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HDFC Bank Ltd
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Ladies and gentlemen, good evening, and welcome to the HDFC Bank Q4 FY '20 earnings conference call on the financial results presented by Mr. Srinivasan Vaidyanathan, Chief Financial Officer; Mr. Sashi Jagdishan, Group Head; and Mr. Jimmy Tata, Chief Risk Officer. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan. Thank you, and over to you, sir.
Okay. Thank you, Aman. Appreciate the participants calling in today. Particularly, I think it's been delayed 10, 20 minutes. The traffic has been high, I think, from the telecom coming in, but we'll get started anyway because there are more than a few hundred waiting to join in, but we'll go. First, some background, right, for 30 seconds, particularly for some of you who may be outside the country and the COVID situation here, right? Economic activity started slowing down in March and came to a grinding halt with pan-India lockdown starting March 22. Banking is an essential service and has been exempted from the lockdown to facilitate customer requirements to the extent possible in the physical space as well as for online transactions. The lockdown was originally supposed to be for 21 days until April 15 but it has now been extended to May 3, right? Now a few words about our employees and health workers. As a first order of business, let's -- the health service staff in the society needs to be thanked and who give us confidence to keep us working, right? Let's place on record our sincere appreciation to thousands of employees across the bank. The teams balance very well their personal health and safety and bank security. All of them worked diligently and tirelessly through the past month leveraging the robust processes, keeping up with the world-class coordination and communication to make the results published under these circumstances. Majority of our employees, other than some personnel required to be at the branch, have been working from home. This has established new paradigm in customer management, products and processes, operations, technology, risk management and controls. This also entailed fending off cybersecurity threats by implementing several solutions like 2-factor authentication, strengthened antivirus feature in the devices at home, prevention of any download on the local devices, et cetera. Employee health and safety was accorded top priority with the appropriate sanitizers and masks. All operational bank locations were disinfected and fumigated periodically. COVID-19 medical health line has been established for employees. Further medical -- further, medical webinar, newsletters and videos have been published to support employees during this period. Now on customer engagement. By and large, our branches remain open for customers, though for limited activities. 95% of the branches are operational. Approximately 13,000 ATMs across the countries are operational, an average uptime of 93%. In addition, we have deployed mobile ATMs across 5 cities to facilitate customer transactions and remain a preferred bank with top-of-the-mind awareness. What could be done online using Internet form, we have encouraged the customers to do so. Stay home, stay safe applies to banking as much as any other day-to-day activities. Anywhere working model and its final contents were drawn up and communicated to the teams. The construct included collaboration and coming together of all stakeholders to enable various applications and tools to all resources managing customers, outbound sales team and other key roles so as to facilitate them to work from home or anywhere and still engage with our customers. Capability development for our team members was a priority by administering e-learning modules created for various roles and making narratives for key products and processes available through various mediums and also webcasts of live sessions by trainers and experts. Product proposition priority narratives for staff aimed at forging customer conversations were rolled out. Every narrative started with inquiring about customer safety and offering to help with digital solutions aimed at taking care of banking needs and financial needs, whilst majority of virtual relationship management resources were enabled to work from home by making changes to their existing dialers, which act as a bridge to connect customers and RMs. Narratives for the agents were also pushed to their phones. Enhancements were done in IVR, SMS, WhatsApp, banking facilities to facilitate certain transactions of the customers. Equipped with the right and appropriate tools, the team members working from home and from branches started to reach out to customers, and we have been making 200,000 customer engagements on a daily basis. We have rolled out insta account opening self-service journeys, wherein our customers can open their accounts in a matter of a few minutes and get to use the same through net and mobile banking, use cardless cash withdrawals, transfer and receive funds, make online bill payments and et cetera. On the wholesale front, we are 100% work from home with full technology enablement to handle internal processes and client management. Given our processes, including credit approval process, which are largely digital, we are now attuned to handling transactions and approvals digitally with adequate indemnities and checks in place. We are able to maintain turnaround times on items of -- on items like new disbursals and rollovers, including managing claims, quarter end needs on transaction banking. In business banking, each RM has had his or her client base, called his or her client base. More than 35,000 customers have been called and feedback taken from clients on general well-being, impact and severity on their business because of COVID-19, including discussion on any additional requirements of the customer. RMs, jointly with credit team, are doing review of customers for better customer servicing and tracking. They are also regularly communicating and using digital route to collate information from customers for preparing CAMs, credit appraisal memos, or call memos. RMs are taking refresher digital training which are being organized by our HR team for further upskilling. In summary, client engagement is stronger, productivity is up, stress levels are down, and work-life balance has improved. A few sentences on society and community. We have contributed at least INR 70 crore towards Prime Minister's CARE Fund (sic) [ CARES Fund ] to support the government in its fight against COVID-19 pandemic. Additionally, we are supporting various states in their requirements for medical supplies and other support. We are also partnering with not-for-profit organizations to raise funds to feed migrants, elderly, daily wage earners most affected by the lockdown. We continued our focus on corporate social responsibility and spent 2% of our average profit after tax for the past 3 years. This is in line with our policy to support the much-needed sections of the society. Now let's get on to balance sheet strength, where we are positioned now. A few comments to provide backdrop on the strength of the franchise. We are positioned to gain strong market share. Liquidity is consistently strong, as reflected in our LCR ratio at approximately 132% in the quarter. In the recent couple of quarters, on an average, we have demonstrated incremental credit-to-deposit ratio of 78%. The focus on deposits and bringing in new customer relationships have taken strong growth in franchise building. Capital adequacy ratio is at 18.5%. We have 7.4 percentage points more capital than the regulatory minimum of 11.08%. Our CET1 at 16.4% is 8.9 percentage points more than the regulatory minimum of 7.58%. We have sufficient provision in the form of floating and contingent provisions totaling to INR 4,447 crore built over a period of time, which helps in derisking the balance sheet. We have also taken several steps to further tighten the credit, as a consequence of which we have seen increased rejects. Current book has a stable NPA ratio and loss ratio. The provision coverage 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 142%. The net interest margin has been in a stable range historically over the past 10 years between 4.1% and 4.5% and currently stands at 4.3%. Now we will get to the results highlights for the quarter and also for the year ended March 31, 2020. As a result -- some background here, too. As a result of lockdown and consequent slowdown in economic activities and our strict adherence to social distancing, there has been an impact starting in the latter half of March in terms of loan origination, distribution of third-party products, payment products, activities, inability to deploy collection efforts to the optimum level and so on. Moratorium relief is available to customers, according to RBI notification. Waiving of certain fees for customer results have also been implemented in accordance with RBI mandate. We have seen inherently good customer demand across most of the product segments prior to the COVID-19 issues and lockdown. This should revert to normalcy after a period of time, and we continue to be positioned to capture the demand through further streamlined processes, digital offerings, stringent credit and controls, et cetera. COVID-19 has had certain impact in the financials, which we will call out as we go along. Let's start with net revenues. Net revenues grew by 18.2% driven by an advances growth of 21.3%, deposits growth of 24.3% and other income growth of 23.8%. Net interest income