HDFC Bank Limited (NYSE:HDB) Q3 2024 Earnings Call Transcript January 17, 2024
HDFC Bank Limited isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Ladies and gentlemen, good day, and welcome to HDFC Bank Limited's Q3 FY '24 Earnings Conference Call on the financial results presented by the management of HDFC Bank Limited. [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.
Srinivasan Vaidyanathan: Okay. Thank you, Nirav. Good evening, and a warm welcome to all the participants. There is an earnings presentation deck published on our website. Please refer to it as appropriate. As you get to it, in the meantime, let's cover a brief on the macroeconomic environment that operated during the quarter before we review the earnings. We continued to see healthy domestic activity -- economic activity driven by robust common spending, primarily in capital expenditure, improvement in domestic manufacturing and resilient services sector performance. As you know, the GST collections grew 13% year-on-year. Manufacturing and services PMI continued to remain in the expansionary zone and the consumption side improved consumer demand driven by sector spending resulted in robust growth across various sectors.
Our [indiscernible] rate unchanged at 6.5% and retained its stance and changed at withdrawal of accommodation and modestly reduced its inflation forecast in the second half of the year. As we look ahead, the economic environment is poised for strong growth. India's year-on-year GDP growth for financial year '24 is estimated at about 7%. And for financial year '25, GDP growth rate is expected to be around 6.5%, continuing to be one of the fastest-growing major economies in the world. Let's go through the key factors of the bank's growth journey. Advances can be referred to on Page 7 and 8. Gross advances are at INR 24.7 trillion as of 31st December, reflecting the sequential momentum of INR 1.1 trillion or 4.9%. Retail advances grew 3.3% quarter-on-quarter, primarily driven by strong performance in the mortgage business.
Retail mortgage disbursements of INR 460 billion during the quarter grew 18% over prior year. In the CRB business, it continued its strong momentum, registering a quarter-on-quarter growth of 6.7%. Wholesale segment, excluding non-individual loans of HDFC grew 1.9% sequentially. Non-individual loans of HDFC aggregated to INR 0.99 trillion compared INR 1.03 trillion as of last quarter end. Focus on the primary deposits continued. Looking at Pages 7 and 9, total deposits as of December end amounted to INR 22.1 trillion, primarily comprising of retail deposits, which is at 84% of total deposits. Retail deposits, which are the bedrock of the franchise, grew well over INR 530 billion or 2.9% during the quarter, while non-retail deposits reduced by INR 118 billion quarter-on-quarter resulting in total deposit growth of INR 411 billion or 1.9% during the quarter.
Current account deposits ended the quarter at INR 2.6 trillion, registering a growth of INR 80 billion or 3.2% sequentially or INR 280 billion, 12.3% over prior year. Savings deposits as of December end at INR 5.8 trillion grew INR 99 billion or 1.7% sequentially and over INR 430 million or 8.3% year-on-year. Overall CASA deposits ended the quarter at INR 8.4 trillion, resulting in a CASA ratio of 37.7%. Term deposits aggregated to INR 13.8 trillion as of December end and grew by INR 232 billion or 1.7% during the quarter. On the distribution footprint expansion, referring to Page 10, it reflects our branch network, which stood at 8,091 outlets as of December end. Overall, there has been an increase of 908 branches over the last 12 months. During the quarter, we added 146 branches, which is at the rate of 1.6 branches per day.
Payment acceptance points are at 4.8 million, a year-on-year growth of 25% as adoption of Vyapar app built momentum. In CRB, our rural business reach expanded to 210,000 villages, a growth of 60,000 villages over last year. In the customer franchise building, we added 2.2 million new customer liability relationships during the quarter and around 7.4 million relationships so far in the current fiscal year. Our customer base stands at 93 million customers. This provides an opportunity to further engage and deepen our relationships. In order to position us for greater engagement, we have added 41,000 employees over the last 12 months and 10,000 during the quarter. On cards, we issued we issued 1.6 million new cards in the quarter. Total card base stands at 19.9 million.
You'll see on Page 11, balance sheet remains resilient. LCR for the quarter was 110%, capital adequacy ratio was at 18.4%, Tier 1 ratio at 16.8%. Let's start with net revenues on Pages 12 and 13. Net revenues for the quarter were at INR 396 billion, grew by 25.8% over prior year. Net interest income for the quarter, which is 72% of net revenues and is at INR 285 billion, grew by 23.9% over prior year. The core net interest margin for the quarter was at 3.4%, and on an interest earning asset basis, net interest margin for the quarter was at 3.6% and was flat to prior quarter. Getting to details of other income on Page 15. Total other income at INR 111 billion. Fees and commission income, which is almost close to 2/3 of the other income was at INR 69 billion and grew by 15% over prior year.
A business owner tallying their profits in the back office of a local banking branch.
