HDFC Bank Limited (NSE:HDFCBANK) Q3 FY22 Earnings Concall dated Jan. 15, 2022
Corporate Participants:
Srinivasan Vaidyanathan — Chief Financial Officer
Analysts:
Mahrukh Adajania — Elara Securities (India) Pvt Ltd. — Analyst
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Saurabh — J.P. Morgan — Analyst
Suresh Ganapathy — Macquarie Capital Securities (India) Pvt Ltd. — Analyst
Presentation:
Operator
Ladies and gentlemen, good evening and welcome to HDFC Bank Limited Q3 FY 2022 Earnings Conference Call on the Financial Results presented by the management of HDFC Bank. [Operator Instructions] Please note that this conference is being recorded.
I will now like to 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
Good evening and a warm welcome to all the participants. First, to start with, the environment and the policies that we operated in the quarter were conducive for growth with good tailwinds from monetary and fiscal policy. You all know about the activity indicators getting better in Q3, like the PMI, GST collections, e-way bills etc, etc but also up-to-date about the CPI or RBI policy rate stance and the liquidity conditions. Now, in that backdrop, the equity capital market was robust in the quarter. Private issuance raising almost INR82,000 crores, we were mandated for eight IPOs.
Indian bond market also saw total fund raise of approximately INR1.87 lakh crores in the quarter. The bank maintained its ranking as one of the top three arrangers in the INR bond market. Now, with that, let’s go through five themes at a high level before we delve into the quarter financials. One, the bank’s balance sheet continues to get stronger. For instance, the capital adequacy ratio is at 19.5%, CET1 at 17.1%. Liquidity is strong as reflected in our average LCR for the quarter at 123%. Balance sheet remains resilient.
The GNP ratio is at 1.26%, floating and contingent provisions aggregating for INR10,100 crores helped in de-risking the balance sheet and positioning for growth. Two, investments in key enablers are picking up in executing our strategy. We opened 93 branches in the quarter, 171 branches year-to-date nine months period. To give additional context, we have added 525 branches over the past 21 months, that is during the COVID period, positioning us for capitalizing the opportunity. We onboarded little more than 5,000 people in the quarter, 14,300-plus people during the nine months period.
We have onboarded about 17,400 people over the past 21 months during the COVID period to get the people ahead on the productivity curve as the economy accelerates further. There is a growing impetus on digital and we have taken the steps necessary to ensure our customers have great and consistent experience in whatever channel they choose to bank with us. Key initiatives like a streamlined modern customer experience hub allowing access to content across channels and devices will be introduced soon. We are also committed to continuously enhancing the digital experience for our customers through a fully revamped payment offering.
We have taken multiple steps to ensure robust, scalable, and secured technology setup to strengthen even further. Some key initiatives include capacity for UPI has been tripled, net banking and mobile banking capacity has been doubled to manage 90,000 users concurrently, a significant step as most of our customers rely on digital channels and — for banking needs. The bank has migrated four data centers in Bangalore and Mumbai to state-of-the-art facilities. The bank is moving to the next level of disaster recovery with DR automation and implementation of HA/DR active-active setup for key application, significant upgrades and network and security infrastructure to support our exponential growth in digital transactions.
Our digital capability is coupled with rich data on customers’ behavior. Take for instance the traditional retail product wherein close to 80% new loans go through digital scorecards or automated underwriting. In Q3, we received a total of 245 million visits on our website, averaging 31 million unique customers per month. As per our analysis, we had 30% to 70% more visits on our website with vis-a-vis public-private sector peers, close to 60% of the visits were through mobile device indicating the mobile simplicity of the footfalls. Three, on customers, acquiring new liability relationship with setting new high, preparing for broad-basing and deepening relationship in times to come.
During the quarter, we opened about 2.4 million new liability relationships, 6.4 million new liability relationships during the nine months period of this financial year, exhibiting a growth of 29% over the same period last year. Four, our market leadership in digitizing the economy is setting new high. In Q3, we achieved the highest ever issuance of — with 9.5 lakh card issuances. Since late August, when we recommenced issuance of new cards, we have so far issued 13.7 lakh cards. Credit cards spend for the bank has grown 24% year-on-year and debit card spend has grown 14% year-on-year. The spend growth reflects both increased customer engagement and economy improvement from a consumption perspective.
In similar lines to our CSE partnership and to scale our business further, we have signed MoUs with two large payment banks for distributing certain products. This opens up further opportunity to scale among other places growth in semi-urban and rural areas leveraging partner distribution access points and feet on street. We have further scaled emerging growth segments such as EasyEMI, consumer durables targeting our preferred customers through segmented sales and marketing. Consumer finance business has 1 lakh-plus active distribution points. We have over 5 million customers with EasyEMI options.
