or six products, all grew by somewhere in the 20s or even faster on a year-on-year basis. So whether it was auto, commercial vehicle financing, both of which were in the 22% to 24% range, going up to around 27% for cars, about 45% for personal loans, home loans were at 32%.

So all of these are as per the - the MIs that we look at in terms of these businesses as they are run, so this is based on each of these products and the loans that we have in these product segments, irrespective of whether the individual loans are part of retail or wholesale. But this is the momentum that we did see in most of the retail lending businesses.

Moving on to capital adequacy, our yearend capital adequacy was at 15.5% of which Tier-1 ratio was at 13.2. That 13.2 is about 50 basis points lower than what it was in March 2015. As you might recall March 2015 was a bit of a peak in terms of Tier-1 simply because we had - in that quarter raised equity last year, the year before basically in the March 2015 quarter. So from 13.7 we’re now at 13.2 in terms of Tier-1, reflecting the strong asset growth and therefore the consumption of about 50 basis points of Tier-1.

The board has recommended a dividend of INR9.50 per share, which is up from INR8 last year. This of course is subject to shareholder approval. From the network, we finally actually did add quite substantially to our distribution network, which is a little higher than what we had planned. So there was some acceleration or some front ending of some of the branches that we would have added over a period of time.

As a result we added 506 branches before we closed the year and of these 506 approximately half, 256 were in semi-urban and rural locations. We therefore now have a 4520 branch network, 12,000 ATMs and have a presence in 2,587 cities or towns.

Our employee strength also, partly given the branch expansion, partly given a significant expansion in our retail lending businesses and of course all the other functions which support those, resulted in an increase of almost 11 odd thousand from 76,000 to 87,000 employees.

Finally on the asset quality front, gross NPAs were at 0.94. So that’s remained more or less stable at just under 1%. Our total structured loans also remain at roughly 0.1% and specific loan coverage has remained at around 70%, 69.7%, so it’s around 70%.

Those were the key financials. We’ll be happy to take your questions now.

Question-and-Answer Session

Operator

Thank you very much sir. Ladies and gentlemen, we’ll now begin the question-and-answer session. [Operator Instructions] Our question is from the line of Mahrukh Adajania of IDFC. Please go ahead.

Mahrukh Adajania

Hi.

Paresh Sukthankar

Hi.

Mahrukh Adajania

Just have a couple of questions. Firstly, in terms of the draw down on floating provisions, how much was it during the quarter?

Paresh Sukthankar

So almost the entire - whatever floating provisions we’ve used during the year had been drawn during the quarter. It’s around 300 crores.

Mahrukh Adajania

And that’s on that account, one account?

Paresh Sukthankar

It’s about half of that is on account of that and half of that is on account of other halves.

Mahrukh Adajania

Okay and this is your - because you’re conservative or it’s RBI, because a lot of banks are probably indicating that the RBI thing is not yet finalized, so asking.

Paresh Sukthankar

No, I think there has been a communication that has been received from RBI, if whether RBI has - if they have received anything subsequently, which we haven’t till today [indiscernible], then I don’t know. But we’ve gone by what is required to be done, which was essentially 7.5% provisions to be made for two quarters, which is the quarter that has just gone by and this quarter. Of course given the nature of the exposure and the nature of the borrower, we all believe that this should be something which is fully recoverable as it is a state government exposure and in an area which is of critical importance for everyone and the banking system because this is a large contortion with 65 and which is entire banking system, 65 banks participate, the amounts are used for a particular purpose if you’re all aware of and each banks share is really linked to market share and deposits. So in a sense the - but the amount that we have provided for is in line with what the last communication received from RBI a few weeks back.

Mahrukh Adajania

And there’ll be an equal amount in the next quarter?

Paresh Sukthankar

That’s right, unless there is a change in any communication that we subsequently receive from the RBI.

Mahrukh Adajania

Got it and the other question I had is that in general what’s your view on this slowing deposit growth for the system. I mean not for you because it shows in your numbers that your deposits are growing well, but any general comments.

Paresh Sukthankar

So on an overall basis I think I’ll probably make two comments, one of course there has been as we know a spike in the total currency in circulation and to that extent it seemed to have been a bit of a loss to what could have been deposit growth. When that comes back, I think will probably add to. If that all - if it, all that comes back into the banking system that would help. The other reason why apparently - the currency could have itself gone up for various reasons including sometimes when it’s gone, apart from the election story which people talk about, the fact that some amount of public contracts and so on means spending, they’re sort of cash disbursements to be made and so on. So there tends to be some movement from bank deposits to cash, which is one story. The other piece and which is why I believe that over the next year or so we should see slightly healthier deposit growth, is because mild deposit rates in nominal terms have come down from what were closer to 9 to maybe somewhere close to between 7 and 7.5. Clearly if you look at where inflation has been and where it is, real interest rates are a lot more attractive than what they used to be. So as retail depositors and retail savers recognize the attractiveness of bank deposit, hopefully we should see at the system slightly higher deposit growth. Just so far it’s not been troubling the system because loan growth has been fairly tepid as well, but I guess despite this soft deposit growth as you’ve seen in the last few months, banks have been comfortable dropping deposit rates because of what happened to policy rates and inflation.

Mahrukh Adajania

And just one last question, would it be possible to share the figure for slippages for the quarter?

Paresh Sukthankar

Yeah, the slippage, well I have got the slippage ratio which is at about 1.5% annualized. The actual slippages during the quarter were 1,700 crores.

