HDFC Bank Ltd

NSE:HDFCBANK

Earnings Call Transcript 2021-Q2

[Operator]

Ladies and gentlemen, good evening, and welcome to the HDFC Bank Limited Q2 FY '21 earnings conference call on the financial results, presented by the 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, Litan. Appreciate participants calling in today.We have a few comments on the top line and comments on the strengths of the franchise, how we are continuing to position to gain strong market share. And then from there on, we will get on to some more details.At the high level: We carried on the strategy to build on the deposits and on bringing in new customer relationships, thereby maintaining strong liquidity position. The bank's average LCR for the quarter was 153%. That's about [ 1 lakh 10,000 crores ] of surplus or approximately $15 billion, considering [ 110 ] [indiscernible] float.Next, I want to cover the capital adequacy ratio at 19.1% total capital adequacy ratio. We are 8 percentage points [ more capped than the ] regulatory minimum of 11.075%. Our CET1 at 17% is 9.4 percentage points more than the regulatory minimum of 7.575%. The floating and contingent provisions totaling 7,755 crores built over a period of time helps in derisking the balance sheet. We have also taken several steps to further tighten the credit. We have remained prudent in our approach to moratorium and as of now are diligently handling the restructuring [ request ].The provision coverage ratio has been further augmented to make the balance sheet even more resilient for any shocks. Provision coverage ratio, including all categories of reserves, stand at 195%.We will cover more on credit later in the call. Now we'll get to the results for the quarter. COVID has had such an impact on the financials, which we will call out individually as we go along. We'll start with net revenues.Net revenues grew to INR 21,869 crores, driven by an advances growth of 15.8% and deposit growth of 20.3%. Net interest income for the quarter was at INR 15,776 crores, up 16.7% over previous year, and grew by 0.7% over previous quarter. For the quarter, core net interest margin was at 4.1%. Prior year was at 4.2% and prior quarter was at 4.3%.As mentioned earlier, the bank's average liquidity coverage ratio increased to 153% in this quarter from 140% in Q1, in line with the strategy to build on deposits, thereby strengthening the liquidity position further. While the equity position the bank -- positions the bank to capture the potential loan demand in the future, it impacts current NIM by around 15 basis points. This drag was offset by monetizing some of the investments in the form of trading gains.Moving on to the details of other income. Total other income at INR 6,093 crores was up 9% versus prior year and 49.5% versus prior quarter. Fees and commission income, constituting [ 65% ] of other income, was at INR 3,940 crores, lower by 2.8% compared to prior year but higher by 76.6% compared to prior quarter. Retail constitutes approximately 91% and wholesale constitutes 9% of the fee and commission income. The fees and commission income has been impacted by around INR 700 crores due to COVID pandemic. This impact was largely caused by lower loan originations, distribution of third-party products, payment product activities and so on. Moratorium relief was available to customers according to RBI notifications. Waiving of certain fees for customers was also implemented in accordance with the mandate.FX and derivatives income at INR 560 crores was higher by 1.6% compared to prior year of INR 550 crores. Sequentially, the activity volumes picked up significantly, reflecting in a 28.4% growth versus prior quarter which was INR 437 crores. Trading income was INR 1,016 crores for the quarter. This represents the ALCO strategy of monetizing some portion of the gains from excess liquidity investments that was meant to be offset on the net interest margin, as I alluded to earlier. Other miscellaneous income of INR 576 crores includes recoveries. The collections were impacted due to [ labeled lifting ] of lockdown during the quarter. This had an impact of approximately INR 100 crore on recoveries. The net recoveries in the quarter was about 22 basis points on advances.Operating expenses for the quarter were INR 8,055 crore, an increase of 8.8% over previous year. Year-on-year, we added 297 branches; and 104 branches during the quarter. During the first half of this year, we opened 176 branches. Approximately another 100 branches are in various stages of readiness to be opened in a short period of time. Further, we are in the process of identifying another 100 branches by the end of this financial year. Since last year, we added 1,340 ATMs/cash deposits and withdrawal machines; and 296 during the quarter.Since previous year, we added 11,931 business correspondents, managed by Common Service Centres, including 5,589 opened during the quarter. During the first half of this year, we have added 6,591 business correspondents through CSCs. The staff counts increased by 5,874 during the last 12 months and about 1,000 during this quarter. We positioned our staff without letting go of anybody, looking forwards to the economic growth that is on the [indiscernible] so we don't need to restaff anything. And we are readily positioned to [ go back ].Cost-to-income ratio was at 37% versus 38 -- 39% in the recent past time period. We would expect the spend levels to increase in course of time with increased sales and promotional and discretionary spends. Thus the cost-to-income ratio will be reverting to the recent historical trends in the short run, while our goal remains to bring this down again in the medium- to longer-time period.And to the PPOP. The preprovision operating profit grew by 18.1% to INR 13,814 crores from INR 11,698 crore in the prior year.Now coming on to the asset quality. During the quarter ended September 30, 2020, the supreme court passed an interim order dated September 3 stating that those accounts that have not been declared NPAs till August 31, 2020, should not be declared as NPA until further orders. The bank has complied to the said directive and has not classified any account which was not NPA as of 31st August 2020, as per the RBI IRAC norms. In light of this interim order, we have not been and will not be classifying as NPAs till such time the supreme court rules finally on the matter. However, at the same time, the bank has, as a matter of prudence, used its analytic models to estimate potential NPAs, including accelerated recognition, in an expedient manner on a pro forma basis; and has provided corresponding contingent provisions towards the same.The bank holds provisions, as of September 30, against potential COVID impacts based on information available at this point in time, and the same are in excess of the RBI prescribed norms. For the credit update that we will provide in the next few minutes, we will mention the reported number, and it will be followed by the pro forma number which is analytically arrived.Annualized, the reported slippage ratio is at 0.8% in the current quarter. If you consider the potential NPAs, as I just mentioned, using analytic models, the pro forma annualized slippage ratio for the current quarter is at 1.98%, against 2.2% in prior year and 1.2% in prior quarter.GNPA ratio reported was at 1.08% of gross advances. The impact to the NPA ratio by use of analytic model in determining the NPA, as I mentioned earlier, is about 29 basis points. Therefore, the pro forma GNPA ratio for the quarter was at 1.37%, as compared to 1.36% in the prior quarter and 1.38% in prior year. GNPA ratio reported excluding NPAs in the agricultural segment was at 0.9%. GNPA ratio for the quarter on a pro forma basis excluding NPAs in the agricultural segment was at 1.2%, as compared to the 1.2% in prior year and in prior quarter. Net NPA ratio reported was at 0.1% of net advances. Net NPA ratio for the quarter on a pro forma basis was at 0.35%, as compared to 0.33% in the preceding quarter and 0.42% in prior year.Now coming to on provisions. Specific loan loss provisions reported were INR 1,241 crores. If we were to follow regular recognition process without any constraints of core derivatives, including accelerated recognition using analytical models, the specific loan loss provision would have been higher by INR 1,130 crore, resulting in a specific loan loss provision on a pro forma basis of 2,313 -- INR 2,371 crores for the quarter, as against INR 2,041 crores for the prior year and INR 2,740 crores during the prior quarter. The total reported provisions were INR 3,704 crore, as against INR 3,892 crore during the prior quarter and INR 2,701 crore for the prior year. The total provisions in the current quarter included contingent provision of approximately INR 2,310 crores. This contingent provision is of 2 components. The first component is the incremental specific loan loss provision of INR 1,130 crores, which is reflected here. This amount, we just added to the specific loan loss provision on a pro forma basis, and I just mentioned it a moment ago. The second component of the contingent provision of INR 1,173 crore represents provisions to strengthen the balance sheet to make it more resilient.The specific provision coverage ratio was at 84%, as against 76% in the prior quarter and 70% in the prior year. 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 4,002 crore. With a build of approximately INR 2,310 crore, at the end of the current quarter, contingent provisions towards[Audio Gap]floating provisions remained at INR 1,451 crore as of end September, and general provisions were INR 4,734 crores. As on September quarter end, total provisions comprising specific, floating, contingent, general provisions were 195% of reported gross nonperforming loans. Or 154% of gross nonperforming loans at -- versus the prior quarter on a pro forma basis, pro forma gross -- 154% of pro forma gross nonperforming loans versus prior quarter ratio of 149%. This is in addition to the security held as collateral in several of the cases.Now coming to the credit cost ratios. The reported core credit cost ratio, i.e., specific loan loss ratio, was at 47 basis points of advances. If we were to follow regular recognition process without any constraints of core derivatives, including certain accelerated recognition of losses, the specific loan loss ratio would have been higher by 43 basis points, resulting in a specific loan loss ratio on a pro forma basis of 91 basis points for the quarter, adding 90 basis points for the prior year and 108 basis points for the prior quarter.As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core reported credit cost ratio, net of recoveries, was at 26 basis points. As mentioned earlier, on a pro forma basis, the core credit cost ratio, net of recoveries, was at 70 basis points, as compared to 68 in prior year and 99 in prior quarter. After factoring in the accelerated contingent provision as I previously mentioned, which has an impact of 43 basis points, and the remaining contingent provisions to make the balance sheet more resilient, which has an impact of [ 45 ] basis points, the total credit cost for the current quarter -- at 141 basis points, as against 154 basis points in prior quarter and 119 basis points in prior year.The reported profit before tax is at INR 10,110 crore, which is approximately INR 110 crores per day during the quarter. Net profit for the quarter grew by 18.4% to INR 7,513 crores. Net profit for the half year ended September 30 was at INR 14,172 crore, up by 19% over the corresponding half year of prior year.Some balance sheet items.The bank's balance sheet size as of September 30 was at INR 1,609,428 crores, an increase of 21.5% over the prior year September level.Total deposits amounted to INR 1,229,310 crores, an increase of 20.3% over prior year and up 3.4% over prior quarter, which is an addition of approximately INR 40,000 crores in the quarter and INR 208,000 crores since prior year. Retail constituted about 80% of total deposits, and incremental contribution during the quarter was also on similar line. As a result of focus on -- as a result of our focus on granular deposits, CASA deposits grew by 27.5%, ending the quarter at 5 lakh, 11,451 crore, with savings deposits at INR 348,432 crore and current account deposits at INR 163,019 crore. Sequentially, CASA deposits had a strong momentum with a growth rate of 7.1%. Time deposits at INR 717,859 crore grew by 15.7% over previous year and 0.8% over previous quarter. CASA deposits comprised 41.6% of total deposits as of end September.Credit-deposit ratio was at 84% for the current quarter, as against 88% in prior year.Total advances were INR 1,038,335 crore, an increase of 15.8% over prior year and 3.5% over prior quarter, which is an addition of approximately INR 35,000 crores in the quarter and INR 141,000 crores since prior year. Retail advances on a Basel basis grew by 5.3% year-on-year and sequentially grew by 2%, and wholesale advances on a Basel basis grew by 26.6% year-on-year and 4.6% sequentially.Moving on to [ CapEx ].With regard to capital adequacy, the total capital adequacy as per Basel III guidelines stood at 19.1%, against a regulatory requirement, which I just mentioned, 11.075%. And this is an increase compared to prior quarter of 18.9%. And prior year was 17.5%. During the quarter, the net capital generated is about 22 basis points, which is reflected in the increase in total capital from 18.86 to 19.08. In the half year ended 30th September, the bank generated net capital of 56 basis points. To provide further context: During the financial year '19/'20, the net capital generation was 140 basis points to the total capital ratio. Based on our current assessment, our internal generation of capital is adequate to sustain and support our business growth in the short term.Now in summary. Our people across various verticals zealously manage customer relationships in executing our strategy by delivering products and services. These results that I just described reflects deposit growth of 20%, advances growth of 16%, operating profit growth of 18%. Profit after tax increased by 18%, delivering a return on assets of 1.9%.With that, may I request Sashi to comment?