for the quarter was INR 15,204 crore, up 16.2% over previous year and grew 7.3% over previous quarter. Net interest margin remained at historical range. For the quarter, net interest margin was at 4.3%. For context, prior year was at 4.4%, and prior quarter was at 4.2%. We continued with our strategy to build on deposits, thereby maintaining strong liquidity position. I mentioned about the LCR, average LCR for the quarter at 132%, which is INR 50,000 crore of surplus or approximately $6.5 billion. The excess liquidity position of the bank impacts current NIM by about 100 -- by about 10 basis points. Again, as we have mentioned in the previous quarters, the drag was offset by some investment gains in the form of trading gains, which we will mention as we go along. Now moving on to details of other income. Fees and commission income, which constitutes 70% of other income, grew by 14.6% over previous year to reach INR 4,201 crore. Of this, retail constitutes approximately 93% and wholesale constitutes 7%. As I said earlier, the lockdown in March following the COVID-19 outbreak has impacted the business across the bank, particularly in the later half on various things that affect the fees and commission by around INR 350 crore. In our card spend, we observed that March was lower than the average January and February by about 21%. The second half of March was particularly impacted as the card space was lower by 35% compared to the average of January and February. FX and derivatives income, which -- that line of income grew by 24% over the previous year to reach INR 501 crore. The growth was granular in nature, being primarily driven by retail customers who contributed around 2/3 of the total. Trading income was INR 565 crore for the quarter. Again, as I mentioned, this was the ALCO strategy of monetizing some portion of the gains from the excess liquidity investments. Other miscellaneous income of INR 766 crore includes recoveries and dividends from subsidiaries. The collectors -- the collections was impacted in the last month of the quarter, particularly in the later half of March. This had an impact of approximately INR 100 crore on the recoveries. Operating expenses for the quarter were at INR 8,278 crore, an increase of 16.3% over the previous year. Year-on-year, we added 313 banking outlets, 71 during the quarter; 1,412 ATMs, cash deposit and withdrawal machines; and 5,379 business correspondents managed by common service centers. The staff count increased by 2,990 during the quarter and about 19,000 in the last 12 months. In addition, approximately 250 branches are in various stages of readiness to open in a short time. If there were no disruption, it would have been opened in March. Going forward, we'll look for an opportune time to get these to be functional. Cost-to-income was at 39% and has remained stable -- in a stable range compared to the prior year and prior quarter after absorbing the investments in branches, people and technology. Moving on to PPOP. The pre-provision operating profit grew by 19.5% to INR 12,959 crore over the prior year. Adjusted for the COVID impact that I mentioned earlier, a few of those items, that would have been at 22%, but the reported number is 19.5%. Coming to asset quality. In accordance with the RBI guidelines relating to COVID-19 regulatory package dated March 27 and April 17, 2020, the bank would be granting a moratorium of 3 months on payment of all installments under interest as applicable falling due between March 1, 2020 and May 31, 2020, to all eligible borrowers classified as standard, even if overdue, as on February 29, 2020. For all such accounts where the moratorium is granted, the asset classification shall remain standstill during the moratorium period. That is the number of days past due shall exclude the moratorium period for the purpose of asset classification under the IRACP norms. The bank holds provisions as on March 20 -- as on March 31, 2020, against the potential impact of COVID-19 based on information available at this point in time, and the same is in excess of RBI-prescribed norms. As a result of the above circular, GNPA, NNPA and annualized core slippage ratio has been lower by 10 basis points, 6 basis points and 40 basis points, respectively. GNPA ratio was at 1.26% of the gross advances as compared to 1.42% in the prior quarter and 1.36% prior year. GNPA ratio, excluding NPAs in agricultural segment, was at 1.1% as compared to 1.2% in the prior quarter and prior year. Net NPA ratio was at 0.36% of net advances as compared to 0.48% in the preceding quarter and 0.39% in the prior year. Annualized core slippage ratio at 1.2% in the current quarter, prior quarter was at 1.7%, and prior year was at 1.4%. Now on to the provisions. Specific loan loss provisions were INR 1,918 crore as against INR 2,884 crore during the prior quarter and INR 1,430 crore for the prior year. Total provisions were INR 3,784 crore as against INR 3,044 crore during the prior quarter. Total provisions in the current quarter included contingent provisions of approximately INR 1,550 crore primarily related to COVID-19. The coverage ratio was at 72% as against 67% in the prior quarter and 72% in the prior year. Including contingent provisions, the coverage ratio was at -- is at 96%. I want to remind that 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 1,457 crore. With a build of approximately INR 1,550 crore at the end of the current quarter, contingent provisions towards loans were at INR 2,996 crore. The bank's floating provisions remained at INR 1,451 crore, and general provisions were at INR 4,438 crore. As of March end, total provisions comprising specific, floating, contingent and general provisions were 142% of the gross nonperforming loans. Now coming on to credit cost ratios. The core credit cost ratio, i.e., the specific loan loss ratio, was at 77 basis points of advances as against 92 basis points for the prior quarter and 69 basis points for the prior year. As you are aware, recoveries are recorded as miscellaneous income. Therefore, the core credit cost ratio net of recoveries was stable at 55 basis points as compared to 66 basis points in prior quarter and 48 basis points in prior year. After factoring in COVID-19 credit impact as mentioned earlier, which is approximately 62 basis points, total credit costs for the current quarter was at 151 basis points as against 129 basis points in the prior quarter and 91 basis points in the prior year. The reported profit before tax was at INR 9,174 crore. Adjusting for some of the COVID-related items that I -- including the contingent provisions that I referred to, the core profit before tax grew approximately 23%, right? Net profit for the quarter grew by 17.7% to INR 6,928 crore. Net profit for the year ended March 31 was INR 26,257 crore, up 24.6% over prior year. Now on to some balance sheet items. The balance sheet size as of March end was INR 1,530,511 crore, an increase of 23% or[Audio Gap]approximately INR 80,000 crores in the quarter and INR 224,000 crores since prior year. As a result, our -- as a result of our focus on granular deposits, CASA deposits grew by 23.9%, ending the quarter at INR 484,625 crores, with the savings account deposits at INR 310,377 crore and current account deposits at INR 174,248 crore. Time deposits at INR 662,877 crores grew by 24.6% over prior year. CASA deposits comprised 42.2% of total deposits as of March end. Credit deposit ratio was 87% for the current -- as of the current quarter against 89% in the same time last year. The advances were INR 993,703 crore, an increase of 21.3% over prior year and 6.2% over prior quarter, which is an addition of INR 58,000 crore in the quarter and INR 174,000 crore since prior year. Retail advances on a Basel basis grew by 14.8% over prior year and 2.7% sequentially. And wholesale advances, again Basel basis, grew by 28.2% year-on-year and 9.7% sequentially. Moving on to CAPAD. With regards to capital adequacy, the total capital adequacy ratio as per Basel III guidelines stood at 18.5% as against the regulatory requirement of 11.08%. March '19 was at -- March 2019 was at 17.1%. It was 18.5% in the prior quarter also. Tier 1 capital adequacy ratio was 17.2% in the current quarter as compared to 17.1% in the prior quarter and 15.8% in the prior year. CET1 capital stood at 16.4% currently compared to 14.9% in the previous year. A few business updates. During the year, I mentioned about the 313 banking outlets opened and 5,416 banking network and 52% of our branches are in semi-urban and rural. Including the banking correspondents, 5,379 all opened during the year, right, the total banking outlets were 10,795. As of this quarter end, we have signed up approximately 140,000 common service centers village-level entrepreneurs, of which 100,000 are onboarded as business facilitators. Of these, 42% are actively sourcing. In full year '19/'20, we acquired 6.3 million new liability relationships, an increase of 44% over the previous year. This was driven through various strategies that we adopted, which we have articulated in the past. As of March end, we have 14.5 million credit card base and 1.8 million merchant acceptance points. In summary, we are proud of our staff who have passionately managed customer relationship in executing our strategy despite the difficult environment. This has resulted in deposit growth of 24%, advances growth of 21%, card spending increased by 22%, retail loan disposals increased by 12%, operating profit growth of 20% and profit after-tax increase of 18%. With that, may I request Sashi to give a few comments, please?
