HDFC Bank Limited (HDFCBANK) Q2 FY23 Earnings Concall Transcript

HDFC Bank Limited (NSE:HDFCBANK) Q2 FY23 Earnings Concall Oct. 15, 2022

Corporate Participants:

Srinivasan Vaidyanathan — Chief Financial Officer

Analysts:

Mahrukh Adajania — Elara Capital — Analyst

Suresh Ganapathy — Macquarie Group — Analyst

Kunal Shah — ICICI Securities — Analyst

Rahul Jain — Goldman Sachs — Analyst

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Prashant Kumar — Sunidhi Securities — Analyst

Saurabh Kumar — JPMorgan — Analyst

Manish Shukla — Axis Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good evening and welcome to HDFC Bank Limited Q2 FY ’23 Earnings Conference Call on the Financial Results presented by the management of HDFC Bank. 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 a brief commentary by the management. [Operator Instructions] Please note that this conference is being recorded.

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, Rituja. Good evening to all. Let’s start with a brief overview for the context. We believe that the continued recovery in domestic demand boosted with the onset of festive season and higher government capex provide support to the growth. While there are risks stemming from the possibility of global slowdown, higher inflationary pressure and uneven monsoon, consumer demand and fiscal strengths are likely to keep the economy stimulating. Geopolitical instability, strong US dollar, etc., continue to occupy center stage during the quarter.

Activity Indicators released during July to September quarter indicate that economic activity continues to hold-up despite global risks. High frequency and other indicators have risen so far this year and is also promising to provide further opportunity in optimism in the company. Labor market conditions are also improving in the rural areas as seen by the fall in the MGNREGA work demand and a rise in wage growth. RBI raised the policy rate by 100 basis points in the quarter, taking the repo rate to 5.9%. The Central Bank has hiked rate by 190 basis points since May ’22. The Central Bank has kept its stance unchanged at withdrawal of accommodation while supporting growth. We estimate that the GDP growth will be around 7% for financial year ’23.

Let’s go through key theme. On the distribution expansion, we added 121 branches during the quarter and about 500 more branches are in various stages in the pipeline to be opened in the next few months. We have 15,691 business correspondents, an increase of 73 over prior quarter. Gold loan processing are now offered in 2,960 branches, an increase of 900 branches from the current quarter and up 2.2 times over March ’22. Payment acceptance points have grown by 269,000 in the quarter to 3.5 million and have grown by over 1 million versus prior year, a growth of 41%. Wealth Management is now offered in 502 locations through hub-and-spoke model. We have expanded by 145 new locations in the quarter. We plan to drive increase in market share through deepening in B30 cities.

In customer franchise building, our people have acquired 2.9 million new liability relationships, exhibiting a healthy growth of 22% over prior year and 11% over prior quarter. Over the last five quarters, we have steadily acquired over 2 million new customer liability relationships third quarter, enabling us to further broad base and deepen our relationships in time to come. On cards, we have issued 1.2 million cards during the quarter. Total card base is now 16.3 million. During the quarter we also closed 2.4 million cards, which have been inactive for a period of time in accordance with the RBI circular.

We are focused on granular deposits. Total deposits amounted to INR16,73,000 crore, an increase of 4.3% over prior quarter and up 19% over prior year. In retail deposits, we added INR71,000 crore during the quarter and INR2,35,000 crore since prior year September. Retail constitutes about 83% of total deposits. Retail deposits have been the anchor of our deposit growth. CASA deposits recorded a strong growth of 15.4% year-on year, ending the quarter at INR7,59,000 crore with CASA ratio at 45.4%. Retail CASA grew by 19% and retail total deposits grew by 20.4% year-on-year. Term deposit registered a robust growth of 22% year-on year ending the quarter at INR9,13,712 crore.

On the advances side, which were at INR14,79,873 crore, grew by 6.1% sequentially and 23.4% over prior year. Our retail advances growth was robust. Domestic retail grew by 21.4% year-on year and 4.9% quarter-on-quarter. Card spends have grown 9% over prior quarter. Commercial and rural banking, which drives our MSME and PSL book, continued its momentum with a year-on year growth of 31% and quarter-on-quarter growth of 9% — 9.4%. Our SME businesses are present in 90% of the districts in the country. Rural business reach expanded to 1.42 lakh villages and is on track to reach the objective of 2 lakh villages. Wholesale segment witnessed a strong growth year-on year of 27% and quarter-on-quarter growth of 9%.

On the technology front, the bank continued its momentum on the technology and digital transformation to provide greater customer experience through the digital and enterprise factory. HDFC Bank One, that is the customer experience hub was launched and we migrated phone banking, virtual relationship banking and tele-sales from this platform in the recent quarter. It enhances our customer relationship management process using AI/ML and conversational bot, enabling round the clock self-service capabilities akin to human interaction. Phone banking voice support rollout is underway across the country adding more cities along with multi-lingual support. We see this as a significant steps in our journey to create an engaging customer experience while at the same time bringing in product improvements to our call center operations.

We launched PayZapp 2.0 to a closed user group for performance optimization and improved payment experiences. We expect to broad base the rollout shortly. SmartHub Vyapar App, the one-stop merchant solution was formally launched to facilitate instant digital and paperless merchant on-boarding and allow merchants to accept interoperable payment across multiple payment modes, including cards, tap and pay, UPI and QR code. The platform is adding more than 60,000 merchants every month. As of end September, over 1.6 million small businesses are on the SmartHub platform.