Mahrukh Adajania

Thank you so much

Paresh Sukthankar

You’re welcome.

Operator

Thank you. We’ll take the next question from the line of Manish Karwa of Deutsche Bank. Please go ahead.

Manish Karwa

Hi Paresh and Sashi. Congratulations, good set of numbers. Just on this Punjab government, the total exposure then for you should be about 2000 crores is that right?

Paresh Sukthankar

Yeah that’s right

Manish Karwa

And historically has there been any case of banks losing money by their exposures to state governments, any other state government. Has it ever happened?

Paresh Sukthankar

So as far as the food credit itself is concerned and the state government lending within food credit because food credit has an element of FCI and state government exposures. To my mind in no component of food credit have banks lost money ever historically that is my knowledge.

Manish Karwa

And this exposure is actually directly to the Punjab State government right? It is not to any subsidiary - not to any, you know - entity.

Paresh Sukthankar

It is directly to because these are amendments made on behalf of the consortium by a lead bank and then distributed to everyone else and those payments go directly to the government itself and not to any separate entity of the government.

Manish Karwa

So it is actually a sovereign credit that we are talking about. So ultimately at some point of time the government has to pay back.

Paresh Sukthankar

I would think so.

Manish Karwa

Okay.

Paresh Sukthankar

I mean that’s what I think the entire system will believe and which is what - which is why the lending has been based on also the consortium and everybody share as a percentage of deposits. Obviously if there has been a provisioning which has been mandated by the regulator there is some concern on that and which is why I think we have been asked to make provision at least at this point of time.

Manish Karwa

Fair point and on your fee income, I think this quarter has been reasonably strong and this is on a very strong fourth quarter last year wherein you had a very high component on mutual fund income, so this quarter what is the big driver for fees.

Paresh Sukthankar

So two three papers which have - I sort of as I elaborated - we saw particularly I think the highest growth we saw year-on-year this quarter was also on third-party distribution.

Sashi Jagdishan

Specially insurance.

Paresh Sukthankar

Yeah, specially insurance which saw a growth of both in life and non-life, the volumes we saw were up on a year-on-year basis, for this quarter or a corresponding quarter were about up close to 20%, but sequentially we saw an increase of over 50% in terms of life insurance and maybe slightly higher at about 5%, 6% on the general insurance side. Volumes on the mutual fund side were also pretty healthy on a year-on-year basis, were up almost 50% although the mix of mutual funds being what they were, the unit rates were significantly lower, but the overall third-party piece did have a strong quarter. We had some wholesale and other commissions which also did well, retail assets again we saw strong growth in retail asset disbursements which also have some processing fees which again saw double-digit fee growth. And then finally on the retail liability direct banking and kind of fees again we saw a sort of mid-teen growth. So I think it has come from three four lines almost across-the-board driven by maybe a little bit of seasonality which happens in the fourth quarter, but otherwise primarily from that seasonality or otherwise contributing to higher volumes and fortunately no change in no negative on account of change in rates or regulatory changes.

Manish Karwa

Sure and lastly our investment book is down 10% quarter on quarter anything to read here, then have you let go something over here?

Paresh Sukthankar

Well, the only sort of changes that we sort of tend to make in our investment portfolio would be to the extent that we hold some commercial paper or which we sort of depending on short term opportunities we might look at. But other than that that is there anything else Sashi you want? On investment book? Also if you’re looking at back half, can you explain that.

Sashi Jagdishan

So I think that is also sort of gone up during this quarter. We, no - it is come off during this quarter. We use this for - we had a fair amount of surpluses in the previous quarters because of higher deposit growth and we had part refinanced it with repo borrowings I think that has come off during this quarter.

Manish Karwa

Okay so it is all market thing only as and you probably thought that borrowings would be better or deposits have grown faster.

Paresh Sukthankar

Had earlier which now we deployed so I think it would have come up. I guess you would have seen a growth in the loan book which has been strong to be extended they might have been any investments that we had - were there in short-term paper or otherwise in market instruments which we could sort of join back into loans, that could’ve happened during this quarter especially towards the year end.

Manish Karwa

Okay, cool. Thank you so much.

Operator

Thank you. Our next question is from the line of Sameer Bhise of Macquarie. Please go ahead.

Sameer Bhise

Yeah, hi, thanks for the opportunity. Just a couple of data points one is the - what’s the outstanding international loan book right now in terms of percentage?

Paresh Sukthankar

6%.

Sashi Jagdishan

6, 6.5%.

Paresh Sukthankar

6% Sameer.

Sameer Bhise

6% and RW number if I could get.

Paresh Sukthankar

So total risk-weighted assets as of March 2016 are 5,29,700 odd crores, this is as against 4,22,000 odd crores in March of last year.

Sameer Bhise

Okay thanks, just finally employee count has gone up after say almost 2 to 3 years of kind of rapid growth, primarily led by brand traditions or we are seeing any?

Paresh Sukthankar

Actually it’s probably been the second year of pretty healthy growth. The year before that which is March 2014, we actually had a small maybe negative of about hundred or something of that, let’s say flat. Last year we added approximately - year before March 2015 added roughly 8000 employees and this year we have added about eleven. So both these years have been pretty strong. So you have seen two years of rather strong growth in the employee strength.

Sashi Jagdishan

And the growth comes from the both branch banking and also from other retail product verticals, asset product verticals namely whether it is an auto loan or personal loans et cetera.