Yes. Thank you, Srini. Yes, this has been a very unprecedented period for all of us globally. We would like to sort of give our prayers for the people who have been affected by COVID. Srini has mentioned a lot about what all we have been doing in this -- during this lockdown period. I think the entire organization has been reasonably energized. The fact that we have a great distribution and resilience in the balance sheet and the fact that we have derisked our balance sheet is pretty evident from the results that have just been announced. To add to that, I think some of you may have seen the press release by Standard & Poor's last night wherein they have reaffirmed the stand-alone credit profile rating, which is BBB+. We are the only bank which is having a rating 2 notches above the sovereign rating. The issuer rating is no -- S&P does not rate any bank above the sovereign rating of India. So the issuer rating for HDFC Bank continues to be BBB- stable rating. So that sort of is a testimony of the fact that our -- the balance sheet is very strong. Our asset quality continues to be reasonably sound. And even after -- and probably, as you would probably listen to some of my colleagues who are here in terms of the stresses that we have done in our portfolio, to take into account any potential impact or a prolonged impact of COVID over a period of time. So this is a testimony which I wanted to share. A lot of questions I'm sure you will be having as to where is the quality of growth coming from. Is it -- are we chasing growth? Absolutely not. I can assure you that we have a wonderful distribution platform across wholesale, corporate, SME and retail businesses. And it's -- I don't want to sound pompous about it, but the fact is a lot of companies, a lot of customers who would like to participate in our growth. So we will have more of it -- I mean as in the press release and in the financials that have been released, you know that the large part of the growth has come in from the wholesale sector. Retail has been muted about 15% and which is something which is understandable. It will continue to be a bit tepid over the next couple of quarters. And we would see strong -- reasonably healthy growth coming in from the assets that we are putting on the wholesale side now or in future. But to get -- to give you more color about what is that quality of growth, are we sort of trying to distribute these for biscuits? Or is it something that is -- what is -- why are companies borrowing? To give you more flavor about it, I'll just request my colleague, Rahul Shukla, to talk about it, and then it'll -- we will add more color to the other parts of the growth.
Thank you, Sashi. Good evening, everybody. Thank you for joining the call. Both our corporate banking and business banking business -- business banking is our wholesale SME business, had a satisfactory performance during the quarter. In corporate banking specifically, strong growth performance was also helped by corporates' desire to keep liquid cash post-lockdown as implications of COVID-19 became clearer. So obviously, there are a few questions that will come up as a result of this. Question number one, where did the growth come from? Our corporate banking business benefited from strong client support the bank disbursed to public sector corporations, to nodal agencies, private sector and MNC corporates. The bank refocused more sharply in serving businesses that have strong liquidity access through public markets, debt or equity, or have ownership by the government or access to liquidity because they are part of large business groups. And to a second set of businesses, which I call epidemic-resistant businesses, we saw broad-based growth across sectors, such as power and power infrastructure; agriculture and allied activities, including fertilizers; material; energy; discretionary consumer, et cetera. The bank also supported liquidity needs of the ecosystem, including banks and NBFCs by using RBI-provided tools such as PSL on-lending, priority sector on-lending, securitization, direct assignment and interbank participation certificates. The second question that one would think about is that, what was the purpose for which corporates borrowed in this particular quarter? When we analyze top 20 disbursements by value during the quarter, that shows that 41.9% was towards working capital requirements, 23.6% was ultimately towards capital expenditure, 15.5% was balance sheet borrowing for acquisition of assets, including in the NCLT process, 9.3% was towards on-lending for PSL purposes, and the balance, 9.7%, comprised of other reasons, including availing existing line for building liquidity buffer. The third question I would ask is, did the bank lower its risk criteria in gaining this growth? The answer to that is that the bank did not lower risk threshold at all. Almost all of the quarter-on-quarter accretion in the book came from top half of a 10-point internal rating scale, which has served the bank well over the years. In fact, over 92% of the book or the incremental book came from the top 30% of the rating scale. Nominal residual cases were to subsidiaries of large entities, which have a lower stand-alone rating but may be backed by support from the parent or for disbursements for PSL assets. The bank continues to diversify its book and reduce concentration. Its NNN square 100 programs contributed to approximately 1/3 of the year-on-year asset book accretion. Over 80% of the Q2 disbursements, including rollovers, were assets with less than 1-year tenant maturity. The fourth question, what impact does it have in cross-sell generation? The bank remains transaction bank of choice in the marketplace. It did over 250 line items of fresh disbursements and rollovers in March alone in corporate banking in a smooth and error-free fashion, including during the lockdown period. This was made possible by switching to digital completely for approvals and execution. Together with customer support and our digital cash management systems, we also saw end-of-period CASA in corporate banking double over a 2-year period in the corporate banking segment. The bank also saw a strong traction in corporate salary initiatives. With regard to our business banking or wholesale SME business, the bank continued to pursue business on the basis of granularity, geographical spread, sound credit profile and risk mitigation through self-funding, high collateral value and strong documentation. The asset book moderated slightly on a Q-o-Q basis, as in fell slightly while growing on or about mid-teens on a Y-o-Y basis. Business was impacted due to lockdown as new acquisitions could not be converted given the lack of ability to perfect documents. The bank was not prepared to dilute risk or housekeeping standards. Regionally, we saw strength in the environment in Southern India; parts of Northern India, Punjab, Haryana and UP; and in Central India. Activity levels remained modest in Western India. From mid-March until mid-April, the overall wholesale SME book has continued to be on a downward trend, which is credit positive from a client selection point of view. The Y-o-Y growth is evenly spread across geographies. After over 1,500 new clients acquired in this quarter, slightly over 30% were from SURU locations, semi-urban and rural locations. Bank's network remains its core strength in this business. Granularity was maintained with approximately 2/3 of the disbursements under wholesale SME segment being for amounts less than INR 1 crore. Our focus on collateral cover remains intense. Approximately 85% of the cases in this quarter, which were disbursed, had a collateral cover in excess of 100%. About 60% to 65% of the book is classified for priority sector lending purposes. Given that approximately 3/4 of transactions are done digitally, the bank continues to remain fully available for its wholesale SME segment customers through use of its digital platform. In conclusion, 2 more unanswered questions that are common to both the groups. Number one, what is our outlook? The bank believes it will continue to benefit from flight to safety on liabilities and that the better borrowers will continue to associate with us, and more and more will come and be associated with us for stable funding supply. Therefore, the growth rate will remain higher than the market growth rate as in the past. The second question, what proportion of corporates do we expect to avail moratorium? While requests have started coming in and are being processed after checking eligibility and other criteria, it is difficult to set a trend this early. Bank would expect several large corporates with access to public equity and debt markets to conserve cash given the uncertainty on when normalcy would be restored. Actual requests received as of date in corporate banking segment remains low. On the other hand, smaller private players in wholesale SME segment without access to liquidity in public markets would look to reduce their operating and financing costs. As of now, a very small percentage of BBG customer base has indicated they will avail moratorium. However, given that they can make an application anytime within the time frame permitted by RBI, the current survey may not reflect the final trend. At this point, I hand over to my -- back to my colleagues.
Thank you, Rahul. So just to -- we -- as of 31st of March, still about 75% to 80% of our book is to AA and above rated companies. We do have an internal rating and an equivalent of -- we have a mapping vis-à-vis the external rating, and this is how it is. Since the last 3 quarters, in fact, the rating of all the assets and the disbursals that we have been put up has actually improved to even better even during this particular quarter. And this is quite evident from what Rahul had just mentioned, the kind of corporates that he has been patronizing. Even from a sectoral exposure perspective, I think we have a fair amount of diversification of more than 150-plus sectors. Even the high-risk sector that we are talking about in terms of -- during the COVID, what will be the impact that's going to happen to the travel and all these other sector -- allied sectors is not -- is a very small, low single-digit number. A lot of questions have been asked about the unsecured portfolio, the composition, what is the risk profile of these customers, what is the granularity, what is the feel. I mean a lot of us, people -- by now, all of you would know that we have a large salary book. What is the quality of the salary book? What is the quality of the non-salary book, et cetera? So to give you more color in that, let me just hand this over to Jimmy Tata, our Chief Risk Officer, to give you some color on to that.
Thank you, Sashi. Good evening, everyone. I'll just look at the various aspects of the retail portfolio...
Louder.