The bank merchant offering is scaling to provide enhanced value-added services across various segments. The bank has 2.85 million acceptance points as of December with a year-on-year growth of 35%. The bank’s acquiring market share stands at approximately 47% with a 19% share in terminals processing about 300 million transactions per month. Bank has been focusing in SURU locations and investing in training and offering segment-specific solutions. Over 50% of new merchant sourcing is from SURU locations. Five, asset volumes are gaining momentum to reach new highs driven through relationship management, digital offering and breadth of products.
In the wholesale segment, corporates continue to generate strong cash flows across sectors resulting in fair degree of prepayments. Trade continued to be an opportunity for credit growth. Factoring, invoice financing, export financing, import financing are some of the products we participated into growth. We’re also making progress in MNC segment with our ambition to be the largest player in the space. Corporate banking and other wholesale loans grew by 7.5% over prior year and 4.4% over prior quarter. On the retail assets front, the momentum pickup observed during Q2 continued its stride in Q3 as well, witnessing a robust sequential asset growth of 4.7% and year-on-year growth of 13.3%.
This has been on the back of a strong incremental disbursals during the quarter. Commercial and rural banking businesses saw robust growth this quarter. This is seeing a sequential growth of 6.1% and year-on-year growth of 29.4%, reflecting underlying economic activity and continued market share gains. Now, let’s start with net revenues. Net revenues grew by 12.1% to INR26,624 crores driven by an advances growth of 16.5% and the deposit growth of 13.8%. Net interest income for the quarter, which is at 69% of net revenues, grew by 13% year-on-year and registered a sequential growth of 4.3%.
The core net interest margin for the quarter was at 4.1%. This is in the similar range of previous quarter. Net interest income growth is reflective of underlying shift from unsecured lending essentially gravitating towards higher rated segments in the COVID period. This is also represented in our ratio of net interest income to RWA, which is consistent at around 6%. Moving on to details of other income, which is at INR8,184 crores, was up 9.9% versus prior year and up 10.6% versus prior quarter. Fees and commission income constituting about two-thirds of other income was at INR5,075 crores and grew by 2% compared to the prior year and 2.6% compared to prior quarter.
Retail constitutes approximately 93% and wholesale constitutes 7% of fees and commission income. Fees, excluding payment products, grew year-on-year by 17% and fees on the payment products degrew year-on-year due to lower fees on card loan products, cash advances, over limit fees, reflective of a cautious approach to card-based lending as well as customer preferences. However, card sales, ANR and interchange have come out robustly, which positions us for future growth and the customer propensity to use card product for loans and revolver increases. In addition, during the festive period, we offered certain fee waivers to incentivize customer engagement.
FX and derivatives income at INR949 crores was higher by 69% compared to prior year, reflecting pickup in activities and spreads. Trading income was INR1,046 crores for the quarter, prior year was at INR1,109 crores and prior quarter was at INR676 crores. Some of the gains from investments were monetized in line with our strategy. Other miscellaneous income of INR1,113 crores includes recoveries from written-off accounts and dividends from subsidiaries. Now, moving on to expenses, for the quarter at INR9,851 crores, an increase of 14.9% over previous year.
Year-on-year, we added 294 branches, bringing the total branches to 5,779. Since last year, we added 1,697 ATM cash deposits and withdrawal machines, taking the total to 17,238. We have 15,436 business correspondents managed by Common Service Centers, which is higher by about 1,900 — slightly over 1,900 compared to the same time last year. Cost to income ratio for the quarter was at 37%, which is similar to the prior year level. As previously mentioned, when technology investments are further stepped up and retail segments picked up further, we anticipate the spend levels to increase driven by incremental volumes, sales and promotional activities, and other discretionary spend.
Moving on to asset quality; GNPA ratio was at 1.26% of gross advances as compared to 1.35% in prior quarter and 1.38% on a pro forma basis in prior year. It’s pertinent to note that, of the 1.26% GNPA ratio, about 18 basis points are standard. These are included by us in NPA as one of the other facility of the borrowers in NPA. Net NPA ratio was at 0.37% of advances — net advances. Preceding quarter was at 0.4%. The annualized slippage ratio for the current quarter is at 1.6%, about INR4,600 crores as against 1.8% in prior quarter. Agri seasonally has contributed approximately INR1,000 crores to slippages or about 25 basis points annualized rate.
