Ladies and gentlemen, good evening, and welcome to HDFC Bank Q1 FY '21 earnings conference call on the financial results presented by management of HDFC Bank. [Operator Instructions] Please note that this conference is being recorded. I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, sir.

Okay, thank you, Aman. Appreciate the participants calling in today. Mr. Aditya Puri is with us today. May I request Mr. Puri to give opening remarks, please?

Thanks, Srini. Good evening, all of you, and thanks for taking the time off to listen to us. I will cover the opening remarks in 3 portions. First, I want to get these Twitter messages out of the way. Then I will give you an idea as to what kind of work we've put in to get the results that we got during the COVID quarter. And last but not the least, I would like to clear all the uncertainty regarding our future in terms of succession, management planning, our business plan. And then our team, which is actually what has performed to give you the results, will cover individual aspects, whether it is about NPA, whether it's about our unsecured loans, whether it is about our credit risk, whether we will have a sudden jump with the moratorium going off or we've taken proactive measures to see what is happening, the fact that we have a clearly defined succession plan coupled with the team in place. So let me start first. So we've been getting these messages seeming to suggest that there is some turmoil in the employees based on transition. So let me cover that one by one. As far as Mr. Munish Mittal, our Chief Technology Officer, was concerned, he talked to me about me and the management about a year back, whereby he said he would like to go into more detailed and advanced studies in technology at Oxford. I told him, "No problem. You've been loyal and you've been -- we know you love the bank." So he was set milestones that he had to achieve before he moved on. He's achieved the milestones; and now he's sitting in Oxford in London, preparing for becoming an even better expert on technology. The second was Mr.…

Asset quality.

On asset quality, et cetera. And my brilliant change agent, Mr. Jagdishan, can answer all questions.

Thank you, Mr. Puri. First, a few comments to provide the backdrop on the strength of the franchise across a few dimensions, liquidity, capital, provisions and credit quality and NIM. Let's do some highlights and then we'll jump into the quarter results. We carried on with the strategy to build on deposits and on bringing in new customer relationships, thereby maintaining strong liquidity position. The bank's average LCR for the quarter was at 140%. That is about INR 70,000 crores of surplus or approximately 9.5 billion, considering 110% as the floor. Capital adequacy is at 18.9%. We have 7.8 percentage points more capital than the regulatory minimum of 11.1%. Our CET1 at 16.7% is 9.1 percentage points more than the regulatory minimum of 7.6%. The floating and contingent provisions totaling INR 5,453 crore built over a period of time helps in derisking the balance sheet. We have also taken several steps to further tighten the credit. The provision coverage has been further augmented to make the balance sheet even more resilient for any shock. Provision coverage ratio, including all categories of reserves, stands at 149%. We'll cover more on credit as we go along in this call. The NIM has been in a stable range historically over the past 10 years between 4.1% and 4.5% and currently stands at 4.3%. Now we'll get to the results highlights for the quarter. COVID has had certain impacts on the financials, which we will call out as we go along. Let's start with net revenues. Net revenues grew to INR 19,741 crore, driven by an advances growth of 20.9% and deposits growth of 24.6%. Net interest income for the quarter was at INR 15,665 crore, up 17.8% over the previous year and grew 3% over the previous quarter. For the quarter, net interest…

Okay, thank you, Srini. Considering the fact that the main driver of our growth during the quarter has been the corporate banking unit, let me hand it over to Rahul Shukla to tell us more about where the growth is coming from and what is the outlook on corporate banking assets.

Thank you, Sashi. Thank you all. Corporate banking had a satisfactory performance during the quarter. Strong growth performance was helped by the desire of corporates to migrate to the bank and also from more firm than widely believed economic activity. So first is on asset growth. The bank remains focused very sharply in serving businesses that have strong liquidity access through public markets or otherwise, through government holdings or government procurement; those that are part of very large business groups; and too, epidemic-resistant businesses. Entities include public sector corporations, private sector and MNC corporates. The bank also participated in TLTRO 1.0 to support corporates where it was constrained by GBL limits. It also provided liquidity to the mutual funds segment through purchase of assets under RBI scheme. We saw broad-based growth in the public sector in subsectors such as power, transportation; as well as financing arms of the government and nodal agencies. The bank also extended credit to material, energy, discretionary consumer sectors. Customer assets increased Y-o-Y by approximately 1 lakh and 25,000 crores. So how did this growth come when the economic activity is widely seen to be tepid? Given a lot of commentary and data points on the economy, we dug deep into our data to analyze trends and look at how the actual trends were versus what we read in the newspapers. As a very large transaction bank, we looked at the value of corporate collections that pass through our cash management system. During April 2020, which was the strictest lockdown period, and we believe that there was simply no activity, corporate collections were 45% compared with April 2019. You can say that activity was down for 55%, but you can also say that 45% of the economy was running in the month of April. Collections in…

Thank you, Rahul. Thank you for that. Jimmy, on the corporate side, can you sort of give some insights into the asset quality trends fully on the corporate banking portfolio, both on the incremental side and also on a stock basis?

