HDFC Bank Ltd

NSE:HDFCBANK

Earnings Call Transcript 2021-Q1

[Operator]

Ladies and gentlemen, good evening, and welcome to HDFC Bank Q1 FY '21 earnings conference call on the financial results presented by management of HDFC Bank.[Operator Instructions] Please note that this conference is being recorded.I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, sir.

[Srinivasan Vaidyanathan, Chief Financial Officer]

Okay, thank you, Aman. Appreciate the participants calling in today.Mr. Aditya Puri is with us today. May I request Mr. Puri to give opening remarks, please?

[Aditya Puri, MD & Director]

Thanks, Srini. Good evening, all of you, and thanks for taking the time off to listen to us.I will cover the opening remarks in 3 portions. First, I want to get these Twitter messages out of the way. Then I will give you an idea as to what kind of work we've put in to get the results that we got during the COVID quarter. And last but not the least, I would like to clear all the uncertainty regarding our future in terms of succession, management planning, our business plan. And then our team, which is actually what has performed to give you the results, will cover individual aspects, whether it is about NPA, whether it's about our unsecured loans, whether it is about our credit risk, whether we will have a sudden jump with the moratorium going off or we've taken proactive measures to see what is happening, the fact that we have a clearly defined succession plan coupled with the team in place. So let me start first.So we've been getting these messages seeming to suggest that there is some turmoil in the employees based on transition. So let me cover that one by one. As far as Mr. Munish Mittal, our Chief Technology Officer, was concerned, he talked to me about -- me and the management about a year back, whereby he said he would like to go into more detailed and advanced studies in technology at Oxford. I told him, "No problem. You've been loyal and you've been -- we know you love the bank." So he was set milestones that he had to achieve before he moved on. He's achieved the milestones; and now he's sitting in Oxford in London, preparing for becoming an even better expert on technology. The second was Mr. Abhay Aima. Abhay was one of the founding people with the bank. He's been with us 25 years and loves the bank with his life. And he played a stellar role in achieving a lot in terms of private banking, in terms of product management, in terms of high net worth. And he also expressed alternate interests, which I am aware of but I don't want to specify. He again was told by me that, as soon as he's trained his successors and I'm satisfied with their ability to cope, I would be happy if he pursued his active interests. Because you only live once. He did that, and he moved on.Then we've had this issue on the auto loan business, so let's -- let me clarify that very clearly. The bank has a robust policy and process to deal with complaints and allegations and take action as appropriate in the said instance as well. The bank has followed due process, suffice it to say that as a bank we have always upheld the highest standards of governance and propriety at all times and will continue to do so. We had received some whistleblowing complaints. Internal inquires carried out in the matter on the complaint received has not bought out any conflict-of-interest issue, nor does it have any bearing on our loan portfolio. The inquiry did bring out other aspects related to personal misconduct exhibited by a set of employees, for which appropriate disciplinary actions have been initiated or taken. Based on the internal inquiry timing, the appropriate action was taken against a set of employees of auto loan business segment for their act of personal misconduct. Mr. Ashok Khanna, being head of [ the record ] business segment, had also participated in the inquiry process. Subsequently, he superannuated on March 31, 2020, upon expiry of his tenure and as per the original term of employment. Based on further development in the inquiry process, appropriate action as necessary will be taken in the highest form of corporate governance. Lastly, we come to this loan. I don't want to take the name of the company, where we've been asked by RBI to refund some money. We had appropriated that money based on sound and very strong legal advice. However, as the regulator has advised us, we thought fit that we will return the money. This -- and we become pari passu with the other creditors, and whatever amount there has been provided for. So I think we have exhibited exemplary standards across 25 years. And I don't see any reason why the culture, the base of 200,000 people, will change.So that -- now that I've put that aside, let me tell you how we got our results during COVID. It's been a superhuman effort, and I thank all our employees for that. The economy appears to have recovered sharply from April, [ the trough ] in response to unlocking. A whole range of high-frequency indicators ranging from oil consumption and electricity consumption, [ to even bill ] and toll collections, and the purchase managers' index [ showed ] marked improvement in May that sustained in June. Anecdotal evidence on capacity utilization of some of the companies like auto, steel, FMCG seems to corroborate this conclusion. The pickup in tractor, 2-wheeler and small car sales as well as the nature of FMCG items that have shown robust growth point to a rural bias in the recovery and are consistent with 2 things. First, the rural economy seems to have been relatively isolated from the virus. Second, the robust rabi or winter crop of the previous cycle and the satisfactory progress of this season's summer or kharif crop has manifested in a healthy income in the hands of the farm sector as well as expectations of income boost going forward as the summer crop is harvested. While this points to a potentially good recovery, there could be moderation going forward. A part of this demand is indeed pent-up demand from the lockdown phase that could lose steam. Second, the steady rise in infections and the greater dispersion across the country means that containment remains a policy challenge. And partial lockdowns that are being imposed in different pockets could hinder a full-blown recovery. [ Credit growth ] has been recovering strong in the range of 5% to 6% year-on-year over last few fortnights. This could sustain as credit disposal to MSMEs backed by government guarantee gains momentum. The transmission of 150 basis point rate cuts since February and the presence of a large surplus liquidity of 6 lakh, 50,000 crore currently has led to a sharp decline in yields and borrowing costs for other tenants. It also augurs well that the market would be able to absorb the additional borrowing of the government. However, duration risk and the large supply of central and state government paper have set a floor to longer-tenured loans and debt paper. In our internal review, we expect another 25 to 50 basis points cut in the policy rate over the near term and yield management operations such as twists and conventional open-market operation to pick up in the second half of '21.Now we come to employees. It is imperative to place on record our sincere appreciation to the thousands of our employees across the bank. We are proud to say that our bank is one of the few in the country which has given increments, bonuses, promotions as we have always done. This is no favor to anybody. The employees delivered, and since they have delivered, they were entitled to their share of the profits of the bank. Our bank has been well positioned to play a meaningful role in the changing work landscape. 2/3 of our employees outside of the branches are working from home. Certain branch staff come in to service customers on a rotational basis. We have improved productivity across the board. We have been extremely careful about the safety of our employees, from arranging for transport, from having them work from home, from disinfecting, from making doctor service available, from making insurance available, as employee safety is our prime concern as well. In quarter 1, the highlight was rolling out our "anywhere working" construct for the retail branch personnel through various initiatives in early April that enabled our people to engage with customers telephonically or through video conference, which is much appreciated by the customers.During the quarter, and this is what I want to get across, we have been working at an excellent capacity. During the quarter, on an average, we had customer interactions per month of approximately 225,000 per day, totaling to 68 lakh customer interactions in the month, almost double of what we saw in March, with higher salience towards telephone or video. During the quarter, we acquired 1.2 million liability customers, approximately 1 lakh, 30,000 accounts a day -- no, sorry, approximately 13,000 accounts a day. This is about 80% of prior year quarter 1 levels. Despite the COVID-19 environment, this was driven through various strategies that we've adopted, including enhanced digital journeys. The enhancement to digitization of our processes such as InstaAccount journey, new account online funding journey, fixed deposit renewal through voice bot, are some illustrative examples that helped us to acquire new customers and have them onboarded digitally. It also enables the customers to access net banking and cash -- cardless cash withdraw through ATM and so on. We are entering prime time to scale up our various digital journeys. The technology is in place. The people are in place. And as the lockdown moves, we will keep the -- digitizing our current account onboarding, video KYC and so on to supplement our existing digital offering. By and large, our branches remain open for customers. 95% of the branches are operational, and I'd like to thank -- and we as management would like to thank all our employees for their dedicated efforts. Approximately 13,000 ATMs across the country are operational, which is with an average uptime of 92%.Digital, a lot of people talk about digital. Our virtual relationship team continues to be enabled on our available technology solutions to ensure productivity of resources on WFH, which is work from home, i.e., CRM on mobile and customer engagement. We are seeing good traction on liabilities at this channel. Our launch of video KYC on a limited pilot basis through this channel has enabled 100% digital full KYC accounts for our customers. This capability has been scaled up in quarter 2. VRM has increased its relationship productivity to 22 call engagements per day versus 18 in April. On phone banking and telesales, 50% of our resources are enabled to work from home.As far as marketing is concerned, a lot of you will have seen that A.R. Rahman, who is a customer of the bank and understands that we are a good citizen as well, agreed to do the concept along with his colleagues for free. And I would like to take this opportunity to thank both Mr. Rahman and Mr. Prasoon Joshi personally. On phone banking and telesales, 50% resources are enabled to work at home, that I've told you already. We also dispelled this doom and gloom corona [ ad ] or corona [Foreign Language]. Summer Treats launched by us has shown good traction in participating merchants and consumers, where we have a plethora of merchant-funded offers, some national offers on electronics, for example, Apple, Samsung; and great deals on various products. This was launched to boost sales and send a confidence message to consumers, manufacturers and merchants that HDFC Bank is with you even in times of adversity.On the payment business. Payment business volumes, both acquiring and issuance, in June '20 saw a bounce back to about 70% of January '20 levels. Strong tractions are seen on the categories such as daily essentials, medical expenses, food home delivery. Since these are low-ticket spends with high frequency, it led to higher engagement levels with customers on payment instruments. While travel, hospitality and the like have been muted, many other high spends have increased, such as online education, [indiscernible] subscription services. E-commerce, as a consequence, has grown faster than off-line payments. On the merchant acquiring business, the model has been to create a thriving and efficient HDFC Bank merchant payments and collections ecosystem, with value-added services helping drive merchant business. As far as corporate and wholesale banking is concerned, we actually went in for AAA corporates. On a total basis on our balance sheet, we improved the risk rating of our balance sheet by 30 basis points to [ 4.3 ]. And we had also restricted consumer loans, which are good, but till we have a greater recovery, we have stopped them. And we are watching the recovery, which we hope we should be able to start by September. We have seen significantly higher activities by domestic companies and FIs during the quarter in the debt market. The debt raised was in excess of 22,155 crores. This amount was 60% higher on a year-on-year basis. In the corporates, also raised 102,665 crores from the equity markets through a mix of various instruments. We were actively involved in these fund raisings. SME assets were on a declining trend but received a partial offset Q-on-Q to the -- because of the guarantee scheme.Retail asset. Retail originations fell by 70% during the quarter, both as a combination of tightening of credit standards as well as some amount of pessimism in the borrowers. The personal loan book, not surprisingly, contributed to the brunt of the impact, a drop of 86% in origination, a reflection not just of the lockdown but also our own prudence as we tightened in an otherwise uncertain environment. Credit cards dropped by 87%, and spends fell by 40%, leading to a book contracting by 4.5% during the quarter. Loan originations in the vehicle segment fell. However, the recovery [ under this time ], we are almost back and especially for the small cars and 2-wheelers. Tractors' record, these are back to about 75% to pre-COVID level. Other products showed recovery as well.Then we come to collection. The good part is we gave everybody full salary. We gave the increment. We gave them the bonus, and we have not laid off a single person. We have also told our people that, given our expectation of delivery and the superhuman efforts they have put in -- which is the main strength of HDFC Bank, the training and the HDFC Bank team. So we moved our excess sales staff to collections. And Srini and Jimmy will cover this later, which will tell you how well we have been able to estimate our NPAs as well as what success we've had in our collection efforts. We've also contributed to society, which we normally do. We are a good bank, but we have a heart of gold. Besides our CSR activities, we also gave INR 70 crores to the Prime Minister's relief fund and have given in various states, improving hospital service, buying of kits, buying of ventilators, providing for umbrellas for the police, providing food, medical supplies, all of that. Now this gives you some idea of the effort and how much we have changed to be able to produce this result.Now I come to the second part. The second part clearly is an understanding that, did I train my successor? Do I have a management team that is in place to take care of the future? Did we put in the right technology? And what is going to happen?When I came back from Silicon Valley, after I had a lot of people tell me that, between the fintechs and the other developments that were taking place, we will be blown out of the market, what I found there was that, with the secular shifts in telecommunication, computing, social mobility and artificial intelligence, the operating models for the companies will change completely. The people who understood this and changed their operating models, leading to a better product delivery to the customer, coupled with lower transaction costs and better customer service thrived. That's where you've got the Apples and the Googles and the Netflix. We came back and decided that we should -- we also wanted to try using this change that has come in the world. And we set ourselves the goal that we will provide frictionless service, benchmarking against an Amazon or a Google. We will provide frictionless service and an enjoyable customer journey across a wide product range and geography in the most convenient manner to the customers. So we all sat down, the entire team, and prepared our plans to figure out what we're going to be doing going forward. This was a team effort for determining the strategy, for determining our action plan, for determining the changes required in process, the changes required in marketing, the changes required in technology and what could -- it could do to increase our distribution. The team worked and came out with a vision and an action plan. We appointed a change agent to make sure that -- most changes fail because there is not enough monitoring and commitment. Every man jack of the 200,000 people bought into the change. That's our strength. You can talk to anybody anywhere, and he will give you the same talk that I'm giving you here today. And we put our plans in place completely to see which businesses we will dominate, what we would do, what technology we will have. That has been in place, and where do we find ourselves today. We are the only brand -- and I'm not talking Indian brand and I'm not talking about a bank -- that comes in the top 100. We are #65 in the [ Millford ] brand recognition globally, among all global companies, which I think is a great achievement in our being able to get across our strengths to our customer base.We have approximately 18.9% capital adequacy, which is a result of our deciding the proper target market, the proper marketing, the proper technology, the proper costs, the proper probability of default, [ and leave ] and monitoring that this is effectively monitored to give us enough return to take care of our delinquency, return on to equity shareholders, pay our employees and return their deposits. We have -- our base portfolio is not strained, because in all cases we are in the middle and upper middle. And Jimmy will explain how even the cash flow-based lending, which all of you people call unsecured, is -- the quality of that lending, how it holds up even in the most tough circumstances. So that's not a cause of worry. It's a cause of strength, which I will let Jimmy and all explain as we go forward. We changed our technology from core banking to middleware, to enterprise, and now service -- Software as a Service, to be able to deliver across all channels an omnichannel experience. 2 clicks, and you're able to do your business. And using artificial intelligence to come down to customer segmentation of one. All this is almost complete. And among with us, we have some of the most advanced technology companies who are not fundamentally the old, the IBMs and et cetera, these are the people that are looking at software as a service, and they have told us we are among the top 5 globally. You will be hearing shortly from us on the subject. We talked 4,5 years back about semi-urban and rural India. And we are today almost an emerging market in terms of product, in terms of technology, in terms of distribution. We opened 50% of our branches in semi-urban and rural India. And we added already about 15,000 banking correspondents, which will increase further, giving us one of the largest distribution franchises in semi-urban and rural India. I can continue forever, but I've got a very competent team to talk from here onwards.And so regarding my successor, the main successors in respect of where the RBI finger points are -- have been with me. They understand the business. They were part of the transformation. They were part of the training. They are part, and the people love them. So there is no issue on who is the successor. And you would have seen in today's AGM the talk about there is difference here, difference there. I think it should have been very clear there is no difference anywhere, and we are very clear on we are going -- where we are going forward. The team itself will cover where -- how we've transformed our banking experience in the branches; what we are doing to dominate the payment business; where our digital will take us both for retail and corporate, retail in terms of our frictionless omnichannel experience, corporate in terms of either host-to-host integration or APIs; and further, how we've been able to take our products in vernacular to the semi-urban and rural areas. We are market leaders in retail lending. We -- and what we did in terms of what we did on corporate lending. How we have been able to maintain and sustain what we are doing on SME, what we're doing in agriculture, what -- we are one of the few people even on small lending. We are also a company with a heart of gold. And they will also cover what we've done in terms of adopting villages, completely transforming the village, what we've done in terms of sustainable livelihood, why we are on the Guinness Book of World Records on blood, what we've done about changing education, what we've done about lean productivity.So with that, I hope I've covered for you where we're going, what we are doing, what are the rumors, the facts that we -- 25 years, we have been an icon of corporate integrity and governance. I don't think anything changes there. The team that we have, the plan that we have, the execution capability we have, the training that we have, the succession planning and the cohesion between the intended successor and the team. So what I said in my annual report: the best of HDFC Bank is yet to come.Srini, can you take over on the financials? And then Rahul can talk on corporate, and Jimmy can talk on...

