HDFC Bank Q3 FY26 Earnings Call - Confident Glide Path for Loan-to-Deposit Ratio with Strong Focus on Sustainable Growth

Conference Moderator, HDFC Bank: Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q3 FY26 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during this conference call, please signal an operator by pressing star then zero on your touchtone phone. 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, Mr. Vaidyanathan.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Okay, thank you. Thank you, Nirav. Good evening, and a warm welcome to all the participants. At the outset, I know that it’s 6:15 P.M., 15 minutes behind schedule. We had another meeting we had to conclude and come. Apologies for that, but we’ll take as many questions as possible and extend where required. With that, without much ado, we straight go into the opening remarks by our CEO and MD. And then we’ll have our DMD, Kaizad. Any comments we’ll take, and we’ll go straight to Q&A after that. So Shiv, over to you first, and then we’ll take it from there.

Sashi, CEO and Managing Director, HDFC Bank: Good evening, friends. Thank you very much for joining in on a Saturday evening. I know it’s rather late, but always appreciate your being here on a Saturday evening. I think we’ve just sort of declared the results, and you probably would have seen the financial numbers. We’re reasonably sanguine and happy about the outcome that has happened. It’s in line with our expectations. Looking back, I think the credit growth buildup has been extremely encouraging. We set our sights on a very balanced credit across customer segments. The easing rate cycle and the benign credit has provided catalyst for the credit growth. The CRR release enabled credit deployment slightly ahead of our expectations. As regards funding, the funding through deposits, we continue to maintain rate discipline, and that has been extremely key.

Core individual retail customer segments were seen to be quite strong. For both current and savings, having focused on granular segments has given us encouraging outcomes, and more of this, I’m sure, Srini will sort of give the numbers. We did, however, fall short of our strong ambitions, but we are confident that continued focus on our strengths will bring the expected outcomes. On the growth, profitable growth, as mentioned earlier, cost of funds has moved down, reflecting the tailwind effects. CASA growth has been positive. Costs has been under control as productivity improvements have brought in efficiencies. Credit, which has always been our USP, remains best in class, allowing us to deliver stable returns as we pivot to the next stage of growth. Looking ahead, the regulator and government continues to be focused on supporting economic and credit growth.

At the same time, optimally managing external factors. During the quarter, availability of liquidity was impacted due to some of these. We saw enhanced activity in open market operations and FX swaps to combat some of these challenges. India has demonstrated stable political conditions and consistent policy regime. This has led to being one of the fastest-growing major economies in the world. Growth with subdued inflation management was at the top of the order, and hence, we believe, and we are very optimistic about outpacing loan growth in the coming year in FY twenty-seven, as we had sort of mentioned to you all along for the last eighteen months. Liquidity and benign credit costs provides us a lot of runway to grow. Overall, liquidity in the country is expected to stabilize post-trade deals. The foundations are in place to build deposits to fund loan growth.

We continue to expand our customer base. We are now intensifying customer engagement, primarily and largely focused on granular mobilizations. We are aligning pricing with segmented approach, and we shall see that in the coming quarters as well. There’s been a lot of talk on the CD ratio. We did sort of drop our CD ratio to significantly since the merger to March 2025. As you know, the kind of indicator is not necessarily on the radar for the from a regulatory perspective. Having said that, we believe that our glide path to lowering of CD ratio will continue. It’s an important focus for sustainable profitability, I completely acknowledge. The cycle, the easing cycle with credit growth focus in the country surely needs our participation.

So the speed of CD ratio movement depends on how we are able to provide funding in the system at rational rates. But having said that, we’re very confident that whatever we seem to have committed in the last two years, I think by March, I think we should see, and by March 2027, 2026 and 2027, we should sort of achieve all the most of the committed metrics that we have laid out for. I would like to say that under the current scenario, we don’t think that we shall be constrained by the CD ratio. To reiterate, we’re confident that it’ll be on a downward glide path.

I would also like to reiterate that we shall meet the glide path that we had indicated earlier in terms of the growth, our top line growth, which is in line with the system this financial year and faster than the system in the next financial year. In summary, I have a great appreciation for our customers for partnering with us, and I have the greatest gratitude to all our two hundred thousand staff who are the pillars making this place work successfully. We’re confident of the path forward that we have set for ourselves. Thank you very much, and we have all of us here, Kaizad, Srini, and the team here to take on any questions that you may have. Thank you.

Conference Moderator, HDFC Bank: Thank you very much. We now begin with 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 use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the question queue assembles. First question is from line of Mahrukh Adajania, an analyst. Please go ahead.

Mahrukh Adajania, Analyst: Hello. Hi. So my first question is on the LDR. You did allude to it, but when do you think now you would reach an LDR, say, close to 90 or below 90, like, any time frames? So that’s my first question. And my second question really is on agri compliance. So two large banks have been asked by RBI to make provisions on a certain agri portfolio because of non-compliance issues, provisions of INR 12-13 billion. So as we stand today, in terms of your agri portfolio, do you think there is full compliance, or there could be some issues somewhere, given that it’s a large portfolio, it’s spread out across the country? And do you think you would be liable to such provisions in the future?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Okay, thank you, Mahrukh. If I take, I’ll take that. The first thing you touched upon is the LDR, from a timing point of view. I think Sashi alluded to that, we are committed on the glide path of taking it towards the downward glide path, and we continue to be in that. But, on a quarter-to-quarter basis, it is slightly different. And that’s because of the seasonality and the opportunity. And you know that in the recent time period, the further opportunity was also provided, with the easing cycle and the credit growth focus, in the industry, as well as the CRR release, which provided that ample opportunity to do that.

