HDFC Bank Limited (NSE: HDFCBANK) Q1 FY24 Earnings Concall dated Jul. 17, 2023
Corporate Participants:
Srinivasan Vaidyanathan — Chief Financial Officer
Analysts:
Suresh Ganapathy — Macquarie — Analyst
Mahrukh Adajania — Nuvama Wealth Management Limited — Analyst
Kunal Shah — Citi — Analyst
Saurabh Kumar — JP Morgan — Analyst
Rahul Jain — Goldman Sachs — Analyst
Abhishek Murarka — HSBC — Analyst
Manish Shukla — Axis Capital — Analyst
Pranav Gundlapalle — Bernstein — Analyst
Presentation:
Operator
Ladies and gentlemen, good evening, and welcome to the HDFC Bank Limited Q1 FY’24 Earnings Conference Call on the Financial Results presented by the management of HDFC Bank. [Operator Instructions] There will be an opportunity for you to ask questions after a brief commentary by the management. [Operator Instructions]
I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you and over to you, sir.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay, thank you, Bhavin. Good evening, and a warm welcome to all the participants. I want to briefly start and give a minute update on the merger. Effective July 1, as we all know, HDFC Limited has been merged into the Bank. Consequently all subsidiaries of HDFC Limited has become subsidies of the Bank. Earlier today with the support of BSE, NSE, NSDL, CDSL, all HDFC Limited shareholders as on the record date have received shares of HDFC Bank. This concludes the 15 months journey for the Bank and all the regulators involved. And we’d like to take this opportunity to thank them for their continuous engagement and support. HDFC brand built over 47 years will now be proudly owned by the Bank. It is a privilege to add on and engage with the 6,000 institutional investors and 7 lakh individual shareholders.
HDFC Limited has excelled in nurturing trust in their customer engagement over four decades of operation. We would like to harness this bond with the home loan customers by leveraging our exhaustive distribution reach and comprehensive digital platform to upsell a complete bouquet of the bank’s and subsidiaries’ products across pay, save, invest, borrow, insure, and trade, like the savings account, personal account and so on, including the credit card and SAP.
Seamless integration to aid the sustained and optimal execution is undertaken, involving merging products and processes expertise, creating learning opportunities by focusing on customer engagement and experience, onboarding 4 million customers with over INR6 trillion portfolio, onboarding 4,150 talented professionals bringing in knowledge and culture.
Now, let’s look at the key macro environment during the quarter before we review the earnings. A stronger than expected GDP growth in the March quarter has boosted sentiment. Various indicators suggest economic activity continues to be strong in the recent June quarter. GST collections have been robust in the first quarter, where INR5 lakh crores grew by — INR5 lakh crores grew by 12% year-on-year. Manufacturing PMI at 57.8 and Services segment’s PMI standing at 58.5 augurs well and shows robustness. Again, the current account deficit narrowing to a seven quarter low adds more strength.
Payment systems indicate business activity continues to be robust with 14% growth in RTGS/NEFT transactions and 44% growth in UPI payments. On the consumption side, the passenger vehicle and two-wheeler sales showed robust growth, reflecting strong consumer demand. During the quarter, our retail issuing cards strength has shown robust growth of 30% year-on-year and 10% sequentially. The uneven distribution of monsoon has adversely impacted sowing. Excessive rains in North India have inundated fields already sown, while lack of rainfall in the East Central and Southwestern regions has delayed sowing.
Overall, we continue to see healthy domestic demand conditions, resilience in services exports, and push from government through capex expenditure. These factors are estimated to result in India’s year-on-year GDP growth rate of 7.7% in Q1 and greater than 6% in the full year ’24 after a stronger-than-expected GDP growth of 7.3% in FY’23. However, weather related uncertainty with the raising likelihood of El Nino causes risk to rural recovery in inflation, which remains high.
Let’s go to the key themes. On the distribution, while we added 39 branches in the quarter, we added 1,482 branches over the last 12 months, which now stands at 7,860 branches. On the payment acceptance points, we have 4.6 million, year-on-year growth of 37%. That includes 2.8 million merchants accepting the SmartHub Vyapar platform. On the CRB side, our SME business who are present in more than 90% of the districts expanded to 1.7 lakh villages reach and is on track to achieve the objective of over 2 lakh villages. Gold loan processing is now offered in 4,336 branches, an increase over June ’22 — a two-fold increase over June ’22.
In the customer franchise building, we added 2.4 million new liability relationships during the quarter. With now over 85 million customers, it provides the base to engage, enabling us to broad-base and deepen our relationships. In order to provide for this engagement, we have added 29,000 people over the last 12 months and 8,500 people during the quarter. On cards, we have issued 1.5 million cards in the quarter. The total cards stands at 18.4 million. Our website continues to receive enormous traffic. We received, on an average, 109 million visits per month, with over 89 million unique visitors over the quarter at an year-on-year growth of 42%.
Focusing on the granular deposits, which continues, deposits amounted to INR19.1 lakh crores, an increase 19.2% over prior year on the back of a fantastic quarter in March ’23, where we added INR150,000 crores. We further built on this enhanced base during the June quarter with an addition to deposits of INR30,000 crores. Retail deposits added in the quarter was INR38,000 crores. Retail, which has been anchor of our deposit growth, constitutes about 83.5% of total deposits, getting more granular compared to 82% in prior year June. Retail deposits grew at the rate of 21.5% year-on-year and 2.4% sequentially.
Wholesale deposits constitute 16.5% and these grew 9% year-on-year, but we have lower 2.5% sequentially. On a pro forma merged basis, retail deposits grew by 20.6% year-on-year. This is the pro forma merging — on a pro forma basis, merging the June deposits of HDFC Limited I’m talking about, and the retail constitutes 83% of the total pro forma.