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thank you, Srini. Thank you very much.I think quarter 2 was reasonably more positive than what we had experienced in the first quarter of this fiscal year. We have seen a lot more micro-level indicators that capture the intensity of activity, whether it is the mobility indicators, the PMI for manufacturing. All that rose to an 8-year high in September. Rural economy continued to be reasonably buoyant in -- even during the second quarter. We have seen stepped-up sales in 2-wheelers, tractors, gold loan sales. I believe some anecdotal evidence of FMCG sales have also been reported during this particular quarter, especially rural and semi-urban economy. Whilst the CMIE has reported some amount of job losses, it appears to be heavily concentrated in sectors like hospitality, entertainment, education and the informal SME segment. However, when we look at our internal numbers, because we are one of the largest corporate salary banks, large companies either in manufacturing or services have not reported any substantive reduction in payrolls.When you do -- as we have always mentioned, customer acquisition is one of the most important [ feeders ] for our business. Even during the height of lockdowns, we managed -- the branch channel and other channels managed to mobilize 1.2 million customer acquisitions in the quarter ended June. Thanks to a step-up in digitizing network, this quarter, I think the channel has managed to open 1.8 million new liability relationships. It is a quite commendable job, where there is still a large portion of people working from home as well. So this is thanks to the kind of digitization efforts that have been implemented over the last 6 months. We are seeing a step-up in the cards businesses. Both the merchant acquiring as well as the issuance businesses have shown recovery, more or less both of them hitting about 97% of last year's September numbers. I think we should see the third quarter to be far more better than what we saw in the last -- similar corresponding quarter of last year.We have launched the Festive Treats 2.0. This is a 45-day-long program where we have aggregated far more and better offers from more than 1,000 brands, as compared to 100 last year. And this -- the reach of this particular Festive Treats is far higher than what we did last year as well. So we hope to sort of lift the mood and the sentiments during the third quarter. So this is something that we are very keenly watching. Early trends seem to be reasonably positive. The retail assets is something that got hit during the first quarter of this year. I think, as we see the recent trends, they have started to show first signs of recovery. Disbursals in Q2 have -- are reaching about 80% to 85% of the prior year levels and more than 2.5x of June quarter. More of this color as to what's happening at the ground level, we will have Arvind Kapil, who will give some color to that, but that's a little later.The key driver once again during the quarter was from the wholesale banking segment. Corporate banking did a stellar growth of [ 40% ] year-on-year and a sequential growth 3% to 4%, though of course they were -- they did have some impact of a couple of obligors prepaying some of the loans. Else, the growth would have been even much stronger, but let me pause out here. And let's give the -- hand over to Rahul Shukla as to where he saw the growth come in from and what's the ground-level feedback that he is seeing for -- at a ground level for -- in the coming months.Rahul, over to you.

[Rahul Gopalprasad Shukla]

