Ladies and gentlemen, good afternoon, and welcome to HDFC Limited's Q2 FY 2023 earnings conference call. As a reminder, all participant lines will be in 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 that this conference is being recorded. We have with us HDFC's Vice Chairman and CEO, Mr. Keki M. Mistry. Managing Director, Ms. Renu Sud Karnad. Executive Director, Mr. V.S. Rangan. Member of Executive Management and Chief Investor Relations Officer, Mr. Conrad D'Souza. Additional Senior General Manager, Anjalee Tarapore. I would like to hand the conference over to Mr. Keki M. Mistry. Thank you, and over to you, sir. Well, thank you, everyone, and good afternoon to all of you. 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 30, 2022, which were subjected to a limited review. Let me start with outlining a few developments in the economy over the last three months which have had a bearing on the corporation. The Monetary Policy Committee at its meeting held in August and September 2022 increased the policy repo rate by 100 basis points in aggregate, mainly on account of the uncertainty in the inflation trajectory. As a result, there has been an uptick in interest rates, consequent to which we have increased deposit rates as well as rates on our loan products. As we had mentioned in our previous earnings call too, the interest rate actions have had a short-term impact on both the net interest income and net interest margin during the last six months. Over the last few months, we have seen rate action by RBI, and we have correspondingly passed on the rate increases to our customers. There has, however, been a transmission lag between the increase in the interest cost and liabilities and asset repricing. I will explain this in detail later on. In July 2022, the RBI had increased the limit of external commercial borrowings under the automatic route from $750 million to $1.5 billion per financial year. In August 2022, we have raised $1.1 billion under this window. ECB is the largest social loan globally and the first social ECB loan out of India. The momentum in the economy was strong throughout the first half of the current year. This is reflected in a sharp pickup in individual loan disbursements and a 20% growth in the individual loan book on an AUM basis. This is the highest growth that we have seen in individual loans in the last eight years. Similarly, collection efficiency has continued to improve with over 99% collection efficiency during the quarter. 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 ended September 30, 2022. Let me start by quickly summarizing the progress of our business throughout the quarter. Our individual loan approvals for the half year ended September 30, 2022 were higher by 35% compared to the corresponding period in the previous year. For the same period, individual loan disbursements grew by 36% over the corresponding period in the previous year. Housing disbursements constituted 93% of individual disbursements in the current year. Growth in home loans were seen in the affordable housing segment as well as in the middle and higher income groups. 92% of new loan applications were received through digital channels. During the second quarter, we sold individual loans aggregating to INR 9,135 crore. The individual loans sold during the last twelve months amounted to INR 34,513 crore. The total loans sold during the six months ended September 2022 amounted to INR 18,678 crore. These loans were assigned to HDFC Bank pursuant to the mortgage sharing arrangement that we have with the bank. The individual loan book growth on an AUM basis was 20%. If the amount of INR 34,513 crore had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 28%. On a balance sheet basis, our individual loan book increased to INR 4,65,752 crore, a growth of 19% over the previous year. In addition to this, the individual loans sold by the corporation and outstanding as on September 30, 2022 amounted to INR 93,566 crore. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to INR 5,59,318 crore. As of September 30, 2022, our non-individual loan book grew by 1% on an AUM basis compared to the previous year. While we continue to have a pipeline of non-individual business over the last 12 months, we have also seen repayments and prepayments of earlier facilities and resolution of some stressed assets, and this has resulted in a lower growth in the non-individual segment. We currently have a pipeline of construction finance loans as well as in the lease rental discounting segment, and we expect non-individual AUM growth to accelerate in the coming quarters. Construction finance loans, unlike lease rental discounting loans, have a longer disbursement period as they are disbursed based on progressive construction and that too after the developer has brought in his equity. The total assets under management as at September 30, 2022 amounted to INR 6,90,284 crore as compared to INR 5,97,339 crore in the previous year, a growth of 16%. If no loans had been sold during the preceding twelve months, then the growth in the total loan book would have been 21%. Prepayments on retail loans on an annualized basis amounted to 10.3% of the opening loan book. This is in line with what we have been seeing for the last few quarters. The average size of individual loans for the period ended September 30, 2022 stood at INR 35.7 lakh as compared to INR 33.1 lakh in financial year 2022. The contribution in value terms from the higher income group, defined as customers with an annual family income of INR 18 lakhs or more, has increased during the year to 50% from 43% during the corresponding period in the previous year. Our thrust on affordable housing has continued. During the half year ended September 30, 2022, 23% of home loans approved in terms of number of customers and 10% in value terms were to customers from the economically weaker section and the lower income groups. The average home loan to customers in the economically weaker section amounted to INR 10.9 lakhs, and to customers in the lower income group amounted to INR 19.7 lakhs. If we break up the loan book outstanding on September 30, 2022 on an AUM basis into different categories, then individual loans constituted 81% of the total loan book as compared to 78% in the previous year. Construction finance constituted 9% of the total loan book. Lease rental discounting loans constitute 6% of the total loan book, while corporate loans constituted 4%. If we were to look at the incremental loan book growth, then for the half year ended September 30, 2022, the entire growth is from individual loans. 