Now, moving to advances, gross of IBPC advances grew 20% year-on-year, net of IBPC advances at INR16.3 lakh crores grew by 15.7% versus prior year. This is an addition of approximately INR16,000 crores during the quarter and INR222,000 crores in the year. Credit to deposit ratio as of June end stood at 84%. Our retail advances growth was robust. Domestic retail advances grew 20% year-on-year and 4% quarter-on-quarter, primarily driven by strong performance in home loans and personal loans.
Commercial and rural banking, which drives our MSME/PSL book, continued its momentum with an year-on-year growth of 29%. Wholesale segment grew 11% year-on-year, but de-grew 1.2% sequentially. The bank’s advances gross of IBPC grew by 20.1% year-on-year. When we include HDFC Limited’s individual home look — home book, the pro forma core loan growth for the merged entity is 18.7% year-on-year.
Technology — we continue to focus on the technology agenda. HDFC Bank One, the customer experience hub, over 12.5 million unique customers have interacted through the platform, accounting to over 22 million interactions, and the PayZapp has handled transactions volume of over 13 million during the quarter, with more than 1.6 million monthly average logins and 1.5 times increase in customer spends. Express car loan volume now contributes 30% of our car loan volume. We continue to be focused on these investments in expanding both the distribution, as well as digital footprint and thereby, driving the relationship management for growth.
Balance sheet remains resilient. LCR for the quarter for the bank was at 126%; prior quarter was 116% and prior year was 108%, LCR on a pro forma basis, that is including the estimated HDFC Limited book as of June 30 based on the merged entity, was at 100 — over 120%. Capital adequacy ratio is at 18.9%, and CET1 is at 16.2%.
Net revenues for the quarter were at INR32,829 crores, grew by 26.9% over prior year, driven by gross advances growth of 20% and deposit growth of 19%. Net interest income for the quarter at INR23,599 crores, which is 72% of net revenues, grew by 21% over prior year. The core net interest margin for the quarter was at 4.1%. On an interest earning asset basis, the core net interest margin was at 4.3%.
Getting to the details of other income, which was at INR9,230 crores, fees and commission that constitutes two-thirds of the other income, was at INR6,290 crores and grew by 17% over prior year. Retail constitutes approximately 93% of fees and commission. FX and derivatives at INR1,309 crores was higher by 27% compared to the prior year, and net trading and mark-to-market income were at INR552 crores for the quarter; prior quarter was a negative INR38 crores and prior year was also negative, slightly above INR1,000 crores. Other miscellaneous income at INR1,079 crores includes the recoveries from written-off accounts and dividends from subsidiaries.
Operating expenses for the quarter were at INR14,057 crores, an increase of 33.9% over prior year and an increase of 4.4% over prior quarter. In this context, it is pertinent to note that we added 1,482 branches and 1,732 ATMs since last year. In the medium to long term, distribution reach is the key. This is what will provide funding through better engagement. Cost to income ratio for the quarter was at 42.8%, reflecting the cost of investments, which is — cost of investments, which from a timing point of view has been chosen during the benign credit environment to capture the market opportunity. This will moderate and revert to below previous levels after the breakeven and payback from the investments starts to flow through.
PPOP for the quarter grew by 22%. Our pre-provision operating profit was at INR18,772 crores. Coming to asset quality, the GNPA ratio was at 1.17%, compared to 1.12% in prior quarter and 1.28% in prior year. Out of the 1.17%, about 14 basis points are standard, thus the core GNPA ratio is 1.03%. GNPA ratio, excluding NPAs in agricultural segment — because agricultural segment has got the seasonality in June and December, so excluding the agricultural segment, GNPA ratio was at 0.94%. Prior quarter was also at 0.94%, and prior year was 1.06%.
Net NPA ratio was at 0.30%; and net NPA ratio, excluding NPAs in agricultural segment, was at 0.23%, again, same as prior quarter, which was also 0.23%. The slippage ratio for the current quarter is at 35 basis points, or about INR5,800 crores. The slippage ratio for the current quarter, excluding agricultural segment, was at 26 basis points, about INR4,200 crores.
During the quarter, recoveries and upgrades were INR2,650 crores, or approximately 16 basis points. Write-offs in the quarter were INR2,100 crores, or approximately 14 basis points. There were no sale of any NPA accounts in the quarter. Restructuring under the RBI resolution COVID framework as of June end stands at 27 basis points, about INR4,265 crores. In addition, certain facilities at the same borrower, which are not restructured, is approximately 5 basis points, or INR800 crores.
On the provisions reported were INR2,850 crores against INR2,700 crores during the prior quarter and INR3,200 crores [Phonetic] in the prior year. The provision coverage ratio was at 75%. At the end of current quarter, contingent provisions and floating provisions were approximately INR11,150 crores, same as last quarter. General provisions were at INR7,150 crores. Total provisions, comprising specific, floating, contingent, and general provisions were 171% of the gross non-performing loans. This is in addition to the security held as collateral in several of the cases. Floating, contingent, and general provisions were 1.12% of gross advances as of June end.
Now, coming to credit cost ratios, the total annualized credit cost for the quarter was at 70 basis points. Prior quarter was 67 basis points and prior year was 91 basis points. Recoveries, which are recorded as miscellaneous income, amount to 19 basis points of gross advances for the quarter. The total credit cost ratio, net of recoveries, was at 51 basis points in the current quarter, compared to 68 basis points in prior year and 44 basis points in prior quarter. The profit before tax was at INR15,912 crores, grew by 30% over prior year. Net profit after tax for the quarter at INR11,952 crores grew by 30% over prior year.
Some highlights on HDB Financial Services. This is on an Ind-AS basis. The total loan book as of June end stood at INR73,568 crores, growing 5.1% sequentially and 19% year-on-year. Secured loan comprises 72% of the total loan book. Disbursements for the quarter were higher by 42% over prior year. Customer franchise grew to 12.8 million, with 7.3% additions during the quarter and an increase of 29% year-on-year. Distribution network was augmented by 89 branches in the quarter, taking it to 1,581 branches spread across 1,100 cities and towns.