Thank you, Sashi. Today happens to be the first day of Navratri, so wishing all of you on the call and in the room joy and happiness.Each of our businesses -- there are, well, several businesses in wholesale banking, but corporate bank, business banking or wholesale SME well as health care finance businesses are tracking better than originally anticipated before COVID. This was a quarter that not only saw strong quarter-on-quarter pickup but an extremely strong growth in averages in both customer assets and CASA in the range of 35% to 40%.First, we begin with a commentary on the environment based on sequential improvement in high-frequency data such as power demand, [ EV bills ], auto sales, cement and steel production, export growth in September. We remain optimistic about a cyclical recovery. While services PMI, despite sequential improvement, remains subdued, manufacturing PMI is at its highest in the last 8 years. With total COVID cases continuing to -- total active COVID cases continuing to fall or 25% from its peak, and if this trend continues, the recovery will be [ lifted ] further during this quarter because of the festival season spending. Government's recent announcement on second fiscal support package worth INR 73,000 crores to support consumption and CapEx spending will help front-load consumer discretionary spending.As a very large transaction bank, here is what we saw on corporate collections in the second quarter that passed through our cash management system, which is an indication of how the economy overall -- at least a proxy of how we see it is doing. The Q2 collections was higher 0.5% Y-o-Y. It was higher than what we had done last -- through last year, in quarter 2, and it was also higher 41% quarter-on-quarter. Of course, April was subdued, so the quarter-on-quarter number basically looks very high, but month-on-month, we continued to see that activity was gaining strength. September collections this year, for example, were higher 14.5% compared to September last year. That is how strong a strength that we saw. We also saw strength in the wholesale SME overdraft book in September ahead of orders or also restocking channel inventories ahead of the festival season. Normalization was also reflected in new-to-bank additions and disbursements in our wholesale SME business. The bank added about 1,550 new customers, which is 3x of quarter 1. Disbursements in value were 2.65x in quarter 1, with September showing an all-time-high disbursement that we've ever done in wholesale SME, which was greater than 5,000 crores.In light of this, here is our performance or -- briefly on business volumes. On customer assets, advances and investments put together, corporate banking saw a low single-digit quarter-on-quarter growth. This has to be looked at in the context of a very strong growth in last quarter, where our quarter-on-quarter growth was higher than year-on-year growth of the system and despite a very large repayment by a single obligor group. The year-on-year growth remained at a healthy greater than 40%. Almost all of the year-on-year and quarter-on-quarter accretion in the book came from top half of the 10-point internal rating scale, which has served the bank well over the years. Approximately 70-plus percent of the quarter-on-quarter as well as Y-o-Y gross disbursement, including rollovers, were assets with less than 1 year tenor maturity. So there has been no change in how we have approached the business in this quarter as any other quarter.Business banking saw high single-digit percentage growth in its asset book, which is very strong. This is quarter-on-quarter. Health care finance book, comprising equipment, health infra and working capital in the sector, that again grew in the very high -- in high single digits quarter-on-quarter. CASA growth for the businesses showed strong growth. The growth is a result of one, of course, secular market share shifts that we see in the sector, but for us, we do slightly better because of our adherence to our institutionalized sales process drilled into our heads by Mr. Puri that balances growth from penetration, new acquisitions, geographic expansion, collaboration with branch, digitization, [ wallet sizing ], full suite of superior products in the backdrop of a very strong focus on credit, compliance and controls architecture. Apologies. There is no other way that I can explain this.The next question is whether growth has led to NIM dilution in these businesses. Just to give you an example of corporate banking: Through both yield management and cost of funds declines that the -- that have been allocated to us and our internal management reporting systems, our asset NIM for our large corporate banking business saw improvement both Y-o-Y and Q-o-Q. And so these were meaningful improvements. While growth in NIM performance has given a strong earnings momentum, has it led to deterioration in book? That would be the next question. Given the quality of the book that [ we sport ], we have seen several more instances of prepayments from top-rated corporates. Obviously we have to work around that and we have to continue on our growth trajectory. The restructuring book is nonmaterial and nonmeaningful to comment about in these businesses.Lastly, India has a health care sector with annual flows of approximately 8 lakh to 10 lakh crore. HDFC Bank is a dominant player in this fragmented space, encompassing hospitals and laboratories, doctors and chemists, pharma companies and most importantly patients. The bank is working on building a digital health care ecosystem, the first step of which was announced in our partnership with Apollo Hospitals group to provide our customers access to quality health care with instant financing delivered digitally. The launch was last Wednesday. In the last about 9 days, we have seen sign-up of 1 lakh, 21,000 customers to the healthy life platform. So I request all of you to also avail this service.Thank you very much.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thank you, Rahul. Thank you very much for that. I probably -- Arvind, can you sort of come in and talk about what is the local and the ground-level flavors on the retail asset business?

[Arvind Kapil, Country Head of Retail Assets]

Yes. Thanks, Sashi. I think, let me also take this opportunity to wish all of you joyous Navratri. And like Sashi said, bring in the colors. I think I see the colors coming in, in the retail assets.A quick sense. So the retail assets umbrella comprises of 11 businesses ranging from secured loans of 4-wheelers, 2-wheelers; retail working capital loans to mortgages; the home loan franchise; gold loans; loans against securities; microfinance; as well as the unsecured loan franchise, so salaries, self-employed and professional segments.So on an overall basis, for retail assets we are seeing a double-digit sequential monthly growth from July to September 2020. We are almost at around 90% monthly pre-COVID levels and see ourselves with robust growth hereon every quarter-on-quarter. While the country is recovering from difficult times post COVID lockdowns, we as a bank see 5 trends driving the economy and business at the ground level. These are infrastructure, rural and semi-urban, digital transformation in particular, supply chain and health care. Our observation in the ground level and across products in the self-employed entrepreneur segment reveal that there is a clear distinction emerging within entrepreneurs, those who were able to jump ahead to improvisation and value-added services and create an edge for themselves. Take for example even a simple [ Kerala ] store that manages to invest in a [ phase it has a ] home delivery option is delivering an output of almost 2x of the average business among his peers. This, we believe, is happening across various levels of self-employed businesses. As a bank, we believe our ability to go micro, coupled with our ability to insightfully decipher data and use it in our underwriting engines, coupled with our liabilities [ physical distribution ] [indiscernible], along with our sense of personalization and customer digital platforms, creates a winning proposition and the robust growth that we are confident of.If one looks at the recent [ bureau trends ] to get a sense of how the inquiries are generating. The lead indicators, if I were to pick auto loans and home loan businesses, are clearly showing inquiries levels are quickly scaling back to pre-COVID levels; and at times even exceeding in some of the business segments beyond the pre-COVID levels, even in the month of September, as observed. Added to this, we are witnessing a double-digit incremental growth as a contribution from the government segment and the rural and semi-urban, especially for our unsecured business as well as secured business. On unsecured business, we also see rapidly growing, and we believe it should be pre-COVID levels by the month of October. That's this month.We've already seen a surge of gold loans to a robust growth of almost 60%

[Operator]

Hello. Hello. Members of the management team, [indiscernible]. Hello.

[Srinivasan Vaidyanathan, Chief Financial Officer]

[ Can you hear us ]?

[Arvind Kapil, Country Head of Retail Assets]

Can you hear us?

[Srinivasan Vaidyanathan, Chief Financial Officer]

Litan, can you hear us?

[Operator]

I can't, no. We -- yes, we are able to hear you now. Thank you.

[Arvind Kapil, Country Head of Retail Assets]

Okay.Both on loans against property and retail working capital loans, we are already at pre-COVID levels. To give you guys a sense of where we're really moving from hereon: Yes, we've been cautious and prudent on the microfinance business and expect a full-scale recovery within the next 90 days in this particular business segment. It's worth noting that our observation at the ground level on the rural demand also shows that there is a massive increase in the 2-wheeler sales by almost 34% at an industry level. This, we believe, is backed by an increase in the rural demand compared to a historical compounded rate of growth of 13% over the last [ 5 years ]. Our 2-wheeler business has also seen robust recovery in similar lines. Tractor sales are also at an all-time high. And it's viewed in the 2-wheelers consecutive years of good normal monsoons leading to water storage levels at its best in the last 13 years in our country. Also noteworthy is that the kharif crop planting is at a record high on a year-on-year basis. I think this aggregate gives us strength to our rural and semi-urban distribution.Simultaneously, if we were to delve for a moment in the self-employed sector based on our sales team's interaction with businesses at the ground levels pan India, I would like to share with you that we're observing a positive uptake, demand and capacity increase by the SMEs and the self employed. Whether it is the farming sector; whether it's industrial chemicals in AP, Telangana [indiscernible] and Gujarat; or is it the [ rice and plow mills ] increased capacity utilization in Punjab or Madhya Pradesh or even [indiscernible], for that matter; whether it's the food processing and packaging industry responding during COVID time with an uptake and with the basis predominantly in Pune, [indiscernible] or Bangalore; or it's the fasteners, bicycle manufacturing in Ludhiana, that the demand is clearly showing an upward trend. And these are all -- I'm giving you a ground-level feel of our sales guys directly talking to businesses.At this junction, whilst we're acknowledging that India is growing substantially in terms of Internet users, almost a 24% increase in the number of active users monthly on a year-on-year basis, let me take this opportunity to share with all of you the plans on digital transformation, one of the key game changers on the retail lending side. Our next digital offering as a bank on the retail assets platform will be the [ auto first ], which we believe will transform the automotive financing landscape in India. Both for the 4-wheeler loans as well as for the 2-wheeler loans, it will be a dedicated platform to transform the vehicle lending and ownership experience from completely predominantly physical to digital. This offering, which we'll unveil in the next 90 days, will be available not only for our existing bank customers but also to strengthen our open-market customers onboarding. At HDFC Bank, we see significant opportunity to transform the automotive landscape over the next 3 to 5 years. We believe presently that 90% of the car purchase journeys in the industry are actually initiated online, which is why we believe the shift from physical to digital purchase and strengthening these platforms and creating an ownership journey will be delivering a distinctive loan experience. A customer's journey from search to probably test drive, maybe exchange and a couple of sales initiatives will be integrated seamlessly on this platform. This platform, we believe -- be the first of its kind for a bank our size in India and possibly the world.Even for our unsecured personal loan business, we are gearing up and getting ready, over the next 3 to 5 months horizon, to substantially digitize the open-market acquisition. We've had a successful stint on the 10 seconds loans over the last 5 years. And we believe this could be another game changer for the distribution. Thus, the new normal capitalized on our micro management strategies the way I shared with you, coupled with our digital strength of customer journeys and our depth of data deciphering and underwriting engine, we strongly believe that we will come out as winners and create a robust growth from here on quarter-on-quarter.Thank you.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thank you, Arvind.Jimmy Tata, a lot of people will be looking at you with a lot of eagerness. So there are a lot of questions I'm sure they would be having. First is with the moratorium getting over in August and September being the first month post which you will have presented overdues, they would like to know if you can give a very -- a synopsis on how your demand resolution has been.

