Housing Development Finance : Transcript of Earnings Call on the Financial Results of the Corporation for the quarter ended September 30, 2022

"HDFC Limited's Q2 FY23 Earnings Conference Call"

November 3, 2022

MANAGEMENT: MR. KEKI M. MISTRY - VICE CHAIRMAN & CHIEF

EXECUTIVE OFFICER

MS. RENU SUD KARNAD --MANAGING DIRECTOR

MR. V. SRINIVASA RANGAN - EXECUTIVE DIRECTOR

MR. CONRAD D'SOUZA - MEMBER, EXECUTIVE

MANAGEMENT & CHIEF INVESTOR RELATIONS

OFFICER

MS. ANJALEE TARAPORE - ADDITIONAL SENIOR

GENERAL MANAGER

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HDFC Limited

November 3, 2022

Moderator:Ladies and gentlemen, good afternoon and welcome to HDFC Limited's Q2 FY'23 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing '*' then '0' on your touchtone phone. Please note that this conference is being recorded.

We have with us HDFC's Vice Chairman and CEO -- M r. Keki M . M istry; Managing Director -

• M s. Renu Sud Karnad; Executive Director -- M r. V.S. Rangan; M ember of Executive M anagement and Chief Investor Relations Officer -- M r. Conrad D'Souza; and Additional Senior General M anager -- Anjalee Tarapore.

	I would like to hand the conference over to M r. Keki M . M istry . Thank you, and over to you,
	sir.
Keki M. Mistry:	Good Afternoon Everyone.
	At the outset, I would like to welcome all of you to HDFC's earnings call for the second quarter
	of the current financial year.
	The Board of Directors at its meeting held earlier today approved the financial results for the half
	year ended September 30, 2022, which were subjected to a limited review.
	Let me start with outlining a few developments in the economy over the last three months which
	have a bearing on the Corporation:
	The M onetary Policy Committee at its meetings held in August and September 2022 increased
	the policy repo rate by 100 basis points in aggregate, mainly on account of the uncertainty in the
	inflation trajectory . As a result, there has been an uptick in interest rates consequent to which we
	have increased deposit rates as well as rates on loan products.
	As we had mentioned in our previous earning call too, the interest rate actions have had a short
	term impact on both Net Interest Income and Net Interest M argin during the last six months.
	Over the last few months we have seen rate action by RBI and we have correspondingly passed
	on the rate increases to our customers. There has however been a transmission lag between the
	increase in the interest cost on our liabilities and asset repricing. I will explain this in detail later.
	In July 2022, the RBI had increased the limit of External Commercial Borrowings under the
	automatic route from US$ 750 million to US$ 1.5 billion per financial year. In August 2022 we
	have raised US $ 1.1 billion under this window. The ECB is the largest social loan globally and
	the first social ECB loan out of India.

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HDFC Limited

November 3, 2022

The momentum in the economy was strong through the first half of the current year. This is reflected in a sharp pick up in individual loan disbursements and a 20 percent growth in the individual loan book on an AUM basis. Similarly, collection efficiency has continued to improve with over 99 percent collection efficiency during the quarter.

Over the next few minutes I will give you a summary of the key highlights of the performance for the half year and the quarter ended September 30, 2022.

Let me start by quickly summarising the progress of our business through the quarter.

Our individual loans approvals for the half year ended September 30, 2022, were higher by 35 percent compared to the corresponding period in the previous year.

For the same period, individual loan disbursements grew by 36 percent over the corresponding period in the previous year.

Housing disbursements constituted 93 percent of individual disbursements in the current year

Growth in home loans was seen in the affordable housing segment as well as in the middle and high income groups.

92 percent of new loan applications were received through digital channels.

During the second quarter, we sold individual loans aggregating to Rs 9,145 crores.

The individual loans sold during the last 12 months amounted to Rs 34,513 crores.

The total loans sold during the six months ended September 2022, amounted t o Rs 18,678 crore.

These loans were assigned to HDFC Bank pursuant to the mortgage sharing agreement with the Bank.

Individual loan book growth on an AUM basis was 20 percent. If the loans amounting to Rs 34,513 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 28 percent.

