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HDFC Bank Ltd
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Ladies and gentlemen, good evening, and welcome to HDFC Bank Q3 FY '19 Earning Conference Call, presented by Mr. Sashi Jagdhishan, Chief Financial Officer. [Operator Instructions] Please note that this conference is being recorded.I would now like to hand the conference over to Mr. Jagdhishan. Thank you, and over to you sir.
Good evening, ladies and gentlemen. Thank you so much for participating in the HDFC Bank's Third Quarter Conference Call.Let me also introduce 2 of my colleagues: Jimmy Tata, who's our Chief Risk Officer; and [ Shinwad Vaidyanathan ], who's joined us on the 1st of December. He's a career city banker with 27 years of experience, mostly in countries in -- Singapore, Hong Kong and New York. He comes in with a wealth of experience, and he should be a great asset to the institution.Let me first hand over this mic to [ Shini ] to talk about the key aspects of the third quarter financials.
Thank you, Sashi. Good evening all. We can first start with the income statement for the quarter.The bank's total income for the quarter ended December 31, 2018, at INR 30,811.3 crore, grew by 26% from INR 24,450.4 crore for the quarter ended December 31, 2017. Net revenues for the quarter amounted to INR 17,497.8 crore. Net interest income for the quarter was INR 12,576.8 crore, demonstrating a growth of 21.9%. The core net interest margin for the quarter was 4.3%.Other income for the quarter amounted to INR 4,921. Fees and commission income, constituting 91.8% of the other income, grew by 27% to reach INR 3,646.8 crore. Breakup of other income, broadly: commission grew by 27%, as I said before. FX derivatives came down a little, negative 6.7; profit and loss on investments up by 82.7%; recoveries and miscellaneous up by 29.3% for a total of 27.2%.On the expenses side, operating expenses for the quarter were INR 6,719.3 crores, an increase of 17.2% over the corresponding quarter of the previous year. Core cost-to-income ratio for the quarter ended 31st December 2018 was 39.5%, as against 41.2% for the corresponding quarter ended December 31, 2017. Total provisions were INR 2,211.5 crore for the quarter -- for the current quarter as against INR 1,351.4 crore for the corresponding quarter in the previous year.Profit before tax for the quarter ended 31st December 2018 was up 20.7% to INR 8,566.9 crores. Net profit for the quarter grew by 20.3% to INR 5,585.9 crores.Some key balance sheet items. The balance sheet size at December 31, 2018, was INR 1,168,556 crore as against INR 949,079 crore as of December 31, 2017. Total deposits as of December 31, 2018, amounted to INR 852,502 crores, an increase of 22% over December 31, 2017. CASA deposits grew at 13% with savings account deposits at INR 235,179 crore and current account deposits at INR 111,905 crore. Time deposits at INR 505,417 crore grew by 29% over previous year, resulting in CASA deposits comprising 40.7% of the total deposits as of December 31, 2018.Total advances as of December 31, 2018, were INR 780,951 crore. Domestic advances grew by 24.1% over December 31, 2017. As per regulatory Basel II segment classification, domestic retail loans grew by 24% and domestic wholesale loans grew by 24.1%. The domestic loan mix, as per Basel II classification, between retail versus wholesale was 55% to 45%. Overseas advances constituted 3% of total advances.Moving on to results for the 9 months ended 31st December 2018. The bank earned a total income of INR 85,393.5 crore as against INR 69,912 crore in the corresponding period of the previous year. Net revenues grew to INR 47,908.4 crore as against INR 40,428.9 crore. Net profit for the half year (sic) [ 9 months ] ended 31st December 2018 was up 19.7% at INR 15,193 crore over the corresponding half year (sic) [ 9 months ] ended last year.With regards to capital adequacy, the total capital adequacy ratio as per Basel III guidelines stood at 17.3% as against the regulatory requirement of 11.025%, of which Tier 1 capital adequacy ratio was 15.8%. As of December 31, 2018, the bank's distribution network was at 4,963 banking outlet and 13,160 ATM across 2,727 cities and towns. 53% of the branches are in semi-urban and rural areas. Number of employees increased to 96,425 as of December 31, 2018.On the asset quality front, gross NPAs were 1.38% as against 1.33% as of September 30, 2018, and 1.29% as of December 31, 2017. The coverage ratio stood at 70%. Net NPAs were 0.4% as on December 31, 2018.The bank held the floating provisions of INR 1,451 crore as of December 31, 2018. Total provisions, which comprises specific provisions, general provisions and floating provisions, were 115% of gross nonperforming loans as of December 31, 2018. That's the prepared notes I had. Thank you.