[Jimmy Minocher Tata, Chief Credit Officer]

Thanks, Sashi. Definitely. Hi, everyone. Good evening. And allow me to join all my colleagues in wishing you compliments of the season. I usually say thank you for joining us on a precious Saturday evening, but Saturday evenings aren't really all that precious anymore, but thank you for coming. We really appreciate it.Yes, Sashi, and to get it forward for everyone, I'll just put in a flavor of the -- I think Rahul and Arvind have both given you a good flavor of where the business is headed, so I'll just, without trying to repeat anything that they're doing, put in the flavor of where the risk profile and the dimension for the bank exists in our various segments.So if we start with the wholesale businesses. That's where most of the growth has been, as you know, in the last 6 months or so. We have achieved this growth and continue to achieve this growth with more dilution of the credit standards. The best way to define that for all of you is our internal rating scale. I have described it last time, but for those who are new on the call this time: We have an internal rating scale of 1 to 10, 1 being the safest, 10 being the riskiest. We usually have a mapping process, and we rely on this scale much more than we look at external ratings. Plus there are, of course, a good number of companies and transactions and customers who are unrated, so this is a more universal method of adoption for us, but of course, to those who are not insiders to HDFC Bank it's certainly some elaboration.So the historical steady-state average borrower grading on the scale of 1 to 10 of the wholesale portfolio has been around 4.4 for the last several quarters. Happy to report that the incremental portfolio put on in the last quarter has also come in at a 4.4 average, and therefore there has been no dilution. A 4.4 essentially, from a public perception, corresponds to a AA rating. That's the best way that I can put it. There has been a marginal, in fact, improvement, if you look at the basis points over the last few quarters, but let's just suffice it to say that it's pretty steady in that sense. And keep reporting this figure quarter-on-quarter to you. I must put out over here as well that this is an extremely safe average borrower grading to have based on our internal scale. It is a asset profile that we do manage to achieve because we have the advantage of the cost of funds to associate with the best profiles in the country. There could actually be a slightly higher-risk profile. If it were to be adopted at any point of time, that would still be, to our minds, well above the average risk profile of the banking system as a whole. That said, we stay where we are and continue that way.Around 75% of the externally rated portfolio -- so this I think is something people will relate to more, but from those who are externally rated, 75% are either AAA or AA. 93%, if you want to add the A-rated companies, get into that kind of a bracket. I'm often asked about the unsecured exposures, and here again it's been kept at a very steady rate. The -- I did mention 4.4 as being the portfolio average. The unsecured is rated at a much safer level and comes in at an average of 3.5, which means that the secured portfolio is around 4.57, 5-ish kind of range. The difference between these 2 grades effectively is a 55% lower probability of default. That's about the best flavor that I can give you based on what we have right now. So the unsecured portfolio remains in a much lower risk category than the overall portfolio and obviously the [indiscernible] portfolio as well.Fresh NPAs, I'm not going to get into because Srini has covered them. And we have some constraint on -- [ simply ] there were no fresh accounts in the quarter that were referred to, the NPAs, from what we have.

[Srinivasan Vaidyanathan, Chief Financial Officer]

[indiscernible].

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Okay. Thanks, Jimmy. Thanks on that corporate side. Do you have anything more on the corporate side?

[Jimmy Minocher Tata, Chief Credit Officer]

No, on the SME...

[Sashidhar Jagdishan, MD, CEO & Additional Director]

SME, yes. That's the question that I have for you is -- if you recall, in the July 18, in the quarter 1 earnings call, and also -- sorry, the quarter 4 earnings call, you did mention that you'll have done a simulation exercise, simulating the drop in sales in the SME portfolio. And you arrived at the 9% of your SME book is high stressed. Can you give color as to where we stand on that?

[Jimmy Minocher Tata, Chief Credit Officer]

Yes, sure.So on the SME book in the bank, yes, Sashi is right. We had quite -- early on, maybe at the end of February and early parts of March, we had done a stress test in 3 degrees of stress. And we had reported out to you that, if you looked at the mid-level of 3 degrees, there could be approximately 9% of the portfolio that could you could say is stressed. We now have the benefit of hindsight on this particular situation. It was clearly an extremely conservative estimate that we had put out to you, which has not panned out that way at all.If we look back now from a position of early October: We have 30 DPD counter that we are looking at. We also have identified stress accounts now because we do have relationships with all these entities. We are not mere loans, so we are able to observe their bank accounts. We are able to observe their business flows. We are able to observe their expenses and their revenues that come in as well as capital account transactions, so we are in a position to identify those who are in stress. If we now identify those who are in stress and if we look at people who are even short-term delinquents, I think this number could be brought down somewhere into the 3-point-percentage range. It's not in the 9 percentage range, so there is some good news to report on that segment.It was 3% as well. Now if we want to analyze that a little further: We have looked -- these are obviously [ all ] relationship accounts, so we look at them individually. There is a very good probability of recovery in several of these. We are seeing, I think Rahul alluded to it as well, that cash flows are definitely improving. The order books in our portfolio are improving. In addition to that, the promoter savings have gone up, and I'm going to come to that a little later as well. We are always well collateralized.Another part of this portfolio will probably want to avail the [indiscernible] that has been allowed to them for a few months more, and that would probably give them the relief that they wish. Needless to say the [ ECL deals ] have been a benefit to this segment in large measure. And whatever is left would probably need some form of restructuring, which has been permitted. And a very small part of that, let us also say that, if it does not fall within the specified norms and if we did believe that they do need some help and assistance, we would be willing to restructure that part even without it falling into the standard restructure bracket, but let us take that as it comes to it. As of now, the times are good. Flows are improving. Flows are increasing. Order books are doing well. The utilization of our limits, which has fallen during the pandemic, is also now creeping back up. And again, through account observation, it is not creeping up lump sum to take care of problems. It is a utilization, operation base in the larger part of things. Our utilization has actually remained fairly steady throughout this entire time. It's been in the low 70% of financial limits and has not really either fallen dramatically or gone up dramatically, both of which, we'll understand for different reasons, is a fairly good sign.The SME portfolio diversification continues to remain highly diversified, the large concentration being in agri and agri processing oriented. This is only because it is directed lending. Otherwise, the concentration is created [ through that ]. Everything else is less than a 5% concentration. And if you move to around industry #6 or #7, it would go well below that as well.To give you a small feel further on the portfolio performance after the moratorium is over. We are seeing now a mean reversion. So if you look at the very early DPD bucket, [ 7 15 ] types, we had a particular level pre COVID. Obviously, during COVID and during the first 3 and the second 3 months, we had certain levels. We are normalizing those levels in our internal calculations so that we do not artificially take any benefit of moratoria. And there is -- clearly an improving trend account to a mean reversion, and we would probably see that reversion back to the original level in a few months or so. So this is one more positive trend that I can report to you.Another thing to point out. I think, in the very first quarter of the pandemic, when we did report, we had mentioned, while we had [ sought for stress tests of that time to veer for -- from some worry ], which I explained a little earlier the hindsight details upon, we had referred to the self-funding that we have always carried out in terms of our SME promoters and their families and their personal wealth. Once again to repeat: This is not security. This is merely liquidity. The -- we were watching that. It has not only held up. It has actually increased as a percentage of outstandings. And as I mentioned to you, we have not seen any great demise in those outstandings. So the savings have actually kicked in to the same level for these segments as well. The collateralization of this portfolio beyond the inventories and current assets continues to be extremely high. There's an 85% portfolio-level collect rate for the same.And with that, I think it's flavor that I can give you on the risk profile of our SME business.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thanks, Jimmy. I think last one, which everyone will be waiting for, is where you present it for the retail portion in the month of September and the early trends in October. We would like to know what's the resolution coming about.

