Housing Development Finance Corporation Ltd

NSE:HDFC

Earnings Call Transcript 2023-Q3

[Operator]

Ladies and gentlemen, good afternoon, and welcome to HDFC Limited Q3 FY '23 Earnings Conference Call. [Operator Instructions] Please note, this conference is being recorded.

We have with us HDFC's Vice Chairman and CEO, Mr. Keki M. Mistry; Managing Director, Mr. Renu Sud Karnad; Executive Director, Mr. V.S. Rangan; Member of Executive Management and Chief Investor Relations Officer, Mr. Conrad D'Souza; and additional Senior General Manager, Anjalee Tarapore.

I would now like to hand the conference over to Mr. Keki M. Mistry. Thank you, and over to you, sir.

[Keki Mistry, executive]

Thank you very much, and good afternoon, everyone. At the outset, I would like to welcome all of you to HDFC's earnings call for the third quarter of the current financial year. The Board of Directors at its meeting held earlier today approved the financial results for the 9 months ended December 31, 2022, which was subject to a limited review.

Let me start with outlining a few developments in the economy over the last three months, which have had a bearing on the corporation. The Monetary Policy Committee at its meeting held in December 2022, increased the policy repo rate by 35 basis points, mainly on account of the need to keep inflation expectations anchored. This was in addition to a 50 basis points increase in the repo rate in October 2022. As a result, there has been a further uptick in interest rates consequent to which we have increased deposit rates as well as rates on loan products.

As we had mentioned in our previous earnings call, too, the interest rate actions have a short-term impact on net interest income. While we have seen rate action by RBI and have correspondingly passed on the rate increases to our customers, there is always a transmission lag between the increase in interest costs on our liabilities and the repricing of our assets. I will explain this in detail later.

In July 2022, the RBI had increased the limit of external commercial borrowings under the automatic route from USD 750 million to USD 1.5 billion per financial year. We have fully utilized this limit in the current year. In August 2022, we had raised USD 1.1 billion, as a social loan under this window. Further, December 2022, IFC disbursed a loan of USD 400 million, which will be utilized primarily for the green affordable housing portfolio. The borrowings are fully hedged for currency and interest rate risk and the all-in cost on the borrowing is comparable with our domestic cost of funds for a matching tenure.

The momentum in the economy was strong right through the 9 months of the current year. This is reflected in the pickup in individual loan disbursements and an 18% growth in the individual loan book on an AUM basis. During the quarter, the loan book grossed INR 60 lakh crores and AUM crossed INR 7 lakh crores.

Over the next few minutes, I will give you a summary of the key highlights of the performance for the 9 months and the quarter ended December 31, 2022. Let me start by summarizing the progress of our business through the quarter. Our individual loan approvals for the 9 months ended December 31, 2022, were higher by 21% compared to the corresponding period in the previous year. For the same period, individual loan disbursements grew by 23% over the corresponding period.

I may mention here that due to the holiday season in October, November, the monthly disbursements were marginally lower than the previous month, but December saw a return to the normal trajectory. Housing disbursements constituted 93% of individual loan disbursement in the current year.

Growth in home loans were seen in all segments in the market. 94% of new loan applications were received through digital channels. During the third quarter, we sold individual loans aggregating to INR 8,892 crores. Individual loans sold during the last 12 months amounted to INR 35,937 crores. The total loans sold during the 9 months ended December 2022 amounted to INR 27,570 crores. These loans were all assigned to HDFC Bank, pursuant to the mortgage sharing agreement with the bank.

Individual loan book growth on an AUM basis was 18%. If the loans amounting to INR 35,937 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 26%.

On a balance sheet basis, our individual loan book increased to INR 4,79,316 crores. In addition to this, the individual loans sold by the corporation and outstanding as on December 31, 2022, amounted to INR 97,700 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to INR 5,77,016 crores, a growth of 18% over the previous year. As at December 31, 2022, our nonindividual loan book on an AUM basis was INR 1,24,469 crores.

As mentioned in our earlier calls, construction finance loans, unlike lease rental discounting loans have a longer disbursement period as we have dispersed based on progressive construction and after the developer has brought in the share of the equity. Further, over the last few quarters, we have seen some scheduled repayments of earlier facilities and resolution of some stressed assets. We have also unmatured the rundown exposures in the loan book, which are noncompliant with -- nonapplicable to commercial banks in view of the impending merger.

The total assets under management as of December 31, 2022, amounted to INR 7,01,485 crores as compared to INR 6,18,917 crores in the previous year, a growth of 13%. If no loans have been sold during the preceding 12 months, then the growth in the total loan book would have been 18%.