Happy to take on question and answers.
[Operator Instructions] We take the first question from the line of Mahrukh Adajania from IDFC.
On slippages, could you quantify those? And also if you could give some segment-wide flavor on how much was agri, retail and corporate, if there was any. And also, just on the agri piece, given that more rewards have been announced, will the slippages in agri continue to rise over the next 3 to 4 quarters? And also, if you could give us some color on the writeoff policy on agri loans.
Right. Thank you. First, the slippage ratio. The gross slippage ratio is about 2.04%, but ex agri, it's about 1.7%. So that's the slippage ratio. In terms of the asset quality during the quarter, let's split into 4 parts. One is the corporate. One is the SMEs. The second -- the third is agri and fourth is retail. I think I'll just combine both the slippages and also the credit costs so that's more or less -- the way we look at it, largely the charge to ENR is more or less stable at about 2.8%, 2.9%. And when you really look into the elements of it, in fact, barring agri, most of it has been stable. If not, in certain cases, it's been actually coming down. So agri, we have seen a bit of a spurt in terms of the charge to ENR, and that is something that all of us know why it is so. Since you've just alluded to the fact that a lot of new states show -- went into elections and [indiscernible] parts, the 3 states of Rajasthan, [ participation of ] Chhattisgarh have an announced waivers. And we also know that there's in general elections coming in, the bank has taken slightly more conservative stance; and have provided contingent provisions to the extent of around INR 335 crores, the large part of this primarily on account of being towards anticipated losses arriving out of such waivers going forward in the agri portfolio. So we do anticipate and we do expect a bit of a spike in the agri portfolios. It's a combination of the fact that in already 5 states have -- 3 states have announced -- 2 other states have announced they've now put the guidelines in place. There are certain states of Kerala, Maharashtra where there are some natural calamities, the prices of onions have actually come down sharply. So we may not see too much of an impact in the March quarter, but certainly from June quarter onwards, there could be a bit of a rise in NPLs. And that is exactly why the bank has taken a precautionary measure of providing conservatively contingent provisions during the quarter.
Could you quantify the slippage, actually the total slippage number, 2.04%?
2 -- yes. You want to know the -- in absolute terms, 2.07%. It's about 3-9-9-9 -- so 4,000 crores.
Okay. And just the write-off policy on agri.
Write-off policy on agri. We -- Jimmy, [indiscernible].
Historically -- this is Jimmy. Historically, we have not been writing-off NPLs in agriculture. And given the retail nature that these products have, there will probably prospectively be some policy coming in, which we would be introducing, which may involve some levels of write-offs, but historically there has not been a write-off in that portfolio.
So because it's only in the [ last since of ] June of 2017 that we started to see spike in the [ NPL-ed cards ] of the farm loan waivers. And we realize that these are certain things -- these are all timing differences where we will see a bit of a spike in or spurt in the NPLs. It should sort of -- over a period of time, all these things should come back, which is a reason why we have not sort of exercised a write-off policy, as Jimmy has just mentioned.
But going forward, given that there are instances and repeat instances that's occurring in these products, we may be introducing a policy because the recoverability -- our policies always are based on recoverability of the advance. And for that reason, we may be introducing.
Next question is from the line of Rohan Mandora from Equirus Securities.
I would like to understand. Are there any segments on the [ sell side ] where we have slowed down cautiously in terms of growth? And what are the reasons for the same, if there are any? And also, are there any segments where incrementally we see a challenge in gaining market share and growth in those segments would reflect more of growth sort of in line with the industry growth rate?
Frankly, from a sectoral perspective, there's not been any significant change to our outlook, and our growth has been pretty much stable across sectors and across segments. Having said that, we do see a bit of a slowdown in the two-wheeler and the four-wheeler segments primarily not because of we had to slow down but the underlying sales have actually started to come off significantly. So we are probably slightly faster than that, but yes, relative to the prior quarters. Or you will see a bit of a tepid growth in auto loans. Two-wheeler, maybe you'll start to see that going forward, but yes, that is -- these are one of the areas where we are seeing a bit of a slowdown in the underlying sales, and hence, it could impact on the financing part of it as well. The third area where we are seeing a bit of a -- or we did see a bit of a slowdown until probably recently is the loans -- is property segment. Not because of anything. I think our portfolio has been pretty very stable and, if at all, even better than what we had in the past, but we were seeing pricing pretty much below acceptable threshold level. And I think we see certain corrections happening in the recent past. With the NBFC staying away from market, I think we've got the pricing back. So that, hopefully, will correct itself going forward.
