Ladies and gentlemen, good afternoon, and welcome to HDFC Limited's Q2 FY 2022 earnings conference call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touchtone phone. Please note this conference is being recorded. We have with us HDFC's Vice Chairman and CEO, Mr. Keki Mistry. Managing Director, Ms. Renu Sud Karnad. Executive Director, Mr. V.S. Rangan. And Member of Executive Management and Chief Investor Relations Officer, Mr. Conrad D' Souza. I would now like to hand the conference over to Mr. Keki Mistry. Thank you, and over to you, sir. Well, thank you very much, and good afternoon, everyone. At the outset, I would like to welcome all of you to HDFC's earnings call for the second quarter of the current financial year. The board of directors at its meeting held earlier today approved the financial results for the half year ended September 30th, 2021, which were subjected to a limited review. Over the next few minutes, I will give you a summary of the key highlights of the performance for the half year and the quarter ending September 30th, 2021. As we had mentioned in our earlier call, business during the first quarter was partially disrupted as a result of the second wave, particularly during the latter part of April and in the month of May. There has been a sharp recovery in business from June onwards. This momentum has continued through the second quarter. The following were the main highlights of the second quarter. RBI has continued to ensure that there is adequate liquidity in the system and that the liquidity is made available to all segments of the market. Interest rates have by and large been stable. The inflation trajectory is within the RBI's comfort zone. Business has bounced back from the disruption in April and May 2021, and asset quality has improved during this quarter compared to June 2021, particularly in respect of individual loans. Let me start by quickly summarizing the progress of our business through the quarter. Our individual loan approvals for the six months ending September 30th, 2021, were higher by 67% compared to the corresponding period in the previous year. During the half year ending September 30th, 2021, individual loan disbursements grew by 88% over the corresponding period in the previous year. Individual loan disbursements in the second quarter were 48% higher than during the first quarter and 44% higher compared to the corresponding period in the previous year. October 2021 disbursements are the highest ever. October 2021 means, as of yesterday, these disbursements were the highest ever in a non-quarter-end month, and this momentum post the second wave has continued. Growth in home loans was seen in both the affordable housing segment as well as in the high-income groups. 89% of new loan applications were received through the digital channel. During the second quarter, we sold loans aggregating to INR 7,132 crores. The total loans sold during the six months ending September 2021 amounted to INR 12,621 crores. These loans were all assigned to HDFC Bank pursuant to the mortgage sharing arrangement that we have with the bank. Individual loans sold in the preceding twelve months amounted to INR 27,199 crores as compared to INR 14,138 crores in the previous year. Individual loan growth on an AUM basis was 16%. If the loans amounting to INR 27,199 crores had not been sold, then the growth in the individual loan book would have been 23%. Our individual loan book increased to INR 3,91,195 crores, a growth of 15% over the previous year. This is on a balance sheet basis. In addition to this, the loans securitized by the corporation and outstanding as of September 30th, 2021, amounted to INR 76,366 crore. HDFC continues to service these loans. Individual loans outstanding on an AUM basis as of 30th September amounted to INR 4,67,561 crore. With regard to the non-individual portfolio, we have seen a pickup in the loan book during the second quarter, driven significantly by the LRD component. Although we continue to report a degrowth as compared to the previous year, we have seen a healthy growth during the quarter ending September 2021. We presently have a good pipeline, and we expect to see a positive growth for the whole year. As at September 30th, 2021, our non-individual loan book amounted to INR 1,29,603 crore. The overall loan book is now INR 5,20,798 crore. If we add back the loans of securitized which are still being serviced by us, then the total assets under management as of September 30th, 2021, amounted to INR 5,97,339 crore as compared to INR 5,40,270 crore in the previous year, a growth of 11%. Repayments on retail loans for the half year on an annualized basis was 9.6% of the opening loan book. The average size of individual loans for the period ending September 30th, 2021, stood at INR 31.9 lakh. For the second quarter, the average loan was INR 32.7 lakh. The contribution from the higher income group, defined as customers with an annual family income of INR 18 lakhs or more, has increased during the first six months to 43% from 40% during the previous financial year. Our thrust on affordable housing continued unabated. During the half year ending September 30th, 2021, 30% of our home loans approved in volume terms and 14% in value terms were to customers from economically weaker section or the lower income groups. The average home loan to customers in the EWS segment amounted to INR 11.1 lakh, and to customers in the lower income segment amounted to INR 19.4 lakhs. If you break up the loan book outstanding on September 30th, 2021 on an AUM basis into different categories, then individual loans constituted 78% of the total loan book as compared to 75% in the previous year. Construction finance constitutes 9% of the total loan book. Lease Rental Discounting loans constitute 8% of the total loan book, while corporate loans constitute 5%. If we were to look at the incremental loan book growth and split that growth between individuals and non-individuals, then for the quarter ending September 30th, 2021, the ratio of growth in individual loans versus non-individual loans is 75/25. In other words, 75% of the growth in the loan book during the quarter came on individual loans and 25% came on non-individual loans. The increase in the non-individual loan book during the quarter is almost entirely on account of loans dispersed under the lease rental discounting facility. For the six months ending September 30th, the ratio of incremental growth to the loan book is 96% individual loans and 4% non-individual loans. Total loans sourced from distribution channels is 99%, of which HDFC Sales is 53%, HDFC Bank is 28%, and third-party DSAs is 18%. As you are aware, HDFC Sales is a wholly-owned subsidiary of HDFC Limited. Thus, 82% of HDFC's individual business was sourced directly or through our associates. The Emergency Credit Line Guarantee Scheme was extended to mitigate the economic distress caused by the second wave of the pandemic. Under ECLGS 1.0, 2.0, and 3.0, the corporation has approved an aggregate amount of INR 2,418 crore, of which INR 1,738 crore has been disbursed as of September 30th, 2021. Amounts disbursed under this facility are guaranteed by the government. The Reserve Bank of India permitted a one-time restructuring of loans under its resolution for COVID-19 related stress. In this regard, the aggregate amount of loans for which restructuring has been implemented under both OTR 1 and OTR 2 constitute 1.4% of the loan book. As informed earlier, loans restructured under OTR 1 had constituted 0.9% of the then loan book. Out of the loans restructured under OTR 1 and 2, 63% are individual loans and 37% are non-individual loans. Out of the total restructured loans, as much