Given that, we do expect that over the next one year to two years, we would be getting down further into the levels that we’ve previously been there. Call it the nineties or low nineties and so on. That’s the level of confidence we have, and the pillars that are required to drive that are in place to do that. That’s one. The second one is in terms of the agri that you asked about, with the regulatory kind of impact, if any. Our regulatory inspection is also complete, and whatever required according to the regulatory requirement, there was about INR 5 billion or so thereabout, which have been taken.

In the overall context of our book and our results, if you see, they have been absorbed within that, and there is no special, and we’ve had certain other things that were there. And so, in future, we need to operate in a model that is acceptable with the regulators, so that whatever is that, that’s an ongoing process of what we do. Any one time is already subsumed, and then it is. And as far as the calibration that we need to do on the agri consequent to those kind of things, recalibration of our book due to the scale of finance, so that what is indeed an agri and what is outside of the scale of finance.

Scale of Finance is the one that determines how much is required for the farm and how much of that is over and above the farm requirement by the farmer. Those evaluations we will take and go through that process to calibrate that. That’s in terms of the future impact on that.

Mahrukh Adajania, Analyst: But did the five billion come this quarter only then?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yeah, it is already subsumed in December.

Mahrukh Adajania, Analyst: In December. Okay, and what would be the size of the portfolio? Any such indication you could give?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Our Agri Portfolio is published. You’ll be able to see the,

Mahrukh Adajania, Analyst: No, the size of the portfolio on which the provision was taken.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: No, that’s not something that’s consequent to this at all, because it depends on loan item and what is the scale of finance on each one and so on, but at an aggregate level, that’s the kind of level.

Mahrukh Adajania, Analyst: Okay. Thank you so much. Thank you.

Conference Moderator, HDFC Bank: Thank you. Next question is from the line of Kunal Shah from Citi Group. Please go ahead.

Sashi, CEO and Managing Director, HDFC Bank: Yeah, so again, getting on to the question on LDR and deposit growth in particular.

Kunal Shah, Analyst, Citi Group: ... So if you want to get the LDRs down and still want to grow loans above the industry average, comfortably, then we need to see the acceleration in the deposit growth. And you said, like, pillars which are required are very much in place. So any reason maybe for a slightly slower deposit growth this quarter? Otherwise, we will need, like, almost 500, 600 basis points higher than the industry average deposit growth now to get the LDRs down. And any rundown in the bulk deposits which have been there in this quarter, and if you can quantify that?

Sashi, CEO and Managing Director, HDFC Bank: See, let me take this, and maybe Srini and Kaizad can add into this if required. Kunal, if you recall, we gave a broad range. Number one is there is no regulatory, what shall I say? Benchmark or a requirement to meet a loan deposit ratio. Was it there as a bit of a nudge when the outlook was negative or when the system outlook was a little tight, liquidity was tight in the period when inflation was moving up and rates were moving up, and there was a little bit of a concern on the credit quality of the system? There were certain preventive measures that the regulator had said that try and ensure that you bring down the LDR or maintain a certain stability in LDR. That was it at that point in time.

Whether there is a number that you need to meet, I don’t think there is any compulsion. But in our own interest, we had given a kind of a glide path, wherein we had said that we will come to a certain number in FY 2025, which we achieved. We said we will try and be in a range of somewhere between 90-96 in the year FY 2026, which is what we will be, is what we are very confident about. And then, maybe by FY 2027, by the natural growth and even with the growth in the way we are expecting in terms of faster growth rate, I think we should land somewhere around the 85-90 for FY 2027.

We continue to believe that this is going to be there, but it’s not an easy thing, as we have said, of course. But we, we know what are the strategies we need to do. There were certain tactical measures we could have taken in the third quarter. We chose not to, but that’s all right. I mean, these are sometimes learnings, we probably may have missed, but, we know what are the things to be done to bring about these kind of meeting our glide paths that we have committed in the broader sense on a longer, medium to longer term basis.

So as regards the kind of deposit growth that is required, I think the pace at which we are growing deposit in line with the top line growth, that is in more or less matching 11% plus, in this second year, in this year, should, and probably slightly faster, which is what we normally do in the fourth quarter, like most what we have done in the past, should lead us to the kind of range that we have committed to.

And we are very confident that once as we have a clear-cut, you know, as I said, all things remaining same with whatever we are seeing in the macro, we should believe that the growth runway opportunities for growth, and hence in the deposit requirements, other than certain events that may happen, which you and I will not be able to predict now, we are reasonably confident that we will land. And as Srini mentioned, don’t look at quarter-to-quarter movements. We are on a, you know, you look at on an annual basis and/or on a medium to long-term basis, the trends will be in that kind of period. So I think the inflection has started. You know, we had to contain ourselves in FY twenty-five for all the right reasons.

I think now we are opening up, the engine is opening up, and you will start to see this kind of a consistency in the trajectory that we have laid out for ourselves.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Thank you, Sashi.

Kunal Shah, Analyst, Citi Group: Sure. And, anything on bulk deposits rundown, quantification, if possible?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: I think more than quantification, I mean, Kunal, that’s part of the business. There are certain segments that we patronize. I think Sashi mentioned about where rate discipline has been the key. And to some extent, we participate for relationships, and certain extent, we don’t need it, we don’t go there. But on the whole, if you look at the retail or non-retail, retail, there are individuals in retail which have been phenomenally.

