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HDFC Bank Ltd
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Ladies and gentlemen, good evening, and welcome to HDFC Bank earnings call on the financial results for the quarter ended 30th June, 2018, presented by Mr. Paresh Sukthankar, Deputy Managing Director; and Mr. Sashi Jagdishan, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Sukthankar. Thank you. And over to you, sir.
Thank you. Good afternoon, all of you. As usual, I'll walk you through some of the key financial parameters for this quarter's results. And then Sashi and I will be happy to take questions thereafter.The bank's total income for the quarter ended June 30, 2018 grew by 18.8% to INR 26,367 crore. Net revenues at INR 14,632 crore were 73% driven by net interest income and 27% by other income. The NII growth was at 15.4%, driven by the average asset growth and of course the net interest margin for the quarter at 4.2%. The other income, of that remaining 27%, 83% of that other income was driven by fees and commissions. So of the INR 3,818 crore of other income, fees and commissions were INR 3,171 crore and the fees grew by 23% over INR 2,578 crore in the corresponding quarter of last year.There were 3 or 4 contributors to this growth in fee income, including third-party commissions, in particular from insurance. But generally, both through the third-party fees, credit card fees, retail asset fees and a couple of others. Other than the fees and commissions, the other item to note was the negative mark-to-market on investments. As you're probably aware, the RBI Circular dated June 15, allowed banks or had given the option to banks to spread provisioning for mark-to-market losses on investments held in the AFS and HFT categories over 4 quarters. The bank had decided not to or has not availed of this option, and therefore the entire mark-to-market loss of INR 391 crore has been taken to the P&L account in this quarter itself. This loss was largely attributable to the corporate bond portfolio which actually has a modified duration of just 1.6, so a fair amount of this loss which we did not amortize would obviously come back over this 1.6-- a little under 2 years. So if you look at the swing impact of the profit and loss on mark-to-market for sale investment as against a gain of INR 331 crore in the corresponding quarter of the previous year, there is a loss of INR 283.2 crore in the quarter ended June 2018.The other contributors to other income which were FX and miscellaneous income, again, saw healthy growth. And operating expenses again continued to grow at a pace which was less than NII growth, for instance. So operating expenses grew by 11.5%. They touched INR 5,983.9 crore. The core cost-to-income ratio, therefore, was at 40.1% as against 42.7% in June of 2017.Provisions and contingencies for the quarter were at INR 1,629 crore. That's against INR 1,559 crore in June of last year. Of these, the specific loan loss provisions were INR 1,432 crore as against INR 1,343 crore in the corresponding quarter of last year. The PBT for the quarter was up from INR 5,961 crore to INR 7,018 crore. Incidentally, if you knock off the profit and loss on the valuation or sale of investments, than that PBT growth adjusted for that swing of INR 600-odd crore that I mentioned earlier would have been around INR 29.7 crore. But nonetheless, from after taxation for the quarter itself, the net profit was INR 4,601 crore, an increase of 18.2% over the corresponding quarter of last year.Moving on to the balance sheet parameters, our total balance sheet size was INR 1,080,000 crore. This was up from 895,000 crore as of June 30, 2017. Our total deposits grew by 20.0%. This is against the, I think, 7.6% system growth that we have seen in deposits. Within that, within that 20% deposit growth, savings accounts grew by 17.4%. There was a particularly strong growth in time deposits. Time deposits grew by 24.9% and given this faster growth in time deposits, our CASA ratio was at 41.7%. And this faster growth in fixed deposits and a slight reduction in the CASA ratio, coupled with lower investment yields and the mix of our loan book, it results in the slightly lower NIM that I mentioned earlier at 4.2%.Advances growth, incidentally was 22%, again as against 12.8% system advances growth. And if you look at the advances growth from the classification in the way we manage it, then that is not just the regulatory or the Basel 2 classification, but the way the businesses are run. Then retail loan growth was-- the domestic retail loan growth was about 25% and the domestic wholesale loan growth was about 16.3%. The mix of the loan book again has been 55-45 based on the Basel 2 classification. Capital adequacy was at 14.6% as against 15.6% as of June of last year. First of all, the 14.6% is well above the regulatory requirement for us, which is at 11.025%, which includes the 1.875% as the capital conservation buffer and additional 0.15% on account of the bank being identified as a domestic systemically important bank. Of that 14.6%, Tier 1 CAR was at 13.1% and our Common Equity Ratio was at 12.1% as of June 30. Our risk-weighted assets were at INR 844,894 crore, up from INR 690,370 crore as of March of last year. The network, we've touched now 4,804 outlets. This is across 2,666 cities and 53% of these outlets are in semi-urban and rural areas. On the staffing front, as against roughly 84,000, there was 83,757 in June of 2017, our staffing is now at 89,550 as of June 2018. On the asset quality front, gross NPLs were at 1.33% of gross advances. This is as against 1.3% as of March of 2018 and 1.24% as of June of 2017. Our coverage ratio as of June '18 is at 70%. This is based on specific provisions. Our net NPLs therefore were stable at 0.4%. The floating provisions that the bank continues to hold is INR 1,451 crore. So the total coverage ratio which is specific, general and floating; as in comparison to the NPLs is at 118%.Those were some of the key financials. We have to take questions now.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from IDFC Securities.
