HDFC Bank Limited (NSE: HDFCBANK) Q3 2025 Earnings Call dated Jan. 22, 2025
Corporate Participants:
Srinivasan Vaidyanathan — Chief Financial Officer
Sashidhar Jagdishan — Managing Director and Chief Executive Officer
Analysts:
Mahrukh Adajania — Analyst
Chintan Joshi — Analyst
Kunal Shah — Analyst
Suresh Ganapathy — Analyst
Pranav Dheeeraj Gundlapalle — Analyst
Rikin Shah — Analyst
Nitin Aggarwal — Analyst
Ravi Purohit — Analyst
Param Subramanian — Analyst
Saurabh Kumar — Analyst
Abhishek Murarka — Analyst
Prakhar Sharma — Analyst
Rahul Jain — Analyst
Presentation:
Operator
Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q3 FY ’25 Earnings Conference Call. [Operator Instructions]
I now hand the conference over to Mr. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to you, Mr. Vaidyanathan.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Thank you, Nirav. Good evening to all. Thanks for participating and coming in today. I will kick it off. I’ll request our CEO, Mr. Sashi Jagdishan to get started and give some opening remarks. Then we will go straight to any questions that you all have, we can go into that.
Sashi, over to you, please.
Sashidhar Jagdishan — Managing Director and Chief Executive Officer
Thank you, Srini, and thank you all for joining on this call on a Wednesday evening.
We just declared our results and obviously, as you probably know much better than all of us put together, we are in the midst of a very challenging macro-environment. The — with the tight liquidity conditions, signs of moderating urban demand, a tepid private capital expenditure programs, a volatility and depreciation of the Indian rupee, capital outflows from equity and debt markets due to uncertainty around the new US administration. However, we also see some drivers of growth or some positive signs as well. We are seeing some amount of rural demand picking-up. The government spending is picking-up after a slow momentum in the H1, the first-half of the year. We see continued strength in services exports and a gradual moderation in inflation.
Coming to the bank, we seem to be progressing well in our journey to normalize our credit deposit ratio with the deposit growth outpacing our loan growth. We have seen robust growth in our average deposits at about 15%, which continued to gain market-share and our AUM advances growth of 8% year-on-year basis. We have delivered a strong deposit growth despite the challenging macro-environment. As probably you would know, we’ve — on an average basis, I think we saw a very near neutral liquidity in-quarter three with a peak negative of around the $2 trillion to $2.5 trillion. NIMs have remained reasonably range-bound and stable despite the headwinds of — from tight liquidity leading to tight pricing environment.
We continue to add distribution. I think over a year-on-year period, on a 12-month period, we’ve added about over 1,000-odd branches. But we have been able to maintain a very tight leash on the cost. Our cost growth has grown 7% year-on-year and which is — which is — which means that we have gained some amount of productivity gains there. But the most important part, which is something that we’ve always maintained is our credit USB. All our credit parameters, be it the slippages, be it the gross NPA, be it the credit costs, ex of some of the cyclical patterns in the agri sector have been reasonably resilient and stable and which is something which we which sort of shows the strength of the institution not just now, but for a long-time that we have been in this business.
Going into the future, we are robustly positioned. We have been growing in a very balanced and manner in-line with what we had committed to ourselves and to the world at large in terms of the glide path on the CD ratio or the kind of growth levels that we are anticipating. As we speak, we have sufficient liquidity. We continue to grow our deposits faster than the system, we have sufficient capital, allowing us to be very comfortable to grow or capture market-share in the loans when macro turns favorable.
I know all of you would have a lot more questions. So, let me pause out here and let us take questions from all of you all. Thank you.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you, Sashi. We’ll get to — Nirav, we can kindly open it up and we can go straight to questions, please.
Questions and Answers:
Operator
Thank you very much. We will now begin with the question-and-answer session. [Operator Instructions] The first question is from the line of Mahrukh Adajania from Nuvama Research. Please go ahead.
Mahrukh Adajania
Yeah, hi, congratulations. First of all, can you give as much color as possible on how you met PSL on EHTFC’s book because your opex does not seem to have increased and then there doesn’t seem to be much RIDF for previous shortfalls either. So just as much color as you could give on PSL? That’s the first question. And the second question is that if you could separately call-out the PCR excluding agri loans and if there was any tax refund in other income — other interest income? These are my questions.
Srinivasan Vaidyanathan
Okay. Thank you, Mahrukh. First thing on the priority sector. We — our priority sector last year or even as we see now, at the aggregate level, we meet the target, 40 plus percent. The only area that we — last year and as we see speak now, we see is that small and marginal farmer and the weaker section, there dual qualifications between them, but that normally about a percentage points, we always look for opportunities. And yes, between — there are several products that go for getting that. One is organically grow on-balance sheet the book. That’s one.
We do IBPC to buy certain book or PTC’s investment book we buy. We also buy PSLC in the market. So it is not just opex, the cost of PSL is embedded within our overall ROA structure now and in the past and it can straddle across various lines. If you originate, you end-up with certain credit costs as part of how you price it in. If you buy it, you get it in PSLC. If you buy it through investments, you’re getting it through investment book or if you get it through a loan purchase, you get it through loans. So it can straddle everywhere. But yes, we do look for always, we do need to find that last percentage in the SMF and agri has always been in the past elusive and as we see now, but we are pursuing at the right price to get that. That’s part of the first question.
Mahrukh Adajania
Just one thing, sorry, one clarification. So this time round, there was not much PSLC. Is that a fair assumption?
Srinivasan Vaidyanathan
No, there is not much — there’s not much. Yes, but the year is still not over. And so as the year progresses, we’ll have to see where it ends. Okay. The second aspect is the PCR that you touched upon. The overall PCR you can see is about 68 and you know that the slippages were impacted by Agri, which is the seasonal agri, excluding the seasonal agree, the slippages are flat period-to-period. And so they are — since they are in the early bucket, the PCR excluding agri is at 71%, which is same as what it was in the prior quarter. That’s the PCR.