During the quarter, recoveries and upgrades were about INR2,400 crores or approximately 25 basis points. Write-offs in the quarter were INR2,200 crores, approximately 23 basis points. Sale of NPA, about INR260 crores, approximately 2 basis points in the quarter included in one of the categories above. Now, looking at check bounce and restructuring and so on. The check bounce rate continues to improve in December across most of the retail products and is not only back to pre-pandemic levels, but are also marginally better today. Further, the early January bounce rate shows continued improvement. Similarly, demand resolution at 97%, 98% for most of the products is back to pre-COVID level, and in some cases, better than pre-COVID levels. The better improvement — the improvement in bounce and demand resolutions rates at aggregate level, amongst other things, illustrates the overall portfolio quality.
The restructuring under RBI Resolution Framework for COVID-19 as of December end stands at 137 basis points. This is at the borrower level and includes approximately 28 basis points of other facilities of the same borrower, which are not restructured but included here. To give some color on restructured accounts, 40% are secured with good collateral and with predominant good CIBIL score which we feel is comfortable. Of the unsecured portion, approximately two-thirds are salaried customers and about 40% of good CIBIL scores more than 700. The demand resolution is showing encouraging trends.
COVID restructuring has been an enabler for our customers to tide over the uncertainty in the last few quarters. Initial indicators suggest that most of these customers are now positioned to resume their payments with minimal impact to overall quality of the advances of the bank. As mentioned previously, impact of restructuring on our GNPA ratio could not — can be 10 to 20 basis points at any given quarter. We talked about it last quarter and mentioned that. The core provisions — the core specific loan loss provisions for the quarter were INR1,821 crores as against INR2,286 crores during the prior quarter. Total provisions reported were INR2,994 crores against INR3,924 crores during the prior quarter.
Total provisions in the current quarter included additional contingent provisions of approximately INR900 crores. The specific provision coverage ratio was at 71%. There are no technical write-offs. Our head office and branch books are fully integrated. At the end of current quarter, contingent provision towards loans were approximately INR8,600 crores. The bank’s floating provisions remained at INR1,400 crores and general provisions were at INR6,000 crores. Total provisions comprising specific floating contingents and general provisions were 172% of gross non-performing loans. This is in addition to security held as collateral in several of the cases.
Looking at through another lens, floating contingent and general provisions were 1.27% of gross advances as of December quarter end. Now coming to credit cost ratios, the core credit cost ratio, that is the specific loan loss ratio, is at 57 basis points for the quarter against 76 basis points for the prior quarter, and 116 basis points on a pro forma basis for prior year. Recoveries, which are recorded as miscellaneous income, amounts to 25 basis points of gross advances for the quarter against 23 basis points in the prior quarter. Total annualized credit cost for the quarter was at 94 basis points, which includes impact of contingent provision of approximately 30 basis points. Prior year was at 125 basis points prior and prior quarter was at 130 basis points.
Net profit for the quarter at INR10,342 crores grew by 18.1% over prior year. We’ll give you some balance sheet items — color on some balance sheet items. Total deposits amounting to INR1,445,918 crores is up 13.8% over prior year. This is an addition of approximately INR40,000 crores in the quarter and INR1,075,000 crores since prior year. Retail constituted about 83% of total deposits and contributed to the entire deposit growth since last year. CASA deposits registered a robust growth, up 24.6% year-on-year, ending the quarter at INR681,225 crores with savings account deposits at INR471,000 crores and current account deposits at INR210,000 crores.
Time deposits at INR764,693 crores grew by 5.6% over previous year. Time deposits in retail segment grew by 8.3%. Time deposits in wholesale segment decreased by 2.8% year-on-year. CASA deposits comprised 47% of total deposits as of December-end. Total advances were INR1,260,863 crores, grew by 5.2% sequentially and 16.5% over prior year. This is an addition of approximately INR62,000 crores during the quarter and INR179,000 crores since prior year. Moving on to CAPAD, which I covered at the beginning, total — according to Basel III guidelines, total capital adequacy at 19.5%; Tier 1, 18.4%; CET at 17.1%, which I covered previously. Now, getting on to some highlights on HDBFSL. This will be on Ind-AS basis. The total loan book as on December 31 stood at INR60,478 crores with a secured loan book comprising 74% of the total loan.
Conservative underwriting policies on new customer acquisition, which was implemented during COVID, continues to be in place and will be reviewed in due course based on external environment. Disbursements have picked up in Q3, growing 9% quarter-on-quarter and 11% year-on-year. For the quarter, HDBFSL’s net revenues were INR1,982 crores, a growth of 15%. Provisions and contingencies for the quarter were at INR540 crores, including INR97 crores of management overlays against INR1,024 crores for prior year. Profit after tax for the quarter was INR304 crores compared to a loss of INR146 crores for the prior year quarter and a profit after tax of INR192 crores for the sequential quarter. As of December end, gross Stage 3 stood at 6.05%, flat sequential quarter.