Okay. Anything on the business banking side? Because [indiscernible] growth is only 10%. So just trying to get some color on that.
The -- so there are 2 parts to it. The business banking, there's a large ticket and a small ticket. Small ticket is what we call of -- what we call the emerging enterprises group within our own division. That actually is very granular. And that's been growing pretty stable and very well seen both from a business perspective and even from a credit perspective. It's been pretty stable. The areas where we are not growing is on account of the agri commodity, which is where we are...
[indiscernible].
That we -- the areas where we are not seen is on account of the agri commodity. And that is where we did have a bit of a concern last year, which I had been -- we had been mentioning in the previous calls as well. There was a bit of a spurt in the gross NPL numbers in business banking around December of last year, et cetera. And that's, fortunately, corrections have happened and it's now pretty much stable now. We probably should see the -- even the -- that particular portfolio getting cleaned up in due course.
Sure. And sir, lastly, on the gross income side, any color? Like, Q-on-Q, we have seen around 11% growth. So what was the key drivers of that?
Sorry. Come again?
Sir, on the gross income side, sequentially the growth is 11%, year-on-year 27%. So what were the drivers of that?
Of on fee -- on the fee income.
Yes, yes.
On the fee income, okay. The primary driver in fee income both year-on-year and sequential primarily has been 2 areas. One is the payment business. It's payment business has seen pretty much buoyant numbers in terms of actual spends, both in acquiring volumes and issuance volumes ever since demonetization, and that's continuing to surprise us in terms of the trend continuing even this year. It surprised me as well. So that's been giving us a fair amount of both issuance income. And also what has been happening is there has been now better spreads. In fact, acquiring business is normally a loss feeder. That losses have been steadily coming down as well. So the combination of higher spends on issuance side and hence higher incomes plus higher volumes on the acquiring side plus lower losses on the acquiring business has helped us to have a decent amount of growth in the fees both on a year-on-year basis and sequential basis, [ et cetera ]. The second element which has rarely contributed to our fee growth is on the cash management side. And I think we have reexamined all our transactions and our transaction costing, and that has sort of helped us to start getting in a bit of a lift in our wholesale fees as well.
Next question is from the line of [ Tanav Gupta ] from [ Finlasa Life Insurance ].
Am I audible?
Yes, you are, barely but...
Yes, yes. So my -- I have 2 questions. Firstly, on the deposit side, we've seen a strong growth in time deposits. So could you give us some color on whether these are more retail and granular or whether this is more towards the wholesale downside?
So this has been the bank's stated policy to start focusing on granular deposits right from January of 2018. If you read to -- our websites and card rates, we have been -- actually been one of the pioneers to push up the retail, granular rates, especially the 1-year -- around the 1-year, 2-year buckets. We have been focusing on that. And we realize that it's a simple act that sometimes we maybe use to ask our customers to put our deposits in us. People assume that we never offer good rates on the [ MD side ]. So I think that has also sort of helped us right from January because that's been the stated as the policy to be always liquid and more liquid than [ acquired ]. So if you really look at the press release, I think [ Shini ] would have alluded to it and [indiscernible], where -- we been having a liquidity coverage ratio of almost 122%, which is far higher than the requirements. While this will have a bit of a drag in the margins, the bank, [ and we have to ] was -- pretty much -- had accepted this and probably said that we are happy to live with a bit of a drag. And this is thing that -- if you have heard Paresh in the previous calls, he would have mentioned that as well. So we continue to flow our deposit mobilization strategy. In fact, that is quite embedded in our business model inside. In fact, we [ will see the side ]. One of the key metrics that we use is to the self-funding ratio [indiscernible] deposits managed as CASA, even time deposits. So bulk of the 29% growth in time deposits now in this quarter is primarily retail in nature. And one of the reasons why you see the accretion for savings account during the quarter is not too much but you have seen a bit of a dip in people putting in [ MDs ] from their savings account. This is something that we are comfortable but because -- notwithstanding the fact that we are seeing with -- the yields have also been moving up. So as long as our margins are maintained or even slightly better, I think we are not too worried about a lower CASA ratio.