Sure, Sashi. Thanks. Good evening, everyone. So a little bit to take off from when we all last spoke in April. So as we mentioned at that point in time, we were very, very early to react to the COVID phenomenon even before it became a global phenomenon. We had several rounds of studies and stress tests done across the portfolio. There was an extremely detailed name-by-name evaluation carried out by us in terms of what impact would be to each and every entity; where they were placed, not just by what industry they were placed; how they were placed there; what their future plans were; what their immediate situation was; what their financial situation was. The result of this entire exercise was that there was a paring down of exposures in several names. There was further requirement, and this was put in place with the credit administration department, that even amongst approved facilities a transaction beyond a particular cutoff will be reevaluated prior to it being disbursed from the bank in a prospective manner. This is a process that carries on even till this day. So there is extreme caution in any new advance that is put out, whether the lines are fresh sanctions or whether they were prior sanctions as well, and that's a very important point to note. As you also do know, we have pretty good early warning systems. We've been evaluating flows. We've kept our ears to the ground. I think Rahul already threw a color on where the flows are and how they have been moving and improving month-on-month. That reinforces confidence on the customer selection being of a very high order and reinforces some level of sales, and you'll take heart in that. To just add a little bit to what he said…

No, no. I was just coming back, yes.

Sorry. So that shows that the quality has been maintained despite this growth, reflected in the fact that our old internal rating model, which as I said has served us very well for 25 years, reflects that there is not an increase in the incipient risk in that portfolio. To just dwell for a moment on the unsecured portion of this portfolio. Once again, as you know, all wholesale exposures are individually deliberated upon. All these portfolios carry multi-level approval grades that goes as per our policies. Won't dwell into the details of that, but the model is stringent. And we have average -- weighted average rating on the unsecured book at a 3.45, opposed to the portfolio average of 4.43 and the secured portfolio average of 4.81. So as you can see, since all these are individually assessed cases, there is obviously a far greater level of caution that gets injected into the unsecured advances. If one looks into the historical trends of delinquency, there is a 55% lower probability of default in the unsecured wholesale book than there is in the secured wholesale book. And this is taking our own historical through-the-door cycle probability of default. So that's where we honestly stand, Sashi, on this. So if I can hand it back.

Yes, yes. Thanks, Jimmy, for that. Rahul, your -- the other hat that you wear is on the SME portion. Can you tell us more about the outlook -- the business trends and outlook on the SME side, please?

Sure. Thank you, Sashi. So business banking, our wholesale SME business. We had a satisfactory performance during the quarter. The bank continued to pursue business on the basis of granularity; geographical spread; sound credit profile; and risk mitigation through self-funding, high collateral value and strong documentation. The first point, on self-funding. We've often mentioned that we were on the threshold of achieving 100% self-funding for the BBG portfolio. We actually achieved this 100% in May, and we closed in June at 103%. This was because of strong flows of funds into CASA as well as deposits, the business [EOP] Y-o-Y increase of 79% in CASA and 38% in FDs. The self-funding for customers -- because we have customers who don't borrow. So if we just take out all the customers who don't borrow and look at only the borrowing customers, even for that subset of the customer segment, at end June, the self-funding level was 75%, which is very strong. Second, assets. The asset book increased in mid-teens on a Y-o-Y basis, low single digits on a Q-o-Q basis. The asset book was actually, Sashi, on course to decline 10% from mid-March to end June. Our client segment were reducing their operating and financial costs. It was comforting to us because, when the rubber hit the road, we -- it actually tested the quality of our client selection and client base, but with the introduction of the Emergency Credit Line Guarantee Scheme, the bank picked up very smartly. We will discuss that later, but as of June 30, we had reached out to 100% of our customers within wholesale SME. And disbursed -- or in the process of being disbursed, where documentation were executed, on June 30 was in excess of 5,000 crores. 68% of the new-to-bank disbursements had a…

Thanks, Rahul. Since you mentioned about the government support, you may as well sort of cover the how the reversals of the emergency credit line of the government has played out for us as a bank, not just in business banking.

Sure. So Sashi, I gave you data not as of June 30 but as of day before yesterday, in the night. So we had eligible customers on record which is preapproved because they passed through all the tests and everything, and that was in excess of about 300,000 customers across the bank. And the total value of the disbursement was in excess of -- I mean the value that they were eligible was in excess of 20,000 crores. The disbursements that were done as of day before yesterday, in the night, was to about 57,574 customers. And the total amount that was disbursed was over 10,000 crores, 10,169 crore. There is still a certain amount pending because this goes through a process that you sign the documentation. You upload basically the details in the guarantee website. You get the guarantee, confirmed it when you go out and make a disbursement. So we still have about 1,076 crores in pipeline. So at this point of time, in the preapproved cases we basically have about 11,000, 11,500 covered.

Thank you. Jimmy, one of the segments that a lot of people have been worried about is on the SME side, especially when you consider the impacts of COVID on SMEs as a segment. Can you sort of give some insights on how your portfolio on the SME side has been behaving? And if you can also specifically cover the -- in the last conference call, we did mention that you did a lot of stress tests. Can you do the back testing of the same?