I'll look at the various aspects of the retail portfolio and cover some of the parts relating to the unsecured in particular where there have been a lot of questions and also let you know how we have built this portfolio, where we stand entering the crisis, although it was an unknown unknown, and what we see happening through this crisis as well. So to start off it, to just give you a flavor, compared to the rest of the market, the condition in which we are entering these businesses is a delinquency level of between 40% to 60% of the rest of the market, depending on which product we take to look at. And to make a comment, even on the tail end of what is considered the tail end of the portfolio, if you look at low CIBIL bands, we remain at a 30% to 50% below-market delinquency even in low CIBIL bands, i.e., some higher-risk customers who you may find. It would be further interesting to note that the areas where we have an even better positioning vis-a-vis the market are actually in the self-employed, which are considered the higher risk amongst the unsecured as well. How this has been achieved is primarily through our long-standing and continually developed analytical assessment skills. The bureau scores, for instance, form a very small percentage of the HDFC Bank analytical and underwriting process. We look at multiple scorecards. We also look at multiple bureaus for that matter. Each of these scorecards, whether it is based on behavior, whether it is based on demographics, whether it is based on a financial parameter or whether it is based on the actual intrinsic worth of a person, movement in accounts, everything else, adds to a discriminating power. This is an internal nomenclature that I'll probably use, may not have heard it before. We have a composite score coming out of this called the P27. I won't go into the details of how that got named, but it's relatively -- it belongs to some of the components that went in. But this has been proven to have 2.5 to 3x higher differentiation compared to any individually used scorecard. And this is one of the strengths that the bank possesses. It is proprietary, and it has been in use for well over a year now. We look at the performance of the portfolio in various ways now just to break it up in the unsecured. So questions have been asked, and I'll just try to answer them as I recall them. So there were questions asked initially on the 10-second loan portfolio that we have. Do we still offer it? Do we still give 10-second loans even after this crisis has hit us? The short answer is yes, but based on which this product is offered has been pared considerably to bring the risk down to an extremely low level. The base has been pared to a level where the probability of default is rather small. I can't give the number right now, but it is rather small and therefore would be considered rather safe. Another question that was asked, because we have always put out, as you will -- if I can recap for a minute. We have always put out that 80% of our unsecured portfolio is to salaried individuals and 20% is to the self-employed. So let me take this separately. We have also often stated that around 2/3 or 67% of the salary base is not nearly salaries but actually belongs to salaried employees of very, very well-regarded entities, talking about AAA and AA companies, government entities, multinational corporations, et cetera. This has led to a question, which I would like to answer and address now as to what about the 33%? Is that a high risk for a vulnerable segment? The best way we can put this across to you is that if you look at the absorbed delinquency of the remaining segments, it is 0.09% or 9 basis points away from the rest of the portfolio. How is this achieved despite the employer category not being the same? There are various filters that are put in at the underwriting stage. We have higher requirements on the strictures for leverage. We have product caps. We have lower multipliers. And of course, we are choosy about the entity that goes in, in any case, and also as to the ramp of the employee within the organization at that point in time. So all these additional filters into the product enter at those lower levels, and thereby, the absorbed delinquency is not very far away from the rest of the portfolio. I just thought I'll put this out there because usually we try to put things out in a manner that would be universally understandable, so it shouldn't mislead anybody, that the rest of the portfolio which does not belong to such highly rated entities would be at risk. These are the precautions that are taken. And here is the absorbed delinquency on that as well. If we move on to the self-employed segment, over here, yes, one would have to admit that there would be a greater impact from the COVID phenomenon. There would be disruption in cash flows, and some people would find difficulties to make their payments. However, one has to see, over here, once again, the entry point for HDFC Bank into this is a 90-plus of around 0.66 or so in this particular segment. The level of delinquency in the -- if you wish to call them stressed or the high -- they're not yet stressed, but at least the high-impact industries and segments that are thought to come out of this is pretty much in the same range, within single-digit basis points of the same range once again. So here again, we have careful selection, monitoring, rationing of the facilities, et cetera, that look at this. The high-impact 90-plus therefore is very similar to the regular businesses and industries based on these filters that have been placed. That's what I would have to say on the unsecured portfolio. And I'll just move on, if I can have a minute on a couple of the other segments. I'll very quickly go through corporate because I think Rahul has covered it in a very significant way. To put out, again, this time, I think I would like to speak about our internal grading system rather than external ratings because once again, we rely on that far, far more than we do rely on external ratings. So we have an internal rating system in HDFC Bank on a scale of 1 to 10, 1 being the safest and 10 being the riskiest. The mapping of these into the various external ratings, to give you some flavor, and this here again would allow you a reflection on the tail of the portfolio, so to speak. And I will come to the part of -- the larger part of the portfolio, which is in the low ratings. But let's look at even the higher ratings, which, as I said, means a higher risk on our scale. The lowest-rated or the worst-rated, let us say, investment-grade acceptable to onboard is HDB 7 from our ratings of HDB 1 to 10. We would not onboard anyone who came in at a rating lower than this. If you look at the probability of default and the observed default rate of HDB 7 in HDFC Bank, it actually maps to a rating of A, which would be given by the best rating agencies in the country today. So our investment grade, so to speak, if you could use that term, would be HDB 7, which would match to A. The rating agencies themselves have an investment grade which is accepted up to a BBB-, which would be a 4-notch difference beyond what is accepted by us. So this is the portfolio. This is how it has been built. This 10-grade scale has served us well for 25 years and has proved to be very reliable through industrial crisis and all sorts of crisis. And just to give you a flavor of how the highest-risk onboarding maps onto the national scale. If I can take just one moment more to let you know of where the portfolio itself stands. Towards the middle of last year, one would see, on the scale of 1 to 10, we had a weighted average rating of around 4.6. By December, this had improved to a 4.56, which is rather close, I would say. And in March, this has improved further to a 4.43. Rahul mentioned for a moment the various categories of companies where we have seen good corporate growth, namely the very strategic and large central government, PSUs, the flagships of India's best-rated corporate entities and, of course, some MNCs. The weighted average rating of these assets put on in the last part of the quarter is 3.5. So to give an indication of the safety behind the growth, that's what I could put on if I managed to explain about our rating grid. And while I'm on just a minute more on the SME segment, which obviously is in focus at this point of time, growth, of course, has been low and moderated, as you would expect. Rahul did also mention about the portfolio running off in recent times, which we, of course, take [Audio Gap] proprietary behavioral score. I would be quite happy, in fact, to report that the decrease in the high-risk behavioral scores has been quite noticeable in recent months. This was the result of several initiatives taken during the whole of the last year. We made a considerable thrust on having churn of receivables through our own banking accounts so that we could monitor activities. This churn improved quite significantly and is obviously, as you would expect, a major consideration in the behavioral score. We also look at a concept called self-funding. And what this means is liquid funds held by the borrowers, the borrower promoters, their families, their associates, their trusts in HDFC Bank. So what we are referring to here is liquid assets held by them in our bank itself. I don't mean to say that these are lien marked or to be considered as security, but this is definitely an indication to us of the wealth and liquidity available to these promoter families and would definitely be a reflection of the selection quality of promoters for onboarding into our SME portfolio. At this moment in time, I would just say that there is in excess of 60% of the advances at a portfolio level that are held in these liquid funds. I repeat, they are not collateralized, but they are a reflection of the wealth and the liquidity available with the promoters whom we have chosen to put in the portfolio of SME. Further, I must mention, although this is only a second way out, and therefore, we pay less attention to it and far more attention to the cash flows, but the portfolio at an aggregate level is 77% collateralized by real estate property, which is either commercial or residential, belonging to these same promoters. So these are the relative strengths that we have entered the fray with. Now let me also comment on what would happen once we have entered. We stressed this portfolio in the early days and continue to do this exercise. We looked at 3 different scenarios of reasonable stress, strong stress and extreme stress. The strong stress scenario led us to a conclusion that around 9% of the portfolio may find themselves vulnerable to impact, meaning they may find it difficult to honor obligations as they fall due. But I would like to specify that this is without taking into account any advantages of the moratorium granted or the DPD freezing or any such other concession that has been officially given. So this was the stress level that was envisaged in the mid scenario. Naturally, we have been in touch with several of the customers. We have taken a voice of customer. Not many have actually told us that they would wish to apply for the moratorium. I must once again say here that we should wait. They still have an opportunity to apply. They also have an opportunity to change their mind, although we have contacted a very large number of them. So this must be taken as a number at this point in time. Several of them have informed us that they would be wanting to arrange funds on their own for their rehabilitation because they are cost-conscious and they understand that the moratorium itself entails a cost. So if they do have liquidity, they would wish to use their own liquidity at this point in time rather than avail of the moratorium. So this is the status where we stand on the SME piece as well from a risk perspective.