[Jimmy Minocher Tata, Chief Credit Officer]

Yes. So thanks.So on the retail portfolio, now as we all know, for everyone, not just for retail, the moratorium is over. So for the last 2 months, it has been all about what the demand has been and what resolution on this demand has been. Once again, pleased to report that, in the month of September, we had a demand resolution of around 95-odd percent. And by October -- and we are pretty close to the end of October now, so we can -- a bit fair of -- level of confidence here that we should expect that to improve further to around 97-odd percent. You want to juxtapose this with what it was pre COVID. Pre COVID, we had 99-odd percent, so we have 2 percentage points to go. We expect that to be covered in a few months.Our non-moratorium portfolio already has a demand resolution of 99%, so you can see that, that is clearly on path. And the rest of it will again show as increasing. And there are encouraging trends month-on-month in all these businesses, so we do feel a little pleased about that.Arvind mentioned a good amount on where the businesses are going, so I'm not going to[Audio Gap]buoyancy. Demand for credit, in fact I must say, has been available for virtually all retail products. The extent to which we are onboarding it through the various departments that Arvind [ named that are handled ] has been the extent to which we have chosen to the -- revert to the original policy, which has been considerably tightened during the pandemic.So I will say in auto and 2-wheelers we have reverted in very large measure to the pre-COVID policies. There are a few geographies and a few segments where it might yet be constrained. The personal loans in the unsecured, the other large product, we were always very well placed in these because of the customer selection. And there we continue to have now much better sight because, once again, the salary accounts of these individuals stay with us. So we know that we are dealing and we are in customers, employees of companies who have not indulged in job cuts, who have not indulged in salary cuts. So the income streams remain steady, and we expect that to go well. The lower end of the personal loan segment has not yet been opened up, and we will do so as we find it appropriate to do so. I will say the same thing for [ parts ]. And if we look at the self-employed segment for the business loans as well as the commercial transportation, again, over there the policies remain relatively tight for the time being and will be opened up only when we found it to be appropriate.The agricultural portfolio, which we usually do segregate even when we are reporting our NPAs, has actually been a segment of the industry that has done rather well. We had a [ bumper ] rabi crop. There were a few logistical lockdown-related issues at that point in time for transporting the produce, but most of these are not ultra perishable. And therefore, there has been good realization. The kharif season also looks to be doing well. And we have actually had a rather good period with this particular line of business, and therefore that works well. The SLI portfolio which we have, it's not our largest portfolio, but as you would understand, sustainable livelihood has been impacted quite significantly through this pandemic. The analogy I can draw perhaps is a similar impact that they faced during the demonetization phase. It took approximately 6 months that time for things to get back to normal. Arvind does believe, and I probably do share his belief, that it may not take that long this time around, but on this book I must say that these are people who are very good in terms of their culture. They are genuinely suffering. We do intend to be sympathetic towards this portfolio, so we are not trying to accelerate any kind of recoveries there. In fact, I must say one of the last things that Aditya mentioned to me recently was, "Be kind to these people, be kind to the MSMEs. They have genuinely suffered. Don't try to push it on them." So we do keep that in mind. We do understand that this has been [ no fault of a lot of cases ], and therefore we will be very understanding in how we interact with them.The last thing I would want to mention is in terms of recoveries. This has actually been a pleasant surprise. Recoveries across the board, across products are actually higher than the pre-COVID [ phase ]. So I do see a benefit in terms of the credit profile from a better recovery flow going forward as well.Sashi, honestly, that's...

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Yes. Thank you, Jimmy. Thank you so much for that very elaborative and comprehensive commentary on the credits and the collections part of the business.I will request the operator to open up the forum for questions now.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

With that, I would like to just take this opportunity to sort of talk to the investors.I would like to take this opportunity to thank Mr. Puri, who chaired this company with a [ near-limitless ] track record for 26 glorious years. It's a poignant moment for the 117,000-plus-strong workforce to see their iconic leader move on to a new innings of his life. We shall miss his magnetic persona which has guided us over these years, but such is his selflessness that he's transferred his energy and passion to many of us. He's nailed actually all the platform with clear strategies for the future so that HDFC Bank team 2.0 can carry his wonderful legacy forward. Suresh, you asked a lot of questions about, "Why is it that you are different from the market?" And I think a lot of us owe this to this man who's created this kind of a platform.A lot of you have written and even sent some wonderful sound bites [indiscernible] Mr. Puri. It was indeed heartwarming for -- to read and hear the same, and it surely moves Mr. Puri.I thank you for all the patronage you have provided to this institution all these years. And I'm sure we can count on you for your support even into the future, in our next journey. On behalf of all our stakeholders, be it the customers, the investors, the regulators[Technical Difficulty]

[Abhishek Murarka, Vice President]

Hello...

[Operator]

Ladies and gentlemen, sir, we have lost the line for the management. I'll just reconnect them.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Right. I was just mentioning that, on behalf of all our stakeholders, be it the customers, the investors, regulators, the Board and the HDFC Bank family, we thank Mr. Puri from the bottom of our hearts for creating such a world-class institution. Thank you, Mr. Puri. There will not be anyone like you. You are one in a billion. We will miss you. Thank you.With that, is Mr. Puri there? If we can connect him. He may want to -- he wanted to have...

[Aditya Puri, Former MD & Director]

Yes, yes, yes. Sashi, I'm here.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

All right, Mr. Puri. I think a few words from you to -- last time, to investors...