80% of Stage 3 book is secured, carrying provision coverage of about 41% as of December end and is fully collateralized. 20% of the Stage 3 book, which is unsecured, had a provision coverage of 84%. Liquidity coverage ratio was strong at 222%, and HDB cost of funds of 5.9%. Total capital adequacy ratio is at 20.3% with the Tier 1 at 14.9%. With markets opening up and customer accessibility improved to near pre-COVID levels, we believe the company is well poised for a healthy growth from here and subject to any impact on further waves of COVID. Now, a few words on HSL, again, on Ind-AS basis.
HSL, HDFC Securities Limited, with its wide network presence of 213 branches and 140 — across 147 cities and towns in the country, has shown an increase of 58% year-on-year in total revenue to INR536 crores. Net profit after-tax of INR258 crores in Q3 is an increase of 58% year-on-year. HSL’s digital account opening journeys are running successfully. There has been a significant increase in overall client base to 3.4 million customers as of end December, an increase of 30% over prior year. In summary, we have reasonably overcome the effects of pandemic over the past 21 months across broad counters of balance sheet, P&L, and human capital.
While the effect of the latest COVID wave is not clear, which we’ll have to watch out over the next few weeks to see if they return, we are confident of navigating through this applying our learning from past waves. Our growth is accelerating, leveraging on our people, product, distribution and technology. The quarter results reflect deposit growth of 14%, advances growth of 16%, profit after-tax increased by 18%, delivering the return on asset over 2%, earnings per share in the quarter of INR18.7, book value per share increased in the quarter by INR19.4 to INR414.3.
With that, thank you very much. With that, may I request the operator to open up for questions, please.
Questions and Answers:
Operator
Thank you very much. [Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Capital. Please go ahead.
Mahrukh Adajania — Elara Securities (India) Pvt Ltd. — Analyst
Hello. Congratulations. My first question is on credit cost. So, if the credit cost, including contingencies, has come below 100 after many quarters, around three years. Now, assuming that there is no further COVID wave, is that the new normal we are likely to see over the next few quarters?
Srinivasan Vaidyanathan — Chief Financial Officer
Mahrukh, thank you. Hope that
Operator
Excuse me, sir. I’m so sorry to interrupt. May I please request you to speak closer to the phone, sir? Your audio is not clearly audible.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. All right. Yeah. I moved my chair, but it’s okay. Yeah. Mahrukh, thank you. Yes, valid question and appropriate. Thanks for asking that. See, we’re coming from a COVID cycle where our bookings have been — from a retail point of view, have been benign. Second, from a wholesale point of view, which we have shown right? So, we come through the cycle and now starting to begin to get the retail account.
The recent vintages, when we look at the recent vintage performance, they are far superior, both the entry level scores and the customer profile in terms of how we opened up and started, they are superior, right? And whether is this a new norm? I would not say that this is a new norm, right? This is — you have to look at credit cost normally over a cycle over a period of — over a period of a few years, you have to look through a cycle. And that’s how you need to look at it. But if you look at our NPA, 1.26% can bounce around at any time, 10 basis points, 20 basis points up and down. Two quarters ago, 1.47%, now 1.26%. So it can go up and down within a small range, that’s where it can come.
From a credit cost point of view, well, we have not given a particular outlook as such. But we have averaged in the past, call it, 1.2%, 1.3%, thereabouts. That’s the kind of range at which the total cost of credit, total provisions that is that I’ve come up with. Current quarter is at about 95. So, that’s — we call it a little lower than that, right?
So, in a broad range, if you think about 100 to 120 kind of a basis points, that’s where in a — last — go back to pre-COVID, that’s the kind of range at which we have operated, right? And if the credit costs are lower then, the way we look like at is, it calls for experimenting a few things. It calls for opening up policy. So, there is a policy reaction that comes in, right? There is always — that the pull and pressure between the business and credits that happen. So I wouldn’t take that 50-odd basis points, 60 basis points, total credit costs or the specific losses or a total cost of 95 basis points as a good standard for a long time to come. But this is the current quarter, it’s where we are.
Mahrukh Adajania — Elara Securities (India) Pvt Ltd. — Analyst
Okay. Thank you, sir. And my next question is on fees. You did mention that payment and credit card related fees declined, but were there any one-offs — if you could give more color, was there any one-off of data and promotional expenses which won’t recur so that we know or we can get a fair outlook on the trajectory in the next few quarters?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Yeah. Again, a good question. Thank you. See, the fees, INR5,000-odd crores that we reported is 2%, right? In the past, we have done — pre-COVID if you think about it before, there were waivers and so on and so forth, we have done 20-odd-percent or so. We have consistently said the way to think about the fees is somewhere where it should settle is mid- to high-teens kind of places where it can settle, all right, normally.