The third aspect of it is the tax refunds or whatever. Every quarter we get something, but this quarter is about INR2 billion. Last quarter was about INR0.5 billion or something. And so every quarter there is something that comes. And the agri reversals, the interest reversals on agri also go, but that goes to the loans — part of the interest on loans. Yeah, correct. That is separate item. Yeah.
Operator
Thank you.
Mahrukh Adajania
But what is the agri reversal?
Operator
Mahrukh, sorry to interrupt you. May I request…
Srinivasan Vaidyanathan
So that’s again for the NPA relating to NPA. Now, you reverse the interest once an account goes to NPA and typically the agri interest reversal is about one year interest that you reverse.
Mahrukh Adajania
Okay, sir. Thank you.
Srinivasan Vaidyanathan
Thank you. Yeah.
Operator
Thank you. Participants, please restrict to two questions per participant. Next question is from the line of Chintan Joshi from Autonomous. Please go ahead.
Chintan Joshi
Hi, good evening. I’ve got one on liquidity and then one on your contingent provisions. On liquidity, if I think about the last two quarters, on average you on average balances, you’ve added about INR1.2 trillion of excess deposits over loans and borrowings are only down about $250 billion. That excess liquidity that you have on-balance sheet, where — at what yield have you parked that liquidity, if you can share that with us? And also what is the weighted-average cost of borrowing that is maturing over the next two years? Just trying to understand what the funding synergies will look like over the next 12 to 18 months.
And then, on contingent provisions, the question is, what is the process of releasing that contingent provision? You released $3 billion, you obviously have a lot on your balance sheet. Will you be using these provisions to buffer the P&L volatility or and do you kind of need to go to RBI to be able to use this or you can use this with your own discretion? Thank you.
Srinivasan Vaidyanathan
Okay. Thank you. First on the liquidity. If you look at our balance sheet, average balance sheet, you’ll see that sequential-quarter, the investments net of cash-and-cash equivalent is up by about INR500 billion or INR50,000-odd crores, right? It’s up. And it gets invested by treasury at various — through various instruments and the earning on that can range anywhere between 6.5%, 7% and depends on where it lands, right? If you — to give you context, you want to know at what rate we invest, but I’ll tell you the G6, the 10-year G6 sub 7%, right? So you get an idea of where those investments can go. And there are several instruments that we choose to be there. So I’ll leave it with — it’s a period-to-period, it changes and gets calibrated by our treasury. And as much as possible, they will optimize what could be done within the overall liquidity scenario. That’s on the liquidity front.
The second aspect…
Chintan Joshi
The borrowing part?
Srinivasan Vaidyanathan
Second aspect on…
Chintan Joshi
The borrowing — yeah.
Srinivasan Vaidyanathan
Yes?
Sashidhar Jagdishan
The borrowing.
Srinivasan Vaidyanathan
The borrowing cost is about 7.8% or so is the borrowing cost that we have had, particularly the borrowings that have come from HDFC Limited come with those kind of costs, right, 7.9%, 8% or so. That includes the cost of the hedges and so on fully-loaded cost, it comes to about 8% or so on the borrowing. And yes, we do optimize to the good point that you touched and linked it to borrowing. As part of the treasury management, we do as much as possible linked to see what are the opportunities out on the borrowings. There is a maturity profile that you asked for the next 18 months. I think we published some of the maturity profile, which is there and in the annual report it is there.
But in addition to that, I do want to say, opportunistically, we do look at things that we can do. For example, in this quarter, we did buy, call it, INR44 billion or INR4,400 crores of bonds and extinguished. That’s part of the ongoing process. Treasury manages and optimizes whatever is possible and we mix-and-match and do these things. So that’s — I hope that gives you an idea of continuously and dynamically it gets managed by our treasury.
Getting to the contingent provision as such, yes, I mean we do — there is a signs around the contingent provision. There is a process across various portfolio classes that we employ in terms of what we do and how we assess certain things. If they are NPA, they are part of specific, right? It’s not — NPA is not in the contingent at all. Contingent is about — it’s not something that we foresee, but contingent upon certain event it can happen or not happen. And we assign various probabilities and we make certain judgment calls and there is some process around it, the document process we follow. So certainly — I think that is at a discretionary level.
Chintan Joshi
So you released a little bit of contingent provision this quarter. So I was trying to understand what led to that release?
Srinivasan Vaidyanathan
Okay good point. Current quarter, there is a large wholesale account which in performing wholesale account, which means they’re not in NPA, performing account, which we tagged for contingent provision because our credit risk assessment showed that vulnerability. So we provided and then this quarter, we received money, we collected cash and so the contingent was not required. We recovered.
Chintan Joshi
Okay, so we should read that as recoveries rather than, okay, fine. That answers the question. Thank you.
Operator
Thank you very much. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Kunal Shah
Yeah. Thanks. So the first question again, in terms of the overall provisioning coverage, specific provisioning coverage, no doubt you indicated in terms of on agri, it’s been flat on a quarter-on-quarter basis. But otherwise the trajectory has been downward. So maybe have we reached the optimal level or should we see further maybe at least managing the provisioning coverage slightly lower considering the behavior of the portfolio that we have? So how should we look at their entire trend because last five quarters it’s been coming off?
Srinivasan Vaidyanathan
Yeah. See, the provision coverage ratio is a mix of various products that go in and go out, right? And as you know that when something enters 90, there is some level of provision we do. And as they progress through the delinquent buckets, it gets covered. And so it depends on the mix of products that come and go. So if in this quarter, if you saw the agri product come and go, it’s a secured — and again, the mix of secured, unsecured is very relevant in the overall situation, right? And so now you had an agri coming in, we’ll have certain level of provision. That is why ex-agri, it is the provision coverage is 71%. And with the way that it is reported, it is 68%. And the vintage of the NPA also matters, right, the newer vintage versus the older vintage and so on.