[Aditya Puri, Former MD & Director]

Sure, sure, sure.So firstly, thanks a lot to all of you. It's been a pleasure dealing with you. We've had our ups and downs. We've had our differences of opinion, but it's been fun. I am absolutely thrilled in handing over to Sashi, and so is the team below him, and more importantly, so is each and every employee. Now there is a -- see, a gang in the bank Board, [indiscernible], which Sashi heads. What they have done is they have brought together to give me the most poignant, emotional farewell that I could see, but what it's done, it's brought the HDFC Bank family together. Well done, Sashi.The second part I must tell you is really good, that not only has it brought the HDFC Bank family together, but all of them have promised to carry on the legacy and deliver what Sashi and me have jointly had every single review. So Sashi, very cleverly, over the last 1 month has been having 2 reviews a day with me, leading them, basically so that everybody is on the same wavelength, which is very well done. By the way, even my wife is a part of this [indiscernible] gang, so it's been a beautiful experience, that we can see all 120,000 of us coming together, recognizing the change. I am happy with the recognition of the footsteps that I've left behind, but I'm even more happy that the whole bank is behind Sashi, me and the legacy and the strategy that we have set up. I also found that in part of the farewell I had everybody who's anybody, right from Mukesh Ambani to the government secretaries. And Sashi had round them up, asking for 2 words. I -- so he [indiscernible] [ he was persistent ] to everybody, which is just phenomenal. And I promised him that, once COVID goes, whenever he wants to be -- further have a one-on-one meeting, I will accompany him.So what we've got -- and I don't want to go into so much detail thereafter, other than to say the team is there. Sashi is there. The technology is there. The market is there. Your support is there, but we recognize 2 things. There's no point saying year-on-year. Yes, we have 2 good quarters because we even didn't take the -- we have the energy not even to let the COVID hit us for 2 quarters, but the fact of the matter is comparing with the previous years doesn't work because, 6 months, there was actually supposed to be no business. But we sat down and we said HDFC Bank will not lose, and we even didn't lose those 2 -- 6 months. We didn't let go a single person. Everybody got his increment. Everybody got his bonus. Everybody got his promotions. And both Sashi and me have promised them that, if they achieve what they have set out to achieve, they will have the same things. So there is a wave of optimism out there. And our strategy is very clear: The market is there. We will dominate semi-urban and rural [ in there ]. Please log on, on the 20th to CNBC. [indiscernible] and me there basically to tell you where -- how our digital story is going to unfold, some of what all these guys have been doing. And we've all worked on it together.Then to give you a further illustration. It takes guts for a fellow taking over to do it. [indiscernible] Srini come to me and say, "Boss, this NPA will fluctuate like hell." And then people will say Mr. Puri went away on the NPA side. "So what is your solution? Tell me.""Well, boss, do you mind? We'll create a pro forma NPA and will create provisioning," because we had the robustness. So they created pro forma NPAs so we don't violate anything of the RBI. That also tells you Mr. Puri is not [indiscernible] selling shares. That's because NPAs are going up. Mr. Puri is here to give a long-term legacy, not short term. So they provided a pro forma and, the -- what they really wanted, provisioning underneath. So we are at some -- even if you take the -- if we don't have pro forma provisioning, [ 1 90 ]; if we have pro forma provisioning, [ 1 50 ].So I'm delighted. I want to thank all of you. I want to wish you, wish Sashi and his team the best. And I'll take any questions you have.

[Operator]

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

[Mahrukh Adajania, Analyst]

Congratulations. My first question is on collections. So you said that the moratorium collection efficiency would be 97% by end October. Will that be throughout the whole book as well, or just the retail book?

[Jimmy Minocher Tata, Chief Credit Officer]

This is the retail book, Mahrukh. This is the retail book, but you won't see any significant variation on the whole book as well. It will pretty much be around retail.

[Mahrukh Adajania, Analyst]

And the denominator for collection efficiency will be the total demand, not the collection buckets or any such [ sale ], right? This is the total demand.

[Jimmy Minocher Tata, Chief Credit Officer]

This is the demand resolution. It means what was the demand during the month and what was collected of that demand during the month.

[Mahrukh Adajania, Analyst]

Got it, got it. And my other question was that Rahul did explain how NIMs in the corporate book was good. So how do you explain the pressure on NIMs? So NIMs have declined, but the corporate book has expanded. It's just the liquidity or...

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Yes.

[Srinivasan Vaidyanathan, Chief Financial Officer]

That -- Mahrukh, that is -- this is Srini here. That's what I alluded to, that we did increase. We did see the increase in the liquidity coverage from 140% to 153%. That's part of about 15 basis points or so is what we estimate as the drag due to additional liquidity, where we have the cost of funds but with very little choices for investments.

[Mahrukh Adajania, Analyst]

Got it. And just one last question: What is the percentage of customers who have not paid a single installment?

[Jimmy Minocher Tata, Chief Credit Officer]

I didn't follow that, Mahrukh, sorry, what you...

[Mahrukh Adajania, Analyst]

What was the -- so I mean in the -- so there was a morat book and there will be customers who are not paying any installments. At -- so at the end of August -- at the end of June, you had given a figure of around 8.5% of customers who have not paid a single installment. So at the end of August in the morat book, what is the percentage of customers who have not paid a single installment?

[Jimmy Minocher Tata, Chief Credit Officer]

Mahrukh, see that the moratorium is essentially over and behind us. So whoever took a moratorium, their transactions have been adjusted and extended accordingly. I think what we have to look at now -- and they haven't really contributed to delinquents. As you know, people -- the transactions continue. The real thing for us to look at now is what is due and what is collected from what is due, which is why I think the demand resolution is really the measure. So I honestly don't have the answer to that question.

[Operator]

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

[Suresh Ganapathy, Head of Financial Research]

Yes. Jimmy, I mean, of course, you clarified this, but I just wanted to double check on a couple of things. So say, on June end, your total loan book under moratorium was 9%. Is it possible to share the 31st August number? I know moratorium is over, but you guys would know what was the moratorium as of 31st of August, right?

[Jimmy Minocher Tata, Chief Credit Officer]

Suresh, the moratorium is over and behind us. And there is not -- I think every single person has their own way of recovering this. And it's probably going to mislead, to try and put these numbers out right now. At least the real thing we should put out is what we are collecting from what is due and where our portfolio stands and where it's going to be. I'm -- I think that's what we've tried to put out as [indiscernible].

[Suresh Ganapathy, Head of Financial Research]

Okay. So let's hypothetically assume the number is, say, 8% as of 31st of August. What you are arguing here is that 97% would have paid. That is collections in October. It is expected to be collected by the end of October, right, 97% of 8%.

[Unknown Executive]

No...

[Jimmy Minocher Tata, Chief Credit Officer]

So this is the phrase I used. And the term I used was the demand resolution, and this is defined as the amounts that could be demanded of customers during a month and how much of that was actually collected during the month. That's the exact definition of what I said.

[Suresh Ganapathy, Head of Financial Research]

Okay, good. Okay, that's clear, okay. And last 2 questions is, is there any estimations of total cumulative restructured book that you can give to us? I mean you're saying 0.5% will get restructured. 2% will get restructured. Any indicative number?

[Jimmy Minocher Tata, Chief Credit Officer]

Honestly, Suresh, no. And why I'm saying no is because, whatever estimates we make, the demand for restructuring is not measuring up. So I wouldn't like to give a figure right now. It's not turning out to be at this point of time a very large or meaningful number. That said, I want to caveat everyone has till the 31st of December to apply, but at this point of time, any estimate that we have made within the bank has proven to be [ either ] conservative that I should not be mentioning as well.

[Suresh Ganapathy, Head of Financial Research]

Okay, okay. And last question is to Sashi. I mean there's a disconnect here, Sashi, because you guys are painting a completely different outlook of the market compared to what the reality. It looks like you guys are in a completely different world, in a positive way I'm looking at it, because the commentary across whether it is Arvind Kapil, Jimmy Tata, the corporate guys -- everybody is saying that there is no problem with you guys. How do you reconcile with a 25% drop in GDP in a single quarter?

[Sashidhar Jagdishan, MD, CEO & Additional Director]

See, you are asking [ really ] tough questions because we all work hard and we have sort of produced these results, but jokes apart, I think [ just maybe appreciate ]. But if you really look at it, we have assiduously built this platform in terms of what is the target customer segment, what needs to be in terms of the profile of customers that we would like to cater to, whether it is in the wholesale, whether it's in SME, whether it's in retail. I mean you heard the commentaries of the 3 gents out here. It is very clear that -- even though that there is a bit of pain which has arisen because of the lockdown, I think the segment that we are catering to, whether it's in the top-end corporates, whether it's in the top end of the SMEs, whether it's in the more top-end salaried customers, has been much better. Even in the self-employed and even the micro enterprises, I think, since we have been patronizing more in the top end of each of the sectors, we have been able to manage or navigate through this adversity. It's not that we don't -- we have not taken this. It's not that we don't have gains, but it's much, much more manageable, well within what we have -- what we had expected. Fortunately, I must also say that especially the worst segment, which is the SME segment, we have got a huge amount of relief from the government guarantee scheme. That has been one of the prime movers in getting the 9% high-risk asset to the 3% that Jimmy mentioned. So we need to thank the government for that. Of course, we've wanted more to adopt for that, but the quantum versus small that -- the customers who are probably the smaller segments, they do not opt or elect for that. So on an overall basis, we -- even though we have the appetite, we probably are covering around the 60% or 55% to 60% of the total eligibility under the government guarantee scheme.So it's all about the distribution platform. It's about the customer segments, target customer segmentation. It's all about the kind of processes, whether it's the sales process or the credit processes that we have adopted and not to mention the collection process as well. So each one of them has really worked hard during this entire period, and that's all. We have tried to nibble away where we see an opportunity. So it's not that there is no problems in the economy. It's just that we have been -- positioned ourselves reasonably well to nibble away that opportunity. And we believe that, when good times are going to be there, we will be even more well positioned to nibble away that.