Yes, yes. Sure, Sashi. In fact, I'd like to take that last bit first. So if you recall, the last time we covered, which was in April, it was earlier times and there was obviously a greater level of uncertainty and a lower level of control. So we had stress tested the portfolio in 3 different levels in a low, medium and high level of stress. And what we had put out was there was a possibility that 9% to 11% of the customers would find or perhaps face difficulty in servicing their obligation based on the high and the very high level of stress testing that was done. And so I have to say that this was, happily, not correct. It was an extremely conservative estimate that was made. We have the hindsight now of the actual flows that have taken place. The vindication of our historical policies and customer selection has clearly manifested. And I would say that, at this point of time and perhaps with even a more encouraging trend coming forward, those estimates should be down by more than half. So it was clearly an extremely conservative estimate made and we should be correcting the -- that record. Based on current flows, we do believe that the impact could be less than half of what we had originally estimated. The current flows also are increasing month-on-month for us. If we look at it on an average basis, April over March, we actually saw 47% reduction in cash flows. And we have very good cash flows in this business because many -- very often, we are a sole lender and it is mandated sole banking. So we actually have very good visibility, control and early warning insights over this portfolio. So with 47% down, the cash flows,…

Thanks a lot, Jimmy. I know, Srini, Mr. Puri alluded to the -- that on the retail side, where they would be -- discretionary spends and consumption have been reasonably hit during this quarter, but can you touch upon the recent or the latest trends; and maybe product-wise, some changes or some interesting insights that you're seeing on that?

Yes. I'll give a context on the retail asset side. Retail loan originations fell by 70% during the quarter, so the overall originations came down significantly. The personal loan book contributed to the biggest of impact, a drop of 86% in origination, both a combination of our own credit policy tightening actions that we took early on in the prior quarter itself. And also otherwise, the uncertain environment also contributed, that people weren't coming along. Card sourcing, again one other item that significantly showed a drop, 87%. Card sourcing dropped. And spends fell by 44%, right? And the card book is down 4.5%. It is lower June versus March. Among all this, loan originations in the vehicle segment fell -- at the aggregate vehicle segment level fell by 66%, but within that segment the 2-wheelers and tractors showed greater resilience. Demand -- with the demand being driven by deeper geographies, mostly coming as you see, the products, 2-wheelers and tractors, more deeper geography-related products. The fall in 2-wheelers was restricted to 50%, and the average was 66% at the total level. It was down by 50%. And tractor segment actually grew 26%, but we have a smaller book on that but grew by 26% at a lower base. Gold. Loan against gold jewelry, again a large rural footprint type of product, originations fell 15%, but still it gave us growth to the book of about 3% or so. So that's mostly I will say from a retail segment thoughts...

Jimmy, on the -- retail is one of the most -- a lot of people are looking at it. So start on with the asset quality trends of retail, and then we'll cover section by section on that one because we need a bit more detail on that.

Sure. So I must start off saying we were rather fortunate when this crisis started because we entered the crisis with an improving book. As everyone will recall, there was a slowdown in the economy for a good 18, 24 months preceding the COVID crisis. And in our usual manner, we would react to such changes in the economic scenario. And we would have had -- depending on which product it was in retail, we would have had at least 2 or sometimes 3 rounds of policy tightening during those preceding 18 months or so. The result of that policy filtering was effectively that we had a new book coming with lower delinquency, and there were very encouraging trends on that particular book. So it was rather fortunate, when the COVID prices hit us, that we entered with this kind of a portfolio. And we did not, therefore, have very heavy baggage to carry. That said, I must say that, once the crisis hit, we again looked at the portfolios. We once again decided to have some level of filtering. And more than the demand, I would say it is the policy changes that resulted in a lower business flow for us. We have always stated in all our interactions with you that the bank sticks by its credit policy. The bank is extremely steadfast in this, extremely dogmatic about it, would not change based on business exigencies. The risk comes first. And this perhaps is the biggest and most obvious manifestation of this policy actually being put into practice, during this COVID crisis. We did allow business to attrite. We will not and did not compromise [Technical Difficulty] So I'll continue. So we have had a reasonably good run. Delinquencies have not gone up of those customers who have entered moratorium. And I'll get into that a little later, but the portfolio has held up well. The early trends are good. The early delinquencies all hold up. The signals at this point in time are good. Of course, the business volumes have suffered, but the portfolio quality has not.

And what about the check bounce trends or the real check bounce?

So what we have done in order to look at this, we've actually looked at 3 things that come into the portfolio quality. So when we look at the 0 DPD -- because we need to compare it to the non-moratorium because whoever is in moratorium does not need to pay. So when we look at the pre-crisis and post-crisis 0 DPD check bounce trends, there has actually been an improvement over the last 2 or 3 months. It may be small, but there has been an improvement but has definitely held up. Our moratorium portfolio, as Srini mentioned to you a little while ago, is barely 9% of the portfolio at a bank-wide level. So the bulk of the customers do continue to pay, and we have actually seen an improvement in the check bounce trends.

What about the resolution, collection resolutions?