Kunal Shah
Okay. Got it. So maybe if you assume that maybe the stress level remains, we are able to manage it well, then should it be managed at the current level or perhaps we will see the further decline out there because of this pay the movement which happens in the NPL?
Srinivasan Vaidyanathan
See, there is no one particular formula or whatever, right? It depends on the mix of products secured, unsecured that come in and go out and so thereby the provision coverage moves in or out.
Sashidhar Jagdishan
So, Kunal, there is no discretion or judgment from a retail standpoint. It’s a product program. It’s a mix of the product and the stage of NPA, which will define A, it is not necessarily some judgmental call that we take on a quarterly basis.
Kunal Shah
Sure. And overall, if you can share in terms of the 100% provisioning policy for the unsecured portfolio, when does that kick — when does that kick-in and the write-off policy? And any stress in any of the segments you — maybe the overall ex of agri slippages were almost flat in the absolute term. But any segments which is worrying you, we are seeing few of the players talking about stress evolving in some of the other segments as well. Anything that is worrying you at this point in time?
Srinivasan Vaidyanathan
So, okay. So, two aspects of it. One, in terms of the write-off unsecured and so on. The product program in the retail area, each product program is different in terms of what it is, but you touched upon the unsecured. Unsecured gets written-off at 150, which means we — if an account is not recoverable at 90, there is a very quick P&L take on that, right? So suddenly, you’ll see that we hit 100% provision and then it gets out, right? So that’s something very important to note that if you’re not able to collect within 90, there is a huge acceleration in terms of the provisioning that happens there. So that’s in terms of couple of unsecured that’s where. And each secured will have another kind of 150, 180 and so on. But then this is the kind of a process, again, part of the product program, formulaic determined.
The second aspect that I touched upon is the quality of the overall book. The quality of the overall book across segments continues to remain stable, which is the retail or the retail unsecured secured or the — in the CRB book — the SME book or the SLI book or whatever — or the wholesale book for that matter, pretty stable across all of those segments as we see.
Kunal Shah
Okay. Okay. Thanks and all the best, yeah.
Operator
Thank you. Next question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.
Suresh Ganapathy
Yeah, just two questions. One is on the HBB financial credit costs having gone up quite sharply Q-o-Q from 1.8% to 2.5%. Can you just give us some color what has contributed to this rise, both whether it is secured unsecured, just a little bit color on that. And the second thing is on merger synergies itself, right? So the — so the merger happened on July 1 of last year. If I were to take a snapshot at that point in time, your margins were at 3.4% and cost ratio was 40% 40.5%. 18 months down the line, the numbers are still the same. So nothing has changed with respect to margin opex. Now when can we start seeing some of these numbers happening because it’s 18 months already into the merger, when can we see the margins improve, the cost ratios coming down? Any color on that would be great. Not exactly I’m asking for the immediate guidance, but if it’s 18 months with the merger. So we thought we should see something on these two ratios. Thank you.
Srinivasan Vaidyanathan
So okay. Thank you, Suresh. I’m going to get started and then the others can join with whatever. First is the HTB that you touched upon. Yes, HTB did have higher levels of Stage 3 in this quarter. The difference between this quarter and last year was a lot to do with provision, including management overlays due to lowering of the economic forecast and so on. So there are higher levels of provision, Stage 3, in Stage 3. Stage 2, which is very important because that’s where the flows move-in as we go along, Stage 2 improved from September to December by about 5 basis-points or so, Stage 2 improved. But Stage 3 at an aggregate level changed by 15 basis-points.
But however, within that Stage 3, there are two categories that we look at and manage. One is loans that at some point in time, this quarter, prior quarter or even two, three quarters ago moved into NPA, but subsequently have pulled below 90 days, but have not managed to pull all the way to zero days, which means they are no more 90 days, but still NPA because they have not come back below zero. So that particular category is higher in this quarter than what it was in September. So that means something slipped and pulled back, but not pulled back enough. So subject to that, the overall Stage 3, right, is up by about 5 basis-points or so in this overall category segmented book, which is for a couple of notches below the bank category of segment, 5 basis-points is within the reason and the provisions were beefed up on that purpose. So that’s on the HTB as such.
The second aspect on the merger and the merger benefits and so on. See, there are several dimensions to the merger. Certain basic metrics like getting the liability accounts opened, we are like 96%, 967% successful for any new to bank incremental mortgages coming in. So that’s part of the beginning and it comes with some INR30,000, INR32,000 balance is one to two month installment. So we are making good traction on that.
The second traction is that out-of-the 4 odd million customers, we need to get the liability accounts opened for that balance so that we get to not just a mortgage product relationship, but overall banking, about 1.9 million of them so far, we have been successful to bring them on the liability relationship. We have more to do on that one, right? So that’s the second.
And then we have another about 0.25 million or 250,000 customers or so where we not only have this, we have other multiple other products like credit card products and few other products we have started. Another dimension to the merger is also about the branches, how many branches we have to get through various not just those 2,500, 3,000 branches, but broader. But if you look at over the last six months, 80 plus of the branches have been able to do at least one. So it depends on customer demand, but at least we made a good traction that capability at the branch level to open is there.
Now coming to the other dimension of it, which is get to the margin, the cost-to-income and so on and so forth. Yes, the margin we started with 3.4% has been in a stable band over the last several quarters and the good amount of the tailwind that has come through a reduced borrowing cost, which is what we managed to get good amount of borrowing done has been offset by the CASA, right? Again, it’s a customer behavior. We have a choice to make in terms of whether we want the holistic customer relationship that includes time deposits, which grew at 22.7% in this quarter, right, or we don’t get that time deposit and look for only CASA so that the margin can go up. That’s a choice to make, but then I think the business leaders did make the choice to say that we need to keep that customer relationship alive and growing. So it’s not about — so that in course of time, we will get that CASA coming. So, that’s another aspect of it.