My first question is on NPLs, if you could share the slippage number and give some color on slippage and whether there was any [indiscernible] coverage slippage or any segment range or higher slippage.
So the slippage ratio for this quarter is approximately 2.06% and obviously there is a bit of a one-off in the form of Agri portfolio moving up. So if you adjust for that, it comes to about 1.67%.
Is it possible to share the absolute number of 2.06?
Yes, it is INR 3,548 crore.
And the other question is, does your bank associate the [indiscernible] business banking and SME only switches that has a lot of over-valuation of collateral in general for the industry, and therefore there's a lot of stretch in business banking in SME?
So I think I'm sure if there is a view there, it must be very well-founded. So I think from our experience, clearly if you look at the SME piece, which from our perspective covers the business banking, we have a couple of other segments including EG and so on. We have seen some increases in NPLs in the last few quarters. But there's not been a very significant trend. And much of it has been restricted to specific sectors or specific industries within that SME. It's not been across the board. But the reason I'm unable to sort of comment on the point that you made is because I can't really link this only to asset valuation related issues in our experience. So much of our lending is essentially cash flow based. And we have seen cash flows of some of the SME players being affected by various issues, including the transitional impact of GST. But the fact that realization of collateral in the current environment is that much tougher, given less liquidity and perhaps therefore that resulting in the impact on valuation is a reality. So I think there are two parts. One is the formation of NPLs and the other is the realizeability of collateral. But I'm not sure that I would link the formation of NPLs to the valuation problem. Both these certainly coexist. But we've seen a couple of quarters of up and down in terms of NPLs, so we haven't seen a steady trend. And at least in the last quarter, while we've seen some increase in business banking NPLs, there's been a little more from a particular geography and a particular segment.
And also the loan business banking loan have not grown too much sequentially. That's just seasonal?
Yes, there isn't any particular trend. I wouldn't sort of say this is seasonality or whatever. But I think there is no very conscious attempt to sort of cut back. But we are certainly cautious in terms of our growth. But it still our idea that we continue to grow.
The next question is from the line of [Goshev] from Credit Suisse.
I just want to check. Will you also be looking to sign the inter-credit agreement that the other banks have been talking about? Has that been taken to the board or is that something you are still debating?
We have taken it the board and we have some guidelines and views that they've expressed. I'm afraid I wouldn't be in a position to share this in this forum. Because this is something which we'll have to share with the IBN, the fellow banks. But the board has some views, which we would naturally be discussing before we can take this further.
So I mean do you see any resolution really happening before the 180-day deadline of the [indiscernible] or do you think that it might be tough under this arrangement?
Well, I'm sure a large number of banks are probably already on board with the new-- with the proposed scheme. So honestly, given that we are sort of involved in very, very few of these if at all, I must confess I don't think we have much visibility. So I'm sure a few of them will probably try and fit into the new arrangement. I think the sense of urgency on getting this thing signed by most banks is very high. But I'm not sure by the time each of the banks get their approvals and signs up. I can speak for ourselves. We've been working on this. Let's say, we've got some views from the board which we need to clarify and get those addressed before we can go ahead. But I think all of that will sort of be different for each bank. So it's difficult to comment.