Paresh Sukthankar

And when we say these retail spending businesses it includes both our sales teams as well as the credit and collection and the entire teams which support each of these businesses.

Sameer Bhise

Great, thank you.

Paresh Sukthankar

You’re welcome.

Operator

Thank you our next question is from the line of Prashant Kumar of Credit Suisse. Please go ahead.

Prashant Kumar

Thank you for taking my question. So on retail lending business you mentioned that the overall business momentum remains healthy however if I look on Q on Q basis then this vehicle financing segment that hasn’t really grown that much and within that mode specifically CV segment has been growing at relatively lower base. And if I compare it to your PS and they have been growing at a very healthy pace was just want to understand what is the reason for that like why we are not getting traction in that segment and are we deliberately pulling back, so your thoughts.

Paresh Sukthankar

One we’re not really pulling back in any of the retail loan products including the two that you have mentioned whether it is auto or CBCE. If I look at the portfolios for both of these then the auto loan book has grown about 22% year-on-year commercial vehicles and construction equipment together have grown about 24% year-on-year and even sequentially they have grown at about 3.9% and 1.7%, so there is really no deceleration deliberate or otherwise that we are looking at. Of course the December quarter because it has a festive season it tends to see a bit of a spike but even from there we have grown sequentially. If you look at rates of growth I guess for individual banks are players sometimes can be misleading just given the fact that different players have different shares of the market. So if you’re relatively smaller share or a smaller base, our increase in a month sometimes is a multiple if not - multiple of the growth that some others are seeing but also the absolute portfolios of some of the banks. So we certainly remain committed to growing each of these businesses and I think that’s something which we’ve seen continuing for the last few quarters at least.

Prashant Kumar

Sure, actually one of the reasons was that I was looking at this RBI base classification and there CB growth was only 15%. But if I look at internal classification then it is 24%. So yes, one of the reasons was that and just one more follow-up question. You mentioned that roughly half of the contingency provision used in this quarter was towards some other account, so were they some relatively middle sized corporate accounts or there were SME.

Paresh Sukthankar

No, they were more corporate accounts. We used it for one - we had some slippages we’ve used it for one corporate account, yeah.

Prashant Kumar

In last quarter you mentioned that we saw some increases in slippages from SME and Agri segment. So based on the current quarter asset quality performance, would it be fair to assume that has been like more or less contained or that is like more or less where or do you think that it could come back.

Paresh Sukthankar

So actually both of those segments - one, you’re absolutely right in the December quarter we had seen a spike in business banking and Agri NPLs. We have actually seen a healthy pullback from there in both the segments. Of course Agri tends to have a seasonality, so you tend to have I think the December and June quarters increase and you tend to recover some of those in the following two quarters. So there is a degree of seasonality to that, but nonetheless in this quarter we’ve seen both those not just stabilizing but actually getting pulled back a little but in terms of the further slippages and the NPL formation there.

Prashant Kumar

Sure, thank you so much.

Operator

Thank you. Our next question is from the line of Adarsh P of Nomura. Please go ahead.

Adarsh P

Yeah, hi. My question was more towards just from a perspective of returns being made on various retail products. I would think car is getting to a point where our ROEs are low. So just wanted your opinion on how competition and pricing leading to ROEs of some of the large segments in the retail side.

Paresh Sukthankar

So, I think all the retail products certainly are competitive simply because many more players have in the last couple of years increased their presence and increased their focus on retail. So from a pricing perspective they might be certainly be some intensifying of competition and that higher competition also tends to see through in terms of payouts through dealers and some of cost that are associated with customer acquisition. On the flipside given our economies of scale given the higher proportion of digital in terms of the origination of some of these products as well as our continuous changes in the way we process these at the backend in terms of producing touch points, cutting turnaround times, all of those give us some savings in terms of operating cost and our credit quality in most of these products in the last few quarters have been fairly stable. So if we look at it on our overall basis we still get returns on each of these retail lending products which are well above the thresholds from a risk reward point of view. Some of these are less rich in terms of returns than what they might have been at the peak, but they are still very healthy in absolute terms at least for a player with scale like us.

Adarsh P

And would that be true for car loans like I would’ve –

Paresh Sukthankar

Yes, it is true for car loans. Of course if you look at the car loan business you would see it on aggregate between the new car financing, the used car financing, the dealer floor plans and the overall business that we generate from all of these including maybe other products that you might sell to those customers. But yes, if you look at the car loan piece it’s - again given the credit losses and the operating cost it is still been an adequately rewarding business.

Adarsh P

And my second question and the last one is, on the LAP business which will probably be in the business banking side and if we includes HDB Financials part of it. It would be a very last part for us, just wanted to understand obviously I think this book is of for us different from the way NBFCs have built it, but anything that you are seeing which is little different here in terms of asset quality or things are relatively stable.

Paresh Sukthankar

Yeah, so you’re right that our book is a little different from the way at least the perception is of NBFCs is doing it because we tend to have higher cash flow bias than purely asset value bias. And you’re right our LAP is a part of our business banking piece, but I think when you look at the overall business banking piece which as you see year-on-year basis has grown by about 22%, the growth rates have been more or less similar across the various components of business banking including a LAP. The concerns which have been there generally on asset quality for the segment in the system, I mean I keep getting asked this question, I think so far at least our LAP portfolio has remained fairly stable and as far less any LAP which is been done by HDB they of course have their own policy and segment portfolio. These numbers as you know are standalone and not consolidated.