In Q2, we received a total of 261 million visit from our website, averaging about 30 million unique customers per month with a year-on year growth of around 12%. Our well-established distribution network combined with our focused digital offering and relationship management continue to fuel growth. Balance sheet remains resilient. The LCR for the quarter was at 118%, capital adequacy ratio is at 18% and CET1 is at 16.3%, including profits for the half year ended September 30, ’22.

Let’s start with revenue. Net revenues were at INR28,617 crores. Core net revenues were at INR28,870 crores, excludes the trading and mark-to-market losses, which grew by 18.3% over prior year and 6.2% over prior quarter, driven by advances growth of 23%, deposits growth of 19% and total balance sheet growth of over 20%. Net interest income for the quarter at INR21,000 crore, grew by 18.9% over prior year and 7.9% over prior quarter. The core net interest margin for the quarter was at 4.1%. Prior year was also at 4.1% and prior quarter was at 4%. Based on interest-earning assets, the core net interest margin was at 4.3%.

Moving on to the details of other income, fees and commission income constituting three-fourths of other income, was at INR5,800 crores and grew by 17% over prior year and 8% over prior quarter. Retail constitutes approximately 93% of the fees. FX and derivatives income at INR948 crores was higher by 9.3% compared to prior year. Trading and mark-to-market losses were INR253 crores loss. The mark-to-market losses are mainly from our AFS investments in our corporate bonds and PTCs due to rate movements in the front-end yield curve. Prior quarter was also at a negative INR1,312 crores and prior year was a gain of INR676 crores, which were then opportunistic from an investment portfolio. Other miscellaneous income of INR1,098 crores includes the recoveries from written-off accounts and dividends from subsidiaries. Excluding trading and mark-to-market losses, total other income at INR7,849 crores, grew by 16.7% over prior year.

Moving to operating expenses, for the quarter which were at INR11,225 crores, an increase of 21% over prior year and increased 6.9% over prior quarter. As I mentioned earlier, we added 813 branches and 2,226 ATMs since last year, 121 branches and 248 [Phonetic] ATMs last quarter, taking the total network strength to 6,499 branches, 18,868 ATMs and 15,691 business correspondents. Cost-to-income ratio for the quarter was at 39.2%.

Moving on to PPOP, our core PPOP grew by 16.6% year-on year and 5.8% sequentially. Our pre-provision operating profit was at INR17,392 crores. Pre-provision operating profit for the quarter is 5.37 times of total provisions. Coming to asset quality, the GNPA ratio was at 1.23% as compared to 1.35% prior year and 1.28% in the prior quarter. Out of the 1.23%, about 19 basis points are standard, that’s the core GNPA ratio is at 1.04, however, these are included by us as one of the other facility for the borrower is in NPA.

Net NPA ratio was at 33 basis points, prior year was at 40 basis points and preceding quarter was 35 basis points. The slippage ratio for the current quarter is at 36 basis points or about INR5,700 crores. During the quarter, recoveries and upgrades were about INR2,500 crores or about 19 basis points. Write-offs in the quarter were about INR3,000 crores or approximately 22 basis points. There were no sale of stressed or written-off accounts in the quarter. The restructuring under the RBI Resolution Framework for COVID-19 as of September end, stands at 53 basis points, INR7,851 crores. In addition, certain facilities of the same borrower, which are not restructured is approximately 9 basis point.

On provisions, the total provisions reported were around INR3,200 crores as against INR3,900 crores for the prior year and INR3,200 crores during the prior quarter. The provision coverage ratio was at 73% as against 71% in prior year and it was at 73% in prior quarter too. At the end of current quarter, contingent provisions and floating provisions remained at close to the prior quarter level at INR11,000 crores. General provisions were at INR6,800 crores. Total provisions comprising specific floating contingent and general provisions were about 171% of gross non-performing loans. This is in addition to the security held as collateral in several of the cases. Floating and contingent and general provisions were about. 0.19% of gross advances as of September quarter-end.

Now coming to credit cost ratios, the total annualized credit cost for the quarter was 87 basis points. Prior year was 130 basis points and prior quarter was 91 basis points. Recoveries which are recorded as miscellaneous income amounted to 22 basis points of gross advances for the quarter as against 23 basis points for prior year as well as prior quarter. The total credit cost ratio, net of recoveries was at 64 basis points as compared to 103 basis points in prior year and 68 basis points from prior quarter. Now coming to profit, profit before tax was at INR14,152 crores. Net profit after-tax for the quarter at INR10,606 crores, grew by 20% over prior year.

Now some highlights on HDB Financial Services. This is on an Ind AS basis. The momentum in disbursements continued during the quarter, which was at INR9,860 crores, registering a healthy growth of 29% year-on year and 8.5% sequentially. Customer franchise grew to 10.4 million customers with a 6% additions during the quarter and an increase of 33% year-on year. HDB Financial Services have started to argument that distribution network and opened four branches in the quarter, taking it to 1,407 branches spread across 1,009 cities and towns. The total loan book as of September-end stood at INR63,112 crore with secured loan comprising 75% of the total book. Net revenue for the quarter was INR2,201 crore, a growth of 14.9% on an year-on year basis.

Cost-to-income for the lending business was at 38.4%. Provisions and contingency for the quarter were INR351 crores as against INR398 crores for prior quarter and INR634 crores for prior year. Quality of the book under current quarter has sustained the improvement shown in the last two quarters. Stage 3 as of end-September stood at 4.9% after factoring in the 1.1% impact of the new RBI guidelines from late last year, reflecting sustained healthy collections. The provision coverage ratio on secured and unsecured book stood at 46.5% and 92%, respectively.

