HDFC Life Insurance Company Ltd

NSE:HDFCLIFE

Earnings Call Analysis

HDFC Life Insurance Earnings Highlights

HDFC Life Insurance reported a 6% growth in individual WRP for the 9 months ending December 2021, with a private market share of 15%. Individual APE growth was 8%, though below expectations due to slower recovery in high-ticket policies. The company saw robust growth in policies with ticket sizes up to INR 5 lakhs, signaling potential growth normalization. Sales of policies grew by 9%, showcasing a strong customer reach. Growth from Tier 2 and 3 markets was double the company's average. Retail protection and credit protect products achieved 36% and 21% growth respectively, contributing to over 50% of new business premiums. New product Click 2 Achieve garnered INR 100 crores within a month. The new business margin maintained at 26.5%, with a value of new business increasing by 5% to INR 2,267 crores. The profit after tax grew by 16% to INR 1,157 crores. Future growth is expected to be driven by expansion, new partnerships, and macroeconomic changes.

Sustainable Growth and Market Position

HDFC Life Insurance's nine-month performance until December 31, 2023, illuminates the company's continual growth and solid market positioning. Despite facing challenges with high-value policy sales, an encouraging 6% growth was observed in individual Weighted Received Premium (WRP). The company holds a pivotal private market share of 15% and remains a top-three contender in life insurance across both individual and group businesses. This demonstrates a resilient performance in a dynamic market.

Adapting to Market Dynamics

The business has undergone a varied performance with ticket sizes below INR 5 lakhs outperforming, showing three times the growth of the company's average. On the flip side, ticket sizes above INR 5 lakhs are recovering at a slower pace, attributed partly to high short-term interest rates causing deferrals in demand, but early signs of resurgence are already evident, particularly for recently launched products.

Robust Policy Sales and Diversified Portfolio

With a strong 9% growth in the number of policies sold—a rate that surpasses both the private sector's and the industry's average—the company's strategic direction is clear on widening its reach and deepening penetration. They also boast a diversified product mix with the headline being the 'Click 2 Achieve' non-par savings product, achieving INR 100 crore sales in just 4 weeks after its debut.

Financial Fortitude

Financially, HDFC Life Insurance has not only maintained its new business margin at 26.5% but also witnessed a 5% year-on-year increase in the value of new business, reaching INR 2,267 crores. The embedded value stood robustly at INR 45,173 crores, coupled with a significant 16% year-on-year boost in profit after tax to INR 1,157 crores, demonstrating the effectiveness of their underwriting and cost management strategies.

Strategic Partnerships and Distribution Network Expansion

On the distribution frontier, strategic bancassurance partnerships have seen a year-on-year growth of 17%. The company also embarked on new partnerships with Karnataka Bank, Karur Vysya Bank, and NKGSB Co-operative Bank, and bolstered the agency channel by adding over 50,000 agents. Expanding its distribution network remains high on the agenda.

Regulatory Interactions and Corporate Accolades

HDFC Life Insurance remains proactive in regulatory discussions, notably concerning IRDAI's draft on insurance product regulations. The company's commitment to good governance has also been recognized with the Golden Peacock Award, and its societal outreach through the Insure India initiative set a Guinness World Record.

Forward-Looking Optimism

In conclusion, the firm is set for growth by targeting unaddressed protection needs, with an emphasis on sales in economically diverse regions and a promising future for high-value policies. Backed by strengthening ties with HDFC Bank and fueled by strategic investments, HDFC Life Insurance anticipates capturing further market share and driving greater financial performance.

Earnings Call Transcript 2024-Q3

[Operator]

Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Limited Conference Call. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life Insurance Co. Limited. Thank you, and over to you, ma'am.

[Vibha Padalkar, executive]

Thank you, [ Vaiku ]. Good afternoon, everyone. Thank you for taking part in this conference call to discuss the business performance for 9 months ended December 31, 2023. Our results, which includes the investor presentation, press release and regulatory disclosures have already been made available on both our website and the stock exchanges.

Joining me are Suresh Badami, Deputy Managing Director; Niraj Shah, ED and CFO; Eshwari Murugan our appointed actuary and Kunal Jain representing Investor Relations. I will share key highlights into 9-month FY'24 results, and we'll be glad to take questions thereafter. Starting with operating performance.

Our individual WRP grew at 6% for the 9 months ended December 31, 2023. Private market share for the period 9 months FY'24 stood at 15%, and we continue to be ranked amongst the top 3 life insurers across individual and group businesses. Whilst quarter-on-quarter sequential individual APE growth was 8%, it has been lower than our initial expectations, largely due to a slower pace of recovery in ticket sizes above INR 5 lakhs.

However, there is sustained positive traction across ticket sizes up to INR 5 lakhs. These cohorts continue to deliver well, clocking 3x overall company-level growth. Encouragingly, we are witnessing indications of a resurgence in the high-ticket segment, particularly in some of our recently introduced products. Additionally, we have noted a shift in asset allocation trends in favor of equity investments influenced by the current buoyant market. We have also witnessed postponement in demand from specific cohorts due to the prevalence of high short-term interest rates.

Nonetheless, we view these as temporary challenges and anticipate an uptick in growth as these macro trends gradually normalize. The number of policies sold continues to clock a healthy growth of 9%, outpacing private and overall industry. This aligns with our core objective of establishing a sustainable long-term business by broadening our customer reach.

We have covered close to 5 crores lives across our Individual and Group businesses. Growth from Tier 2 and 3 markets remain strong, witnessing 2x company growth. These markets contributed close to 65% of the overall top line. Average ticket size has remained stable despite the impact on high ticket size business. Our retail protection grew by 36% based on individual APE and Credit Protect clocked 21% growth Y-o-Y.

Overall and retail summer short registered growth of 38% and 54%, respectively, with us continuing to be market leaders amongst private players in overall summer shorts. Our private market share based on overall summer short stood at 19% for 9 months FY'24. Annuity and protection put together contributed to over 50% of new business premium in 9 months FY'24.

Towards the latter part of quarter 3 FY'24, we introduced Click 2 Achieve, a groundbreaking product in the non-cost savings category distinguished by several pioneering features. This innovative plan empowers customers to create unlimited combinations, tailor their cash flows to align with personal goals with the cushion of a guaranteed return.

The customer can also reduce the impact of inflation on income with increasing income option. It also provides the flexibility to grow survival benefit at a rate of 1.5% higher than savings bank deposits. The product has been received well across channels and garnered INR 100 crores within 4 weeks of its launch. This is our second INR 100 crores in a month blockbuster product that we launched this year.

Product mix remained balanced with non-savings and participating products at 28% each, ULIP at 32%, annuity and protection at 7% and 6%, respectively, based on individual APE for 9 months FY'24. Notably, the non par mix saw 200 basis point increase sequentially, largely driven by the successful launch of Click 2 Achieve, reaching an exit run rate exceeding 30% in December. ULIPs have seen an increase on the back of driving equity market, including in the INR 2.5 lakh and above segment.

Moving on to key financial and operating metrics. Despite shifts in our product mix and ongoing investments across channels New business margin was sustained at 26.5% for 9 months FY'24. This reflects our calibrated approach across multiple levers, including pricing, cost management and underwriting, even amidst market disruptions.