Adarsh P

But would that be a little more similar to NBFCs or more similar to what the bank does.

Paresh Sukthankar

I think it may be somewhere in between as much as - if you look at the overall approach of HDB, it ultimately has a culture of growing business and credit in a similar way to what the bank does. So I’m sure given just the customer segments they service, it will be slightly higher risk than what the bank does also slightly higher in terms of asset yield, but still certainly better than what are some of the or many of the NBFCs might do in that business in that product.

Adarsh P

Perfect, thanks Paresh.

Paresh Sukthankar

You’re welcome.

Operator

Thank you. Our next question is from the line of Alpesh Mehta of Motilal Oswal Securities. Please go ahead.

Alpesh Mehta

Hello.

Paresh Sukthankar

Yeah.

Alpesh Mehta

Yeah, hi good evening Paresh and Sashi. First question is related to our interest income on investments you have partly answered this question. But if I look at the total growth on this line-item is around 43%. Even if I were to adjust the sequential drop in this quarter on the investment book the book would’ve been grown by around 20% and falling interest rates seems to be slightly different considering the yields would’ve gone up in this year, so what is happening in this line-item?

Paresh Sukthankar

No, I think when you look at the interest on investments and look at the yields, you’re right. It has come down from the fourth quarter of last year to the fourth quarter of this year by a good almost 40 basis points or somewhere between 35 and 40 basis points. So the yield on investments of course have come down, the growth in interest on investments is essentially because average investments went up and as Sashi mentioned earlier gross of LAP. Though we dropped in this quarter on CP through, the earlier couple of quarters, we had a larger investment book essentially to defray some of the surplus liquid that we had because deposit growths had been stronger than the advances growth for sometimes. But nothing beyond that, there is no real other than the increase and slight decrease towards the - in the last quarter on CP there really hasn’t been any major shift in the composition of our investments.

Alpesh Mehta

What would have been the average investments growth for FY ‘16 these are the PDI rate numbers [ph], but -

Paresh Sukthankar

The average investment growth would have been almost 48%, 40% or 47%, 48%, yeah.

Alpesh Mehta

Okay, whereas the PDI rate number is only 8%.

Paresh Sukthankar

Yeah.

Sashi Jagdishan

Yeah.

Alpesh Mehta

Okay, secondly about this yesterday RBI came out with the guideline for investment advisory services to be transferred to a separate subsidiary, any quantification of impact of that on our operations.

Paresh Sukthankar

No, not yet we haven’t really had a chance to give it a serious look.

Alpesh Mehta

But the entire third-party operations has to be shifted there, is that a correct understanding?

Paresh Sukthankar

[indiscernible] while we haven’t studied the -

Sashi Jagdishan

We just saw a ticker Alpesh maybe we need to understand that better. So probably after next week or so probably we’ll have a chat -

Alpesh Mehta

I guess - couple of years right.

Sashi Jagdishan

It is a three year window.

Alpesh Mehta

And last two questions any guidance on the branch addition for the next two years and lastly what percentage of retail loans are originated by digital channels now?

Paresh Sukthankar

So as far as the branch addition are concerned I think our normalized beginning of the year expectation is always that we will add 200, 300 branches and that usually is the base sort of budget that we try and put in place. As the year progresses is that if we believe that there were few more couple of hundred branches or 50 branches or 100 branches that we know we could add more and we have both the ability to identify those as well as the financial repertoire to do that, then we have a flexible another 50, 100 branches that we can add. But I would say the base kind of growth rate that we would run with right now could be approximately 200 to 300 branches. As far as the origination through digital channels I think it really varies because the different products and a personal loan which was probably ahead of the back, now has almost 30% of our origination through the digital channels, some others are in the teens some are in the touching 20 odd, low 20s. So but I think it really depends on the product and these are still relatively early times.

Sashi Jagdishan

First product was first one down [ph], so that’s well that traction also is picked up the other products something that we have started very recently. So we have to wait and watch.

Alpesh Mehta

And the personal loan you mentioned around 50% of the origination is happening via digital.

Paresh Sukthankar

15% to 17% of the monthly -

Alpesh Mehta

What on the year-on-year basis.

Paresh Sukthankar

The other growth rates is right but the percentage of -

Alpesh Mehta

The origination yeah. Hello.

Paresh Sukthankar

On the incremental origination basis slightly higher than that, than the 15 to17 that’s it.

Alpesh Mehta

Okay and last question the difference between the CB and CE loans where internal classification versus the RBI classification largely driven by the large fleet operators, the dealer financing that you must be doing because that difference is increasing.

Paresh Sukthankar

That’s right, that’s right.

Alpesh Mehta

Okay, thank you so much and all the best.

Paresh Sukthankar

Thank you.

Operator

Thank you. We’ll take the next question from the line of Manish Ostwal of Nirmal Bang. Please go ahead.

Manish Ostwal

Hello.

Paresh Sukthankar

Yes.

Manish Ostwal

Yes, my question on this home loan portfolio, so have you purchased anything during the quarter from HDFC?

Paresh Sukthankar

Yes we did. During the quarter we purchased 4,799, let’s say almost 4800 crores. And for the full-year we’ve purchased about 12,770 crores.

Manish Ostwal

Okay and secondly sir could you explain the MCL impact on margin and the asset yield.