Profit after-tax for the quarter ended September 30 was INR471 crores as against INR192 crores for the quarter-ended last year’s impact. Return on assets slightly over 3% and return on equity, 18.5%. Earnings per share for the quarter INR5.96 and book value per share was INR131. HDB remains well-capitalized with a capital adequacy ratio at 20.8%. HDB also continues to argument its digital investments to enable the next level of growth in its business across segments while maintaining healthy asset quality.

Now moving on to HSL, again on an Ind AS basis, the physical network for the customer acquisition remained steady. HSL had 215 branches across 147 cities and towns as of end-September. HDFC Securities has grown its client base very strongly with a year-on year growth of 36% over prior year September, taking the overall client base to 4.14 million. the HSL’s digital offerings are enjoying very good traction in the market. Over 91% of retail broking revenues from trades that are originated digitally. The total reported revenue for the quarter was at INR468 crore as against INR489 crore in the prior year and net profit after tax was at INR191 crore as against INR240 crores in the prior year. Earnings per share in the quarter was INR120.59 and book-value per share was at 1,084.

In summary, strong momentum coupled with our seamless execution and well within comprehensive range of products and services has helped us capitalize on growth opportunities. Our results reflect continued robustness across various parameters; advances growth 23%, total deposits growth of 19% and retail deposits growth of 20.4%, core operating profit growth, excluding bond sales of 16.6%, profit after-tax increased 20%, delivering the return on asset of over 2% and ROE of over 17%. Earnings per share reported in the quarter is at INR19.1, book-value per share stands at INR456.2.

With that, may I request the operator to 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 Mahrukh Adajania from Numa [Phonetic]. Please go ahead.

Mahrukh Adajania — Elara Capital — Analyst

Yeah, hello sir, congratulations. Sir, my first question is on the liability growth going ahead, of course this quarter was impressive with strong retail growth but as we move closer to the merger and if you assume that RBI does not give any dispensation, then how would the liability strategy change? Would it be focused on wholesale borrowing, wholesale deposits? And even this quarter, your wholesale borrowings have also grown with deposits. So, what is the color? I mean what kind of borrowings would these be?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. Mahrukh, thank you. See in terms of the deposit strategy or the funding strategy, as we have articulated over the last three months, including the May month and the June month when we have met many of you, continues and that is very important aspect, focus area for our execution. There are several components of the strategy which is branch-led, relationship-based and we articulated in terms of how self-funding across various products to deepen those relationships and get the funding is an important. So, we gave you some examples of various opportunities that exist there, right. That remains and this continues to be the focus and that is why you see that the retail push is there, INR71,000 crores of growth in the quarter in retail. And the same way, last quarter, retail did INR50,000 crores of deposit growth last quarter. So, we are building up that momentum in retail as you see.

The branch network that we opened, branch network is a more medium-term, long-term so that the pipeline in two, three years’ time continues to be there. That’s what the branches and currently it is about harvesting and utilizing those branches. 60% of those branches are migrating from one vintage bucket to another vintage bucket. That is what is driving. I’m including bringing in the new customers, right. So, that continues to be the mainstay of the strategy. There are other market borrowings that opportunistically happen and that will continue depending on what happens in the market, especially takes those calls and depends on what funding for the day is required, that is all that is handled there.

Mahrukh Adajania — Elara Capital — Analyst

Got it, sir. Sir, my next question is if you could share any outlook on margins not necessarily in the very near-term but where do you see margins going, say, two to three quarters down the line on a standalone basis? I know merger will put pressure on margin. So, any outlook on standalone margins?

Srinivasan Vaidyanathan — Chief Financial Officer

I will generally talk about margins rather than an outlook where you see — that the bank does not provide any forward-looking guidance. But I don’t want you to take back so that you can think about what that margin means, right. Typically, we have operated between 3.94% to 4.45%, right. That’s a typical range at which we operate at. And when we operate at that range, the mix of products is very important, which is, the retail mix between 53% to 55% and wholesale mix means, wholesale component of the mix 45% to 45% [Phonetic]. Over the last two, three years, it switched. Retail is now at 45%, wholesale is at 55%, it switched, right. So, we are at the lower-end of that range and now the rate cycle is going up, right. So, you’re seeing some slight pickup in the margin because there is a lead and lag effect.

So, the most of the wholesale product, we have about 54 — 55% of the book which is floating — index-based floating-rate and we have another 35% that’s fixed rate, fixed rate mostly is in the retail type of loan and within that the floating rate, as rates moved up, you’re seeing that, that lead effect on the asset repricing happens. So, that’s there. So, there are two aspects; one, the interest rate cycle moves a bit up. There is always an opportunity to the extent the rate goes up lead and lag, lag on the deposit yield on the loans that is there and the second aspect is that we should continue to see the mix change. That needs to happen. As we have said, the economy is 60% consumption-led. That is how over a period of 10, 20 years we have had the need in the retail and now that momentum is picking up. You saw the last quarter retail book growth over 20% on advances, call it sequential growth close to 5% and even in the June quarter it was similar. So, we are saying that it is 20-plus, right. That’s the kind of rate at which the retail is moving. And as long as you see that continue to pump and move up, you will see that the mix is moving. That is also gives the opportunity for the margin to move up. So, these are the two aspects you can keep in mind in your models to think about how the margin moves.

Mahrukh Adajania — Elara Capital — Analyst

Okay, sir. Thank you.

Operator

Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.

Suresh Ganapathy — Macquarie Group — Analyst

Yeah. Hi, Srini, so I had two questions, one is on the deposit rate itself. So, the Reserve Bank of India has hiked rate by 190 basis points, but none of your banks have even hiked deposit rates even by half of that amount, right. So, if I look at track your own deposit rate in the one year to two-year category, they’ve only gone up by 50 basis points, 60 basis points in the last six months. So, there is a significant gap between what RBI is doing versus what you guys are doing from a monetary policy transmission. Now that the second-half is going to be a bit tighter and tougher, what is the outlook on deposit rate itself because it is grossly inadequate compared to what the Reserve Bank of India itself is doing? So, how do you see that panning out? That’s point number one.