Kunal Shah, Analyst, Citi Group: Growing.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Growing and growing. There are certain non-individuals in retail, which is branch related. It could be institutions, trusts, and HUFs, and what not, right? Examples of some non-individual, but branch related, where we have had some lower levels of growth. And there are certain other customer segments which we have seen, particularly capital market segments, where it has been low, where we have not paid rates as much as what the market has demanded or what the competition has offered. And that is what you see that is reflected in our cost of funds. If you look at our cost of funds, it’s down by about 10 basis points, 11 basis points or so in the quarter. So, we’re trying to manage it, growth with the profitability, and that is what you are seeing, right?

So segment to segment, time to time, it changes, but at least, you got a color of how we operated in the recent time period.

Sashi, CEO and Managing Director, HDFC Bank: You’re right, Kunal, just to supplement what Srini is saying. The focus, the good part is retail has grown very steadily and all these other granular ones. Very happy with that. If the non-retail, tactically, we did not sort of offer the kind of market rates that were there, and we said it’s all right because we did sort of know for the kind of growth that we needed, that is good enough.

Kunal Shah, Analyst, Citi Group: Got it. One last question on labor code. The impact of almost INR 8 billion, looking at our employee costs, then comparing maybe the labor code impact vis-à-vis the employee cost for others. For us, it seems to be relatively on the higher side, more than 10% of the employee cost, not so much for the other banks. Is this more of an estimation which has been done, and what would be the recurring impact which would be there on the cost as such?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: A good, good point, you know, thanks for raising that. One, it is a estimate given whatever information that we have. And that estimate is driven through an actuarial process, right? So you go through the normal process of how you do, and that there is an actuarial valuation and determination of how do you do. Again, that is- there are some science in that, but is based on certain assumptions that come. That’s the second thing. The third thing is that variables. When you look at those variables, the definition of what is wage, what are, what is determined to be wage inclusion, exclusion, the rule making on that is pending. You know that, right?

So that there are some assumptions that go, for one of the variables that go into those assumptions, and that is not based on determined rules, that is based on some assumed things. So that’s the second, third thing. The next item is, you know, that individual organizations can be very different, because of the longevity of the staff, that you see there. So that determines on how long and what is the kind of tenure and so on and so forth, both historical and anticipated. And so many other factors like that go into play. So at this time, I would just ask you to take it as a higher estimate, based on best available information and through a scientific actuarial process that has come.

And as and when the rulemaking evolves, as and when more information is available, this will be evolved. And again, we can’t. I can’t venture to come out with the forward-looking or what impact on an ongoing basis. We cannot do at this time. And the reason being that we need to have all of these in place before we can get there. And that is why, this is not determined at an employee level to say, next month when somebody retires, this is the kind of amount that it can come, or what will be the amount determined for a provident fund, and so on and so forth. It cannot be determined at this stage. This is a really high level based on best estimate.

Kunal Shah, Analyst, Citi Group: Got it. Thank you. Thanks and all the best, yeah.

Conference Moderator, HDFC Bank: Thank you very much. Next question is from Chintan from Autonomous. Please, go ahead.

Chintan, Analyst, Autonomous: Hi, good evening. May I get into the LDR again, please? So, Sashi, please, did I hear you correctly when you said 85%-90% by FY 2027? That seems to be aggressive to me. You know, if I look at consensus numbers, it’s expecting 13% loan growth and a 93% LDR. If you are going to achieve kind of the 90 in the next fiscal year, that suggests a very strong deposit growth number. And I know you’ve kind of said that you want to prioritize growth now. So it’s not tallying up. So if you could help us-

Sashi, CEO and Managing Director, HDFC Bank: Yeah.

Chintan, Analyst, Autonomous: In a circle.

Sashi, CEO and Managing Director, HDFC Bank: Chintan, thanks for asking. Maybe then let me. I’ve given you a broad range because I don’t want to box myself with a narrow range. But having said that, you know, we have been operating in a range of, around the eighty-seven, eighty-eight in the, pre-merger levels.

Chintan, Analyst, Autonomous: Three years ago, yeah.

Sashi, CEO and Managing Director, HDFC Bank: three years before the merger.

Chintan, Analyst, Autonomous: Yes.

Sashi, CEO and Managing Director, HDFC Bank: And so when I say 90%, of course, I would have meant somewhere around the plus or minus in that particular range of 90%, maybe around the 88%, 89%, et cetera, or it could be 90%-91% as well. But why I mention this, at least you know, the trend lines that we are saying, you know, if it’s it can be 96% for FY 2026 or a 95%, we are all right. You know, at least the direction is what we’re looking at for. We just gave a broad one so that we know what if we are lucky to really step up growth or the liquidity changes, and we have more benign liquidity and no FX operations or FX swaps or Open Market Operations, maybe then it’ll be wonderful.

So that is why I’m saying, since I do not know what’s going to be the liquidity condition in this, therefore, I gave a broad range. But even if I achieve these kind of directions, directionally going there, that’s something that we can achieve. As I said, there is no regulatory number to comply to. It is just a direction that I think we need to achieve for ourselves, let alone the regulator asking us to do. It is something that we believe just by doing what we’re supposed to do will lead us to that kind of thing. I don’t have to do anything extra to measure that metric.

It will happen.... So, when we did sort of forecast a faster growth rate in the system for ourselves than the system, we also, as we have seen, we have been having deposit growth rates in line with normally the top line growth, slightly faster than the loan growth. So, estimating that is what we believe, where we will land for FY 2026 and 2027. So don’t take it literally that we may be on the lower end of that range. It could be anywhere in that range. You know, practically speaking, it’ll be somewhere at the, you know, if it’s 90 is that range, then somewhere around the 90 is something that we’ll be happy with. Similarly, somewhere around the 95 is something that we’ll be happy with for FY 2026.