Prepayments on retail loans on an annualized basis amounted to 10.7% of the opening loan book. And as you will be aware over the years, historically, our prepayments have ranged between 10% and 12%. The average size of individual loans for the period ended December 31, 2022, stood at INR 35.7 lakhs as compared to INR 33.1 lakhs in financial year 2022.

The contribution in value terms from customers with an annual family income of INR 18 lakhs or more has increased during the year to 52% from 44% during the corresponding period in the previous year. Our trust on affordable housing loans has continued. 9 months ended December 31, 2022, 23% of home loans approved in terms of number of customers and 10% in value terms were to customers from economically weaker section and the lower income growth.

The average home loan for customers in the EWS segment amounted to INR 10.8 lakh, and to customers in the LIG segment amounted to INR 19.5 lakhs. If we break up the loan book outstanding on December 31, 2022, on an AUM basis into different categories than individual loans constituted 82% of the total loan book as compared to 79% in the previous year. Construction finance constituted 8% of the total loan book. Lease rental discounting loans constitute 6% of the total loan book while corporate loans constituted 4%.

If we were to look at the incremental loan book growth then for the 9 months ended December 31, 2022, the entire growth is from individual loans. 98% of the loans were sourced to distribution channels. However, this is largely to HDFC Sales, a 100% subsidiary of HDFC Limited as well as through HDFC Bank. HDFC sales accounted for 51% of the loans sourced while HDFC Bank at 10%. Third-party DSAs accounted for 17%. Thus 83% of HDFC's individual business were sourced directly or through our associates.

The emergency credit line guarantee scheme was extended to mitigate the economic distress caused by the COVID pandemic. Under ECLGS 1, 2 and 3, the corporation has disbursed an aggregate amount of INR 1,876 crores. Amounts disbursed under this facility are guaranteed by the central government.

The Reserve Bank of India permitted a onetime restructuring of loans under its resolution for COVID-19 related stress. As at December 31, 2022, the outstanding loans under OTR 1 and OTR 2 together amounted to -- amount to INR 485 crores, which is equivalent to 0.7% of the loan book as compared to a peak of 1.4% in September last year. 98% of the OTR loans are in the individual loan category.

The average collection efficiency for individual loans on a cumulative basis over the last 9 months is 99%. RBI had on November 12, 2021, issued guidelines on harmonizing NPAs across the financial system. Subsequently, RBI has deferred the effective date of the applicability of these guidelines and the NPA reporting under the revised guidelines was deferred to the quarter ended December 2022, which is this quarter.

HDFC, however, had continued to report NPAs in accordance with the revised RBI circular of November 12, 2021. There has been a significant improvement in asset quality over the last 18 months. December 2021 was the first quarter when we were required to report NPAs under the new norms brought in by RBI. Since then we have reengineered our recovery mechanism and processes, and I'm happy to report that as of December 31, 2022, gross nonperforming individual loans calculated under the new norms stood at 0.86%, down from 1.44% in December last year.

Similarly, gross nonperforming nonindividual loans stood at 3.89%, down from 5.04% in December last year. As per the new regulatory norms, the gross nonperforming loans as of December 31, 2022, stood at INR 8,880 crores. This is equivalent to 1.49% of the loan portfolio which is down from 2.32% in December last year.

Calculated under the earlier norms, the gross nonperforming loans as of December 2022 would be 1.38%, comprising 0.79% for individual loans and the same 3.89% for do individual loans. The improvement in credit quality is also reflected in the credit costs, which I will cover later.

As at December 31, 2022, the corporation carried a provision of INR 13,274 crores. On the IndAS accounting, both asset classification and provisioning have moved from the incurred loss model to the expected credit loss model providing for future credit losses. Based on the model, the total exposure at default which is principal plus interest of INR 601,765 crores is broken up as follows: Stage 1 loans constitute 94.5% of the total loans; Stage 2 is 3.7%; and Stage 3 is 1.2%.

We have seen a very sharp 3.7 percentage point reduction in the aggregate of Stage 2 and Stage 3 assets from the peak of 9.2% in June last year to 5.5% of the exposure at default over the last 6 quarters. In fact, in the current financial year itself, we have seen 120 basis points reduction in the aggregate of Stage 2 and Stage 3 assets from 6.7% in March 2022 to 5.5% in December 2022. During the quarter, we had charged a profit and loss account with a sum of INR 370 crores towards provisioning. The aggregate charge to the profit and loss account for the 9 months is INR 1,357 crores. The ECL to EAD coverage ratio for Stage 2 assets is now 25% and for Stage 3 is 56%. The provisions carried as a percentage of the EAD amount to 2.21%.