All right. My question is not relating to the lower CASA ratios; more towards wholesome banks, net income banks outbidding others in terms of pricing for [ dough ]. So that's where the question was coming from. Anyway, Sashi, I would like to -- I think, if you could just throw some light on the performance of your subsidiary HDB, how their growth has been, how their margins have been trending [ to a ] certain degree.
So we did mention to you in the second quarter the margins would, should pick up -- picked up a notch because, I think, the cost of funds across the system has gone up, especially for NBFCs. So the margin has come down from the 7.2 level to about the 6.7 level. The growth rates in the AUM or advances have gone up by about 26%. It's now about 50,000 crores. And gross NPL levels are about 2%, 2.07%, which is similar to what he had declared December of last year.
We take the next question from the line of Monika Agarwal from Bernstein.
Yes. Sir, my question is on the IT spends. So can you spend -- or can you throw some color on how much of our total expenditure would be towards IT expenditure?
So we do have a lot of metrics, and this is one of the key metrics that we track is what is the percentage of net revenues that I have IT spend. It's not just capital but for my running expenses as well. That's about roughly around the 3% to 4%.
Okay, so 3% to 4% above -- of net revenue, you are saying.
Yes.
Okay. And I see, this quarter, you have added around 138 branches, so can you kind of kind -- just throw some light on where do -- have we added these branches and what's the strategy going forward?
No, we had always mentioned that we have the appetite to add about 150, 200 branches every year. So what happens is, normally, when you plan, then you have to go for the right size then have the right legal -- find the right properties, have the right legal documents in place. And then you start -- once the legal agreements are in place, then you start the work, the renovation, et cetera. Frankly, the actual work involved is just about -- very short. It's the initial process which takes a long time. So invariably, we have seen, barring a few years, otherwise, normally the branch expansion has been always rear ended towards the third and fourth quarter of the year. So this is just one similar kind of an event wherein we have just -- people have pushed more branches during this quarter. It's still roughly about -- incrementally between semi-urban and urban. I think 50-50, that's where this is.
Next question is from the line of Ojas Khicha from Axis Capital.
So my question is specific to CASA growth. I mean, when we look at it, it's the CASA growth is lagging the aggregate deposits growth for last 5 consecutive quarters, I mean, leading to a dip in CASA share, which is now back to predemand levels. I mean, I just wanted to get your understanding. Are we facing and is there a rise in competition intensity? Or what is the bank's strategy to shore up the CASA levels?
See, I'm happy you have seen 5 quarters because, if you see, this is exactly when we started to push up our time deposits strategy as well. So if you -- there are 4 key things that we measure. One is the gross credits in -- coming into the accounts. Two is how much of these debits go into paying off our EMIs. Three is how much of the debits go into -- moving into the -- our own time deposits or distribution products, such as mutual funds and the like and insurance because we distribute that. And last but not least is where it goes to other banks. So the concern would be if the last one, is if I see an increasing trend out there. The reality that is happening is that we have seen over the last 5 quarters the second piece where people have been dipping into their savings account, which we are pretty much okay with because, obviously, at some point in time, once -- they will -- the savings and the [ timing ] flows will continue to catch up with us. We have seen the increased or enhanced sales to both IR, frontline staff to ask customers about keeping deposits because we are better priced in terms of [ need ] deposits, as we speak, on the retail side. So right from Jan of 2018 till now, I think we have seen a huge amount of deposit growth, especially in the time deposit, which is out of the so-called CASA. And that is the reason why we are seeing not such great growth rates or absolute amount of accretion that you otherwise would have seen. We are not too concerned about that because -- 2 things. Number one is we track to ensure that the gross credits, the debits going into paying my EMIs and card fee, the -- and debits getting to [ FDs ] and other third-party products, these are actually increasing within the bank. The one which is going outside the bank has been pretty much stable, if not -- it did come around in the previous quarter and the -- slight inched up during this quarter, but having said that, it's -- we're not overly concerned about that. The second one is it will have cost implication. As long as the -- we've had -- we've been able to pass on the costs of -- higher costs of funds because of the high -- the time deposits into better -- and have better yields as well and, hence, maintain our margins, we're all right with that.