Right. Thank you. Thank you, Jimmy. Probably he can come on after probably some of you, we open it up for questions. But before that, let me just conclude. We -- the team actually set up to do a stress test on the entire portfolio, whether it's corporate, SME or retail. So as Jimmy alluded to just now, we did sort of stress saying that assuming the sales are impacted by 40% in the near term and 20% later.
Correct.
And then he came up with a certain number without considering the impact of moratoriums or the leeway that has been given by the regulator, which is about 8% to 9% of the portfolio. A similar exercise was done on the corporate book as well wherein the -- post the stressing or the shocking of the portfolio, what was the implied DSCRs and the -- which were the ones which were comfortable, which were the ones which were not comfortable, all that was assessed. And for the retail portfolio, we shocked the floor rate. As you know, there is -- there are standard accounts, and there are things which move into overdue. And within the overdue, there are various stratification of the buckets these fall into. So the movement -- the forward flow to the bucket is a combination of the inherent nature of that particular customer plus the collection effort or efficiency as well. So we had a bit of a shocking of that, assuming that we will have 0 amount of efficiencies in the month of April, which is a fact, which probably could be a reality. And we sort of took a certain amount of smaller efficiencies in the month of May and maybe to a near-normal efficiencies in the month of June. So this is how we've gone about, and the result is what we had, we had a number called x. So we have been multiplied by an x times of that to arrive at that INR 1,550 crores of contingent provisions. So obviously, what it shows is that we have enough buffer of credit reserve to be able to withstand this kind of a shock that probably we are anticipating that things will start to normalize sometime around March and -- sorry, May and June. But in case it gets prolonged even beyond, whether it is unsecured, whether it's secure retail, whether it's SME, whether it's corporate, I think we have done enough amount of provisioning to take care of any events that may happen in future. So let me conclude and let me stop here and perhaps put the floor open for questions.
[Operator Instructions] The first question is from the line of Mahrukh Adajania from [ Elara Capital ] (sic) [ IDFC Securities ].
Congratulations. My first question was on the provisioning buffer. So what would be our cutoff date for the moratorium, especially for retail? And how many accounts under moratorium would be in the default category, so the standard default account, that is?
Jimmy here. So when we did an analysis of the people who have applied for the moratorium, approximately in retail particularly, and we've had very few applications in wholesale in the first place, around 95% to 98% of the customers were not in default at the point of time of applying. We thereby also decided that we would do a survey. We have surveyed around 1,000 customers or so. And the feedback has been much more in tune with the moratorium has been taken out of caution than out of stress.
Okay. And is it possible to give any rough percentage of people opting for moratorium under retail as in the percentage of loans?
It's in low digits, Mahrukh. But I must say that we haven't put a deadline or a cutoff for people to apply, so they are free to apply. I keep saying this whenever I comment on the numbers who have applied.
Okay. So it will be end of like May -- even in end April or...
We haven't decided its -- we haven't decided. It could well be.
Mahrukh, if people are eligible, if someone comes in, in April or in May, we are obligated to provide them that moratorium. As of now, it's only in single -- as Jimmy was mentioning, only low single-digit customers have opted for moratorium. As he also gave color to that, strangely, 95% of the customers are all non-overdue customers. They have no overdues at all. So survey, he did a survey. I know a lot of other analysts have been doing a lot of surveys around, but the extent of survey here is much larger. And here, the survey, as he mentioned, is primarily -- the results are coming about that people want to be cautious. So that's the reason why we are -- so there is a bit of a half year cycle. There is a bit of a fear. They want to be cautious. They want to enjoy the benefits. If someone is giving that kind of a benefit, even though there's a cost to this particular moratorium, they are saying that it's better to take it. And mind you, even from the survey, even from their balances, even from the salary credits, it's very surprising because when you see the salary credits, when you see the balances, and these customers who have taken moratorium, there are balances, the salary credits are coming in, but still, they would like to avail of the moratorium.
Got it. And what are the new credit tightening measures that you would have introduced in March or April -- credit scoring measure rather in retail?
Mahrukh, every single product and portfolio has been filtered further. I would like to preface that by saying, for the 12 months prior, because of the stress in the economy itself, we were progressively filtering every single product. And that is why we have probably fortunately entered this crisis in much better shape than we would otherwise have, so it's been very fortunate for us. But the exact filters applied to each product, Mahrukh, you will understand is a little proprietary to us, and we would not wish to disclose it on our call. But suffice it to say that the probability of default has been brought down in significant measure even beyond what it was after the crisis in response to the crisis.
Yes. Part of the routine credit architecture to keep reviewing in terms of calibration.
Yes. This is like in the banks. So applying -- observing, applying, remediating is -- it's life in the banks. So this goes on all the time. And that is why we had 12 months prior to the crisis of doing it even before we walked into this.
Let me add one more -- since a really good question, probably a lot of people may be asking it, that during this period, there'll be a lot of credit-hungry customers who are less than 30 years who have an income level of 25,000 to 30,000 per month. And in times like this, this will be all vulnerable. The beauty, as, what's his name, Jimmy was mentioning, okay, we have credit-hungry algorithms already in place for a long time now across all income bands, which identify such people upfront. So it's not something that we need to do a work now. So wherein we know for certain, we know which are the kind of customers where the leverage is low, where we -- the propensity to take more and more loans is much lower, these are the kind of guys. If at all, they are in that particular band, we will be patronizing. Otherwise, no. So we do have algorithms, which are -- which we call the credit-hungry algorithms, which is there in place for a long time now. So it's not something that we need to invent or be worried about. The fact that in these kind of times, that there will be people who will be wanting to borrow more, and we will be having a lot of adverse selection.
Correct. I had alluded to it a little earlier, the credit-hungry concept has been part of our P27 arrangements and scoring methodology for a very long time. We've been doing this for years.
The next question is from the line of Kunal Shah from Edelweiss.
Yes, this is Kunal Shah from Edelweiss Securities. So 3 sets of questions. Firstly, thanks for such a detailed description in terms of how you are managing it. But just to again come up on this contingency provisioning of INR 1,550-odd crores, so you highlighted, maybe in the worst case, applying the x times maybe if things get settled, say, in May and June. That's the provisioning buffer, which we have already built up. So it means that based on the information available in the current situation, we are very adequately covered, and there will not be the requirement in Q2. So it's in the next quarter. So should I assume that what came from RBI yesterday in terms of splitting or upfronting the provisioning over 2 quarters, can we comfortably say that we had done it in this quarter itself?
As we had mentioned in the press release, this is the information, I think, we are extremely comfortable. But only time will tell what's going to happen in the future. But notwithstanding this, I think if you really look at the stock of buffers of credit reserves that we have, which Srini had mentioned, we have INR 1,500 crores of floating provisions. We have another INR 3,000 crores total of contingent provisions. These are the times -- if at all, there is a need, these are the times that we will use it because that's the nature of countercyclical provisions. So we have enough to take care of even if there is a truck which comes and rams into us. But I think the way it's going and the way we have our architecture built, I don't think there would be a need to do that. But we are just keeping all these things in handy in case there is a need for that in the worst case if the cabin pressure were to drop.
Surely. And in terms of the subsegment, so maybe you highlighted like 9% of the SME banking could be vulnerable in the worst case, and we have done this exercise across wholesale as well as retail. So maybe it's the broader breakup of this INR 1,550-odd crores, the way it would be split between these 3 categories of wholesale, retail, the way we would have done.
No, no, no. See, the 9% is vulnerable. It doesn't mean that the entire 9% is going to get into NPA. What is currently happening is that probably in the SME side, there is an incremental NPA buildup of about 0.2% per quarter, okay? What -- we are saying that in this kind of a stress scenario, which Jimmy alluded to, with that 8% to 9% of the book being on a high-risk basis, if the worst were to happen, without any of the moratoriums being given, then what that will do is that will take it to a 0.5% incremental NPA. That is it. That is what we have considered. So first is I want you to demolish it from the thought that it's 8% or 9%. It's 8% to 9% was booked. Within that, what is that which will slip into the NPA bucket is about 0.5% more than what it is today.