as 35% is in respect of just one non-individual account. We are happy to say that we expect nearly 50% of this exposure to be settled in the near future. The overall collection efficiency for individual loans has improved in the second quarter. The collection efficiency for individual loans on a cumulative basis, I repeat, cumulative basis, which means it takes into account outstanding of the earlier months. The collection efficiency for individual loans over the last quarter is over 98%. This is cumulative. As of September 30th, 2021, non-performing individual loans stood at 1.1%, while non-performing non-individual loans stood at 4.69%. As per regulatory norms, the gross non-performing loans as of September 30th, 2021, stood at INR 10,341 crores. This is equivalent to 2% of the loan portfolio. Non-performing individual loans had increased in June 2021 due to slippages on account of the impact of the second wave of the pandemic. Since then, we have seen a pullback by about 27 basis points, which reflects a significant recovery from the impact of the second wave. This is also reflected in an improvement in the collection efficiency. The non-individual asset quality has held reasonably well, and we have seen an 18 basis points reduction in NPAs during the quarter. During the quarter, we have also seen some resolution in certain non-individual loans. As per regulatory norms, based solely on the period of default, the corporation is required to carry a total provision of INR 6,605 crores as of September 30th, 2021. As against this, the actual provision carried is INR 13,340 crores. The excess provision over the regulatory requirement is INR 6,735 crores, that is 102% higher than the minimum required under the regulations. Under Ind AS accounting, both asset classification and provisioning have moved from the incurred loss model to the expected credit loss model for providing for future credit losses. Based on the model, the total exposure at default of INR 520,358 crores is broken up as under, stage one loans constitute 91.3%, stage two loans constitute 6.2%, and stage three loans constitute 2.5%. During the second quarter we have seen a reduction in the aggregate of stage two and stage three assets from 9.2% in June 2021 to 8.7% of the EAD as of September 2021. Stage three includes accounts with an exposure at default of INR 624 crores, which are classified as stage three account on a qualitative basis under Ind AS, but are outstanding for less than 90 days, and accordingly have not been classified as non-performing loans. During the quarter, we have charged a profit and loss account with a sum of INR 452 crores towards provisioning. The aggregate charge to the profit and loss account for the six months is INR 1,138 crores. The expected credit loss to exposure at default coverage ratio for stage two assets is 15% and for stage three is 55%. The provisions carried as a percentage of the EAD amounted to 2.56%. As of September 30th, 2021, we also carry a COVID-19 provision of INR 1,304 crores, which is about 10% of the overall provisioning. We will, in the course of the next few quarters, review whether we need to continue carrying this provision. Annualized credit costs for quarter two was lower at 32 basis points compared to 50 basis points during quarter one. For the six-month period, the annualized credit costs amounted to 40 basis points. We believe that as the situation further normalizes, we should, over the next two to three years, be in a position to further reduce the credit costs. This, in turn, will have a positive impact on the return on equity. As far as investments are concerned, we continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management, and all our other subsidiary and associate companies at their original cost of acquisition, which is the price we had paid while making those investments. These investments are not accounted for on a fair value basis. If we were to mark-to-market the listed investments as of September 30th, 2021, the unrealized gains, which is the difference between the market price as of September 30th, 2021, and the carrying cost, would be INR 275,917 crore. This unrecognized gain of INR 275,917 crore is not part of our net worth, nor has it been considered in our capital adequacy calculations. As part of the capital raise in October 2020, we raised warrants at an issue price of INR 180 and an exercise price of INR 2,165 per share. The exercise price of the warrants is up to August 2023. As of date, no warrants have been converted into equity shares. Our Tier I capital as of September 30th, 2021, is INR 89,111 crore. Risk-weighted assets as of that date amounted to INR 4,11,815 crore. Accordingly, capital adequacy ratio is 22.4%, of which Tier I capital is 21.6% and Tier II capital stands at 0.8%. The capital adequacy is well above the regulatory requirement of what we are required to carry. At this stage, it is important to talk about the return on equity. Under the Ind AS accounting requirement, net worth includes certain items which do not form part of Tier I capital under the prudential regulations. These include Ind AS transition reserve, deferred tax liability on special reserve, fair value gains on investments through OCI, investments in subsidiaries, associates in excess of 10% of the net owned funds, securitization gains recognized upfront, and a couple of other items. These items aggregate to INR 22,707 crores. Hence, Tier I capital is INR 89,111 crores as against a reported net worth of INR 111,818 crores. A more appropriate way of calculating the return on equity would therefore be on regulatory Tier I capital as against the conventional method of computing it on total net worth. Annualized return on equity on Tier I capital for the half year ended September 30th stands at 15.5%. As at September 30th, 2021, the corporation's total borrowings amount to INR 4,62,737 crore. Term loans, including external commercial borrowings and refinance from the National Housing Bank, accounted for 24% of borrowings. Market borrowings, that is NCDs and commercial paper, accounted for 41% of borrowings. Deposits were a major source of funding during the year. Deposits as at the quarter end amounted to INR 1,61,388 crore and constitute 35% of total borrowings. 61% of the deposits were onboarded digitally. During the quarter, the corporation has drawn two external commercial borrowings from International Finance Corporation, Washington, as well as from the Asian Infrastructure Investment Bank, aggregating in all to $450 million. The funds raised under these loans will be utilized to promote affordable green housing finance for low-income borrowers and for financing green housing projects. HDFC has hedged foreign exchange risk on these loans. Net interest income purely on the basis of interest without taking cognizance of the profit on sale of investments during the six months ended September 30th, 2021, amounted to INR 8,255 crores compared to INR 7,039 crores in the corresponding quarter of the previous year, giving a growth of 17%. The net interest income calculated in a similar manner for the quarter ended September 30th, 2021, was INR 4,109 crore compared to INR 3,647 crore in the corresponding quarter of the previous year. The other way to calculate the net interest income is to also consider the income that is accounted for at the time of selling a loan under Ind AS. During the quarter, we sold loans aggregating to INR 7,132 crore and booked an income of INR 128 crore. If you were to include this amount of INR 128 crore as part of the net interest income and also consider similar income in the corresponding quarter of the previous year, then the NI for the quarter would have