Net interest income for the quarter was INR1,501 crores, an increase of 5% quarter-on-quarter and 13% year-on-year. Provisions and contingencies for the quarter was INR267 crores, against INR398 crores for the quarter ended last year June. Quality of the book continued to see sustained improvement. Gross Stage 3 as of June end improved to 2.5% against 2.7% as of March ’23 and 4.9% of last year’s June, reflecting sustained healthy collections. Provision coverage on the Stage 3 book stood at 66%.
The profit after tax for the quarter ended June increased to INR567 crores, against INR545 crores for the last quarter and INR441 crores for last year same quarter. ROA and ROE for the quarter stood, respectively, at 3.2% and 19.4%. Earnings per share in HDB was at INR7.16 and book value per share in HDB is at INR150.5. HDB remains well capitalized with a total capital adequacy ratio of 19.8% as of June end.
And a few sentences on HDB — on HSL, our Securities company that has added nearly 0.6 million clients in the last 12 months, taking the client base to 4.6 million. HSL has a network of 207 branches across 147 cities and towns. Digital offerings continues to enjoy a good traction in the market. Around 93% of active clients utilized the services during the — utilized the digital platforms of the company.
HDFC Securities has introduced HDFC SKY, a low-cost booking platform, which is targeted at all kinds of customers, millennial, investors, traders, providing easy, do-it-yourself seamless execution with the high ease and competitive flat pricing policy. The total reported revenue for the quarter was at INR497 crores, against INR432 crores in prior year, and the net profit after tax was at INR189 crores, almost flat to prior year. Earnings per share in the quarter in HSL was INR119 and the book value per share at HSL is at INR1,153.
In summary, our results reflect consistency of delivery, diligently executed to result in continued momentum in deposit growth of 19% and retail deposit growth, given that which is 21% — 21.5%, gross advances growth of 20%, and the net advances growth, net IBPCR, of 16%. Profit after tax increased by 30%, delivering return on assets in the quarter over 2% and ROE of about 17.3%. Earnings per share reported in the quarter is at is INR21.4 at the standalone bank level and INR22.2 at the consolidated bank level. Book value per share, standalone bank is at INR525.4 and at the consolidated bank level is INR542.7.
With that, may I request the operator to please open up the line for questions, please?
Questions and Answers:
Operator
Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.
Suresh Ganapathy — Macquarie — Analyst
Yeah, hi. I have two questions, Srini. One is on credit growth and deposit growth, where there is a merged company profitability. So, let me first touch the deposit growth aspect. So, I know the — quarterly, there can be fluctuations, but your Q-o-Q standalone deposit growth was about INR30,000 crores, right, 1.6%. But I’m looking at the system number. Apparently, the system seems to have added INR9 trillion of deposits, so 5% Q-o-Q. So, somehow, I feel on an incremental basis, for the quarter, you might have lost a large amount of market share. Anything specific, which affected this quarter’s deposit mobilization?
Srinivasan Vaidyanathan — Chief Financial Officer
No. Suresh, there’s nothing specific as such. Typically, Q1 is a — of all the quarters, is a slow quarter, right. Across various parameters, it’s a slow quarter, from branches to deposits to loans to — if you go back historically and see, the first quarter contribution is in single-digit. Typically, on an average, if you see — there’ll be some times where it is in double-digit, but typically single-digit is what it contributes. That’s one.
And two, I know that if I take you back a quarter or two ago that — it’s not about one quarter. If you look at how extraordinarily it got built in March and then we sustained it. That means we did not lose that over and then we built on top of that, because it’s — it was not a small feat and at least INR50,000 crores came through in March quarter, more than what one would have envisaged, and we kept that and we built on top of that. And particularly, the retail, if you see, we built INR38,000 crores in retail.
Typically, the first quarter, you see the current account going down and savings account, to some extent, moderates due to spend. We have seen 30% increase in spends, right? Our issuing card customer spending increased 30% and 10% up sequentially on spends — card spends on the retail cards. So, the — these — some of these factors typically contribute, but then more important is that the — we are confident that the building blocks that we put in place for that — such enormous growth remain, and confident of getting that to fruition over the next few quarters.
Suresh Ganapathy — Macquarie — Analyst
Okay. The other question is on advances. You reported in the pre-Q update merged gross number, excluding wholesale of HDFC Limited, to be growing at 15%. But apparently, in the call, just now you said it’s actually grown at 18.5%, that is, if I just take the retail HDFC and add the gross advances of the standalone entity, the number is 18.5%. What number to go by, because — what is there in the pre-Q was 15.5%, merged gross excluding wholesale? Yeah.
Srinivasan Vaidyanathan — Chief Financial Officer
See, the gross bank — we put that up in page 23 of the earnings deck that we published earlier today to be helpful on that. The bank’s gross of IBPC grew by 20%.
Suresh Ganapathy — Macquarie — Analyst
Correct.
Srinivasan Vaidyanathan — Chief Financial Officer
And HDFC’s individual loans, the mortgage individual loans, grew by 14% year-on-year. So, combined, just the bank loan and the individual loan, because that’s — these are the categories of loans that are managed for significant opportunities and growth. That’s grown at 19% — 18.7%, right? That’s the growth. The HDFC’s non-individual loans de-grew by 18% year-on-year, right? 18% it de-grew year-on-year and which we know that there have been management actions driving that de-growth, and we will evaluate over the next two quarters in terms of what is a stable level before we start to build, right? We will get to understand it better before we get that to the building. That’s down 18%. So, that’s why — including that, it is a 16% growth. All loans, on a gross basis, in is 16%.
Suresh Ganapathy — Macquarie — Analyst
Okay. Yeah, there’s some confusion in the pre-Q. Okay, no problem. And finally, are you confident that, on a merged basis, when you deliver the September quarter results you can sustain the current levels of ROE reported? I mean, you exited, of course, this quarter with 2.1%. Last year also, full year, the number was 2.1%. How confident you are based on your initial assessments?