As indicated earlier, we have also been able to improve profitability across product segments. Value of new business increased by 5% year-on-year to INR 2,267 crores. Embedded value was at INR 45,173 crores as on December 31, 2023, with an operating return on embedded value of 16.5%.

Profit after tax for 9 months FY'24 was INR 1,157 crores, i.e., year-on-year increase of 16%, supported by 18% growth in profit emergence from our back book. Solvency as on 31st December 2023 was 190%. Renewal collections continued to hold strong with the year-on-year growth of 15%.

Next on distribution. We registered a year-on-year growth of 17% across our bancassurance partners, whilst maintaining a counter share at HDFC Bank, benefiting from a strengthened group relationship. We're also happy to have extended our presence across the bancassurance partners and expanded our personnel in their bank branches, whilst deepening collaboration via various initiatives such as blockbuster products, bespoke training and on-ground engagement. These efforts are dedicated to amplifying customer value and experience.

We are glad to announce our new bancassurance partnership with Karnataka Bank, Karur Vysya Bank and NKGSB Co-operative bank. And we are confident of growing with them over the next few years whilst offering their customers a range of innovative and customer-centric financial solutions. Our agency channel delivered growth in line with the company's performance.

We added more than 50,000 agents in the channel during 9 months FY'24, and we continue to build a robust proprietary franchise. Our strategy focuses on strengthening our distribution network by expanding branches, attracting relevant distributor profile and making consistent investments in technology and capability building.

Amongst other highlights, we are pleased to announce the addition of Mr. Kaizad Bharucha, Deputy Managing Director of HDFC Bank to our Board. His expertise is a valuable addition and we eagerly anticipate achieving significant milestones under his mentorship as a Board member.

Moving on to regulatory update. As you are aware, IRDAI has published an exposure draft on insurance product regulations in December 2023. One of the key aspects in the draft is a proposal to address the concern on early surrender values in traditional products. The draft is currently under discussion and the industry is in the process of sharing its feedback with the regulator.

We believe that the product design should offer the best value proposition to the customer, whilst encouraging long-term commitment to the product and without compromising growth for the sector. Further to the update on the GST show cause notice issued by Director General of GST Intelligence, DGGI, raising a demand in June 2023, the company has filed its detailed response on January 5, 2024, with the adjudicating authority.

We are happy to announce our recent accomplishments, being honored with the prestigious Golden Peacock Award for excellence in corporate governance in 2023 and achieving a Guiness World Record title through our 2023 Insure India initiative. This initiative was designed to heighten awareness about life insurance across the nation.

In conclusion, as protection gap in our country continues to widen, we remain focused on offering solutions to tap into this vast opportunity. Growth in the INR 5 lakhs and below category as well as in Tier 2 and 3 towns remains robust, and these are our focus areas. Even for the growth potential of the above INR 5 lakhs ticket sizes, we hold an optimistic outlook for the medium to long term.

We expect to grow by leveraging multiple drivers, including strengthened counter share at HDFC Bank, capitalizing on ongoing investments, such as branch expansion and new tie-ups, continuing to scale up a high-quality proprietary business led by agency and favorable macroeconomic shifts. The detailed disclosure on our results is available in our investor presentation. We now invite any questions from the audience.

[Operator]

[Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie Research.

[Suresh Ganapathy, analyst]

Vibha, first is on growth and margins it's still Vibha. My point here is at the start of the year, you said a 15% guidance and the actual outcome, unfortunately, has been well short of that. And so far, 9-month numbers have been 5%. I mean is this not getting -- I know the smaller ticket size policies have done well, but the shear contribution of the larger ticket size, you're confident that post we exit FY'24 with the revised guidelines on surrender charges and stuff we can get back to the mojo of getting 15% APE growth and perhaps VNB growth. What gives you the confidence there?

[Vibha Padalkar, executive]

Yes. So a couple of things, and I'll come to the draft surrender related circular. As far as on a stand-alone basis, I have no doubt in my mind about getting the mojo back. And it is very evident in a few things. One is, like I mentioned, the below INR 5 lakhs is growing at -- we've already grown by 17% and continuing to grow. That is number one. Number two is that in a way it's also a function of equity markets and Unit Linked. We've always used the balanced product strategy.

And so we will remain calibrated until some of that happens and it's bound to happen in the time frame that you're talking about, a little bit of calibration in terms of exuberance and getting back to principles of broader asset allocation. Another point is that in terms of the counter share at HDFC Bank also because this year that counter share wasn't there for the full year, so you will have a full year impact of counter share and slowly and steadily continuing to solidify and make inroads in the bank.

The fourth point is all the onboarding of new relationships, three I mentioned. There are some smaller ones that I haven't mentioned, but all of those will start kicking in. And wherever we have gone in with the due relationship, we have ended up with a counter share anything between 30% to 40% over a span of the first 15 months or so. So that also will start happening given the strength of our product offering. And if you were to look at on the agency channel also, you will see that the 75 new branches that we are adding. So that also would start seeing that in terms of [indiscernible] traction.

[Suresh Ganapathy, analyst]

But the problem, Vibha, is peers have done better than you, right, which is pretty rare. I mean you guys not to outperform your peers. So this is the first time that I've seen where you're underperforming the peers by a wide margin. I mean everybody is in the same boat when it comes to all these challenges with respect to high product ticket sizes, right? I mean, so just to understand that.

[Vibha Padalkar, executive]

Yes. So Suresh, when you look at -- since you're talking about peers, we are -- we would like to point out that we have not dropped margins. So if you're versus peers, there has been a fairly significant margin drop. So if there's a margin drop, then selling more of Unit Linked as a percentage, perhaps more aggression on some of the products is not very difficult.

So we continue to stay focused on triangulating all objectives, whether it is in terms of growth in term, whether it is in terms of growth and annuity, whether it's credit life whether it is in -- so whole -- renewal premium, if you look at assets under arrangement, numbers are yet to be out, but we've grown 20% in terms of assets under management. So just the quality of business protection of the kind of business that has already come in and for us to continue with that.

Number of policies also if you look at, we are the market leaders in terms of retail number of policies. We have grown by 9%. So the reason I'm pointing all of this is that is a holistic scorecard. It is not very difficult to just grow EP -- EPI just for the sake of growing EPI. I think it is the philosophy that I want a tick in every box because it's not just growth for this year. Growth for this year will hamper growth for next year.

If I don't grow on number of policies, then it is going to hamper how much I'm able to mine next year. So sowing the seeds, sowing the Tier 2 and 3 broad-basing, that is important. Or even if you look at another metric, on agency channel, we are right up there on number of agents that we have added, 50,000 agents plus that we've added this year. So no let up at all in terms of number of agents that we are able to add and attract to that.

So I think that is the kind of -- that is the reason why it gives confidence. Yes, this year, we constructed in terms of the below INR 5 lakhs and above INR 5 lakhs, and we are quietly confident that whether it's high single digits or 11%, 12% that kind of a -- I think the gap will get -- made up. So I think whether -- the remaining focus -- another aspect I want to mention very, very important is the overall summer short. That grew by 38%. And again, it's not just 1 quarter.