been INR 4,236 crore. Calculated in a similar manner, the net interest income during the six-month period ended September 30th, 2021, would have been INR 8,650 crores. Net interest margin for the half year ended September 30th, 2021, stood at 3.6% compared to 3.2% during the corresponding period in the previous year. Net interest margin in the previous year was impacted by the negative carry on the liquidity carried by the corporation. The spread on loans over the cost of borrowing for the period ended September 30th, 2021, was 2.29%. The spread on the individual loan book was 1.93% and on the non-individual book was 3.37%. The spread on housing loans during the corresponding period of the previous year was 2.27%. Effectively, there has been a 2 basis point increase. Income earned from deployment of surplus funds in cash management schemes of mutual funds was much lower at INR 228 crores as compared to INR 539 crores in the corresponding period of the previous year. This was due to a sharp drop in short-term rates, where we earned 3.1% on our surplus liquidity as compared to 3.9% in the previous year, as also on account of lower levels of liquidity. As informed to the exchange, we have during the quarter received dividend income from HDFC Bank, HDFC Life, and HDFC Asset Management aggregating to INR 1,171 crores. During the half year, we earned INR 1,188 crores by way of dividend income. If you look at profit on sale of investments, there was no profit on sale of investments during the second quarter. During the half year period, the corporation has booked profit on sale of investments amounting to INR 263 crores compared to as much as INR 1,241 crores during the same period in the previous year. Under Ind AS accounting standards, the stock options granted to employees are measured at the fair value of the options on the date of grant. This fair value is accounted for as employee compensation cost over the vesting period of the options. Accordingly, employee benefit expenses for the half year includes an amount of INR 268 crores compared to INR 47 crores during the same period in the previous year. The charge is on account of stock options which were granted during the second quarter of the previous year. For the period ended September 30th, 2021, the cost-income ratio stood at 8.2% as compared to 8.5% during the corresponding period of the previous year. For the quarter ended September 30th, 2021, the standalone profit before tax was INR 4,671 crores compared to INR 3,532 crores during the second quarter of the previous year, representing a growth of 32%. Tax for the second quarter stood at INR 891 crores compared to INR 662 crores in the second quarter of the previous year. The tax rate for the quarter was 19.1% compared to 18.7% during the corresponding quarter in the previous year. The standalone profit after tax for the second quarter stood at INR 3,780 crores compared to INR 2,870 crores in the second quarter of the previous year, representing a growth of 32%. For the half year ended September 30th, 2021, the standalone profit before tax was INR 8,576 crores, compared to INR 7,139 crores in the previous year, giving a growth of 20%. Tax provision during the six months ended September stood at INR 1,795 crores compared to INR 1,217 crores in the previous year. The tax rate for the six-month period during the current year was 20.9% compared to a much lower rate in the previous year. The standalone profit after tax for the half year stood at INR 6,781 crores compared to INR 5,922 crores in the previous year. Pre-tax return on average assets was 3.0%, and the post-tax return on average assets stood at 2.4%. The basic and diluted earnings per share on a face value of INR 2 per share was INR 37.56 and INR 37.16 respectively. The consolidated profit before tax for the half year stood at INR 13,075 crores as compared to INR 10,722 crores in the corresponding period of the previous year. This represents a growth of 22%. After providing INR 2,093 crore for tax compared to INR 1,628 crore in the previous year, the consolidated profit after tax for the period stood at INR 10,982 crore as compared to INR 9,094 crore, a 21% increase over the corresponding period in the previous year. The profit attributable to the corporation was INR 10,299 crore as compared to INR 8,213 crore in the previous year, giving an increase of 25%. As at September 30th, 2021, the corporation had 3,448 employees. Total assets per employee stood at INR 167 crore, while net profit per employee was INR 3.9 crore. HDFC's distribution network spans 616 outlets which include 202 offices of HDFC's wholly owned distribution company, HDFC Sales Private Limited. HDFC covers additional locations through its outreach programs. On the ESG front, we continue to engage deeply with all our stakeholders. On a voluntary basis, the corporation had prepared the business responsibility and sustainability report for the year ending March 2021. This report has been hosted on the corporation's website. For further information, you can engage with our investor relations team, Anjali and Conrad. The above are some of the highlights of the results for the period ending September 30th, 2021. Before I conclude, I would like to wish each one of you good health and a very happy festive season ahead. Please stay safe. We may now proceed to question and answers. I would request you to kindly introduce yourself, and please be as brief as you can with the question. Thank you so much. Thank you very much. Ladies and gentlemen, we will now begin the question answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. The first question is from the line of Mahrukh Adajania from Elara Securities. Please go ahead. Yes. Hi. My first question is on credit costs. You did mention that going ahead, you would see a further decline in credit costs, although they've already declined this quarter. Are you planning to draw down on existing reserves in the next, say, six, nine months? Mahrukh, let me answer that question. What I said is that over the next two to three years, we will start seeing credit costs come down. It's not going to be a dramatic reduction in cost in any particular quarter. That's number one. Number two, obviously, we will keep reviewing the provisioning that we carry, specifically the COVID-related provisioning, and take a call whether we need to continue with that provisioning or not. At least in the short term, there is certainly no plan to reverse that at this point of time. Okay, when would you look to reverse? Next year or no? Mahrukh, difficult to answer that question. There is so much of uncertainty around COVID, whether there will be a third wave, will not be a third wave. It all depends on what the circumstances are at that point in time. We are happy to look at it in due course and, hopefully over the next, as I said, couple of years, we should start seeing credit costs diminishing as they've already seen a decline in this quarter itself. Thanks. Just in terms of restructuring, so both in individual and in non-individual, what are the terms of restructuring in terms of moratorium, extension of tenure? What would be the maximum moratorium and maximum extension of tenure in both these groups? Well, to my mind, these have been, these are strictly as per the regulations. Conran, you can answer that in detail. KK, maybe I can just come in, Renu here. For the retail, the terms have been extended from maybe six months to about 18 months. That is what we've done. We have also encouraged people to pay part EMIs. It's not completely a full moratorium also. There's a mix, Mahrukh, of all various options that we gave, which are all under the regulations. Mahrukh, just to repeat, our