98% of the loans were sourced through distribution channels. However, this is largely through HDFC Sales, a 100% subsidiary of HDFC Limited, as well as through HDFC Bank. HDFC Sales accounted for 51% of the loans sourced, whilst HDFC Bank accounted for 30%. Third-party DSAs accounted for 17%. Thus, 83% 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 COVID pandemic. Under ECLGS One, Two, and Three, the corporation has disbursed an aggregate amount of INR 1,783 crores. Amounts disbursed under this facility are guaranteed by the central government. The Reserve Bank of India permitted a one-time restructuring of loans under its resolution for COVID-19 related stress. As at September 30, 2022, the outstanding loans under the OTR One and OTR Two facility amounted to INR 4,244 crores, equivalent to 0.7% of the loan book. This compares to a peak of 1.4% in September last year. 98% of the OTR loans are in the individual loan book. The overall collection efficiency for individual loans has continued to improve and is now even better than what it was in pre-COVID levels. The average collection efficiency for individual loans on a cumulative basis over the last six months is now over 99%. RBI had on November 12, 2021, issued guidelines on harmonizing NPAs across the financial system. Subsequently, RBI had deferred the effective date of the applicability of these guidelines, and the NPA reporting under the revised guidelines was deferred to the quarter ended December 2022. The corporation, however, has continued to report NPAs in accordance with the revised RBI circular of November 2021. There has been a significant improvement in asset quality over the last 12 months. To facilitate comparison on a like-to-like basis, we have compared the non-performing assets based on the old method of computation. As of September 30, 2022, calculated under the old norms, gross non-performing individual loans stood at 0.73%, down from 1.10% in September 2021. This is a 37 basis points reduction or a 34% improvement in percentage terms. The overall gross non-performing loans stood at 1.44%, down from 2% in September 2021. This amounts to a 56 basis points reduction or a 28% improvement in percentage terms. Let me now come to non-performing assets calculated as per the revised RBI norms. December 2021 was the first quarter when we were required to report NPAs under the new norms brought in by RBI. As of September 30, 2022, calculated under the new norms, gross non-performing individual loans stood at 0.91%, down from 1.44% in December 2021. Similarly, gross non-performing non-individual loans stood at 3.99%, down from 5.04% in December 2021. As per the new regulatory norms, the gross non-performing loans as of September 30, 2022, stood at INR 9,355 crores or equivalent to 1.59% of the loan portfolio, which is down from 2.32% in December 2021. As of September 30, 2022, the corporation carried a provision of INR 13,146 crores against the non-performing loans of INR 9,355 crores. Under Ind AS accounting norms, 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 5,94,788 crore is broken up as under. Stage one constitutes 94.2%, stage two is 3.9%, and stage three is 1.9%. We have seen a 3.4 percentage point reduction in the aggregate of stage two and stage three assets from the peak of 9.2% in June 2021 to 5.8% of the exposure at default over the last five quarters. During the quarter, we have charged the profit and loss account to the sum of INR 473 crore towards provisioning. The aggregate charge to the profit and loss account for the six months towards provisioning is INR 987 crore. ECL to EAD coverage ratio for stage two assets is 23% and for stage three is 55%. The provisions carried as a percentage of the EAD amounted to 2.21%. Annualized credit costs for quarter two was 29 basis points compared to 33 basis points during quarter one in the current year. Credit costs for the six-month period is 31 basis points. As stated in our earlier earnings call, as asset quality-related issues get resolved, we should, over the next few quarters, be in a position to further normalize the credit costs to pre-COVID levels. This, in turn, will have a positive impact on the return on equity. Coming to investments, we continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management, and all our other subsidiaries and associate companies at the 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. During the quarter, we invested an amount of INR 2,000 crores in the equity of HDFC Life. If we were to mark-to-market the listed investments as of September 30, 2022, the unrealized gain. This is the unrecognized gain which is the difference between the market price on September 30, 2022, and the carrying cost. The difference would be INR 2,24,781 crores. This unrecognized gain is not part of our net worth, nor has it been considered in our capital adequacy calculations. Our capital adequacy ratio on September 30, 2022, stood at 22.5%, of which Tier 1 capital is 21.9% and Tier 2 capital is 0.6%. The capital adequacy is well above the regulatory requirement. At this stage, it is important to talk about return on equity. Under the Ind AS accounting requirement, net worth includes certain items which do not form part of Tier 1 capital under the prudential norms. These include, one is Ind AS transition reserve, two is deferred tax liability on special reserve, three would be fair value gains on investments through OCI, four would be investments in subsidiaries and associates in excess of 10% of net own funds, and the fifth would be securitization gains recognized in accordance with Ind AS requirement. These items aggregate to INR 22,043 crore. Hence, Tier 1 capital is INR 1,01,398 crore as against the reported net worth in September 2022 of INR 1,23,441 crore. A more appropriate way of calculating the ROE would therefore be on regulatory Tier 1 capital as against the conventional method of computing the return on equity on total net worth. Annualized ROE based on Tier 1 capital for the half year ended September 30, 2022, stood at 16.3%. As of September 30, 2022, the corporation's total borrowings amounted to INR 5,29,034 crore. Term loans, including the external commercial borrowing of $1.1 billion drawn in August 2022 and refinanced from the National Housing Bank accounted for 27% of the borrowings. Market borrowings, that is NCDs and commercial paper, accounted for 42%. Deposits as at the quarter end amounted to INR 1,62,884 crores and now constitute 31% of the borrowings. I will now move to the statement of profit and loss account. The first two quarters have seen a very volatile interest rate environment and therefore some of the numbers of the current year are not strictly comparatives of the previous year. Firstly, as mentioned earlier, net interest income and net interest margin were impacted by the increases in the repo rate of 190 basis points over the last two quarters and a consequent transmission gap between the increase in borrowing costs and the increase in lending rates. This is a very short-term phenomenon. Let me now talk of the NII impact. Before I get to the net interest income, let me detail issues which have had an impact on the net interest income. In the first half of financial year 2023, we have had rate actions which have had an immediate impact on borrowing costs, which in turn have not been simultaneous with the transmission of rates on the asset side. Secondly, in the first quarter of the previous year, there was a restriction in overall business activity in the economy due to the second wave. As a result of ample liquidity in the system during most of the first half of last year, the overnight interest swap rate on which some swaps are benchmarked de-linked from the reverse repo rate and was lower by up to 40 basis points during that period. This led to us benefiting from the lower swap rates, which resulted in a sharp expansion in the net interest margin. At that stage itself, we had indicated that the higher composite level of net interest margin reported in the first half was not sustainable. This de-linking corrected in the second half of last year. Thirdly, RBI increased the repo rate four times since May 2022, aggregating to 190 basis points. The last increase of 50 basis points was on September 30, 2022. In the run-up to the expectation of the rate hike, market rates and swap rates