And the second question is on branch addition itself, that you have a targeted branch opening a 1,500 to 2,000 branches every year. If I look at the first half, the number of branches added if I’m not wrong is 350. So again, significant below that — significantly below that target. So, how do you look at the branch additions? You think this second half is going to be very strong? I’ll just squeeze in one more question with respect to this NCLT approval, which has come for convening a shareholders’ meeting. Does this mean that the pace of approvals are better than expectation, which means that the September deadline that you’re talking about the merger which was initially said in the presentation can be brought forward? Thank you.

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. Thank you, for that Suresh, really important one. First is in terms of the deposit rates as such. The way we think about the deposits, the CASA is a different aspect, right. It’s completely administered, so you leave that to the side and your think about the time deposits that you’re talking about. The way we price the time deposit is that if you think about certain public sector peers and private sector peers, so the bank, in its eye core, determines in terms of how to be competitively priced, right. And when you look at that we are more or less in line with certain bio sector here. That’s how the pricing is so that it is not at an advantage or disadvantage, we are there. And so it is only about the execution capability to get this, so it is not make rate-based rate-driven kind of a sales or the marketing process, it is more of a relationship phase and kind of our ability to go network and bring the customer point of view.

Then if you think about the public sector peers, there are certain points in the curve that we are higher, typically in the middle to — medium to longer end of the curve, we are slightly higher and in the shorter end of the curve we’re slightly lower, not by our design. If you look at our time deposit yield curve it is a clear upward sloping yield curve, right. Point to point in the curve, it’s upward sloping but there are other players who have different from their ALM management, I just say different pricing. So, that’s how we monitor that and see how at which price point we need the money and thereby, the pricing is done in such a way. So, there is no such formula of any repo pricing or other kind of treasury bill or GSEC type of pricing that determines the deposit rate. It is about the demand, it’s about the positioning in the market in terms of at what price point you are able to get that. So, that’s how we approach it at our ALCO and go through that. That’s one aspect of it.

The second aspect of it you touched upon the branches. Yes, you’re are right, we have been slow. In the first half, typically it is like that. As we put this strategy together and get those places scanned and analyzed as to in terms of where the maximum propensity is there for us to be present to get those customers on the deposit, we’ve done a lot of that and we do see here that there is a ramp-up going to happen in the second half on the branch-base. And as I told you, the branch build it is more a medium-term to-long-term returns because the breakeven itself is 18 to 24 months but as soon as we get the branches that is some new accounts that come in so there is a new account value that we measure and monitor to manage that so that there is a good traction gain and then there is a existing customer depth of relationship and so on. So, that is the secondary aspect view, monitor and manage that. So, yes, you will see in the second half accelerated process in terms of the branch opening. At the moment, more than 500 branches in the pipeline in various stages of completion, in the coming months we will get them to be opened soon.

The third aspect of your thing, NCLT, one, the short answer and then I’ll give you a little explanation. So, the short answer is, are we on the timelines? More or less it seems we are on the timelines, maybe there is a quarter or a few months early. We had previously indicated September call it Q3 kind of a timeframe. Maybe the way it is going, it’s maybe Q1, Q2. So, that’s where I would put it. Maybe there is few months it’s running ahead but not a big deal on that front. But there are still lots of processes left, right, which is after the AGM is done, we need to file scheme petition with the NCLT seeking their approval. I think the scheme should be in line with what the shareholders approve and that’s what those finally for NCLT consideration.

And once that is done, NCLT goes to various agencies in the country, whether it’s government agencies and state agencies and so on so to get their NOC and that is a long-drawn process. So, that happens and then there is some newspaper advertisements and the calling for hearing or calling for any comments or questions and so that is a big process that gets followed and after all of that is done that is when there is an NCLT exemption that happens. This could take six, seven months, eight months, the entire process after the shareholders’ approval.

Suresh Ganapathy — Macquarie Group — Analyst

Okay and sorry, clarity on RBI’s exemption.

Srinivasan Vaidyanathan — Chief Financial Officer

As regards to the RBI’s exemptions, we continue to be in dialog on that. There is no particular line of clarity or anything but that conversation continues on that front.

Suresh Ganapathy — Macquarie Group — Analyst

Thanks, Srini. Yeah, thank you, Suresh.

Operator

Thank you. The next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

Yeah, congratulations, Srini and team. So first question, particularly with respect to payment products growth on both on a quarter-on-quarter and year-on year, it seems to be lagging a bit to the industry, but we are not seeing any loss in market share with respect to spend, credit card spend. So, is it more in terms of the behavior of the transactors versus revolvers. How should we look into this? Or maybe it’s more of other payment product contribution that is leading to a mere 2% sequential growth?

Srinivasan Vaidyanathan — Chief Financial Officer

Good, and thanks for asking Kunal on that. Yes on the spend, we see good amount of traction coming on the spend. Large transctor-driven spend, right. We do see customers who are spending have a very good liquidity. That has I think last time also I said and it’s more or less at a he similar level which is, if you look at our card customers liability balances is close to 5 times the loan balances, right of those customers. So, on an average total, right, of the total average. So, we see enormous amount of liquidity. So, the paydowns are quite high. The revolver rate has not picked up. Revolver rates are still at that 70%, 75% of the pre-COVID level. So, last quarter to this quarter we haven’t seen revolvers picking up. We do look at revolvers into three or four bucket, which is call it for lack of another better term, chronic revolvers, which means somebody who revolves more than 6 times, 9 times in a given 12-month. Somebody, who revolves three to six months, somebody who revolves zero to three months, right.