total restructured loans in stages in OTR 1 and OTR 2 taken together amount to 1.4%. We would have informed you much earlier, a couple of quarters earlier, that under OTR 1, the restructured loans at that time were 0.9%. Correct. My last question is on the growth in the non-individual book. Any guidance there in terms of when it could pick up? Well, we have a reasonably healthy pipeline. The reason you saw the non-individual loan book decline, particularly in the quarter to June, was because of two, three reasons. One reason was that we had the second wave of COVID in April, May, and obviously during the second wave, construction activity had come to a standstill and therefore we could not disperse any loans for construction finance. This was one reason. Second reason was in the course of the last 12 months, we had seen a lot of repayment of loans through the REIT product. So customers who had taken loans from us went for a REIT issue. We have two large customers, Brookfield and Mindspace, and the loans which they had taken got repaid through the REIT structure. The success of the REIT has made it now more attractive for more and more developers to look at constructing commercial property, which will initially start off as construction loans and then in due course, once the property is ready and leased out, will then move into a LRD lease rental discounting book. The pipeline looks reasonably good. I can't commit numbers, but as I said in the talk itself, that I would expect that we should close the financial year with a positive growth as against the -5% negative growth that we have as of September 2021. Also, the negative growth of -5% is lower than the negative growth, which was almost, if I recall right, -8% or -9% in the first quarter. Also to remind you, as I mentioned in the call, 96% of the incremental growth in the loan book in the six-month period is individuals, 4% is non-individuals. This is for the six-month period. If you were to look at only the second quarter in isolation, then as much as 25% of the growth in the loan book during the quarter was on non-individual loans. Sure. Thanks a lot. Thank you. Thank you. Before we take the next question, a reminder to the participants, please limit your question to two per participant. You may come back in the question queue if you have a follow-up. The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead. Thank you, sir. Thank you for giving me the opportunity and congrats on a strong set of numbers. On a data point, percent, if you can share what will be the percentage of individual book which is on the projects that are currently under construction? My sense is it would be about 10 or 11%. I don't have a number readily available, but before the end of this call, we will give you that number. Thank you, sir. Secondly, sir, on the restructuring, as you shared that 60% comes from the individual. If you can more share what will be bifurcation between salaried, non-salaried, and if any specific states are more impacted by this, if you can share something on that. That's the first one. Wait, Conrad, say something there? If we were to look at the split between employed and self-employed on an incremental basis, I don't have the split readily available for OTR cases. We can get it in a short while. If you look at incremental growth in the loan book, approximately 21% is on self-employed and about 79% is employed. Specifically on the OTR cases, Conrad would come back with specific numbers. Thank you, sir. Thank you very much and best wishes for Diwali. Also there is no particular state. It is broadly spread across the length and breadth of the country. I repeat that the total amount between OTR one, which happened last year, and OTR two is 1.4%. What happened last year, which is OTR one, was itself 0.9%. Okay, sir. Sir, lastly, this OTR one, which is 0.9%, and it could be mostly more than three to six months old. How that behaving, that portfolio behaving, how could be the collection efficiency in that portfolio, sir? It's reasonably good. We are not seeing any significant deterioration to the asset quality on the restructured loans. Generally, of course, there will of course be exceptions. Payments are being made as scheduled. Okay. Thank you. Thank you very much, sir. Thank you. Best. The next question is from the line of Sanket Chheda from B&K Securities. Please go ahead. Hello. Sanket Chheda, you may go ahead with your question. Yeah. Yeah, sir. Sir, in this quarter, if we see the asset quality stage-wise, we have increased the PCR meaningfully on stage three and rather reduced the same on stage two. I just wanted to reconfirm this 1.4% restructured loans are part of stage two, right? Yes. They will be. They're all part of stage two. Any reason to maybe lower the coverage rather on stage two and increase on stage three, wherein we were already at 48% on stage three? Historically, LGDs have been much lower than that, right? Well, the reason for stage two reduction is because a lot of these, some of these stage two projects which were there have started seeing sales happening. Because sales are happening, the stress which was earlier in this stage on the project, some of these projects, obviously not all, has reduced. Therefore, to that extent, the provisioning has also come down. As far as stage three is concerned, there is accrual of income which comes every time. Because there is accrual of income that gets reversed through the provisioning. Sure, sir. That was the only question from my side. Thanks a lot. That's an Ind AS requirement as you know. Sure, sir. Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead. Yeah, a couple of questions, Keki. First is on this 50% settlement that you're expecting. That is only the near-term settlement from that restructured account, right? Longer term, the numbers are gonna be higher than 50%, right? Sorry, which 50% you're talking about? 50% of the Shapoorji Pallonji account, the restructured account which forms 30%. Yeah. Yeah. The account that we were talking of, the non-individual account, we expect 50%, roughly 50% of the money to be received, hopefully in this quarter. The balance will come over a period of time, right, considering your collateral? Hopefully, as they've settled this 50%, the remaining 50% we hope will also not take too long to settle. Hopefully. Okay. At this point. Okay. The other thing is, you know, can you tell us what could be the impact of the new securitization guidelines, you know, specifically with respect to the direct assignments that you do with HDFC Bank? Anything specific that changes either in terms of capital or any other requirements here? Yeah. Rangan, you want to answer that question? Yeah. Suresh, on the securitization piece, yes, there is a RBI rules have come in, but broadly on assignment transaction, there is no change in the capital and other parameters except for, you know, the loans which has to be sold. They have said that it has to be on a current basis when you're selling it. Basically, that is when you're selling it should have a sort of a zero outstanding on the date of sale. That is the requirement. Earlier it was like any standard asset could be sold. Now it is like a zero DPD. Okay. This in no way is going to affect either the volumes or anything that you do with HDFC Bank, right? No, not really. One last question is on the Bandhan stake, which is less than 10% that you own. What is the future here? Do you plan to, you know, trim it down, maintain it? Is it purely a financial investment at this point in time? Any color? That would be great. We have always said that the investment in Bandhan is a financial investment. It is not a strategic investment. We continue monitoring the investment quarter after quarter. Okay. In due course, the investment committee will take a call on what to do with the investment. As I said earlier, there are certain investments that we've carried in the balance sheet for years and years without sort of trimming our stake or increasing our stake or anything. It's a call that the investment committee will have to take and which they will take quarter after quarter. Okay. Thanks. Thanks, KG. Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead. Thank you. Couple of things. One, if I heard right, you mentioned that repayments in individual loans are 9.6%. I don't know whether it was for 2Q or for the entire 1H. This is for the six-month period. Six months. Okay. In one, two, is this? This 9.6% is on an annualized basis. It's not that repayments in six months were 9.6% as a loan book, no. Right. I understand. In Q1, Q2, the prepayment rate was 8.2%. The increase seems fairly high. Would you say that Q1, Q2 was depressed? The normal level of prepayments we get, and this has been a historical trend which, our analysts who've been covering our stock for the last 25 years know. The typical trend is that, the total amount of prepayments we receive in a year are between 10%-12% of the loans outstanding at the beginning of the year. Now, obviously, in the first quarter, there was some impact on prepayments. Just as there was impact on disbursements, there was also an impact on prepayments because of the second wave. Now with everything normalizing, prepayments would have gone back to earlier levels. I must say that even in the second quarter, the level of prepayments we've had have been lower than what the historical average has been. The historical average being between 10%-12%. Got it. Perfect. The gross stage three loans in wholesale is up. I'm sorry, I couldn't hear you. The gross stage three assets in wholesale, non-individual, are up quarter-over-quarter 5.8%- 6.2%. Could you just talk about where this is coming from? You know, is it something which you would expect to? Aditya, we have said this in repeated calls in the past that any loan which we classify as a stage two account, we keep looking at that account on a quarterly basis. There are certain benchmarks, certain targets that we set in terms of progress. And if those targets are not met, we will be looking to downgrade those loans from stage two to stage three. This is something we have said historically. The slight increase that you see in stage three loans would be arising out of that fact, that the loans were originally stage two loans and because the progress was not as much as we would have expected, we would have downgraded those loans from stage two to stage three. They would not necessarily have crossed into 90 days past due, but proactively you might have downgraded them. Some of them, yes. I mentioned in the call itself that there were some loans which were not 90 days outstanding but have been classified as stage three. Correct. Thank you. Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead. Yeah. Hi, sir. Sir, the question was on collection efficiency. When we look at it on a cumulative basis, it's still at around about 98 odd%. I think that's the number which has been there for March, June. We are not seeing an improvement there, actually. How should we read that maybe in terms of and this is also on the individual loan, but it's getting sticky at 98 and our stage three assets in individual is 1.3. Now, maybe, does that pose a risk or maybe this is the quarter number and September would be much better? Well, I would put it this way, that typically even historically, even in pre-COVID times, the collection efficiency on a cumulative basis would always be around 98, around 98%. It would have ranged from 97.5 to 98.2, 98.3, 98.5% and not much more than that. What you need to understand is that if a customer has faced some difficulty and is not able to make payments, then with every month the installment that is to be collected from that customer keeps increasing. These are not collections for the month, these are cumulative collections. If someone had not paid for last month and the month before that and the month before that, for example, then he would continue to appear in the numerator and therefore to that extent the collect I'm sorry, in the denominator, and therefore to that extent the collection efficiency gets lowered. Typically, 98.2, 98.3% collection efficiency ratios, generally we would consider it as fairly satisfactory. Sure. Second, in terms of restructuring, if I look at particularly the proportion of individuals, so almost 1.2% of individual loans have got restructured. It's 2% for the non-individual, and that's where we get to 1.4 average. But maybe were we anticipating that there will be the request to the extent of 1.2 odd% or that seems to be relatively on the higher side? See, Kunal, first of all, let me tell you that this 1.2% that you're talking about is a, whatever the number is a cumulative number. It is not that that has happened this quarter or last quarter. This includes the restructuring figure of 1.4% is both in respect of what was done last year as well as what was done in the current year as a result of the second wave of COVID. Some people, particularly I would say a little more of the self-employed people would have got impacted during the second wave because their businesses could not open and they had to shut down or temporarily close their businesses and therefore would have sought a restructuring. You must also remember that restructuring is allowed only for accounts which were standard up to a certain point. It's not bad loans which get restructured, it is good loans that get restructured. When we do restructuring, we look at the future likelihood of the customer coming out of his, you know, short-term problems or whatever it is before we agree to a restructuring. Okay. Okay. Maybe if I may just add here. Kunal, whilst the numbers are not very high, the reason why it may be slightly higher in the OTR two compared to one, although in aggregate the numbers are not material, one of the reasons is the fact that in the OTR one it happened after six months of moratorium. Yeah. Yeah. This time around there was no moratorium. That explains why the number in two is, it was expected to be higher. Sure. Got that. Okay. One last question. In terms of the disbursement, so we gave the first half number in terms of the disbursement growth. Last time it was 181, now it is 80. But if I were to look at it particularly this quarter, what would be the disbursements and if you can share the absolute number as well, yeah. Yeah, sure. Whilst Conrad gives you that number, the actual growth in disbursements in individuals in the six-month period was 80%. In the second quarter compared to the second quarter of last year was 44%. If we compare quarter two versus quarter one, it was 48%. Conrad, can you give the exact number of disbursements? Kunal, the disbursements for this quarter were INR 38,000 crore as compared to INR 26,000 crore last year for the same quarter, which is the 44% growth that Keki is speaking about. This is individual, yeah. 38,000 individual. Yeah, individual. Yeah. Got it. Perfect. Okay, good. Also, Kunal, I should say that post quarter, the October, the month of October, which just got over yesterday, we had record disbursements. We have never disbursed that much amount in any non-quarter end month. Even if you include quarter end months, this would be the second highest disbursement we ever made in any month, including a quarter end month. Oh, great. Congrats. Yeah. Hope that trend continues, and I wish the entire team a very happy Diwali. Thank