Sure, thanks, and just on deposit growth side, is there something that you all think you need to do again this quarter? Deposit growth was slightly weaker. CASA also as such hasn't really been growing. Is there something that you're looking to do differently or increase deposit rates for those or something? (Inaudible) is now at 88%.
Well we're very comfortable with the overall rate of growth in deposits. In fact the gap which was there for a while between the deposit and loan growth actually has narrowed substantially this quarter. So in fact, the difference between system growth and our growth on the loan side is now much narrower than on the deposit side. Because if we are growing at roughly 20% on deposits, I think we're okay on the overall rate of growth. Obviously since it was a sudden spike in the deposit growth that we were wanting to achieve, the incremental or the faster deposit growth has had to come from fixed deposits. And that's where we've seen fixed deposit growth of almost 25%. Within the CASA, the savings account growth rate, we are still reasonably comfortable with. It is in the high teens and therefore the current account growth in this quarter has been muted. It's been [indiscernible]. So we'd obviously continue to focus on pushing that up a little. But otherwise if we were to have all our deposit growth at roughly the level that we are growing right now and we get back the balance between some more of the CASA piece, then we are very comfortable from a liquidity perspective as well as the mix perspective.
The next question is from the line of Hiral Desai from Anived PMS.
I had a question on asset quality again. So if I look at the [GNPLs] year-over-year, they're higher by about 32%. Now Q1 of last year already had there were some spikes on due to Agri NPL. So would it be possible to sort of quantify let's say the Agri NPLs to one of last year versus Q1 of this year? And the other is when you to referred to as Agri NPLs, you are essentially referring to the [indiscernible] or credit piece, right?
That's right. So as you know the Agri NPLs tend to show up every sort of alternate quarter, because that's the way the cycle works. So you'll find that if you look at March, for instance vis-a-vis December, it was lower. Similarly, September vis-a-vis the previous June, so it was one quarter [indiscernible] now, and then June and December this quarter. So if you look at year-on-year, and you're talking about-- when you talk about absolute increases, obviously our portfolio itself, the loan book itself, is growing at 20-odd percent. So a 10-20 basis point increase in the ratio naturally will result in growth in absolute percentages much higher, rather than as a percentage of loans. But approximately if were at about 1,500 or so a year back, today we would be closer to about 2,100 in terms of the Agri NPLs. And obviously our book has also been growing and the need for us to continue to grow the Agri piece will be there. So I think we are sort of continuing to manage this as well we can. There are impacts, of course, which we have spoken about earlier, some of which are relating to the intrinsic ability of those customers. But a lot of it is also linked to the uncertainty which tends to come in when customers believe or farmers believe that they may have a chance to get a waiver and stuff like that. So there are multiple factors in place. Nonetheless, this is a business that-- this is a portfolio that we will continue grow because we have a mandated lending requirement. And a shortfall only results in a need to put in our [indiscernible] which has its own financial pain as well.
And the other is on the business banking, where it was rough [indiscernible] for-- you alluded to it earlier. Now there are basically two parts with it, right? So there is working capital to SME and there is zero lap. Now lap has been under a lot of pressure over the last, let's say 12 to 18 months. So qualitatively, I just wanted to understand what is driving growth for us? And secondly, if you could also talk in terms of asset quality of the lap side of the book.
So actually our asset quality on the lap side has been very stable, which is why even now responding Mahrukh's question, I was not so much-- we did not see the linkage very strongly to the collateral valuation piece. But so the NPLs which have been showing up in our SME book or our business banking book, have been more on our business banking working capital piece. And various issues there in terms of, as I said, some of them being strapped for liquidity. Some of them went through a post-GST as I said, some liquidity crunch. Some of them were into some parts of trading-related business have clearly again seen some impact on their profitability. So there are therefore various issues, but more to do with the working capital piece. From a growth perspective, the reason I still feel it, when you look at the actual NPLs or the credit cost, they're still not out of line with what we would be willing to live with for that segment, because we're obviously pricing in a certain amount of risk. And while there will be some volatility in that, I think overall we're still comfortable with the way the portfolio is behaving. And it does offer an opportunity to gain market share, because there is a large SME segment in the market which perhaps would be looking for getting their financial needs met by banks like us, which give a combination of both funding and transactional services. So yes, there is some increase in NPLs. We still see this as something which is within product parameters or segment parameters, and we will feel comfortable continuing to grow this across our entire distribution network.