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah. See, the level confidence is pretty high. Typically, I think, Sashi had alluded to in some other context that we’re looking at 1.9% to 2.1%. That’s the range at which we’ll oscillate. Quarter-to-quarter, if there is a timing on certain things, particularly, if there is anything that we do will be timing, but otherwise, broadly, it is the 1.9% to 2.1% that we alluded to before. That is where we are confident of driving to the year.
Suresh Ganapathy — Macquarie — Analyst
Okay. Thank you so much, Srini.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. We have the next question from the line of Mahrukh Adajania from Nuvama. Please go ahead.
Mahrukh Adajania — Nuvama Wealth Management Limited — Analyst
Yeah, hi. So, my first question is on opex. Basically, this happened even in the last year’s first quarter. So, the opex growth in the first two quarters on a sequential basis is 4% to 5%. And then as branch adds pick up, now, basically, the opex ratio or the opex growth — not the ratio, but the opex growth scales up to 7% Q-o-Q, 8% Q-o-Q, and that’s — last year this happened, because the branch adds was significantly high in the second half, right, 600 branches to 700 branches in each quarter of the second half. So, how do you look at the standalone opex going ahead? HDFC’s business moves at a steady-state opex. But your own opex, as you go on adding branches, do you see the 8% sequential growth coming back? I’m not talking more in terms of cost to income, but the Q-o-Q growth, because — yeah.
Srinivasan Vaidyanathan — Chief Financial Officer
No, no. That’s not — the 8% Q-o-Q is essentially the buildup of the branches that happened there. And so, the way — we try to pace it in such a way, if you think about what happened there, we started the quarter and our goal was to start building the distribution. So we created a lot of capability to build branches. And then as we were confident, because think about it, what we mentioned, which is we’re trying to take the benign credit environment as an opportunity to see how we invest and during this time period, run through the maturity and trying to get back when credit normalizes, when the credit reverts to mean, which — the historical mean, call it 90 basis points, 100 basis points, 110 basis points, somewhere around that basis points, that’s the kind of — the credit reverts — before the credit reverts to mean, we need that maturity cycle to come to fruition. So, we are waiting for that to see and as we saw, we started to accelerate and go.
And then as time goes by, you will see that the base comparison starts to lap. And then after that, we see a moderate level, right? So, we have still not seen the lapping of the growth to — from a base comparison point of view, because we started to some extent in the September quarter to a large extent in the December quarter, and as we saw the credit bending further down — because look the credit cost, last year June quarter was 91 basis points. This quarter is 60 basis points, right? So as you — as we saw that coming in, we started to implement that. That’s — essentially, in fact, not all of the credit cost is getting reinvested, but we are taking that opportunity and the environment to do that.
Mahrukh Adajania — Nuvama Wealth Management Limited — Analyst
Got it. And my next question is on loan growth and incremental deposit growth. So, just in terms of loan growth, we had kind of indicated doubling of the book. Do we see that starting FY’24, because the run rate is a bit softer in the first quarter. So the merged balance sheet has grown 13% after including everything. And if you exclude IBPC, then it’s grown 16%. So, do we — can we see a 17%, 18% growth as we end the year? Would that be a fair estimate?
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah. Mahrukh, yes. See, if you think about any time period, a three-year period or a five-year period, typically, which we look at 2.3 times, 2.4 times it moves up, which indicates about 17%, 18% kind of a growth. And that’s over a period of a longer term, right, so a three, five years time period. But over a shorter time period, somewhere we have done 15%, 16%, somewhere we have done 18%, 19%, but 17%, 18% is the kind of a — our capacities are built and that is how we are gaining traction to be at that level from a consistency of growth point of view. Quarter-to-quarter it differs, but yes, when you’re asking about the full year, our — that’s the kind of level at which.
The non-wholesale — the non-retail book in HDFC Limited will receive evaluation and as we see and as we deem fit in terms of growth rates, whether it takes a quarter or two before we start to pump in with that, we will see. But at least, yes, on an overall basis, we’re confident that there is enough credit demand. It is for us to see which one we want and what time we will start to build in.
And at the right price, I want to mention that. Even during this quarter, there were several opportunities on loans. So, you look at our wholesale loans, 11% year-on-year or minus 1.6% — close to minus 2% quarter-on-quarter. We were not shy of not participating in certain loans if the price is not to our liking. We don’t need it and — but we need the relationship, right? We keep it because — around which we build several other segment relationships. But yes — but broadly, that’s where we are operating.
Mahrukh Adajania — Nuvama Wealth Management Limited — Analyst
Okay, got it. And sir, what would be the — would you be able to quantify the CRR and SLR of limited — HDFC Limited at the end of June? Would that be possible?
Srinivasan Vaidyanathan — Chief Financial Officer
No, see, the — it starts to kick in, I think, in the next fortnight, it would start to kick in. And then we provided you the high level in terms of how we’re carrying liquidity to both, to support the growth and support all the results that are required. The bank standalone LCR is 126%. On a combined basis — which was 116% last quarter, 126% now. On a combined basis — pro forma combined, 100 — a little more than 120% after accounting for what is required for CRR and so on. So, yes, we’re quite comfortable with the position there to meet the regulatory requirements.
Mahrukh Adajania — Nuvama Wealth Management Limited — Analyst
Okay. Thank you so much.
Operator
Thank you. The next question is from the line of Kunal Shah from Citi. Please go ahead.
Kunal Shah — Citi — Analyst
Yeah. Thanks for taking questions. So, firstly, on — say, on the retail deposit side, so last time, it was quite encouraging of INR1 trillion and we have highlighted that, on a quarterly basis, we would want to add that kind of a number. Obviously, Q1 has some kind of a seasonality. But given the capacities, which are being built and the investment in franchise which is being done, what is the average kind of a retail deposit accretion, which we can see over next six to eight-odd quarters?