So collection resolution. We had to change a lot in collections. Let me just take a moment to tell you about collections at this juncture. If you look at the -- we used the first couple of months during the lockdown to actually revamp, reorganize and ensure that the collection infrastructure remains intact. We obviously have a very large team internally. That team, of course, as Aditya mentioned earlier, is just like every other employee, very well taken care of and working on the job, but we also did augment this team with teams from the sales force, teams from the credit underwriting itself because, if the business doesn't come in, even they would have a lower load. So there was effectively a deployment of 20,000 additional staff into the collections activity. We revamped and changed all systems very rapidly into a work-from-home environment because of the lockdown. Whether it comes to dialogues, recorders, the collection systems themselves, everything was enabled for a work-from-home environment. Contactability was a great benefit to us because, during the lockdown, it was much more likely to be able to contact the customers than otherwise. So all these things benefited us. The agencies we use, of course, had part of -- the migration of population that took place impacted them to some extent but impact HDFC Bank much less because of the presence that we have in the semi-urban and rural environments themselves. That said, we have long and old relationships with these agencies. We partner them. We reassured them that we continued. We provided advances so that they could retain their staff. We had temporary incentives put out so that they could once again engage the staff. And as soon as the lockdown was lifted wherever it has been listed, we were ready to go. We did not lose a moment. And the result of that is that the resolution rates -- today, despite significant areas of large concentration like Mumbai, Delhi, Tamil Nadu, et cetera, still being under lockdown, the resolution rates have moved to around 65%, 70% of what the historical rates were. When the lockdowns get lifted in these areas, they would only improve.

Right. Thanks, Jimmy. Can you just touch upon 3 specific portfolios which I think a lot of investors may be very keen to look at? One is the unsecured portfolio, as there are a lot of [indiscernible] have been very proud about that. The second one is the agri portfolio, and the third one is the commercial, the [indiscernible].

Okay. So our unsecured portfolio, as you know, primarily consists of the personal loan, the business loan and the credit card. The personal loan, as we mentioned, is entirely salaried individuals. And the bulk of that comes from private enterprises that are very highly rated and of a high quality themselves. The advantage of that is that there is a very low volatility of income. It's something we have always said, and I'll come to it in just a second because it has been proven at this point in time. And of course, there is a good concentration in government enterprises. Once again, as one would understand, the volatility of income for a government employee is also extremely low. When we look at the portfolio that came in for our personal loans, we did, as I mentioned last time, a very quick survey of customers who had chosen to take moratorium. And we had realized that the bulk of them had done it out of caution and not so much out of stress. When we have looked at customers even today in our moratorium portfolio, 98% of them continue to receive salary credits. Around 97% of the customers in our moratorium portfolio today are 0 DPD customers. So the fact that they had elected to take a moratorium after so many months of observation and now that we do have hindsight and a learning curve behind us definitely seems to be more out of caution than out of anything else.

Can you talk about the check bounce rates in unsecured portfolio?

The check bounce rate for the unsecured...

[indiscernible] COVID levels.

They have -- yes. They have also shown an improvement over the historical levels, a small but improvement over what the pre-COVID levels for these check bounce rates were. That has been the case actually across all products and also in the unsecured products.

Good. You did mention about the salary trends for the moratorium. I think that overall in the unsecured portfolio, since we have a large portion of our -- one of the fears that we had is that other companies which are dropping their salaries or the average salaries or probably a lot of attrition that is there. Do we have enough -- large portions of concentration in companies where the drop in salary is more than 20%, 25%? So what's the...

I think, firstly, that fear is not so well founded, fortunately. What we noticed is the reduction in salary credits over those initial months of the COVID crisis, March, April, et cetera, was around 2%. And this could well be more of a banking and a cash flow matter than actual haircuts in salaries. When we'll try to split this up by companies, we do realize that barely 5% of our personal loan portfolio is in companies where the drop in salary cuts has been 20% or more. And the bulk of the personal loan portfolio is where there has been no impact or a minimal impact in terms of salary cuts or even delays. That said, I would want to say one more thing: We are extremely -- even before we entered this crisis, we have extremely conservative leverage policies for unsecured personal loans. Our fixed income obligation ratios are maybe 20 percentage points lower than industry averages. So a 20% dip in the salary, even should it manifest, even for this 5% of the portfolio, there is enough headroom in the leverage to absorb this kind of cash flow attrition, not to mention once again that throughout this entire period the savings rates have gone up. So whereas the cash flow will have dipped, the savings, also the expenditures, of these clients have also dipped, but should they not have dipped, there is still headroom to absorb it.

Thanks, Jimmy. Last but not the least, I mean, whilst you have tightened your policy for this particular period, we have -- I mean even though there is the -- it's not 0. There have been disbursals that have happened. What's your policy of this versus the quality of sourcing?

So as Srini alluded to it a little earlier, when we did tighten the policy and when COVID hit us, the sourcing pretty much ground to -- I wouldn't say ground to a halt, but it was substantially reduced across all products. This was a function of the caution that we had put into our policy, it's our belief, much more than a function of the actual demand for credit. As time has progressed, we have noticed that certain industries and certain types of loans have done better. We have therefore been onboarding a certain number of these transactions. I think Srini alluded to the 2-wheeler and the tractor loans. I will say 2-wheeler and tractor loans are already pretty much in line with the pre-COVID levels. Auto loans are also now moving to probably around 60%, 70% of pre-COVID levels. One will notice, and I won't lose an opportunity to mention, that the personal loans and business loans are still, despite some level of onboarding, only at around 30% to 40%. I would like to emphasize the caution that remains injected into unsecured products. We will always be more cautious about them. We will always have tighter filters. We will always be stricter in the assessment and what we choose to onboard in these products. So this is how it has come. We've done a further analysis, Sashi, if I can let you know, in terms of the new business onboarded and the share that our bank has had in the higher bureau scores. I don't want to emphasize too much on bureau scores because we go way beyond bureau scores when it comes to our policies and to our analyses of what we want to underwrite and onboard, but if you look at every single product, the share of HDFC Bank in the higher bureau score, which is a proxy for higher-quality credit, has been higher than the rest of the market has been. So what we are onboarding is of a better nature.