Every quarter, we've been the market leader on summer short. And this is what I'm talking about overall. And if you look at retail summer short that has grown by above 50%. So very, very strong in terms of retail summer short. So all of that is making it possible for us to be neutral on margins. continue to give growth in value of new business and grow step by step. I think that core of our business ultimately is in protection. So while we will grow in savings, but we will calibrate all of these measures.

[Suresh Ganapathy, analyst]

And the IRDAI regulations and what do you think on the -- on for both from a growth standpoint, surrender churn standpoint, margin standpoint, behavioral standpoint, can you just get -- everybody is going to ask these questions, so for the benefit of the audience, can you just,yes..

[Vibha Padalkar, executive]

Absolutely. So philosophically, we are completely aligned with the regulator that where a customer wants is her money down the line, think they've bought the wrong product. How do we give some level of exit or protection of their capital? However, a few things here in terms of how do we get there? So philosophically, no disconnect, but the how part of it is what we are engaging as an industry with the regulators, we've had a few discussions as well, and we'll continue to do that. For example, the circular already has a few enablers which currently we don't have. For example, we can have shorter tenured products. We can -- there is some no GST on certain types of ticket sizes or summer shorts.

Those sorts of things will anyway give us a somewhat of a [ thicker ] how we do the cash flow matching on a longer tenured product? Can we have a discontinued policy fund kind f an avatar, which is already there in Unit Linked as a construct. So for example, in Unit Linked products if somebody were to surrender then it goes and sits in -- the premium sits or the fund sits in a discontinued policy fund and so you're discouraging just immediate churn.

But at the same time, you are protecting someone's money, they don't want to pay or unable to pay future payments, so you're protecting them. So it's those sorts of things, if they come through, then this will help mitigate, that is number one. And also is very much in line with what we are used to as a nation on longer-term products. For example, PPF. None of us worry about the fact that before 7 years, we can't even get some element of it. It's only after 7 years, there is a formula. We're all used to it. So these have different objectives rather than just giving liquidity.

So we are of the -- right now, we're at a stage wherein we are explaining and engaging with the regulators, not that they don't understand these things, but they're very receptive to hearing from us. And we'll see how and in what avatar finally, it makes sense for the customer, manufacturer, intermediary and the regulator. That's where we are right now. But I do believe that even the product construct, I mean, I don't want to give away too many there.

There are at least 5 or 6 different ideas that we have on product construct. One I would share, for example, can we have a differential kicker or someone who says, I don't want liquidity, but I want that kicker on IRR. So many such ideas are there and it's really in the nuances of what the final shape or form will be, therein, there will be a business case. So that's where we are, and it will take some time for us as a sector also to deliberate.

[Operator]

Next question is from the line of Avinash Singh from Emkay Global.

[Avinash Singh, analyst]

A couple of questions. First one, again, into around this product and our strategies that we want to balance product mix. The question here is that, I mean, this is a sector heavily regulated and development keeps [ bombi ] and also the mar -- so is the market condition, be it your interest rates or equity, so not in that backdrop, if we sort of have the ability of the company [indiscernible] is to offer what the market is demanding, customers are demanding a what sort of not a distributor can distribute rather than having -- because, I mean, some way by sticking to a certain product mix strategy. Is that -- I mean, are you sacrificing the growth opportunity? And if I mean, you have already explained a lot on this regulation, but if regulations were to come half on a second product, then you will have to sort of move away from that product, so why.

I mean, why not have a strategy that's sort of agnostic to the products and ability to sort of distribute products widely. So that's one. Second, looking at the agency part. Any particular reason why sort of a there has been a reasonable amount of churn in this quarter on agency? Is it a sort of a clean up to [indiscernible] productive agent or something specific to it?

[Vibha Padalkar, executive]

On your first question, see, every business model, any company, even an FMCG, you will have deferring margins, deferring customer segments, deferring interest on -- deferring objectives. And the same happens here. So these products are certainly not fungible. And we have to do a need-based analysis. Somebody might want 0 exposure to volatility, somebody might want all the upside, somebody will want a lot more of protection, someone will want to have wafer thin protection, some will want to have more help and we have combination products.

So many, many such avatars and that's why it's only through engagement and finding out what is it the customer wants. And then, of course, margin is also within that as to how much can we afford to sell, but it's both ways. And that's why we will continue to be nuanced. I think the fact that we have a balanced product mix, even when the going is good has stood us in good stead time and again.

For example, when we launched Sanchay Plus 5 years ago, it took a long time to be even understood and now it is ubiquitous. But even at that time, when we were -- the sole company selling products like Sanchay Plus, we said we will have certain levels of limitation in terms of how much of this we want to sell unless, of course, the customer really wants it right? So -- and reason for that is exactly this that it helps push in volatility.

It helps wean away our frontline sales from only selling 1 type of product and then when the plug is pulled because of something or the other. It could even be like COVID, not just regulatory or macro, then you new kind of struggle to make a switch. And so our line is very, very attuned and there's compulsory training in terms of being able to sell all types of products and genuinely being able to sell, not just training that they go through.

And so we don't really worry too much about it. I think we do innovate. So depending on what are the regulations that are now in existence we will -- there will always be an opportunity. There might -- it might take a little bit of time for us to conceptualize and manufacture a product, but eventually, we do with whatever cards are given to us. And whatever it is, as a framework we are allowed to. So we have a fair bit of confidence on ideating to be able to do that. And the nuances are always in the details.

Nuances are always in levels of innovation, and we will continue to do that. So just now I explained on the surrender regulation, there could be something else that happens on par, wherein we might have an advantage of course that also comes under these regulation. Something on UL. For example, the profitability on our Unit Linked products again without getting into too much detail, that has increased quite meaningfully from what it used to be maybe 2, 3 years ago, which means that at 30-plus percent Unit Linked where we are in just in stand-alone quarter 3, we don't excessively worry about it.

And that kind of answers your question that this is exactly what we're trying to solve that in the existing construct, how is it that it still makes business sense for us to be able to sell all kinds of products. And so that was your first question. I don't remember what your second question was, sorry, I don't know. Do you want to just mention it again, Avinash? Oh yes, agents on the churn side.

[Avinash Singh, analyst]

Second question was around churn in agents because, I mean, of course, you are focusing on agents. But if I just see the count, there has been a big drop from Q2 to Q3 in terms of your individual agents. Is this some sort of a planned cleaning up of nonproductive variants or like what is -- because we call by H1, you had 210,000 order in, and now again the number is back to 190,000 or somewhere around that.

[Suresh Badami, executive]

So this is Suresh, Avinash. So just to quickly brief you. As part of our stated agency strategy, even though already, there is a minimum business that we are expecting. All our financial consultant partners to be able to deliver and they are supposed to be active. Now the industry does see a fair number of additions from the number of financial consultants as well as some financial consultants who kind of retired from this line of business.

So what we have tried to do over the last few years is kind of ensure that the mix even within the type of financial consultants that we onboard, whether it's chartered accountants, whether it's mutual fund distributors, whether it's retired personnel, whether it's housewives who have -- wanting to do this as a carrier option, we tried to kind of give a score and add people onto our number of financial consultants. And as and how we find people going on to alternate carriers or not meeting the kind of requirements that we have in terms of quality of business we keep -- it's not really churn, but effectively, they don't fit into our business model. And they don't hit our minimum business numbers.