[Sashidhar Jagdishan]

Asset quality.

[Aditya Puri, MD & Director]

On asset quality, et cetera. And my brilliant change agent, Mr. Jagdishan, can answer all questions.

[Srinivasan Vaidyanathan, Chief Financial Officer]

[ Exactly ]. Thank you, Mr. Puri.First, a few comments to provide the backdrop of the strength of the franchise across a few dimensions, liquidity, capital, provisions and credit quality and NIM. Let's review some highlights and then we'll jump into the quarter results.We carried on with the strategy to build on deposits and on bringing in new customer relationships, thereby maintaining strong liquidity position. The bank's average LCR for the quarter was at 140%. That is about INR 70,000 crores of surplus or approximately [ 9.5 billion ], considering 110% of the float. Capital adequacy is at 18.9%. We have 7.8 percentage points more capital than the regulatory minimum of 11.1%. Our CET1 at 16.7% is 9.1 percentage points more than the regulatory minimum of 7.6%. The floating and contingent provisions totaling INR 5,453 crore built over a period of time helps in derisking the balance sheet. We have also taken several steps to further tighten the credit. The provision coverage has been further augmented to make the balance sheet even more resilient for any shock. Provision coverage ratio, including all categories of reserves, stands at 149%. We'll cover more on credit as we go along in this call. The NIM has been in a stable range historically over the past 10 years between 4.1% and 4.5% and currently stands at 4.3%.Now we'll get to the results highlights for the quarter. COVID has had certain impacts on the financials, which we will call out as we go along.Let's start with net revenues. Net revenues grew to INR 19,741 crore, driven by an advances growth of 20.9% and deposits growth of 24.6%. Net interest income for the quarter was at INR 15,665 crore, up 17.8% over the previous year and grew 3% over the previous quarter. For the quarter, net interest margin at 4.3%, as I said before, compares similar levels prior year and prior quarter levels.Moving on to details of other income. Fees and commission income, constitutes 55% of other income, was at INR 2,231 crore, lower by 37% compared to prior year and lower by 46% compared to prior quarter. Retail constitutes approximately 89% and wholesale constitutes 11% of fees and commission. The extended lockdown during the quarter following the COVID outbreak has impacted the business across the bank, which is loan originations, distribution of third-party products, payment product activities and so on. Moratorium relief is available to customers according to RBI notification. Waiving of certain fees for customers have also been implemented in accordance with RBI mandate. These have been effective -- these have affected the fees and commissions by approximately INR 1,700 crores.FX and derivatives income at INR 437 crore was lower by 24% compared to prior year of INR 577 crore. It is also lower by 12% versus the prior quarter, which was INR 501 crore. The reduced FX demand in both retail and the wholesale segment contributed to the decline. Trading income was at INR 1,087 crores for the quarter. This represents the ALCO strategy of monetizing some portion of the gains from excess liquidity investments. Other miscellaneous income of INR 321 crore includes recoveries and dividends from subsidiaries, but collections were impacted due to the extended lockdown during the quarter. This had an impact of approximately INR 300 crores on recoveries.Operating expenses for the quarter were INR 6,911 crores, a decrease of 2.9% over the previous year.Year-on-year, we added 336 branches, and we added 72 branches during[Technical Difficulty]

[Operator]

Sir, I'm sorry. We lost the audio.