And again, this quarter, if you to think about excluding the payment products, it is at about 17%. Payment products has been unusually low. There are a few things to think about on the payment products. One, as I alluded to, we offered certain fee waivers to incentivize customer engagement, right? So that’s one thing which doesn’t need to recur every quarter, but it can happen every other quarter depending on what programs we run, right? That’s part of running business and that’s part of growing the franchise, right? So that’s one thing to think about.
Second, even from a cards point of view, from a credit — I think I alluded to, in terms of how customer behavior from a late payment point of view, right, is that customers are paying very much on time, so that is reflected there too. So the opportunity that we used to get from a late payment doesn’t come through. The customers used to pay cash advances. That is on the lower end, right? So the cycle has to turn a little more on that, and so you’ll see some cash advances coming through, right?
And from a policy point of view, until recently we were tight on the credit limits, right? So when there is a credit limit, over the credit limit, there is some fees that will come, that is also lower because from a policy point of view, we’ve been cautious on that, right? But as we speak now, the policy review has taken place, and we are getting to business as usual subject to another wave of what it does and so on, right? So that is one aspect that you think in terms of the impact.
But then the broader context is required in terms of what is the overall, right? So if you think about the customers itself, particularly I’m talking about the payment products, the card customers, right? The credit line utilization is at a low. It’s like of the pre-pandemic level. So the — while the spend levels are up 24% and the interchange is quite robust and good with a good yield that we get on that, but the credit line utilization has got much more to do to get back to the pre-pandemic level. So that’s one thing on the people who are spending, so that means they’re paying.
And then if you think about if they are all paying, what is happening to their revolver types, right? That is also at about 0.7 to 0.8 of the pre-COVID levels in terms of the revolving on card. So there’s much more room for people to get into those revolver type, right? So that’s part of what the strong quality of the book that exists today, right? And that is part of what some of the fees that come are also muted which are connected to that.
I’ll give you another perspective to think about on the cards business itself, right, on the customers liquidity. Deposit balances, most of our card customers have liability relationships with us, right? We have good amount of liability relationships. Card customers contributed almost 4 times — this is pre-COVID. If X is the advance — X is the ANR of cards, which is the card loans on both, at an aggregate level. At an aggregate level, the liability balances on the card customers were typically 4 times. Right now it is 5 times.
So, which means, customers are sitting in good amount of deposits and liability balances with that. So, this is — the economy has come down and now there’s a huge amount of liquidity and cash at disposal with people, now it is starting to pick up on growth. And so this is part of the cycle growth that we expected to come back to a reversion, right? So, from a long-term point of view, mid-teens to high-teens is what we have said in the past and that’s what one should expect from a card fees point of view.
Mahrukh Adajania — Elara Securities (India) Pvt Ltd. — Analyst
Thanks. But how — in your assessment, how many quarters would it take to reach that long term?
Srinivasan Vaidyanathan — Chief Financial Officer
See, it depends. It’s a combination of both the environment — the economic activity in the environment and the customer behavior to get on with that. It could be two, three, four quarters, I would expect that — I don’t want to venture to predict exactly what it is because there is no exact signs that tell where it is. But typically that is what you would see that it takes for a maturity model to operate.
And similarly, the same thing applies to — if you think about the PPOP, it is very similar, right? Whether as the loan growth gets back, the PPOP should more or less mimic the loan growth. That is what historically that we have shown. That is where historically we outperformed, right? That is the kind of what the loan growth is, the headline, that’s what more — most of the lines operate, tend to be similar as you go along.
Mahrukh Adajania — Elara Securities (India) Pvt Ltd. — Analyst
Okay, thanks. Thanks a lot. That’s helpful.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Hey, thanks for taking my question and congrats on the decent set of quarter. The first question is about the reconciliation between the — on the restructured loans. What we see in the notes to accounts that works out to be around 23,000, that is 1.37 works out to be around 17,000. So how do you reconcile both these numbers?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. You’re seeing, what you said.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
When I see notes to accounts, the total number works out to be around INR18,000 crores plus there would be an R1 number. So both put together is around INR25,900 crores. Notes to accounts also mentions that the double counting between R1 and R2 is around INR2,700 crores or something like that. So, the net number works out to be around INR23,200 crores, whereas our comment shows that it’s around INR17,200 crores. So, that is a gap of this around INR6,000 crores.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Got it. Got your question. See, it is based on what the template, right? Somebody finds a template and we fill the template up and put up there, right, so that’s something different. And it’s a good point that you raised, right? The INR25,000 crores, what was there, is what did you grant as a restructuring in R1 and R2. When you add up, that is what it is, and if you eliminate the double counts, it is that INR22,000 crores, right?