So that's the way we've been kind of looking at it. And of course, it's a question of how many new agents do we have in a catchment. So there's a fairly detailed strategy in terms of micro markets. Where do you want additional financial consultants? Which Tier 2, Tier 3 markets we are coming into? Where do we add those set of financial consultants. So finally, the objective is to make sure that, look, there are people who are keying on this as carrier, stay active with us, be able to sell the right product mix, have a productivity, which is good enough for us to be profitable, make sure that at every club bot, till the MDR, TCO, PTOT, we have a carrier line of path for our agents.

I think that's the way we've been looking at building this channel and which is one of the reasons why you have one of the best-in-class persistencies, you have probably a fairly strong relationship. We have financial consultant partners who've been there as high vintage for us. And we do believe that given as we expand to larger markets, this number will keep increasing on a steady-state basis. So yes, some will go up, some will go down, but that's probably true as long as we are able to attract the right profile of financial consultants.

[Avinash Singh, analyst]

Okay. A quick follow-up. On the group protection side, of course, sequentially there is some bit of softness, is it more to do with credit life or GTI?

[Vibha Padalkar, executive]

It is to do with credit life. Only I'm saying that because of the size. GTI is a lot smaller than the credit life is. GTI, as you know, that we are very calibrated in terms of opportunities that we see. There also has been a price normalization post COVID. And we continue to see on a case-to-case basis, whether it is rightly priced or not. As far as credit life is concerned, some of the RBI-led announcements have -- we see a little bit of slowdown in disbursement, especially in some of the segments like auto and PL and so on. So while our attachment rates have not gone down, overall, the disbursement itself has been a little bit soft, not hugely. We still have grown over 20%. But yes, versus some of the earlier quarters, a little bit of that. That's the only big ticket reason.

[Operator]

[Operator Instructions] Our next question is from the line of Sanketh Godha from Avendus Spark.

[Sanketh Godha, analyst]

I just wanted to understand the current -- our market share in HDFC Bank, point number one. And second, if definitely it has improved compared to the last year. market share gain in HDFC Bank should -- has not resulted in banca channel to do well. Maybe, I can understand the direct channel or [ dukar ] channel or even [indiscernible] channel where high ticket size is an issue, the growth has not happened. But the banca channel despite market share, the growth seems to be muted around 2 percentage for third quarter, at least.

Sir, just wanted to understand whether this short-term thing, what you said, the people are preferring more short-term products rather than the insurance long term products is driving that moderation, is the thing which I wanted to understand a little bit from you? And second thing...

[Vibha Padalkar, executive]

Sanketh let me just answer this before or I'll forget what your second question was. On this one, I don't know where you're getting the numbers from because overall, our banca channel, like I mentioned grew 17%. So growth has been very robust in our banca channel just -- when I say very robust, just given some of the changes on that INR 5 lakh situation?

[Sanketh Godha, analyst]

Vibha I was referring to third quarter specifically for third quarter. 9 months, I understand it is 16%, 17%. For third quarter, it seems to be weak. So that's the reason I was asking.

[Vibha Padalkar, executive]

So third quarter was largely because of base effect. If you look on a 2-year CAGR basis, our bancassurance grew very well. The reason is if you see not just HDFC bank, but all our bank relationships also where had fortified last year. So whether it is YES BANK or IDFC FIRST or Bandhan and RBL, so all of that did very well. And so the -- some of the base effect that was coming in on a normalized basis, that's not the case. Also, up to INR 5 lakh continued to grow almost close to 20% even in quarter 3. So again, for this year, you have pardon my, again and again saying up to INR 5 lakhs and above INR 5 lakhs because quite expectedly, the trends are very different and so it is noteworthy that NOPs have grown by double digits in banca and AP is grown close to 20% up to INR 5 lakh.

[Sanketh Godha, analyst]

I understand that point Vibha but my point was that I thought that this was more than compensated by the market share gain in HDFC Bank. I believe we have the...

[Vibha Padalkar, executive]

I'll talk about the market share. Yes, the market share has continued to be in the mid-60s as against mid-50s that you saw earlier. So in that sense, that has happened. And year-on-year, also that has grown. So the slower growth is only attributable to above INR 5 lakhs. See, the above INR 5 lakhs like you said, is enough to compensate in the market share gain. That is not the case because the amount of -- the INR 5 lakhs was tapered in the first 2 quarters and then continued to move upwards towards quarter 3 and then, of course, quarter 4, we know what happened, right? So that impact is coming through. Suresh, do you want to add anything?

[Suresh Badami, executive]

Yes. So I mean quarter-on-quarter basis, obviously, the banks also have their own focus on the CASA as well as on the other side of business, while most of our banca partners have grown in line with the overall private bank growth, including HDFC Bank, it also -- while we have consolidated our market share there are these quarters up and down which will keep happening.

And in some sense, we have managed to maintain our market share, grown it over last year. We've grown the number of NOPs, which was more critical -- the greater than INR 5 lakhs is what has probably pulled us down a little bit across some of the banca partners because many of them have their wealth verticals, which have got affected.

But broadly, the trending in the direction in terms of how one the banca infrastructure is growing and expanding, to our presence across all these banca partners. And three, of course, the fact that, look, we are gaining ground in terms of market share at each bank and some of our new partners and additional new partners, I think that stays constant.

[Vibha Padalkar, executive]

And to add there, the earlier comment -- one of the earlier callers therein I talked about product mix and how we are looking at Unit Linked products that impacts bancassurance even more because banca does have 50%, 60% Unit Linked products. So if you were to look at our share, excluding Unit Linked products, that is in the 70s. If I just were to look at that on a -- as a bifurcation. And so we will choose in terms of which segments, how much we want to be present. And when some of the market exuberance goes down and the counter share continues to inch up, you will see -- you will be able to see the overall growth. Right now, if we are able to see growth in the segment that makes sense to us.

[Sanketh Godha, analyst]

Got it, it Vibha. And the second question which I wanted to check was that when I look at our VNB walk, it says that [indiscernible] is improved by -- because of the product mix and [ AIT ] because of -- it was budgeted by [indiscernible] because of the higher cost. So given if I look optically, the product mix actually deteriorated because your non-par contribution and par contribution has come down and ULIP has gone up, but you still say that from the work point of view, [indiscernible] is reflect the improvement in the margin.

So is it completely led by protection or there some other strategy like in ULIP you attach higher sun assured that played a role to see a margin expansion at the big product level? And second thing, related to it, when do you think this cost related things will iron out because is it more to do with your cost on technology, what you highlighted last year? Or is it because of negative operating leverage which is happening because of muted growth now?

[Niraj Shah, executive]

So Sanketh, you actually answered all the questions yourself. But starting with on the product side, its margin delivery across all product segments has improved for 2 reasons on Unit Linked, like you yourself said the amount of protection attached to Unit Linked products has gone up significantly, both in terms of base sum assured as well as in terms of riders. Second, in terms of our persistency has also improved over the period of time across various channels. So that has led to better profitability compared to what it was in the same period last year on Unit Linked products. .