[Srinivasan Vaidyanathan, Chief Financial Officer]

Since previous year, we added 6,381 business correspondents, managed by Common Service Centres, including 1,002 opened during the quarter. In addition, approximately 200 branches are in various stages of readiness to open in a short time. If there were no disruptions, these would have been open during the quarter. Going forward, we will look for an opportune time to get these to be functional. The staff count increased by 11,668 during the last 12 months.Cost-to-income ratio was at 35% versus 38% to 39% in the recent past time periods. Lower costs in various sales channels, promotional activities and discretionary [ spend ] contributed to a better ratio than recent trends. We would expect these kinds of spends to resume in due course of time.Moving on to PPOP. The pre-provision operating profit grew by 15% to INR 12,829 crore from INR 11,147 crore in the prior year.Coming to asset quality. In accordance with the RBI guidelines relating to COVID-19 package, the moratorium granted as on June 30, 2020, is about 9% of our loan book. For all such accounts where the moratorium is granted, the asset classification shall remain standstill during the moratorium period, i.e., the number of days past due shall exclude the moratorium period for the purpose of asset classification under the IRAC norms. The bank holds provision, as on June 30, against the potential COVID impact based on the information available at this point in time and the same are in excess of the RBI prescribed norms. During the quarter, we have accelerated the slippages. We have used analytical models in determining the slippages [ instead of waiting for purely on the roles since the ] usual certain days past due recognition. This has resulted in expedited NPA recognition.The annualized slippage in the quarter is 1.2%; it is predominantly due to the use of analytical models. GNPA ratio was at 1.36% of gross advances, as compared to 1.26% in prior quarter and 1.40% in prior year. The impact of the -- impact to the NPA ratio due to the use of analytical models in determining the NPA, as I mentioned earlier, is about 30 basis points. GNPA ratio excluding NPA in the agricultural segment was at 1.2%, as compared to 1.1% in prior quarter and 1.2% in prior year. Net NPA ratio was at 0.33% of net advances, as compared to 0.36% in the preceding quarter and 0.43% in the prior year.And now on to the provisions. Specific loan loss provisions were INR 2,740 crores, as against INR 2,248 crores for the prior year and INR 1,918 crores during the prior quarter. Of the INR 2,740 crores specific loan loss provisions for the quarter, approximately 2/3 of this is due to the accelerated recognition using analytical models. Total provisions were INR 3,892 crores, as against INR 3,784 crores during the prior quarter and INR 2,614 crores from the prior year. Total provisions in the current quarter included contingent provisions of approximately INR 1,000 crores. The provision coverage ratio was at 76%, as against 72% in the prior quarter and 70% in the prior year. Including contingent provisions, the coverage ratio is 105%. There are no technical write-offs. Our head office and branch books are fully integrated. Beginning of the quarter, we had contingent provisions of INR 2,996 crore. With a build of approximately INR 1,000 crore at the end of the quarter, contingent provision towards loans were INR 4,002 crores.The bank's floating provisions remained at INR 1,451 crore, and the general provisions were at INR 4,582 crore. Total provisions, comprising specific, floating, contingent and general, were 149% of gross nonperforming loans. This is in addition to the security held as collateral in several of the cases.Now coming to the credit cost ratios. The core credit cost ratio, i.e., the specific loan loss ratio, was at 1.08% of advances, as against 1.07% for the prior year and 0.77% for the prior quarter. As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core credit cost ratio net of recoveries was at 0.99%, as compared to 0.88% in prior year and 0.55% in the prior quarter. After factoring in the accelerated provisions as previously mentioned, which was -- which has an impact of 73 basis points, and contingent provision, which has an impact of 40 basis points, total credit cost for the current quarter was at 1.54%, as against 1.51% in the prior quarter and 1.25% in the prior year.Now the reported PBT was at INR 8,938 crore. Net profit for the quarter grew by 19.6% to INR 6,659 crore.And some balance sheet items. The bank's balance sheet size as of June end was INR 1,545,103 crore, an increase of 22% over June of prior year. Total deposits amounting to INR 1,189,387 crore is an increase of 24.6% over prior year and up 3.7% over prior quarter, which is an addition of approximately INR 42,000 crores in the quarter and 2 lakhs, 35,000 crores of addition since prior year.As a result of our focus on granular deposits, CASA deposits grew by 26%, ending the quarter at INR 477,435 crore, with savings account deposits at INR 327,358 crores and current account deposits at INR 150,077 crore. Time deposits at INR 711,952 crores grew by 23.7% over previous year. CASA deposits comprised 40.1% of total deposits as of June 2020. Current credit deposit ratio was at 84% for the current quarter, as against 87% in the prior year.Total advances were INR 1,003,299 crores, an increase of 20.9% over prior year and 1% over prior quarter, which is an addition of approximately INR 10,000 crores in the quarter and INR 1 lakh, 74,000 crores since prior year. Retail advances on a Basel basis grew by 7.3% year-on-year and sequentially had a de-growth of minus 3.9%. And wholesale advances on a Basel basis grew by 36% year-on-year and 6% sequentially.Moving on to [ CapEx ]. With regard to capital adequacy, total capital adequacy ratio as per Basel III guidelines stood at 18.9%, as against a regulatory requirement of 11.1%. This is an increase compared to the prior quarter of 18.5% and prior year of 16.9%. Tier 1 capital adequacy ratio was at 17.5% in the current quarter, as compared to 17.2% in the prior quarter. During the quarter, the bank generated slightly above 60 basis points of capital, mainly driven by earnings, while the consumption was about 30 basis points. Therefore, the net capital generated in the quarter is about 30 basis points, which is reflected in the increase in the total capital ratio of -- total capital ratio to 18.85%. It is also pertinent to note that, during the financial year '19/'20, the capital generation was 250 basis points, while the consumption was 110 basis points. This resulted in 140 basis points increase in total capital ratio in the financial year '19/'20. Based on our assessments, our internal generation of capital is adequate to sustain and support our business growth in the short term.In summary, we are proud of our people who have passionately managed customer relationships in executing our strategy despite a difficult environment. The results reflect deposits growth of 25%, advances growth of 21%, operating profit growth of 15%, profit after tax increase by 20%.With that, may I request Sashi to give a few words?

[Sashidhar Jagdishan]

Okay, thank you, Srini.Considering the fact that the main driver of our growth during the quarter has been the corporate banking unit, let me hand it over to Rahul Shukla to tell us more about where the growth is coming from and what is the outlook on corporate banking assets.

[Rahul Gopalprasad Shukla]

Thank you, Sashi. Thank you all.Corporate banking had a satisfactory performance during the quarter. Strong growth performance was helped by the desire of corporates to migrate to the bank and also from more firm than widely believed economic activity.So first is on asset growth. The bank remains focused very sharply in serving businesses that have strong liquidity access through public markets or otherwise, through government holdings or government procurement; those that are part of very large business groups; and too, epidemic-resistant businesses. Entities include public sector corporations, private sector and MNC corporates. The bank also participated in TLTRO 1.0 to support corporates where it was constrained by GBL limits. It also provided liquidity to the mutual funds segment through purchase of assets under RBI scheme. We saw broad-based growth in the public sector in subsectors such as power, transportation; as well as financing arms of the government and nodal agencies. The bank also extended credit to material, energy, discretionary consumer sectors. Customer assets increased Y-o-Y by approximately 1 lakh and 25,000 crores.So how did this growth come when the economic activity is widely seen to be tepid? Given a lot of commentary and data points on the economy, we dug deep into our data to analyze trends and look at how the actual trends were versus what we read in the newspapers. As a very large transaction bank, we looked at the value of corporate collections that pass through our cash management system. During April 2020, which was the strictest lockdown period, and we believed that there was simply no activity, corporate collections were 45% compared with April 2019. You can say that activity was down for 55%, but you can also say that 45% of the economy was running in the month of April. Collections in May 2020 increased 47% over April 2020, and June collections were higher over May by 38%. In fact, the June collections were 94% of June 2019 collections. Normally, anecdotally, people talk about June being 75%, 70%, 80%, but that 94% is what we actually saw. During the quarter, collections in specific sectors such as telecoms, agri and fertilizers showed significant strength over the year ago period. Pharma segment also showed positive growth.On sectoral trends. For June 2020, when the economy had opened up widely, over May 2020, pretty much all industry segments showed a positive trend. To give you certain key sectors that everybody is normally wary about: NBFCs showed a 66% increase in collections in June over May; oil and gas 36%; cement and steel sector was up plus 36%; utilities were up 50%; and so on. Auto and auto ancillary segment showed a plus 100% increase.To give you a sense of the disbursement analysis. Almost all of the quarter-on-quarter attrition in the book came from top half of a 10-point internal rating scale which has served the bank well over the years. The same is true when the data is analyzed for year-over-year attrition in the asset book. The bank continued to diversify its book and reduce concentration. Its next 100 and next to next 100 programs contributed to approximately 1/3 of the Y-o-Y asset book attrition. Approximately 70 -- 78% of the Q-o-Q and the Y-o-Y gross disbursements, including rollovers, were assets with less than 1-year tenure maturity. Now what was the end use towards which these assets were disbursed? An analysis of top 25 disbursements by value during the quarter showed that 46.5% was ultimately towards CapEx; 30.2% was towards working capital requirements; 9.5% was for supporting other banks and market participants with liquidity through participatory certificates and secondary purchases; 7.5% comprised of other reasons, including availing existing lines for building liquidity buffers; and the balance, 6.3%, was towards on lending for PSL purposes.As we continue to gain market share, what is it that led to the gain in market share? There are 2 reasons. One is our digital backbone, and the second is brand. In terms of just the digitization trends, the bank saw a significant increase in electronic straight-through processing transactions in its collections and payments businesses. From 86% in June 2019, the percentage increased to 94% in June 2020, which was a significant increase. While payments have always had a strong straight-through processing percentage, the collections jumped from 82% in June 2019 to 92% in June 2020 in terms of electronic straight-through processing. The bank remains poised to gain share on the back of its digital back-end systems. In terms of the brand image of safety, that was reflected in the corporate liabilities. Corporate CASAs' Y-O-Y growth was 25% on an end-of-period basis, but for the full quarter, 37% average Y-o-Y growth was shown for the quarter compared to year ago quarter. Corporate fixed deposits Y-o-Y growth was 14%, 31% average Y-o-Y quarterly growth. We also have the salary initiatives for our corporates; in corporate salary for corporate banking customers, the amount accreted in excess of 10,000 crores during the quarter from March 31. The bank did not see any material reduction in numbers of its corporate salaries segment receiving monthly salary credit. It actually witnessed an increase in the average salary credit per corporate salary account during the quarter.Thank you.