increased, and this has had a negative impact on our borrowing costs. We have increased our lending rates in response to this hike by 50 basis points with effect from October 1, 2022. Therefore, the benefits of this hike will be received over the next quarter. As you are aware, each individual loan has a quarterly reset mechanism and is based on the original month in which the loan is disbursed. Thus, in the event of any interest rate change, the entire loan portfolio reprices over a three-month period, that is roughly one-third of the portfolio reprices every month. Thus, while we have an almost immediate impact on borrowing costs, the lending portfolio reprices over a period of three months. This transmission lag has had an impact on the net interest income growth for this period. As we have passed on the increase in rates by increasing our prime lending rates, there was a slight short-term impact on NII growth during this period. This should be regularized over the next few months. In July 2022, we have revised the reset norms for our incremental individual loans from a quarterly cycle to a monthly cycle to reduce the impact of transmission of rate changes. This should minimize the risk of transmission in the event of future rate hikes for new loans. Lastly, the proportion of the retail loan book has increased to 81% over the last few quarters. While the return on equity on both the retail and the non-individual business is the same, the spread on the non-individual loans are higher due to higher capital allocation as well as higher credit costs. Net interest income purely on the basis of interest without taking cognizance of the profit on sale of loans during the quarter ended September 30, 2022, amounted to INR 4,639 crores compared to INR 4,110 crores in the corresponding period of the previous year, a growth of 13%. For the half year ended September 30, 2022, the net interest income amounted to INR 9,086 crores compared to INR 8,235 crores in the corresponding period of the previous year. If you adjust for the one-time impact of the transmission lag in passing on the rate hikes to the customers as well as the impact of the swap benefits in the previous year, the NII growth would have been 16% compared to an annualized AUM growth of a similar 16%. Secondly, as a result of volatile equity markets, the gain on fair value of investments through the profit and loss account was INR 151 crore in the first half as compared to INR 548 crore in the corresponding period of the previous year. Thirdly, the expense ratios are higher as we incur expenses upfront on staffing, loan processing and branching to meet the significant increase in volumes arising out of the much higher demand for housing loans. There was also an increase in legal expenses as we saw an increase in business as well as a resolution of some stretched assets. Needless to add, while these expenses are being incurred upfront, the benefit of these expenses will accrue over the next few quarters. On the positive side, it is important to note that credit costs are lower on a sequential basis as a result of improved asset quality. Dividend in the second quarter is higher than the corresponding quarter of the previous year, primarily on account of the dividend received from HDFC Bank. We have always targeted a net interest margin of between 3.3% and 3.5%. This is something we have consistently told investors. Net interest margin for the quarter and the half year ended September 30, 2022 stood at 3.4%. The spread on loans over the cost of borrowing for the half year ended September 30, 2022 was 2.28%. Individual loans had a spread of 1.91% and non-individual loans a spread of 3.65%. The spread on loans during the first half of the previous year was 2.29%. Income earned from deployment of surplus funds in cash management schemes or mutual funds and government securities was lower at INR 95 crore as compared to INR 228 crore in the corresponding period of the previous year. This is due to average level invested this year in liquid funds at INR 4,185 crore as compared to INR 12,800 crore in the corresponding period of the previous year. With the introduction of the liquidity coverage ratio in December 2021, the corporation's liquidity is now largely held in government securities. The government security holding as at September 30, 2022 is around INR 45,000 crore. The average level of liquidity held during the period was INR 41,000 crore as compared to INR 25,000 crore in the corresponding period last year. There was no profit on sale of investments during the second quarter. There had been a profit of INR 184 crore on sale of investments during the half year compared to INR 263 crore in the same period last year. This was on account of the corporation 10% stake sale in HDFC Capital Advisors during the first quarter. Dividend received during the quarter was INR 1,360 crore compared to INR 1,171 crore in the second quarter of last year. During the half year, we earned INR 2,046 crores by way of dividend as compared to INR 1,188 crores in the corresponding period of the previous year. Dividend during the year was received predominantly from our group companies, namely HDFC Bank, HDFC Asset Management, HDFC Life, HDFC Sales, and HDFC Credila.. During the quarter ended September 30, 2022, for investments classified as fair value through profit and loss account, the net gain on fair value changes stood at INR 142 crores. For the half year, for investments classified as fair value through profit and loss account, the net gain stood at INR 151 crores as compared to INR 548 crores in the corresponding period of the previous year. This is largely on account of the volatility in the equity markets during the current 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. The 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 of an amount of INR 145 crores in this regard. For the period ended September 30, 2022, the cost income ratio stood at 9.5%. The cost income ratio is relatively higher during the period on account of the increased retail business over the last year as well as the increase in the branch network. The benefits of these cost increases will be derived over the next few quarters. Increased legal costs are also contributing to the increase in the cost income ratio. We expect the cost income ratio to remain in single digits for the full year. For the half year ended September 30, 2022, the standalone profit before tax was INR 10,004 crores compared to INR 5,576 crores in the previous year, a growth of 17%. Tax provision during the six months ended September 30 stood at INR 1,881 crores. The standalone profit after tax for the half year stood at INR 8,123 crores compared to INR 6,781 crores in the previous year, a growth of 20%. For the quarter ended September 30, 2022, the standalone profit before tax was INR 5,414 crores compared to INR 4,671 crores in the second quarter of the previous year, a growth of 16%. Tax provision for the second quarter amounted to INR 960 crores compared to INR 890 crores in the second quarter of the previous year. The standalone profit after tax for the second quarter stood at INR 4,454 crores compared to INR 3,781 crores in the second quarter of the previous year, resulting in a growth of 18%. Pre-tax return on average assets was 3.1%. Post-tax return on average assets was 2.6%. The basic and diluted EPS on a face value of INR 2 per share was INR 44.7 and INR 44.5 respectively. This is on a INR 2 share. The consolidated