And so, those kind of analysis we see we. Wee that people who have the tendency to revolve over a longer period has actually has come down, but it’s early signs of a pickup. That means that one to three months revolver type of profile customers are slightly picking up. So, we do see something but it’s very early. We have not seen that credit card customers, the revolvers coming bang on post the COVID, we don’t see that.

Kunal Shah — ICICI Securities — Analyst

Sure. And secondly, with respect to the commercial banking, so again, when we look at the break-up of GNPA, there is still improvement as far as retail and corporate is concerned, but commercial ex of agri is still steady. And given the entire inflationary impact which we are seeing some export-oriented industries might also get impacted because of global recession, so what would be our view with respect to the outlook as far as commercial banking is concerned, given that the growth is also at a rapid pace? And what incremental measures we are taking in this kind of a scenario of global slowdown? Yeah.

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. See like the trends of the commercial banking excluding the agri that you’re seeing about, call it the SME segment more particularly, the heart of the SME segment, we see quite a robustness. And that goes to that model, origination model and management model, relationship model of the customer. Lending is one of the value proposition. I think previously you have talked about earlier, we have said that or even in May month we presented whereas the self-funding ratio as we call it, which is the liabilities generated by the segment through their own cash management account and through the promoters account and through their employee’s account, that’s 80%, 85% self-funded, which that was part of the business model to ensure that there is a kind of good monitoring process for credit management, right, that’s part of that model, that’s the part of the stability that comes from there.

And again, the secondary collateral, more than 85%, 90%, the secondary collateral, so in addition to the primary collateral of land or plant and machinery and stock and trade and so on, the secondary collateral is also very important. So, there is a much more skin in the game for the bank and the customers to work together. That’s part of how we handle. So, irrespective of the cycle that you’ve seen, even through the COVID cycle, this particular segment came quite unscathed and quite good.

Kunal Shah — ICICI Securities — Analyst

But are we tightening any norms over here just looking into global slowdown or maybe exports could get impacted?

Srinivasan Vaidyanathan — Chief Financial Officer

We haven’t seen the need, yet. We will see still see good cash flow, strong cash flows coming in and our credit takes a call on a case to case basis on these types of loans.

Kunal Shah — ICICI Securities — Analyst

Okay. Yes, thank you, thank you and all the best.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you, Kunal. Thank you. The next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Rahul Jain — Goldman Sachs — Analyst

Yeah, thank you, Srini, hi and congrats to you and the team for good numbers. Just had two important questions. One is, can you just help us understand on the headcount side. We’ve added about close to 9,000-odd in this quarter. How many more do we need to hire for this year? I would imagine we may have preempted or maybe preponed some hiring for the upcoming branch expansion. Is that the right way of looking at it or we need to do more hiring as we move along this year? And even for the next couple of years, how do we think about the headcounts?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay, good. See, yes there is some level of hiring for the branches happened and will happen for more new branches as we determine and complete that location we start to go into hire, right. As soon as the location is signed, the hiring starts so that as fitment in the branch is happening and the people are lined-up to come. So, if that happens, then it will happen. But however, the broader question that you asked this how we should think about the headcount itself at the total level. Yes, we don’t think that with the digital efforts that we’re putting through and journey — several of the journey, I think last quarter we talked about a calendar of various digital journey to go through in Q3/Q4, we do see lot of traction gaining on the digital front. So thereby, at the rate at which historically we added, we probably don’t need to add, right, at that rate, that’s one.

And there are certain kind of a sales force feet on street, sales force which maybe operating even in our subsidiaries and if necessary we’re going to bring them on our books too, so it maybe simply a shift of headcount coming from a subsidiary into the bank because for better management, because we’re going to give them a higher value relationship management so we bring them into the bank and hire, so this – it is not a particular number that determines anything. In terms of — these are the two, three ways in which we think and do. One, branch we need, but two, we need to not replace attrition from as we go into the digital journey and as we bring people the pure feet on street sales force into the bank for higher relationship management, there will become addition. So, that’s how we should think about it.

Rahul Jain — Goldman Sachs — Analyst

So, just if I may do a follow-on, how much would be sales force out of this 161,000 numbers? Any significant numbers?

Srinivasan Vaidyanathan — Chief Financial Officer

There are about 45,000 I think the last number we reported I think was in March but that’s a similar number that 45,000 people if you feel is the sales force which is there. And then there are few layers above that are supervisory layers of the sales force, right. And if you look at those levels, they’ll be levels 10 or 11 below the CEO.

Rahul Jain — Goldman Sachs — Analyst

Understood. Got it. Just another question was on the creditor deposit which, since you’ve expanded in this quarter and it is now at about closer to 88%, 89%. And in addition to this, when we see our incremental market share in deposits has increased quite a bit in the last year or so. So, when you look ahead in the future, let’s say the next couple of quarters how do we think about the combination of credit and deposit growth playing out? Can we sustain this incremental market share gains because the system is now ratcheting it up the efforts on deposit mobilization by offering higher rates, etc., or we’ll also have kind of up the game there because the CD ratio whatever we had to juice out, you have already been juiced out? So, how do we think about these prospects, Srini?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay, good, yes. See, in terms of the CD ratio or in terms of the deposit growth and the advances growth and how to see that, there are — I know we are in a particular interest rate cycle but if you to go back to five years or even 10 years in the past, right where there have been two or three cycles and see what has happened over those two or three cycles, right. And if you see that, 2012 to ’17, 2.4 times, 2.5 times that’s the rate of growth on both sides. And if you go to 2017 to ’22, that is the kind of a similar 2.3 times rate of growth. So, I’ll point you to through the interest-rate cycles over a period of time call it a decade, we can go one more Pfizer [Phonetic] block behind that, over period of decade that is the kind of the rate of growth and that is how we’re capacitized and that is the execution happens.

