Summary of HDFC Bank Limited Q4FY24
Don't go by fin-influencers, just read the conf call yourself.
The bank had one-off gains during the quarter, which were nullified with equivalent one-off provisions.
Additionally, the executive discusses a one-time exceptional item provisioning related to employee compensation as a way to motivate the workforce.
the bank made a floating provision to absorb gains from Cadila Stak sales.( My take - they are not openly saying that bcoz floating provisions require RBI approvals & not really made for sole purpose of saving taxes )
the bank clarified the difference between floating and contingent provisions, emphasizing that the former is an investment for the future and not used for expected credit losses.
The bank also clarified that the floating provision, which is currently about 0.5% of the total loan book, cannot be used in an event of expected credit losses implementation and is not something they will invoke frequently. It is an investment for the future to protect against unanticipated movements and qualifies for tier two Capital within regulatory limits.
Summary of HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24
00:00:00 - 01:00:00
During HDFC Bank's Q4FY24 Earnings Conference Call on 20-Apr-24, the management discussed their focus on enhancing customer engagements, maintaining a Service First culture, and improving profitability metrics. They emphasized the importance of sustainable growth and not engaging in unsustainable price-based strategies. The bank's credit deposit ratio and advances mix remained stable, with an emphasis on retail and corporate banking segments. The management expressed confidence in maintaining stable margins and did not provide specific guidance on future expenses or LDR targets. They also addressed concerns about competition and heightened rate wars, emphasizing that price-based strategies are not sustainable in the long term. The bank plans to expand inorganically to meet priority sector targets and has expanded its reach to 225,000 villages. The management discussed the impact of market conditions on lending rates and loan growth and emphasized the importance of maintaining stability and a customer-first culture for long-term growth.
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00:00:00 In this section of HDFC Bank's Q4FY24 earnings conference call, Shasan Vatan, the Chief Financial Officer, welcomed participants and thanked them for joining. He reminded them that the call would be recorded and that there would be an opportunity for questions after the management's commentary. Vatan then handed the call over to Sashi Jagdish, the CEO and MD, who expressed gratitude for the feedback received since the controversial Q3 earnings. He emphasized that the merger with HDFC Limited created a new organization and that comparisons to the standalone financials of either entity were not applicable. Jagdish stated that the organization had been stable for nine months and that the focus was on improving profitability metrics over the medium to long term, with a particular emphasis on the sustainability of the deposit franchise, especially the retail deposit franchise. He emphasized that the key to sustainable momentum was the strength of the franchise and not trying to overprice or bid for deposits unnecessarily.
00:05:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed their focus on enhancing customer engagements and elevating the Service First culture. Despite their long-standing excellence in deposit mobilization, they believe that there is room for improvement and plan to intensify their efforts in this area. They also plan to continue investing in distribution, people, and technology, while harnessing operating leverage over time to enhance their tech and digital infrastructure. The bank's focus is on quality, not quantity, and they have demonstrated in the past that they are willing to grow slowly or give up market share rather than engaging in unsustainable price-based strategies. They will not provide specific guidance or outlooks on metrics, as they believe it is a distraction from their long-term objectives. The Q4 results are a manifestation of the hard work of the entire HDFC bank workforce, and the management expressed gratitude to their staff for their dedication in the challenging macro and competitive environment. The bank continues to gain market share in deposits, with costs kept range-bound, and asset growth remaining strong.
00:10:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed their credit deposit ratio and advances mix. The bank's incremental credit deposit ratio or loan deposit ratio remained similar to previous years, with an advances mix towards better yielding segments like retail and corporate banking. The bank had one-off gains during the quarter, which were nullified with equivalent one-off provisions. The asset quality continued to be pristine, and the bank created a CRA provision as part of prudent risk management. Despite strong deposit mobilization, the bank did not provide guidance on future expenses or LDR targets, focusing instead on growing the core retail deposit franchise and ensuring competitive pricing.