profit before tax for the half year stood at INR 14,765 crores as compared to INR 13,075 crores in the corresponding period last year. After providing INR 2,148 crores for tax, the consolidated profit after tax for the period stood at INR 12,617 crores as compared to INR 10,981 crores, a growth of 15%. The profit attributable to the corporation was INR 11,862 crores as compared to INR 10,299 crores in the previous year, a growth of 15%. As of September 30, 2022, the corporation had 3,869 employees. Total assets per employee stood at INR 169 crores compared to INR 167 crores in the corresponding period of the previous year. Annualized net profit per employee was INR 4.2 crores compared to INR 3.9 crores during the same period in the previous year. Let me now spend a couple of minutes to give you an update on the merger. As you are aware, on April 4, 2022, the board of directors of HDFC Limited and HDFC Bank Limited approved a composite scheme of amalgamation of HDFC with HDFC Bank, subject to requisite approvals from various regulatory and statutory authorities, respective shareholders and creditors. Under the scheme... Upon the scheme becoming effective, the subsidiaries and associates of HDFC would become subsidiaries and associates of HDFC Bank. HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank. Pursuant to the no objection for the merger from the stock exchanges, NSE and BSE, the Pension Fund Regulatory and Development Authority, SEBI, IRDA and RBI, the Competition Commission of India has approved the proposed amalgamation. Further, the National Company Law Tribunal, the Mumbai branch, has passed an order in the matter of the amalgamation pursuant to which a meeting of the shareholders of the corporation has been convened on November 25, 2022. HDFC's distribution network spans 709 outlets, which include 212 offices of HDFC's wholly owned distribution company, HDFC Sales Private Limited. HDFC covers additional locations through its outreach programs. Talking of ESG, we continue to engage deeply with all our stakeholders on ESG. Our disclosures and reports are on the website. For further information on ESG-related queries, you may engage with our investor relations team, Anjali and Conrad. The corporation's corporate social responsibility activities focus primarily on healthcare, education, persons with disabilities and environmental sustainability. CSR activities were conducted either directly or through the H.T. Parekh Foundation. The CSR spend during the half year was INR 107 crores. Under the National CSR Awards 2020, instituted by the Ministry of Corporate Affairs, HDFC was awarded overall excellence in CSR for large companies and CSR in national priority areas supporting technology incubators. The above are some of the highlights of the results for the period ended September 30th, 2022. Before I conclude, I would like to wish each and every one of you good health and all the very best. Please stay safe. We will now proceed to question and answers. I would request you to kindly introduce yourself and be brief with your questions. The questions will be answered by me or any of my colleagues. Thank you. Thank you very much, sir. We will now begin the question and 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 limit their questions up to two questions per participant. If time permits, you may join the queue for any follow-up. The first question is from the line of Suresh Ganapathy from Macquarie. Please go ahead. Yeah, thanks. Keki, just a couple of questions. One is, you know, the margins, of course, they have been flat QoQ. The thing here is that all the banks, specifically ones which have had large mortgage portfolio, have seen a very sharp, quarter-over-quarter increase in margins, whereas your margins have remained flat. Now, of course, we understand that the quarterly to monthly reset was done last quarter. I think this quarter would have seen at least three months, and still we have not seen any margin expansion. What explains this, flat margins even on a quarter-over-quarter basis? Let me answer that question, Suresh, and Conrad or Rangan can butt in and answer further. See, what happens is every time there is an increase in interest rates, our lending rates get revised over a period of three months. You get the effect one-third, one-third, one-third, whereas the borrowing costs increase immediately. Whatever the increases in the repo rate prior to June, the full benefit of that pass-on to customers, benefit has been received during the course of the current year. The increase in interest rates made during the course of the quarter, again, we have increased interest rates simultaneously to our customers, but the benefit of that will come over a period of three years. For example, if interest rates were improved or increased, let's say theoretically, in the end of September, then the benefit of that rate increase on the asset side will start coming in from October, whereas on the borrowing side, the debit starts hitting us from the month of September itself. In a rising interest rate environment, this lag is there for roughly about one and a half months, which results in roughly, I would say, 10 to 12 basis points compression in margins. But as interest rates stabilize over a period of time, that will go away. The same happens on the reverse side when interest rates go down, you get the immediate benefit, straight away, and then over a period of one and a half months it neutralizes. Now, in case of banks it is different because banks do not reset their assets or reset their loans every three months. They reset their loans every month. The moment the repo rate goes up, their lending rates go up immediately from that month itself. Whereas for us, it comes with a 1.5-month lag. Okay, to understand this a bit better, let's assume hypothetically that in the October to December quarter, no rate hikes happened by the Reserve Bank of India, nothing changes. Let's hypothetically assume. Because of the fact that there is a lead lag issue, logically speaking, October to December should see a margin increase for you because the asset repricing lag will happen. That is absolutely correct. If the rates were to go up in October to December quarter, then this issue is going to persist even in October to December quarter because you will see the liabilities also getting repriced as well. Okay, this is clear. The second issue is on growth. I mean, it's not an issue, it's a good thing. I mean, you're talking about eight-year high loan growth. Now, we have seen some slowdown in the IT sector, rates have gone up. You know, how do you look at it? I mean, is this growth sustainable? Is it broad-based? I mean, just any color qualitative comment on growth would be great. Suresh, the growth is broad-based. It is happening from every part of the country. The metros, which is the Mumbai's, the Delhi's, the Bangalore's, these were the places which were not really contributing much to business two years ago. We've explained the reasons time and again, and if you're interested, I can get into more details on why two years ago, the Mumbai's and Delhi's were growing at a slightly lower rate. Now, over the last one and a half years or two years or so, business in the Mumbai's and Delhi's and Bangalore's have been growing at a much more brisker and much faster rate. The value of a property in a Mumbai or a Delhi is obviously going to be a lot higher than the value of a property in a Tier 2 or a Tier 3 