Chintan, Analyst, Autonomous: I appreciate that. I mean, if you are trading off EPS growth for slightly slower ROA improvement, that’s fine. I mean, that’s not the issue, especially if the opportunity is there in the market. So but I just wanted to make sure because you know, we have an occupational hazard to kind of do our due diligence in our model. So just wanted to get that flexibility that you have highlighted now. The second question was around asset quality. Could you, you know, you’ve got a unique vantage point, second largest bank in India. Could you give us some idea about you know, any pickup in growth momentum, any issues in asset quality, particularly due to U.S. tariffs or in the MSME area?

So it’s a combination of, you know, is growth improving and are there any asset quality concerns, more broadly, if not in your book?

Shailendra, Executive, HDFC Bank: If I got the question right, you know, you want to know the trend for asset quality and how it is looking. You know.

Chintan, Analyst, Autonomous: Across segments.

Shailendra, Executive, HDFC Bank: Across segments, and even first at the sectoral, you’re well aware that, you know, the banking industry right now, to borrow a term, is going through, you know, a Cinderella phase, where you’ve got very strong balance sheets. When I refer to that, from an asset quality point of view, we have the lowest accretion of gross NPAs and net NPAs are at decadal lows. Mirroring this trend has also been, you know, reflective on our books. We have seen, you know, very low accretion to gross NPAs, and none of the particular portfolios have indicated any stress building up.

So I think, the economic environment with the kind of GDP growth that one has seen, the kind of consumption growth that one is seeing, as well as the, you know, wage increases that one has seen on one hand and on the other, the lowering of the interest rates and affordability, therefore, going up, including the fiscal benefits that were given, to not take up much time, I would say the asset quality continues at the bank to be pristine, and as we see it, there is no particular segment which is showing any major signs of concern. Srini, would you like to?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Perfectly, perfectly good. There will be seasonality in aggregate-

Shailendra, Executive, HDFC Bank: That is a separate.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Outside of that, every segment, including the AG segment, period to period, if you see, is lower, both from a leading delinquency and into the slippages, which are far lower. And then from there going into loss given default is also lower. You’re seeing that the recoveries wherever they are, that is also-

Shailendra, Executive, HDFC Bank: Absolutely.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: On an absolute level, good level. Shailendra, hope that that gives you a perspective on, on both sides.

Chintan, Analyst, Autonomous: Yeah, thank you. And just on growth momentum, are you seeing things improve generally in the economy?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: In the economy, the growth momentum, yes. If you look at some of those indicators that we have seen, the crop cycle itself very improved. The sowing cycle is improved over prior year. Very healthy water reservoir levels have aided that. The manufacturing PMI continues to be in the expansionary zone with many programs that are coming in. Services sector doing very well on the consumption demand side. If you look at the recent time period for card spend, which is important for you to look at, the overall card spend up 15%, 3.4% sequentially.

Within the card spend, when we look at the discretionary category of card spends, the discretionary category spends have grown 21%, year on year. The non-discretionary, which is the bread and butter normal activity, is about 13% up. That indicates that when the kind of a discretionary spend goes up, people do go and indulge. That’s what you’re seeing there. On the other side, we do see revolver rates not picking up, so which means people are spending to pay down. There is certain other segments of the society which is what is spending. On an overall level, I would say that similarly, you’ve seen the auto and the tractors and so on.

Two-wheeler has been somewhat less than expected, but then the four-wheeler, autos and the tractors type have done exceedingly well, and you’re seeing some of that reflected in the aggregate level GDP output that gets reported, too.

Chintan, Analyst, Autonomous: That’s interesting. Thank you.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Thank you.

Conference Moderator, HDFC Bank: Thank you. Next question is from Nitin Agarwal from Motilal Oswal. Please go ahead.

Nitin Agarwal, Analyst, Motilal Oswal: ... Yeah, hi, good evening, and thanks for the opportunity. I have a question on the branch productivity and deposits, now that we are so hopeful about the deposits pick up and targeting it at close to ninety kind of a number. So, like, if you look back as to what kind of experiences that we used to have in terms of the branch vintage and the deposit buildup, is that kind of sustaining in the recent years? Because the deposit growth is just not picking up at the system level, and that is becoming a key constraint across banks with LDRs, the number that we are seeing across many banks. And related to this, own branch over the years has been, like, coming off from pretty high number now to every successive year, we are opening lower branches.

So do we-

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Sorry, Nitin, repeat that? Nitin, repeat that. We could not hear you.

Nitin Agarwal, Analyst, Motilal Oswal: Sorry. I was also saying that related to this, if you look at the branch expansion run rate, every successive year, we are now opening up lower number of branches, like FY 2023 versus 2024 to 2025, every year we are going down in terms of branch expansion. How do you look at this correlation between the branch vintage and the deposit buildup? And do you think that the current pace of expansion will be sufficient for us to sustain that above industry growth rate over the next three, four, five years? Just some thoughts around this.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Okay, so, I’ll get started with the last one first, which is to do with the branches. So, Nitin, you can’t look at one year branch, but you have to look at a trend of what it was, right? For that, if you go back to you look at a five-year branch trend, I’ll give you round numbers of the branch trend. We opened about two hundred and fifty branches in 2020, three hundred and fifty in 2021, seven hundred and fifty in 2022, thousand five hundred in 2023, nine hundred in 2024, seven hundred in 2025. So if you look at this, two fifty, three fifty, seven fifty, fifteen hundred, nine hundred, the opportunity space that it provided, we took that and accelerated. All within the overall returns framework, right?