Second, on the non-Unit Linked products, our pricing discipline approach is something that does help us in periods where there is a lot of progression in the market. We try and balance our growth and profitability objectives. So that is something that has helped us maintain and improve some of our profitability in the non-Unit Linked segment as well. As far as protection is concerned, yes, you're right. So protection has grown both individual as well as credit life, so that continues to add to the value that we make. And the sum assured growth is an indicator of that as well.

As far as cost is concerned, again, if you look at our overall expense ratio has been at the same level of last year, about 19.4%, 19.5%. And the reason for this gap is largely because of, again, what you said, the operating leverage is negative right now because our planned growth is 15%, 17% in terms of what we capacitized for, but our delivery is short of that. So that definitely is a function of the operating leverage, which showed rebalance once our actual growth is in line with what we are capacitized for.

[Vibha Padalkar, executive]

And just to add to that, if you look at our new business, sum assured for the quarter on retail itself, it's grown by 44%. So to some extent, what you had alluded to is absolutely right, that focus on protection at a sensible pricing, it's not just growing protection for the take and having a price war on protection, but sensible pricing on protection and continuing to grow that is very evident in the sum assured -- retail sum assured growth as well. And that has helped mitigate some of -- so that's why you have a net positive in terms of product mix profile.

[Sanketh Godha, analyst]

Got it. Maybe just one small thing. I want to squeeze. In legal protection, if I see on quarter-on-quarter if I look at the second quarter, you probably did INR 150 crores, the number suggest that you did around INR 135 crores, INR 136 crores in the third quarter. So sequentially it is declining. So anything to read that the low base has already played out in first half. And now you will see a normalization of the growth part in the protection business. Is the right way to read it through the numbers or something else?

[Niraj Shah, executive]

Yes, directionally, yes, Sanketh. We did say that the base effect will be a lot more pronounced in H1 and will get normalized over H2. It is what is happening. So we still believe 20%, 25% growth is possible on a normalized basis and we're heading in that direction.

[Vibha Padalkar, executive]

However, in terms of absolute, I would not read too much in terms of a reduction, if I read a little bit here and there, we also react to competitive intensity [ wherein ] it is wiser to withdraw rather than close to loss-making business or margins that don't make sense or give up on underwriting. So a little bit of calibration, you'll always find, but secular growth quarter-on-quarter should continue to be our target. But growth will also depend on what happened last year. And we have said that we should end protection growth over the next 3 years higher than company level growth. Will it be in the 50% range? Not if we wanted to price it sensibly. But it should very comfortably beat company level growth.

[Operator]

Our next question is from the line of Shreya Shivani from CLSA.

[Shreya Shivani, analyst]

Congratulations on a good set of numbers. I have 2 questions. First is on the -- is for the Slide on Bharat geographies, Tier 3,4 cities...

[Operator]

Shreya may we request you to use your handset please. The audio is slightly muffled.

[Shreya Shivani, analyst]

Is this better? Hello?

[Operator]

Yes, please go ahead.

[Shreya Shivani, analyst]

So I have two questions. First is on the Bharat -- the Slide on Tier 3, 4 cities. Can you help us understand which channels do you think will help you grow better in those geographies, whether it's the agency channel, whether it's banca or a combination of both?

And also one question, as you expand into deeper geographies, what is the time line that you think of when you will be able to deliver higher than industry growth now that you are permitting your business model away into -- driving it in more into the smaller cities.

Second is on the time line for regulation, as you mentioned the about the regulation. Can you help us understand is there any indicative time line that you can give us that maybe this -- it will get implemented in the next quarter half year? Or any flavor around that would be useful.

[Suresh Badami, executive]

Suresh here. I will answer your first question on the Tier 2, Tier 3 growth. Frankly, if you ask, we are looking at taking insurance across to Tier 2, Tier 3, across as many platforms as many partnerships as possible. And I mean even if we start with, let's say, Bancassurance. If you look at primarily with HDFC Bank, we are expanding into all the SURU markets, the semi-urban and rural market. They're spending by more than 1,000 branches last year, right? You look at most of our other banca partners who are there are also expanding in. We have partnerships with many of the small finance banks and many other banks which are present in specific markets, whether you take the Ujjivan, Equitas, Utkarsh, Bandhan, IDFC, many of them are expanding. So clearly, bancassurance is going to be one of the platforms which we expand. .

Agency clearly is a channel which we believe we should be able to expand. We are adding 75 new branches. We are looking at seeing how we can appoint agents in some of these newer models in terms of many of these up-country locations, where we should be able to take it into -- and this is the first time that you would have seen that as an industry, we have kind of created an agency structure, which is looking Tier 1 and Tier 2, 3 markets.

So our entire team has a dedicated vertical which is looking at Tier 2 and Tier 3 markets. It is not to say -- firstly, I'll also correct that we are not saying that pivoting to Tier 2, Tier 3. I think we see the opportunity even in Tier 1. So we will come out with both the products as well as key strategy on the Tier 1 markets. There's no reason why we look at lesser productivity through banca in Tier 1. We are looking at micro markets even within the Tier 1 market, and that is something that we're doing.

It's just that we see that in Tier 2, Tier 3, we also have a significant brand advantage when it comes to customers looking at HDFC, which is a fairly well-known thing other than LIC and SBI, which typically have been there in this market. As you see Life clearly stands out in terms of awareness and consideration, and we believe we have the opportunity to go out there and grow.

So now the question is how quickly we'll be able to take and ramp this up? I see with the Banca presence clearly, we can expand fast. But we these banks, the -- our branches as well as our agents going into this markets anywhere between 12 to 18 months, we would start seeing numbers expand.

The third thing which I'd also like to add is that, look, we do believe that with through some ecosystem partners, we should be able to take away different kind of product range to market. So if you remember earlier, we had looked at the Airtel tie-up where we were able to reach out to [ Combi ] product we were able to reach out to many of these markets. I think those opportunities will also come. So we'll not let go off any of these opportunities to reach into these SURU markets.

[Shreya Shivani, analyst]

That's very useful. And on the time line of the regulation.

[Niraj Shah, executive]

So Shreya, difficult to answer that, but the exposure draft is out for -- we are in the process of submitting our representation of the sector and some companies individually as well. And then we are very hopeful and confident that we will have a chance of meaningful deliberation over the next a few quarters. And I think depending on when the regulator is thinking of making this applicable prospectively, I think it's a function of how soon some of the engagements happen, but it's really up to the regulator to decide on this. But we do believe that the engagement is something that will happen.

And also, there will be -- we do hope that there will be some time available for making whatever transition that's required. And in light of our earlier conversations, I think there is no disconnect at all. we are all aligned in terms of protecting the long-term proposition as well as providing better value to early exit customers. So it's some technicalities that need to be discussed and deliberated upon. Once that is done, then I think we are good to go. But the time lines -- we don't really have a visibility on that.

[Shreya Shivani, analyst]

Sure. So you mean that even if the regulation comes into place, if you have to change your product structure, et cetera, it will take some time to launch those new product business, right? So it can be a little -- this thing could actually play out over a couple of quarters in that case, right?