Next question is from the line of Nilanjan Karfa from Jefferies.
A couple of questions. On this agri portfolio, right, since [indiscernible] mentioned that we will -- now moving forward will have perhaps a writeoff policy as well, I'm just wondering. Does it -- what will be the strategy of doing agri going forward? Because in itself, I think, the IRR of that portfolio will have been a little lower. There's not a lot you can actually charge on the top line, right. Please, if you can elaborate what kind of customers you would perhaps be looking at, ticket sizes, et cetera, et cetera. So that will be my first question. Second will be on this acquiring business. You mentioned that the losses have been coming off, so I just want to understand what is actually driving that. And finally, you did allude to this agri commodity business where NPLs have been coming off. So would that mean that, between the manufacturing MSME versus trading MSME, both the segments are now doing much better than in the past? Those will be my 3 questions.
Okay, let Jimmy answer the credit part portion of it. And then I'll answer the payments portion. Go, Jim.
So agriculture, firstly, is largely directive lending, so there is a requirement to do it. The portfolio return, however, at a gross top line level is not...
Healthy. It's pretty healthy, actually.
You're alluding to actually there, it's quite good.
These are not the kind of rates that one -- probably a public sector will get. These are rates that are decent between -- anywhere between 10% and 12%.
So the...
So the -- sorry. Let me just kind of stop you there. I mean, these are farm loans, right, pure farm loans?
Yes, yes, yes.
Yes, yes, yes.
And basically what you are saying is even within that there is a huge amount of disparity between lending rates of PSUs and, let's say, HFC bank.
Yes.
And will that be dependent on the ticket sizes as well; or the type of farmer you're talking about, large farm holdings, for example?
The biggest differentiator in the rates of PSU and private banks would be on account of the subsidiary's [ receipt ]. So that would probably account for the biggest differential. The loans are typically given based on product programs that are in the bank and reviewed periodically, not even so periodically [ quickly ] of late. The loans are extended to farmers from very small to large. It depends on the permissible lending allowed as per the scale of finance. So all these kind of regulatory parameters enter the -- for your farm loans. We obviously follow all of them. And therefore, the size and ticket size of the loan can vary from pretty small to pretty large, depending on the size of the farm and the crop involved.
Okay, so if I hear you right, you're saying we do have the capability of changing portfolio yields to account for, let's say, LGD in that portfolio. Maybe earlier, we were factoring in just a diminution in value...
This is...
No, no. We did not say that, just the -- yes, Jimmy
I was alluding to the differentiated ticket size that there should be and the wide range of farm products that, therefore, may be offered. We typically offer for most agricultural crops and the agricultural [indiscernible] activities that are prevalent and permitted for us to finance. It is based on the scale of finance. And it is based on the need-based requirement, depending on the farm. There are also term loans given out to these people for developmental activities for those farmers. There are various products. There's a suite of products for this. The ability to adjust portfolio yields to react to LGD is not there to a very large extent because these are typically term loans and cash credit advances. So I didn't make any reference to flexibility on pricing midway through a transaction, and it should not be assumed.
Right, okay. On the acquiring business?
Yes. On the acquiring business, if you recall, around the time of demonetization, especially on the debit card side, the industry and the government had sort of agreed on what will be the cap on the MDRs and what will be the cap on the issuance in the change. So effectively, for the first time, the debit card transactions became a bit positive -- went into positive territory at that point in time. Now ever since demonetization, the proportion of your debit card volumes have been increasing tremendously, both -- and we being the -- one of the largest acquirers, we are also acquiring a large part of the debit card transactions. So since that proportion is moving up, these losses have been coming up.
And so unit cost basically is coming down because of rising volumes.
Yes. See, the -- absolutely. Okay, number one is the starting point of the debit card is now having a positive [ script ]. The mix of debit card volumes is increasing on the acquiring side. That's the -- contributing toward declining losses over the period I'm talking about.
Right, okay, okay. And finally on that agri commodity...
What exactly regarding the agri commodity?
No, no, I -- so I'm just wondering. This agri commodity would mean the trading part, the trading segment within MSME. Is that what you would allude to?
Processing and trading, yes. Most of the people who trade do some processing activity as well. So yes, this does refer to the processors and the traders. There are -- again, we have products out for them..