town. Therefore, consequently, the average loan amount goes higher. Our average loan amount last year was INR 33.1 lakh. Our average loan amount in the current year is INR 35.7 lakhs, which reflects the increase in business from the metros. While the growth is broad-based, the Tier 2, Tier 3 towns which were a larger contributor to growth two years ago, their contribution to growth has come down slightly, not because they have slowed down, but simply because the metros have grown at an even faster pace. Can I just say something? Yeah, go on. One more thing. Even in the metros, the higher value loans have seen a lot more traction in the last few months than they were earlier. People have got back and started buying the INR 3 crore, INR 4 crore, INR 5 crore homes in a more manner than they used to do earlier. I think that within Mumbai, within Delhi also we've seen that happen. Okay. I mean Sorry. Having said that, it's not that the affordable housing segment has not grown. That has also continued to grow, and 23% of the business we did in number terms came from the economically weaker section and the lower income groups. Okay. Suresh, Yeah. Go ahead, Conrad, yeah. Just to clarify on your first question on the fact that we have moved from quarterly to monthly, these are only incremental disbursements since then. You know, the earlier discussion on how the rate hikes would play out over a quarter will continue for most of the book. It's only on the incremental that we move to monthly. If RBI does not, as you said, theoretically does nothing on interest rates in the coming quarter, then obviously there's no, I mean, the full benefit of the rate hikes made till the thirtieth September will flow through to the P&L account. Okay, great. Okay, so it's only an incremental. Okay, one last question I'll squeeze in regarding the merger. Now, you know, you of course have INR 5 lakh crore of borrowings and deposits put together. First to begin with, your deposits of course are at a higher rate. Now, is there a worry that, you know, it's a difficult question for you guys to answer, but the fact that once it moves on to the bank and it gets reset at a lower rate, some of these depositors will move. Is there an engagement which is being carried out with the depositor network that, you know, no, this is with the corporation and maybe they'll stay on. Something on that, any qualitative. Let me start answering that question and then Rangan, if you're on the call, you can add to what I'm saying. See, the point is that as far as HDFC itself is concerned, when a depositor has placed a deposit with HDFC, let's say for a period of five years, and that rate is theoretically, let's say 25 and 10, this 25 is a theoretical number, 25 basis points higher than a bank rate, then that higher rate will continue through the life of that deposit. If it's a five-year deposit, it will be for five years. If it's a one-year deposit, it will be for one year. On maturity at the end of that period, which may be five years or one year or whatever it is later, then the deposit will get repriced to the current rate. But till that time it will continue at the old rate. We have come out with a new product recently, which we call Sapphire Deposits. Rangan, you may want to just talk about how much money we have mobilized in a very short period of time. We launched this medium-term deposit. This is basically we called it as a Sapphire Deposit, and it's done quite well actually. I must say that. We launched it in just about three to four weeks. It's basically garnering almost close to INR 5,000 crore, and there is a lot of good demand in the medium-term segment actually. They will actually graduate into the bank and on maturity they will obviously get, you know, repriced to whatever is the current rate at that point in time in the banking system. Okay. Fine. What about the borrowings front? Because you eventually want to, I mean, are you booking long-dated borrowings so that you get some breathing space for the bank, when the merger happens? Incrementally, I mean, seeing in the market a lot of 10-year NCDs being placed. Is there any color on that, Keki? Just basically I think, on the longer term, one obviously is the fact that the book being longer, there is a good growth on the retail side, which are obviously longer term loans, so therefore you need to augment it with long-term money, which we are doing it in any case. And if you really look at the way the interest rate curve in the market is concerned, obviously you'll have to swap these liabilities into floating rate for appropriate duration. You may have to swap it for a one-year, two-year, three-year period, depending on where the interest rates are. Accordingly, you then come back to a floating rate where you start matching it to the lending rate on the retail side. That's what we are doing as far as this thing is concerned. Obviously, it also in a way helps in terms of what you are saying about in terms of elongating the bank, eventually probably having lesser maturities as you get into the bank. That is more incidental, I would say. From a business perspective, as a standalone balance sheet, it makes sense to do it this way because the assets are actually growing on the longer side, so we'll have to build up the liability on the longer side. As you are aware, Suresh, we have always kept a matched balance sheet. We do not take mismatches on maturity, and therefore since the duration on individual loan is longer than the duration on non-individual loans, we have to necessarily marginally increase the duration of our liabilities. Okay. Thanks so much for answering the question. Thank you. A reminder to the participants, please limit your questions to two per participant. The next question is from the line of Mahrukh Adajania from Nuvama. Please go ahead. Yeah, hi. I just wanted to know the stock of SLR investments? We have INR 45,000 crore of investment in government securities at HDFC. Okay. The LCR is? 79%. 79%. Okay. You did mention about the slower growth in lease rentals and in the non-individual segment. But if you could give some more color, it's only largely driven by prepayments or? I explained this in the last call also, but I'll do it once again. If you look at it historically, construction finance loans used to constitute roughly between 13%-14% of our total loan book. If you go back to pre-COVID days, or if you go back to 2017 or 2018, you would have seen that proportion. Over the last three or four years, construction finance loans as a component of total loans has come down from 14%-9%. The lease rental discounting loans have broadly remained in the same batch, roughly 6%-7%. Current level is 6%. That has not declined. It's the construction finance component, which has largely declined. Now, the reason for the decline in the construction finance component was that the period from 2017 to 2020 was the period which saw some degree of stress in the real estate sector, in areas like Mumbai and Delhi, in the metros. We can go into details on why that happened if you were interested, but we discussed this time and again. Now because of the stress in the real estate sector, there was a lot of media talk and analyst reports about unsold property, properties which were ready but had not been sold. Because of this unsold property, there were not too many projects that were launched during that period. Market started picking up, or the real estate sector, particularly in the metros, in the Mumbais and