[Sashidhar Jagdishan]

Thank you, Rahul. Thank you for that.Jimmy, on the corporate side, can you sort of give some insights into the asset quality trends only on the corporate banking portfolio, both on the incremental side and also on a stock basis?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Sure, Sashi. Thanks. Good evening, everyone.So a little bit to take off from when we all last spoke in April. So as we mentioned at that point in time, we were very, very early to react to the COVID phenomenon even before it became a global phenomenon. We had several rounds of studies and stress tests done across the portfolio. There was an extremely detailed name-by-name evaluation carried out by us in terms of what impact would be to each and every entity; where they were placed, not just by what industry they were placed, how they were placed there; what their future plans were; what their immediate situation was; what their financial situation was. The result of this entire exercise was that there was a paring down of exposures in several names. There was further requirement, and this was put in place with the credit administration department, that even amongst approved facilities a transaction beyond a particular cutoff will be reevaluated prior to it being disbursed from the bank in a prospective manner. This is a process that carries on even till this day. So there is extreme caution in any new advance that is put out, whether the lines are fresh sanctions or whether they were prior sanctions as well, and that's a very important point to note.As you also do know, we have pretty good early warning systems. We've been evaluating flows. We've kept our ears to the ground. I think Rahul already threw a color on where the flows are and how they have been moving and improving month-on-month. That reinforces confidence on the customer selection being of a very high order and [ reinforces ] some level of faith, and you'll take heart in that.To just add a little bit to what he said in terms of where the new business came from, because, as all of you do know, the bulk of the growth has come in the wholesale and the corporate book. So these were advances made to large, highly rated Indian corporate conglomerates, larger corporates with high quality, pedigreed international parentage in several cases; and of course, in large measure, to very, very good public sector companies. It's a kind of term coined internally by us of Navratna quality. So I presume that will give everyone a feel of what we're talking about. So we looked at strategically important public sector companies with this kind of quality, as I mentioned: the large, highly rated, reputed domestic conglomerates; and internationally supported and promoted companies, again with high repute in the promoters.To put some color on where the portfolio lies in 2 ways. The first way, I'll just cover very briefly because that gives an external reference, but it's not really what we reference ourselves to. Around 86% of the externally rated portfolio is either AAA or AA. That's just to put it in a bit of perspective, but I think in my last interaction with all of you I did refer to the bank's internal rating system. This is a system that we place great emphasis on and rely on much, much more than external ratings. The historical performance and portfolio quality does bring out that it is a system that has proven to be very reliable and time tested. It has served us well. It is essentially a 10-grade rating scale, 1 being the best and lowest risk and 10 being the worst. The quality and caliber of our portfolio, just to bring out, despite the high level of growth in this portfolio in recent times, the quarter ending December, we had average -- weighted average portfolio[Technical Difficulty]quality -- yes?

[Aditya Puri, MD & Director]

No, no. I was just coming back, yes.

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Sorry.So that shows that the quality has been maintained despite this growth, reflected in the fact that our old internal rating model, which as I said has served us very well for 25 years, reflects that there is not an increase in the incipient risk in that portfolio.To just dwell for a moment on the unsecured portion of this portfolio. Once again, as you know, all wholesale exposures are individually deliberated upon. All these portfolios carry multi-level approval grades that goes as per our policies. Won't dwell into the details of that, but [ the model is stringent ]. And we have average -- weighted average rating on the unsecured book at a 3.45, opposed to the portfolio average of 4.43 and the secured portfolio average of 4.81. So as you can see, since all these are individually assessed cases, there is obviously a far greater level of caution that gets injected into the unsecured advances. If one looks into the historical trends of delinquency, there is a 55% lower probability of default in the unsecured wholesale book than there is in the secured wholesale book. And this is taking our own historical through-the-door cycle probability of default.So that's where we honestly stand, Sashi, on this. So if I can hand it back.

[Sashidhar Jagdishan]

Yes, yes. Thanks, Jimmy, for that.Rahul, your -- the other hat that you wear is on the SME portion. Can you tell us more about the outlook -- the business trends and outlook on the SME side, please?

[Rahul Gopalprasad Shukla]

Sure. Thank you, Sashi.So business banking, our wholesale SME business. We had a satisfactory performance during the quarter. The bank continued to pursue business on the basis of granularity; geographical spread; sound credit profile; and risk mitigation through self-funding, high collateral value and strong documentation.The first point, on self-funding. We've often mentioned that we were on the threshold of achieving 100% self-funding for the BBG portfolio. We actually achieved this 100% in May, and we closed in June at 103%. This was because of strong flows of funds into CASA as well as deposits, the business [ EOP ] Y-o-Y increase of 79% in CASA and 38% in FDs. The self-funding for customers -- because we have customers who don't borrow. So if we just take out all the customers who don't borrow and look at only the borrowing customers, even for that subset of the customer segment, at end June, the self-funding level was 75%, which is very strong.Second, assets. The asset book increased in mid-teens on a Y-o-Y basis, low single digits on a Q-o-Q basis. The asset book was actually, Sashi, on course to decline 10% from mid-March to end June. Our client segment were reducing their operating and financial costs. It was comforting to us because, when the rubber hit the road, we -- it actually tested the quality of our client selection and client base, but with the introduction of the Emergency Credit Line Guarantee Scheme, the bank picked up very smartly. We will discuss that later, but as of June 30, we had reached out to 100% of our customers within wholesale SME, and disbursed -- or in the process of being disbursed, where documentation were executed, on June 30 was in excess of 5,000 crores. 68% of the new-to-bank disbursements had a ticket size less than INR 1 crore, and that goes back to our push towards granularity.The third is new client acquisitions. New client acquisitions, even in that quarter, we did about 533 customers in quarter 1. If you recall, we had done about 1,500 customers in the Jan-to-March quarter. Largely, these names came from North and South India. The movement in West and Eastern territories were slightly slower. Collateral cover, which is the second level that we test ourselves, for the new-to-bank disbursements for 89% of the cases was greater than 100%. Now if I go back to the Y-o-Y period, collateral cover in excess of 100% of the new-to-bank additions was -- it formed only 77% of my clients acquired. So from 77% to 89% was a big jump. Digitization, essentially we again saw very encouraging trends over here. From 68% in June 2019, where we had electronic straight-through processing transactions, this percentage increased to 79%, so something is dramatically changing in terms of digitized payments and collections in the economy. Now if you look at just collections as a subset, that jumped from 56% straight-through electronic in June 2019 to 74% STP in June 2020. So the bank remains poised to gain share on the back of its digital back-end systems.We also took certain special initiatives. We increased our agri processing presence with our pledge finance offering. We added new features on the product to make it more robust and improved turnaround times with digital processes, and we had specific webinars across the country that were done to reach out to customers. We continue to remain very positive about the growth and the outlook of this business, supported very strongly by the government's resolve to preserve the sector. So the business continues to demonstrate the hunger of a start-up. It is managed with the processes of a global corporation and it employs intelligence of the Indian mind, so that is what is leading to our success in this business.

[Sashidhar Jagdishan]

Thanks, Rahul. Since you mentioned about the government support, you may as well sort of cover the how the [ reversals ] of the emergency credit line of the government has played out for us as a bank, not just in business banking.

[Rahul Gopalprasad Shukla]

Sure. So Sashi, I gave you data not as of June 30 but as of day before yesterday, in the night. So we had eligible customers on record which is preapproved because they passed through all the tests and everything, and that was in excess of about 300,000 customers across the bank. And the total value of the disbursement was in excess of -- I mean the value that they were eligible was in excess of 20,000 crores. The disbursements that were done as of day before yesterday, in the night, was to about 57,574 customers. And the total amount that was disbursed was over 10,000 crores, 10,169 crore. There is still a certain amount pending because this goes through a process that you sign the documentation. You upload basically the details in the guarantee website. You get the guarantee, confirmed, and then you go out and make a disbursement. So we still have about 1,076 crores in pipeline. So at this point of time, in the preapproved cases we basically have about 11,000, 11,500 covered.