you, Kunal, and I wish you too also a very happy Diwali. Thank you. Thank you. The next question is from the line of Kaushik Agarwal from Haitong Securities. Please go ahead. Hi, sir. Thank you for the opportunity. My question is, with respect to LRD book of the company. Two questions around that. What would be the profitability profile for that segment? Number one. Number two, what was the incremental business generated in the LRD book during the quarter? Are we seeing some competitive pressure? Can you give some color on the pricing side for the business? All right. If we look at the increment, let's first talk of the growth in the LRD book. If you look at the second quarter, and if you break the second quarter growth in the loan book between individuals and non-individuals, then the growth has come in, the difference is 75-25. Meaning 25% of the growth was on non-individual loans. Now, when you look at these non-individual loans, the growth has been primarily or in fact I would say almost entirely in the LRD segment. Profitability of the LRD segment continues to remain good. Obviously, there is competitive pressure, but there has always been competitive pressure because the LRD book is always perceived as a very safe book. The margins that we earn from the LRD book would obviously be lower than the margins that one can earn on the non-individual on the other kinds of non-individual loans like construction finance. At the same time, the asset quality on LRD loans will be significantly superior to almost any other category. When you talk of profitability, you have to look at profitability net of provisioning requirements, net of capital requirement and all of that. We've consistently told our investors that whilst the spread on non-individual loans is higher than the spread on individual loans, which is also in the call I mentioned the amounts. What you must also understand is that non-individual loans require a higher amount of capital because the risk weight on these loans is higher than the risk weight on individual loans. The capital deployed in giving a non-individual loan is higher. To that extent, the return on equity gets pulled down. The second point to note is that if you look at non-performing loans also, our individual non-performing loan is 1.1%, whereas a non-individual non-performing loan is a lot higher at 4.69%. If you factor in the higher amount of non-performing loans and therefore consequently the higher amount of provisioning that these loans require, and also take into account the higher amount of capital required, then to my mind the return on equity in both segments is broadly more or less the same. Okay. Thank you so much, sir. Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead. Yeah, hi. I have just one question now. This is actually, you know, pertains to the liability side. If I look at the ratio of bank loans to total borrowings, you know, this is bank loans are almost now one-fourth of the total borrowings. I believe, you know, the peak ratio was somewhere close to one-third or 30%, way back in 2008-09. You know, at that point of time, I guess, you know, there were different set of constraints or different set of considerations. At this point of time, clearly you are increasing your bank loans because it is a more competitive line of funding. But how should we really think of it? Would you want to balance it out at some point of time? You know, will this kind of keep on increasing to 30%-35%? While Rangan can answer that question, let me just give you a broad perspective on our funding. We have been extremely careful through our various ALM meetings that we keep having of ensuring that we manage our funds in a manner in which we minimize the cost of funding for us. We would always raise money from that source which gives us access to the cheapest form of funding for a certain period of time. At times we look at five-year funding, sometimes we look at three-year funding and so on and so forth. Depending on where that fits in, the funding would come from. Now, when you look at the outstanding borrowings as of 30th of September and compare that with the outstanding borrowings of 31st of March, then you would see that of the increase, 36% is the bank loans, but deposits is 53%. Sure. Basically. Rangan, you want to say anything there? Yeah, I just wanted to add two more points. One is that, you know, we have been quite successful in terms of negotiating most of the bank loans to an external benchmark. That is from a, you know, from an interest rate perspective, we are in line with the market. The second thing is that, we have also been able to negotiate fairly longer term. I mean, even terms as high as 10 years and all that. That's also another positive point from that perspective, yeah. Out of roughly 1 lakh 11,000, if you could give some color in terms of, you know, how much is linked to an external benchmark? How much would be linked to one year MCLR or? Can give you exactly, but most of them is actually linked to external benchmark as we are talking today because we have been able to renegotiate it, but we will probably give it to you the exact number, yeah. Sure. This gets reset like immediately the next month, next quarter? No, no. These are basically linked to either a 30-day, you know, 90-day T-bill or things like that. It's not immediately like that. The way it works is that when the interest rate changes, let's say this quarter, probably, you know, the next quarter. Generally, it's about linked to a T-bill and others, so 90-day T-bill. Okay, perfect. Thank you very much. That was my question on the. Nischint, just to add to what Keki and Rangan added. One of the reasons why you have seen a little uptick in the term loans is also because we drew down our ECBs, as KK mentioned, of $450 million. That's also been part of the term loans. Oh, okay. That's right. Sure. Thank you. Thank you very much. Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead. Yeah, hi. This is Rahul here. Just two questions. One is, you know, strong growth in disbursements. Is it possible to get some color as to if you were to see it in terms of volume, growth versus the value growth? Value growth, of course, you've shared. What would it have been in terms of number of clients or the volume of loan accounts? All right. While Conrad gives you that number, let me also say that we have seen a pickup also in the high-end market, which was relatively quiet for the last three years or so. This is reflected in the fact that our average loan amount has gone up from about INR 27-odd lakh last year at this time to about INR 31.9 lakh during the six-month period. If you were to look at it specifically in the second quarter, the average loan amount is INR 32.7 lakh. Conrad, do you have the rupee number increase? Let me just answer very broadly while Conrad retrieves that figure. KK, I've got the number. The applications approved, the inflow, the average, the numbers for the first six months is a 42% growth. For the first six months, yeah. Yeah. Compared to last year's same period. Thanks, Conrad. The other question, KK, is the new set of guidelines to regulate the NBFCs RBI has put out, you know, these regulations. You know, if you were to be classified in upper layer, does it change the business in any way or it is going to be a BAU for us? I will leave Rangan to answer that question. Personally, I don't see it changing the business model in any manner other than the fact that if you were to look at LCR. There is a LCR requirement. This is not nothing to do with the classification of NBFCs into upper tier or lower tier. There is a requirement to carry a higher level of liquidity once the new LCR guidelines set in. Rangan, you