Delhis and Bangalores, started picking up from around October of 2020, with the reduction in the stamp duty rates and many other things which happened at that point in time. After 2020, a number of new projects have got launched. We have a very healthy pipeline in terms of customers who are taking loans. We have a very healthy pipeline of construction finance loans which we've approved. Here you must understand that the disbursement for a construction finance loan is much lower and much more back-ended than the disbursement for a lease rental discounting loan. In a lease rental discounting loan, the disbursement is made upfront because the property is ready, the property is leased out, there is rental being received, and therefore the disbursement is made upfront. But in a construction finance loan, the disbursement will be made progressively over a period of time based on the progress of construction. In that also, the developer has to first put in his share of the equity before we start making disbursements. If you take a project in a Mumbai or a Delhi, typically it will take anything between three to five years to do the project, depending on the size of the project. Disbursements tend to be back-ended. Now, if we had a pickup in the disbursements in 2020, or a pickup in new projects being launched in the latter half of 2020, the disbursement for these projects would largely happen in the coming quarters. Whereas what we would have disbursed now in this quarter would have been a loan which would have got approved in 2018 or 2019, when in any case the launch of new projects was slower. Got it. Thanks so much. Thanks a lot. Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead. Thanks for taking the question. Firstly, on the non-individual portfolio, as we, you know, get into the entire merger process, is there any portfolio which has been earmarked which might not be acquired by the bank and there is a resolution or maybe the repayments which are being assured in that portfolio? If any, what would be the outcome of that? All right. Rangan, you want to answer that? On the non-individual portfolio, we have not actually gone into the items which you know will not go into the bank and so on and so forth because still there is a lot of you know we have asked RBI, as part of the merger, for certain forbearance on the assets and liabilities which are moving into the bank. That is number one. Number two is as far as there's some of the loans which may not qualify in the bank, which in the final event if the RBI and the forbearance they want us to be sort of you know paid out later. We don't think that amount is actually going to be very substantial and it's going to be very, very manageable. It's a few thousand crores of rupees. That's all. In reality, the answer to your question is that generally the loans that we do are loans that banks would do. We don't do anything which a bank would not be able to do except just two things. One is acquisition funding which we have, we may have done occasionally in the past, and the other is loans against shares for corporates, which again we may have done occasionally in the past. To my mind, these are only the two broad categories of loans which we do, which we could have done and which banks can't do. The value of those loans, as Rangan said, will not be material at all. Sure. Thanks. Any reason for increase in the spreads apart from maybe the overall pool of NPA coming down and that would have helped in terms of the interest accrual. But otherwise we see that spreads on quarter-on-quarter basis would have been up by almost 35-40 odd basis points because it was 3.45%. The reason, yeah, the reason spread would have gone up was because of what I, you know, what my answer to Suresh's question, that when interest rates go up, the cost, the change in cost or the increase in cost to us is immediate. The benefit of that, the increase which is in terms of the increase in lending rate, that comes over a period of three months. Whatever were the increases in interest rates in the first quarter when we saw some pretty sharp increases by RBI, that benefit which would have flown in in the second quarter, which was not there in the first quarter. That probably explains what does. On non-individual side. Yeah, both individual and non-individual. Okay. Lastly, in terms of any discount- Non-individual would also be because of the resolution of some of these stresses. Yeah, it would be primarily because of the resolution, because there is almost like 35-40 basis points kind of an material coming up. Yeah. The spread change on individual loans will be because of the Yeah, that's almost flat. Yeah. Yeah. Non-individuals will be because of resolution. Yeah. During this entire repricing, do we offer any discounts to the existing customers, so to ensure that the repayments and the prepayments are low? Would that have any impact on the spreads on the individual loans or that's the normal course of business? Yeah. No, Kunal, there is no discount. It's just that we, you know, since it's based on a term extension method, you retain the installment and extend the term. There would be few cases which will go beyond a certain threshold term, which we negotiate and get a part prepayment or whatever way of adjusting it or increasing the installment, but there are no discounts given. Yeah. Maybe a strong relationship with a particular corporate, salaried accounts, okay, and maybe we would have sourced loans from them, sourced loans for them also, or maybe a particular developer, and then trying to see that if they come with, say, some price bargain, do we do that after the hikes which have been there? No, we have not done in a single case. Not a single case. Okay. Sure. Thanks a lot. Yeah. Thank you. The next question is from the line of Jignesh Shial from InCred Capital. Please go ahead. Yeah. Hi. Am I audible? Yeah, yeah, you're audible. Yeah. You know, thanks a lot for the opportunity and on the spreads and margins you have quite detailed explanation you already given. I had two things, you know, just more clarity over it. That incrementally, you know, we are seeing that, you know, if the rates are consistently going up, you know, definitely somehow the demand is likely to get disturbed out here. So, do we see going forward we will be taking a bit of a hit on the spreads just to make sure that the overall demand momentum remain pretty decent. Along with that, is it easier for us to, you know, pass on the rate hike to, you know, affordable segment side, compared to, you know, premium segments that are a middle income level segment side. Is there a difference in passing it on or it remains more or less same? That's my first question. All right. The answer to the second question is it makes no difference whether it's in an affordable housing segment or in a higher income group. The change in interest rates is always passed on immediately to the customer. Your first question on whether how higher interest rates will impact demand, my answer to that would be as follows, you know, let's take a comparison of a housing loan which is over a 15-year time frame, even though the duration may be shorter. The original term is 15 years. Let's say a personal loan which has a 15-month period or 15-month term. Mm-hmm. When you are taking a personal loan for buying some expensive equipment, for example, you want to borrow that money at a time when interest rates are at their lowest. Mm-hmm. Because for the entire 