[Sashidhar Jagdishan]

Thank you.Jimmy, one of the segments that a lot of people have been worried about is on the SME side, especially when you consider the impacts of COVID on [ SMEs as a ] segment. Can you sort of give some insights on how your portfolio on the SME side has been behaving? And if you can also specifically cover the -- in the last conference call, we did mention that you did a lot of stress tests. Can you do the back testing of the same [ here ]?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Yes, yes. Sure, Sashi. In fact, I'd like to take that last bit first.So if you recall, the last time we covered, which was in April, it was earlier times and there was obviously a greater level of uncertainty and a lower level of control. So we had stress tested the portfolio in 3 different levels in a low, medium and high level of stress. And what we had put out was there was a possibility that 9% to 11% of the customers would find or perhaps face difficulty in servicing their obligation based on the high and the very high level of stress testing that was done. And so I have to say that this was, happily, not correct. It was an extremely conservative estimate that was made. We have the hindsight now of the actual flows that have taken place. The vindication of our historical policies and customer selection has clearly manifested. And I would say that, at this point of time and perhaps with even a more encouraging trend coming forward, those estimates should be down by more than half. So it was clearly an extremely conservative estimate made and we should be correcting the -- that record. Based on current flows, we do believe that the impact could be less than half of what we had originally estimated. The current flows also are increasing month-on-month for us. If we look at it on an average basis, April over March, we actually saw 47% reduction in cash flows. And we have very good cash flows in this business because many -- very often, we are a sole lender and it is mandated sole banking. So we actually have very good visibility, control and early warning insights over this portfolio. So with 47% down, the cash flows, April over March, improved a little bit in May. We saw only a 20% reduction in May. And then there has been in June a 13% increase and improvement over the previous -- over March, I'm sorry, not the previous months, on an average. So we do see encouraging trends coming over here. We would hope that they continue. It does obviously give us heart that the customer selection has been rather good, and I'll come to a few more points that leads me to believe that at this moment in time.If you try to split this cash flow analysis into the not so highly impacted and the impacted industries, you will see that there is not very much difference in recent times. I think the early months created a very high impact for the highly impacted industries, but the recent months have actually shown that the recovery is pretty much on par with all. There's not very much to choose from. It's like 12%, 13%. So it's a couple of percentage points between them in terms of the improvement in cash flow. So that, once again, is interesting, but that said, I must say it doesn't benefit us so much because our concentration, portfolio concentration, in the highly impacted industries itself is not very high. It's, I think I would say, single digit, if I'm not wrong. So not that we're going to reap great benefits from that, but we weren't very impacted to start with.To move into a couple of other aspects that have come. Rahul touched upon the CLGS [ in that ] and how they benefit. And I must say that in our mind, when we have looked at and we have spoken to many of the customers, the fact that this kind of relief has been provided by the government actually does allow them to kick-start businesses. Receivables that were stuck do not need to be realized before the business rejuvenates. We can actually start a new working capital cycle with this money; and this should once again augment the cash flows that flow in, in the coming months. So another good sign for us. And I think, as Rahul mentioned, our bank has been one of the largest participants in this scheme and has tried to bring the benefits to as many MSME customers as possible across the country. It's a win-win all around, for that to happen.I had mentioned last time about the self-funding ratio that we talk about in this particular portfolio. It's something that we used to monitor for several years. We were watching it like a hawk. We wanted to see that it would not move away in hard times. Repeating just once more, as I did last time: this is not collateral. It is not lien marked. It is the personal wealth and savings of the -- of customers and their families in our bank, but it is definitely a reflection of the liquidity and wealth of the SME customers we have onboarded. Very happy to report actually that as per our last calculations, the self-funding ratio has actually gone up over this period. We are very pleasantly surprised. We tried to go into the depth of it. The smaller reason for this is that, due to the slowdown, the working capital itself to some level has attrited, but the larger reason is that these savings in these customers and in these accounts therefore have actually gone up. It's a point I'll touch upon a little later when we come to the retail as well, but that coupled with the fact that the collateral that we have in this portfolio is on a portfolio level around 80% of the portfolio. So the wealth of the borrowers is intact. The collateral remains intact. We are seeing the cash flows coming back in a reasonably steady and encouraging manner, so at this point of time, no [ alarm ].

[Sashidhar Jagdishan]

Thanks a lot, Jimmy.I know, Srini, Mr. Puri alluded to the -- that on the retail side, where they would be -- discretionary spends and consumption have been reasonably hit during this quarter, but can you touch upon the recent or the latest trends and maybe, product-wise, some changes or some interesting insights that you're seeing on that?

[Srinivasan Vaidyanathan, Chief Financial Officer]

Yes. I'll give a context on the retail asset side. Retail loan originations fell by 70% during the quarter, so the overall originations came down significantly. The personal loan book contributed to the biggest of impact, a drop of 86% in originations, both a combination of our own credit policy tightening actions that we took early on in the prior quarter itself. And also otherwise, the uncertain environment also contributed, that people weren't coming along. Card sourcing, again one other item that significantly showed a drop, 87% card sourcing dropped. And spends fell by 44%, right? And the card book is down 4.5%. It is lower June versus March. Among all this, loan originations in the vehicle segment fell -- at the aggregate vehicle segment level fell by 66%, but within that segment the 2-wheelers and tractors showed greater resilience. Demand -- with the demand being driven by deeper geographies, mostly coming, as you see the products, 2-wheelers and tractors, more deeper geography-related products. The fall in 2-wheelers was restricted to 50%, and the average was 66% at the total level. It was down by 50%. And tractor segment actually grew 26%, but we have a smaller book on that but grew by 26% at a lower base.Gold. Loan against gold jewelry, again a large rural footprint type of product, originations fell 15%, but still it gave us growth to the book of about 3% or so.So that's mostly I will say from a retail segment [ thoughts ]...

[Sashidhar Jagdishan]

Jimmy, on the -- retail is one of the most -- a lot of people are looking at it. So start on with the asset quality trends of retail, and then we'll cover section by section on that one because we need a bit more detail on that.

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Sure. So I must start off saying we were rather fortunate when this crisis started because we entered the crisis with an improving book. As everyone will recall, there was a slowdown in the economy for a good 18, 24 months preceding the COVID crisis. And in our usual manner, we would react to such changes in the economic scenario. And we would have had -- depending on which product it was in retail, we would have had at least 2 or sometimes 3 rounds of policy tightening during those preceding 18 months or so. The result of that policy filtering was effectively that we had a new book coming with lower delinquency, and there were very encouraging trends on that particular book. So it was rather fortunate, when the COVID crisis hit us, that we entered with this kind of a portfolio. And we did not, therefore, have very heavy baggage to carry. That said, I must say that, once the crisis hit, we again looked at the portfolios. We once again decided to have some level of filtering. And more than the demand, I would say it is the policy changes that resulted in a lower business flow for us. We have always stated in all our interactions with you that the bank sticks by its credit policy. The bank is extremely steadfast in this, extremely dogmatic about it, would not change based on business exigencies. The risk comes first. And this perhaps is the biggest and most obvious manifestation of this policy actually being put into practice during this COVID crisis. We did allow business to attrite. We will not and did not compromise[Technical Difficulty]

[Operator]

I'm sorry. We lost you again.

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

So I'll continue.So we have had a reasonably good run. Delinquencies have not gone up of [ our ] customers who have entered moratorium. And I'll get into that a little later, but the portfolio has held up well. The early trends are good. The early delinquencies all hold up. The signals at this point in time are good. Of course, the business volumes have suffered, but the portfolio quality has not.

[Sashidhar Jagdishan]

And what about the check bounce trends or [ the real ] check bounce?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

So what we have done in order to look at this, we've actually looked at 3 things that come into the portfolio quality. So when we look at the 0 DPD -- because we need to compare it to the non-moratorium because whoever is in moratorium does not need to pay -- so when we look at the pre-crisis and post-crisis 0 DPD check bounce trends, there has actually been an improvement over the last 2 or 3 months. It may be small, but there has been an improvement, so it has definitely held up. Our moratorium portfolio, as Srini mentioned to you a little while ago, is barely 9% of the portfolio at a bank-wide level. So the bulk of the customers do continue to pay, and we have actually seen an improvement in the check bounce trends.

[Sashidhar Jagdishan]

What about the resolution, collection resolutions?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

So collection resolution. We had to change a lot in collections. Let me just take a moment to tell you about collections at this juncture. If you look at the -- we used the first couple of months during the lockdown to actually revamp, reorganize and ensure that the collection infrastructure remains intact. We obviously have a very large team internally. That team, of course, as Aditya mentioned earlier, is just like every other employee, very well taken care of and working on the job, but we also did augment this team with teams from the sales force, teams from the credit underwriting itself because, as you know, if the business doesn't come in, even they would have a lower load. So there was effectively a deployment of 20,000 additional staff into the collections activity. We revamped and changed all systems very rapidly into a work-from-home environment because of the lockdown. Whether it comes to dialers, recorders, the collection systems themselves, everything was enabled for a work-from-home environment. Contactability was a great benefit to us, because during the lockdown it was much more likely to be able to contact the customers than otherwise. So all these things benefited us. The agencies we use, of course, had part of -- the migration of population that took place impacted them to some extent but impact HDFC Bank much less because of the presence that we have in the semi-urban and rural environments themselves. That said, we have long and old relationships with these agencies. We partnered them. We reassured them that we continued. We provided advances so that they could retain their staff. We had temporary incentives put out so that they could once again engage the staff. And as soon as the lockdown was lifted wherever it has been lifted, we were ready to go. We did not lose a moment. And the result of that is that the resolution rates today, despite significant areas of large concentration like Mumbai, Delhi, Tamil Nadu, et cetera, still being under lockdown, the resolution rates have moved to around 65%, 70% of what the historical rates were. When the lockdowns get lifted in these areas, they would only improve.

[Sashidhar Jagdishan]

Right. Thanks, Jimmy. Can you just touch upon 3 specific portfolios which I think a lot of investors may be very keen to look at? One is the unsecured portfolio, as there are a lot of people have been very concerned about that. The second one is the agri portfolio, and the third one is the commercial [ sector ].