On a Balance Sheet basis our individual loan book increased to Rs 4,65,752 crores - a growth of 19 percent over the previous year. In addition to this, the individual loans sold by the Corporation and outstanding as on September 30, 2022 amounted to Rs 93,566 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to Rs 5,59,318 crores.

As at September 30, 2022 our non-individual loan book grew by 1 percent on an AUM basis compared to the previous year.

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HDFC Limited

November 3, 2022

Whilst we continue to have a pipeline of non-individual business, over the last twelve months we have also seen repayments/prepayments of earlier facilities and resolution of some stressed assets and this has resulted in a lower growth in the non-individual segment.

We currently have a pipeline of construction finance loans as well as in the lease rental discounting segment and we expect non- individual AUM growth to accelerate in the coming quarters.

Construction finance loans unlike lease rental discounting loans have a longer disbursement period as they are disbursed based on progress of construction and after the developer has brought in his equity .

The total Assets Under M anagement (AUM ) as at September 30, 2022 amounted to Rs 6,90,284 crores as compared to Rs 5,97,339 crores in the previous year - a growth of 16 percent.

If no loans had been sold during the preceding 12 months, then the growth in the total loan book would have been 21 percent.

Prepayments on retail loans, on an annualised basis, amounted to 10.3 percent of the opening loan book.

The average size of individual loans for the period ended September 30, 2022 stood at Rs 35.7 lacs as compared to Rs 33.1 lacs in FY22.

The contribution, in value terms, from the Higher Income Group - defined as customers with an annual family income of Rs 18 lacs or more has increased during the year to 50 percent from 43 percent during the corresponding period in the previous year.

Our thrust on affordable housing loans has continued.

During the half year ended September 30, 2022, 23 percent of home loans approved in terms of number of customers and 10 percent in value terms were to customers from the Economically Weaker Section (EWS) and the Low Income Groups (LIG).

The average home loan to customers in the EWS segment amounted to Rs 10.9 lacs and to customers in the LIG segment amounted to Rs 19.7 lacs.

If we break up the loan book outstanding on September 30, 2022 on an AUM basis into different categories then individual loans constituted 81 percent of the total loan book, as compared to 78 percent in the previous year.

Construction finance constituted 9 percent, of the total loan book, Lease rental discounting loans constituted 6 percent of the total loan book while corporate loans constituted 4 percent.

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HDFC Limited

November 3, 2022

If you were to look at the incremental loan book growth, then for the half year ended September 30, 2022, the entire growth is from individual loans.

98 percent of the loans were sourced through distribution channels - however this is largely through HDFC Sales, a 100 percent subsidiary of HDFC Limited as well as through HDFC Bank.

HDFC Sales accounted for 51 percent of the loans sourced, while HDFC Bank accounted for 30 percent. Third Party DSAs accounted for 17 percent.

Thus, 83 percent of HDFC's individual business was sourced directly or through our associates.

The Emergency Credit Line Guarantee Scheme (ECLGS) was extended to mitigate the economic distress caused by the COVID pandemic.

Under ECLGS 1, 2 and 3, the Corporation has disbursed an aggregate amount of Rs 1,783 crores till September 2022. Amounts disbursed under this facility are guaranteed by the Central Government.

The Reserve Bank of India permitted a one-time restructuring of loans under its resolution for COVID-19 related stress.

As at September 30, 2022 the outstanding loans under OTR 1 and OTR 2 amount to Rs 4,244 crores which is equivalent to 0.7 percent of the loan book - as compared to a peak of 1.4 percent in September last year.

98 percent of the OTR loans are in the individual loan book.

The overall collection efficiency for individual loans has continued to improve and is now better than pre-Covid levels. The average collection efficiency for individual loans on a cumulative basis over the last six months is over 99 percent.

RBI had on November 12, 2021 issued guidelines on harmonising NPAs across the financial system. Subsequently, RBI had deferred the effective date of the applicability of these guidelines and the NPA reporting under the revised guidelines was deferred to the quarter ending December 2022.

The Corporation, however, had continued to report NPAs in accordance with the revised RBI circular of November 12, 2021.

There has been a significant improvement in asset quality over the last 12 months.

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