Srinivasan Vaidyanathan — Chief Financial Officer
See, Kunal, what we see — we don’t give on forward-looking statement, but at least I want to indicate what we have previously said, which is, yes, we have built capacities to be at that kind of a level, and that is where — that is when you look at it over a period of time, yes, there has been a quarter where it was lower. Again, there are — seasonality, it is low, because there are times in this April to June quarter where, typically, it is low, because the people are away, customers are away, schools are out, many things happened in this quarter, right? And — but our goal and our drive is to be at that kind of a level that we previously indicated, and this will come back up and where we try to drive that forward.
Kunal Shah — Citi — Analyst
Okay. So INR1 trillion was the indication. So we should drive that back to INR1 trillion-odd level?
Srinivasan Vaidyanathan — Chief Financial Officer
Thereabouts, that’s what we had indicated, that’s the level at which we’d like to operate.
Kunal Shah — Citi — Analyst
Sure. And in terms of credit growth, what you highlighted, 17% to 18%-odd, that is again maybe not taking into effect IBPC. So, is that a fair — or maybe this 13%, which is there post IBPC is what you’re indicating to be like 17% to 18%-odd sustainable one?
Srinivasan Vaidyanathan — Chief Financial Officer
See, IBPC is typically a very transient book, right, and transient means it comes and — it goes out and it comes in, back in, right? IBPC is not a full sale. You manage it quarter-to-quarter. There are a few objectives that we achieve from a priority sector obligations point of view or from a liquidity point of view. There are several considerations that go into doing that. But when we think about the loan, 17%, 18%, or historical that we have done, 2.3 times to 2.4 times, doubling every four years to five years, it is on a total basis, right?
Kunal Shah — Citi — Analyst
So, when do we actually expect this number to moderate? Maybe, obviously, this will move out, it’s a transient one. But what is the kind of number, which we can look at in terms of the IBPC, because that also drives at least the overall balance sheet number?
Srinivasan Vaidyanathan — Chief Financial Officer
We don’t have a target for IBPC. It is opportunistic. And it is — as I told you, the purpose, not only opportunistic from a balance sheet point of view and the market demand, there are — there was a good amount of demand in the market, right? There are certain other institutions, which are wanting to put the assets on, and we get a good price, we pass it on, right? That’s what — and we — and second thing is that if there are — when we look at the priority sector requirements and our ability to what we need to do and if it’s an opportunity to let that go with somebody else, that is also something. So, there is no particular target we have. It completely depends on — it is opportunistic. It depends on what the market is on pricing and priority sector pricing opportunities.
Kunal Shah — Citi — Analyst
Sure. And one last question. In terms of any integration costs that would be incurred once there is a merger, or there is no integration cost?
Srinivasan Vaidyanathan — Chief Financial Officer
No, there will be integration costs in the form of stamp duties and in the form of in other costs that we will have, but they are, as we said, within reason, nothing substantial, but within reason it will be. We will call that out separately after we complete it.
Kunal Shah — Citi — Analyst
Okay. But that’s not a meaningful one, which will dampen the — [Speech Overlap]
Srinivasan Vaidyanathan — Chief Financial Officer
It’s not a big mover of the overall financials.
Kunal Shah — Citi — Analyst
Thanks. Okay, thanks. Thanks a lot, and all the best, yeah.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. We have the next question from the line of Saurabh Kumar from JP Morgan. Please go ahead.
Saurabh Kumar — JP Morgan — Analyst
Hi, good evening, Srini. Just two questions. One is on deposit repricing. So, this quarter, quarter-on-quarter, your interest cost is up quite sharply, 15%. So, can you help us understand where you are in terms of your term deposit rates on balance sheet versus incremental? And the second is, basically, on this — on the HDFC mortgage book, so fair to assume that in six months this book completely moves out — moves into EBLR? These are the two ones. Thank you.
Srinivasan Vaidyanathan — Chief Financial Officer
The second question, I didn’t understand, mortgage book, what is it?
Saurabh Kumar — JP Morgan — Analyst
Basically, this will all be repo-linked now versus all CLR-linked at HDFC Limited. [Speech Overlap]
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. I got the question now. Okay. First, the deposit pricing, yes, if you look at the deposit pricing over a period of time, the SAR deposits haven’t moved, as you know, not just for us, in the entire market, it is what it is. It is the time deposits. Our deposit cost that you’re seeing is simply a function of the mix that has happened, which is, rightfully, we’re targeting to get the holistic customer relationship or deeper customer engagement. That is why the time deposit last year grew 29%, this quarter, grew 26.5%, time deposit. So it’s a function.
So then the next question is, if you’re growing these time deposits, at what rate, right? It’s the market share. If you look at our deposit pricing, it is more or less at or slightly below some of the competitive — competitors’ pricing levels, right? So we’re not pricing to gain any deposits. We are trying to price it at or slightly below competitors’ level. We want that engagement. So, we are not shy of that — that it is a cost, but because it gives better engagement and it gives a little more duration on deposits and we are okay with that.
So that’s how we think about. It is not the lead pricing to get deposits. That’s not what we’re after. If you see any table at any point in time when you refer across various channels, that’s what you will see there, right? And of course, we will be pitched slightly above State Bank for most of the tenors, except for some short end, where I think State Bank could be priced higher, for whatever reason. But other than that, more or less in the private sector side, the top two or three or four banks, we are more or less there on pricing.
On the mortgages, you asked about the EBLR. Yes, it will move to repo-based pricing. But when it starts off, it starts off with no difference to the customer, because at the end of the day, customer — whatever is the benchmark in which you do, even today, yesterday, or last year, the customer had a choice to finance anywhere the customer wants. So, the price is to be pitched at a level, which is, again, like the time deposit that I spoke about, competitively priced and with something differentiator in terms of engagement and better relationships with the customer. That is how we are approaching it. So, yes, it will move to EBLR repo-based loans.