As a result of the improvement in asset quality over the last 6 quarters, annualized credit cost for quarter 3 was 22 basis points, down from 33 basis points and 29 basis points during quarter 1 and quarter 2 of the current year, respectively. Credit cost for the 9-month period now stands at 28 basis points on an annualized basis. We have stated in our earlier earnings calls that as asset quality-related issues get resolved, we should, over a period of time, be able to normalize the credit costs to pre-COVID levels on a sustainable basis. This, in turn, will have a very positive impact on the return on equity.

Let me now come to investments. We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all our other subsidiary and associate companies at the original cost of acquisition, which is the price we had paid whilst making those investments. These investments are not accounted for on a fair value basis. If we were to master market the listed investments as at December 31, 2022, the unrealized gain, that is the unrecognized gain, which is the difference between the market price on December 31, 2022, and the carrying cost, would be INR 2,55,883 crores. This unrecognized team is not part of our network nor has it been considered in a capital adequacy calculations. Our capital adequacy ratio on December 31, 2022, stood at 23.7% of which Tier 1 capital is 23.2% and Tier 2 capital is 0.5%. The capital adequacy is well above the regulatory requirement.

At this stage, it is important to talk of return on equity. Under the IndAS accounting norms, network includes certain items which do not form part of Tier 1 capital under the prudential regulations. These include IndAS transition reserve, deferred tax liability on special reserve, fair value gains on investment investments through OCI, investments in subsidiaries and associates in excess of 10% of net [indiscernible]. Also securitization gains recognized upfront in accordance with the IndAS requirements. These items aggregate to INR 22,193 crores. Hence, Tier 1 capital is INR 1,07,046 crores as against the reported network in December 2022 of INR 1,29,259 crores.

A more appropriate way of calculating the return on equity will therefore be on regulatory Tier 1 capital as against the conventional method of completing the return on equity on network. Annualized return on equity based on Tier 1 capital for the 9 months ended December 31, 2022, stood at 15.4%.

During the quarter, 600 warrants were converted into 600 shares of the corporation at a price of INR 2,165 per share. The last date of conversion of warrants is August 10, 2023. As at December 31, 2022, the corporation's total borrowings amounted to INR 5,43,664 crores. Term loans, including external commercial borrowings of USD 1.5 billion equivalent drawn in the current year, which I referred to earlier, and refinanced from the National Housing Bank accounted for 27% of the borrowings.

Market borrowings at the NCDs and commercial people accounted for 43% of the borrowings. Deposits as at the quarter end amounted to INR 1,61,521 crores, and constitute 30% of the borrowings. It is important to mention here that while the deposit level has remained steady, retail deposits now constitute as much as 70% of total deposits as compared to 62% in March of 2022. We continue to encourage retail deposits and retail deposits have grown 14% during the current year.

During the earlier part of the year, we had raised wholesale deposits spending -- withdrawal of the ECB of USD 1.5 billion. These deposits have been repaid on maturity. Wholesale deposits are generally shorter term in nature and are not as attractive as they used to be on account of the liquidity coverage ratio requirements.

I will now move to the statement of the profit and loss account. The year has seen a volatile interest rate environment, as I mentioned earlier. And therefore, some of the numbers of the current year are not strictly comparable with the previous year. There are certain factors which have affected the profits of the current year. First is impact on net interest income due to the transmission lag between increase in funding costs and increase in lending rates. Secondly, due to volatility in equity markets, we had a loss on fair value of investments through the profit and loss account as compared to a gain in the previous year. Thirdly, the expense ratios are higher as we incur expenses upfront on staffing, IT and branching to meet the increase in demand for housing loans. There was also an increase in legal expenses due to an increase in business as well as resolution of some stressed assets. Needless to add, whilst these expenses are being cut upfront, the benefit of these expenses will accrue over the coming periods.

Let me, first of all, speak of the issues which have had an impact on the net interest income. In the 9 months of FY '2023, we have had rate actions, which have had an immediate impact on borrowing costs, which in turn have not been simultaneous with the transmission of rates on the asset side. Secondly, RBI increased the repo rate 5 times since May 2022 in all aggregating to 225 basis points. The last increase of 35 basis points was on December 7, 2022. In the run up to the expectation of the rate hike, market rates and swap rates increased, and this had an impact on our borrowing costs. We have increased our lending rates in response to this hike by a similar 35 basis points with effect from December 20, 2022. Therefore, the benefit of this hike will be received over the next quarter, while the costs remains unchanged, assuming there is no further change in interest rates.