Good. Thank you so much, Jimmy, Rahul and Srini and Mr. Puri, for opening. I think we can now sort of put the -- turn to the floor for any questions, if any.

Sashi, one thing that I just want to say.

Yes, yes, Mr. Puri.

Well, first was tell you, number one, we have not laid off anybody. And we have provided them gainful employment largely to make sure that our ability to recover when the market keeps turning is fully intact. That's one.

Absolutely.

Two, we gave you a fair idea of what is happening about most of the things that you've been concerned with. Three, clearly you can see the depth of the management that we have. And it's only a lack of time that we didn't include Parag or -- and Arvind Kapil or a Vinay Razdan or...

And -- or a Rakesh...

And Rakesh or Arvind Vohra. Each of them have been exemplary. And these have all been strategic positions that have been built in to make sure that we can be where we want. I'll suggest the name, Sashi, of that HR agencies that have named the only certified bank or company in India -- that has named us the best place to work in...

It's called the Great Place to Work, Mr. Puri.

Okay. And last but not the least is that our strategies are not a pie in the sky. Our thoughts are not a pie in the sky. All of our employees are very confident. When we sent out our mail, I'm very confident and believe in the strategic plan. And normally we also have the blessing of god. So I think -- and our succession plan and management team plans are all in place, so I at least am feeling very satisfied. I used to feel a little disappointed, but I hope now at least I've told you I still remain a competent manager and ensure that the legacy remains.

Thank you so much, Mr. Puri. Thank you. Aman, you can put it to the floor for any questions, if any, if there is any.

[Operator Instructions] The first question is from the line of Rahul Jain from Goldman Sachs.

Just two questions. Number one, on this moratorium, this 9% number, I just wanted to clarify. So this is including -- all the segments or portfolios opt in; or agriculture, where you had given opt out earlier; even the corporate portfolio. So this is including all the portfolios. Is that a fair understanding?

Yes, it is.

Okay. The second question, Sashi, is on the provisioning policy. So Jimmy was kind enough to detail out a lot of points about how things are looking better. So the contingency provisions that you've made in the last 2 quarters, do you think this is going to continue? Or we are fine with what you've built so far, 4,500 crores, 5,000 crores of extra provisions.

As we speak now, I mean looking at the kind of environment that we are in, I mean all things remaining same, we believe that this is sufficient, but if -- let's face it. I mean we are still in a very uncertain environment. There is always this lock down, unlock, lock down, unlock, so we still do not know whether we have yet or when we will flatten the curve in India. So if this gets elongated, there will be a bit of disruption, then we have to reexamine it. So for the time being, we believe this is fine. We are pretty much comfortable. There is a methodology. There's a basis. As for example, Jimmy did mention that 4.7% of the 9% high-risk assets is very comfortable. The balance 4.3% is where we have created further contingent provisions. Similarly, the ones where people have paid after the first moratorium, some, we have collected. The balance which we have not collected, we have sort of taken into contingent provisions. So over timing, we are pretty much comfortable, but it doesn't mean that we can look into the future. We have to see how things stand about as we go.

Always take into account, I'd like to state, that we have the earning capacity to take further provisions without substantially affecting our bottom line.

Certainly, sir. Actually this was more in context of what banks globally are doing. So clearly we have seen the American banks take much significant provisions, so I just wanted to validate against that as well...

So these American banks, they have a 140% coverage, plus security.

No. Absolutely, sir. That's [indiscernible].

I think that calls for [indiscernible].

So just one more last question I'll squeeze in here, on the capital raising. So there is a capital rush on the street. Every other bank is looking to raise capital. Clearly we are much ahead of the regulatory buffers, so any thoughts of at what level, if at all?

Lots of thoughts. We are part of the herd. We are not a part of the herd. We have excellent capital adequacy and a great portfolio, and we have sufficient cushion to raise. And we've got subsidiaries which we want to raise. At this point of time, we don't feel the need.

And even at HDB Financial Services, sir...

That, we will come to separately. There -- see, don't mix 2 things. That is a different kind of capital raising. And a capital raising to cover the fact that you could have downside is different. So I was covering the second part. HDB, at the opportune time, we'll get back to you.

The next question is from the line of Kunal Shah from ICICI Securities.

So 2 questions. Firstly, in terms of margins. Okay, structurally if we look at it, we have got MCLR by almost 70 basis points. CD ratio is coming low. Plus, incremental lending is towards corporate advances, but still we are building onto margins. So is there a lag impact which we could see wherein margins can actually come off? So that's the first question. And second, in terms of the operating expenses, I think -- so a phenomenal job on the other operating expense that's down more than 10-odd percent, clearly showing the ability. But of this, how much will we say that this would be more of business related and these are like the structural initiatives' result and so much of the cutting the costs will be sustainable?

Kunal, on the margins, I think this is a tenth year wherein our margins have been in a band of 4.1% to 4.4% or 4.5%, okay? So it's been a stable band. It's we have seen multiple cycles. As probably you should know by now, that our philosophy is to ensure that we have matched durations on both the -- on the assets and liabilities. And we have a very robust risk-based price methodology which ensures that we know what is the minimum return that we need or a pretax return that we need for each and every product, net of cost and net of expenses. Now once you have that kind of a construct, okay, it's -- and then you have very active ALCO wherein all the management team is there, there is obviously a kind of a measurement and monitoring which knows that where are we coming on yields, what the new business outlook going to be on the yield. And then how do we ensure and what do we need to do to drop -- to maintain margins? So we keep on proactively managing our cost of the funds as well. So this kind of a duration and the...