Saurabh Kumar — JP Morgan — Analyst
Sir, why I ask this is, basically, in future, will HDFC’s NIMs will have slightly higher volatility than what it had in past, because now you have a large potentially external benchmark in book, or we’ll just sort of kind of manage them through cycles, yeah?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Yeah. See, if you look at how HDFC Limited manages — managed, and that is the same book that we are taking over, along with the same people and with a similar kind of a risk philosophy and structure. The margins were moving in a narrow band, right? It was moving in narrow band, because from a duration point of view, they were fairly hedged on the duration from an interest rate risk. That is why when the repo rates went up, we did not see in HDFC Limited spread or the NIM jumping out of page, because the risk management was keeping it in a very narrow band. So, in the up cycle or down cycle, it’s a narrow change that will happen, but cannot go off. That’s part of how the duration is managed, and that will be how — it will continue to be managed that way.
Saurabh Kumar — JP Morgan — Analyst
Got it. Thank you, sir.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. We have the next question from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Rahul Jain — Goldman Sachs — Analyst
Yeah, hi. Good evening, Srini.
Srinivasan Vaidyanathan — Chief Financial Officer
Good evening.
Rahul Jain — Goldman Sachs — Analyst
Just first question, going back to one of your statements that you are sort of making use of decline in credit costs in investing in capacity buildup. So, how long can this trend continue? We’ve seen structural decline in credit cost so far along. Is there any more legroom available out there to bring the credit cost down from here, or how do you see that play out?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. It a very good question. Thank you. Right, there is no crystal ball when the credit reverts to mean. But there will be a reversion to mean. When that reverts to mean is — that’s part of the — risk management of our credits will tell us few quarters ahead of time, which is what happened, right? When we started to build those branches somewhere November, December ’21, we were looking at how our risk management was viewing, how the cycle is coming along, and then we started to get on to those branches. So, at March ’22, we added a little more than 500 branches. And then from then on, we’ve been on that cycle of building.
So, we will — our risk management will evolve and tell us in terms of how the cycle is going to turn or when. And it is nothing, but it’s a function of maturity. It’s not about the quality of the book. The quality of the book is sound now, it was sound then, and it will be sound in times to come. It’s a question of maturity cycle of the product and of the credit, and when that reverse — reversion begins, that’s when we will start. But still, by the time the reversion begins, we are confident that we will lap the base effect comparison cycle, right? That’s where the — we want to get this through so that the base effect starts to kick in, the maturity cycle starts to come in 18 months, 24 months breakeven and it starts to contribute to the topline and then, hopefully, the reversion to mean stops, right? So that’s the kind of process that we are going through on that. I hope it helps for you to think through how long it can, right?
Rahul Jain — Goldman Sachs — Analyst
Yeah. So, just to paraphrase, I think you have got sufficient degree of visibility at least for this year that credit costs can keep compensating for enhanced investment in capacity buildup. That’s a fair understanding, right?
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah. That’s a fair understanding and, normally, 18 months, 24 months, a breakeven to payback. So if you — we started this in December ’21, January ’22, that’s where we started, 18 months time that you see, and by that time, the base effect is also in.
Rahul Jain — Goldman Sachs — Analyst
Makes sense. That’s very helpful. Srini, Thanks. The second is on the segmental growth. So we saw PL quarter-on-quarter growing. I think had a pretty slow sequential quarter, whereas home loans have picked up. Is this because of your calibrated risk stance that PL has to slow down and the secured portfolio has to grow up? Or it is just a quarterly phenomenon?
Srinivasan Vaidyanathan — Chief Financial Officer
It is simply a quarterly — Rahul, I think in some other place I alluded to, first quarter is typically a very slow quarter. If you look at three years, five years time period at an aggregate level on loans, too, a little more than mid single-digit, somewhere a little — mid-to-low double digit, that’s the kind of first quarter contribution to the full year, right? So, it is normally slow. But we still see a good amount of underlying demand, which is there. And even as we speak, right — and we’ve been asked about this, but as we speak now, as this quarter has begun and moving on, the mortgages now post merger, what we get anecdotally from various sources within our bank and as we see some of the logins, right, it has to translate into full loan disbursals, the mortgage logins are 20% — on a combined basis, 20% more than what we have seen before. So, we are seeing good amount of traction buildup there. So it’s a question of timing when it realizes into the balance sheet. But there is a good demand that is coming through.
Rahul Jain — Goldman Sachs — Analyst
Yeah. Actually, I was quite curious about personal loans in particular, because the Y-o-Y growth also for the last few quarters have been under-indexing versus the broader system’s PL growth. So, I was quite curious, is this more of a conscious strategy that you are not trying to grow this portfolio to gain market share or —
Srinivasan Vaidyanathan — Chief Financial Officer
Good. Thanks for asking that, right? People sometimes have asked us the market grows personal loan at 30% or 35% or whatever, high-20s and so on, and why we are not growing, we are at 18%, 20%, or 22% kind of rate. What’s going on, right? See, that’s the level at which our risk management looks at how to calibrate and get that growth across. There are opportunities to do 2x that from a growth rate point of view, but I’ll leave that respectfully to our credit to determine at what pace, because every growth gets monitored, evaluated post the disbursals into the bureaucracy. Learnings are incorporated. There are several processes they follow to calibrate it and grow, and I wouldn’t second guess them in terms of demanding for higher growth than what they allow.
Rahul Jain — Goldman Sachs — Analyst
That’s helpful. Just one last question on the PSL and RIDF. Any incremental color? Did you have to buy more RIDF this quarter, or were you self-sufficient for the full year? Can you just throw some color on that, please?
Srinivasan Vaidyanathan — Chief Financial Officer
See, I wish I could tell you how much we will buy, but I want to be careful about the price in the market and not scoop [Phonetic] up or down. But at the same time, we are conscious of the requirement. We are, at an aggregate level, more than what is required. We always look for sub-categories that we want to build. And over a long period of time, we want to be self-sufficient. That is the reason for our geographical expansion, going into deep villages and so on. That’s over a period of time, right, that we need to be self-sufficient ourselves.
But in the short term, yes, all of those activities, which is buying PSLC, RIDF as a compensatory, where we think that the price is not appropriate in the market, IBPC that provides a PSL, or the securitization, which is the pass-through certificates that give qualifying assets, we are — in addition to organically building, we are in the market for all of those all the time.