[Niraj Shah, executive]

So again, it depends on which shape and form the final draft -- final regulation is coming. I mean just taking extreme scenarios if it comes in the existing form, it will take a significant amount of product redesign, which will require some -- more amount of time for that. If there are some tweaks that need to be made, which aligns with the regulators and the industry objectives, then it might be sooner. So it really depends on which form the final regulations actually come into effect.

[Operator]

Our next question is from the line of Supratim Datta from AMBIT Capital.

[Supratim Dutta, analyst]

So the first question that I would like to do is on the year-end guideline change. So over the last 2 quarters, you have heard that the commission rates have been changed across different channels. I just wanted to know what is the current status that is around -- has the negotiations that all the channel partners come to [indiscernible] or is this something which could continue for the next 2 or 3 quarters? So that's the first question from [indiscernible].

[Vibha Padalkar, executive]

I'll take that. So yes, more or less, we have passed the EOM conversations we are coming almost towards the end of the year. And we look at it holistically with our partners that -- it needs to be that it makes sense to the customer, it makes sense to the manufacturer as well as the partner. And those conversations have been had, I'm very happy to share that there's been no detrimental impact on the customer and partners also do understand that, ultimately, they are their customers. .

And it is important to be both fair transparent, equitable to their customers is sell. So that's really where we are right now, and we don't really see any material impact as at all. It's -- we're just thankful to the regulator to have given us the flexibility to be able to see what kind of arrangement, what kind of contractual nuances that we can tweak with the flexibility as long as overall akin to TER, we have to stay within the EOM ratio.

[Supratim Dutta, analyst]

Understood, understood. And coming back to your previous comment that you made that the ticket sizes below INR 5 lakhs have been growing at 3x the company level, which basically means 15% and given what previously indicated that about INR 5 lakhs ticket service policies are around to 11% to 12%. That would mean above ticket size policies -- INR 5 lakhs and above policies this year has contracted by around 2/3 compared to last year for the first 9 months. Is that the correct implication, I don't know...

[Niraj Shah, executive]

So the above INR 5 lakhs ticket size business last year, I think on overall total APE, what you mentioned after the budget was around 12%. It's now around 6% of our total APE. So it's about -- I mean the proportion is now 6% of our total business, total APE compared to 12% last year.

[Operator]

Our next question is from the line of MW Kim from JPMorgan.

[M.W. Kim, analyst]

Yes. So I have the other one question. I guess that that's about -- and that is about your growth outlook. For last 9 months '24, the unwind from the buying force is larger than new business by your creation -- so my question is, should we confirm the potential slowdown on the EB growth in next 12 or the 24 months?

[Niraj Shah, executive]

So MW, I think basically, the two large components that will affect this -- the unwind which is upwards of 8%. And what has got impacted is definitely the VNB contribution and the VNB contribution, given that we've held our margins is largely a function of [ APE ] growth. This year, we definitely are at a lower level of APE growth than our capacity. .

So that is what is dragging down the embedded value, operating profit, and that 16.5% is fairly close to where we were last year. The delta being a function of 2 things. One is the VNB contribution is lower to the extent of about 50 basis points, and the remaining 50 basis points is actually coming from the denominator effect. We had a preferential capital raise in the previous period that has expanded the denominator, and that is giving another 50 basis points kind of a gap.

So by the end of the year, we are expecting to be in the range of what we have been talking about in the 17-plus percent range, and that's what we would aim to deliver in the coming years as well, once the VNB contribution stabilizes to the numbers that we've seen in the past.

[M.W. Kim, analyst]

That's very clear. Just one thing, but it's not really the question, but my understanding is that the regulator that dropped, looks too conservative in terms of the surrender by related one. So the -- my guess is that now -- so India, perhaps that may have the highest of surrender value among the Asia countries if the initial drop was to be accepted. So just to -- I'm wondering whether -- do you expect any certain portion of the adjustments compared to the initial draft on this surrender value related to regulation? Or you think that due to the very high customer protection, this largely makes sense based on the industry perspective. So I just want to get some sense about this.

[Niraj Shah, executive]

So MW, I think in all fairness, right now, we have -- we are still in the process of engaging with the regulators. We do understand there broad thought process in terms of protecting the interest of the customer, and we are all aligned to that objective as we've discussed on the call. The regulator, of course, is aware of similar long-term product available, both globally as well as in India and the kind of trade-offs that an investor or a customer needs to make between guarantees and liquidity. So I think given that overall...

[Technical Difficulty]

[Operator]

Ladies and gentlemen, please stay connected while we reconnect the management. Thank you. Ladies and gentlemen, we have the management line reconnected. You can go ahead, sir.

[Niraj Shah, executive]

Yes. So basically, just taking off from where we got disconnected is that the regulator is aware of the landscape in terms of long-term products, which have a guarantee attached to them. But we've not had a chance to formally interact with them as a sector or as a company. So we look forward to doing that MW. And we do believe that some of the technical aspects of product design is something we'll be able to impress upon and without diluting the ultimate objective of customer interest. And we believe that it's possible to achieve with some tweaks in -- about the exposure after suggesting at this point in time. But I think we'll be able to give more clarity only after some of these interactions that, hopefully, will happen over the next few weeks.

[Technical Difficulty]

[Operator]

Ladies and gentlemen, please stay connected while we connect the management. Ladies and gentlemen, we have the management line reconnected. .

Our next question is from the line of Madhukar Ladha from Nuvama Wealth.

[Madhukar Ladha, analyst]

Likely most of my questions have been answered. But just a clarification. On the above INR 5 lakhs ticket size policy, what has been the decline in the 9 months period? Can you give us that number?

Second, when you say 12% of your individual APE is from the INR 5 lakhs and above segment, which was last year. This does not include the additional INR 1,000 crores, right? I just wanted to clarify that once more.

[Vibha Padalkar, executive]

I'll just come in here so that before you ask further question Madhukar. So as ticket size is about INR 5 lakhs, I don't have the number handy right now, but I'll just give you an indication, different channels reacted differently. For example, our wealth channels, obviously, there was a much more adverse reaction, but the overall size of -- contribution of our wealth channels is lower. Later, if I were to look at, say, an HDFC Bank channel or any of our bancassurance partners, that reversal is beginning to be seen now and like I mentioned earlier, with the launch of our latest new product Click 2 Achieve, we are beginning to attract higher ticket sizes also. And we're again, after a hiatus, beginning to have conversations such as higher levels of underwriting and so on. So varies quite a bit.

Agency is somewhere in the middle of maybe double-digit negative growth on the INR 5 lakhs and above. So really varies. Again, INR 5 lakhs and above is more amenable to something like a pension because some nuances on tax and other things and also limited underwriting. So mixed bag really.

[Madhukar Ladha, analyst]

Right. Okay. And the clarification on the full-year number, the 12% does not include the INR 1,000 crores additional sales, right?

[Vibha Padalkar, executive]

No, it does not. See what we did not do perhaps is that while we only backed out the INR 1,000 crores, it is not that above INR 5 lakhs was sold only in March. It was sold, and it was picking up pace towards the beginning of quarter 3. And that's really what is playing out. So quarter 2 was bigger than quarter 1, quarter 3 was bigger than -- and so on. Sequentially, it was -- and also given where interest rate were then, this was doing exceedingly well for us and for the sector. And that's really what -- there is a seasonality of play also that we are seeing here. And that's why as we exit this year, some of that rebasing will start happening of more normalized levels of ticket size.