All through this time period, if you look at our returns, between 1.9%-2%, right? In that period. So where there was, we accelerated, and we don’t need to do 1,500 or 900 and so on. We can be more modest, but still add to the branches. It is important to add to the branches because currently we have only little more than 6% of the country’s branch network with us. So that means our branch is 9,600, plus it’s about little more than 6% of the system’s branch, right? So we have and we have more than 11% of the market share of deposits. So that’s one, in terms of we have more room to run and more share to gain through that process. Next is productivity, right?

What does it do from a branch productivity? If you look at the per-branch productivity, we are now at about three hundred and five crores or thereabout, on a per branch at an aggregate level, right? Despite all of these additions that I talked to you about, if you go back where we, I just mentioned to you about how we were doing per branch, if you go to 2023 or 2019 to 2023, that time period, four-year time period, about two hundred and thirty-seven crores per branch, right? At that time. I told you when two hundred and thirty-seven crores per branch, before I started to talk about those acceleration of the branches, right? Now, with all of those acceleration, we are at a three hundred and five crores per branch.

So at every incremental branch, when we add, it is also at an aggregate level adding, but this is at an aggregate level. Then that takes to the next one that you talked about at a micro level, right? At aggregate level is one. Let’s talk about micro level in terms of where it starts to have that pivoting point for further scale. First is the break-even is about two years or so. When you look at the break-even, branches that are in the metro and urban area, typically breaks even in about 22 months. Branches that are in the semi-urban and rural area takes about 27 months, thereabouts. On an average, about two years, it breaks even. So that’s one.

These models are in consonance with our legacy branch models, which means they are conforming to what our traditionally there. That’s number one. Number two, the pivoting point, where four, five years ago, we analyzed what does a branch do in five years, and five to 10 years, and 10 to 15 years, and so on. When you look at it, where the scaling factor is about the fifth year mark to the 10th year mark, it moves about three times. Between five to 10 years, it goes about three times up. And then once it goes into 10 to 15 years, 10 times up. So that is very important, and that scaling factor continues to operate now.

Now, what is more interesting and important than that is, currently, if you look at the branches that are in the bucket, five to ten years bucket, which are doing three X than what they were doing, five years ago, 1,232 branches, right? Out of the 9,600, 1,232 branches are in that bucket, right? And if you look at the branches before that, the three to five-year bucket, three to five-year bucket, we have 1,300 branches. So we are entering into that pivoting point where the, the cohorts that are entering into the five plus bucket is more than the cohorts that are going to exit from five to ten.

So that is, again, similarly, when you, when you look at the 10- to 15-year bucket, it’s got 2,499 branches. And then the five to 10-year branches are going to go into those cohorts. And so that’s almost 43% of our branches are young vintage branches, less than five years. So this is the cohort that needs to move through the pipe and get there. And so we are quite, that, that is point, I think we said that we are positioned well with good expectations coming out of that, and that’s again aided by several factors that go.

Nitin Agarwal, Analyst, Motilal Oswal: Okay. So,

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Incrementally, another data point, Sashi was just reminding me, because when we reviewed it with him, on an incremental basis, when you look at it, these new branches contribute slightly north of 20% of the overall incremental deposits that come. So which is very important, right? So that these things keep adding, accreting as we go along. That’s something I wanted to leave the call.

Nitin Agarwal, Analyst, Motilal Oswal: Right. See, the reason to ask this is also because while advances side is still in our control, we can maneuver the advances growth and choose the business segments we want to underwrite. But deposits, if we compare across the best and private banks also, typically the growth kind of has its own saturation point. And if you look as to how HDFC Bank has done last year and versus what is the current year, probably we will be closer to in terms of deposit rate versus what we were last year on a good case basis. So for us to talk about that LDR can come so sharply next year, do we look at this deposit growth run rate breakout from as to how the trends have been in the recent years?

Can this really happen with the kind of vintage gains that we talk about?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Nitin, this gets benchmarked by district by our presence in those districts. That’s how we benchmark, and that’s how we work our marketing and product teams work with our distribution channels where we are present to orchestrate and move this, right? So two things I want to mention. One is new account acquisition is an important element. We are at about 100 million customers. Last quarter, we added about 1.5 million new liability relationships. It is important to get that new account value, because that’s how you keep building and the change in balances. So that means existing customers adding, accreting has been lower in the recent time periods when some kind of a choices into various other financial decisions they take.

So some of that has been slower. But again, you beat that by getting more presence and more customers and have diversified product, asset product. Because we know that in the last two years, our retail asset products were slow, then where we are now trying to accelerate and move. For every asset product that you have, again, cards. I think not in the last quarter, but maybe a few quarters ago, we have spoken cards. For card customers spending on their card account and having a hundred outstanding, at the aggregate level in the bank, we see almost north of five times deposit balances from their customers. So what does it mean? We want more of our customers to have cards. And same with mortgages, which I think last time we spoke, 99% today we have penetration.

That means we are not selling a mortgage product, we want to get the customer relationship. When we are giving a mortgage product, we get the savings account, and the savings account gets funded approximately today at initiation at about INR 35,000, and then when you look at a 12-month, 18-month on books, which is the kind of vintage we can measure today and see, we are seeing that it is growing two, two and a half times, but historical, some of those category customers that we have seen, it has got the propensity to have five times more than a customer who does not have a mortgage, so, so liabilities don’t come only purely on just an engagement and asking. It also comes by multiple products that get sold.

Nitin Agarwal, Analyst, Motilal Oswal: Okay, sure. Thanks, Srini. Thanks for providing that color. Wish you all the best.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Thank you.

Conference Moderator, HDFC Bank: Thank you. Next question is from Suresh Ganapathi from Macquarie Capital. Please go ahead.

Suresh Ganapathi, Analyst, Macquarie Capital: Yeah. So first question is on LCR, what would be this quarter? And, how it would move post the April 2026 guideline, whether it will move up, move down?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: LCR, we reported 116 in this quarter.