Paresh, lastly, if I look at the NII growth for the quarter at about 15%, this is obviously at a 3-4 year low. So how should we think about this over, let's say, 5 to 6 quarters?
So we don't have a guidance to the future. But I think because we have had a margin which has come up by almost 20 basis points vis-a-vis the corresponding quarter of last year. That does sort of impact or has impacted the NII growth during the quarter. Obviously the overall asset growth has remained strong. Now let's look at some parts of this asset growth, why this is lower. First of all, this quarter when you look at the retail growth, which is very strong, it does include how we're almost INR 9,000 crore off, our having purchased the home loans with a lag. Like you're aware for a long time, we did not purchase the home loans that we originate and which we have an option to purchase, because there was some ambiguity with the GST. That has got clarified. So we have taken that on. So as you can imagine, that is within the retail space, clearly a lower-yielding increase in the retail piece. Of course even other than that, if you look at the rest of the retail loans, they have grown. Most products, whether they're auto, CV; most of them have grown in the high teens, low 20s; 1 or 2 products which have grown even in the 30s and so on. So there is an overall growth in retail loans, but clearly a large chunk of the growth sequentially has come from a low-yielding home loan book. That has been, as you know, a lower yield on investments, which again has impacted. And then the Agri piece, to the extent there is an increase in the Agri NPLs, there's naturally some reduction in the interest in our reversals. So some of it is a little one-off in as much as the reversals from Agri NPLs and so on, obviously a function of what happened in that quarter. The rest of it is the mix and what happens to interest rates on the investment portfolio. And again, the sharper than normal increase in fixed deposits was really to get the mix right, I mean get the overall funding right again in terms of liquidity. So that has caught up now. And when you look at it over the next several quarters, you must also remember that as interest rates are going up, there's a bit of a-- there's a small leading lag, right? Because our retail book, which is a little more than half our loan book, other than 1 or 2 products; most of it is fixed rate. Of course our fixed deposits also re-price on maturity. But since the [indiscernible] acceleration more in this last quarter, you saw a larger-- the re-pricing if you might, a larger growth in fixed deposits at the new prices, as compared to the loan book. So the loan book is also, because of the short duration, I mean every month you have EMIs and the book running off, the new loans coming in at the current rates. So in any case it's sort of mismatched portfolio for a very long time. But there's a gradual change. So I think what we have said for the longest time that we've been through interest rate cycles. We've been through small changes in product mix. We've been through CASA ratios which have ranged between 40 and 45. The NIMs range between 4 and 4.4 or 4.1 and 4.3, or whatever at various points of time; but they have remained in that range. They of course move in both directions within that range. And I think therefore over a longer period of time, while I have no guidance on a particular number, I think the range that we have had in the past, very broadly between 4 and 4.3 or 4.4; I think that still remains a reasonably realistic range over a period of time.
I just had one request, in case you guys give out the results on Saturday, if you could have the call on Monday, because Saturday evening gets a little tricky.
I'm sorry about that, but--
Obviously it works for you. Thanks and all the best.
The next question is from the line of [ Sotia Tokur ] from Stewart & Mackertich.
I just wanted to ask you, what plan do you have on the investment banking business? Because we've heard a lot of news regarding you've been hiring people for establishing and growing this division, so if you could guide us regarding the prospects and the step that are being taken by the bank and the management.
So actually this is a business that we've been growing for the last 4-5 years now. And I think it's doing extremely well. Two parts, one is as a large bank to large corporates, mid-sized corporates. We do have strong coverage and relationships that we're already dealing with the commercial banking side. So it's logical for us to want to meet the needs from a capital raising advisory, basically across the entire range of investment banking as well. Now the reality is that we've in the last few years, already got to a top-2, top-3 position in DCM and doing extremely well across loans syndications. And we are building our franchise on the capital markets and advisory business as well, where we have done fairly well. So given our experience, given the [indiscernible] that we have built over these years, yes, we are investing further in terms of growing the team size and building those businesses. I think given our brand, given our relationships and given the capabilities that we have built and are building, we certainly see this as a very healthy growth opportunity for us. And obviously to the extent that we have our own appetite and the balance sheet, we would obviously be leveraging that as well.
The next question is from the line of Amit Premchandani from UTI Mutual Fund.