Rahul Jain — Goldman Sachs — Analyst

Okay, okay, got it, got it. Thank you so much, Srini and wish you good luck for three-year [Phonetic] quarters.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you very much, Rahul.

Operator

Thank you. The next question is from the line of Abhishek Murarka from HSBC. Please go ahead.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Hi, Srini. Thanks for taking my question and congratulations for the quarter to you and your team. So, just a few questions. One is going back to the NIM conversation, now you pointed out that the mix is where it is and that’s why you are at the lower-end of that range and it’s the rates that are going up that is playing out. So, suffice to sort of figure from this that as the deposit rate start catching up, we should get back to a 4% kind of level for NIM or is that not going to be the case and you would be able to maintain this additional spread that you’ve got?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. As it relates to rate related that’s where you are focused on. There is a lead and a lag effect, right, which is so — it is, if you see rates that have changed, 90 basis points in the June quarter and 100 basis points in the September quarter and as the market prediction is that there is more to come in the December quarter and March quarter, right. We don’t know what the terminal rate for sure yet, right. But as these rate go up there is continuation of this lead and lag effect goes through and that is one. And two, it is also about the deposit mix funding, right.

We have the opportunity to increase our penetration in time deposits, you see the time deposits grew by 22% and the objective of that the time deposit mix is that we have a very low penetration, 14% to 15% of our customers is where we have penetrated on time deposit and we think there is an enormous opportunity through the engagement process that in the past we probably didn’t need and so the engagement was light and now we are enhancing our engagement to ensure that we are able to have the right kind of a dialog with the customer on that. So, it depends on the mix of the deposit products and it also depends on the lead and lag effect and how long the rate cycle goes, right, so that determine.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Understood. So basically, what you’re saying is even with the same mix, you expect yields to be going up more and your deposit gathering strategy will not be entirely rate dependent so to that extent you should be able to gain on spreads. Is that a correct understanding?

Srinivasan Vaidyanathan — Chief Financial Officer

To the extent that we need the rate and lag the — leap the rate on the advances and lag the rate on deposits, we should see a pickup coming. Whether that is what we will do, I will not know because it depends on market circumstances as we execute on the ground.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Got it, got it. My second question, Srini is on HDB, when I look at the GNPAs there, on a sequential basis, they are pretty flat. Can you just give some color on what’s happening there in terms of asset quality and also what’s the restructured book there, how much of it is in morat and any provisions you’re carrying on that? So, just some color on asset quality for HDB?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. See, the HDB asset quality, I think I did allude to say in terms of the improved delinquency of the Stage 3 NPAs from 5 to 4.9 or so something, they are in the trajectory of that improvement. And we believe that, that is the trajectory continues, right, it should continue to be there. That’s one thing. The second thing in terms of the provision coverage, right, on the NPA, the secured book provision coverage is 46% and the unsecured book provision coverage is 92%, right. And on the overall loan book itself, 75% of the total loan book is secured loan book. So, this is a quite good type of book and the customer segment is such a customer segment that got a significantly impacted in the COVID, that’s part of the NPA spikes that you see. And as the economy is stabilizing and became stronger, you see that slight improvement but more to go with that.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Okay. So, in GNPA also, is it 75% secured and 25% unsecured or that was for the full book?

Srinivasan Vaidyanathan — Chief Financial Officer

That 75% secured is for the whole book. For the GNPA, I don’t have it in front of me, but I’m sure HDB at some point in time we’ll be publishing when they publish their results. Yeah.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Sure. And restructured book in HDB? How much would that be, excess provisions anything that you’re carrying over there?

Srinivasan Vaidyanathan — Chief Financial Officer

There is some management overlay like the way we do have and continues to be there. That restructured book on HDB, I don’t think they’ve published yet.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Okay, okay. No worries. Just have last question, on this MTM loss, so we still have trading losses, whereas you explained or you alluded to corporate bonds and PTCs contributing to that. Can you sort of explain the reason for this? Mostly rates have gone up on the short-end and there you don’t need to do any MTM on the T-Bills etc., so can you just explain this?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay, good, yeah. See, if you look at the corporate bond book, it’s not about T-bills, it’s about the corporate bonds and the pass-through certificates which are predominantly PSL-driven or qualified pass-through certificates, right, if you’re there. If you look at the rate, the base rate that determines the valuation of the bonds and PTCs are published by the various association that publishes the rate, the base rate is the GSEC rate. The six month rate is up 77 basis points in the quarter, one year, 67 basis points, two year, 42 basis points and so on. So, that’s the kind of the front-end part of the curve where the rates are up.

The long-end part of the curve, if you look at the 10-year rate are down 9 basis points quarter-on-quarter, right but. But these bonds and PTCs that we have they are more on the front-end side, right, they are more. So, if you look at the dispersion of the bond book, it’s like a pretty good normal distribution around that 1.5, two year type of range of bucket, that’s where the normal distribution is there. That’s one element. The GSEC yield curve on the front-end of the curve, that is one of the element of — that goes into the valuation. So, as the rates spike, you’ll see the value coming down, right. These are as you know these are not economic mark-to-market.