Sashi, I don’t know whether you want to add…
Sashidhar Jagdishan
Yeah. So, Suresh…
Srinivasan Vaidyanathan
Cost to income, you’ll tell…
Sashidhar Jagdishan
Suresh, also — I mean, let’s also look back into perspective that the environment at which was prevailing at the time of announcement of the merger or at the time of the merger in July 2023 was completely different from where it has progressed from then on and where we are witnessing at this very moment-in-time. Obviously, on a static basis, I would have agreed with you, probably you know, we could have done better.
But when you look at the dynamic environment that we have been witnessing since the merger, we have seen a kind of a shift in terms of what we need to reorient ourselves. I mean, at that point in time, we were contemplating or growing our business in a manner similar to what we have been doing for a long period of time in terms of gaining market-share even on loans.
But then when the macro started to change, when liquidity started to tighten, when the outlook on credit started to change negatively, as we recall and you would recall that in February of ’24, I think as early as February ’24, we called out to say that we are changing our TAC. We said that we will grow, we will try and bring down the credit deposit ratio as quickly as possible over a two to three year time-frame. FY ’25 will be lesser than the system. FY ’26 will be in-line with the system. FY ’27 will be faster than the system.
So, obviously, this means that in FY ’25, you are, as you have seen now with an average AUM growth of 7%. This is in-line with what we had envisage. So obviously, some of the parameters that we were talking at the time of what you were expecting or what we were expecting at the time of the merger, there’s not whole good and we have to recalibrate ourselves.
So in the light of that, to maintain stability, which is what Srini was mentioning and being range-bound means that I think the company has been resident enough instead of going northwards in some of the key parametrics and matrices and parameters, we’ve been able to maintain in a range-bound manner, which itself shows that as things start to get better from a macro-environment perspective, from a liquidity perspective, when deposit prices start to come down and probably and you have seen, we have all seen that as prices come down, CASA ratios will also move-up. You will have a kind of a shift in some of the met prices, which is in-line with what you and I would be expecting, etc. I think that perspective needs to be factored in terms of why we continue to stable and not sort of having the upward trajectory on some of the metrices like margins or downward trajectory on cost-to-income.
Srinivasan Vaidyanathan
Yeah. On the cost-to-income, I want to add that we are at about 40.5% or so between 40% and 41%. It’s been stable at that level. Two aspects to it. If you look at the rate of growth of cost, about 7.5% or so rate of growth of cost, right? The country’s inflation is between 5% and 6% at an aggregate level and depending on the wage and so on and so forth it’s getting maintained at that level, sub 8%.
One other context to that is that is despite we have added 1,052 branches in the last 12 months. So we’ve added that and managing the cost in a tight lash. I will continue to make those investments in technology. The technology component of the costs are north of 10% right now. It used to be in single-digit to-high single-digit. Now it’s north of 10%. So continuing to make those investments that are required.
Lastly, I do want to add, it’s not just about the cost-to-income, which is a function of the numerator and the denominator. So we also talked about the margin impact there. If you look at the cost to assets at about 1.93% or so is very tight and is one of the best-in-class at a cost to asset basis. I just want to leave it there and hope that gives you some perspective, Suresh.
Suresh Ganapathy
Thank you. Thank you so much. Thank you.
Srinivasan Vaidyanathan
Thank you. Yeah.
Operator
Thank you. Participants, kindly restrict to two questions per participant. Next question is from the line of Pranav from Sanford Bernstein. Please go ahead.
Pranav Dheeeraj Gundlapalle
Hey, good evening. Thanks for taking the question. The first question is on your loan yields. I mean, if you look at the bank’s loan yields today, it’s meaningfully lower than peers versus the long-term history where even if you include the retail mortgages, the loan yields were much higher. Now if you look-forward, let’s say, over the next two to three years, do you think the absolute loan yields will converge with peers or do you think only the risk-adjusted yields will converge or will a lower risk-adjusted yields be the price to pay for scale, right? So, where do you see it progressing on next not the next few quarters, but more like a two to three year outlook?
Srinivasan Vaidyanathan
Okay. Yeah. See, there are two aspects to it. If you look at the current composition of our risk-weight density, which in one of our pages we have, it’s been stable at about 67% or thereabouts. The risk-weight density, that means the assets RWA to total assets at about 67%, it’s been pretty stable, right? Or if you look at the RWA to funded and non-funded post the conversion factor at 63% or so. And if you benchmark this to some of the peers, you will see that it’s at least 5 to 7 percentage points or thereabouts lower, right? So that means the risk density on the book appears to be lower. That’s one.
The second aspect of it is in a strategic sense, when you look at it in a couple of years where the yield is, yield is a function of the mix and as the retail, which over the last 12 to 18 months, we have been cautious in terms of the retail. Even before our overall loan book, we started to pare down the rate of growth. The retail rate of growth was even earlier of taken down, the rate of growth by our credit through calibration of credit models, they took down the retail. So it’s a function of the mix. We do — we have — we continue to make investments in retail people and product and technology. We do expect that the retail mix will go up. And so, thereby, the yield on the overall book should tend up and thereby you will see that the risk-weight density also move-up because the retail comes up with higher-risk weight assets.
Pranav Dheeeraj Gundlapalle
So, if, let’s say, you see a convergence in the risk density, there is no reason why we would be at a lower yield compared to peers?
Srinivasan Vaidyanathan
I didn’t get that.
Sashidhar Jagdishan
The way we think about this is, finally a customer segment, and we would — our — historically we’ve been operating in a slightly segment which is comfortable with us and hence, you would find that historically as well, our risk-weighted density is lower. So the convergence to my mind would happen if the risk undertaken from all — since you’re saying from a market is similar or no.
Pranav Dheeeraj Gundlapalle
Understood. Understood. Thanks. And the second question is just a technical one on your trading and MTM income. You just had like three, four quarters, three quarters of low gains from securities, etc. Is that a one-off or is that something that we should expect to continue? How do you see that trend going-forward?