Retail constitutes approximately 94% of fees and commission. FX and derivatives income at INR 12 billion was higher by 12% compared to prior year of INR 11 billion. Net trading and mark-to- market income were at INR 15 billion for the quarter, prior quarter was at about INR 10 billion. Other miscellaneous income of INR 15 billion includes recoveries from written-off accounts and dividends from subsidiaries. Referring to Page 16 on operating expenses for the quarter, which were at INR 160 billion, an increase of 28% prior year. Cost-to-income ratio for the quarter was at 40.3%. Cost to assets was at 1.9%. Coming to the asset quality on Page 17 to 19, the GNPA ratio was at 1.26% compared to 1.34% in prior quarter, and 1.23% prior year. Out of the 1.26%, about 15 basis points are standard, but the core GNPA ratio is at 1.11%.
However, these are included by us in NPA as one of the other facilities of the borrower is in NPA. Net NPA ratio for the quarter was 0.31%. Prior quarter was at 0.35%. The slippage ratio for the current quarter is -- slippage for the current quarter is at about INR 70 billion or 26 basis points. Last quarter was at about INR 78 billion. During the quarter, recoveries and upgrades were INR 45 billion. Write-offs in the quarter were at about INR 31 billion. No sale of NPA accounts during the quarter. On the provision side, total provisions reported were around INR 42 billion. And excluding the contingent provision, it was INR 30 billion as against INR 29 billion during the prior quarter and INR 28 billion for the prior year. As I just mentioned, the total provisions in the current quarter included additional contingent provisions of approximately INR 12 billion, and it is pertaining to investments in AIF on a prudent basis.
The fair value of AIF is up by INR 5 billion, but 100% provisions are being taken at book value. The core specific loan-loss provisions for the quarter of around INR 26 billion as against INR 25 billion in the prior quarter. The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately INR 154 billion, general provisions were INR 105 billion. The total provisions comprising specific floating, contingent and general were about 159% of gross nonperforming loans. This is in addition to security held as collateral in several of the cases. In addition, the bank holds contingent provisions of INR 12 billion on a prudent basis to AIF I just mentioned. Floating contingent and general provisions, excluding the contingent provision on AIF were about 105 basis points of gross advances as of December end.
Coming to credit cost ratio, the total annualized credit cost ratio for the quarter, excluding the contingent provisions I just referred, was at 49 basis points, prior quarter was also at 49 basis points. Recoveries, which are recorded as miscellaneous income amounted to 13 basis points of gross advances for the quarter as against 16 basis points for the prior quarter. The total credit cost ratio, net of recoveries, was at 35 basis points in the current quarter as compared 34 basis points in the prior quarter. The profit before tax was at INR 194 billion, grew by 19.8% over prior year. After INR 15 billion of tax provisions no longer required, consequently to the favorable orders received, net profits after tax for the quarter was at INR 164 billion, grew by 33.5% over prior year.
Summaries of subsidiaries can be seen on Pages 21 to 26. On HDB -- to cover on HDB, the quality of the book continues to see sustained improvement with a gross stage 3 of 2.25% as of December against 3.73% as of prior year-end -- prior year end -- prior year. Provision coverage on Stage 3 book stood at 68%. Profit after tax for the quarter ended December increased to INR 6.4 billion against INR 6 billion for the quarter ended September 30. ROA and ROE annualized for the quarter of December stood at 3.1% and 19.9%, respectively. Earnings per share for the quarter was at INR 8.04 and book value per share stands at INR 164.6. Now getting to HDFC Life on an IGAAP basis. The profit after tax for the quarter ended December was at INR 3.7 billion, grew 16% year-on-year.
India embedded value at INR 451 billion improved 20% compared to prior year. On AMC, quarterly average AUM at INR 5.5 trillion grew 24% year-on-year. Profit after tax for the quarter amounted to INR 4.9 billion registering a year-on-year growth of 33%. Earnings per share for the quarter was at INR 22.9. HDFC ERGO on an IGAAP basis. Profit after tax for the quarter ended December was at INR 1.3 billion, registering a growth of 6% year-on-year. Solvency ratio at 187% as of December end. HSL, our securities company, the total reported revenue for the quarter -- total reported net profit for the quarter after tax was INR 2.3 billion as against INR 2 billion in Q2 '23. Earnings per share in the total was INR 144 and book value per share stands at INR 1,253.
On ESG, kicking up our CSR commitment, the bank has undertaken multiple projects across India, with an aim to address critical developmental issues such as sustainable livelihood, education, soil and water conservation and key ratings and awards are in Page 27 for reference. In summary, our results reflect robustness in growth across various parameters driven by employees passionately working with our customers to execute the business model, which has resulted in an advances growth sequentially of 4.9% and 2.9% sequential momentum in retail deposit growth. Profit after tax for the quarter increased by 33% versus prior year, delivering a return on assets in the quarter of about 2% and return on equity of about 15.8%. Earnings per share reported in the quarter is at INR 21.6 on a standalone bank level and INR 22.7 at the consolidated bank level.
Book value per share on a stand- alone basis is at INR 556, and on a consolidated basis, it is at INR 576. With that, may I request the operator to open up the line for questions, please?