15-month period, you're not gonna see any dramatic reduction in interest rates in the next 15 months. Mm-hmm. Therefore you would want to borrow money at a time when rates are low, because then those rates will more or less sustain during the next 15 months. However, in a housing loan it is very different because a housing loan is a 15-year loan. Interest rates in India will go up and interest rates will come down. You will continue to see and if you take the last 15, 20 years, I've, I mean, in my experience, we have seen so many many innumerable cycles of rates going up, then stabilizing for some time, then rates going down, stabilizing, going up and going down. So when you are taking a 15-year loan, it really does not make so much difference where interest rates are at the point of time when you take a loan. Because over that period of 15 years, if rates were low, they will become higher at some point. If they were higher, they'll become lower at some point. Mm-hmm. Everybody in India gets floating rate loans. No one gets fixed rate loans. In a floating rate loan, you will get the benefit of falling rates when rates come down and you'll have to pay the higher cost when rates go up. It makes a much lesser difference from an economic standpoint in a long-term loan as compared to a short-term loan. Understood. I mean, I completely get your point. Basically we are seeing that, initially post-lockdown, the momentum had been pretty decent in the housing loan demand side specifically. Initially it was definitely, you know, some benefits coming up from the government in the case of a stamp duty reduction and all. According to you being on the grounds, what basically is driving this demand specifically in the metros and in the Tier 1 cities, that is the key reason why you think that the demand is pretty heavy? Do you see this sustaining over a period of next six or 12 months or so? My sense is that the demand will sustain. It's very early to talk about the current month, for example, you know, two or three days that we've seen in November has seen a fairly healthy number of new applications that we've received. It's early days, so I don't want to make a commitment on it. My sense is that the demand, the strong demand will continue. Housing is a basic necessity in India, and as long as people are comfortable with their jobs, they believe that their, you know, their jobs are not at risk, their salaries are being received, people will need to buy a house. It's a requirement. It's a necessity. It is not something that you're buying a house because, you know, you just want to make some investment. You're buying a house because you need a house to stay. Understood. My second question was on your developer portfolio altogether, how you are seeing that particular portfolio shaping up in coming periods? Has the sort of consolidation happened within the developer segment altogether, where many of the large developers are taking over the smaller ones and all. How is your experience in the developer lending portfolio side, and how do you see that demand getting generated going forward? I responded to that in detail in the question which I think Mahrukh Adajania had asked. Okay. Just to quickly recap. Sure. A period of three years between 2018 and 2020 saw a slowdown in the launch of new projects. Mm-hmm. Because of that, the disbursements that we are seeing today are lesser than what they would otherwise have been. Mm-hmm. However, post 2020, post the second half of 2020, project launches have increased. As project launches increase, the demand for construction finance loans also increases. As I said in response to the earlier question, a construction finance loan, unlike a lease rental discounting loan, the disbursement is made gradually, slowly over the life of the loan because it is linked to the construction of the project. As the developer has to first put in his equity, he has to come, his construction has to come up to a certain level. He puts in more, then he comes in for additional funding. At that stage, our inspectors go and look at what construction has happened and then disburse. The point is that the disbursements tend to be back-ended unlike a lease rental discounting loan. Understood. Sorry to interrupt, but for any follow-up questions, may we request you to raise your hand in queue, please. Sure, sure. A reminder to the participants, please be brief with your questions and not repeat any questions. Thank you. Next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead. Yeah. Thank you, sir. Thank you for giving the opportunity. Just two data points if you can share. First is the absolute disbursement for the quarter as well as restructured assets as of September 2022. The disbursements are INR 44,000 retail disbursements. Yes. Restructured assets, sir? It's 0.7% of the book. There is not much of an increase. There's no increase from the September numbers. The restructured book now stands at 0.7%. I mentioned that in my opening statement. Oh, thank you. Thank you very much, sir. Thank you. The next question is from the line of Shweta Daptardar from Elara Capital. Please go ahead. Thank you, sir, for the opportunity. Just two questions. The first one being, what is the interest rate differential between our LAP and home loans? The rough interest rate differential would be between 1.5%-2%. Generally, 1.5%-2%. Secondly, sir, what is our incremental cost of funds? Rangan, you want to answer. Incremental cost of funds? I mean, incremental depends on where you are borrowing, what term you are borrowing, which instrument you are borrowing from. We can't give an incremental number like that. Rangan, if you want to attempt something, please go ahead. Yeah. If you were to look at, I mean, incrementally what we borrowed in- Incrementally what we got. In the month of September, for example, the incremental cost was around 7%. That's roughly. Yeah, this is the. Let's understand that this 7% that he's talking about is annualized cost. Whereas the lending rates that we are talking of is with a monthly rest. Comparison in this context is not correct. Sure. Noted, sir. That, that's helpful. Thank you. Thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go ahead. Thank you so much for taking my call. Keki, just a question on, let's say the incremental number of loans, let's say that we would have done in the last six to nine months, you know, from the newer centers where we were not operating or HDFC Bank was not operating or the relationship was not happening. Any color, you know, what those incremental loans ticket sizes roughly would be, whether this will be more salaried or more self-employed. Any color of the incremental loans that were doing. Renu, you want to answer that? Yeah. I really think there is not much difference at all in that. I think what has happened is the HDFC Bank has extended, their, you know, acquiring for some of the smaller branches, some of newer locations. The average ticket size may be in some of those cases a little lower. I think in terms of self-employed, employed, we have not seen, any change. You know, our self-employed has been reasonably good in the last few quarters, and so there hasn't been any great hike or any, differences yet. Right. I mean, the point of asking is, you know, there are so many newer affordable housing finance companies which are, you know, thinking about growing bigger. My point is, you know, we are obviously trying to get into that space, but. Yes. You know, as Mr. Mistry