Do you see any impact of the change in [indiscernible] loans on the CV demand and also in terms of asset quality, both in the used and new segment?
So I think people who are from the industry who or much better, who know the nuances of this a lot better, do believe that there will be some impact. Whether this is a sort of one-off impact while people figure this out or it's going to be a continuing impact, I think it's there for us to see. But I think the immediate impact is more likely to be on demand than on asset quality because, is it going to substantially reduce the demand for vehicles right now in terms of usage? I doubt it. And it could potentially therefore only help maintain the income levels for the existing transporters in respect of the trucks that they have. But would there be till they're sure of how this settles down, be interested in adding to their fleet? I think that might be some moderation, or sort of second-hand fleet, given that we are going to see this impact only that should be through the demand for CV loans.
And in terms of your asset management, do you think already there was some ordering going on and relatively the change is much more smaller?
Yes, I mean I think some of these are sort of common knowledge or in open secrets, but none of us are in a position to know for certain. But I'm sure there must have been some of it, which is why at various points of time there have been various attempts to curb that. But how much was there and how much will the new norms be more strictly enforced? Honestly, I must confess, maybe my colleagues who run this business would have a much better feel. My second-hand perception is that there may be some impacts, but not much.
And asking on the asset quality front, as of now.
And this is too premature for us to comment. But I don't expect anything on the asset quality front right now.
And the mortgage part, is there any change in the contract terms with HDFC? Because in the annual report of HDFC the service fee is quoted as 75 bps. And also whatever you have bought this quarter was for the last year's carryforward, right? So this year you would still buy more, right?
So as I explained a little while back, the purchase that we have done just now is a bit of a backlog that we have purchased. Because we had not purchased for 3 or 4 quarters. So this was really a one-off purchase based on what we had not bought earlier. And as I mentioned earlier, we had not bought for a few quarters, because there was some ambiguity on the indirect tax fund, which has since been clarified. As far as the fee itself is concerned, yes, this negotiation, all this takes place periodically when we feel that there is a requirement on both sides. And I think the last time that we changed it, the fee payable now is 75 basis points, which I think became operative from sometime last year. But since we had not bought since last year, I think that's why you're sort of seeing it now. But it's not something which has happened just now. It was, I think, reviewed and renewed sometime last year and this has been the rate from then.
And the 75 bps, is it figured in the cost or the NII? Is that set up?
It's in the cost.
And last question, you have kind of alluded to the question. But on the saving deposit front, largely your share of saving deposit or percentage of deposit has been kind of consistent. But just if you look at some of the other banks who have seen an acceleration in saving deposit growth for quite a few years now on the back of higher rates; at this point of time, 20% of the banks are under PCA. So why are we not actually trying to tap this pool of savings, given that they are [ encompassing ] their own problems? We still are maintaining our share, which is very commendable. But there's no increase or acceleration in savings.
So one, of course, we were obviously competing on service and distribution and not on price, which is what you alluded to. So the people who have been gaining share on savings accounts, a lot of them are also getting that savings account at a different price point. But to your point, in relation to the PCA banks, actually this is something which you've seen across the board that since there is still strong comfort for all the right reasons amongst the public that even if these banks are in PCA and therefore their lending operations may have restrictions, there is no discomfort on the deposit side, quite rightly. And therefore the overall deposit growth is across the entire banking system, although at a somewhat muted growth rate, because total deposit growth itself is in single digits. But it really has been across all banks and while loan growth has got concentrated a little more amongst the handful of banks who-- private and public sector who are able to grow, obviously not in PCA. So we will of course I mean still remain focused on growing our savings accounts in particular. And I think that again at 17% growth, we are still actually gaining market share on savings accounts and we have done that literally every quarter over a period of time and I'm not sure exactly what the savings account growth for the system is. But it's definitely going to be in single digits. And again, if you look at the pace at which savings accounts are growing for players who not playing the pricing card, then I think we are gaining significant market share within that segment. But to the extent that obviously our loan growth has been stronger, we've had to bridge that incremental liquidity growth, liquidity needs, through the fixed deposit growth and which is why the decline in the CASA ratio, driven again more by current than the savings account piece.
And now do you think on the savings deposit rates of 3.5, you just have one and you're unlikely to change it as of now, given that market rates have moved up sharply post that?