Okay, okay. And in terms of HDB Financial, so can we set out in terms of how the performance would be? So in the press release, there's hardly anything. Maybe it's not audited or something. So how would be the performance out there in terms of the AUM and the 3 assets of that?
The medium growth was modest at about 6%. There wasn't an opportunity to grow. Like March is quite a strong month traditionally but did not have that opportunity to turn around, right? So the growth is pretty modest from that sense.
Okay. And there, in terms of the buffer or something, how much...
Yes. They also created contingent provision. We haven't disclosed the number because they will put out their financial results announcements before we do something. So we'll wait for their announcements to come, but they also created some buffer. However, HDB Financial Services' financial results were prepared and approved before the RBI moratorium. The revised RBI moratorium came in yesterday, right? So whatever they did, did not take into account the new kind of beneficial clause that came in terms of availing moratorium for some people. It was not there when the results were approved and adopted.
Sure. And last, one data point in terms of how the cost of deposits would have moved quarter-on-quarter.
What deposit?
Cost of deposit.
Cost of deposit.
Cost of deposit, it came down a lot. I think you have to look at the total cost. Interest expense, we should look at. The cost of deposits have come down by clearly 15, 20 basis points or so, it is down. We have -- as you know, we have a few times in the quarter, we have dropped the interest rates. All through the quarter, we kept dropping, testing various price points. As part of a regular process in terms of how -- in the ALCO, we determine the strategy both in terms of the rate that is required and the communication that needs to go into the field to our RMs and thereby to the customers. And then we test various price points where [Audio Gap]
Okay. Hello?
[Audio Gap] various price points. And all of those price points have been proved to be quite okay, quite good. The deposit growth in the quarter, I think I alluded to, saying INR 80,000 crores of deposit growth in the quarter.
The next question is from the line of Suresh Ganapathy from Macquarie Capital.
Just 2 quick questions. One is, what has the Board decided with respect to the candidates for the CEO as that effort is going to be referred to the Reserve Bank of India? Has it been decided? And the second question I have, Sashi, do you think there is really a moral hazard creeping in? Because when you're saying that 95% to 98% of the customers in the retail category are still availing just because they are worried about whatever could be the reason, history has shown that whenever such moratorium has been given, eventually, people don't come back and pay the money. And this can really potentially harm the credit culture or behavior, something which has happened in the farm loans. So I'm just worried about that. What is your initial assessment?
Okay. On the first question, I'll have Srini sort of respond if, at all, he has any information because I was not a part of the Board meeting, number one. Number two is on whatever you've just mentioned, see, the thing is we are in a very uncertain or a very unusual kind of an environment. Will there be a stress for people? Absolutely. In terms of some of them, even though I do say that we do have 80% of our unsecured book in salary segment and 80% of that in the AAA corporates and IT companies and government organizations where the stability of the particular -- they're absolutely much better than the normal job. But still, it will take some time. Assuming this is prolonged, there will be a time when even these kind of people will be hit or nothing, no, but they will be resilient. The reason why I'm saying there will be resilience, in terms of by the time it comes and hits the levels of the mid- and upper mid-level executives in the salaries that we are talking about, because we do -- God has been kind. I think the kind of corporates, we are the largest salary bank in the county today, and we are probably the salary bank to most of the AA and above corporates in the country. So we have a bit of kind of far more optimism or cautious optimism in terms of the layoffs that'll happen. Now probably some of the companies by June may decide to manage their costs could have a bit of a wage cut, et cetera. That is possible. But is it something that we have -- we are comfortable with that kind of scenario? Absolutely. But surely, the [ CADC and CADB ] companies, which is also where we have, which is a very small element of number, we have seen that there is just about, as Jimmy did mention, 7 or 9 basis points higher than the normal delinquencies. So even there, one would say that you have an exposure there. But the point is that we have tried to pick and choose the ones which are more, as Jimmy was mentioning, the algorithms which ensure that they are not the -- they don't fall into the credit-hungry algorithms. And that is how we have tried to do this. But of course, there will be this model risk wherein you have to factor all these things, which is what we are saying. There will be a bit of an increase in NPLs. We have seen it in 2007 and 2008. We're in the range of gross NPA cost within the range of 1.3, 1.4 to 2.09 after September of 2009. Will this -- are we going to be with this kind of range? My hunch tells me, after doing all these stress tests, that we -- it should be unless and until it goes beyond even our -- what we have estimated in our stress test. But as we speak, I don't think there is any sort of -- we don't have too much of worry thing that this will -- you will be. We'll have worry. I'm not saying no. But we have provided enough to be able to cushion all these kind of things that may happen, which is what you're alluding to.
My first question?
Suresh, on the first question, one is that I just want to mention that's a prerogative of the Board. We have put out a press release today where you will be glad to see that.
Okay. Sir, can I request to please talk louder? Our audience...
Sorry, Suresh. My microphone was muted because Sashi was talking then. Now one is I just want to mention that, that was a prerogative of the Board. But nevertheless, I think as a bank, we put out a notice in the stock exchange today. You'll be glad to see that. All that it says is that there is a short list and will be submitted to RBI. And then the details will be known and received thereafter the RBI review and so on.
The next question is from the line of Manish Karwa from Axis Capital.
Yes. Am I audible?
Loud and clear, Manish.
Yes. Sashi, see, in this -- in the upcoming environment, wherein the growth environment is going to be extremely slow, fee cost will -- fees will actually decline. I think one tool which probably every management has and probably every management is now working on is on cost front. Now we are actually coming up on the back of very strong investment in branches, diesel investments and people and technology. How do you think the costs will behave from here on? And what sort of tools and cushions you have available on the cost ratios going ahead?
It's a very good question because we ourselves are very surprised by the way that we have adapted ourselves to this working-from-home concept. I did not think that a bank of our size could adapt to this kind of a methodology or more so easily in the last 3 weeks or 4 weeks that the lockdown has been. Right from the branch, the largest channel, the branch channel, apart from the people who need to go to the branches for operations, like the cash operations or the other teller operations, large -- the entire relationship management team, which is personal bankers and the private bank and the preferred bankers, RMs, which -- who handle about almost 4 million customers as we speak, have started to work from home in a manner far more efficiently than what they were doing whilst they were in the branches. The logistics have sort of -- is not there. So the callings are much more than what they used to do when they were in branch and they had to go on a call or a visit to meet a customer, either at his residence or at the office. So we believe that going forward, we want to make this as a way of life, not just here but also for our large part of our -- the wholesale relationship team, the SME relationship team, the virtual -- what amazed us is the virtual relationship team, the call centers. We didn't realize that there are technologies which they have sort of introduced in the last couple of weeks wherein sitting from home, you can go through the call center as if you're calling to the call center. So that's the technology that is there now, and that is what we have adopted. And I'm sure, with a bit of an experience on effective supervision, I think this will be the way of life going forward. What will that do? We will probably be spending a lot more on fiber security and all the other related security investments that is required or the incremental end-use point technology investment that is required for getting the higher amount of VPNs in so that people can access their data on a secure basis from home but then also heightened monitoring for such accesses. But what that will do is over a period of a year or 2, we will have to -- there will be an opportunity to rationalize, a, the infrastructure; b, and hence the -- align all related expenses on infrastructure to even the people themselves. Because if you have someone who is doing about 2 to 3 calls a day and now he can do about 8 to 10 calls a day, effective calls, okay, that it is a massive change. So you will have a bit of a better productivity and efficiency measure. We have not sort of dimensioned this, but we have a very serious project team at a very senior level handling this. Over a period of the next 3 to 6 months, I think we will have a kind of a vision and a plan in place, which will then be translated into a macro-level execution plan.
Significant productivity improvements must come through this process, which is natural. And the second thing that this is also driving us is wherever the straight-through process, we have some things which are real, real straight through exactly, goes through straight. There are some straight through, which has got some kind of a handoff where things can fall. Those things are getting stitched together by our operations and technology team to ensure that we have real straight through it and goes, right? So these kind of other digitalization type further on the scale as they expected to get more benefits.