This was originally granted in several points in time. That means, whenever it was granted at those point in time, right, what was the number? That is what you see there. Last September, we reported INR18,000 crores, right, last September. And currently we say 1.37%, that is INR17,500 crores or so approximately. So, first, what would be — the INR18,400 crores to INR17,500 crores, the movement, about INR900 crores of movement, but half of it has moved to NPA, half of it is a net of various recoveries and adjustments.
So, that is part of what from September to December, things have moved, right? But between the INR22,000 crores to what we reported in September INR18,000 crores, that is a net of whatever happened between September, which is between what happened to NPA, what happened to various recoveries and adjustment around that time, right, as we speak in September. That’s part of — I think some you picked up the number of what was originally granted, but what was outstanding as of September is INR18,000 crores and now, it’s INR17,500 crores.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Okay. So, Srini, just correct me if I’m wrong. If I look at the September disclosure, right, the R1 plus R2 minus the double counting, see, as per the notes to accounts was around INR22,500 crores, of which there were NPLs and the amount repaid of the R1 amount that you mentioned in the notes to accounts. So, that number was around INR20,400 crores. Whereas, as per your disclosure in September was INR18,200 crores. So, the INR2,000 crores was the difference between the amount which was reported as of September and between your result date. Is that — my understanding correct?
Srinivasan Vaidyanathan — Chief Financial Officer
Correct, correct. Various other recoveries and other things that came until the reporting date.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Okay. Okay. And right now also is a similar situation wherein you have not reported the NPLs and the repaid amount out of R1 and R2. So, the — as per the notes to accounts, it could be around INR23,200 crores. But after the recovery, NPLs, everything and the repayment, etc, it’s around INR17,200 crores. That’s the number.
Srinivasan Vaidyanathan — Chief Financial Officer
This quarter, notes to accounts simply calls for — it was again mandated, right? It calls for reporting only R2. As originally granted, it is reflecting INR18,000 crores or something in the notes. INR18,000 crores is not the outstanding, right? It is — INR17,500 is outstanding. So, whatever was mandated to show in the notes, that’s what we showed. But both — when I talked and I gave 1.37%, that is the INR17,500.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
This is R1 — R2, whatever is the restructuring outstanding on the balance sheet that is the number that you are mentioning.
Srinivasan Vaidyanathan — Chief Financial Officer
That is correct. That is correct.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Okay. The second question on the — can you just give some qualitative comments related to the tenure of this book? You mentioned as one of your comment that 10 basis points, 20 basis points would be shifting to gross NPA at any given point in time. But there could be a situation that almost 25%, 30% of this book can slip over a period of next one year. So, when we are talking about 10 basis points, 20 basis points of that particular quarter or are over the tenure of the book? So, for example, if it’s around 1.37%, then out of this 1.37%, only 20 basis points can slip into NPL category? I just wanted to clarify that number.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. See, by the way, there is no particular signs of 10 basis points or 20 basis points, or something. This is based on what our analytics comes up to say based on what experience we have seen based on the customer profile, which I alluded to say, for example, the one that I gave, about 40% are secured, right, fully collateralized. And we — with a good CIBIL score, which we feel very comfortable with, right?
Then, on the unsecured portion, we said about, call it, roughly about two-thirds or so are salaried customer where we feel quite comfortable, right? And then on the balance, where we keep watch, about 40% or so have good CIBIL scores, CIBIL score more than 700 or so, right? So, based on various — these kind of analysis, that’s where we should certainly feel comfortable that 10 basis points, 20 basis points at any particular point in time that can be within our tolerable range, right? And from a restructuring point of view, generally, the restructuring can run up to two years, right? And again, if there was one year of a loan left and the two years granted, now the person has got it for over three years to go.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Okay. So, again — just again clarifying over here is, almost 15% to 20% of the book can slip as per your analytics. Is that the number correct now? That 10 basis points, 20 basis points is — of 1.37%. So, it’s around whatever that 7% to 15% of the book can slip based on your analytics or the customer data that you have?
Srinivasan Vaidyanathan — Chief Financial Officer
I don’t want to venture into extrapolating the 10 basis points, 20 basis points into various time periods.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Okay. No problem.
Srinivasan Vaidyanathan — Chief Financial Officer
Yeah.