[indiscernible]

Yes, Mr. Puri, yes?

And also what I'd like to bring out to you is that our semi-urban and rural push was based on certain very obvious facts, but it even took us a little while but it came to us at least 2 to 3 years back. For those of you who are all aware, the credit-deposit ratio for the country is about 122%. The credit-deposit ratio for semi-urban and rural is between 33% and 37%. We went in for a large semi-urban and rural push primarily to ensure that we would have sufficient liability generation at the right price. And we are proud to say that, that has worked exceedingly well, and we do believe that it will continue to work well.

So if you are looking at a quarterly variation. Surely there'll be some quarterly variations, but I think -- in the medium to long term, I think you -- now we have enough demonstration that it will be -- it has been within the band of 4% and 4.4%, 4.1% to 4.4%, as long as we maintain a reasonable amount of mix between retail and wholesale. So that's on the margin. So on the operating costs, I think Srini did mention that as well, that don't look at this current low of 35%. We have -- and that's going to be the number that we are going to aim in about a year's time. This is a bit of an aberration because a fair amount of our loan origination costs and a lot of other variable costs that normally is there has not happened because of the retail businesses have been tepid. So once that comes about, then you probably may go back to about 38%, 39%, but structurally, from that levels onward, I think we have committed that -- Mr. Puri has been committing. Srini has been committing. All of us have been saying that we should see over a 3- to 5-year period, thanks to the digitization efforts...

And Sashi, you have also been committing.

Sorry...

You have also been committing.

Yes, sir. We -- I said we all have been committing.

You never said. You said, "Srini and Mr. Puri."

Okay. We've been committing that costs will come down, over a 3- to 5-year period, to the mid-35 levels as well.

And specific, is there any structural initiative and cost out of this 1,400 crores kind of delta? Or do we see that these costs are not going to come again? We have taken some initiatives and this will be completely controlled. What outlet business volumes is going to come up. And in core fee income, we will see that, but kind of maybe how much of costs will we be able to extract structurally?

No. Let me amplify on what Sashi said. This is fundamentally based on our -- and you take into account what Rahul said and what Sashi said and what Jimmy said. Our fundamental digitization and straight-through processing and technological push towards frictionless straight-through processing, coupled with host-to-host integration, as more and more we become digital, this is a natural consequence.

The next question is from the line of Suresh Ganapathy from Macquarie.

Okay, so Mr. Puri and Mr. Sashi, I have 2 questions for you. I'd like to begin with the vehicle financing. Of course, there was some personal misconduct, but how sure you are about the compliance across several divisions, in the sense that are you pretty confident that there are no such instances in other divisions? And therefore, do you think you need to do some kind of an audit to ensure things are okay? Point number one. The second question is on the attrition that we have seen. Of course, there have been reasons that have been attributed to, but we have seen a steady round of attritions in the top management in the bank. How has been the attrition rate? Has it been higher in the last couple of years compared to historical trends? And any which way you guys can think you can control the senior management attrition going forward? And finally, just a quick data question. Is it possible to share the moratorium numbers as of April end and May end also? June end, we know it's 9%. Can we get on April end and May end also, please?

Firstly, Mr. Ganapathy, what are the senior attritions that we are talking about?

Rajesh [indiscernible] CIBIL TransUnion [indiscernible] Nitin Chugh [indiscernible] Ujjivan [indiscernible].

I will just go add that, Rajesh Gar, to what level? We've got 5 Rajeshes in the bank. We've got 10 Nitin Chughs in the bank. We have 150,000 people. [indiscernible]

Anyways. [indiscernible]. I mean, okay...

Yes.

No, no, I'm saying it seriously. See, Suresh, you and me are friends as well.

Yes...

So I can take liberties with you. I'm only asking you...

Yes. But there have been, right, a steady, okay, fine 2, 3 years before Pralay Mondal left. And then...

[indiscernible] with which might as well later, but is this attrition a cause of alarm or concern? Definitely not for me. I'm trying to understand why for you.

Yes, okay, that's fine. No comment speaks, of course, for itself.

No comment. Okay, second is, yes, the car thing happened, but we've got very robust processes. But let me be very honest with you, Suresh. Human frailty, you cannot -- I cannot give you 110% assurance. We have very strong processes of tax, retax or off-line auditing, online auditing, but if people collude with each other, then it comes out. But by and large, compared to the rest of the system, what comes out for us is minuscule.

Can there be a better media communication, Mr. Puri? I mean, if senior people retire, can you file an exchange or a press release or something like that? I mean just so that there is -- unnecessarily rumors and...

[indiscernible] never heard of anybody doing that. People retire. And I explained for Aima, as well as I explained for Munish. All I can say is that they've come. They've talked. We put up alternatives and plan, but no, I don't think we want to start filing on the exchange that -- ones who retire. We have a very robust succession planning right down the line. We have people, at least three deep, who can take the positions of their next bosses. So if and when it's alarming, we will let you know. Last bit, Sashi will answer now. But your thinking has improved after COVID...