Suresh Ganapathi, Analyst, Macquarie Capital: Post the new guidelines?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: No, the new guidelines, we don’t expect any material change that can impact.

Suresh Ganapathi, Analyst, Macquarie Capital: Okay. And just a question on margins itself. You know, it’s been almost nine quarters since the merger, your margins have not gone anywhere. In fact, it is even lower than what you had reported at 3.4%. I know there are several moving parts. Are you really confident that you can get this up in the next two, three years?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yeah, Suresh, if you think about the margin, the most important lever on the margin is the cost of funds, which at various points we have mentioned. And within the cost of funds, there are a few. One is the time deposit repricing, which has a lag effect. We have changed time deposit rates in line with the policy rate change, but not fully, but maybe two-thirds way we have changed. 125 basis points is what the policy has changed. We have done about two-thirds into that. We need to see what more. And again, that works competitively priced, right? So we’re not at a disadvantage anywhere there. And that takes almost five quarters to flow in. Part of that, this quarter, you are seeing 10-11 basis points change in cost of funds.

That is the lag effect of that flowing through, then that continues, so that’s one element. The second element is the borrowing. Quarter to quarter, it remains static at about 13%. But again, more than a quarter, if you look at a year, we were at about 7%. Broadly, the industry is at about 6-7%, so there is an opportunity space to beat that to keep coming down. That is another important lever that provides this cost of funds change. The third one is the CASA, which again is the customer on the other side more than we creating any action, where we need to work through to bring us filling with the new customers and better engagement, more products, more retail products.

That’s the kind of process we need to take through to get to that industry average and beat that industry average over time. Yes, there is a line of sight and these are some of those elements we work through.

Sashi, CEO and Managing Director, HDFC Bank: Okay, thank you.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Thank you.

Conference Moderator, HDFC Bank: Thank you. Next question is from the line of Prakhar Sharma from Jefferies India. Please go ahead.

Prakhar Sharma, Analyst, Jefferies India: Yeah. Thank you, everyone, and congratulations on the results. Just wanted to delve on this deposit growth part. You know, it was an interesting color that you said that the granular retail has grown, but slightly bulkier retail hasn’t. Is there any sort of a data point that you can share in terms of the growth or the mix in the two? And one alternative is, can we use the NCR deposit number and the growth there as a reference point to just get some comfort on, you know, what’s the range of growth there? Because four Q onwards, you know, it gets aggressive on pricing. So if you can share some color, that will be nice. Thank you.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: The second aspect of the question I didn’t get, probably, we will see. But as far as the rate of growth is concerned, that you asked about, the categories, certain other categories that you wanted.

Prakhar Sharma, Analyst, Jefferies India: Yes.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yes, I mean, if you look at the institutional types, they were in the mid single digits, right? The institutional type of deposits, mid single digits. That’s what we have seen. And within the retail branch, the non-individuals were much more modest. I think it was, again, little more higher single digit. And the individual within the branches were in the all in double digit of growth.

Prakhar Sharma, Analyst, Jefferies India: Sorry, the individual at the branch was at?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: No, I didn’t give you a number. I said it’s, it’s a good double digit, and-

Prakhar Sharma, Analyst, Jefferies India: Good

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: ... everything else was in single digit. Yeah.

Prakhar Sharma, Analyst, Jefferies India: Okay. And is there a way to just give a context of, you know, within your total deposits, 83% is classified as retail, how much would be the granular retail, and how much would be the quasi-institutional retail?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: I don’t think we’ve published that, but yes, when we say that is branch-driven deposits, where there are RMs engaged with either an individual or the individuals, organizations and institutions, that is what.

Prakhar Sharma, Analyst, Jefferies India: Got it. Thank you so much, and good wishes.

Conference Moderator, HDFC Bank: Thank you. Next question is from line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka, Analyst, HSBC: Hi, good evening. So, Srini, going back to the branch addition question, and thanks for giving so much color. But just net, net, are you still looking to grow or add about 5-7% branches this year and in FY 2027, or what are your near-term plans? I understand the whole, you know, picture you painted about the scale-up of old branches and how that will accelerate deposits. I just want to know your next one-year plans in terms of branch addition.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yeah. You know, to answer in short, 5%-7% implies 500-700 branches, annually. I don’t believe that kind of branch addition we’ll do in the near future. We’ll evaluate as we go through the annual planning process and come back at some point in time. But it would be a good idea.

Sashi, CEO and Managing Director, HDFC Bank: Abhishek, just to add to what Srini is saying, you know, if you’ve seen the last cohort of what he just said in terms of the 4,800 odd branches over the last five years, today it is contributing, as he mentioned, somewhere around the 20-plus percentage points in terms of the incremental liabilities or the deposits that we are mobilizing. As this cohort starts to which we are seeing delivering and getting to a substantial number, then we know that we have the confidence to start to step up our the next phase of of launching new distribution points. Obviously, we want to wait and watch. We are not saying we will not add any branches.

As he mentioned, we will add branches, but these are probably in normally in suburbs where there is a kind of an opportunity that is what we are now focusing on. But we want to ensure and stabilize the last cohort of the four thousand eight hundred branches, stabilize and start to get to a certain level of maturity and level of contribution, which is substantial. Then we know that that will be on an autopilot, and then we can start to see the next phase of introduction. And obviously, at that point in time, we will have to rethink in terms of we would have probably moved far beyond in terms of our branch transformation and automation.

So there will be some new thought processes in terms of how we need to add or how we need to sort of expand our distribution. It’s not that it’s gonna be different, but maybe there will be some amount of recalibration that we will do in the next phase of branch additions.

