Housing Development Finance : Transcript of Earnings Call on the Financial Results of the Corporation for the quarter ended December 31, 2022

"HDFC Limited Q3 FY23 Earnings Conference Call"

February 2, 2023

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

MS. RENU SUD KARNAD - MANAGING DIRECTOR

MR. V.S. RANGAN - EXECUTIVE DIRECTOR

MR. CONRAD D'SOUZA - MEMBER OF EXECUTIVE

MANAGEMENT AND CHIEF INVESTOR RELATIONS

OFFICER

MS. ANJALEE TARAPORE - ADDITIONAL SENIOR

GENERAL MANAGER

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HDFC Limited

February 2, 2023

Moderator:Ladies and gentlemen, good afternoon, and welcome to HDFC Limited Q3 FY '23 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 touchtone phone. Please note 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 Additional Senior General Manager - Ms. Anjalee Tarapore.

	I would like to hand the conference over to Mr. Keki M. Mistry. 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 third quarter
	of the current financial year.
	The Board of Directors at its meeting held earlier today approved the financial results for the
	nine months ended December 31, 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 Monetary Policy Committee at its meeting held in December 2022 increased the policy repo
	rate by 35 basis points mainly on account of the need to keep inflation expectations anchored.
	This was in addition to the 50 basis points increase in the repo rate in October 2022.
	As a result, there has been a further 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 earnings calls too, the interest rate actions have a short-
	term impact on Net Interest Income.
	Whilst we have seen rate action by RBI and have correspondingly passed on the rate increases
	to our customers, there has been a transmission lag between the increase in the interest cost on
	our liabilities and asset repricing. I will explain this in detail later.

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HDFC Limited

February 2, 2023

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. We have fully utilised this limit in the current year.

In August 2022, we had raised US $ 1.1 billion as a social loan under this window. Further, in December 2022, IFC disbursed a loan of US $ 400 million, which will be utilised primarily for the green, affordable housing portfolio. The borrowings are fully hedged for currency and interest rate risk and the all-in cost on the borrowings are comparable with our domestic cost of funds for a matching tenor.

The momentum in the economy was strong through the nine months of the current year. This is reflected in a pick up in individual loan disbursements and an 18 percent growth in the individual loan book on an AUM basis.

During the quarter, the loan book crossed Rs 6 lac crore and the AUM crossed Rs 7 lac crore.

Over the next few minutes, I will give you a summary of the key highlights of the performance for the nine months and the quarter ended December 31, 2022.

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

Our individual loan approvals for the nine months ended December 31, 2022, were higher by 21 percent compared to the corresponding period in the previous year.

For the same period, individual loan disbursements grew by 23 percent over the corresponding period in the previous year.

I may mention here that due to the holiday season in October/ November the monthly disbursements were marginally lower than the previous months, but December saw a return to the normal trajectory.

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

Growth in home loans was seen in all segments of the market.

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

During the third quarter, we sold individual loans aggregating to Rs 8,892 crores.

The individual loans sold during the last 12 months amounted to Rs 35,937 crores.

The total loans sold during the nine months ended December 2022, amounted to Rs 27,570 crore.

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HDFC Limited

February 2, 2023

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 18 percent. If the loans amounting to Rs 35,937 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 26 percent.

On a Balance Sheet basis our individual loan book increased to Rs 4,79,316 crores. In addition to this, the individual loans sold by the Corporation and outstanding as on December 31, 2022 amounted to Rs 97,700 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to Rs 5,77,016 crores- a growth of 18 percent over the previous year.

As at December 31, 2022 our non-individual loan book on an AUM basis was Rs 1,24,469 crore.

As mentioned in our earlier calls, 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.

Further, over the last few quarters we have seen some scheduled repayments of earlier facilities and resolution of some stressed assets.

We have also, on maturity, run down exposures in the loan book which are non-compliant with the norms applicable to commercial banks in lieu of the impending merger.

The total Assets Under Management (AUM) as at December 31, 2022 amounted to Rs 7,01,485 crores as compared to Rs 6,18,917 crores in the previous year - a growth of 13 percent.

If no loans had been sold during the preceding 12 months, then the growth in the total loan book would have been 18 percent.

Prepayments on retail loans, on an annualised basis, amounted to 10.7 percent of the opening loan book.

The average size of individual loans for the period ended December 31, 2022 stood at Rs 35.7 lacs as compared to Rs 33.1 lacs in FY22.

The contribution, in value terms, from customers with an annual family income of Rs 18 lacs or more has increased during the year to 52 percent from 44 percent during the corresponding period in the previous year.

Our thrust on affordable housing loans has continued.

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HDFC Limited

February 2, 2023

During the nine months ended December 31, 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 10.8 lacs and to customers in the LIG segment amounted to Rs 19.5 lacs.

If we break up the loan book outstanding on December 31, 2022 on an AUM basis into different categories then individual loans constituted 82 percent of the total loan book, as compared to 79 percent in the previous year.

Construction finance constituted 8 percent, of the total loan book, Lease rental discounting loans constituted 6 percent of the total loan book while corporate loans constituted 4 percent.

If you were to look at the incremental loan book growth, then for the nine months ended December 31, 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 1,876 crores till December 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 December 31, 2022 the outstanding loans under OTR 1 and OTR 2 amount to Rs 4,085 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.

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