Thanks.

The last bit was on the moratorium. I think it was -- see, the numbers of the first moratorium, we have not tracked. Now it's history. Now you're asking me to go back into history. So I'll -- April and May -- and I don't recall. I'll sort of get back to you.

So I'm very happy, Suresh, because [indiscernible] I was very unhappy.

No, it is great.

Yes.

The next question is from the line of Manish Karwa from Axis Capital.

Congratulation on a good number. So my question is on slippages. We had like 1.2% of slippage. Shouldn't these -- a large part of this slippage should ideally been -- have been morat, isn't it? Because [indiscernible] who's largely unable to pay over the last 3, 4 months have been going under morat. Is there something which I'm missing over here?

Yes, you are, in the sense that lots people had taken a morat. When the first moratorium got over, we had about almost 70% of them paying off -- paying back -- or paying in, to be -- to use the right conjunction -- preposition. So what rolled -- people who did not take a moratorium, there are 2 things that happened. 9% -- 90% of -- so the 9% which is the current moratorium -- who have taken moratorium 2, 90% of them have come in from moratorium 1. So that's part one. The balance who have not taken a moratorium who have not paid up is what some would have flowed in as NPA as of June 30. And as Srini was mentioning, it will be a part of the accelerated recognition. And Srini is now prompting me, saying that, no, there is nothing which was -- which fell in as a 90 DPD in June. The entire thing, he has taken it in the accelerated recognition of NPAs. And on the moratorium, if -- probably you may not have -- you may have missed out what Jimmy was saying. The 9% moratorium, 97% of that are all 0 DPD. And the entire -- and of which, who were had salaried -- were salary customers, 98%...

98% [indiscernible].

98% of them continued to get salary credits even in June.

Sashi, if I can just comment for a second and answer this a little more. We have had throughout this period a lot of customer interaction right from the month of March when we started, which I described to you the last time. Time towards the end of May, we went into another very extensive communication with all the customers because the moratorium was ending at that point of time. So we were engaging with them. And we were trying to ask them whether they were ready for June because the moratorium was over and installments would start kicking in again. And it was once again very heartening to hear from a lot of them, not just a lot but, well, pretty much a very solid majority of them, that they were ready. They did recognize it was over. They were all ready to pay. Then of course, the second moratorium got announced. So we stopped that exercise, but I think the thing to take heart is that from the standstill portfolio of the first moratorium, 70% have actually paid their overdues as of now. From the first moratorium customers, 70% of them paid up their June installments. So the customer interaction that we did have and the voice of customer that we did take was -- that it was not a universal demand, to get the moratorium, has been vindicated through both these observations. So it's just a kind of illustration, if you will, of what we are trying to -- what Sashi was trying to say earlier.

Yes. Manish, does that answer you?

Yes. Just to be -- just to clear myself more on this. So this 1.2% slippage number is coming from -- largely coming from people who had actually not taken moratorium earlier.

Yes. Absolutely. And this is...

[indiscernible] people who have taken moratorium, there are no accelerated NPAs. [indiscernible] we are not accelerating them.

So people who did not opt for a moratorium 2. And as Srini was mentioning, we did an accelerated recognition even if there -- they had not crossed 90 DPD. And that is what the large portion of the slippage has been.

Okay. And Sashi, just a very basic question. How are we defining moratorium? Is it now it is the customer's choice that they wants to take the moratorium and he asks for you -- ask some moratorium to us. That is the way the moratorium booked.

So as I was saying just a few minutes ago, the bank has always for moratorium 1 and moratorium 2 had an opt-in policy. And we have engaged with every single customer, and we have publicized and published all over the method to apply for the moratorium. Of course, in the first moratorium we were much more built on the word to use that is benevolence. It's kind of wrong word, but we were much more reasonable and we were much freer with granting the moratorium. So even if someone did not apply but merely missed a payment, we would not follow up. We would not ask any questions, and we would effectively grant them a moratorium without application. However, towards the end of May, when I mentioned the exercise we did, and that was a very significant exercise, we were protecting a lakh customers a day for a good few days. So it was a pretty large sample that we had picked up. And we realized that there is no universal demand for this moratorium. And we in fact had many voluntary customers coming and telling us that, "Listen, we don't want to bear this cost anymore, so please start collecting from next month and get us out of the moratorium." So both these things combined, this leave us to understand that we should be a little more judicious and a little less liberal in granting the moratorium because it's not necessarily the wish of every customer. And every customer is not so financially savvy as to realize the cost of the moratorium himself. That's why we took a pause, but that said, any customer who applies for a moratorium will get a moratorium, no questions.

Okay. And just one more data point on morat. Would it be fair to assume the corporate morats will be very negligible and largely all the morat is coming from SMEs through business banking and some of it from retail?

The last part of your question is extremely -- I think it's very strongly directional. So I wouldn't want to give such a strong direction, but yes, the corporate portfolio is very strong.

And I had a question on fees as well. Typically our fees are in a ratio of 90:10 in terms of retail, corporate. Obviously, it's pretty obvious that retail fees would have declined very sharply, but on retail, which are the 3 core segments where the fees would have declined? And how quickly do you think it can bounce back?

It remains at that level...

89:11.