And on numbers, all these things would mean that my cost ratios will continue to decline in the next 1, 2, 3 years?
I would say yes, in the medium to long term, absolutely, yes. Surely, as you would know, that it probably in the -- if you're talking about in the next few quarters, we need to get back our business while wholesale is rocking at the moment, but I guess there is also finite appetite for all that. Retail will take some time to build up its momentum. So until then, you will have a bit of a tepid top line for a quarter or so before we can get back to normalcy. Yes, you will see the cost of earnings declining in the medium term. As we had promised in the past when we had said that if it's about 38%, 39% over a 3- to 5-year period, we should target a 3% to 5% decline in cost of earnings, 3% to 5%.
Okay. And just a question back on your asset quality. Now in this quarter, if you see, even if I adjust for the COVID-related 10 basis points of improvement that may have come in because of the moratorium, even adjusted for that, our NPLs or slippages seems to have declined decently compared to the last few quarters. This probably will be because of the farm sector because farm sector was stressed earlier. And even in the current environment, the farm sector, relative to many other segments of the society, probably may still hold on. Does it probably mean and indicate that, I think, that part of the problem that we had will be much lower as we move forward? And also, from a data perspective, I just want the quarterly slippages for the quarter.
So the quarterly slippage ratio is benign because of the fact of the kind of relief that has been given by the 17th April circular. But I guess if you were to -- if that circular had not come in last night, the slippages would have been higher by about 40 basis points.
Which we have already put out, that 40 basis points.
Yes.
No, but you said 10 basis points, right?
No. That is -- the gross NPA will be higher by 10 basis points. Your net NPA would have been higher by 6 basis points where slippage would be higher by 40 basis points.
Okay. And if the farm loan thing has come down, as in farm NPAs that were abnormally high...
Farm NPAs, Manish, normally, it's a kind of -- it depends on the harvest cycle, okay? So if you really look at the kind of a timing, June, every March and every September, it comes down, okay? But the fact of the matter is interest gets debited on the last day of March. So obviously -- and the people start to now get ready for sowing for the next season, which is the kharif season, you -- they will be utilizing that to sort of reinvest in the farm, in the sowing. So you would have a bit of a problem in June and December. And December is a rabi sowing that will happen and just pass -- just post the rabi sowing. So we do have a cycle. We have not seen any significant -- of course, the incremental NPL formations have come down or have plateaued, but it's not that it's come down or become benign pre-2016. That will take a long time because the farmer, when he gets hit because of calamity, natural calamity, he takes a long time before he can actually recoup the stock, which is delinquent. Because the earnings for that particular year, the net earnings, if it's a good crop, is just enough to have a bit of a saving and also use it for his consumption, like education for his children or medical care for his family. So the -- whatever is the balance, he would not like to hurry, pay back the stock. We also recognize that this is important. But the fact that we've already recognized, we are all right to sort of have this as long as on a going basis, he is incrementally paying for us.
Right. And last, just give me the exact slippage whenever you can on the call.
So Manish, let this be the last question, Manish. We have a lot more in the queue.
Yes, yes, yes. I just want the slippages whenever you can give them.
Manish, you wanted the slippage. That number is INR 3,150 crores.
The next question is from the line of Ashish Gupta from Crédit Suisse.
Sashi, just one quick question. In case of HDB asset, what is the percentage of borrowers who have applied for moratorium? Is it similar to at the bank?
No. I think HDB had a different thought process in that. Whereas we had an opt-in facility, they had opted for an opt-out facility. They elected a different methodology, saying that they will opt out, which means that they will provide the moratorium. Because look, the customer profile of HDB is 2 notches below that of the bank, okay? So they felt that this is a sector that could be on a stress, so they have given all of them the eligibility. If someone does not want to avail of the moratorium, then they have to opt out of it. So that is the -- that is what they have chosen, exactly the opposite of what the bank has chosen.
Okay. And the second was on margins. And I think Jimmy mentioned in his opening remarks that NIMs was impacted by about 10 basis points due to the liquidity conditions. And probably at least in the near term, you will see a liquidity condition that interest rates coming down. So do you still feel comfortable that NIMs can be maintained in the historical range?
Yes. Ashish, I think the fact that we run a matched duration in our books, both on the asset and liability side, is one of the strong reasons that give us the kind of confidence that we will maintain that range as long as the mix between wholesale and retail is more or less in this range of 50-50, i.e., that corporate, the wholesale sort of ranges between 45% and 50%. Today, on a Basel basis, I think it's about 49% and 51% is retail. So as long as this mix is maintained and the fact that we maintain the durations, which is about 1.3 or 1.2 years, both on the asset and liability side, I think we'll be able to do that. But if you were to ask me whether there will be quarterly fluctuations, there will be quarterly fluctuations because there will be a lag by the time some of the -- like it has happened, the repo-linked borrowing loans that have been given to the customers fell off much faster than we dropping our deposit rates. So some amount of quarterly gaps and variations will be there. But on a medium to long term, this range will be met -- will be maintained. Unless and until we are changing the pace of either corporate growth or the retail growth, we'll have mix changes.
[Operator Instructions] Next question is from the line of Kashyap Jhaveri from Emkay Investment Managers.
Here, you mentioned that the slippage, which could have been higher by about 0.4%, is April 17 -- does feel that like not been there. So does it mean that the [indiscernible] in this case would have been actually INR 4,000 crores on the loans, which sounds to be very high number?
We don't understand your question.
You said very less number of -- very less percentage of people that actually opted for moratorium. Hello?
Could you just repeat the question? It wasn't clear.
Yes. I'm saying you mentioned that April 17 circular which asked for status quo on the DPD.
Your audio is breaking. Not very clear.
Is this okay? Hello?
Yes, we can hear you now.
So what I'm asking is like you mentioned that slippage rate is lower by about 0.4%.
No, no. Slippage rate, slippage. Yes.
0.4% because of the April 17 circular, which gives ability to -- hello?
That is -- you are -- I guess you have to annualize rate, right? Normally, we report slippages annualized. So that will answer your question, yes.
Okay. Yes, yes. And just one clarification on numbers. If I look at your contingent provisioning, that number was roughly about INR 4,000 crores as of last financial year. You have provided another about INR 1,500 crores on the same. And despite that, the contingent provisioning number in the press release is roughly about INR 3,000 crores. So can you give the reconciliation there?
I don't know from where you're picking up. But if you show the INR 4,000 crores, we should be able to explain. But that number that you're quoting is not what we had or we have.
That number, I took from your annual report for FY '19 where your contingent provision for '19...
Sure, you can send it to us. We could reconcile for you, but that number is not right.
The next question is from the line of M.B. Mahesh from Kotak Securities.
Just a few basic questions. One, if you could just also kind of discuss the cards business and the payment business on, what are you looking at in terms of what is the expectations in terms of performance of the portfolio in the near term. And just, two, data-keeping question. Have you -- if you could kind of tell us what is the outstanding MFI notes? And have you thought of savings rate cut?
It's Jimmy. Can you just repeat the MFI part again? What is the outstanding MFI...
What is the outstanding MFI loan exposure that you have today?
Yes.
And have you thought of a savings rate cut because you've seen a significant amount of growth in your savings account for the quarter?
Manish, we already cut the -- Mahesh, we have already cut the savings rate by 25 basis points effective 15th of April. As regards to MFI exposure, SLI exposure, it's about INR 8,500 crores.
Okay. And the credit cards?
And what, what part?
Credit cards.
Credit card or the spend -- the payment side, sir, the impact flows on how the book -- how do you see the book? And what would be the impact of profitability in the near term?
So the ENR on the credit cards is relatively stable compared to previous times, but this is data as of March. And I think it is only post the lockdown that you will see that there will definitely be lower spend on the card. We have noticed that ourselves. So it would begin to come down now. So the steady ENR is probably not reflective of the future. The 90-plus is around 0.85, 0.86 in that range. And the feedback that we have got, see, we have done similar voice of customer and surveys and others. It's pretty much in line with the rest of the retail assets. So not elaborating, the portfolio composition also, remember, is pretty much the same, 80% internal customers, 70% salaried. It's all pretty much the same. And one must also add over here that a large percentage of the customers have higher limits, which would reflect having higher income capacity to pay and low leverage, all 3.