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Sure. So our unsecured portfolio, as you know, primarily consists of the personal loan, the business loan and the credit card. The personal loan, as we mentioned, is entirely salaried individuals. And the bulk of that comes from private enterprises that are very highly rated and of a high quality themselves. The advantage of that is that there is a very low volatility of income. It's something we have always said, and I'll come to it in just a second because it has been proven at this point in time. And of course, there is a good concentration in government enterprises. Once again, as one would understand, the volatility of income for a government employee is also extremely low. When we look at the portfolio that came in for our personal loans, we did, as I mentioned last time, a very quick survey of customers who had chosen to take moratorium. And we had realized that the bulk of them had done it out of caution and not so much out of stress. When we have looked at customers even today in our moratorium portfolio, 98% of them continue to receive salary credits. Around 97% of the customers in our moratorium portfolio today are 0 DPD customers. So the fact that they had elected to take a moratorium after so many months of observation, and now that we do have hindsight and a learning curve behind us, definitely seems to be more out of caution than out of anything else.

[Sashidhar Jagdishan]

Can you talk about the check bounce rates in unsecured portfolio?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

The check bounce rate for the unsecured...

[Sashidhar Jagdishan]

[indiscernible] pre-COVID levels.

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

They have -- yes. They have also shown an improvement over the historical levels, a small, but an improvement over what the pre-COVID levels for these check bounce rates were. That has been the case actually across all products and also in the unsecured products.

[Sashidhar Jagdishan]

Good. You did mention about the salary trends for the moratorium. I think that overall in the unsecured portfolio, since we have a large portion of our -- one of the fears that we had is that other companies which are dropping their salaries or the average salaries or probably a lot of attrition that is there. Do we have enough -- large portions of concentration in companies where the drop in salary is more than 20%, 25%? So what's the...

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

I think, firstly, that fear is not so well founded, fortunately. What we noticed is the reduction in salary credits over those initial months of the COVID crisis, March, April, et cetera, was around 2%. And this could well be more of a banking and a cash flow matter than actual haircuts in salaries. When we try to split this up by companies, we do realize that barely 5% of our personal loan portfolio is in companies where the drop in salary cuts has been 20% or more. And the bulk of the personal loan portfolio is where there has been no impact or a minimal impact in terms of salary cuts or even delays. That said, I would want to say one more thing: we are extremely -- even before we entered this crisis, we have extremely conservative leverage policies for unsecured personal loans. Our fixed income obligation ratios are maybe 20 percentage points lower than industry averages. So a 20% dip in the salary, even should it manifest, even for this 5% of the portfolio, there is enough headroom in the leverage to absorb this kind of cash flow attrition, not to mention once again that throughout this entire period the savings rates have gone up. So whereas the cash flow will have dipped, the savings, also the expenditures, of these clients have also dipped, but should they not have dipped, there is still headroom to absorb it.

[Sashidhar Jagdishan]

Thanks, Jimmy.Last but not the least, I mean, whilst you have tightened your policy for this particular period, we have -- I mean even though there is the -- it's not 0. There have been disbursals that have happened. What's your policy of this versus the quality of sourcing?

[Rahul Gopalprasad Shukla]

So as Srini alluded to it a little earlier, when we did tighten the policy and when COVID hit us, the sourcing pretty much ground to -- I wouldn't say ground to a halt, but it was substantially reduced across all products. This was a function of the caution that we had put into our policy, it's our belief, much more than a function of the actual demand for credit. As time has progressed, we have noticed that certain industries and certain types of loans have done better. We have therefore been onboarding a certain number of these transactions. I think Srini alluded to the 2-wheeler and the tractor loans. I will say 2-wheeler and tractor loans are already pretty much in line with the pre-COVID levels. Auto loans are also now moving to probably around 60%, 70% of pre-COVID levels. One will notice, and I won't lose an opportunity to mention, that the personal loans and business loans are still, despite some level of onboarding, only at around 30% to 40%. I would like to emphasize the caution that remains injected into unsecured products. We will always be more cautious about them. We will always have tighter filters. We will always be stricter in the assessment and what we choose to onboard in these products. So this is how it has come. We've done a further analysis, Sashi, if I can let you know, in terms of the new business onboarded and the share that our bank has had in the higher bureau scores. I don't want to emphasize too much on bureau scores because we go way beyond bureau scores when it comes to our policies and to our analysis of what we want to underwrite and onboard, but if you look at every single product, the share of HDFC Bank in the higher bureau score, which is a proxy for higher-quality credit, has been higher than the rest of the market has been. So what we are onboarding is of a better nature.

[Sashidhar Jagdishan]

Good. Thank you so much, Jimmy, Rahul and Srini and Mr. Puri, for opening. I think we can now sort of put the -- put it to the floor for any questions, if any.

[Aditya Puri, MD & Director]

Sashi, one thing that I just want to say.

[Sashidhar Jagdishan]

Yes, yes, Mr. Puri.

[Aditya Puri, MD & Director]

Well, first was tell you, number one, we have not laid off anybody. And we have provided them gainful employment largely to make sure that our ability to recover when the market keeps turning is fully intact. That's one.

[Sashidhar Jagdishan]

Absolutely.

[Aditya Puri, MD & Director]

Two, we gave you a fair idea of what is happening about most of the things that you've been concerned with. Three, clearly you can see the depth of the management that we have. And it's only a lack of time that we didn't include a Parag or -- and an Arvind Kapil or a Vinay Razdan or...

[Sashidhar Jagdishan]

And -- or a Rakesh...

[Aditya Puri, MD & Director]

And Rakesh or Arvind Vohra. Each of them have been exemplary. And these have all been strategic positions that have been filled in to make sure that we can be where we want. I forget the name, Sashi, of that HR agency that have named the only certified bank or company in India -- that has named us the best place to work in...

[Sashidhar Jagdishan]

It's called the Great Place to Work, Mr. Puri.

[Aditya Puri, MD & Director]

Okay. And last but not the least is that our strategies are not a pie in the sky. Our thoughts are not a pie in the sky. All of our employees are very confident. When we sent out our mail, I'm very confident and believe in the strategic plan. And normally we also have the blessing of God. So I think -- and our succession plan and management team plans are all in place, so I at least am feeling very satisfied. I used to feel a little disappointed, but I hope now at least I've told you I still remain a confident manager and ensure that the legacy remains.

[Sashidhar Jagdishan]

Thank you so much, Mr. Puri. Thank you.Aman, you can put it to the floor for any questions, if any, if there is any.

[Operator]

[Operator Instructions] The first question is from the line of Rahul Jain from Goldman Sachs.

[Rahul M. Jain, Executive Director]

Just 2 questions. Number one, on this moratorium, this 9% number, I just wanted to clarify. So this is including all the segments or portfolios opt in; or agriculture, where you had given opt out earlier; even the corporate portfolio. So this is including all the portfolios. Is that a fair understanding?

[Sashidhar Jagdishan]

Yes, it is.

[Rahul M. Jain, Executive Director]

Okay. The second question, Sashi, is on the provisioning policy. So Jimmy was kind enough to detail out a lot of points about how things are looking better. So the contingency provisions that you've made in the last 2 quarters, do you think this is going to continue? Or we are fine with what you've built so far, 4,500 crores, 5,000 crores of extra provisions?

[Sashidhar Jagdishan]

As we speak now, I mean looking at the kind of environment that we are in, I mean all things remaining the same, we believe that this is sufficient, but if -- let's face it, I mean we are still in a very uncertain environment. There is always this lock down, unlock, lock down, unlock, so we still do not know whether we have yet or when we will flatten the curve in India. So if this gets elongated, there will be a bit of disruption, then we have to reexamine it. So for the time being, we believe this is fine. We are pretty much comfortable. There is a methodology. There's a basis. As for example, Jimmy did mention that 4.7% of the 9% high-risk assets is very comfortable. The balance 4.3% is where we have created further contingent provisions. Similarly, the ones where people have paid after the first moratorium, some we have collected. The balance which we have not collected, we have sort of taken into contingent provisions. So for the time being, we are pretty much comfortable, but it doesn't mean that we can look into the future. We have to see how things stand about as we go.

[Aditya Puri, MD & Director]

Always take into account, I'd like to state that we have the earning capacity to take further provisions without substantially affecting our bottom line.

[Rahul M. Jain, Executive Director]

Certainly, sir. Actually this was more in context of what banks globally are doing. So clearly we have seen the American banks take much significant provisions, so I just wanted to validate against that as well...

[Aditya Puri, MD & Director]

[ So these ] American banks, they have a 140% coverage, plus security.

[Rahul M. Jain, Executive Director]

No. Absolutely, sir. That's [ commendable, sir ].

[Aditya Puri, MD & Director]

I think that calls for [Foreign Language].

[Rahul M. Jain, Executive Director]

So just one more last question I'll squeeze in here, on the capital raising. So there is a capital rush on the street. Every other bank is looking to raise capital. Clearly we are much ahead of the regulatory buffers, so any thoughts of at what level, if at all?

[Aditya Puri, MD & Director]

Lots of thoughts. We are not a part of the herd. We are not a part of the herd. We have excellent capital adequacy and a great portfolio, and we have sufficient cushion to raise. And we've got subsidiaries if we want to raise. At this point of time, we don't feel the need.

[Rahul M. Jain, Executive Director]

And even at HDB Financial Services, sir...?

[Aditya Puri, MD & Director]

That, we will come to separately. There -- see, don't mix 2 things. That is a different kind of capital raising. And a capital raising to cover the fact that you could have downside is different. So I was covering the second part. HDB, at the opportune time, we'll get back to you.

[Operator]

The next question is from the line of Kunal Shah from ICICI Securities.

[Kunal Shah, Research Analyst]

So 2 questions. Firstly, in terms of margins. Okay, structurally if we look at it, we have got MCLR by almost 70 basis points. CD ratio is coming [ off ]. Plus, incremental lending is towards corporate advances, but still we are building onto margins. So is there a lag impact which we could see where the margins can actually come [ off ]? So that's the first question. And second, in terms of the operating expenses, I think -- so a phenomenal job on the other operating expense that's down more than 10-odd percent, clearly showing the ability. But of this, how much would we say that this would be more of business related and these are like the structural initiatives' result and so much of the cutting the costs will be sustainable?