Alpesh Mehta — IIFL Securities Ltd. — Analyst
Yeah. Yeah. Got it. Got it. Okay. The second question is related to the credit growth. Historically, we had a multiple — X multiple of the system credit growth that we always used to guide about, but — as just an indicative number. But now when I see at the system level because of the consolidation in the larger segment within the PSU bank, the system maybe growing at X-percent, but the private sector banks are growing much faster than that. And some of our larger peers are also growing at a significantly higher rate than that of the system. How do we see our credit growth? Do we still maintain that X-percentage that we used to talk about in the past or we can have a — better opportunities to grow much faster and gain market share?
Secondly, your comment on the three specific products: one is payment products; second one is the commercial and rural banking, which is growing very fast at around almost 30% Y-o-Y; and lastly, corporate and wholesale banking, since we had developed quite a bit of capabilities over the last two years and grown this book aggressively as a share of overall loan books? So those are my questions. Thank you.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Thank you. A long question, but I’ll try to be as short and crisp as possible. If you think about the loan growth and the market share, one thing is that our loan growth is consistent, right, consistently growing including during the COVID period. And one has to look at it, not one quarter, two quarters, but over a longer period of time one has to look at how we are growing rather than the one period, so essentially looking at the consistency of growth over a longer period.
For example, you can take a two-year growth, right, longer period. And that includes the COVID period, too, we’ve growth at 35%, right? Let’s call it high-teens annually, that kind of the growth rate for sure. So — and similarly you can go back five years — five-year period between 2016 to 2021 or something like that, again, about two-plus — that’s little more than double, call it, high-teens type of growth. That’s what we had at that time.
So one has to evaluate — in the current circumstances, one also has to evaluate based on the incremental basis, right, what we have grown? We believe based on an incremental basis we have a share of more than 25% or so on an incremental basis, right, from what has happened. If you think about it, INR179,000 crores in the past 12 months, INR325,000 crores in 24 months, right? And again, we focus on appropriate products. We’ve touched upon the categories of commercial and rural or wholesale and retail.
Yes, at some point in time, we did grow a good amounts of wholesale with a good demand. We were there for the customers to support them in terms of the wholesale, very highly rated. And now we see a lot of prepayments happening, that’s about 7-odd-percent is what year-on-year we see in the wholesale. On the commercial and rural, enormous opportunity and the very fast growing. About a third of the country’s GDP is contributed by that kind of a segment, right, that segment. And we want to participate more vehemently in that group — in that segment and we will continue to bounce on that one.
On the retail, we were subdued rightfully so from a policy point of view, we are back, and that is what you’re seeing in the sequential growth at 4.5% or so. So, net-net, coming back to the same summary, which is, now one quarter or two quarters doesn’t establish what the growth is. It’s about the consistency of growth and over a period of time. And — that’s how you must look at it in terms of our growth. And we will continue to capture market share. And again, in a balanced portfolio across secured, unsecured in retail, across commercial and rural and wholesale. So, across various product spectrum, customer spectrum.
Operator
Thank you. The next question is from the line of Aakriti Kakkar from Goldman Sachs. Please go ahead.
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Yeah. Thanks. Hi, Srini. Good evening. Rahul here. A couple of questions. First one on the asset quality bit. Just wanted to confirm, was there any new restructuring that we did in this quarter?
Srinivasan Vaidyanathan — Chief Financial Officer
No. No new restructuring but part of that change that I gave you, INR500 crores, it’s a plus and a minus net of INR500 crores, which is whatever was in the pipeline that came through that was about INR500 crores or so that new debt payment but that was not a new granted — application granted, whatever was in the pipeline that came, but then the pay downs and other things that happened. So, net-net, it is at INR17,500 crores, 1.37%.
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Understood. Thanks. The second question is on the slippages and credit costs. I think Mahrukh also asked this question. On the credit cost also, 95 basis points and slippages also are from the lowest that we’ve seen in the last three quarters. Assuming no pandemic impact, do you think this could be a new normal over the next few quarters? And then in that context, how do you plan to build up the PCR buffers from here? Shall we continue to see more and more floating provisions come through?
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Good question. You touched upon another aspect of what Mahrukh also touched upon. But as a bank, we don’t give one particular outlook or forecast in terms of how to look at the credit. But all I can point to is to historical to say that in the recent COVID time period, we operated 1.2%, 1.3% kind of thing. If you go to little before the COVID period, 100 basis points to 120 basis points somewhere there we operated. Currently, including the COVID — the contingent provisions of about 95 basis points. But, yes, over a period of time, again, when you look at it, you should revert to that kind of a — what was the pre-COVID mean — type of a mean reversion should happen towards there, right?
And current quarter is reflective of what we have booked because the recent vintages call it the 18 months or 15, 18, and 21 months type of vintages that we booked across various segments, right? Across various segments, they are of a very good quality. Retail book is typically two years on an average retail book. And is of a very good quality. And our renovation lab is working on several things, including opening new to bank, right.
