Transcript of earnings call on financial results of the corporation for the quarter ended September 30, 2021

"HDFC Limited's Q2 FY'22 Earnings Conference Call"

November 1, 2021

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

EXECUTIVE OFFICER, HDFC LIMITED

MS. RENU SUD KARNAD - MANAGING DIRECTOR,

HDFC LIMITED

MR. V. SRINIVASA RANGAN - EXECUTIVE DIRECTOR,

HDFC LIMITED

MR. CONRAD D'SOUZA - MEMBER, EXECUTIVE

MANAGEMENT & CHIEF INVESTOR RELATIONS

OFFICER, HDFC LIMITED

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HDFC Limited

November 1, 2021

Moderator:Ladies and gentlemen, good afternoon and welcome to HDFC Limited's Q2 FY'22 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; and Member of Executive Management and Chief

Investor Relations Officer - Mr. Conrad D'Souza. I would now like to hand the conference over

to Mr. Keki M. Mistry. Thank you and over to you, sir.

Keki M. Mistry:Well, thank you very much and 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, 2021 which were subjected to a limited review.

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, 2021.

As we had mentioned in our earlier call, business during the first quarter was partially disrupted as a result of the second wave - particularly during the latter part of April and in the month of May 21.

There has been a sharp recovery in business from June onwards. This momentum has continued through the second quarter.

The following were the main highlights of the second quarter -

RBI has continued to ensure that there is adequate liquidity in the system and that the liquidity is made available to all segments of the market

Interest rates have been by and large stable.

The inflation trajectory is within the RBI's comfort zone

Business has bounced back from the disruption in April and May 2021

Asset quality has improved during this quarter compared to June 21, particularly in respect of individual loans

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

Our individual loans approvals for the six months ended September 30, 2021, were higher by 67 percent compared to the corresponding period in the previous year.

During the half year ended September 30, 2021, individual loan disbursements grew by 80 percent over the corresponding period in the previous year.

Individual loan disbursements in the second quarter were 48 percent higher than during the first quarter and 44 percent higher compared to the corresponding period in the previous year.

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HDFC Limited

November 1, 2021

October 2021 disbursements are the highest ever in a non-quarter end month and this momentum post the second wave has continued.

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

89 percent of new loan applications were received through the digital channels.

During the second quarter, we sold loans aggregating to Rs. 7,132 crore.

The total loans sold during the six months ended September 21, amounted to Rs. 12,621 crore.

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

Individual loans sold in the preceding 12 months amounted to Rs 27,199 crores as compared to Rs 14,138 crore in the previous year.

Individual loan growth on an AUM basis was 16 percent. If the loans amounting to Rs 27,199 crores had not been sold, then the growth in the individual loan book would have been 23 percent.

Our individual loan book increased to Rs 3,91,195 crores - a growth of 15 percent over the previous year. In addition to this, the loans securitised by the Corporation and outstanding as on September 30, 2021 amounted to Rs 76,366 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to Rs 4,67,561 crores.

With regard to the non-individual portfolio, we have seen a pick up in the loan book during the second quarter driven largely by the LRD component.

Although we continue to report a de-growth as compared to the previous year, we have seen a healthy growth during the quarter ended September 21. We presently have a good pipeline and we expect to see a positive growth for the year.

As at September 30, 2021 our non-individual loan book amounted to Rs 1,29,603 crore

The overall loan book is now Rs 5,20,798 crores.

The total Assets Under Management (AUM) as at September 30, 2021 amounted to Rs 5,97,339 crores as compared to Rs 5,40,270 crores in the previous year - a growth of 11 percent.

Prepayments on retail loans for the half year, on an annualised basis, was 9.6 percent of the opening loan book

The average size of individual loans for the period ended September 30, 2021 stood at Rs 31.9 lacs

For the second quarter the average loan was Rs 32.7 lacs.

The contribution from the Higher Income Group - defined as customers with an annual family income of Rs 18 lacs or more - has increased during the first six months to 43 percent from 40 percent during FY21

Our thrust on affordable housing loans continued.

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HDFC Limited

November 1, 2021

During the half year ended September 30, 2021, 30 percent of home loans approved in volume terms and 14 percent in value terms were to customers from the Economically Weaker Section (EWS) or 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 19.4 lacs.