Thus whilst we've had an immediate impact on borrowing costs, the lending portfolio aims to be priced over a period of one quarter. This transmission lag has had a slight short-term impact on the NII growth for this period. This should be regularized over the coming period.

Lastly, the proportion of the retail loan book has increased to 82% over the last few quarters. While return on equity on both the retail and the nonindividual business is almost similar, the spread on loan individual loans are higher because of the fact that these nonindividual loans carry a higher capital allocation requirement and also have higher credit costs.

Net interest income purely on the basis of interest without a cognizance of the profit on sale of loans during the quarter ended December 31, 2022, amounted to INR 4,840 crores compared to INR 4,284 crores in the corresponding quarter of the previous year, a growth of 13%.

For the 9 months ended December 31, 2022, the net interest income amounted to INR 13,926 crores compared to INR 12,519 crores in the corresponding period of the previous year. If we adjust for the onetime impact of the transmission lag in passing on the rate hikes to the customers as well as the impact of the swap benefits in the previous year, the NII growth for this period would have been 17%.

On the positive side, it is important to note that credit costs are lower on a sequential basis as a result of improved credit quality. We have always targeted a net interest margin of between 3.3% and 3.5%. I'm happy to inform you that after a couple of quarters of reported net interest margin at 3.4%, the net interest margin for the quarter and the 9 months ended December 31, 2022, both stood at 3.5%. This is an improvement over the last 2 quarters, and reflects on our ability to manage the transmission lag risk. The spread on loans over the cost of borrowings for the 9 months ended December 31, 2022, was 2.29%. The spread on the individual loan book was 1.91% and on the nonindividual book was 3.69%.

Income earned from deployment of surplus funds in cash management schemes of mutual funds and government securities was much lower at INR 172 crores as compared to INR 329 crores in the corresponding period of the previous year. This was due to average level invested this year in liquid funds at INR 4,507 crores as compared to INR 13,549 million crores in the corresponding period in the previous year.

With the introduction of the liquidity coverage ratio in December 2021, the corporation's liability is largely held in -- I'm sorry, the corporation's liquidity is largely held in government securities. The government securities and liquid fund holdings as of December 31, 2022, is around INR 56,000 crores. The average level of liquidity held during the quarter was INR 51,000 crores.

There was no profit on sale of investments during this quarter. However, there was a profit of INR 184 crores on sale of investments during the 9 month period compared to INR 463 crores in the same period last year. Dividends received during the quarter was INR 482 crores compared to INR 195 crores in the corresponding quarter of the previous year. During the 9 months of this year, we earned INR 2,528 crores, by way of dividend income as compared to INR 1,400 crores in the corresponding period of the previous year. Dividends during the year was received predominantly from our group companies.

Largely owing to volatility in equity markets during the quarter ended December 31, 2022, our investments classified as fair value to profit and loss account, there is a debit to the profit and loss account of INR 62 crores as against a net gain of INR 124 crores in the corresponding quarter of the previous year. For the 9 months for investments classified as fair value to profit and loss account, the net gain on fair value changes stood at INR 89 crores, which is significantly lower when compared to INR 672 crores in the corresponding period of the previous year.

Under Indian Accounting Standards, the stock options granted to employees are measured at the fair value of the options and the date of grant. This fair value is accounted for as employee compensation cost over the vesting period of the options. Accordingly, employee benefit expenses for the 9 months include an amount of INR 176 crores compared to INR 329 crores during the same period in the previous year. For the period ended December 31, 2022, the cost income/ratio stood at 9.5%. The cost/income ratio is relatively higher during the period on the account of the increased retail business over the last year as well as the increase in the branch network. The benefits of these cost increases will be derived over the next few quarters.

Increased technology and legal costs also contributed to the increase in the cost-to-income ratio. We expect the cost-to-income ratio to remain in single digits for the year. For the 9 months ended December 31, 2022, the stand-alone profit before tax was INR 14,616 crores compared to INR 12,624 crores in the previous year, giving a growth of 16%. Tax provision during the 9 months ended December stood at INR 2,802 crores compared to INR 2,582 crores in the previous year.

The stand-alone profit after tax for the 9 months stood at INR 11,814 crores compared to INR 10,042 crores in the previous year, a growth 15%. For the quarter ended December 31, 2022, the standalone profit before tax was INR 4,612 crores compared to INR 4,048 crores in the third quarter of the previous year, a growth of 14%.

Tax provision for the third quarter amounted to INR 921 crores compared to INR 787 crores in the third quarter of the previous year. The stand-alone profit after tax for the third quarter stood at INR 3,691 crores compared to INR 3,261 crores in the third quarter of the previous year, resulting in a growth of 13%.