Paresh Sukthankar

Well, our MCLR relative to the base rate for a one-year rate came off by about 20 basis points and for the shorter end the drop would have been anywhere between 25 and 35 basis points. Approximately a third of our book has earlier been floating, but as of now obviously how much shifts to MCLR is a function of when the customers, when those linkages move from what were earlier base rate linked to MCLR link as they come of maturity or annual renewal. So immediately to try and estimate what might be the impact is tough to say. I think in consistent in our communication that over the last more than 10 years we’ve had net interest margins which have been somewhere between 4% and 4.3%, 4.4% and any impact that we might see based on the interest rate cycle and the transmission of rates through the MCLR or because of the competition, I think at this point of time we see all of these still keeping our NIMS within this earlier mentioned range of 4 to 4.4.

Manish Ostwal

Okay. Lastly, on the digital side I heard on TV that you were talking about, bank has taken an initiative both wholesale side and the retail side digital thing. So could you throw some light on what we’re doing on the digital side, what are the initiatives you have taken and secondly in terms of key goalpost especially on the retail side what are goalpost especially from digital competition given the newer banks are coming in that segment and the competition level is also getting different.

Paresh Sukthankar

I could sort of do the rest of the call only on that one, but I’ll just try and mention couple of things. The idea is that through digital we are essentially saying we will understand our customers better; we have better data on our customers, we will use that data, analyze it and use it to make more appropriate customer offerings. Because we understand those customers better or we change processes as well. We have to deliver to our customers in a much more convenient manner across channels of their choice and giving customers an experience which is uniform across channels. In doing all of this the idea is to make the relationship stickier, to get a larger share of the customer’s wallet as well as give the customer an experience which is significantly better in terms of turnaround time and sometimes product structures as well. Obviously this continues beyond just our deposit and lending products into payment products, into trade products especially on the wholesale side and I think the basic theme or the underlying objective is the same. Finally of course, when we do this apart from getting - giving our customers a better experience we hopefully be also able to reduce our cost by improving our sort of processing engines at the backend.

Manish Ostwal

Have you set any goalpost for the, in terms of the -

Paresh Sukthankar

I don’t think we can share any specifics on - and of course we have goalpost on different on each of the initiative, but we don’t really have anything to put in the public domain.

Manish Ostwal

Okay sir, thank you.

Paresh Sukthankar

I just want - before we take the next question, my request would be that since we have coming close to an hour on the call. I would recommend that - I request that if anyone can just limit themselves to one or two questions that would be good.

Operator

Thank you very much sir. The next question is from the line of Prerna Lotlikar of Allard Partners. Please go ahead.

Prerna Lotlikar

Thanks, my question has been answered.

Paresh Sukthankar

Thank you, Prerna.

Operator

Thank you. We will take the next question from the line of Jhanvi Goradia of Motilal Oswal Asset Management. Please go ahead.

Jhanvi Goradia

Hi, sir my question is on Forex income. So as I see last two to three years it’s almost been stagnant and although it may be our conscious decision to stay away from riskier products, but just wanted your sense on the trajectory going ahead.

Paresh Sukthankar

So to start with, I must say that the FX revenues that we generate are not necessarily risky, because they are not really trading and positioning related as much as based on customer flows and the margins that we get on those customer flows. There certainly has been a quarterly volatility in terms of the growth rates that we have seen. However, if you look at it on a year-on-year basis, that is a full-year FX revenues for this year at about 1,228 crores, they’re almost 19% up from the full year revenues last year. So if you set aside ups and downs from quarter to quarter, I think it still remains a healthy business which is based on customer flows. The margins are slightly lower given the relatively lower volatility we’ve seen this year but - and of course, as well as trade volumes are concerned given what’s been happening for the imports and exports, but we’ve seen some increase in volumes. The growth rates there have not been as higher they would have been overall - the imports and exports of the country level being better. But still 19% on a year-on-year basis on a full-year basis is still, we believe, fairly healthy.

Jhanvi Goradia

Okay. Thank you so much.

Paresh Sukthankar

Thank you.

Operator

Thank you. The next question is from the line of MB Mahesh of Kotak Securities. Please go ahead.

MB Mahesh

Good evening. Just a couple of questions, one is with the introduction of UBI, do you see it acting as a barrier in terms of fee income generation on the payment related work that you do? And second is just from a clarification perspective, our initial understanding was that floating provisions is now part of Tier-2 capital. Just trying to understand how does the utilization work?

Paresh Sukthankar

So, as far as the first question is concerned, we see any of these introductions as opportunities given that we are a leading player in adopting almost any of these new offering that come into play. But in any case your question was, does this affect fee incomes? Is that most of the payments related businesses really already don’t really generate on a stand-alone basis for those transactions any meaningful levels of fees. The convenient and fast and one-click kind of payments are essentially services that you are offering customers who have account relationships with you and of course it can be extended beyond the normal account for retail individuals to payments whether they are for utilities or for the supply chain of entities. So,, I don’t see this as - when you look at the top four or five fee generators, you will find that I’ve never really mentioned anything to do with the payments related businesses.

MB Mahesh

This includes the entire MDR and whatever that comes through the chain on the payment side, right.

Paresh Sukthankar

Yeah, so that piece may have some impact, but I think typically what you’ve seen is that when something is much more convenient or it’s providing a high level of flexibility, if there is some erosion in the margin or the unit fee that is charged, it more than gets offset over a period of time, at least by the higher volumes that this facilitates. So I think our focus would rather be on being a market leader in terms of end use cases for each of these and then looking at what the opportunities there may be for a new generation.