If we break up the loan book outstanding on September 30, 2021 on an AUM basis into different categories then individual loans constituted 78 percent of the total loan book, as compared to 75 percent in the previous year.

Construction finance constitutes 9 percent, of the total loan book, Lease rental discounting loans constitute 8 percent of the total loan book while corporate loans constitute 5 percent.

If you were to look at the incremental loan book growth and split that growth between individuals and non-individuals, then for the quarter ended September 30, 2021, the ratio of growth in individual loans vs non-individual growth is 75:25. The increase in the non-individual loan book during the quarter is almost entirely on account of loans disbursed under the lease rental discounting facility.

For the 6 months ended September 2021, the ratio of incremental growth in the loan book is 96 percent individual loans and 4 percent non-individual loans.

Total loans sourced from distribution channels is 99 percent of which -

HDFC Sales is 53 percent

HDFC Bank is 28 percent

And Third Party DSAs is 18 percent.

(As you are aware, HDFC Sales is a wholly owned subsidiary of HDFC Ltd.)

Thus, 82 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 second wave of the pandemic.

Under ECLGS 1, 2 and 3, the Corporation has approved an aggregate amount of Rs 2,418 crores of which 72 percent i.e. Rs 1,738 crores has been disbursed by September 2021. Amounts disbursed under this facility are guaranteed by the Government.

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

In this regard, the aggregate amount of loans for which restructuring has been implemented under both OTR 1 and OTR 2 constitute 1.4 percent of the loan book. As informed earlier, loans restructured under OTR 1 constituted 0.9 percent of the loan book.

Out of the loans restructured under OTR 1 and 2, 63 percent are Individual loans and 37 percent are non-individual loans.

Also, out of the total restructured loans, as much as 35 percent is in respect of just one non individual account. We expect over 50 percent of this exposure to be settled shortly.

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HDFC Limited

November 1, 2021

The overall collection efficiency for individual loans has improved in the second quarter. The collection efficiency for individual loans on a cumulative basisover the last quarter is over 98 percent.

As of September 30 2021, Non-performing individual loans stood at 1.10 percent while non- performing non-individual loans stood at 4.69 percent.

As per regulatory norms, the gross non-performing loans as at September 30, 2021 stood at Rs 10,341 crores. This is equivalent to 2.00 percent of the loan portfolio.

Non-performing Individual loans had increased in June 2021 due to slippages on account of the impact of the second wave of the pandemic. Since then we have seen a pullback by about 27 basis points which reflects a significant recovery from the impact of the second wave. This is also reflected in an improvement in the collection efficiency.

The non-individual asset quality has held reasonably well and we have seen an 18 basis point reduction in NPAs during the quarter.

During the quarter we have seen some resolutions in certain non-individual loans.

As per regulatory norms, based solely on the period of default, the Corporation is required to carry a total provision of Rs 6,605 crores on September 30, 2021.

As against this, the actual provision carried is Rs 13,340 crores.

The excess provision over the regulatory requirement is Rs 6,735 crores i.e. 102 percent higher than the minimum required under the regulations.

Under Ind AS accounting, both asset classification and provisioning have moved from the incurred loss model to the Expected Credit Loss model for providing for future credit losses.

Based on the model, the total EAD of Rs 5,20,358 crores is broken up as under :

Stage 1	91.3 percent
Stage 2	6.2 percent
Stage 3	2.5 percent

During the second quarter we have seen a reduction in the aggregate of Stage 2 and Stage 3 assets from 9.2 percent in June 2021 to 8.7 percent of the EAD as of September 2021.

Stage 3 includes accounts with an EAD of Rs 624 crore which are classified as Stage 3 account on a qualitative assessment under IndAS but are outstanding for less than 90 days and accordingly are not NPAs.

During the quarter, we have charged the Profit and Loss Account with a sum of Rs 452 crores towards provisioning.

The aggregate charge to the Profit and Loss Account for the six months is Rs 1,138 crores

The ECL to EAD Coverage ratio for Stage 2 assets is 15 percent and for Stage 3 is 55 percent.

The provisions carried as a percentage of the EAD amounted to 2.56 percent.

As of September 30, 2021, we carry a COVID-19 provisioning of Rs.1,304 crores (10 percent of the overall provision). We will in the course of this year review whether we need to continue carrying this provision.

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