See, let's face it. There's a couple of...
[indiscernible]. There have been...
[indiscernible] the soyas and a lot of these commodities where you have seen massive drop in commodity price.
Yes. So there have been commodity risks that has got involved there. There have also been certain pockets and certain markets where some of the practices have not been the best. We have called out those people. We have even reported some of them to the authorities, as required. And we do have a fair insight now as to what requires to be done to select the good ones and deselect the bad ones. So there's a very large good and performing part to this portfolio as well, so rather than throw them maybe out with the bad quarter, there is a matching behind it, and we do have insights on these, yes.
Right. Do you think the portfolio quality is getting better in that segment...
Nilanjan, can we just allow -- because I believe we just got a hint that a lot of other people are waiting for their questions. Can we come back to you after they finish?
Yes.
Thank you, Nilanjan.
[Operator Instructions] Next question is from the line of [ Mune Katan ] from [ Reliance Securities ].
Sir, on the business banking segment, just want to check. Are you seeing any material improvement at the ground level? And secondly, were there any portfolio buyouts by the bank last quarter?
No, we have not bought any business banking portfolio, if that is what you're alluding to, no.
Even on the retail banking side, is there any buyouts?
No. Other than home loans that we buy, we buy every quarter from HDFC Limited. And this time also, we bought about 6,200-odd crores of loans from HDFC Limited. That's the only buyout that we buy from outside. So what is the second one? The ground level means the ground-level feedback on business banking. What for? Or from what [indiscernible].
On the -- broadly on the asset quality perspective, are we seeing improvement at the business level for these SME entities?
It's a very wide spectrum. One is -- again, so you're talking across industries, across activities. You're talking across the service sector and trading as well. So are we seeing -- are you talking about our portfolio?
Yes.
Okay. So in our portfolio for business banking, we are seeing it in a relatively steady state now for some quarters. So we haven't seen anything significant. I'm not -- I didn't get a bigger detail from your question, so I wouldn't know what else to add to that. Are we seeing a deterioration? No.
Next question is from the line of [ Chatin Kay ] from [ Alpha Capital ].
My question is on the whole industry level and not just HDFC Bank. There are some news article which is some of ILFS SPVs will not be able to pay up. And some rating agencies have downgraded them. So how do you think that will impact the industry?
Sorry. Can you repeat the question? You -- I heard about ILFS. What was it?
[indiscernible]...
There are some news articles. It says, some of ILFS special-purpose vehicles, SPVs, they won't be able to pay up. And they are being put into [ D ] by some rating agencies.
Right...
Earlier, they were just holding [indiscernible] only that was considered to be in trouble. And SPVs were considered fine, but now news articles are saying that does -- these things also, so I was just wondering whether this will have an impact on the industry and how -- I mean, if some of the SPVs don't pay up, will this have an impact on the industry?
Frankly, industry, I'm not an expert on this one. As long as -- you should be happy that HDFC Bank has virtually nonmaterial, negligible or virtually 0 exposures to that currently. [ Any way ].
Next question is from the line of [ Seba Bathra ] from [ Fi Kinect ].
My question is on your exposure to NBFC and HFC. So split into 2 in your disclosures for Basel III, it was broadly INR 56,000 crores -- INR 57,000 crores as at March 2018. How much is it now? And what is your stance on large housing finance companies and middle-size housing finance companies which are broadly less than INR 25,000 crore and the retail NBFCs? This is for taking fresh exposures to these.
[indiscernible].
[indiscernible], yes.
Yes, yes. Yes. Jimmy?
Fresh exposures to NBFCs and to housing companies. If you recall, this was asked last time as well. And we are cautious, but we are open to exposures on NBFCs. We do obviously look at parentage. We look at the portfolios. We look at the business models behind these portfolios. We look at the consistency of flows. We look at several things. I don't want to recount it, but we are open to...
Sure. So you're taking -- okay, sorry. Please go ahead.
That said, there hasn't been...
Material change in our exposures.
Any material change in the portfolios, in the exposure. So there will have been some ins and some outs, but there's been no material change. Are we cautious? Yes, we are. Are we negative? Not particularly. We select.
Okay. And your cautious stance would arise out of all the liquidity concerns. If -- you said you're possibly the -- in page-wise, the longest lender to the sector. And your own asset quality is excellent in that subsegment as well, so when you say cautious, it comes from the environment or some other changes that you're looking at some of these NBFCs.