MB Mahesh

Okay.

Paresh Sukthankar

Floating provision concerned, floating provision can be used for netting off from your - your net NPAs when you look at draws or you can use it for Tier-2 capital. So at any point of time, whatever is the closing balance of your floating provision up to a certain level, can be added to your Tier-2 capital.

Sashi Jagdishan

And that is a very specific RBI guidance to which allows that.

MB Mahesh

Okay. So, my understanding was that you decide either or, so?

Sashi Jagdishan

Either or. We are not netting it off from NPAs.

MB Mahesh

Okay, fine. Thanks a lot.

Operator

Thank you. Our next question is from the line of Nilesh Parikh of Edelweiss. Please go ahead.

Prakash

Yes, just one question. This is Prakash from Edelweiss. So, how much of your deposits that you raised in their RBI window will mature in October?

Paresh Sukthankar

Between September and October, entire 3.4 billion, so in October and November.

Prakash

3.5 billion, right?

Paresh Sukthankar

3.4 billion, yeah.

Prakash

Okay. Thank you so much.

Operator

Thank you. Our next question is from the line of Ritika [Indiscernible] of BNK Securities. Please go ahead.

Unidentified Analyst

Good evening, sir. Thanks for taking my question, just one, have we shared on the call, I just joined in later, so have we shared any strategy, how we see the housing loan book going forward?

Paresh Sukthankar

Well, let me - I haven’t covered it, so I would just cover it for you for sure. The genesis, of course, is the arrangement that we have with HDFC where we originate home loans which are the HDFC home loan product. All the loans that we originate are booked by HDFC based on the normal criteria that we have for underwriting and so on. And then we have an option, so it’s a right and not an obligation to buy up to 70% in value terms of what we originate. So that’s the background. Since it has always been an option, the year before that is still March 2015, we were buying back roughly 50% of what we would originate, which was primarily only the BSL force [ph]. In this financial year, we just ended March 2016, we have been taking a full 70% which is what we were entitled to and at this point of time, we seem to be on track to continue to do that. But it is an option, so it’s a really decision that we would take based on our liquidity, our alternative asset opportunities, but it’s something that we have to agree with and take what we believe we have an appetite for. At this point of time, as I said, the 70% still seems something that we like to continue to do. So when you look at the loan growth for us in our books, this year when you look at the roughly 32% growth in home loans, that is clearly because it’s not that our origination would have grown at 30% or 32%, it’s just that we’ve moved from what we were taking on our books which was on 50% of our origination to this year 70% of the origination, so a little bit of a spike in the book and therefore the growth rate in this year.

Unidentified Analyst

Sure. Thank you, sir. That answers my question.

Operator

Thank you. Our next question is from the line of Hiral Desai of Anived Portfolio Management. Please go ahead.

Hiral Desai

Thanks for the opportunity. Paresh two areas where you seem to be significantly outperform the industry. One is the CASA momentum and the second is the corporate loans. So, if you could talk briefly about both the pieces, do you see this sustaining going forward?

Paresh Sukthankar

Well, I don’t have a guidance on any growth rates in terms of sustaining this forward, but we certainly seem to be well positioned in both of those, but let me - there is some disturbance coming through -

Hiral Desai

Mobile?

Operator

Mr. Desai, if you are on a speaker mode, could you switch it to handset, because there’s disturbance

Hiral Desai

Yeah, I am on the handset.

Operator

This disturbance is from your line, sir.

Paresh Sukthankar

Okay, that’s better. Thank you.

Operator

I’ll have to mute Mr. Desai’s line for us to stop this disturbance.

Paresh Sukthankar

Okay and then I can continue.

Operator

Yeah, go ahead, sir.

Paresh Sukthankar

Yeah, okay, so the contributors to the strong growth rates that we have seen I think on CASA, it’s been a combination of factors what has been particularly heartening for us is that current accounts which we are languishing for a couple of years have seen pretty strong growth this year on both year-end and in average basis, although we always tend to see a bit of a spike towards year end. On savings accounts again, at 89% despite what was seemed to be competition which could have impacted growth rates because of competition or at least certain players in the competition offering higher rates. So I think what it really balls down to is the service that you offer, the product range, the brand, the distribution, the higher convenience either through digital or other offerings, all of this might sound sort of motherhood and apple pie, but that’s the difference which we bring to the customer.

There is an added momentum because of the expansion that we have done over the last few years and the fact that we’ve also been focused on increasing our share of the existing customers through a higher degree of cross-sell whether bundling at the time of initiation itself or through the lifecycle of the customer. So, I think it’s just continued execution which has helped us on the CASA side. As far as the wholesale book is concerned, we’ve grown across multiple customer segments within wholesale. And we’ve clearly added market share. We’ve increased our share in the wallet of individual customers on the corporate side as well as the emerging corporate side. A slight expansion in our product range where we were a little more almost exclusively at a few years back in the short and medium term end to now short, medium and to some extent in the long end as well, has probably also helped us gain some additional market share there.

Hiral Desai

In terms of working capital and the term loan would sort of more or less be 70-30 or that has changed?

Paresh Sukthankar

It would be more or less 70-30.

Hiral Desai

And the emerging corporate fees that you talked about, that is also largely working capital driven?

Paresh Sukthankar

That is true.