Yes, and also because logically if you add the operating cost in respect of a savings account, then in any case you probably need to, depending on the average savings account balance, you're probably going to add 2.5% to 3% at least in terms of your operating costs, when you add the cost that the bank incurs in terms of ATM charges, statements, and checks that you process and all the other costs that the bank incurs for transactional accounts like savings accounts. So if you really end up paying significantly more than your effective cost today, which is 3.5% plus let's say 2.5% to 3%, then for a demand deposit you're paying a rate that we believe is not viable or is not certainly attractive. So unless somebody's paying significantly higher for their fixed deposits as well, for given the cost at which we are getting our fixed deposits and the differential that we believe is reasonable for a checking account or a savings account, I think that's what-- it's a regular commercial, competitive commercial decision.
The next question is from the line of Manish Ostwal from Nirmal Bang.
My first question on net interest margin, momentum during the quarter, quarter-to-quarter, March quarter to June quarter; so we have 10 bps, say, contraction on the net interest margin. So it is largely attributed to the higher growth in the time deposit or any other factor played out, especially the lower A loan investments?
So I think Paresh alluded that for the year-on-year explanation. As you know, we did raise a large fixed deposits in the fourth quarter of March to (inaudible). And that full impact is coming into this particular quarter. The second one is the investment, the proportion of short duration investment in the form of T-bills and mutual funds, et cetera. That also sort of pulls down the yields, so your investment yield has also come down. And third is as Paresh had mentioned, since the Agri portfolio has been growing up in terms of the NPA proportion of it, we have been reverting our fee interest income, accruing on that particular portfolio. So that is also leading to this 10-odd basis points for this quarter sequentially.
And what is the outlook ongoing ahead on the margins, the net interest margins?
So I think this also, Paresh has said we normally don't give any guidance either on margins or any other parameter. But if you have seen over the last many years, we have been operating in a tight band of 4.0, sometimes 4.1-4.3. So as long as it's within this band, I think we are pretty comfortable. There will be lags in terms of when the asset we'll start to re-price it and move in tandem with the cost of funds. So that's what we are now seeing at this juncture. So let's see how it works out. But I think as of now we believe that we are still in a very comfortable position.
Okay, second question I have on the operating expenses growth. This is at 11% Y-o-Y and the cost income ratio close to 40%. This is a phenomenally well ratio. So can we sustain these rates or what is the sustainability of the cost income ratio and this kind of efficiency level at the bank?
So the focus on cost control actually has not been at the cost of investments in the sense that where need to, for our business growth, whether it's been in terms of infrastructure, technology, people; we continue to invest. But there have been improvements on an ongoing basis in terms of productivity and efficiencies driven by our digital initiatives, as well as our branches which have been opened over the years continue to drive further origination with the same basic cost structure. From a ratio perspective, of course, the core cost to income at 40% is also because if you look at the total revenue, core cost to income excludes the bond gains or losses. So to that extent, this is very comparable across last year and this year without the volatility linked to the denominator. But our focus was to come to the low 40s. I think we've achieve that. We certainly will continue to focus on maintaining our cost structure while driving up revenues.
And secondly I'm not sure, because I joined a bit late. So have you shared the slippage number during the quarter and the Agri slippage during the quarter?
Yes, we did. So the slippage is about 2.06% for the quarter, on an annualized basis. The absolute amount of additions during the quarter is INR 3,548 crore. There is a bit of a one-off in the form of Agri spikes even in this quarter, which normally happens in the alternate quarters like December and June, where it's on the half seasons. So you adjust it for Agri, it's about 1.67%.
And last question on the fee income side, we have a fee income growth that is 23%. Can you break down this fee income in terms of retail and corporate, and the tender loan product and transaction banking fees, so can you give the flavor in terms of what kind of growth rate these in terms of growing?
Well a large part of this growth has been coming from the retail side. And much of it is not loan-related, but third-party distribution, since we do the payments and cards. And there is some portion linked to the retail asset processing fees. That's of the three that would be the smallest one.
And what is the update on the capital raising? Because we have issued the [indiscernible]. So what would be the balance piece which is [ here today ]?
Well, as you know, the board and shareholders had approved a total of INR 24,000 crore, out of which INR 8,500 crore is what has been issued to HDFC as a preferential allotment. So the balance is what has yet to be raised. And the approvals are for any form of raising of that money, which we would do in due course.