already said, we have 23% of our loans are in that segment and we continue to, you know, grow in that segment. These are, you know, when you say affordable, these are basically lower cost homes also. As you go into smaller geography, as we mentioned earlier, the costs also come down, right? In terms of what we are seeing right now more is that the middle income, the low middle income, they're all actually coming back into the market in the last one year, three to four quarters. I think that is what you're seeing, you know, the growth in. In employed, self-employed, the mix continues to be the same. Great. Okay. Second quick question. I mean, what percentage of our individual loans would qualify the RBI priority sector loan? The RBI, I wouldn't have that number offhand immediately because there are also a value limit as far as the RBI priority sector is concerned. Because there's a difference between what is in metros and otherwise. Maybe we'll get back to you exactly on our incremental loans. I won't have that number to give you right now. No. outstanding also if you have it. Yeah. Outstanding, it is about INR 1,20,000. Yeah. INR 1.20 lakh. Okay. Perfect. Perfect. Thank you so much. Thank you. The next question is from the line of Kumar from JP Morgan. Please go ahead. Sir, may we request you to please be brief with your questions. Kumar, your line is in talk mode. Kindly go ahead with your question, please. Hi, can you hear me? Yes, sir. Yeah. Saurabh Kumar from JP Morgan. Sir, just two questions. One is, what percentage of customers would opt for a term increase versus, you know, EMI increase? So that's first. Secondly, will it be fair to assume that the market share in LRD would have remained? I mean, you would be holding on to your market share in LRD and even in public finance? These are the two questions. Yes. We would certainly be holding on to our market share on LRD. As far as construction finance is concerned, even though you may see that the construction finance book has come down as a proportion of the total book, our market share would actually have gone up. Because if you see in that 2017-18 period when, you know, a lot of new projects were done. 2016-17 period when a lot of new projects were being launched. At that time, the biggest lenders in the construction finance business used to be the likes of Indiabulls and Dewan Housing Finance and Piramal, and people like that, who have become significantly slower in their construction finance lending. Market share would have gone up. It's just that, as I said, between 2017 and 2020, not many new projects were launched. Very, very few projects were launched, and the disbursement for these loans would only happen now or over a period of time. That was your second question. Sorry, what was your first question? Sir, what percentage of your individual customers would opt for a term increase when rates go up and what percentage actually would just pay off the higher interest? Renu, you want to answer that? Yes. What happens when the rates go up, we normally the default option is that the term goes up. You know, if you've got a 15-year loan, it'll become 15-year in a few months. It's only when we are not able to cover the interest and negative amortization sets in. At that point in time is when we get in touch with the customer and tell them that, you know, "Now you're, you know, what you're paying is not covering interest. So it's in your interest to either increase the EMI or maybe pay back a little portion of, you know, the principal if you're able to do that." I think that's how it works. The default option really is the term goes up and I would say 90%-95% of them are like that. It's only in the negative amortization cases that we actually call in and counsel customers. Because you see what happens very soon, maybe next year, the rates of, you know, the interest will come down. Then again, you know, we'll be able to reduce the terms. Because it's a long-term loan, it's anything from 8-15 years, as you know. That is the default option that we thought of, because of the interest rate variability. Thank you. The next question is from the line of Deepak Kapoor, an individual investor. Please go ahead. Yes, sir. Good afternoon, Mr. Mistry. This is Deepak Kapoor. I'm an individual shareholder. Yeah. I have a couple of questions. One question was regarding the RBI in-principle approval on the merger. We haven't heard anything from RBI on the dispensation you have requested for under statutory requirements and as to what is their view and thinking on that. Given the fact that we are having a shareholder meeting later in the month, would we have some indication from RBI as to what is their thought process in the long run? Right. We have had no indication as yet from RBI on what their stand is. We have not heard anything from RBI either saying yes or saying no. We would be obliged under regulation to disclose it to the public the moment we get it. At the moment, we have received nothing. When we envisaged the merger and we did our computation about the viability of the merger, we did not, I repeat, we did not take into account any forbearance, that we would receive any forbearance. Would you think that information from RBI would be important for the shareholder meeting in terms of the approval, to exactly know as to what? I think by and large, most shareholders who have either HDFC or HDFC Bank have already factored in, or have made their assumptions or their calculations on the basis that the RBI approval does not come. If the RBI approval comes, it would be a bonus. It would be something which would be even more positively viewed in the market. At the moment, I guess they would have assumed that it is not there because nothing is there in public domain. I mean, nothing. They've not told us what their views are. Okay. My second question was regarding the news we just recently heard about, the Nifty index where HDFC might be removed in December or January. I think that has been clarified. Mr. Kapoor, I would suggest you please look at the newspaper articles closely because this has been very clearly subsequently clarified by Nifty that that is not the case. We can talk to you separately on that. It has been reported in the newspapers also that we would not drop out of the Nifty as you have indicated. Okay. Thank you very much. Yeah, that was some analyst view at that point of time. This was discussed both with SEBI and with NSE, and they have come out with a clarification. Thank you. As there are no further questions, I would now like to hand the conference over to the management for their closing comments. I would just like to say thank you to everyone. We've had a good quarter. We hope and expect that the momentum of that we've seen in housing loans now for the last nearly 16-18 months will continue unabated in the period ahead. The economy is on strong grounds. The economy is on strong wicket. Job certainty is very high at the moment and consequently consumer confidence is generally very high. As I said, interest rates have gone up, but the impact of interest rates on a long-term loan is a lot lesser than on a shorter term loan from an economic standpoint. I have no further closing comments. If any of my colleagues want to say something. No, thank you very much. Should any of you all have any follow-on queries, please get in touch with us. Thanks to Steven. Ladies and gentlemen, on behalf of HDFC Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.