Hiral Desai

Okay. Lastly, just wondered if you could talk about the sourcing trend on mortgages, what is the monthly run rate currently or if you could give me a quarterly number?

Paresh Sukthankar

So, we’ve been originating at roughly 14 to - well, around a little higher than 1,400 crores per month. So we’ve been at somewhere between four and four and a half thousand crores per quarter.

Hiral Desai

Okay, perfect. Thanks.

Operator

Thank you. Our next question is from the line of [Indiscernible]. Thank you, please go ahead.

Unidentified Analyst

Yeah, my question is again on home loans. Your home loans, your buybacks from HDFC Limited, loans will be linked to HDFC’s PLR or your MCLR?

Paresh Sukthankar

No, it’s linked to the HDFC’s PLR, because that’s where the customer has got loan originally from.

Unidentified Analyst

Okay and it is a sizable chunk in your book, okay. So commercially if you were to see and you were to raise home loan [Indiscernible] do not attract CRR and SLR, would it be more profitable for HDFC Bank to do like on book lending or buybacks from HDFC Limited? Are there any agreement constraints that you can’t book the loans in your loan book directly?

Paresh Sukthankar

No, so I think, as I just explained earlier, the reason why we have had this arrangement in place is because we believe it’s beneficial to us and I am sure HDFC may have done it, because they believe it’s a win-win for them as well. The logic is that if we have one HDFC branded home loan product in the market place which is currently the HDFC home loan, it’s obvious any potential brand conflict of having HDFC or HDFC Bank home loan product, so there is the HDFC home loan product which is highly recognized, highly respected and pretty much the best home loan that you get in the market.

That’s one. Secondly, HDFC is by far the most efficient processor of mortgages which is evident if you look at the past and the current history that they’ve got. So, from our point of view, our strength is in the origination and our desire would be to take care of our customers’ needs across all the financial needs including for home finance. And therefore, for us it makes sense to sell the best home loan product to our customers and HDFC’s expertise and economies of scale they’re processing these for us and then our taking the loan on our books which the arrangement, current commercial arrangement is that we can take up to 70% on our books and the remaining 30% we get a fee.

So, essentially for the 30% that we don’t take, we, in any case, have a sales commission that we are earning as if we were an origination engine and on the other hand for the 70% that we originate and ultimately get the loans back on our books, we would have accessed the more efficient credit and processing engines which HDFC can provide. So I think that’s the logic. It’s a win-win for both of us. And it’s something which is in the public domain given that it’s a related party and we are very comfortable with the way it works.

Unidentified Analyst

Okay. And when you said, I don’t know if I heard it correctly, one-third of your book is floating. I mean you mentioned?

Paresh Sukthankar

On an overall basis across our entire book, that’s right, roughly.

Unidentified Analyst

And you are counting home loan as [Indiscernible]?

Paresh Sukthankar

Yeah, the home loan is a portion, is a part of that floating rate.

Unidentified Analyst

And your LAP book, how much, what percentage would be through cross-sell from their own customers?

Paresh Sukthankar

The LAP book, I just said earlier, it’s a part of our business banking portfolio and roughly half of it would be customers who already have an inducing relationship with us and maybe half would be new to bank customers.

Unidentified Analyst

Okay. Thank you.

Operator

Thank you. Our next question is from the line of Pankaj Agarwal of Ambit Capital. Please go ahead.

Pankaj Agarwal

Yeah, hello, sir. Sir, my question was, this 70% you buy back from HDFC Limited, you don’t get the processing fee right, the processing fee or the distribution fee from the HDFC Limited?

Paresh Sukthankar

We do. We do, although that has effectively been, when we’re sort of getting the - when we pay them on an annualized basis, their total cost includes obviously any processing fee that they’ve paid us.

Pankaj Agarwal

Okay. The reason I am asking is that if I look at, you must be around 1% on these loan side for HDFC Limited?

Paresh Sukthankar

That’s right, approximately that’s right.

Pankaj Agarwal

Yeah, but if I look at like some of the housing finance companies, they are running this business at like 40 to 50 basis point OpEx to asset ratio, right, so does it make sense to do it internally rather than outsourcing these opportunities to HDFC Limited?

Paresh Sukthankar

No, see, the thing is we are looking at on a stock basis, when you have a company which is a bit large stock book over a period of time, when you are looking at the floating, because we have our cost that we incur when we are looking at, let’s say, we spoke about LAP or the overall processing cost that we have across a range of products, as well as the collection, because it’s the original processing costs including things like doing the valuation and showing the projects aright and so on, as well as the ongoing collection which both for regular customers, as well as for delinquent customers. All of those are services that are being done by HDFC for us. So, if I look at these on an incremental, on a flow basis, when we started off the arrangement, these fees were slightly higher and as we built scale, some of these fees which were I think closer to about 1.25 or something like that, potentially come down to 0.95, so I guess, from my point of view, as long as it sort of makes sense for us, we will certainly look at getting these done as per the current arrangement.

Pankaj Agarwal

Yeah, but let’s say, going forward, let’s say it makes more sense to do it internally, can you reconsider this arrangement? Is there any clause in there?

Paresh Sukthankar

I think the hypothetical - it’s hypothetical because there is no - it’s something which is negotiated heavier in terms of the rates and so on. So I think the - I don’t think we can say that it is cast in stone nor that’s something which we are not comfortable continuing. So I mentioned earlier that when there was a rational for renegotiation, it was done and the rates were brought done, whether if there was any such rational again, whether it would lead to a further renegotiation of the rate or any other structure, I think that’s hypothetical.