Rahul Jain — Goldman Sachs — Analyst
Got it. Srini, just one last question, if I can squeeze in, on the merger related costs. I mean, is there going to be any one-off that we should expect? Any qualitative color that you can give around as you move to consolidate the numbers between you and HDFC Limited for the second quarter or whatever, during the year? Anything that we need to be aware of?
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah, there will be some merger related cost. I think in the previous — sometime, one or two questions ago, I did hear from Kunal asking the same in terms of the merger costs. There will be, it would be something within range and manageable, the stamp duty cost and certain other costs that requires to effectuate the merger. We will be spending that. We have spent or we will be spending that. But it is all — they’re are all within reason and nothing out of the page in a big manner.
Rahul Jain — Goldman Sachs — Analyst
And apart from costs, there is nothing much that can spring up on a —
Srinivasan Vaidyanathan — Chief Financial Officer
No, not — no, apart from costs. There could be some capital assets that we will put in from an infrastructure point of view. And then over a period of time, it will depreciate certain assets for capacity building. But other than that, some costs will be incurred, but they are within reason and range.
Rahul Jain — Goldman Sachs — Analyst
Fair enough. Very helpful. Thank you so much for answering the questions.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. We have the next question from the line of Abhishek from HSBC. Please go-ahead.
Abhishek Murarka — HSBC — Analyst
Yeah. Hello, good evening, and thanks for taking my question. So, Srini, the first question is on this wholesale book of INR1.1 lakh crores, which you are running down, the HDFC non-individual loan book. What part of that book remains to be run down still, or now is it at a steady state and you’re probably looking to build from here?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Good point. See, it has come down 18% or so over the last 12 months, right? Part of the management action in terms of how — as we entered into the merger, lot of rationalization and we came down 18%. It will receive — I don’t have one number where we will settle and start to grow, but that’s part of how our businesses evaluate, look at those relationships, because you know that in our wholesale book that we have, which is the 4-odd lakhs [Phonetic] or INR4 trillion something that we have, our wholesale book, it is simply not a lending-based value proposition. It is a full relationship-based value proposition, which is lending with cash management with the trade and FX and with the salary accounts and with the supply chain distribution account. So, it’s intricately connected across all the business segments we operate.
Again, here, we are evaluating all of those things and we would like to grow this book at some point in time, but at this moment, it is getting evaluated for what is the kind of a positioning across various segments that we need to do.
Abhishek Murarka — HSBC — Analyst
Srini, the reason I’m asking this is, this obviously affects your headline growth, right, and there would be part of this, which you may have earmarked that this is not the kind of business we want to do. So, if we can get a sense of that, then we know, except that, how much we can grow. That’s just the idea behind —
Srinivasan Vaidyanathan — Chief Financial Officer
It’s not that we don’t want to be in the business. We very much want to be in those businesses. The construction financing is very intricately connected to mortgage lending. We will be there. We will be nurturing and growing that. It’s a question of evaluation and it’s a question of picking up the right kind of relationship for a broad-based across various segments diversification, and then we need to grow. So, there is some level of that review that needs to happen.
So, there is not a chance that we are thinking of that we will not be in this segment. We will be. It’s like it’s the auto dealer financing, which we are very, very well embedded in. Very similar in the mortgage business. We have to be in the construction business to get that insight into the development, so we are able to finance the mortgage through that process. We will be there.
The other book is the LRD book. LRD book, we do that, and the bank already grows that and we — this will add on to that and we will continue to grow on that. So, the only thing that we would not be doing is land financing types, which we will not be doing, or some of the project financing that doesn’t meet the regulatory requirements, we will not be. Other than that, very much part of the growth. So, I don’t want you to take away, saying that this is a rundown book. It is not. It is a core part of the book to grow the other retail mortgage loans.
Abhishek Murarka — HSBC — Analyst
Right. And the part that you don’t want to do, the land financing and the project financing, does that run into, let’s say, north of INR10,000 crores, or it’s within that?
Srinivasan Vaidyanathan — Chief Financial Officer
See, to — first, you take it and come, but it could be INR5,000 crores, INR10,000 crores, whatever. We are evaluating that in terms of what is — what is it, what part of that we cannot or we shouldn’t want to be there.
Abhishek Murarka — HSBC — Analyst
Got it. Got it. The second question, Srini, is on deposits. Now, the reason the — or the point I’m trying to ask — get to is, your incremental deposit market share requirement is roughly 25%. And if I look at a longer period acquisition rate, you’re going at 20% incremental market share. So, there is still a 5% gap. Now, incrementally, would you have to raise rates? Because you’ve kept your rates at or below competition mostly, but now, you have this incremental requirement, right, and it can just be fulfilled through your investments in branches. So, how do you think about your rates on the TD side versus, let’s say — or going forward, and will that lead to stickier rates on your cost of funds and, therefore, some more pressure on NIM? So, how do you think about that?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay, yeah. No, good things. Two things I alluded to, right? One is the market share. See, we don’t drive the business targeting a market share. So, I want you to get off the thought process, saying that, internally, we are thinking of what should be the market share and drive that. No, we don’t look at that at all. We look at what is our funding requirement and how do we use our building blocks to get that. So, I just wanted to — want you to keep in mind. So, there is no particular mindset target of what we need to go there from a market share point of view.
But coming to the second aspect, which is more important, hey, if you need time deposit, what sort of a pricing? We have stated in the past and we — that’s how — not just in the last one year to two years, but for a longer period of time, the bank has demonstrated discipline in pricing. We never lead by price — lead by pricing to get any volumes and it is simply based on relationship. And this comes by a few things, right? We have built a brand over a period of time. We need to reach the customer. We need to be closer to the customer. That is the thought process we have and — not just in the last one year, two years. Over a period of time, if you see, that’s how the branch got built. We had 2,500 branches in 2013; 4,500, 4,700 branches in 2018; then went to 7,000, 7,800 and growing, right? So, the brand strategy is not something that we decided recently. We are accelerating to some extent on that, but it is about the distribution and the reach that is required, which is what we are building.