Naturally from the environment and not necessarily due to incidents, but since even before incidents we have obviously paid attention to the environments. But whether it is liquidity for some, portfolio for the others, consistency for others, it varies. We have an individual assessment in each and every case, so I wouldn't want to single out what exactly we're cautious about across the portfolio. It varies from case to case.
Okay. So you are taking selective fresh exposures.
It's selective. And selective is the word, yes. And it's not -- to mention what you said about the quality, we don't have anything untowards...
Would it be safe to assume that you're way below your internal sectoral image for both NBFCs and HFCs?
We are below. We're below...
Will it be well below like you'll have 20%, 25% cushion? Or are you just about...
I have headroom. I don't think I can give you numbers, but we have headroom.
Okay. Can I ask one more question, or should I come back?
So please -- there are a lot of people in queue. Please, can we first finish up with the others? Thank you...
Perfect. [indiscernible], yes.
Next question is from the line of Adarsh from Nomura.
All our questions were answered. Thanks.
Next question is from the line of Saurabh Kumar from JPMorgan.
Sir, on your auto portfolio, how would the loan-to-value at origination, how would this -- have trended on the commercial vehicle and the car portfolio over last 2 years.
It is stable. Once again, the loan-to-value ratio, based on our policy, moves within a range and a band. And that range and band obviously depends on the other attributes of the borrower in terms of the overall credit quality, but it's stable. We haven't made any changes.
But sir, for cars it should be at around 90% levels today. Or...
That would not be -- not so much in any single [indiscernible]. We have done nothing at that level, but it's not the norm.
It's low.
It's low.
Okay, okay, okay. And for CVs, sir, should it be between 65 to 70 or higher?
There's a wide range in CV because CV as a segment moves from the large fleet operator to a first-time user. So I'm not sure who you are referring to, but again within those, the LTV is one of the components that enters into the risk equation. Each case is underwritten, or it is algorithmically underwritten and preapproved. And therefore, the LTV is just one of the ingredients that enters into the equation. There's a range.
Next question is from the line of Manish Karwa from Deutsche Bank.
Sashi, I just want to know, what would be the debit card fees and credit card fees out of the total chain? And how much would they have grown over the last year or last few quarters as such? Because your loan book on credit cards has been growing very fast should we expect that there's proportionate rise in fees as well out there?
So I think -- one second. Let me just -- okay. So the debit cards as a proportion of total is not even...
[ Yes, 6 ].
Is about 7%, okay.
Of your total fees, total core fees.
Yes, yes, yes, core fees. And your credit cards is being -- it is roughly around 25%, 30%, yes.
Okay. And has this number grown by a bigger proportion than your overall fees compared to last year? Or has it been -- the proportion of fees has been going up in this segment. And is it a very big number change?
I would not say it is any significant change in the debit card, but the credit cards, we are seeing a bit of a change in these because we are market leaders there. We are slightly higher proportion of credit card fees, I think, yes.
Okay, so you're saying 25% to 20% of those fees are from credit cards.
Yes.
Yes, both on the acquiring and the issuance side, both of them together.
next question is from the line of Mithun Soni from GeeCee Ventures.
Just want to understand, would you be able to share what will be -- our gross NPAs be excluding the agri part?
Sure. It is -- ex agri, it is 1.1...
1.1...
1.1 -- roughly 1.1.
And what was it in the second quarter versus last year? Will you be able to share that?
So second quarter was 1.1. Last year was also 1.1.
Perfect. And just to reconfirm. You said the INR 335 crores of contingency, what you have made, is made during the quarter.
Absolutely.
Next question is from the line of Dhaval Gada from DSP Mutual Fund.
Just one question. Could you reconcile the stock of floating provision at the end of the quarter? I remember you saying a similar number at the end of last quarter...
Yes, we've not added any to the previous quarter. It's roughly, I think, 1,450...
[indiscernible].
INR 1,451 crores. It's there. You can see there in the press release as well.
Okay. And just one more question. Could you comment a little bit on the early bucket asset quality trends in the commercial vehicle portfolio over the last maybe 2, 3 quarters, how that has been shaping up?
Let me see...[Audio Gap]
Yes, yes.