Srinivasan Vaidyanathan
So, we had — this quarter was a very modest number in terms of the growth, yeah, a negative impact.
Pranav Dheeeraj Gundlapalle
So, we — one of the things that has happened is we’ve inherited certain equity investments and that is also going through the P&L, which is showing up in that line that you’re speaking about, the mark-to-market, which is coming.
Srinivasan Vaidyanathan
In this quarter, particularly, we’ve had almost INR2.5 billion, 2.5 billion or so negative mark-to-market on an equity position that we — that we have inherited that we have taken through the P&L. It’s a negative.
Pranav Dheeeraj Gundlapalle
Understood. So, ex of that, there’s nothing that’s changed fundamentally.
Srinivasan Vaidyanathan
No, fundamentally…
Pranav Dheeeraj Gundlapalle
Thanks. Those are my two questions. Thank you.
Operator
Thank you. Next question is from the line of Rikin Shah from IIFL. Please go ahead.
Rikin Shah
Hey, good evening. Thanks. Good evening, and thanks for the opportunity. The first question is on the employee expense and more specifically the employee…
Operator
Rikin, sorry to interrupt you, your audience not clear. Can you please speak through the handset?
Rikin Shah
Is this better?
Operator
Slightly.
Rikin Shah
Yeah. So, the first question is on the employee headcount. So after dipping in 2Q, the employee headcount has again gone back to 2,10,000 and we have seen that some of the peers have been trying to stabilize the headcount and letting the natural attrition happen. So how should we think about the employee headcount going ahead? That’s question number one.
And question number two, Sashi did allude to his earlier guidance that this year we should be growing slower than system next year in-line and FY ’27 faster. But in that context, while we are gaining deposit market-share at around 16%, there is still inherent macro restrictions. And within that construct, the deposit growth can’t be significantly higher. So how confident do we feel about growing in-line with the system for next year? Can that — does that guidance still hold?
Srinivasan Vaidyanathan
Okay. I’ll start-off on the headcount. We have about 210 or so, about 2,500, call it, around 3,000 people added in the quarter. And over a period of last quarter, we didn’t actually we came down. So if you look at a six-month or a Nine-Month period or even 12-month period, it is just 2,000 from last December to this December. So we held down. Again, the reason is that we have ramped-up some investments in people and maintained at that level and we are working through various productivity models to enhance the value. Essentially that means getting various tools to these people to utilize better for engagement. That doesn’t mean to say we will not add going-forward. We take it every quarter at a time in terms of — these are mostly frontline, right? In fact, even across the book, we have 85%, 90% of the book touching the customer headcount touching the customer in some manner or the other, right? So depending on the need and the traction, we will add. But again, we are circumspect in terms of getting the right kind of productivity before we can add. So that’s on the employee as such.
The second aspect of the growth rate, how do you — how do you get to the growth rate in-line with the market from where we are. Again, one thing to note is that there is not a product that we have exited or a geography that we have exited. We are there in all segments, all products in all geography. I am sitting on liquidity, right? And with of course, capital tailwind which is there. Currently, the rate of growth is consciously calibrated either through credit models, a good amount of the retail, I’ll put it in that bucket or calibrated through price models because we do see tightening prices, tightening spreads in the non-retail. In the corporate world, the spreads are tightening, right? So somewhere between these, it has been calibrated. So it is a — and the resources to get these loans up at the scale at which we want continue to be in the system, continues to be engaged. So it’s a question of at the right time that we want to dial as was alluding to in his opening remarks, as the macro turns and we feel comfortable, the dial can be taken up.
Rikin Shah
Got it. Thank you.
Operator
Thank you. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Nitin Aggarwal
Yeah, hi. Good evening, Sashi and Srini. Thanks for taking my questions. I have two questions. One is like you alluded to the difficult macro conditions in your opening remarks, but HDFC Bank definitely continues to navigate well through this environment as overall slippage rate remains better versus peers. So how are you looking at the credit environment in respect to unsecured loans and the commercial banking business, because these are the two segments that we have been still growing and given the vulnerability that you see, how like confident you are to maintain this slippages run-rate and the credit cost overall?
Srinivasan Vaidyanathan
Okay. Good point, right. One, as we see now, the book is pretty stable, has performed both on the unsecured front or on the commercial side that you talked about has been pretty stable. And that is part of the credit monitoring model and the collection analytics that go to be in front of the queue to do all of that. I mean, there are various factors that go in. So all of those factors are at play and I’ve been a top-notch in terms of keeping it pretty stable.
And one other important aspect of you looking at being stable is, the ratios are stable despite the slowness of the book, which means the book is not growing at 12% like the industry grows. The book was growing at half the trade. Even when you slow it down, the ratios and the numbers look pretty stable that essentially indicates the position of the origination quality as well as the capability in terms of getting the collection accomplished very well. So I want to leave the thoughts. So as we see now, going-forward, we are confident of continuing our strength and displaying our strength on these portfolios.
Nitin Aggarwal
Right. And we really appreciate that. And second question is just a data-keeping one on mix of floating and fixed-rate loans, like how much is repo, how much is MCLR, if you can just share that color?
Srinivasan Vaidyanathan
We have a roughly slightly under 70% which is floating, 30%, 30-odd percent which is fixed. And on the floating side, if you see almost, call it, 45% of thereabouts is repo linked loans. We have some MCLR and some treasury bill-linked loans, but mostly it’s repo.
Nitin Aggarwal
Right, Srini. Thanks so much and wish you all the best.
Srinivasan Vaidyanathan
Thank you.
Operator
Thank you. Next question is from the line of Ravi Purohit from SIMPL. Please go ahead.
Ravi Purohit
Yeah. Hi, thanks for taking my question. I have two questions. One is the NPAs that we got in from the HDFC wholesale book would have been classified as you know NPAs, they were restructured accounts earlier and they would have been classified. Now that they would have spent 12 months since then, do we see significant reversal of provisions of those — that wholesale book in the in the current provisioning set?