Pretax return on average assets was 3.0%. Post-tax return on average assets was 2.4%. The basic and diluted EPS on a face value of INR 2 per share was INR 64.9 and INR 64.5, respectively. The consolidated profit before tax for the 9 months stood at INR 22,826 crores as compared to INR 20,195 crores in the corresponding period last year. After providing INR 3,131 crores for tax, the consolidated profit after tax for the period stood at INR 19,695 crores as compared to INR 17,150 crores, a growth of 15%. The profit attributable to the corporation was INR 18,537 crores and as compared to INR 16,136 crores in the previous year, a growth of 15%. As on December 31, 2020, the corporation had 3,925 employees. Total assets per employee stood at INR 171 crores. Annualized net profit per employee was INR 4 crores compared to 3.8 crore during the same in the previous year.

Let me spend a couple of minutes to give you an update on the merger. As you are aware, on April 4, 2022, the Board of Directors of HDFC Limited and HDFC Bank Limited, approved a composite scheme of amalgamation of HDFC with HDFC Bank, subject to requisite approvals from various regulators, statutory authorities, shareholders and creditors. Under the scheme -- upon the scheme becoming effective, the subsidiaries associates of the corporation would become subsidiaries associates of HDFC Bank. HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will own 41% to HDFC Bank.

Pursuant to the no objection for the merger from base authorities, the Competition Commission of India and approved the proposal. Further, the National Company Law Tribunal that's NCLT's Mumbai branch, had passed an order in the matter of the amalgamation, pursuant to which a meeting of the shareholders of the corporation was convened in this quarter on November 23;, 2022. The resolution accruing the scheme of amalgamation was passed by 99.9% of the shareholders voting in favor.

The final hearing of NCLT is scheduled to be held tomorrow, which is February 3, 2022. Clarification from RBI on the various requested dispensations, grandfathering of assets and liabilities and shareholder limits in our subsidiaries is still awaited. HDFC's distribution network spans 724 outlets, which include 213 offices of HDFC's wholly-owned distribution company, HDFC Sales Limited. HDFC covers additional locations through its outreach programs.

We continue to engage with all our stakeholders on ESG. Our ESG reports are on our website, including a recent report which is an introductory framework on climate-related financial disclosures. For further information on ESG-related queries, you may engage with our Investor Relations team, Anjalee and Conrad.

The corporation's corporate social responsibility activities focused primarily on health care, education, persons with disabilities and environmental and sustainability. CSR activities were conducted either directly or through the H T Parekh Foundation. Our CSR spend during the 9 months was INR 161 crores.

In conclusion, let me also say that we've been happy to receive a few awards in this quarter. We won the award for the best performing housing finance company for CLSS under the Pradhan Mantri Awas Yojana by the Ministry of Housing and Urban Affairs. At the 19th Inclusive Finance India Awards, the Corporation was awarded the jury special Award for contribution to financial inclusion and the business transformation leaders awards by LinkedIn TechCircle, the corporation with declared the winner for Project DASH, which is digitally agile, seamless home loans, marking this digital transformation trend.

The above are some of the highlights of the results for the period ended December 31, 2022. You may now proceed to question and answers, I would request you to kindly introduce yourself and be brief with the questions.

[Operator]

[Operator Instructions] We have our first question from the line of Suresh Ganapathy from Macquarie Group.

[Suresh Ganapathy, analyst]

I have two questions, both on your loan growth and deposit growth. Now first on deposit growth, the share of retail deposits, as you said, has gone up from 62% to 70% year-till-date which means that you are -- if I were to calculate it backwards, the net attrition has been INR 13,000 crores of retail deposits over the 9-month period. I heard, of course, you guys have launched Sapphire Deposits in the previous quarter. Can you let me know how much mobilization you get to that deposit? Then on a Q-o-Q basis, what would have been the retail deposit accretion? The INR 13,000 crores is a 9-month number, but I also want to know the Q-o-Q number.

[Vedanthachari Rangan, executive]

On the Sapphire alone, I think it was around INR 10,000 crores. That is what we have mobilized from the launch of Sapphire to the peak period [indiscernible].

[Suresh Ganapathy, analyst]

Okay. But Rangan, the total mobilization is still INR 13,000 crores in retail on a 9-month basis. If I take 70% of the current deposit base and then take 62% of March '22 number, the absolute difference comes out only INR 13,000 crores and you're saying INR 10,000 alone you have got from Sapphire. So the numbers are not telling so.