Abhishek Murarka, Analyst, HSBC: ... Sure. So, Sashi, as I understand, that’s a great point for making that point. So today, about 50% of branches, which is this 4,800, is contributing around 20% of incremental deposits. Is it correct to think that when this starts contributing maybe 40-50% of incremental deposits, that is when you start thinking about future expansion? Is that the right way to think about it?

Sashi, CEO and Managing Director, HDFC Bank: Whether it’s 40, 50, 60, we will keep on recalibrating because there are a lot of things that we are trying to do. Obviously, we also, you know, if you really look at it, we stepped up our distribution the moment we knew that we announced our merger, and we knew that we needed to, you know, fund not just at that point in time, the future of, in the future. So all this is going to add to incremental deposits in a substantial way into the future.

But so there will be a lot more dimensions that we will examine, not just the extent of contribution, but probably, you know, certain events that we may have or certain other dimensions that we may look at before we start to step up the pedal on the new phase of incremental. And you know, you look at it even over our thirty-year period, there have been these phases of, you know, right from two thousand and nine onwards to two thousand and thirteen, fourteen, we stepped up our distribution. Then we had a little bit of a pause, then we started off again. So you know, we this recalibration and doing it in phases is something that we’ve been doing. It’s not a new thing.

We’ve been doing this for right through our thirty years journey, and I think we will continue to do. Obviously, the dimensions keep changing in terms of what we need to look at as we move ahead, because the world is changing very fast. The kind of technology implementations that we are doing, you know, as we unveil, you know, we probably may need different thought processes as well. So, let me pause out here and probably, you probably will get the drift.

Abhishek Murarka, Analyst, HSBC: Sure. Thank you for that. And, the second thing is on credit costs. Now, if I look at your net slippages, ex of the agri part, but let’s say look at the net slippages in the nine months or last few quarters, around 30-35 basis points. Write-offs are holding steady at 3,200 crores roughly a quarter. So why is the, you know, underlying credit costs at around 55 basis points and not coming off? I mean, don’t you think that should also start coming off at some point? If, if this kind of,

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Abhishek, a couple of things. One is the slippages. If you’re looking at excluding agri slippages, it’s twenty-four basis points in the quarter. Prior quarter was twenty-three basis points, prior year was twenty-six basis points. So order of magnitude, call it twenty-five basis points. That is the kind of a slippage in a quarter, right? That’s what you’re seeing. So not the thirty-five or something that you’re talking about. That’s one. The second thing is that, credit costs, you know, also, you have to look at it, including the recoveries, because, when you write off certain loans as it progresses through some of the delinquency buckets, then you get it in the form of recoveries. And net of recoveries, if you see, we are at about thirty-seven basis points or thereabouts.

And when you look at, again, last quarter, last year, order of magnitude, very similar, within a few basis points, five basis points. So it’s not just about the fifty-five basis point; it is also about the net of the recoveries, which comes in quite, quite handy. And it’s a function of how fast you write off and how you recover.

Abhishek Murarka, Analyst, HSBC: Sure. That’s what I was referring to. So net of your recoveries, et cetera, it should keep coming down because your slippage performance is... I mean, it’s improving, the book is growing and your absolute is pretty much stable. So you’re seeing very good asset quality trends. And I was sort of wondering why the credit cost is not coming off. Yeah.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: So, why will it? See, when in a growing book, if the slippage is steady, the losses are steady, recoveries are steady. I don’t know what you’re expecting. Maybe something else.

Abhishek Murarka, Analyst, HSBC: So fifty, fifty-five is more or less BAU, is what you’re saying?

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: No, GNPA? No, no.

Abhishek Murarka, Analyst, HSBC: No, no, no. Credit call.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yeah.

Abhishek Murarka, Analyst, HSBC: Okay, I’ll take this off. Never mind. I probably not explained myself clearly. No problem. Maybe just one question on cards. You know, overall, card receivables are pretty stable. If I look at, you know, the data that comes out in RBI, the spend market share for you is doing well, safe market share is doing well. So why is it not reflecting in the receivables? Is it just transactors running down or is it something else?

Sashi, CEO and Managing Director, HDFC Bank: So actually, you know, great question, Abhishek. I think if you really look at it, the segment that we are patronizing is more the middle and upper middle segment, therefore, slightly higher end cards is what is in our portfolio. The proportion of that is large. And a large part of that, you know, over a period of time, we have been. I mean, as you know, you know, the card, credit card, the what shall I say? The behavior has also changed over a period of time. Today, we look at it not as a net receivable from a revolver perspective, from a asset perspective and an earnings perspective, we are looking at it as an enabler for our liabilities or deposits.

Shailendra, Executive, HDFC Bank: ... Srini has mentioned in the past, and that is something that we are extremely proud of, the spends and the cards actually provide a significant portion of our deposit momentum. Today, 20%-25%, maybe in the mid of 20%-25%, I can say, is the range at which out of the total deposit basket, the kind of momentum that you’re seeing, whether it’s on the healthy balances and what it contributes to total, it’s somewhere around that 20%-25%. So the credit card focus today is more not from a net receivable basis, but from a transactor basis. And, you know, as I said, I mean, whether it’s a lot of you on the call or people in this room that we are, we all pay, you know, on a standing instruction basis on due dates.

So this is something that we are very happy with, and so this is the kind of a new strategy that we are evolving. Obviously, we are also recalibrating some of the business model and cards. We have been doing that, and we probably have come out with something which is very encouraging and something that the organization will really benefit from our card strategy.

Abhishek Murarka, Analyst, HSBC: Thank you so much for answering.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: I want to add one thing.