And second question is on the wholesale deposits that came in with HDFC Limited book. How many — so we’ve reported 16% growth in our total deposits, but ex of, let’s say, would we have let go of the wholesale deposits from HDFC Limited or we would have continued. If you could just give some color ex of that or adjusted for that, what would have been our actual deposit growth that we have actually delivered? Those are my two questions. Thank you.
Srinivasan Vaidyanathan
Okay. All right. Let me first talk to you about that provisioning or whatever, right? There are a bunch of contingent provisions that we have done in the past and to the extent that I just alluded to for another question about when there is a cash recovery, we feel confident and until then we remain — remained provisioned on certain things. Now then we released the INR30-odd billion that I talked about. INR3 billion, INR3 billion, INR3 billion that I talked about.
The other aspect of it is, this is a good point that you raised. We do have — we do have almost about 15 basis-points of our NPA, which are performing, right, they are performing. But historically in the worstwhile organization, they were restructured. But since they were restructured per the RBI regulation, we have marked them as NPA, 15 basis-points. They are performing, but it is part of the NPA, which is there, right? So I do want to bring your attention to that.
And the last aspect that you talked about is the deposits that we brought in and so the 16% rate of growth on deposits is net of all of that. There are certain categories of deposits, high-cost, particularly non-retail high-cost type of deposits, which we did not patternize or let go because to us, the — I think in two quarters ago or so, we did talk about the value. There are certain institutional type of deposits. Example can be a trust example can be certain other organizations where the value, the LCR value could be 100% run-off. So — and for which we don’t need to pay the high-rate, which means the bulk deposit rate doesn’t need to be paid. So if it is the bulk in nature, they have gone. So whether excluding that, whether it would be more than 16%, yes, it will be more than 16%. How much? Maybe to 3% better, but again, it’s all part of the business and part of this overall mix.
Ravi Purohit
Okay. Thank you. All the best.
Srinivasan Vaidyanathan
Thank you.
Operator
Thank you. Next question is from the line of Param Subramanian from Nomura. Please go ahead.
Param Subramanian
Yeah. Hi. Thanks for taking my question. Firstly, going back to priority sector. So last year, we had a shortfall in both SMF and weaker sections and the one-third requirement from HDFC Limited book. So both of those PSL compliance will be completed by fourth quarter is that the way to look at it? And what proportion would roughly be our idea within that? Yeah.
Srinivasan Vaidyanathan
Yeah. See, it is — the requirements have kicked-in. And you know that the requirements are a third, a third, a third over a three-year period. So there is a glide path into that. And so whatever when we — when we have to meet not just for the year-end, even for December for that matter, there is some proportion that kicks-in and that’s part of what I alluded to say at an aggregate level, we are comfortable for the first-nine months, there is a percentage point or so that we do need to close on SMF and weaker section. That’s part of the plan in terms of how we operate for the next three months-to close available depending on what is available and at the right price. And of course, the first goal is to organically grow as much as we can. And we don’t alternative instruments are used.
Param Subramanian
Okay. Got it, Srini. So it’s a percentage point shortfall in both SMF and weaker segments. That’s probably where we are currently on the merged book?
Srinivasan Vaidyanathan
That is correct, yeah.
Param Subramanian
Okay. Thanks. That’s helpful. Secondly on PCR, how are we looking at PCR, say, relative to our peer group because if you look at it at 16%, we are lower than most of the big private banks even compared to where RBI pegs the system-level at 77%. So how are we looking at this going ahead?
Srinivasan Vaidyanathan
Okay. First is the 68 is 71 without the agri. That’s number-one. Number two, the PCR is not something that is benchmarkable at the aggregate institution level. We’ll have to look at the composition of what the NPA is. If an institution has got a larger composition of the wholesale book, particularly the legacy wholesale book in NPA and if it is fully provided for, the PCR is high.
And if it is a retail book, it enters as I described to you, the — particularly the unsecured book as it enters into the 90, there is a level of provision. It enters into 120 you provide for it and at 150 you write them off. So it depends on each institution’s policies of what is the provisioning at entry stage and at the mid-stage and at the end-stage and what is the segment classification in the NPA. Many factors play into this. So it’s not a straightforward number across the institutions you can see and make a call what that is.
Param Subramanian
Okay. Thank you so much, Srini.
Srinivasan Vaidyanathan
Thank you.
Operator
Thank you. Next question is from the line of Saurabh from JPMorgan. Please go ahead.
Saurabh Kumar
Sir, just one question. On your costs, should we expect broadly a similar cost growth for next year because I mean you’ve largely done with your branch expansion employees are not growing too much. So should we expect this cost lever to be even going ahead? Thank you.
Srinivasan Vaidyanathan
So, Saurabh, to answer, right, normally, we don’t give guidance or outlook. I don’t want to give you an indication, but I do want to tell you the intention on how we operate now. The mindset is to be operating in a controlled manner. Controlled means what I mean is that drive productivity as much as possible, make those investments in people, branches and technology where it is required and where we are able to see opportunity space.
So there is no one predetermined path, but the underlying kind of directive that I mean, is sitting here, what is given is that these circumspect and much more stringent in terms of how we allocate cost, how we give cost for spending. So we’re trying to keep it as tight as we can.
Sashidhar Jagdishan
Yeah, that’s right. In fact, which means that we will — it doesn’t mean that we will not be investing, we will be investing in distribution, in people, in technology, but there will be — overall, we would want to ensure that we get productivity gains out of this. So if we all believe that our business growth is going to be in-line with the system growth next year, we — our endeavor and which is what we are trying to have a goal for ourselves is to ensure that we are far more efficient in terms of how we spend and what we spend and try and have efficiencies arising out-of-the cost.
Srinivasan Vaidyanathan
Thank you.
Saurabh Kumar
Thank you.