The third, once you have all this, you need to get the customers in, right? And we have built so far getting in 85 million customers and the — out of the 4 million customers from HDFC Limited, we have opportunity to operate with more than 2.5 million, 3 million of them to bring liability relationships. This quarter, we added 2.4 million new liability relationships. So, you need customers. And then we work on the customers, both the new account value — as we bring in customers, we get in certain balances, and then the change in balances of the existing customers we work through engagement to see how do we deepen that to get more balances.
And one of the ways in which we have recently got change in balances or the deposit from customers is time deposits. We have seen that our penetration has been low at 14%. We moved that needle to 14.5% right now, but the denominator has also changed, right? We have more customers now. So the — while we have grown 29% last year, 26% in the recent quarter, still, it has made a difference of only 50 basis points higher from a penetration. We have a long way to go.
And if you look at the pricing, which is where you started this question how far pricing is influenced by this, you can be — any point in time, if you look at the pricing, our deposit — time deposit pricing versus some of the peer benchmarks, if you see, they’re pretty closely aligned. We don’t lead by price, right? I want to leave the thought there. This is part of the ALCO discussion in terms of how we engage with a customer and how pricing is not the lead consideration for getting many deposits.
Abhishek Murarka — HSBC — Analyst
Got it. Got it, thanks. And just squeezing in one quick question on your calculation, actually. So, the ROE that you show in your PPT, that’s 2.1%, is that calculated on quarterly average balances? Because when I calculated, it comes to 1.9%. So, just trying to reconcile that difference.
Srinivasan Vaidyanathan — Chief Financial Officer
No, I don’t know how we calculate — daily averages. But whatever daily average, you cannot get 1.9%. You send your numerator and denominator. We will tell you where there is an issue.
Abhishek Murarka — HSBC — Analyst
Okay, okay. I’ll take it offline.
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah, please.
Operator
Thank you. The next question is from the line Manish Shukla from Axis Capital. Please go ahead.
Manish Shukla — Axis Capital — Analyst
Yeah. Good evening, and thank you for the opportunity. Firstly, Srini, are you able to crystal — quantify the crystallized liabilities of HDFC Limited at the time of the merger?
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah. The liabilities that get crystallized, about INR6 lakhs — INR636,000 crores is what has moved to the bank. That INR636,000 includes the deposits, right, which is on page 23 of the earnings deck that we showed. That includes the deposits, but INR636,000 is what has moved along with the assets.
Manish Shukla — Axis Capital — Analyst
Sure. That’s helpful. Secondly, on the merge basis, the loan to deposit ratio is at about at 109%. How and when do you think you can get down to below 100%? And basically, I am saying that in terms of your incremental funding requirements, how do you think between deposits and —
Operator
Sir, sorry to interrupt, but the line for you is not very clear. I request you to please use the handset while you’re speaking.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. I’ll get to — Manish, right? Manish. I’ll get to that. See, on the — you asked about the deposits, credit to deposit. Yes. Instantly, because of the merger, it goes up. On an incremental basis, if you see, last year was 72% incremental credit to deposit. This quarter is 50-something incremental deposit. But the way we think about and operator is that — on pre-merger, on an average, it was 84% — 84%, 85% credit to deposit. We are operating at about 80% or so. That is the kind of a thought process from our credit to deposit ratio. So, even if you want, instantly, it cannot be brought down, because there’s a maturity profile for the borrowings that we have. So, it will take three years, four years for that to come down to a level at which the bank has historically operated. And so, we have to wait for the maturity profile to go and get replaced with deposits.
Manish Shukla — Axis Capital — Analyst
So, the gap would essentially be funded via affordable housing bonds or other kind of borrowings, right?
Srinivasan Vaidyanathan — Chief Financial Officer
No, because the maturity profile, it will both run down. On an incremental basis is what you need to look at. And then it will play out where it comes back in three years, four years down to normal.
Manish Shukla — Axis Capital — Analyst
Got it. Understood. Thank you.
Operator
Thank you. The next question is from the line of Pranav from Bernstein. Please go ahead.
Pranav Gundlapalle — Bernstein — Analyst
Hey, good evening, Srini. Thanks for the session. I’ll just go back to the IBPCs issue, Srini. The question is, if you had — instead of going down the IBPC route, if you had kept the loans on the balance sheet, what could have been the loss in terms of numbers? Is it ROA, which would have been impacted, or is it your LCR, or is it your PSL management? Or in other words, what did you — or what would you have to sacrifice to report a better headline number?
Srinivasan Vaidyanathan — Chief Financial Officer
No, it’s like this, right? When you do an IBPC sell, in which case — which is what we have done, you’ve taken the loans off the balance sheet. And so, the baseline for priority sector lending goes down. So, you are reducing the obligations on which you need to have the directed lending at some point in time in the future. So that’s something, right, very important on that front.
Then the second thing is that, from a pricing point of view, if there is some better pricing and there is a demand there, it gives you a certain pickup in the spread on that. So, these are couple of — and then liquidity, of course, right? You get some cash and you can deploy it. You can — essentially, it’s leveraged again, right? You’ve got the money, we can get more loans that you want, and you’re able to leverage for that. So that’s the kind of thought process we deploy to this.
Pranav Gundlapalle — Bernstein — Analyst
Perfect. Thanks a lot, Srini. That’s very helpful.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you. Thank you.
Operator
Thank you. Ladies and gentlemen, we have come to an end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments. Over to you, sir.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Thank you, Bhavin. Thank you, all the participants, for participating. It was good and quite a dialogue that happened. Further questions and those of you who could not complete questions or haven’t had that opportunity to get on the line due to time constraints, we’ll be open to having a conversation at some point in time. Please get in touch with our Investor Relations at Bhavin or anybody else with whom you are previously connected. We’ll be happy to have any dialogue. Thank you. Bye-bye.
Operator
[Operator Closing Remarks]