[Sashidhar Jagdishan]

Kunal, on the margins, I think this is the tenth year wherein our margins have been in a band of 4.1% to 4.4% or 4.5%, okay? So it's been a stable band. It's we have seen multiple cycles. As probably you should know by now, that our philosophy is to ensure that we have matched durations on both the -- on the assets and liabilities. And we have a very robust risk-based price methodology which ensures that we know what is the minimum return that we need or a pretax return that we need for each and every product, net of cost and net of expenses. Now once you have that kind of a construct, okay, it's -- and then you have very active ALCO wherein all the management team is there, there is obviously a kind of a measurement and monitoring which knows that where are we coming on yields, what's the new business outlook going to be on the yield. And then how do we ensure and what do we need to do to drop -- to maintain margins? So we keep on proactively managing our cost of funds as well. So this kind of a duration and the...

[Aditya Puri, MD & Director]

[indiscernible].

[Sashidhar Jagdishan]

Yes, Mr. Puri, yes?

[Aditya Puri, MD & Director]

And also what I'd like to bring out to you is that our semi-urban and rural push was based on certain very obvious facts but, it even took us a little while, but it came to us at least 2 to 3 years back. For those of you who are all aware, the credit-deposit ratio for the country is about 122%. The credit-deposit ratio for semi-urban and rural is between 33% and 37%. We went in for a large semi-urban and rural push primarily to ensure that we would have sufficient liability generation at the right price. And we are proud to say that that has worked exceedingly well, and we do believe that it will continue to work well.

[Sashidhar Jagdishan]

So if you are looking at a quarterly variation. Surely there'll be some quarterly variations, but I think -- in the medium to long term, I think you -- now we have enough demonstration that it will be -- it has been within the band of 4% and 4.4%, 4.1% to 4.4%, as long as we maintain a reasonable amount of mix between our retail and wholesale. So that's on the margin.So on the operating costs, I think Srini did mention that as well, that don't look at this current low of 35%. We have -- and that's going to be the number that we are going to aim about 3 years' time. This is a bit of an aberration because a fair amount of our loan origination costs and a lot of other variable costs that normally is there has not happened because of the retail businesses have been tepid. So once that comes about, then you probably may go back to about 38%, 39%, but structurally, from that levels onward, I think we have committed that -- Mr. Puri has been committing, Srini has been committing, all of us have been saying that we should see over a 3- to 5-year period, thanks to the digitization efforts...

[Aditya Puri, MD & Director]

And Sashi, you have also been committing.

[Sashidhar Jagdishan]

Sorry...

[Aditya Puri, MD & Director]

You have also been committing.

[Sashidhar Jagdishan]

Yes, sir. We -- I said we all have been committing.

[Aditya Puri, MD & Director]

You never said. You said, "Srini and Mr. Puri."

[Sashidhar Jagdishan]

Okay. We've been committing that costs will come down, over a 3- to 5-year period, to the mid-35% levels as well.

[Kunal Shah, Research Analyst]

[ And specific ], is there any structural initiative and cost out of this 1,400 crores kind of delta? Or do we see that these costs are not going to come again? We have taken some initiatives and this will be completely controlled? [ Your outlet ] business volumes is going to come up. And in core fee income, we will see that, but kind of maybe how much of [ core ] costs will we be able to extract structurally?

[Aditya Puri, MD & Director]

No. Let me amplify on what Sashi said. This is fundamentally based on our -- and you take into account what Rahul said and what Sashi said and what Jimmy said -- our fundamental digitization and straight-through processing and technological push towards frictionless straight-through processing, coupled with host-to-host integration, as more and more we become digital, this is a natural consequence.

[Operator]

The next question is from the line of Suresh Ganapathy from Macquarie.

[Suresh Ganapathy, Head of Financial Research]

Okay, so Mr. Puri and Mr. Sashi, I have 2 questions for you. I'd like to begin with the vehicle financing. Of course, there was some personal misconduct, but how sure you are about the compliance across several divisions, in the sense that are you pretty confident that there are no such instances in other divisions? And therefore, do you think you need to do some kind of an audit to ensure things are okay? Point number one. The second question is on the attrition that we have seen. Of course, there have been reasons that have been attributed to, but we have seen a steady round of attritions in the top management in the bank. How has been the attrition rate? Has it been higher in the last couple of years compared to historical trends? And any which way you guys can think you can control the senior management attrition going forward? And finally, just a quick data question. Is it possible to share the moratorium numbers as of April end and May end also? June end, we know it's 9%. Can we get on April end and May end also, please?

[Aditya Puri, MD & Director]

Firstly, Mr. Ganapathy, what are these senior attritions that they are talking about?

[Suresh Ganapathy, Head of Financial Research]

Rajesh to CIBIL TransUnion, Nitin Chugh to Ujjivan [Foreign Language].

[Aditya Puri, MD & Director]

[Foreign Language] Rajesh, to what level? We've got 5 Rajeshes in the bank. We've got 10 Nitin Chughs in the bank. We are 150,000 people. [Foreign Language]

[Suresh Ganapathy, Head of Financial Research]

[Foreign Language] I mean, okay..

[Aditya Puri, MD & Director]

No, no, I'm saying it seriously. See, Suresh, you and me are friends as well.

[Suresh Ganapathy, Head of Financial Research]

Yes...

[Aditya Puri, MD & Director]

So I can take liberties with you. I'm genuinely asking you...

[Suresh Ganapathy, Head of Financial Research]

Yes. But there have been, right, a steady, okay, fine. 2, 3 years before Pralay Mondal left. And then...

[Aditya Puri, MD & Director]

[Foreign Language] but is this attrition a cause of alarm or concern? Definitely not for me. I'm trying to understand why for you.

[Suresh Ganapathy, Head of Financial Research]

Yes, okay, that's fine. The comment speaks, of course, for itself.

[Aditya Puri, MD & Director]

No comment. Okay, second is, yes, the [ car ] thing happened, but we've got very robust processes. But let me be very honest with you, Suresh. Human frailty, you cannot -- I cannot give you 110% assurance. We have very strong processes of checks, rechecks, or off-line auditing, online auditing, but if people collude with each other, then it comes out. But by and large, compared to the rest of the system, what comes out for us is minuscule.

[Suresh Ganapathy, Head of Financial Research]

Can there be a better media communication, Mr. Puri? I mean if senior people retire, can you file an exchange or a press release or something like that? I mean just so that there is -- unnecessarily rumors and...

[Aditya Puri, MD & Director]

I've never heard of anybody doing that. People retire. And I explained for Aima, as well as I explained for Munish. All I can say is that they've come. They've talked. We put up alternatives and plans, but no, I don't think we want to start filing on the exchange that -- ones who retire. We have a very robust succession planning right down the line. We have people, at least three deep, who can take the positions of their next bosses. So if and when it's alarming, we will let you know. Last bit, Sashi will answer now. But your thinking has improved after COVID...

[Suresh Ganapathy, Head of Financial Research]

Thanks.

[Sashidhar Jagdishan]

The last bit was on the moratorium. I think it was -- see, the numbers of the first moratorium we have not tracked. Now it's history. Now you're asking me to go back into history. So I'll -- April and May -- and I don't recall. I'll sort of get back to you.

[Aditya Puri, MD & Director]

So I'm very happy, Suresh, because when I heard you were serious, I was very unhappy.

[Suresh Ganapathy, Head of Financial Research]

God is great.

[Aditya Puri, MD & Director]

Yes.

[Operator]

The next question is from the line of Manish Karwa from Axis Capital.

[Manish J. Karwa, Executive Director of BFSI]

Congratulation on a good number. So my question is on slippages. We had like 1.2% of slippage. Shouldn't these -- a large part of this slippage should [ ideally ] been -- have been in the morat, isn't it? Because [ any which way ] who's largely unable to pay over the last 3, 4 months have been going under morat. Is there something which I'm missing over here?

[Sashidhar Jagdishan]

Yes, you are, in the sense that -- what people had taken a morat. When the first moratorium got over, we had about almost 70% of them paying off -- paying back -- or paying in, to be -- to use the right conjunction -- preposition. So what rolled -- people who did not take a moratorium, there are 2 things that happened. 9% -- 90% of -- so the 9% which is the current moratorium -- who have taken moratorium 2, 90% of them have come in from moratorium 1. So that's part one. The balance who have not taken a moratorium who have not paid up is what some would have flowed in as NPA as of June 30. And as Srini was mentioning, it will be a part of the accelerated recognition. In fact, Srini is now prompting me, saying that, no, there is nothing which was -- which fell in as a 90 DPD in June. The entire thing, he has taken it in the accelerated recognition of NPAs. And on the moratorium, if -- probably you may not have -- you may have missed out what Jimmy was saying. The 9% moratorium, 97% of that are all 0 DPD. And the entire -- and of which, who had salary -- were salaried customers, 98%...

[Srinivasan Vaidyanathan, Chief Financial Officer]

98%...

[Sashidhar Jagdishan]

98% of them continued to get salary credits even in June.

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

Sashi, if I can just comment for a second and answer this a little more. We have had throughout this period a lot of customer interaction right from the month of March when we started, which I described to you the last time. Time towards the end of May, we went into another very extensive communication with all the customers because the moratorium was ending at that point of time. So we were engaging with them. And we were trying to ask them whether they were ready for June, because the moratorium was over and installments would start kicking in again. And it was once again very heartening to hear from a lot of them, not just a lot but, well, pretty much a very solid majority of them, that they were ready. They did recognize it was over. They were all ready to pay. Then of course, the second moratorium got announced. So we stopped that exercise, but I think the thing to take heart is that from the standstill portfolio of the first moratorium, 70% have actually paid their overdues as of now. From the first moratorium customers, 70% of them paid up their June installments. So the customer interaction that we did have and the voice of customer that we did take was -- that it was not a universal demand to get the moratorium, has been vindicated through both these observations. So it's just a kind of illustration, if you will, of what we are trying to -- what Sashi was trying to say earlier.