Operator
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Srinivasan Vaidyanathan
Good evening, Abhishek.
Operator
Abhishek, may I request you to unmute your…
Abhishek Murarka
Yeah, hi. Am I audible?
Operator
Yes. Yes, you are.
Abhishek Murarka
Yeah, sorry about that. Good evening. Thanks for taking my question. Good evening, Srini. So my question is on this emerging corporate group, on last four to five quarters, the loan book has been very, very stable, not growing much. Is it that you still see risk there? Is it a function of profitability or why or when do we see some growth coming out of that book? So it’s some — if you can share some qualitative commentary on that, that would be useful.
Srinivasan Vaidyanathan
Okay. Lovely. Abhishek, as the name suggests, these are emerging corporates, that means that they are growing and getting to be larger corporate size. Like the way we have seen spreads tighten in the larger corporate space, here also we see the spreads tightening, right? And that is something that we’ve been pretty cautious. The quality of the book is exceedingly good, right? Like the way the corporate book, you will see that we have seen that reported that book quite very good.
However, it is — we are circumspect in terms of offering at the right price, that’s what is determined. We do want that relationship with those customers, which means there are certain level of wallet share that we want. We’ll continue to keep those level of wallet share and at any price, we don’t need to keep increasing the wallet share. So that’s how we have looked at it and tried to, of course, there is no one answer that we can do it every quarter time period, but we continuously evaluate and this is how we are approaching, right price, keep the wallet share and manage through the relationship because we do want the SME relationship and the individual relationships coming from these corporates.
Abhishek Murarka
Okay. So it’s more a function of pricing rather than slippage or asset quality or risk?
Srinivasan Vaidyanathan
That’s absolutely correct. Yeah, because all of those corporates are quite strong for us and across the industry, we see this quite strong.
Sashidhar Jagdishan
Just reiterate, Abhishek. Srini did allude to it. The asset quality across retail, unsecured, commercial and corporate has been very stable, including your emerging corporates. So we have been seeing this for quite some time and the stability continues even as we speak.
Abhishek Murarka
Sure, Sashi. I really appreciate that and actually pretty commendable job there. Just one data-keeping question. For the CRB book, what would be the blended yield?
Srinivasan Vaidyanathan
So we have not published that separately, but I don’t know whether in our 20 — 20-F annual filings that we do know. So we don’t particularly break-up. We have retail, wholesale segment rather than three segments, yeah.
Abhishek Murarka
Would it be higher, lower than blended book yield, just a qualitative indication that would also help.
Srinivasan Vaidyanathan
We haven’t published that, Abhishek. That is all. At some point in time, we will consider — we will consider doing that, yeah.
Abhishek Murarka
Okay. No worries. Thank you so much and all the best. Thank you.
Srinivasan Vaidyanathan
Thank you. Thank you.
Operator
Thank you. Next question is from the line of Prakhar Sharma from Jefferies India. Please go ahead.
Prakhar Sharma
Thank you and congratulations on managing good results in a tough environment. I had just a few questions on the agri part and you request you to probably even if you want to give a monosyllable answer that will work. So first part is, in this quarter, what sort of interest income reversal could have been there? So has there been a few basis point impact on margins because of the seasonality?
Srinivasan Vaidyanathan
There will be, and it could be INR1 billion to INR1.5 billion or so, but that’s part of — that’s part of the business as usual. Every other quarter we get it and it moves up and down, yeah.
Prakhar Sharma
Got it. And you have a — in this quarter versus, I think even the first quarter, there is a reasonable increase in the agri slippages. So is this also a seasonal pattern that 3Q agri slippages tend to be higher than the 1Q slippages or is there a deterioration in the environment and is it linked to microfinance?
Srinivasan Vaidyanathan
It is slightly higher. Normally the December is slightly higher than the June and — but it is within normal, but nothing connected with microfinance or anything. Our microfinance is a separate book and that book — microfinance book is less than 1% of our total book and we have 5% of our workforce. There is more good social and a very stable book well-performing, linked to women in the rural area, handheld by our relationship managers to get them to produce various articles. So we are quite proud of the book and performance of the book.
Prakhar Sharma
Awesome. And why do you keep a lower coverage on the agri loans because I thought this is unsecured or a difficult market. Is it secured in that sense?
Srinivasan Vaidyanathan
Yeah, it will be. It is — it will be. And at the entry level, you know, that the agri provision will be lower than the 70% or so in the first quarter.
Prakhar Sharma
LGD is also lower. Is that what you’re trying to say? The LGD on this book is lower than the rest of the book?
Srinivasan Vaidyanathan
So the loss given default will be — over the lifetime, yes, it will be. If you go through an ECL model, it will be far lower.
Prakhar Sharma
Got it. Got it. And last part is the agri slippages as you report and the agri loans that you report, are they like-to-like or they are different cuts?
Srinivasan Vaidyanathan
They are like-to-like.
Prakhar Sharma
Okay, perfect. Thank you so much. Good luck.
Srinivasan Vaidyanathan
Thank you.
Operator
Thank you very much. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.
Rahul Jain
Good evening, everyone. I just had two, three questions. So first is, you’ve got this business banking portfolio, which is INR3.5 trillion odd. Is it possible to get some more color on this book? What proportion would be to the individuals? What proportion would be unsecured or secured in this portfolio?
Sashidhar Jagdishan
Sorry, Rahul, in business banking, you’re saying?
Rahul Jain
Yeah.
Srinivasan Vaidyanathan
Which?
Sashidhar Jagdishan
So business banking book is largely secured. Correct. And it is…
Srinivasan Vaidyanathan
It is secured.
Sashidhar Jagdishan
It is secured. And it is the self-employed will be in unsecured in the PL.
Rahul Jain
Okay.
Sashidhar Jagdishan
The retail part of it.
Rahul Jain
The smaller book?
Sashidhar Jagdishan
Yeah, which is very stable.
Rahul Jain
And that’s used for the business purposes.