The next question is from the line of Rohan Mandora from Equirus Securities.
On the CASA piece, on the current account piece, I would like to get your perspective, like how realistic would be to accelerate the card growth in mid-teens numbers on a sustainable basis. On that data, initial the growth in net margin we're already having a healthy market share. And secondly if you share if whether there's been a decision of [indiscernible] 180 days in terms of not recognizing those loans as NPLs?
So the one on the current accounts, this is also a function of how much liquidity is [indiscernible] on the system itself. So if you go back a few quarters, we were seeing much stronger current account growth, because there was excess liquidity in the system. As the monetary stance of the monetary policy of the IBR has changed, you have moved toward a neutral, arguably a tighter monetary stance, clearly the excess liquidity in the system has reduced and to that extent current account growth for the system. And although we may be slightly ahead of that, for us it also has come off. And then there is a portion of the current account growth that is linked to capital markets activities and transactional banking in the capital markets. Again, depending on the level of activity there, including for IPOs and so on; that tends to go through its own cycles, although we remain a market leader in most of these transactional banking activities. The only part where therefore the pace of growth on current account in our own mix of business would be a little different is that as we grow further into semi-urban and rural, clearly the current account opportunities in rural India will, as you can imagine, be much, much less than in the urban areas. So that's obviously to that extent the proportion, maybe of the top part of CASA maybe clearly lower in our rural branches. To your second question, we did not avail of the dispensation for 180 days for recognizing NPLs on our SME. So at the normal 90-day rule, we have done this both for the last quarter and this quarter.
And lastly on the-- if you would share some color on how there's been a traction in [ MFI ] loans in the last quarter.
So again, it's a very, very, very small portion of our portfolio, less than a percent of our book. But there has been a slight pickup in the last quarter relative to where it was. But it's still not-- well actually it's pretty much now at the levels that it was before it had come off in terms of growth rates.
The next question is from the line of M.B. Mahesh from Kotak Securities.
Just a couple of questions from my side. One, if you look at the DSA expenses, they've gone up by about 40% on a Y-on-Y basis. I just wanted to broadly understand, is this the same level of the investment growth that you've seen in the portfolio or is there some increase in dealer payouts that you're seeing in the market, given the competition intensity? The second question pertains to the card business again. Do you think that the card business profitability to your overall balance sheet, given that you don't give product-specific data; has significantly increased over a period in time? And the third question to Sashi, I just wanted to understand this NPL that you mentioned 2.2% and 1.7%. The difference turns out to be INR 600 crore on slippages for the quarter on Agri. Is that right? Or when you say 1.67% you include your strip of the Agri book as well?
So as far as the payouts are concerned, it's a combination of the two factors and it also depends on product mix. Maybe there is some products that are going to be slightly higher payout than others. We're not stripping out the exact impact of both. But it has been a combination of both. And as you can see, the book itself, net of runoffs on the retail side, even for products which involve payouts, has been growing around 20-odd percent. The actual disbursements would be significantly higher and then there would be a bit of an impact of the higher payouts, if any, for specific products.
Sorry, just for clarification, given that a large share of loans is now moving through the digital channel, shouldn't the cost of acquisition be falling?
Yes, so I think the product which are more amenable to digital channels tend to be products where in any case there isn't a large dependence on dealers or DSAs. So if you look at personal loans or credit cards and so on which are more amenable to that, so there in any case you may not see the acquisition cost, because they may not necessarily show up in a DSA payout line. Some of it will, but not as much as it would, for instance, for an auto or a two-wheeler or CV loan where there much more of a dealer and dealer-DSA kind of environment. The cards business, if you look at it on a combined basis between insurance and acquiring, it's certainly a good profitable business, driven by the fact that we, one, are a market leader in this business. Secondly that a large portion of the cards that we have issued are our own deposit holders, account holders, and therefore that not only helps build the card business, but it also gives us data stickiness in our transactional relationship in our savings account and current account relationships. And given that for all assets, quality has been fairly stable in that for us, especially given our customer segment. It is a profitable business. Has the importance been increasing at all? I think most of our businesses have been growing, so I can't say that's it's been higher or lower in terms of its contribution to the overall retail asset and payments businesses. And finally the rough slippages in terms of the Agri, Sashi? You mentioned the [indiscernible]. You say the increase-- I think I did mentioned on a year-on-year basis the overall growth in gross NPLs Agri was from about INR 1,500 crore to INR 2,100 crore. And in the slippages in this quarter, had you knocked it off from numerator and denominator when you said 1.7 or just the numerator?