[Operator]

The next question is from the line of Abhishek Murarka from IIFL.

[Abhishek Murarka, Vice President]

Congratulations for the quarter. So 3 questions. One, on the check bounce [ exchange ], what is it for you versus pre-COVID levels? And how does that compare with the high collection [ exchange ] numbers that you've disclosed on your retail book and on the overall portfolio? The second questions is on the NIM outlook. Now this quarter, your TD accretion Q-o-Q has also slowed down. And it's actually much lower than your CASA accretion on a Q-on-Q basis, so just will this support NIMs? And this coupled with your healthy NIMs in the corporate bank, will that will -- help your NIMs stabilize? And the third question is on Festive Treats. Now you mentioned that your targets are much, much wider than compared to last year, probably 10x more; and the reach is also wider. So in terms of the scale of volume and value of credit or value of revenues that you booked last year on the Festive Treats, what kind of scale-up do you expect this year?

[Srinivasan Vaidyanathan, Chief Financial Officer]

Probably I'll take the NIM, first, before Jimmy can come on the check bounce. On the NIMs, the best indicator there is how we deal -- think about how we deal with this in the ALCO, right? And so that -- [ this did impact ] our historical approach to managing net interest margins over a period of time, 1 year or 3 years or 5 years or whatever time period you choose to select and monitor that. We operate between 4 to 4.5, right? That's the kind of range at which we will operate it. And that all of the products are priced in our ALCO biweekly [ that's then released and ] price the product. That's how we handle the pricing, but we are at that kind of a lower-end type of a range at 4.1. Well, we don't give a particular outlook where it will be. We believe that is the range that you should think about, which is 4.1, 4.4. That's the kind of a range; and we've been smack in the middle at 4.2, 4.3 for the longest time. If you look at last 4 quarters to 6 quarters, we have been in that kind of a range, but there is nothing more that we do other than to manage the pricing on both sides, the deposit side and on the asset side, to be within that kind of a range.

[Abhishek Murarka, Vice President]

So basically it should sort of flatten out, or at least the decline should get arrested at these levels. These are the lower end of the band.

[Srinivasan Vaidyanathan, Chief Financial Officer]

We believe that is how we manage it to be, within this range, short range.

[Abhishek Murarka, Vice President]

Sure.

[Jimmy Minocher Tata, Chief Credit Officer]

And to answer your question on the check bounce. Yes, you are right. You would not have a good demand resolution if it did not start with a very low level of check bounce. It cannot be that you chase 90% of the people and succeeded within a month. So there has been a very good and better-than-expected response on to the deposits, and not as much as was earlier anticipated has bounced. That said, not putting numbers out there right now for various regions, if we look at what has happened across the country, there are still logistical issues. There are a few habitual issues in the very first months after 6 months of not paying. A check could have bounced but gets paid very quickly after that, and this is but some carelessness. There have been logistical issues in terms of the ECS and other [ customs ]. So let's just leave it that the bounce trend is encouraging; and it's definitely contributory to the good levels of demand resolution.

[Srinivasan Vaidyanathan, Chief Financial Officer]

I'll get to the third point that you raised, about the Festive Treats. Festive Treats has been -- I mean it's about 2 weeks or so that Festive Treats have been running. And it means the early results [indiscernible] in terms of the customer engagement, whether that's across the board, whether it be on the spend through the programs that we have with Amazon or with our other partners or in terms of the [ branch category tree ] that we have in terms of what Arvind Kapil had alluded to in terms of that operates predominantly through the branch and through the nonbranch channel too but in terms of the customer engagement on that front. However, we don't put a particular forecast number of [ where you specifically could do ] all of this; that the buoyancy is pretty good and which is what you heard from Arvind in terms of what we see on the ground in terms of the customer, [ similar ] to this kind of a program that is running.

[Abhishek Murarka, Vice President]

Sure. So just to jump back to Jimmy on the check bounce: Could you -- is it possible for you to give an idea of where it is for you versus pre COVID? At least that will give us an idea of how fast the improvement has been over September and following up into October.

[Jimmy Minocher Tata, Chief Credit Officer]

We are getting there. And there is a mean reversion and it should happen in a while, but as I said, it's an apple and orange if we are trying to compare it to pre COVID.

[Abhishek Murarka, Vice President]

Sure. And if I can just squeeze in one last quick question. So if I look at your auto and 2-wheeler book, now the commentary has been that there's been very strong momentum and mean reversion and all of that, and also the volumes are great. We've seen the volumes for September and even expectations for October, but [ the own ] book has shrunk on a Q-o-Q basis. Why is that? I would have imagined that you would have actually grown that book quite a bit sequentially.

[Jimmy Minocher Tata, Chief Credit Officer]

[ So see ], the order book had shrunk even before COVID. There was a slowdown in the sector. We had concerns, and in fact it was one of the products that we had decided that we wanted to constrain policy and go slow even before COVID. It actually was very fortuitous because we entered COVID, for that reason, with a very good order book because it was extremely tight credit parameters on which it had been built. So we've said this always, continue to say it: We will never dilute policies. And in fact, I alluded to it a few minutes ago as well, that there is demand across the board, across products. And what we onboard is where the policy can, in the view of the bank, be liberalized to the extent that something can be onboarded. Auto has been one of the products where we have found, due to the security in the product, due to our assessment efforts through our much larger than -- or larger share in the very high-bureau-scored customers as well as our internal P27-scored customers. So we have the ability to judge it well, and it's one of the products where we have opened up within more than other products.

[Abhishek Murarka, Vice President]

Sure.

[Jimmy Minocher Tata, Chief Credit Officer]

Do you want to add something, Arvind?

[Arvind Kapil, Country Head of Retail Assets]

Yes. Just to add on to what Jimmy is saying. Arvind here. I think, even though on level of readiness -- like I shared with you guys, we're launching [ auto first ], which is nothing but a complete digitized version of the entire experience for auto loans, the whole idea being not just to get more of the new-to-bank customers. Imagine the cross-sell opportunities. Imagine all my feet in street in the rural sector can probably, far easier, close digital auto loans, and including all other businesses. So it becomes a far more easier proposition to kind of expand and build on your internal customer plus external customers.

[Abhishek Murarka, Vice President]

Sure, sure, okay.

[Operator]

We'll move on to the next question. That is from the line of Utkarsh Katkoria from PGIM India Asset Management.

[Utkarsh Katkoria]

This is actually on HDB Financial, if the management can throw some light on what's happening there in terms of profitability, which is down sharply, and also the asset quality. And what are the challenges we are seeing there going forward? And if there is any change in strategy.

[Srinivasan Vaidyanathan, Chief Financial Officer]

So from an HDB point of view, like everything else, the advances growth did slow down, where there's a caution and big slowdowns of about 2% growth. That's what we are seeing. A lot of the sales force have also been directed towards collections so that we bring effectiveness in the collections area. If you look at the preprovision profit, the preprovision profit is quite robust. It is take about 300-odd crores of additional provisions in the quarter. Adjusted for that, you will see that the profit before tax will be about 10% or so up. That's the kind of number that we...