[Keki Mistry, executive]

So Suresh, just so -- it may not tell you, but there will be some repayments which could have converted. So it's not right to look at it from that perspective. But to answer your question as to how much of -- what was the net accretion to retail deposits in the third quarter is about INR 5,750 crores.

[Vedanthachari Rangan, executive]

In the quarter.

[Keki Mistry, executive]

In the quarter.

[Suresh Ganapathy, analyst]

3Q over 2Q, net accretion is INR 5,750 crores and the INR 9 number is INR 13,000 crores. Okay, fine. So that's the way for the calculation. Now my point here is, this instead 70%, go to 80%, I mean because it's the fact that you might have to do more corporate deposit rundown. Is that the outlook going forward? Because on an absolute -- if I were to look at on a total deposit base, the Q-o-Q decline has been minus 1%, and Y-o-Y has only been 4%, right? So can this continue in the coming quarters also because of the [indiscernible] requirements and...

[Keki Mistry, executive]

So Suresh, it's not that there is no availability of corporate deposits. There is a very large availability of corporate deposits, which typically we have kept turning down. And the only reason we kept turning it down because of the LCR requirement, if you have a short-term deposit, there is a very large LCR requirement that comes in. Now incrementally, we could look at probably maintaining a similar kind of ratio by the end of the financial year.

[Vedanthachari Rangan, executive]

Yes. At the same time, there are corporate deposits. Unfortunately, there are these corporate deposit, a lot of them, they come with withdrawable option actually. So withdrawable option doesn't work too much relatively on LCR. That's why I think we've been going a little bit. But wherever we could get money on the basis of non-withdrawability or the limited withdrawability for both classes. So there, we are open to -- actually, we are actually accepting the deposit, but withdrawability for a very short term, it doesn't really make an impact.

[Keki Mistry, executive]

The reason is that the company will not withdraw money, I mean, this is a historical experience over the last 30, 35 years. The actual practice from an LCR perspective [indiscernible] in the first quarter just because it is withdrawing from deposit, which then -- it becomes very expensive from an LCR requirement. That's the reason why we are discouraging it. But we will try to pursue more of the companies to give us deposits if we need, if we at all we need where they don't have this withdrawable option. Because in reality, this withdrawable option is rarely is ever exercised.

[Suresh Ganapathy, analyst]

Okay. Now the corresponding question is on the loan side of the balance sheet. So again, there, we have seen a rundown of the corporate book ahead of -- preparing yourself ahead of the merger because of certain noncompliant loan. Now again, the number is minus 6% Y-o-Y, [ 5% ] Q-o-Q, what [Foreign Language]. And the point here is, again, how much can you see this going down? I mean, is there a quantification that you can give that this is the proportion of loans, which cannot be taken on the HDFC Bank balance sheet and consequently, that is a rundown that they're expected to see?

[Keki Mistry, executive]

So, Suresh, from most of the loans that we have, we have gone to RBI and we saw the RBI [indiscernible] that these loans were permitted under the NHB guidelines. RBI guidelines, which apply to banks are different, and therefore, you grandfather these loans.

As I mentioned to you, we still haven't heard from RBI. Hopefully, in the coming quarter, we should hear from RBI. If RBI grandfathers the requirement, then we don't have to run these down. But for example, there are certain loans which came up for maturity. And on maturity, we took the money back -- took the loan back. And the reason we took the loan back and did not give a fresh loan even though that company may have wanted it, basically because those loans may not have fitted into the banking structure under the RBI. So difficult to give a percentage.

But my sense is, as I said, I think we mentioned in the call also, there is a reasonably good pipeline of construction finance loans that is there with us. But as I've been explaining time and again, in a construction finance loan, whilst the loan may be given upfront, the disbursement of that loan is linked to the progress of construction. So you disburse the loan as the project gets constructed.

Now typically, a real estate can run for 3, 4, 5, 6 years. So typically, what would happen is loans, which would have gotten approved in 2018, 2019, 2020 would be the loans which would be getting disbursed now. Now that years of 2018, '19, '20 were the years when there was a slowdown in the real estate sector, which you are aware of, which we said time and again. The pickup in the real estate market really started in latter part of 2020 and more so in 2021. So there is, therefore, a good pipeline of these loans coming in. The disbursement for these loans may not happen in the third and the further quarter of the financial year, some of this -- a lot of this may get disbursed over be next year.

[Suresh Ganapathy, analyst]

Okay. Can I ask one more question?

[Keki Mistry, executive]

Sure. Yes.

[Suresh Ganapathy, analyst]

So the retail AUM growth has shown a marginal downtick from 20% last couple of quarters, come down to 18%, not trying to [indiscernible] here, but is there some impact of rising rates because they have gone up 200 basis points on the bottom, slowly getting felt here for this Q-o-Q decline -- sorry, slowdown.