Abhishek Murarka, Analyst, HSBC: Sure.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: To the cards, particularly the card revolving aspect of it, right? Which is, if you go back to 2020 or before and compare it to today’s revolvers, they are slightly under two-thirds level, right? Slightly under two-thirds level. So that means of the pre-2020 levels revolvers, right, at level. And so the profile of the customers, and that is why you see the deposit balances of those customers, which is little more than five and a half times, was slightly under four times at that time, right? So the profile of those customers are also different, where they do transact, they do keep balances, and the revolver balances are lower of certain other statements.

We have not literally offered the credit line increases and made more and more revolvers to tip them off into delinquency. We’ve been cautious. Credit has been cautious on that.

Shailendra, Executive, HDFC Bank: Yeah.

Abhishek Murarka, Analyst, HSBC: Got it. Got it. Thank you so much for answering all those questions, and all the best. Thank you.

Conference Moderator, HDFC Bank: Thank you very much. Next question is from one of Jayant Kharote from Axis Capital. Please go ahead.

Suresh Ganapathi, Analyst, Macquarie Capital1: Thanks for the opportunity. So one question is on your loan growth, broad guidance of above system next year. So just wanted to understand, when we are saying we’ll grow above the system, what is our range of assumptions for system growth? Because we are seeing some acceleration in the system growth itself, where we are moving from this 11 to 13 band to maybe closer to 14, 15. If we were to move in that band, would we have accounted for that kind of a system growth and we say we can go above that, please?

Shailendra, Executive, HDFC Bank: Our understanding as of now is next year, we expect system growth to be between 12% to 13%. You know, when you look at nominal GDP and the credit growth that’s required to support nominal GDP. If you’re talking about, you know, 12% to 13%, we are talking about a couple of percentage points above that, going into the next year. We see distribution on the retail side. You’ve been seeing, you know, over the last two quarters, coming up, our positioning also in the MSME space, you know, given our geographic coverage as well as our suite of products that we have out over there.

You know, the wholesale piece, which you would have seen in this quarter, you know, again, coming back, we do believe that we have the, we have the customer segmentation to be able to grow at a couple of hundred basis points over system growth next year.

Suresh Ganapathi, Analyst, Macquarie Capital1: Great, sir. I think this answers working with the 12-13 range at least. Second part is also on a broader 3-year or 4-year question. We have seen products like mortgage getting a lot of competitive intensity. PSU banks being well-capitalized are, you know, probably being more aggressive in vehicle, increasingly, auto. Do you see this competitive intensity eroding profitability for the larger players over the next probably 3 years? Not a 6-month or 12-month question.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Yes, sir. See, we are addressing competition only through relationship and not through pricing. Mortgage product, as you’ve seen that in the last twelve months, we are not leading through a mortgage product, we are leading through relationships, where the mortgage product could be a fulcrum around which we can operate. Same with auto. I do want to let you know that our auto loans are almost little more than 80% self-funded, which means the customers, when they take auto loan, we want their liability accounts, we want them to have balances in that, and loan self-fund itself for most part within the balance sheet.

So it is about relationship offering, and that is part of the engagement in the branch, and it’s not just a product and a loan balance sheet building up approach.

Shailendra, Executive, HDFC Bank: Having said that, Srini, absolutely in order, I think, you know, we do continue to be the largest financiers in the auto loan space in the country, not only in terms of the disbursements, but also the book size. As well as, you know, if you see our year-on-year growth in the entire automobile space, I think, you know, that is reflective of what our position is and the target market that we will have. So it is relationship, it is also ensuring that we have the right pricing for the product based on the customer segmentation, and we don’t feel any need to, you know, do business at price points which don’t make economic sense.

Suresh Ganapathi, Analyst, Macquarie Capital1: Your market reading is, as of now, we are not in that situation where aggression is eroding margins for the broader system, at least in auto?

Shailendra, Executive, HDFC Bank: I’m sorry, I didn’t catch your question. Can you repeat it, please?

Suresh Ganapathi, Analyst, Macquarie Capital1: It was not for HDFC, but probably for broader system. Are you seeing that aggression in auto segment from the public sector or maybe the broader system aggravating in the last couple of quarters?

Shailendra, Executive, HDFC Bank: Yes, we’ve seen it not only in auto but also in the home loan product. So, you know, these are two products where we have certainly seen, you know, some amount of, if I may say, a bit of irrational pricing. But, you know, irrational pricing has never sustained. You know, it will, you know, play itself out and bury itself in a couple of quarters on the outer side, if not earlier.

Suresh Ganapathi, Analyst, Macquarie Capital1: Great. This is very helpful. Thank you, and all the best.

Shailendra, Executive, HDFC Bank: Thank you.

Conference Moderator, HDFC Bank: Thank you very much. Ladies and gentlemen, we have come to the end of the allotted time for the call. I would now like to end the conference to Mr. Vaidyanathan for closing comments.

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Okay, thank you, Neeraj, and thanks to all the participants for taking the time to attend. At the outset, I again want to mention that we did come to finish late, we did extend to be there. Further questions, any more comments, investor relations team will be on standby to guide and help and explain or clarify anything you need, today or over the weekend or next week, whenever you desire, we are available. With that, we’ll sign off for today. Have a great weekend. Bye-bye.

Conference Moderator, HDFC Bank: Thank you very much.

Shailendra, Executive, HDFC Bank: Thank you.

Suresh Ganapathi, Analyst, Macquarie Capital1: Thank you.

Conference Moderator, HDFC Bank: On behalf of-

Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank: Thank you all. Thank you very much for all the hard work. You know, hope-

Conference Moderator, HDFC Bank: Thank you everyone. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.