The second aspect of it in the valuation is also the spread, bond spreads, right. And as part of the evaluation process, the bond spreads have come down, right, which is, you would imagine the bond spreads are down to some extent and if you see the bond spreads, I think in the front-end also the bond spreads are down. If you see, for example, the NBFC AAA spreads in the six months was down 6 basis points and one year, down 21 basis points and two year, down 11 basis points, right, it is down. Similarly, corporate AAA, one year is 9 basis points down, two year is 11 basis point downs. So, the bond spreads is another elements of the valuation, they are also down.

However, as you know, the valuation, the bond spreads are floored, right. They are floored at 50 basis points. So, until the bonds go past that level and then starts to improve up or down it is inconsequential on that part. So, it is, not driven by the GSEC and in this case the positioned portfolio is towards the normal distribution around that two year, 1.5 year, two year mark and so it depends on the trade that has changed in the front end.

Abhishek Murarka — HSBC Securites & Capital Markets — Analyst

Okay, okay, got that, got that Srini. That was clear. Thanks for this. This is very useful and all the best.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Prashant Kumar from Sunidhi Securities. Please go ahead.

Prashant Kumar — Sunidhi Securities — Analyst

Thanks for the opportunity. My question is on credit card business. Three public sector banks, Union Bank, DNB and Union Bank has launched RuPay credit card on its UPI.

Operator

I’m sorry to interrupt you Mr. Kumar, but your voice is not clear, sir. It is speaking in-between.

Prashant Kumar — Sunidhi Securities — Analyst

Hello? Is it audible?

Operator

Yes, please go ahead, sir.

Prashant Kumar — Sunidhi Securities — Analyst

So, my question is with linkage of RuPay credit card on UPI, what will be the impact of credit card business slightly on pricing perspective? Pricing for the like low-value UPI on credit card or higher value transaction of MDR for UPI on credit card will be similar to other credit card? I mean or it will be settle down to the incentive to given in the range of around 2.2% to 2.4%? You can give some color, sir.

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. See, these are very early stages on that front. How the market settles we’ll have to wait and see what happens to that and as far as we’re concerned, we are predominant Visa/Mastercard issuer on that front and the RuPay card are of small proportion of our card base, that’s one. The second, the UPI as it goes through UPI, what is the kind of, how that UPI pricing itself settles and how it is going impact, we have to wait and see where it goes, right. At this moment, it’s not clear. And the transaction sizes that come through these are also important and — but currently, that’s what we have through Mastercard/Visa. The transaction sizes, average transaction sizes are quite high and good for us.

Prashant Kumar — Sunidhi Securities — Analyst

Yes and on the asset quality side, just on data thing, so what is the slippages and what is the write-off and upgrades and recoveries if you can give, if it is handy?

Srinivasan Vaidyanathan — Chief Financial Officer

Yes, I did provide that previously, but I can give that again to you. The slippages, I think the slippages in the quarter was, the current quarter was about 36 basis-points or INR5,700 crores. The recoveries and upgrades, both 19 basis points, INR2,500 crores. The write-offs, about 22 basis points, INR3,000 crores.

Operator

Okay. Thank you so much, sir. That’s it from my side.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you.

Operator

Thank you. The next question is from the line of Saurabh from JPMorgan. Please go ahead.

Saurabh Kumar — JPMorgan — Analyst

Hi, Srini. Sir, can you talk about the corporate banking fees, this 9% quarter-on-quarter growth? So, where is it coming from? Are you displacing some public sector banks in some of the large corporates, or is it just reducing the risk filters on profit side? And just a related question on that will be, sir. I mean, the consequence of that build up, should we — [Indecipherable] could obviously come off but at the ROA level it should still be a 2% business or how would you think about it?

Srinivasan Vaidyanathan — Chief Financial Officer

So, two aspects of it. First, let me address your ROA part of it, yes all our pricing decisions as well as the business decisions are determined, the model is determined through what returns it provides, right. The models don’t go through to say what [Indecipherable] provides, the models go through to say what returns it provides. And yes, these are quite a good relationship-based businesses in the wholesale. And we’ve had quite a good traction again. During the largely contributed I think by the telecom sector in the quarter with some energy-related that they came through. There are some PSUs also on this, right, very high quality, good PSUs with whom we want to have, we already have good relationship, we have done that, yes. They are priced very well and they’re priced to get the returns that, that is in line with the bank’s overall returns, the 2% that we have seen and which we have published for the March report also, I think you’ve seen that wholesale or retail, our returns are quite good and we continue to do business on that — those lines.

Again, which I didn’t mention it, but I will — since you touched upon, whether there is a price competition war, yes. INR25,000 cores, INR30,000 crores of wholesale loans we have led to this quarter. Because we have been as you have seen our pricing how we moved on pricing right from May quite fast and there are others who take their time or their own thing and process to price to catch-up. So, when the price is not good, we let go off the volumes. We let go off that particular transaction not let go off the relationship of the customer because these are all good relationship. So, we keep that relationship but if that particular transaction doesn’t work, we’re very clear that particular transaction doesn’t work.

Saurabh Kumar — JPMorgan — Analyst

Got it, sir. And sir the second question is, there was an interview by Mr. Parag Rao, where he said half the digital transformation is over and the IT costs will probably peak out and he also mentioned that on the SmartHub, it’s going to reach about 20-odd million merchants from approximately 3-odd million today. So, how should we think about this impacting your opex? Should we now hope that your opex at some point moderate? Or you would choose to reinvest any gains you get on either your credit cost or your name on opex side? How should we think about this?

