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

"HDFC Limited Q1 FY23 Earnings Conference Call"

July 29, 2022

MANAGEMENT MR. KEKI M. MISTRY --VICE CHAIRMAN AND CHIEF

EXECUTIVE OFFICER, HDFC LIMITED

MS. RENU SUD KARNAD --MANAGING DIRECTOR,

HDFC LIMITED

MR. V.S. RANGAN --EXECUTIVE DIRECTOR, HDFC

LIMITED

MR. CONRAD D'SOUZA --MEMBER OF EXECUTIVE

MANAGEMENT AND CHIEF INVESTOR RELATIONS

OFFICER, HDFC LIMITED

MS. ANJALEE TARAPORE --GENERAL MANAGER,

HDFC LIMITED

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	HDFC Limited
	July 29, 2022
Moderator:	Ladies and gentlemen, good day, and welcome to HDFC Limited Q1 FY23 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 the conference call, please signal an operator by pressing '*' then '0' on your touch tone
	phone. Please note that this conference is being recorded. We have with us HDFC's Vice
	Chairman and CEO, Mr. Keki M. Mistry; Managing Director, Ms. Renu Sud Karnad; Executive
	Director, Mr. V.S. Rangan; member of Executive Management and Chief Investor Relations
	Officer, Mr. Conrad D'Souza; and General Manager, Ms. Anjalee Tarapore. I now hand the
	conference over to Mr. Keki M. Mistry. Thank you, and over to you, sir.
Keki Mistry:	Good Afternoon Everyone.
	At the outset, I would like to welcome all of you to HDFC's earnings call for the first quarter of
	the current financial year.
	The Board of Directors at its meeting held earlier today approved the financial results for the
	quarter ended June 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
	The Monetary Policy Committee at its meetings held in May 2022 and June 2022 respectively
	increased the policy repo rate by an aggregate of 90 basis points, 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 will discuss later the interest rate actions have had a short term impact on both Net Interest
	Income
	In July 2022, the RBI increased the limit of External Commercial Borrowings under the
	automatic route from US$ 750 million to US$ 1.5 billion per financial year. We are in the process
	of raising funds under this window of about US $ 1 .1 billion.
	The momentum in the economy was very strong through the quarter and is reflected in a sharp
	pick up in individual loan disbursements and a 19 percent growth in the individual loan book
	which is the highest in the last 32 quarters. 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 quarter.

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

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HDFC Limited

July 29, 2022

Our individual loans approvals for the quarter ended June 30, 2022, were higher by 60 percent compared to the corresponding quarter in the previous year.

For the quarter ended June 30, 2022, individual loan disbursements grew by 66 percent over the corresponding quarter in the previous year.

Disbursements in Q1 were the highest ever disbursements in the first quarter of any financial year - over 60 percent higher than the previous best.

Housing disbursements constituted 93 percent of individual disbursements in the first quarter of FY23.

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 first quarter, we sold individual loans aggregating to Rs 9,533 crores.

The individual loans sold during the last 12 months amounted to Rs 32,499 crores.

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 19 percent. If the loans amounting to Rs 32,499 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 28 percent.

This is the highest percentage growth in the individual loan AUM in nearly 8 years.

Our individual loan book increased to Rs 4,47,402 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 June 30, 2022 amounted to Rs 88,856 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to Rs 5,36,258 crores.

As at June 30, 2022 our non-individual loan book grew by 8 percent on an AUM basis compared to the previous year.

Whilst we continue to have a healthy 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.

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HDFC Limited

July 29, 2022

We currently have a good 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.

The overall loan book is now Rs 5,81,040 crores - a growth of 16 per cent.

The total Assets Under Management (AUM) as at June 30, 2022 amounted to Rs 6,71,364 crores as compared to Rs 5,74,136 crores in the previous year - a growth of 17 percent.

If no loans had been sold during the preceding 12 months, then the growth in the total loan book would have been 23 percent.

Prepayments on retail loans, on an annualised basis, amounted to 10.2 percent of the opening loan book.

The average size of individual loans for the quarter ended June 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 45 percent during the corresponding quarter in the previous year.

Our thrust on affordable housing loans continued.

During the quarter ended June 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 11.1 lacs and to customers in the LIG segment amounted to Rs 19.7 lacs.

If we break up the loan book outstanding on June 30, 2022 on an AUM basis into different categories then individual loans constituted 79 percent of the total loan book, the same as compared to the previous year.

Construction finance constituted 9 percent, of the total loan book, Lease rental discounting loans constituted 7 percent of the total loan book while corporate loans constituted 5 percent.

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

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HDFC Limited

July 29, 2022

However, we expect the proportion of individual to non-individual AUM to normalise in the next few quarters.

97 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 50 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 approved an aggregate amount of Rs 2,217 crores of which 80 percent i.e. Rs 1,764 crores had been disbursed till June 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 June 30, 2022 the outstanding loans under OTR 1 and OTR 2 amount to Rs 4,410 crores which is equivalent to 0.77 percent of the loan book - as compared to a peak of 1.4 percent in September 2021.

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 quarter 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 to September 2022.

The Corporation, however, has continued to report NPAs for the quarter ended June 30, 2022 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.

To facilitate comparison on a like to like basis, we have compared the Non Performing Assets based on the old method of computation.

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