[Sashidhar Jagdishan]

Yes. Manish, does that answer you?

[Manish J. Karwa, Executive Director of BFSI]

Yes. Just to be -- just to clear myself more on this. So this 1.2% slippage number is coming from -- largely coming from people who had actually not taken moratorium earlier.

[Sashidhar Jagdishan]

Yes. Absolutely. And this is...

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

[ Of the ] people who have taken moratorium, there are no accelerated NPAs. [indiscernible] moratorium we are not accelerating them.

[Sashidhar Jagdishan]

So people who did not opt for a moratorium 2. And as Srini was mentioning, we did an accelerated recognition even if there -- they had not crossed 90 DPD. And that is what the large portion of the slippage has been.

[Manish J. Karwa, Executive Director of BFSI]

Okay. And Sashi, just a very basic question. How are we defining moratorium? Is it now it is the customer's choice that they want to take the moratorium and he asks for you -- asks a moratorium to us? That is the way the moratorium works?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

So as I was saying just a few minutes ago, the bank has always for moratorium 1 and moratorium 2 had an opt-in policy. And we have engaged with every single customer, and we have publicized and published all over the method to apply for the moratorium. Of course, in the first moratorium we were much more -- don't know the word to use, benevolent is kind of wrong word -- but we were much more reasonable and we were much freer with granting the moratorium. So even if someone did not apply but merely missed a payment, we would not follow up. We would not ask any questions, and we would effectively grant them a moratorium without application. However, towards the end of May, when I mentioned the exercise we did, and that was a very significant exercise, we were contacting a lakh customers a day for a good few days. So it was a pretty large sample that we had picked up. And we realized that there is no universal demand for this moratorium. And we in fact had many voluntary customers coming and telling us that, "Listen, we don't want to bear this cost anymore, so please start collecting from next month and get us out of the moratorium." So both these things combined, this leads us to understand that we should be a little more judicious and a little less liberal in granting the moratorium, because it's not necessarily the wish of every customer. And every customer is not so financially savvy as to realize the cost of the moratorium himself. That's why we [ put a pause ], but that said, any customer who applies for a moratorium will get a moratorium, no questions.

[Manish J. Karwa, Executive Director of BFSI]

Okay. And just one more data point on morat. Would it be fair to assume the corporate morats will be very negligible and largely all the morat is coming from SMEs through business banking and some of it from retail?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

The last part of your question is extremely -- I think it's very strongly directional. So I wouldn't want to give such a strong direction, but yes, the corporate portfolio is very strong.

[Manish J. Karwa, Executive Director of BFSI]

And I had a question on fees as well. Typically our fees are in a ratio of 90:10 in terms of retail, corporate. Obviously, it's pretty obvious that retail fees would have declined very sharply, but on retail, which are the 3 core segments where the fees would have declined? And how quickly do you think it can bounce back?

[Srinivasan Vaidyanathan, Chief Financial Officer]

It remains at that level...

[Sashidhar Jagdishan]

89:11.

[Srinivasan Vaidyanathan, Chief Financial Officer]

89 and 11, retail and wholesale. That's the level at which it has been. And how quickly it bounces back, it depends on the economic activity, how it comes on, right? And we did give you pointers of how the car sales is picking up. We did give you something about retail lending, both internal and external, from a policy point of view, how we are trying to deal with it. The third-party products, which are the insurance type of products, have been reasonably good on that sense. And this quarter 2 picked up, where June was far better than [ we had forecasted the ] margins. And while we don't tell exactly what the outlook will be for the corporate coming of the 2 quarters down the line, but it depends overall on the environment, how it picks up.

[Operator]

The next question is from the line of Prakhar Sharma from Jefferies.

[Prakhar Sharma, Equity Analyst]

Just through this, on the moratorium, and a little bit on the future side. One, given when we say 70% of the people who had taken the moratorium in the first phase paid their dues till, whatever, May, June, what proportion of these guys would have continued in the second phase of the moratorium?

[Sashidhar Jagdishan]

Sorry...

[Srinivasan Vaidyanathan, Chief Financial Officer]

Can you repeat the question, Prakhar?

[Prakhar Sharma, Equity Analyst]

[indiscernible]?

[Sashidhar Jagdishan]

Not so clear. That's right.

[Prakhar Sharma, Equity Analyst]

[ Can you hear ]? Is it better now?

[Sashidhar Jagdishan]

Yes, slightly better.

[Prakhar Sharma, Equity Analyst]

So I wanted to ask. Like when you said that 70% of the people who had taken moratorium in the first phase paid off their dues before we switched to phase 2, what proportion of these guys would have probably continued in May in the second moratorium?

[Sashidhar Jagdishan]

We said, out of fee, what did Srini say? 9% -- as of June, 9% of our total customers' stock portfolio is in -- have taken a moratorium or elected for moratorium 2. 90% of them have flowed in from moratorium 1.

[Prakhar Sharma, Equity Analyst]

The -- so I'm trying to cut the other way, but that's okay. Second thing, at a broader level, to -- if you can help us understand. Like there's been some discussion around do we need a third moratorium or do we need restructuring. What in your view is the approach? Like either you comment on your book or at a broader level, what in your view is the right approach at a broader economy to move under a moratorium or restructuring?

[Sashidhar Jagdishan]

I think, Prakhar, the -- I mean you have heard both Rahul, Srini and Jimmy and Mr. Puri in terms of giving the kind of insights into what's happening in the recent trends in terms of collections and wholesale, SME and also in retail. I think we are -- we seem to be all right with just the moratorium 2. I don't think we are rooting for any moratorium 3, but I think -- because the more you keep on doing this, you may start to see a bit of a moral hazard. That's our belief. So we are pretty much happy to sort of restrict -- if the reserve bank would restrict this to moratorium 2.

[Operator]

We'll take the last question. That is from the line of Mohit Surana from CLSA.

[Adarsh Parasrampuria, Research Analyst]

This is Adarsh, yes. I had a question on the -- obviously our market share gains in corporates have been very strong. Given the kind of consolidation, do you expect you can continue this momentum further the next 2, 3 years? And related to that -- yes. And related to that, the impact of that on profitability given that you are doing AAA, AA lending. So the profitability of that book would be low. I understand that the risk with consumption is also low, but how do you kind of marry the profitability part here?

[Sashidhar Jagdishan]

Okay, a couple of things. As I said, we are not chasing growth. We are not sort of really saying that we need to grow. As long as it meets our credit criteria, only then we are going to grow. All that has happened is we had a opportunity. We had the hunger, and we captured that opportunity during this period. Whether this opportunity will be there in the next quarter or quarters to come, only God will know. As of now, we are well poised. We are well positioned. And if there are such opportunities again, I think we are well poised to capture that. So let's not -- so don't take an extrapolation of whatever we have done now to say that will continue in the future as well. We are very clear. We will not compromise on credit quality or risk standards. As Jimmy and Rahul has been mentioning, the incremental portfolio that we have been putting up is actually getting better and better, and that is what we will do. If performance, it sort of drops. I don't think we'll be even interested in. That's part 1. Part 2 is -- what was the second question?

[Jimmy Minocher Tata, Group Head & Chief Risk Officer]

I think I did mention about the 4.47 and the 4.42 and the 4.43. I know that the outside world doesn't -- it's just a number. But one, I will say anything in the 4s is, of course, very high credit order. So it's -- I think 10, 20 basis points this way, that way is not a divergence from the risk paradigm of…

[Aditya Puri, MD & Director]

Jimmy, 2 things. Number one, we do expect that COVID will not continue forever. Obviously, with the recovery, the demand, as Sashi said, would come across a much wider section. The third part is on the liquidity that we talked about and the declining yield, that also leads to a decline in the cost of funds. So actually, we do see our margin remaining in that base. We do not, as Sashi said, go after growth, but demand exceeds supply and we've always maintained that. And if you heard my beginning comments, that the fact that we have semi-urban and rural India, we have a digital process, we have -- and you see Rahul saying we do not see -- we don't give guidance for the future, but we are very comfortable that in the long run India is a great opportunity.

[Sashidhar Jagdishan]

Absolutely. Thank you, Mr. Puri. So on the profitability, I think Mr. Puri has mentioned it well. As I said, even though we are moving into the -- and you have answered it to yourself also, Adarsh. The risk-adjusted return will be very more or less similar. As I said, even here as well we have avoided going below a certain threshold level. Yes, yields are dropping. If the yields are going to drop to such a level that it doesn't make sense, we would rather prefer to keep it in government securities. So that's where we are. I don't think it should sort of fluctuate too much or the profitability will be impacted so much.

[Aditya Puri, MD & Director]

Sashi, how many more questions have you got there?

[Sashidhar Jagdishan]

This is the last. Over, Mr. Puri. Thank you.

[Aditya Puri, MD & Director]

Good, because I've been at it for a very long time.

[Sashidhar Jagdishan]

Yes. Sorry. Thanks. Srini, over to you.

[Srinivasan Vaidyanathan, Chief Financial Officer]

We thank the participants for dialing in today, appreciate your engagement with us. Thank you.

[Sashidhar Jagdishan]

Thank you all. Thank you so much.

[Aditya Puri, MD & Director]

Thank you all. Take care. Remain safe.

[Unknown Executive]

Thank you.

[Operator]

Thank you very much. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines.

[Sashidhar Jagdishan]

I can't shake hands, but thanks.

[Operator]

Thank you.