Srinivasan Vaidyanathan — Chief Financial Officer

Okay. Again, you have two aspects to this. Our number one aspect is in terms of the digitization itself in terms of the context of that I think was that merchant Vyapar App that we formally launched and I think I had mentioned that the merchant Vyapar App, when it took off earlier had a quite a good traction, right. We get in almost call it per month 60,000 merchants in the recent months and we have more than 1.6 million signed-up under this app. Right. You know as a merchant we have more than 3.5 million merchants, but 1.6 million under this SmartHub platform, which is the Vyapar App, right, that’s part of what I think you alluded to. And that is where in that context you only said that we will go past 20 million in terms of getting the merchant into payment. Again, this is, not just a payment product initiative, right, this is more of a both a liability relationship, asset relationship in addition to getting that payment relationship. That’s what it does and it helps, it gives lot of value to those merchants to do business with us, because with lot of value-added features that go with it. That’s one part of what you asked.

The second part of what you asked is what it would do to costs and so on. So, I think in the past you had said that our cost to income before COVID was about 39.5 and through the COVID as the retail kind of a transaction and the opportunity to do various things we are lower it came down all the way to 36, 37, now it’s passed 39, it’s back to 39, 39.5, that’s where the cost to income is and I think we said, it can go to 40, 41 quarter-to-quarter. Quarter-to-quarter is not — but over a period of full year if you see, 40 is not a place that you would imagine, it can go to 40, as we make those investments to come, because as you see the benign credit, because the average credit cost if you see this quarter, 80 basis points, 90 basis points, last quarter, 90 basis points, 95 basis points so there is an opportunity to lean with and get that maturity cycle up, right on anything, from a branch maturity cycle to people maturity. Branch maturity cycle is 18, 24 months, people maturity cycle could be six, nine months. And so that’s part of what the investments go do. They take this opportunity to invest it and of course within the overall return framework.

Saurabh Kumar — JPMorgan — Analyst

Got it, Srini. That was very clear. This 20 million merchants is just HDFC Bank, it doesn’t include your FinTech partnerships? Or does it include?

Srinivasan Vaidyanathan — Chief Financial Officer

That is right. It is the bank. Merchant relationship is with the bank.

Saurabh Kumar — JPMorgan — Analyst

Okay. Thank you, sir.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you.

Operator

Thanks,. The next question is from the line of Manish Shukla from Axis Capital. Please go ahead.

Manish Shukla — Axis Capital — Analyst

Yeah, good evening and thank you for the opportunity. Srini, first question is, can you remind us what are the some of the key dispensations or relaxations that you sought from RBI for the merger? And realistically by when do you think you will start getting visibility on the same?

Srinivasan Vaidyanathan — Chief Financial Officer

Manish, on this front, the same items that we talked upon on May 31 remain [Indecipherable]. Is there a possibility on the CRR-SLR glide path? That will continue to focus on greater and faster credit growth both in the economy and supported by us. It’s something that we are in discussion we told you. And the second thing is also in terms of the priority sector lending, which fixed and 12 month after the effective date, so in this case for example, continue with the same September kind of time frame, ’23, thinking about December ’24 kind of a timeframe for when that, that will come. What sort of a glide path that can have so that we could organically originate, right. So, I think we alluded to that 1.42 lakh villages we have moved to now, right. We were less than 100,000 villages if you go back 12, 15 months ago come here and we are on track to go to that 200,000 related operate.

So, that is part of how we organically build this and certain other things that we told you in terms of opening up around the 3,000 mark now on the branches, originating gold loan and we wanted to do to around 5,000 branches. Again, part of that initiative to ensure that we get the right kind of quality on the priority sector lending, so there are — these are the action plans that comes for organic. But the kind of call it a glide path is to get to that we organically do this, that’s what and where are we on the state, we continue to have that conversation with the regulator here.

Manish Shukla — Axis Capital — Analyst

So, by the time you seek shareholder approval towards the end of November, are you expecting any visibility on any of these?

Srinivasan Vaidyanathan — Chief Financial Officer

There is no particular timeframe Manish for this, but the bilateral conversations with regulators are private. So, there is no details about that, but at least that is something that — there’s no time frame.

Manish Shukla — Axis Capital — Analyst

Yeah, the other question which I had is on the funding side.

Srinivasan Vaidyanathan — Chief Financial Officer

And one thing that I do want to highlight here, that which we mentioned that then may also. The merger is not predicated on this, right, the model, not necessarily assume that these need to come. These are good, good to have, not necessarily as such. Yeah.

Manish Shukla — Axis Capital — Analyst

Sure, sure that’s clear. Moving to liabilities, now once you acquire a large mortgage book from HDFC Limited, potentially you can fund it using long-term affordable housing bonds. So what are your thoughts around the same? How many of those bonds you think you can issue? And does that mean that in the interim your LDR as a merged entity could be higher than what historically we’ve seen for HDFC Bank standalone?

Srinivasan Vaidyanathan — Chief Financial Officer

Certainly, that is part of the equation and we would use those opportunities to get that because from a cost point of view we’ll be indifferent to that, right because we know that the assets on the other side are floating rate assets, are priced of the market benchmark and there are hedging instruments in the market to ensure that the interest rate risk is managed but at the same time, the liquidity maturity is also managed through these affordable bonds. And these affordable bonds do provide offset, offset, means relief a CRR-SLR subject to certain qualifying criteria. They also offered opportunities to pick off the ANBP and thereby reduce the PSI.

Manish Shukla — Axis Capital — Analyst

Sure, Srini. That’s very clear. Thank you.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you very much.

Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Srinivasan Vaidyanathan — Chief Financial Officer

Thank you, Rituja. Thank you participants for coming in today and joining us. It was our pleasure. If you still have open questions or any other things to interact, we are open at anytime. Thank you. Bye-bye.

Operator

[Operator Instructions]