[Madhukar Ladha, analyst]

Got it. Understood. Then just in the light of how things have played out this year, 9 months. Any sort of -- I don't know whether you have changed your guidance, like have you spoken about that already in the call? I'm sorry, I missed a little bit of it, but what's -- do we still sort of running for 15% growth, excluding that INR 1,000 crores or do we -- it seems to be that most likely we will miss that number.

[Vibha Padalkar, executive]

I think, we're running for a double-digit growth in quarter 4. This is also excluding INR 1,000 crores.

[Madhukar Ladha, analyst]

Excluding the INR 1,000 crores for the individual APE, we should look for a double-digit growth.

[Vibha Padalkar, executive]

That's right. While we don't really -- it's not an active guidance. But what is it that we are running for, double-digit growth.

[Madhukar Ladha, analyst]

Understood. Understood. And finally, on the group savings side, I see that there is some reduction in business. I think group protection side, you already explained. But what's happening on the group annuity and the other group savings business?

[Vibha Padalkar, executive]

So we had one-off last year -- Suresh, you want to without -- we're not giving further details and so on, but there was a one-off large account last year, that more a base of it.

[Suresh Badami, executive]

Yes. So of course, they have -- there has been a little bit of a slowdown in some corporates. But otherwise, the -- it's not that we've lost market share in any of this as a segment. Second, we have a little bit of a base effect of what we had gained previous year, which has led to this little bit of a de-growth.

[Madhukar Ladha, analyst]

Right. Is it possible to...

[Vibha Padalkar, executive]

[indiscernible] in a strong footing with...

[Suresh Badami, executive]

And to be fair also, there is a lot of competition coming in this segment, given the overall rates and margins in this segment. So it's a combination of all 3, but we are confident that we should be able to get back our growth with all factors playing in.

[Madhukar Ladha, analyst]

Got it. Got it. Understood. And can you quantify the one-off effect, if that is possible?

[Suresh Badami, executive]

No, this was...

[Vibha Padalkar, executive]

There will always be some pluses and minuses, but it was -- either it was fairly one-off in a sense that there were some corporates that we signed up and then the employees' accounts moved to us. So that's what happened.

[Operator]

Our next question is from the line of Anirudh Shetty from Solidarity Advisors Private Limited.

[Anirudh Shetty, analyst]

I will take my question on at a time. So my first question is essentially on the draft document around surrender charges. I know it's at early stages of discussion and there is a range of outcomes that can happen. But assuming a more extreme outcome happening in terms of the [ capital on ] charges, how does one thing for implications for -- could you talk a little bit more about our non-par product in terms of what was the persistency that we kind of seen in this product? And how much of margin could get impacted as we see a more extreme capping of charges in this product segment?

[Niraj Shah, executive]

So it's -- like you rightly said, it's very early stages and very difficult to make a guess here. But I mean just philosophically, we can talk about two things in terms of design. One in terms of what will still enable creating a product which is similar to what we see today in terms of a long-term guarantee. That will have a certain set of things to be dealt with.

And second is in terms of what you mentioned in terms of cap on charges equivalent, that will probably have a different implication in terms of profitability or distribution remuneration. So these are two separate aspects. We are more concerned about the first one. The second one can be dealt with a lot more seamlessly because they are more controllable. One thing that none of us would want is compromise on being able to design a long-term proposition that we are able to design today. And that's what will be the focus of our discussions and engagements with the regulator.

[Anirudh Shetty, analyst]

The next question is our non-par product spending. [indiscernible] in our ability to kind of give our customers the ability to lock in a yield -- a certain yield for a long period of time. Do you see this unique value proposition getting diluted as say customers could buy long-term G-sec directly from -- on a trading platform?

[Niraj Shah, executive]

So this is possible even today. I mean, not be very seamless, but still available today. And you know the same argument holds for let's say even an annuity product to some extent. If someone wants to buy a long-term government paper, But having that of premiums that you pay at one contract, say 5 premiums or 8 premiums or 10 premiums and then get a stream of income constructed in 1 solution, that may not be very feasible for an average customer. So the conversation is very different from an ultra HNI who has access to a lot of wealth management advice and ability to structure solutions which are very bespoke to him or her. But our average customer who we target anywhere between -- from a sector perspective, INR 15,000 to maybe INR 75,000, INR 100,000 kind of its size. We suspect that kind of advice is not really available to such an average investment.

So from that perspective, I think it's good to kind of have solution, which is addressing all of those things without having to do too much engineering at one's personal level. A regular premier product is different from a single premium product, as you know, in terms of the biggest aspect of reinvestment risk. So that is an additional aspect to really consider.

I mean -- so a lot of these things really come into play. And we believe that the regulator will be thinking more of an average customer who is still kind of in that form of protecting and then creating some sort of wealth for themselves and the family and their post-retirement period. So a large part of our population at least will not have access to a lot of that bespoke advice that will be required to do some of the things that we spoke about.

[Anirudh Shetty, analyst]

Got it. And just one final question. More on -- when we look at our product level persistency, protection in the 61st month is 73%, savings is 56%, ULIP 49%. If you look at persistency as a metric to understand the customer satisfaction with the product, so what explains why savings ULIP is in lower persistency product for us.

[Niraj Shah, executive]

So two things. I mean, Unit Linked is yes, it needs to be seen differently from some of the other products. Unit Linked, I think what happens typically is that there is this notion that after 5 years, I mean I can withdraw my -- I mean, of course, you can withdraw your money as a customer. But I mean, does it -- do you full service being a product for 5 years, so we do not believe so. .

So when you're saying 50-odd percent of the people continue, it's a combination of 2 sets of people. One set of people are actually continuing in the policy, but are not paying any further premiums. That is also part of that number, and it's a fairly meaningful part of that number, which is a fair call that I've paid 5 premiums, I will stay in your product for 15 or 20 years, but I'll not pay any further premiums, we're okay with that because that's the choice that the customer is making and it probably will meet his other requirements. Then there is a set of customers who are just exiting from the product completely. Now that is the choice that we would question in terms of whether it's the interest of the customer. It's certainly not in our interest, no question about it, but we don't believe it's the interest of the customer as well.

But I think as awareness levels increase, more and more customers will make more informed choices. If they're looking for a shorter time horizon, then this is not the place to go and that is something that we are very clear in terms of making our conversations with customers when we are engaging with them at the point.

The other products, you will see a fairly strong improvement in subsequent year persistency. And that, again, we need to kind of break it up into two parts. There are products in which customers after paying 2 or even 3 -- 2 or 3 premiums and continue being in the products and get proportionate benefit and they do not really lose out in terms of what happens to -- in case of someone who stops after paying 1 or 2 premiums in today's context. So a large part of customers is what is called paid up. They get proportionate benefit because they choose to pay part of the premium that they contracted for initially and then they stay in the full course of the policy and get the proportionate benefit.

So that's again a choice similar to someone who have stopped paying premiums in Unit Linked and it's probably an informed stories by some of them. Very, very few number of customers after paying 2 or 3 premiums actually surrender and exit the policy. That number is, in our case, at least about not more than 1% every year after the first couple of years.