00:15:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed their approach to maintaining parity in rates across segments and the loan-deposit ratio (LDR). They explained that their priority is to raise as much liquidity as possible, subject to the liquidity environment and comparative environment. The bank reported healthy retail deposits, but there were also transitory involuntary flows which exceeded their expectations. The bank's LDR pattern follows a typical trend with the largest proportion of deposits coming in during the fourth quarter. The bank has obligations to repay bond maturities, and their priority is to keep reserves and repay these maturities. The bank's management expressed confidence that they can maintain stability in their margins as long as they maintain discipline on pricing across customer segments and do not go above a certain threshold on the pricing of liabilities. They did not provide a specific number outlook but indicated that they have other levers to offset lower LDRs in the future. The first question from the audience was about the bank's comfort level with competitive intensity not being a new normal, given the past decade's trend of a large part of the sector missing in action. The second question was about the bank's position on the Prompt Corrective Action (PCA) framework.
00:20:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management addressed concerns about potential impacts on their portfolio from heightened competition and rate wars. The management expressed that they cannot predict the competition's behavior but emphasized that price-based strategies are not sustainable in the long term. They shared their experience of intense competition and heightened rate wars over the past six months, which they do not expect to continue for an extended period. Instead, HDFC Bank aims to focus on improving customer service and response times to meet customers' needs effectively. The bank has tasked 10% of its workforce to measure and monitor customer interactions and help the organization respond to customers in the shortest possible time to wow them and ensure sustainability.
00:25:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's executive discusses their strategy to increase market share and wallet share, which has been successful despite intense competition. They have gained more deposit market share than what they have as a stock, indicating that their strategy is working. However, achieving priority sector targets, particularly for small and marginal farmers and the weaker section, is not easy. The bank has organically achieved most of its overall priority sector targets but faces challenges in meeting the sub-targets for these two groups. They plan to expand inorganically to meet these targets and have factored in the impact of the third phase of Housing for All initiative, which will start from October 2024. The bank has also expanded its reach to 225,000 villages and has accelerated the pace of getting more small and marginal formal customers. While they are making progress, they acknowledge that it will take time to reach their goals.
00:30:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's executive discusses the borrowings and deposits, specifically addressing a question about the benefit derived from the borrowings run-down during the fiscal year. The executive explains that there are two types of borrowings: normal treasury borrowings for short-term liquidity management and commercial paper or term borrowings. The latter, which accounted for approximately 29,000 crores, came from HDFC Limited and ran down. However, the cost of these commercial papers was lower than long-term bonds, and since banks cannot hold commercial papers on their books, they had to let them go as part of forbearance. The executive also mentions that the high cost borrowings with longer maturities will start to mature from FY25 onwards. Regarding lending rates and incremental spreads, the bank has increased threshold yields across customer segments to manage funding mobilization and build liquid buffers, but no specific actions have been taken in the last two to three months.
00:35:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's executive discusses the current market conditions and their impact on the bank's lending rates and loan growth. The executive mentions that while every quarter may not see significant rate increases, the bank has done what was necessary up to this point. However, if there are changes in the interest rate environment or funding costs, the bank may need to reexamine yields on loans across customer segments. The executive also mentions that the bank has elected not to participate in certain products due to low market yields. Additionally, the executive discusses a one-time exceptional item provisioning related to employee compensation as a way to motivate the workforce.
00:40:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed their growth strategy for the next decade. The bank, which has a strong track record of market share growth over the last two decades, is now focusing more on scale and gaining market share through its comprehensive product and service offerings, customer acquisition, and priority in service. The management believes that competition will continue to be intense, but as long as pricing remains rational, HDFC Bank can continue to gain market share, not just within the private sector but also from the banking system at large. The bank aims to increase its market share in deposits, which is currently around 10-11%, to bridge the gap between itself and the largest banks in the country. The management emphasized the importance of hard work, quick response, and a customer-first culture to ensure long-term growth. Short-term periods of irrational pricing may cause temporary growth setbacks, but the bank remains committed to its strategic objectives.
00:45:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, Chintan Parikh asked about the competitive dynamics following HDFC Bank's decision to increase threshold lending rates. The bank saw mixed reactions from competitors, with some following suit and others not. The speaker, Sashi Strey Udupi, acknowledged that time would tell whether this trend is sustainable. Additionally, Udupi mentioned that bond spreads have been increasing while loan spreads have lagged, indicating some competition pricing below the cost of deposits. Rahul Jen from Goldman Sachs questioned whether HDFC Bank could expand margins further, potentially leading to more significant lending rate drops. Udupi clarified that the bank does not have a fixed anchor on margins and is not pursuing a strategy based on that.