Yes, there's an important [indiscernible] that the numerator has been moved up, even if you remove from the denominator, it doesn't change much.
It doesn't change much, okay. I think we have just enough time for maybe one more question. Go ahead.
[Operator Instructions] We have the next question from the line of Nilanjan Karfa from Jefferies.
I actually had the same question on the Agri, because at the same time last quarter you kind of explained that this is slightly seasonal and slightly longer, which we understand. The last time the Agri was about what, 60% of the slippages. This time it was 20%, but which basically means there is an additional part outside which is also fairly large. Could you specify any-- just qualitatively what is probably the largest account that has slipped in the sector?
You're talking about sequentially from March to?
I'm also looking on a Y-on-Y basis as well.
Yes, Y-on-Y growth rate in slippage, we have..
If you look at is as a percentage of the respective portfolios, there really isn't a move as a percentage of that particular portfolio segment. None of those have moved anywhere close to the increase in Agri.
Okay, given the same period you have a fair amount of growth coming in from retail assets, whether that's in auto, PL, and cards. So if you take that as a cluster, you will, even if you maintain the same expected loss or within the product parameters, just by the sheer size of the book growing in these products, retail asset products, you will have a higher increase in NPLs there and that is what we have seen. Similarly in the corporate side, I think we have delved during the year from June '17 to March '18, some of the accounts. I think we have disclosed those during December results, wherein they're having come out of, 1, or 2 or 3 accounts which flipped during that period. So that also would be a part of this increase. The third one is on the SME, which is again like retail is in line with the kind of business growth, business banking growth that we have seen on a year-on-year basis. The only one which is the joker in the pack is the spike that we have been seeing both in June and December and now is the Agri portfolio, which is what we've elaborated what are the kind of incremental from June of last year.
So I think the point which you need to understand is that when you're looking at increases in on year-on-year, you need to first relate to the book in each year, right? We're talking about even on a year-on-year basis, maybe a 10-12 basis point increase in relation to the gross advances. As each portfolio grows, you are bound to have, even if the percentage NPLs for each of those businesses or each of those products remains the same, you're going to have an increase in NPLs. By the same token, then you should look at the few lakhs growth increase that would have happened in the loan book. But you're looking at it in terms of increase in NPLs, which obviously given the base will look at whatever the percentage increase has been. When we are looking at a particular product, having seen a higher level of slippages, we're talking about what our NPLs were as a percentage of that particular portfolio a year back and where it is today. And in that respect, therefore was the point why you saw a slippage in Agri, which is our NPL percentage on Agri a year back would be lower than what it is now.
No, I understand that. I just also wanted to figure out probably the largest account outside Agri which slipped.
This quarter? There was no large non-Agri thing at all.
In fact, a substantial portion of the incremental NPA was largely Agri.
Okay, and second question, I'm sorry--I've got that-- is on the margins. So this 10 basis points on a sequential basis is mostly coming because of this Agri piece or should we expect some follow-through from the past MCLR increase? Although I doubt it should be the case, because a large part of our book is anyway fixed.
See, the cost of repetition, because this is the third time we're referring to this breakout. We don't have any MCLR impact. But there were two treaties that have been mentioned already, apart from the Agri NPL reversal piece. I think we mentioned about yields on the investment and we mentioned only slightly higher fixed deposit growth in relation to the deposit mix.
Thank you. Ladies and gentlemen, due to time constraints that was our last question. I now hand the conference over to Mr. Sukthankar for closing comments. Thank you, and over to you, sir.
Thank you so much. In particular, I think the point that was made about Saturday evenings not being the most conducive for these calls that resonates with all of us. Unfortunately I think the decision that has been taken by us to hold these meetings on a Saturday for various other sensitivities and keeping in mind the best practices that we could do to protect the confidentiality of the information and so on, I think this is what we are trying to protect. But thank you so much for being on this call. I do hope we've been able to address whatever queries you had. And have a wonderful weekend or whatever's left of it. Bye.
Thank you very much. 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.