Pankaj Agarwal

Okay, okay, thank you very much.

Operator

Thank you. Our next question is from the line of [Indiscernible]. Please go ahead

Unidentified Analyst

Yeah, hi, thank you. The question is about the business strategy going forward. Hello?

Paresh Sukthankar

Yeah, sure, go ahead.

Unidentified Analyst

Yes. You mentioned that you opened 506 branches during the last one year, out of which 256 were concentrated in semi-urban and rural areas. My question is, is the expansion going forward, is it going to be concentrated in rural and semi-urban areas, what are your primary product offerings in those areas and what is the cost of opening one branch in such areas?

Paresh Sukthankar

So, first of all, there is certainly no concentration in any one segment, at 256 out of 500 would be roughly half and half.

Unidentified Analyst

Yes.

Paresh Sukthankar

And that has been the case now for about a year and half in fact almost 2 years. So if you go back prior to 2014 for two or three years we did add about 80% of our branch - new branches were being added in semi-urban and rural, but last year and this year - sorry, 2015 and 2016 we have added roughly 50 - 50 between urban metropolitan.

Unidentified Analyst

55% with semi-urban and rural, yeah.

Paresh Sukthankar

That the total stock of branches right. So when we look at as of the year end the total number of branches is 55 - 45. We would consult to go in both these markets obviously when we are adding new branches in semi-urban and rural especially in rural and unbanked locations these are - many of these are new locations while when we are adding branches in urban they’re obviously new branches in existing locations, but we certainly see an opportunity to add market share in both of these.

Unidentified Analyst

Okay. What are the primary product offerings in those areas semi-urban and rural areas?

Paresh Sukthankar

In the semi-urban and rural most of our branches or good 80%, 90% of our branches our entire range of products gets offered.

Sashi Jagdishan

Including the asset products, card products et cetera.

Unidentified Analyst

Okay. What is the average cost of opening one branch?

Sashi Jagdishan

It depends on the size.

Paresh Sukthankar

It really depends usually on the size and the location because we have one and two men branches where the cost are extremely low and when it’s a new location it cost us slightly higher just given the network.

Unidentified Analyst

Okay, as there is no standard we -

Paresh Sukthankar

Not honestly and it’s not something which - given our model for the branch which is more of sales and service outlets and we do our processing at regional or central hubs. That’s not a large part of the expense. We take one last question because I think we are - been at it for quite for some time. Now, it’s almost an hour and 20 minutes. So one last question we can take.

Operator

Sure. It’s from the line of Sanjay Barik of Reliance Mutual Fund. Please go ahead.

Sanjay Barik

Yeah thanks, I was seeing the market share over yours and the incremental market share, so our market share and deposit has gone up from 4.7 in ‘14 to 5.1 in ‘15 and 5.6 in ‘16. And the same for the loans from 5 to 5.4 to 6.2, but our incremental market share is really stacked up quite well I mean this year it is 12% for deposit and 14% for incremental market share on loans. So particularly on loans if you are going to explain I mean what has led to this - essentially a significant gain in market share. So if you can explain a little.

Paresh Sukthankar

Actually it is more the - I mean when you look at the - when you mention the numbers are incremental I think it tends to sort of exaggerate the achievement simply because one, the system which was growing usually use to grow in the low teens as you know has dropped in terms of its growth rate right. So the system has now grown this year at say around 9%, 10% both in deposits and advances and therefore clearly our gain in market share on the incremental has gone up substantially. As far as our growth rate itself has gone up a couple of percent so the divergences between system plus which usually - and you still believe on long-term basis, our system plus 4%, 5% seems much more long-term secular increase in market share that we have done in the past as well. So it has been bit of system slowing down and our slight acceleration. Our slight acceleration has been on the back of this year both wholesale and retail rather than one or the other growing a little faster. Usually we have - if one for said customer segments is growing at for instance say 20% the other would’ve grown maybe a couple of percent slower.

This year we’ve had both the businesses seeing healthy traction and within retail again, when we have six or seven products usually in our experience we’ve had two, three products growing fast, one or two slowing down and then therefore on a blended basis we see a certain growth rate. As it has happened in the last couple of quarters, we have seen almost every product in [indiscernible]. And finally I don’t think we should extrapolate any one near too much, this also has been the first full-year after a capital raising last year, meaning 2016 has been the first full-year after a capital raising in the March 2015 and usually with surplus capital and a very comfortable liquidity position given the deposit growth that we have seen, you see in some ways a supernormal growth, which doesn’t necessarily lend itself for extrapolation on ongoing basis. So I think we still remain very well positioned to gain market share, but we absolutely gain in market share in terms of percentage gain in market share that we refer to I don’t think I can say whether that is something which can be sustained.

Sanjay Barik

Yeah, thank you very much.

Paresh Sukthankar

You’re welcome.

Operator

Thank you ladies and gentlemen. That was our last question, I now hand the floor back to Mr. Sukthankar for closing comments.

Paresh Sukthankar

Well, thanks so much for patiently listening to all the Q&A. I do hope that we have been able to address most of your queries and concerns. Thanks once again, bye.

Operator

Thank you very much members of the management. Ladies and gentlemen, on behalf of HDFC Bank Limited that concludes this conference. Thank you for joining us. And you may now disconnect your lines.

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