Perfect. Just one question. In the investment book which saw an increase this quarter, did you take benefit of the LTRO?
You saw a large increase in the investment book?
Yes, in this quarter. It's gone from 3.1 trillion to about 4 trillion. If you'll just explain this part, that would be useful.
So that is definitely not on account of the LTRO, but...
No, no. So as Srini was mentioning, we do have -- we have a large amount of LTR. I mean it' almost about $6.5 billion worth of high-quality liquid assets that we have. And if you have seen the growth of deposits during this quarter, it's almost about INR 80,000 crores from December to March. Probably this is the largest growth ever in terms of our 25-year history. As regard the assets put up, only INR 59,000 crores or INR 57,000 crores have been put up as incremental loans. So the balance has actually gone in the -- in investments, et cetera. Okay, that's number one. Number two is we've also had a fair amount of low-cost borrowings that we were -- because of the kind of markets that the liquidities aren't being pumped in by the regulator, some of the rates of borrowings are very attractive where we use the opportunity to do some kind of an upsize in investments as well. So that is the reason why you have on both sides, one, borrowings is going up; and two, that some amount of the other things placed to get a spread on that investment.
Next question is from the line of Nishant Shah from Macquarie.
Okay. So just a couple of the questions. First, would you be looking to participate in the TLTRO 2.0, which was announced only for India. And second, could you just like give us a broad range of like within your credit card spend, what percentage would be more discretionary in nature and what percentage would be more like people or utilities related in nature, which would be rather sticky even in a lockdown? Just those 2 questions.
As regards TLTRO 2.0, we are still in assessment of the same. We are sort of trying to find out which are the kind of NBFCs or MFIs who we are comfortable with from a credit appetite perspective basis, which we can sort of participate in the LTRO -- targeted TLTRO 2.0. So that's still some work to be done. Too early at this -- for us to give a commitment or say anything in the affirmative now. What's the second question?
Within your credit card spend, would you have like a ballpark figure as to what percentage will be more discretionary and therefore would be affected by the lockdown and what percentage will be more as regards to utility payments, insurance payments, grocery or whatever, stuff of that nature, which would persist even in a lockdown?
No, no, No. The way we think about the utility payments and those kind of a payment that goes ongoing, that has more of a customer stickiness value proposition, right? That is not a card spending value proposition or a card business value proposition. It is a medium offered to a customer who's a liability customer to keep the customer engaged with us, right? So there's a different value proposition, but that kind of a stickiness for routine utility payments, telephone payments and so on and so forth. But more broadly, in terms of what the cards is doing, I gave those statistics as part of my delivery in the front in terms of how March was compared to January and February and how the second half of March was compared to January and February, which I believe all of that should be discretionary type that fell off, right? Because if one couldn't have an avenue to spend, that fell off. That was 35% I quoted that the second half was lower. So that's the frame of mind. I don't have more details with me. But directly to answer your utility or the stickiness, that value proposition is a different value proposition for engagement, not for a card spend. We wouldn't issue a card only for them to spend on utilities. That's not the value.
Fair. So would it be fair to say that the MDRs or profitability from these kind of spends is lower, it's more of like the hook part of the business?
It depends on the method of payment adopted by the customer. If it was a BillPay, yes, it will be lower because there is a predetermined lower rate output on the BillPay. But with certain other payment types are taken in the private sector, the MDR will be slightly higher. So it depends on the mix that's exactly there. And again, one other point I want to make is that, again, the merchant acquisition, the MDR type of business is not a value proposition that we go with, right? It's a customer value proposition in terms of, if you have a merchant, we need to have a full-fledged relationship to make this profitable. The MDR as a business as a whole does not make spread.
[ Nik ], your line is on mute.
Can you hear me?
Yes.
Yes. Go ahead, please.
Okay. And I appreciate the fact that the bank has done a lot of stress testing on the portfolio. And I know there's still a lot of unknown due to the virus. But could you give us some color for us to get a better sense of the provision that we might see if we get a more prolonged period of lockdown, i.e., like do you have a sense of how many months your clients have liquidity before they start having more significant issues?
Okay. In terms of liquidity, right, I mean it is anybody's guess in terms of what could -- when. Currently, the schedule, the lockdown lifting is May 3, but it is anybody's guess. We'd love a figure from you what your views are when the lockdown will be lifted, right? That is -- that will be another view that we will have, right? We have as many people in the bank that many news we have, right? That's something to keep in mind. There's no crystal ball exactly that we can do -- look at that. The second thing -- second question that you asked in terms of the liquidity, how long -- how much we could last with. We are one of the strongest liquidity. That was part of the first balance sheet strength that I recap at the beginning of the call, is the strength of the liquidity that the bank runs in. 132% is our LCR ratio. And in terms of that, it turns out to be about in excess of INR 50,000 crores. That's more than enough cushion, right, which is 100% non, which again, RBI has taken it down to 80%, but 100% non, we want to run above 100%, above 110%. And anything above that is what we try to measure to say INR 50,000 crores or roughly $6.5 billion in dollar terms, that's the surplus liquidity. So we have enough room, and there are enough deposits growth that we are having, which our deposit growth are outpacing the advances growth.
Actually, I meant more specifically for your clients. Like I know it's an average, but like do you have a sense of how long the downturn your clients have in liquidity to still be viable?
This is Jimmy. I'll just attempt to answer your question. So I partially alluded to this when I was making the opening comments. What we would know is from what we can observe of customer balances with us and, of course, what we have learned from speaking to the customers themselves. As I mentioned, in the SME segment, we do seem to have a relatively good set of customers. They do seem to have wealth, and they do seem to have liquidity, a fair part of which is, even as we speak, passed in the bank in liquid assets. And this could be used by them as and when they need. They have in their conversations with us, even told us that they would be looking at using this, in fact, even over and above taking moratoriums because of the cost attached to the same. So it's difficult to say how many months it would last because we don't have their entire expense budgets with us from the overall family perspective. We do know what the cost of the enterprises are, but they would obviously have bigger cost than that. In the retail segment, similarly, we have, as we mentioned, a large number of internal customers. We have looked at those accounts. We have seen that balances are fairly stable. The large salary population that we have, we have seen -- and maybe this is important to know. The way things have progressed at this point of time, I think the ethos of the Indian entrepreneur is showing through. They are concerned for employees, and they do not like to starve employees of their compensation. There have been a few cases where salary payments were delayed, but when we have noticed the salary credits into the accounts at a corporate level, they are not coming down. So we are not seeing cuts nor are we at this point in time really seeing layoffs. So there have been some delays, and payments of salary have been made in a few cases with some delay. But apart from that, one would expect the cash flow of that segment also pretty much to remain intact. And that would come every month, month-on-month, so I presume they would have it for quite a few months unless of course, one has to say out of caution things change for the worse even from where things are now. And at that point, it would be anybody's guess.
Okay. And just on strategy, with the current situation, are you slowing down your expansion strategy into the rural and semi-rural areas? And would this have an impact on growth?
The expansion, depending on the product and the line of business, will have slowed down. As we have always said, we neither push nor slow down. We run with a strong marketing infrastructure and a very firm risk policy on all products. As you would understand at this point in time, the risk policy naturally has been tightened considerably, and therefore, business flows into some products will have slowed down. If they slowed down, so be it. We would not dilute our policies. And as we did mention, there are certain businesses like the corporate book where, including giving you the rating scale of what assets are being acquired, we did mention that there is healthy growth.
Ladies and gentlemen, that will be the last question today. I now hand the conference over to Mr. Vaidyanathan for closing comments. Thank you, and over to you, sir.
Thank you, Aman. And again, once more, I want to thank all the participants who took the time to join us and also thank all the bank employees as well as the team that attended to the meetings today. I really appreciate. And those of you who didn't have the chance to ask a question or if you have something, feel free to reach out to us, and we'd be happy to get back to you. Thank you.
Thank you very much, sir. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes today's conference. Thank you all for joining us, and you may now disconnect your lines.