[Keki Mistry, executive]

Suresh, I would attribute it to two factors, primarily plus you can add rate, if you want, as a third factor. But the two main factors that if you look at the first half of last year, and I'm talking about April 2021 to September 2021. The first quarter in particular, it's [indiscernible] was significantly impacted because of the second wave. And because of that, disbursements in that year were relatively low. So therefore we had relatively lowered loan growth, now we are comparing our growth in the third quarter with growth in the third quarter of last year, by which time complete normalcy had prevailed. So this was, to my mind, the primary reason why you would see the [indiscernible] as the decline is to 20% to 18.3% or 18.4%.

But the other thing is also that we had Diwali and [indiscernible] in the month of October. Mentioned earlier, we saw relatively lesser disbursements in October and November than what we have seen in September. But having said that, December was a normal month. So things picked up from November -- I'm sorry, from December.

[Operator]

We have our next question from the line of Mahrukh Adajania from Nuvama.

[Mahrukh Adajania, analyst]

So my first question was that what is the -- now what is the size of infra bond that could qualify -- the size of bonds that could qualify as infra bond?

[Keki Mistry, executive]

So the size of the bonds that are qualified infra bond, would now be to the tune of INR 1,18,031 crores.

[Mahrukh Adajania, analyst]

Okay. Sorry 1,18,031 crores. Okay.

[Keki Mistry, executive]

This number, when we spoke, I think a few months ago used to be a little under INR 1 lakh. So we've added more of these long-term bonds.

[Mahrukh Adajania, analyst]

Correct. And my other question on numbers is that what would be the size of the SLR book now, total SLR?

[Vedanthachari Rangan, executive]

INR 56,000 crores [indiscernible].

[Keki Mistry, executive]

INR 56,000 crores.

[Mahrukh Adajania, analyst]

Got it. Okay. And the broader question is, of course, your loan growth has been good. There were some small base effect in October, November, which has corrected in December. There are a few large banks that have seen some slowdown in home loan growth. So what do you think is the outlook for mortgage growth from here on?

[Keki Mistry, executive]

Mahrukh, I would never want it to [indiscernible] 1 quarter or 1 month high, 1 month low. There are seasonal factors, which have an impact. But the reality of the matter is that it had gone up since [indiscernible] do get impacted to some extent. But the inherent demand for housing is based on what we find is that when interest rates go up, the typically, for the first 8 to 10 days, we see some -- number of new applications that we receive. But by the time the 8 or 10 days are over, the number of application reverse back to what they used to be because of it.

So this is a temporary phenomenon. And because we had such frequent increase in interest rates in this quarter, I think we have 2, it could have some temporary impact in terms of that. I think while interest rates stabilize, I think 90% plus of any interest rate hike that could have happened has already happened. We should start seeing a steady and arising growth.

[Mahrukh Adajania, analyst]

Got it. And just one last question. Keki, in terms of these loans, which you have requested RBI to grandfather, and hopefully, they should be in terms of what's eligible for banks and what's eligible for nonbanks. Do you -- could you quantify would there be any rough quantum that you could share.

[Keki Mistry, executive]

I won't be able to give you a rough quantum, but there are things which are very, very small and fairly irrelevant things like, for example, there could be cases of pledge of loan against shares, for example, could be one category.

[Vedanthachari Rangan, executive]

So Mahrukh, I think what has gone to RBI is in terms of the loan against shares and all which are clearly the not permitted in the bank beyond a certain limit. So those numbers are not more than INR 5,000 crore, INR 6,000 crores as I have told you in the past. And depending upon how anything comes in, either they will get grandfathered and they will get run down for a period of the time.

[Mahrukh Adajania, analyst]

Okay. But we are still talking about bank book only, right?

[Vedanthachari Rangan, executive]

That is the book which is the similar. And I said that the book is actually sort of -- they don't -- I mean all the construction finance and all that, they are all the permitted book...

[Keki Mistry, executive]

[indiscernible] differences between regulations that the housing finance regulation permitted certain kinds of loans, but the banking regulation does not. But as I said, we've asked RBI to grandfather it and probably hopeful that they would normally in the merger [indiscernible] this time. But point is that when these loans mature, we do not give a cash loan or a new loans simply because if it doesn't qualify under RBI, we don't want to add more to give loans, which do not fall into the banking regulations.

[Operator]

We have a next question from the line of Rahul Picha from Multi-Act.