Srinivasan Vaidyanathan
That is correct.
Rahul Jain
Self-employed. Okay, fair enough. How much would that be Sashi? Have you given that number out?
Srinivasan Vaidyanathan
Part of the overall portfolio, there is no change that we have seen there.
Sashidhar Jagdishan
Which one?
Srinivasan Vaidyanathan
The business — the individual business.
Rahul Jain
Fair enough. All right. Two more questions. Okay. Got it. Thanks, Sashi. The second is on CASA. I appreciate the feedback or the response that you gave Srini about the choice of relationship that the business leaders are deciding. But at the same time, this is adding up to the cost of funds. So if you are losing the proportion there, are we able to pass on to the borrowers in the same magnitude, i.e., are we able to protect our spreads for the change of mix that is happening at deposit level? Because I know it is not specific to HDFC Bank, this is a system-wide phenomenon, but this ratio has been continuously under pressure, may not or may take time to bottom out till such time, whatever incremental lending are we doing, are we able to pass on that incremental cost to those borrowers on a like-to-like basis?
Srinivasan Vaidyanathan
Rahul, the short answer is, yes, you can’t pass it on because if you — if it is a retail customer, it tends to get into adverse selection and the non-retail customer is extremely sensitive and actually the spreads are tightening. It’s moving on the other direction. You see the bond spreads in this — in this quarter, the bond spreads have come off AAA or AA or whatever category, NBFC corporates, if you see, anywhere between 10 basis points to 25 basis points, the spreads have tightened in the market in this — in this quarter, in the recent time period. So the possibility of a pass on, we wish, but that is not — other than getting any adverse selection, we are very cautious and it won’t pass our credit even if the frontline goes down to different customer segments. So that’s in terms of lending asset.
Rahul Jain
How do we protect the margins on a go forward basis? How would the margins trend? Of course, I understand the repricing of the HDFC Limited borrowings has been taking place, but just keeping that aside, what is the drift of spreads or the margins to envisage in a declining CASA environment from these levels?
Sashidhar Jagdishan
So Rahul, good question. The — we have seen it over 30 years how the composition of our deposit mix changes with different interest rate cycles. So in a high interest rate cycle, obviously, the CASA ratio is down and as we expect in couple of years, the economy trying to move northwards. We should see rates coming off. We should see the CASA volumes moving up, people or the TD volumes coming down, TD rates cooling off and that will have — there is a huge correlation to that and the CASA volumes in the system itself.
So we should start to gain share, a better incremental share, because ultimately some of us in this banking system target — have a customer segment which is primarily the middle and upper middle income segment, including all in this call, I mean all the fraternity in this call of 875 participants in the call, including in the room that we are all sitting, all of us depict very similar consumer behavior in terms of trying to either move our funds to a better yielding alternative assets or locking into higher TDs expectation that — that TD rates will cool-off. So, therefore, at least if that’s a segment we have been very consistently focusing. The accentuation or the deceleration of CASA ratio will be slightly sharper for us and that is exactly what we’re seeing.
As Srini mentioned, it doesn’t mean that we sort of say no to our customer segment saying that, sorry, we don’t want to take deposit because it is not doing — it’s not helping our CASA ratio. That’s not how we do. We offer all our products and as it happens, it seems to be more or less we match ourselves with some of the large peer group banks. And so we do operate and we are happy to take it even though it may be a slight deterioration of this. But these are very cyclical and this in the medium to long-term will normalize. And as I said, you will see a kind of an uplift the moment you see the rate cycle changing. And of course, it doesn’t happen very coincidentally. There will be a little bit of a lag effect, but definitely the — there will be better CASA ratios coming off in the next couple of years as well. And that should see a bounce back into — into the margin uptake that all of us, including yourself have been looking at — looking for.
Srinivasan Vaidyanathan
In the meantime, we do add customers 1.9 million liability relationship to get that new account value, 96.7 million customer relationships. We’ve continued to focus on that to bring the new account.
Rahul Jain
Very helpful. Thank you so much. Just one more question. When we look at the employee headcount that went up in this quarter sequentially branches on a Y-o-Y basis, as you said, open 1,000. Credit card market share seems to be inching higher. So at what stage — so it seems that the bank is getting ready to tap into the growth opportunities. LDR is down to 98%. So at what stage Sashi, Srini, would you start to accelerate the pedal? You’ll see that a refined LDR is now well within the range that you wanted it to but sequentially the growth can start now coming through at what stage can we start the bank to get into the growth path more on a sequential basis, quarter-on-quarter basis from these levels?
Sashidhar Jagdishan
No, I think, you know, whatever we had committed, in fact, if I remember, it was in your — in a call with you, which we sort of shared it with the world at large. And that is the kind of commitments that we continue to maintain. We are on track, as I have mentioned in my opening message that whatever we are seeing is in light and of the call that we have taken at that point in time. So you will see this. In FY ’26, you would see a step-up in FY ’27, you will see a further step-up. I mean, I do not know which quarter. Obviously, we have the ammunition ready in terms of capital, in terms of liquidity through a high LCR and we continue to outpace deposit growth as we speak. So I don’t think that should be a constraint as — if there is an opportunity for the economy to change positively and outlook getting better and interest rates coming off, I think we should sort of see a bit of a step-up there.
Rahul Jain
Great. Thanks, Sashi. Thanks, Srini.
Srinivasan Vaidyanathan
Thank you.
Operator
Thank you very much. Ladies and gentlemen, we will take that as a last question. I will now hand the conference over to Mr. Vaidyanathan for closing comments.
Srinivasan Vaidyanathan
Thank you, Nirav. Thank you all the participants for coming in today. You can get in touch with us for any other clarifications, questions or matters that you want to cover, our Investor Relations team led by Bhavin will be available and we can today or tomorrow or any time and we’ll continue to keep engaged. Thank you. Bye-bye.
Operator
[Operator Closing Remarks]