[Operator]

[Operator Instructions] Our next question is from the line of Neeraj Toshniwal from UBS India.

[Neeraj Toshniwal, analyst]

Just wanted to check as if...

[Operator]

Sorry to interrupt, Mr. Neeraj. May we request you to use your handset. You are not audible, sir.

[Neeraj Toshniwal, analyst]

Is it better now?

[Operator]

Yes.

[Neeraj Toshniwal, analyst]

So wanted to take on the [ REC ] maintenance margin neutrality, given -- just mentioned that, probably, we'll deliver double-digit kind of growth in Q4 under [ GDP ] but that would be a little [ add on, ] on the margin side, it could be a little [ toll to us ], so wanted to check, are we still maintaining that?

[Vibha Padalkar, executive]

Yes. 3 quarters, we have done that. So 1 more quarter to go. Yes, that was the same.

[Neeraj Toshniwal, analyst]

Okay. And given this year, obviously, you had a lot of volatility in terms of fees [indiscernible] the and change in product regulations? So how do we think about the next year and the wallet share from HDFC Bank, which still looks a little muted as that has today [indiscernible] like the bank has more focus on the deposits and all. So how do we see bank growth per se, even it [indiscernible] wallet share?

[Suresh Badami, executive]

No. So look, I think directionally, like we said earlier the bank is looking at market share, which will growing for HDFC Life. Obviously, we have to ensure that our support to the bank whether it's in terms of products or training of manpower is adequate. And I think that expectation is right. The bank, obviously, is going through the next round of merger at their level. So given what's happening in the market on the liability side, plus the internal -- in the long run, obviously, they will continue to focus on ensuring that their customers also have life insurance.

So we don't see any reason why the focus on penetration, the focus on fee income, the focus on life insurance should come down and we should grow along with that. They're expanding the market. They're growing into multiple locations now. Even their branches are scaling up, their customer base is increasing. So if you were to look at it in terms of the opportunity on their customer base, there's no reason why they shouldn't grow. And if -- as what they're indicating that as long as we're able to make sure that we are in line with their expectations. Our market share will also continue to grow. So I would say there's no reason why anything should happen differently next year.

[Neeraj Toshniwal, analyst]

And the target wallet share is around [ 50% ] to 70% or are we aiming for 70% and plus...

[Suresh Badami, executive]

The target is definitely there.

[Vibha Padalkar, executive]

And at the same time, we will look at in the product mix. So it is not just top line for the sake of top line. We will see as to which segments we want to increase our market share.

[Suresh Badami, executive]

For instance, this year, the bank has done very well in terms of the protection share increase, right? And that is really good in terms of the sum assured growth that it has helped us deliver.

[Neeraj Toshniwal, analyst]

Sure. Coming to that, group protection actually looks a little lower. I think all of you mentioned that there has been some impact, which even -- recent regulation from RBI, but do you think it's just temporary or it could actually pick up from [indiscernible]

[Vibha Padalkar, executive]

Sorry, this is on credit life. Yes, so I think that at least the bank will continue to do well, maybe some level of softness in the NBFCs for some time, we might see, but I think it will normalize. And for us, we are very pleased in terms of our credit life portfolio that it's very well balanced across banks, NBFCs, small finance banks HDFC group and so on. So there's enough in terms of balancing of any regulatory changes.

[Operator]

Our next question is from the line of Dipanjan Ghosh from Citi.

[Dipanjan Ghosh, analyst]

Coming to the Tier 2 and Tier 3 markets. If you can give some color on the margin profile for, let's say, similar products in Tier 2, Tier 3 or the Tier 1. Now I understand it will depend a lot on multiple operational factors, channel, persistency, pricing, et cetera. But if you can -- some broad color on how that has been evolving, and on that context, if you can just also mention on the demand of the customer appetite in Tier 2, Tier 3 versus Tier 1 in terms of product profile, duration ticket size out there?

[Vibha Padalkar, executive]

Yes. So fairly similar in terms of margin profile, Dipanjan, nothing that is -- because the pricing has to be right, things like you are selling longer tenure has to be there, for us to understand what the mortality profile is as well as what is the persistency profile. As long as those are taken into account in how we price, how we underwrite, then margins are fairly. So that's not something that is way off or something that we worry about. And in terms of what kind of products and so on. These would be tailor-made for Tier 2 and 3. We are -- we always look at certain variants that will make sense. That will also protect, for example, someone whose income level might be slightly lower, whose appetite to take risk might be a little bit lower. And so, for example, on protection, even in terms of understanding the product or regular premium is a nonstarter, maybe that individual can start off with ROP, followed by a top-up of regular premium or some or a rider or something down the line, but maybe they start off with an ROP, maybe to start off with simpler savings products, easier on underwriting and so on.

So yes, the kind of product variance could change a little bit, but essentially, products would be the mother product, but the variance that we sell could be very nuanced for a slightly different customer segment.

[Operator]

The last question for the day is from the line of [ Noel ] from Ubisoft Entertainment Limited. Please go ahead.

[Unknown Analyst]

My question is with regards to the yearly performance for the past year and what are the -- what are your projections of how corporate bond yields and G-sec rates are going to go down. And in respect of that, what do you think will be the track business performance and what rates are you expecting out of the next year of your business as well as LIC.

[Niraj Shah, executive]

So honestly, it's difficult to try and make a guess in terms of where the interest rates will be. But what we've seen in the past is that typically whatever the rates of interest are the demand for the long-term guaranteed products for the past 5 years has been fairly robust as you would have seen. Whoever had a product has had a fairly significant share of that product for the last 5 years. What has definitely been more relevant in terms of short-term versus long-term interest rate. So if the short-term interest rates are very similar to long-term interest rates, there may be customers who may be thinking about postponing their decision to buy or come in through a longer-term product. Has that happened? we've seen some of that happen when we talk to customers and some of the distributors.

Now there is a broad expectation that interest rates will go down over the next 12 months, 18 months, when that happens. The key will be in terms of what is short term and the long-term interest rates. So if the interest rate environment is still upward sloping, then we don't see any change in the way customers are likely to think about committing to a long-term product. But if the yield curve is flat then you could see some sort of softness relative to what you know we could otherwise see. But beyond that, I think typically, customers who are looking at a long term do not really think too much about what the shorter-term trends are. So even at this stage, we've seen 30-plus percent mix on non par. So I think that's a fairly strong indicator of that.

[Unknown Analyst]

Okay. But then what is your expectation regarding LIC and how will they be changing their rate mix?

[Niraj Shah, executive]

Honestly, not for us to answer that, but what we can just say about them as a very respected peer is that they have been very calibrated in the way they've approached pricing and underwriting on all categories of products, whether it's long-term savings, annuities or protection. So we would believe they would continue on that path.

[Operator]

As there are no further questions, I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments.

[Vibha Padalkar, executive]

Thank you, [ Vaiku ]. Thank you, everyone, for joining today's call. On behalf of HDFC Life, I wish you all a great year ahead. Please feel free to reach out to our IR team in case of any further queries. Have a great weekend.

[Operator]

On behalf of HDFC Life Insurance Company Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.