want to? Yeah. Basically from our perspective, I think the upper layer doesn't change any of the business model construct. It's more about the governance and other parameters which largely we are there in that box because being a listed company and otherwise we are always there in that box. Of course, there are some paragraphs on which they said they will come out with some new circulars and all that. We'll have to watch out for that to see exactly whether there is anything you know sort of likely to have impact or not. Let me answer a question which was asked earlier, where someone wanted to know the distribution of OTR, the one-time restructuring loans, into how many were employed and how many were self-employed. Roughly about 35% are employed and 65% are self-employed. Keki, can I squeeze in one more question, housekeeping question? Yeah. Is it possible to get the loan book breakdown, like the way, you know, Conrad, you give it, or used to give it traditionally? I mean, the breakdown between developer loans and RD, et cetera, et cetera. Apologies in case I missed out. Mm-hmm. Who's this? Abhishek? Rahul here. Yeah, Rahul, we can give it to you. It's part of the analyst sheet, but if you can't find it, I'll send it to you. Not an issue. Sure. Thank you so much. It's already there in the analyst sheet, which will be with you. I'll take a look. Thank you so much. Sorry about that. Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead. Yeah. Good afternoon, everyone. Thanks for taking my question. So, I just wanted to know what is the outlook on the construction finance space. Just some commentary on how you see business picking up in residential, commercial, absorption levels and, in what timeframe do you see any kind of pickup in, activity by, you know, developers? Okay. Just some commentary around that. Yeah. I will request my colleague Renu to talk about it, but just very, very briefly if I can start. I would say that we saw two to three years, nearly three years, when things had slowed down quite a bit in, particularly in the construction finance segment, largely because of the fact that new projects were not getting launched. What has happened in the last one year is the robustness of growth, the robustness in demand for property, people wanting to buy property, that increase has resulted in more and more developers looking to launch new, newer and newer projects. Renu, you want to add anything? Yeah, sure. One is really seeing a lot of traction in tier two cities. If you look at our even this month, last month's performance, all of Gujarat, Ahmedabad, Surat, Vadodara, Jaipur and of course, New Delhi are really the ones who've done very, very well. I think one of the other things we need to understand also that there's a large secondary market, the resale market. Numbers are that if you know you're doing x in the primary market, the resale market is as much as 2x, you know, of that. That is the other one where we are seeing a lot of growth. You talk to... New projects have started being launched. If you visit some of the sites on the weekend, you see very lots of people, which is a very healthy sign that in the next quarter or so these will then translate into buys, and then after that, the buys will translate into loan applications. I think interest rates and the fact that the interest rates are steady has helped in a big way. My assessment would be that you would see this positive that trend that we are seeing upwards continue in the next you know couple of quarters. With that also, some builder loans and construction finance loans will also help us. You'll see more builder developers actually announcing newer projects. That's a very real on-the-ground situation that I'm telling you about. Sure. Renu, on this, you know, most of the places you mentioned are tier II cities or, you know, places where project sizes would be smaller. Do you see healthy volume contribution coming to your overall construction finance book in, let's say, two quarters or three quarters down the line, as this activity improves? You know, you're absolutely right. You will see the construction finance maybe, you know, a couple of quarters later. But the disbursements of that, you know, will take even longer because when we sanction a loan, a construction loan to a developer, they have to first spend, you know, their own contribution. They normally come in at least a quarter or two quarters before. Unlike, you know, receivable discounting loans or corporate loans, construction finance loans are always disbursed with progress of construction. The absolute value of disbursement that we see, I think will start coming in maybe by the third or fourth quarter from now. That is very true. Coming back to it, you know, Delhi has done very, very well this month. We also saw that happen last month. I think even in Mumbai, the interest that is there in the real estate in Mumbai is so strong you will see that growth happening both in the retail and in, you know, very, very carefully picked up construction finance developers who we have confidence in the next, you know, I would say two-three quarters. Sure. Thanks. Thanks for that detailed explanation. Just one more housekeeping question. Can I see investment in subsidiaries as of the end of 2Q? What is the number? What was the question? The total amount invested in subsidiaries. Total amount. Yeah. In what? Investment. Renu, you can give a figure while the next question can come. Sure. Yeah. Just go to the next question. I'll come back with the answer. Sure. Thanks, and all the best. Thank you. Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. We would take the last three questions. Over to you, Mr. Thanvi. Yeah, thanks for the opportunity and congratulations on the good set of numbers. I just wanted to, you know, understand on the competitive intensity across the board. We have been, you know, hearing from other NBFCs that there have been, you know, large prepayments happening and, you know, banks eating into the share of their loan book. However, in case of HDFC, we have seen the prepayment rates to be lower. Can you know, help us understand how, you know, things are on the competitive side, both from the banks and NBFCs and how we are able to manage the market share and, like, are we seeing market share gains also? I would say that as an analyst, I'm sure you look at the RBI data which keeps coming out. The data as of Friday shows that housing loans in the banking system increased by 9% during the last 12 months, and our balance sheet shows that housing loans in HDFC increased by 16%. That answers your question on market share. Of course, there is competition. In any business there is competition. You can't grow at this pace if the competition was unreasonable or the competition was. You know, people are doing what the cost of funds generally for everyone in the system has gone, costs have come down, and consequently you're seeing some degree of rate reduction in home lending business. You're also seeing that all the players who are there in the market are managing their spreads well, are managing their net interest margins well and are showing growth despite that. Keki, I have the answer on that, composition of the bank loans. Sure. Basically, 84% are linked to external benchmark, 10% are fixed rate loans, less than 5% is the old MCLR. Abhishek, the investments in group companies is INR 20,000 crore all put together. Sure. I think he wants it during the quarter, is it? No, during the quarter there'll be nothing. I think that's nothing. He probably wants it from a capital point of view, capital calculation. Okay. Thank you. The next question is from the line of Hiren Kumar Desai, Individual