[Unknown Analyst]

This is [ Akshat ] here from Multi-Act. I had two questions. One, I wanted to get a hang on the restructured book. And I wanted to understand -- what percentage of our restructured book has now started its repayment? And what would be our conduction efficiency on that 0.7% of the book. And second, I wanted to know the disbursement figure for the quarter.

[Keki Mistry, executive]

All right. So the OTR book that we had, I mentioned that in my initial comments, our total OTR book now stands at about INR 4,000 crores, which is roughly 0.7% of the loan book. And a lot of these repayments would have started.

[Vedanthachari Rangan, executive]

We never changed the repayment.

[Keki Mistry, executive]

Repayment terms were never changed.

[Unknown Analyst]

So almost the entire book is repaying and our collection efficiency would be similar to that of the overall book.

[Keki Mistry, executive]

I mean, more or less the same. It has such a small amount, INR 4,000 crores on a book of INR 6 lakh crores, it really doesn't move the needle one way or the other. It might be marginally lower, but not significantly, so nothing which has become sort of very [ apparent ].

[Vedanthachari Rangan, executive]

And to answer the second question, disbursements is a little over INR 40,000 crores for the quarter.

[Keki Mistry, executive]

Individual...

[Vedanthachari Rangan, executive]

These are retail...

[Operator]

Thank you. We have a next question from the line of Nishant Shah from Millennium Capital Management.

[Nishant Shah, analyst]

Just one data-driven question, what is the proportion of the book that is eligible for priority sector lending today? And what is the pace that this book is growing by?

[Vedanthachari Rangan, executive]

See, on an outstanding basis, I think the last number, which we got was coming to around close to INR 20,000 crores, the priority sector book in our book. Net of the books sold actually, this doesn't include the books which...

[Keki Mistry, executive]

This as loans given by HDFC, which would qualify as priority section in the banking structure.

[Nishant Shah, analyst]

And is this book growing faster than the rest of the book.

[Vedanthachari Rangan, executive]

I mean, it's going in more or less the same line as the rest of the book.

[Nishant Shah, analyst]

Just one, I want to confirm I got the number right, Infra bonds that you mentioned was INR 118,000 crores.

[Keki Mistry, executive]

Yes, INR 18,000 crores.

[Vedanthachari Rangan, executive]

These are bonds which have original maturity of 7-year and above.

[Operator]

We'll take the last question from the line of [ Santosh Kesari from Kesari Wealth ].

[Unknown Analyst]

Mr. Keki, just one question. After the NCLT hearing tomorrow, are we expecting -- other than RBI, are we waiting for some other approvals? Some other big regulatory approval or it is all...

[Keki Mistry, executive]

There will be other processes, and I'll request my college Rangan to talk about it. But basically, the way it works, and I'll give you an example, we have an asset management company. Now through the asset management company, we've raised money through thousands and thousands lakhs of customers. Now under the SEBI rules, we had to write a note to each one of these unitholders and give them the option if they wish to withdraw their money. Because the promoter of HDFC Asset Management will now be HDFC Bank and not HDFC Limited.

So in reality, no one is going to withdraw the money because of that because HDFC Bank and HDFC Limited are equally strong, but it is still a process which has to be gone though. So there are processes like this, which are required by different regulators. But these processes, which is more a formality rather than anything which will be an impairment to the merger or something which will create the stoppage to the merger.

[Unknown Analyst]

So other than this, there's nothing big like in terms of one is NCLT, second is RBI.

[Keki Mistry, executive]

NCLT, RBI. RBI is to rule approval plus they have to give us a response to forbearance that we have sought plus we have to write to all the stakeholders...

[Vedanthachari Rangan, executive]

IRDA will be one because there is a change of promotor there. So that will also be -- obviously once the RBI gives it, IRDA will also follow.

[Keki Mistry, executive]

But I must also say that all these regulators have given a principle approval or no-objection approval a few months ago. So therefore, in that sense, there is no real reason why anyone would delay things too much other than certain processes which need to be followed.

[Operator]

As there are no further questions, I would now like to hand the conference over to the management for closing comments. Over to you, sir.

[Keki Mistry, executive]

Thank you very much. And I can only say that the outlook for housing continues to be extremely strong. My sense is that the interest rates have now more or less peaked. You might see a 0.25% rise in rates going forward, but I don't see too much more than that. And therefore, I would say that the coming quarter and the quarter after that should continue to start -- market should start seeing the strong growth in the loan book. As far as nonindividual loans are concerned, the construction finance loans are concerned, as I told you, there's a reasonably decent pipeline, but the disbursement of these loans will be leaked to the construction and therefore, may not happen in the immediate quarter.

[Operator]

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