Early-bucket delinquencies across most retail assets are stable and, if anything, in some portfolios, actually a little better, but let's call it stable. Let's call it stable.
We take the next question from the line of [ Seba Bathra ] from [ Fi Kinect ].
Yes. Sorry. My question was on, in the [indiscernible], have you done [ or ] expected large exercise on [ your latest ] segment? And on [ 1 phase, 2 phase ] fees we want to provide, would you [indiscernible] or higher than what RBI provisions...
No, you have to repeat. The question has been very muffled, please.
I'm really sorry. So in there, so -- you're supposed to provide for your loans. This is expected last approach...
That's right.
It's -- so just trying to ask that -- if you have provisions as per that approach, would they be higher or lower than your existing provisions which...
So we have many instances in the past as well that the stage 1 and stage 3, there shouldn't be too much of a difference between what we are following in the Indian GAAP and the U.S. GAAP. Stage 2, the only difference is you have to provide through the cycle. I mean, it is not on an annualized basis that you are to provide. So to that extent, the Ind AS stage 2 provisions, which is in a very crude manner the ones which are around the 30 DPD to the 89 DPD -- I mean, I'm just giving a very crude range -- will have slightly elevated provision then what it would be in the Indian GAAP. So even today, we have been providing floating provisions and general provisions. If you really look at it, the EL that is acquired on our standard portfolio is equal in -- to or well within what we are carrying to floating and general provisions. So the only difference now is going to be that the stage 2, which we normally do EL on an annualized basis, we will now have to do only for that portion, will be on a -- through the life cycle. So you will have to -- if the average duration is about 3 years, then you have -- some people have 3, et cetera. So that will be the only change from our perspective on credit provisions.
So you're assuming that stage 1 provisions will be standard as a provision and you will not have to double provide for those.
Yes, yes, absolutely.
There'll be a favorable RBI regulation on that.
No. I think, whether -- I'm not bothered about -- see, ultimately, we'll have a certain stock when we migrate. I'll -- migrating principally into the pure Ind AS methodologies, so I'm not bothered about whether RBI will allow me to continue, et cetera. I know what it is. I'm just trying to say that -- on an apple-to-apple basis where would the differences be.
We take the next question from the line of [ Viraldi ] from [ Moneyvid Portfolio Manager ].
Sashi, I just had a question on the asset quality. Now if I look at the GNPAs right now, they are at about 1.38%. A lot of our growth recently has come from unsecured business banking. And you've seen a bit of movement on the business banking side. Plus, there continue to remain some challenges on the agri portfolio, so just wondering if this ratio could deteriorate further. And is there a possibility of some pullback on growth on the agri portfolio?
So if you really look at -- I think I just mentioned to someone just in the recent past that the gross NPL numbers, the...
[indiscernible]...
In fact, these have been pretty much stable all through the year, right, from last December to now. So -- but save that, even though in absolute terms, you may see a bit of a change or net addition to the gross NPL numbers, obviously, the portfolios in the underlying respective products have also been increasing as well. So obviously, we are in the business of commercial banking taking risks, et cetera. It's not that it's going to be 0. I think this is well within -- it's pretty much stable. It's -- that was a big thing in this kind of environment. Jimmy, you want to add something?
Yes. I just add that you alluded to the business banking and the unsecured [indiscernible]. They're in the same breadth. So just to clarify. Business banking is entirely secure. Unsecured growth has been there, and that's been largely in the retail book. To a large extent, this is because unsecured products have lent themselves much better to new methods of assessment. And the underlying assets themselves have slowed down to create a market for asset-based debt. So that's where you will see the growth coming more, in the unsecured, but the bulk of the unsecured growth is in the personal loan book. And that's holding up well.
And just one small clarification. The sales commission disclosure that you guys give on the P&L, is that on an accrual basis or a payout basis?
It's on an accrual basis.
Thank you. Well, ladies and gentlemen, due to time constraint, that was the last question for today. I would now like to hand the conference over to Mr. Jagdhishan for his closing comments.
Thank you all for joining in on a Saturday evening. I know it's pretty late, but I'm happy to take on anything later on. People can e-mail to Bhavin or [ Shini ] or myself for any further queries. Thank you so much.
Thank you. Ladies and gentlemen, on behalf of HDFC Bank Limited, we conclude today's conference. Thank you all for joining us. You may disconnect your lines now.