[Aditya Puri, Former MD & Director]

And Srini, also I'd like to add here RBI had told us -- and we are now going back to RBI and saying that we are enlisting, as the rest of the industry, to change. We will also revert back to the way the rest of the NBFCs account for their NPAs. So if we go by industry standards, the NPA and the profit figures would have been very different. They asked us to follow what the banks do. And these -- and they had advised us that then they will make sure the rest of the industry follows. They haven't. Both the Boards have asked Sashi, [ Umesh ] and Srini to go back to RBI and advise them that we are reverting to what is the industry standard. They have a lot of new products. We, again, have not delayed off there. So the prospects are varied, they've gone into gold loans. They've gone into microfinance. They've gone into 2-wheeler loans. They've gone into second-hand car loans, and they are looking at a few new products. And so I think growth will come back there as well because we've kept the people on. And as now the sales develop, this is what I'm saying, that if we look at it, the key is have we reached pre-COVID level running rate -- run rate everywhere. And the answer is yes.

[Srinivasan Vaidyanathan, Chief Financial Officer]

We keep the powder dry in the sense that we have a big amount of liquidity built up. 214% is the liquidity coverage ratio in HDB, so kept ready for the growth, to pursue that and [ get the sales in ]. And another important element of the capital ratio is in excess of 19%, so it's positioned well in order to get back and get that growing.

[Operator]

The next question is from the line of Ashish Gupta from Credit Suisse.

[Ashish Gupta, Managing Director and Head of India Research]

Congratulation, Mr. Puri, [indiscernible] final year [indiscernible], but this question is for Jimmy. And...

[Operator]

Sorry to interrupt, Mr. Gupta. Sir, we are not able to hear you clearly.

[Ashish Gupta, Managing Director and Head of India Research]

Yes. Is this better?

[Operator]

Sir, a little better.

[Ashish Gupta, Managing Director and Head of India Research]

Okay. Yes, the question was for Jimmy. Jimmy, I wanted to check. You mentioned the collection numbers for September. So if I were to translate it in another term, would it be fair to say that in the retail book all SME categories put together will be less than 5% of the retail book, [ SME 0, 1, 2 ]?

[Jimmy Minocher Tata, Chief Credit Officer]

Ashish, SME in the retail book is negligible but, I must say, in large measures because we don't have higher than 5 crore exposures in the retail book in any significant measure. So it didn't really follow...

[Ashish Gupta, Managing Director and Head of India Research]

No, no, in the sense that the days overdue. So if you look at 30-day, 60-day overdue numbers. So put together, those buckets will be less than 5% of retail book.

[Jimmy Minocher Tata, Chief Credit Officer]

Yes. The 30-plus varies product from product. And there will be some products where, as I did mention earlier, we would be rather sympathetic to the plight of those segments. Those segments might well have [ 30-plus of ] around 5 or so or more. [indiscernible] [ would be there ].

[Aditya Puri, Former MD & Director]

It will vary from 5%, plus or minus 1.5%.

[Operator]

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

[Kunal Shah, Research Analyst]

Yes. Congratulations for a great set of numbers. And congratulations, Mr. Puri, for building up such a robust institution; and all the best going forward. So 3 questions: Now firstly, in terms of the growth, I think we are getting back to more or less the improvement levels. We are expecting to be there within 1 or 2 months. And we have all the distribution spends, digitization. So finally, where should we see in terms of the kind of growth momentum and kind of giving up the market share within the industry? So that was the first. Second one, with respect to the current account discipline guidelines, which have been there now with more than 2 months. So what is the kind of benefit that we are seeing with respect to those loans?And thirdly, in terms of the provisionings. So I think the overall collection efficiency or demand resolutions have been at a much better level. So with respect to the contingency buffer which we have created, should we say like we are more or less [ done with this ], of maybe having [indiscernible] 2,300 crores and going forward there would not be much need of contingency further given this kind of developments which have been there for us in terms of collections?

[Unknown Executive]

[indiscernible]?

[Sashidhar Jagdishan, MD, CEO & Additional Director]

So -- yes. On the first question. Kunal, we normally don't give a guidance, but I think the kind of narratives that Rahul and Arvind both have spoken about -- I think it's quite evident and clear that the trends are encouraging. And it's in -- on an increasing trend both from a retail and SME perspective. Yes, you would have a bit of a tepidness in the[Audio Gap]of the year. So I think, as Mr. Puri also mentioned briefly, you need to now look at how we are tracking the growth sequentially from now on and largely from the retail and the SME stack. That is a very key indicator. We are very quite cautiously optimistic that the GDP is going to be much, much better in the second half of the year, which is what we all believe from the kind of indicators that we are seeing at the ground level. And I think whilst -- on a year-on-year basis there could be a bit of a base effect for a couple of quarters, but on a sequential basis the trends will tell you that we are reasonably robust and strong vis-à-vis the what the industry is going to do.As regards market share, naturally we are going to be higher than the market or the industry. We will continue to be nibbling away that extra share. That's on the growth part of it. As regards on the current accounts, I think, as you know, the entire objective of the current account guidelines is more from a risk management perspective. Considering the fact that we are one of the largest working capital banks in the country, in addition to the fact that we are a large cash management bank, I think there will be some areas where we will gain and some areas we may have to sort of give up some of the shares. I think initial primary -- essentially assessment are the same. It appears that we will be more or less on a square-ish basis. It's not slightly positive. So that's where we are. And we also have clear-cut micro-level strategies between the corporate banking, the wholesale banking team and the SME team to see how we can get some slight advantage in terms of gaining that extra share of the current account [ and hence ] also which means that we will also get an extra share on the funding side as well. So suffice to say that I think that it's not going to be a negative for the bank. It probably will be on a square basis, or we will be slightly positive in the future. The third aspect of it is -- what was the third question?

[Unknown Executive]

Provisioning.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

On the provisioning, yes, Kunal, I think the last 3 quarters, whether it's the March quarter or whether it is the June and the September quarter; and in addition to that, the 1,500 crores of floating provisions that we are carrying on the books. As Mr. Puri also mentioned, from a 195% as the total coverage all put together, even if I were to -- if the NPL -- if -- the supreme court ruling, that's come about and we are able to continue the way the IRAC norms of RBI is regularized, then it will come down to a 154%, which is still a very healthy number. I think we see -- we believe that it's we are -- we have sufficient cushions to buffer any future contingencies that may arise in the future, but if there is an opportunity when things are looking good, as we have done in the past, if we believe that we need to do more of countercyclical provisions, I think we'll be more than happy to do so.

[Kunal Shah, Research Analyst]

Okay. So yes, I think that's for the -- that's on that. So in terms of the credit costs of [ really 1 40, 1 50 ], maybe 40 bps is still from contingency. So still would we look towards it maybe given a very, very strong profitability which is coming in at the operating level? Or maybe we should scale back the operating to somewhere around 100, 120-odd basis points.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Kunal, if we have -- if the economy works to move up and if we have the ability and if we want to provide countercyclical floating provisions based with the analytics, based with the expected loss on the standard book, even if it is in the region of 1.4% to 1.5%, we will not be apologetic about it, but on a core credit cost basis, excess of -- or minus of [ coring provisions ] or the contingency provisions, I think it will be much less.

[Operator]

Thank you. Ladies and gentlemen, due to time constraints, that was our last question. I now hand the conference over to Mr. Srinivasan Vaidyanathan for his closing comments.

[Srinivasan Vaidyanathan, Chief Financial Officer]

Okay, Litan, thank you. Thank you, Mr. Puri. Thank you, Sashi, for handling the call. We appreciate the participants dialing in today. If there are anything more that you need to know, Ajit and I are ready to talk to you over a period of time, obviously if there's anything more we can say there [indiscernible]. So thank you very much. [ We'd like to hang up now ].

[Operator]

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

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thank you. Thank you all. Thank you very much.

[Srinivasan Vaidyanathan, Chief Financial Officer]

Thank you. Goodbye all.

[Sashidhar Jagdishan, MD, CEO & Additional Director]

Thank you. Thank you for a wonderful...