Investor. Please go ahead. Yeah. The question is in terms of how the housing market is picking up. Do you expect prices of real estate to go up and therefore better speed of our loan book growth in value? Whether prices go up or not is going to obviously vary from place to place depending upon demand and supply. Generally speaking, clearly this is the best time for an individual to buy a house because interest rates are as low as they'll ever get, number one. Number two, the fact is that many developers because some of them had unsold inventory are, you know, offering good deals to customers, particularly now with this festive season, ahead of them. I think a combination of all of this has made housing so much more affordable compared to what it used to be. I'll just give you a simple example of between 2017 and 2020. To my mind, in the last three years, income levels were typically three to four years. Income levels would typically have risen on an average by about 7%-8% a year. Even if you take a 7% increase in income over four years, it is 28%, and when you compound that or annualize that will become close to 33%-34%. Property prices are where they were three or four years ago, by and large. Obviously, there will be differences from project to project, city to city and so on and so forth. Income levels are 30% plus higher. Property prices are where they are and therefore the affordability for a customer who's looking to buy a house has never been as good as it is at this point in time. Rates of interest are the lowest. Yeah. No, I understand all of this. My question was that can we expect to see higher rate of growth on account of overall property price increase for our HDFC loan? Well, we've seen a pickup in growth. If you look at the absolute amount of growth in the loan book over the last four or five years, you would see that the growth in the loan book in this quarter was the highest it's been, to my mind, for several years in absolute terms. Okay. Thank you, sir. Thank you. We take the last question from the line of Manjeet Buaria from Solidarity Investment. Please go ahead. Thanks for taking my question. Sir, I just wanted to revisit the comment you made to understand it better. The ROE for different segments, if I take individual home loans versus, you know, wholesale or construction home loans remains the same. Is that the right understanding I got from your comments? No, no. What I said is that the return on equity after you factor in the higher amount of provisioning requirement because of asset quality-related concerns, after you factor in the higher amount of capital that is required, let's say, for a construction finance loan versus an individual loan. When you factor all of this in, which you need to do when you're calculating the return on equity, broadly the return on equity in all segments of the business will be more or less the same. The pricing is done accordingly. Right. I would have follow-up here was if you look at the blended ROE for HDFC Limited as a company, you know, the band in which we earned the ROE probably a decade back, is it fair to assume that over the next decade that band will structurally move down because the competition will be much higher and, you know, on the wholesale side, obviously, as industry consolidates, you know, they'll get better rates, the top players as well as some benefit of, you know, different instruments like InvITs, etcetera. All right, let me tell you that our lending rates are as good as anybody else's because our cost of funding is extremely low because we are able to access funding from a variety of sources which, you know, many of these smaller players will not be able to. For example, when COVID happened, there was a flight to safety as people started shifting their investments from what they perceived were risky instruments to HDFC deposits. We've always been a beneficiary of times when there is some degree of uncertainty. Now, as far as the competition question that you are talking about, we have seen competition in our business now for more than 25 years or more, and we have consistently managed to grow with stable spreads over that period of 25 years. I see nothing on the cards today which would make me believe that the competitive pressure is in any way going to be unreasonable or anyone is going to do anything which is not in the best interest of all the players in the market, simply because the penetration level of mortgages in India is extremely low. There is scope for everyone to grow. The outstanding housing loans as a percentage of GDP in India is 11%. You compare that with, forget Western countries, Western countries are all in their 60s and 70s and 80s. But if you look at even emerging market countries, most of them will be in the 25%-30% range, or at least in the 20%-30% range. We are only 11%. Very important to understand that if you look at the demographics in India, two-thirds of our population is below 35 years of age. Unlike what people do in the Western countries, in India, the average age of a first-time homebuyer is about 38 or 39 years. Two-thirds of our population today has not even thought of buying a house. Structurally, all these people will over the next be three, five, seven years and so on and so forth, look to buy a house. To my mind, there's going to be a structural increase in the demand for housing and therefore housing finance in India. I don't see any lender needing to do anything very irrational to gain business. I appreciate that, sir. You know, I appreciate the fact that HDFC is obviously a beneficiary in tough times. My question was to push at it once more, if I could, you know, rephrase it, let's say if you were earning a, I don't know, 17%-18% core ROE and removing all the gains, etcetera, from subsidies, etcetera, a decade back. Does this core ROE kind of over time come down as the market penetrates more or you think that kind of earlier levels remain sustainable? Is that? I would say. Trying to phrase the question. I would say the core ROE on any incremental level of business we do today will be the same as it was three years, five years, seven years ago. The only difference that you would see in the reported return on equity number would be the level of leverage that you're carrying at that point of time. Currently, the leverage level has come down because the debt equity ratio is lower now at 4.1% compared to as much as 6% and 6.5%, which is where it used to be many years ago. Therefore, the reported return on equity looks lower because you are comparing a return on equity on a much larger capital base because the capital adequacy today is a lot higher than before. Structurally, if you look at incremental lending, any new loan that we do, the return on equity, to my mind, will be broadly more or less the same. I would suggest you can sit with Conrad later on to understand the calculations. Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to the management for closing comments. No, I'd just like to thank everyone again. My colleagues may want to say something. Just thank everyone for being on the call and wish all of you a very happy festive season ahead. Please stay safe. COVID is not yet over, in my opinion. We've seen a third wave happening in other countries. We should continue to remain alert. Yep. Happy Diwali and happy all the other festivals that are going to come around and then the new year. Thank you. Thank you. Happy Diwali to everyone. Yeah. Thank you, everyone. You ought to get back for any specific query, please connect with us. Thank you. Thank you very much. On behalf of HDFC Limited, we conclude today's conference. Thank you all for joining. You may now disconnect your lines. Thank you.