89 and 11 retail and wholesale. That's the level it's typically been. And how quickly it bounces back, it depends on the economic activity, how it comes on, right? And we did give you pointers of how the car sales is picking up. We did give you something about retail lending, both internal and external, from a policy point of view, how we are trying to deal with it. The third-party products, which are the insurance type of products, have been reasonably good on that sense. And this quarter 2 picked up, where June was far better than [indiscernible] margin. And while we don't tell exactly what the outlook will be for the corporate coming of the 2 quarters down the line, but -- it depends overall on the environment, how it picks up.

The next question is from the line of Prakhar Sharma from Jefferies.

Just through this, on the moratorium; and a little bit on the future side. One, given when we say 70% of the people who had taken the moratorium in the first phase paid their dues till, whatever, May, June, what proportion of these guys would have continued in the second phase of the moratorium?

Sorry...

Can you repeat the question, Prakhar?

[indiscernible]?

Not so clear. That's why.

[indiscernible]? Is it better now?

Yes, slightly better.

So I wanted to ask. Like when you said that 70% of the people who had taken moratorium in the first phase paid off their dues before we switched to phase 2. What proportion of these guys would have probably continued in May, in the second moratorium?

We said, out of fee, what did Srini said. 9% -- as of June, 9% of our total customers' stock portfolio is in -- have taken a moratorium or elected for moratorium 2. 90% of them have flowed in from moratorium 1.

The -- so I'm trying to cut the other way, but that's okay. Second thing, at a broader level, to -- if you can help us understand. Like there's been some discussion around do we need a third moratorium or do we need restructuring. What in your view is the approach? Like either you comment on your book or at a broader level, what in your view is the right approach at a broader economy to move on moratorium or restructuring?

I think, Prakhar, the -- I mean you have heard both Rahul, Srini and Jimmy and Mr. Puri in terms of giving the kind of insights into what's happening in the recent trends in terms of collections and wholesale, SME and also in retail. I think we are -- we seem to be all right with just the moratorium 2. I don't think we are rooting for any moratorium 3, but I think -- because the more you keep on doing this, you may start to see a bit of a model hazard. That's our belief. So we are pretty much happy to sort of restrict -- if the reserve bank were to restrict to just the moratorium 2.

We'll take the last question. That is from the line of Mohit Surana from CLSA.

This is Adarsh, yes. I had a question on the obviously our market share gains in corporates have been very strong. Given the kind of consolidation, do you expect you can continue this momentum further the next 2, 3 years? And related to that -- yes. And related to that, the impact of that on profitability given that you are doing AAA, AA lending. So the profitability of that book will be low. I understand that the risk rate consumption is also low, but how do you kind of marry the profitability part here?

Okay, a couple of things. As I said, we are not chasing growth. We are not sort of really saying that we need to grow. As long as it meets our credit criteria, only then we are going to grow. All that has happened is we had a opportunity. We have the hunger, and we captured that opportunity during this period. Whether this opportunity will be there in the next quarter or quarters to come, only god will know. As of now, we are well poised. We are well positioned. And if there are such opportunities again, I think we are well poised to capture that. So let's not -- so don't take an extrapolation of whatever we have done now to say that will continue in the future as well. We are very clear. We will not compromise on credit quality or risk damage. As Jimmy and Rahul has been mentioning, the incremental portfolio that we have been putting up is actually getting better and better, and that is what we will do. Performance, it sort of drops. I don't think we'll be even interested in. That's part 1. Part 2 is -- what was the second question?

I think I did mention about the 4.47 and the 4.42 and the 4.43. I know that the outside world doesn't -- it's just a number. But one, I will say anything [indiscernible] is, of course, very high credit order. So it's -- I think 10, 20 basis points this way, that way is not a divergence from the risk paradigm...

I will just [indiscernible] Jimmy, 2 things. Number one, we do expect that COVID will not continue forever. Obviously, with the recovery, the demand, as Sashi said, would come across a much wider section. The third part is on the liquidity that we talked about and the declining yield that also leads to a decline in the cost of funds. So actually, we do see our margin remaining in that base. We do not, as Sashi said, go after growth, but demand exceeds supply and we've always maintained that. And if you heard my beginning comments, that the fact that we have semi-urban and rural India, we have a digital process. We have -- and you see Rahul saying we do not see -- we don't give guidance for the future, but we are very comfortable that in the long run India is a great opportunity.

Absolutely. Thank you, Mr. Puri. So on the profitability, I think Mr. Puri has mentioned it well. As I said, even though we are moving into the -- and you have answered it to yourself also, Adarsh. The risk-adjusted return will be very more or less similar. As I said, even here as well we have avoided going below a certain threshold level. Yes, yields are dropping. If the yields are going to drop to such a level that it doesn't make sense, we would rather prefer to keep it in [indiscernible]. So that's where we are. I don't think it should sort of fluctuate too much or the profitability will be impacted so much.

Sashi, how many more questions have you got there?

This is the last. Over, Mr. Puri. Thank you.

Good, because I've been at it for a very long time.

Yes. Sorry. Thanks. Srini, over to you.

We thank the participants for dialing in today, appreciate your engagement with us. Thank you.

Thank you all. Thank you so much.

Thank you all. Take care. Remain safe.

Thank you very much. Ladies and gentlemen, on behalf of HDFC Bank Limited, that concludes today's conference. Thank you all for joining us and you may now disconnect your lines.