00:50:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's executive director, Aditya Puri, discusses the bank's margin strategy. He clarifies that the margin is determined by various factors including customer demand, pricing behavior, competition, business mix, and control over asset and liability movements. The bank is not focusing on chasing growth at the expense of profitability and will maintain stability, neither going down the risk nor the price ladder. The bank's margin action will be a function of how it substitutes bonds coming up for maturities with deposits over time. The growth in the organization and stability on its matrices, including core Roa and earnings, is a positive for the bank. Kasa mix, which is a customer preference for digital transactions, is not something the bank can drive but is balanced in offering in a high-interest rate scenario. The carrier ratios have been tepid, and people are moving money into alternative instruments.
00:55:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed the impact of structural changes on household savings and the bank's ability to gain market share. They also addressed the question of deposit costs and the bank's strategy in response to competition. The management stated that they have stabilized the cost of deposits and will not be an outlier in the market, but will maintain a balance between retail and non-retail deposits. Regarding provisioning, the bank made a floating provision to absorb gains from Cadila Stak sales.
01:00:00 - 01:15:00
During the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank clarified the difference between floating and contingent provisions, emphasizing that the former is an investment for the future and not used for expected credit losses. The bank also clarified that their credit strategy is not solely based on liquidity coverage ratio or debt-to-equity ratio but on a risk-based pricing model. The management discussed their balanced approach to expanding into various geographies while maintaining consistent underwriting policies and focusing on deeper geographies for deposit mobilization. The bank is happy with the current momentum but cannot add more due to finite capacity, and they have added 148 smart banking lobbies and 75 new branches this year. The organization is institutionalized and will continue to grow despite personnel changes. The conference call concluded with a sign-off.
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01:00:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank clarified the difference between floating and contingent provisions. The bank explained that a floating provision is a counter provision made in good times, not reflecting any adverse portfolio indicators, while a contingent provision is precautionary against potential contingent events that may cause delinquencies. The bank emphasized that they have a pristine asset quality and early indicators are even better than anticipated. The bank also clarified that the floating provision, which is currently about 5% of the total loan book, cannot be used in an event of expected credit losses implementation and is not something they will invoke frequently. It is an investment for the future to protect against unanticipated movements and qualifies for tier two Capital within regulatory limits. The bank also addressed a question about incremental loan growth dynamics, assuring that there are no uncertainties about this.
01:05:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the speaker clarified that the bank's credit strategy is not solely based on liquidity coverage ratio (LDR) or debt-to-equity ratio (CD ratio) but rather on a risk-based pricing model. The allocation of capital and liquidity depends on various factors, including the specific business, segment, and customer. Regarding the CRB business, the speaker confirmed that it has been growing well, particularly in priority sector segments such as microenterprises, small and marginal farmers, and sustainable livelihood initiatives. The expansion of the small and medium enterprise business to 75 districts across the country and the distribution of agriculture and allied products in 22,500 villages have contributed to the overall asset growth. The bank is focusing on deeper geographies where competition is less and price points are right, rather than urban areas with high competition from a pricing perspective. The speaker did not provide specific product or geographical details during the call but promised to provide more information later.
01:10:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's management discussed their balanced approach to expanding into various geographies while maintaining consistent underwriting policies. The speaker clarified that they do not compromise on risk even when entering deeper geographies. Regarding branch expansion, the management acknowledged that they have held back on it due to practical realities, but it is a strategic imperative and not a cost concern. The pace of branch expansion has increased in recent times, and productivity has also gone up, meaning that the bank is not compromising on productivity. The bank aims to expand into semi-urban and rural geographies, which make up a large part of India and have growing per capita income. These investments are for the future and will contribute significantly to deposit mobilization in the long term.
01:15:00 In this section of the HDFC Bank Limited Q4FY24 Earnings Conference Call on 20-Apr-24, the bank's executive discussed deposit mobilization and expansion of distribution architecture. The bank is happy with the current momentum but cannot add more due to finite capacity. They have added 148 smart banking lobbies, which don't count as branches, and 75 new ones this year. The executive expressed satisfaction with the ongoing transition period and maintained stability in profitability metrics. The organization is institutionalized, process-driven, and will continue to grow despite personnel changes. The investor relations team is available for any questions or inputs. The conference call concluded with a sign-off.