So that means what previously that we had about, call it, 80% of existing to existing banks, personal loan or call it two-thirds to 70% existing to bank card loans, now, our innovation lab is making progress towards using alternative data from the market to see how new to bank could be as efficiently scored and pass-through the muster on the scoring models to get there. So, yes, I wouldn’t ask you to project based on the current quarter, but you should think about it from a pre-COVID norm what it is and that’s the kind of.
So, your second aspect of the question on the building of the provisions and so on, right. See, our build-up of the contingent provisions goes back several quarters and much before the onset of COVID period, right. So, for example, if you look at June 19 or so when we initiated a build of our contingent provisions, that was to argument our counter cyclical provision then, right. At that time, the contingent provisions were less INR1,000 crores, right. Today, it’s built-up, it’s more than INR8,500 crores, right, or about 70 basis points of gross advances or 80 basis points including floating provisions whichever way you look at it, right.
What it does is that it makes the balance sheet much more resilient for any shocks, uncertainty pandemic can bring. And, such — what does such resiliency do? It supports good execution on the frontline for our growth, including making several experiments in our labs as I alluded to. So, that’s how we should think about. We evaluated quarter-to-quarter. There is preplanned type of how this runs, we take it as it comes in the quarter and evaluate it.
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Got it. Srini, just two more question. The other question was on the credit card or the payment products profitability. You laid out a few points why it was muted this quarter. But when you think about the structural profitability of this product and also what regulators are thinking, any thoughts as to how we should think about what are the components that would still remain remunerative while the component which could witness some pressure. You pointed about the fee waiver, the late payment fee, etc, sort of coming down. So how should we think about more from a one- to two-year perspective?
Srinivasan Vaidyanathan — Chief Financial Officer
Good question, right. We’ll come to that — the regulatory or any other things that we’ll come to that. But from an overall buoyancy point of view, see, the first aspect of a card is about the spend, and the spend has quite picked up 24% or so year-on-year growth, right. So that is something that has happened. And the next thing as the spend goes up, the credit line utilization needs to go up. As I said, the credit line utilization due to the spend coming down over a period of the COVID came down. Now, it needs to go up, but still credit line utilization is at about 0.8 of the pre-pandemic level. So that should start to go up. And then along with that gets to the revolving and so on and so forth, everything else that comes, right.
And from a fee charging point of view, there is various fees — the penal type of fees or incentive type of fees or loan origination kind of fees, those are routine and will happen, moves on as the volumes come up, right. Any other type of fees that there can be a regulatory constraint also comes to the cost, right. So that means you need to think about not just the fees, it also — you need to think about the cost that goes with the fee.
For example, see, if there is certain fees that goes off, there has to be a certain cost also that goes off, right? And what are the type of costs that can go off? You see that there is a balance between what you earn on the fees and what you spend on the expenses, call it the rewards, call it the cashback, call it the sales promotion, the marketing promotion, they all have some linkages across the P&L, right, from top to bottom, these are the kind of linkages. One cannot look at only one in isolation as a structural change, right. There’s no such structural change. But if there were to be a structural change, one has to look at it across all P&L lines in terms of what is discretionary and what supports what, right. And then accordingly, one has to model. But from an aggregate sense, the cost profitability model should remain intact irrespective of whatever.
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Got it. Last question on the digital strategy. You’ve announced a partnership with the two entities. So, can you just talk about this partnership with or the entities that you’re moving about? And how does this sort of feeds into your digital tool strategy to acquire and retain the customers, and also from operating leverage point of view? That is the last question. Thank you, Srini.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. Thank you. I know this is more of a — it’s a key question and getting talked about everywhere in terms of partnerships and how we think about and the cost to income and so on and so forth. Maybe it’s the time I’ll take two — three minutes or so to describe, right, how we think about it, and you can see whether it fits in with what you’re all thinking, right.
See, in a bank, you like to look at things in three different kind of activity, call it, like that, right? One is the customer acquisition, the second one is customer servicing, and third one is the relationship management. So, this is the continuum of how one engages with the customer on what sort. The various fintechs and the partnerships that we are all talking about is on the front end there, on the customer acquisition side, right?
We have several channels for acquisition, branch, we have a virtual relationship model, we have a feet on street model, we have a physical DSA model, right. And then now we have a digital marketing model developed over the last three years based on analytics. And now we have a partnership model where call it a fintech partnership or any other type of partnership that we think about, that is another model. And we do get — I gave you some time ago in terms of regarding 2.4 million liability relationship. That’s a key ingredient that comes in based on which every other product starts to work on that, right. And so that is the kind of inflow of customers. So you get a little more accelerated customer acquisition.
At the end of the day, you measure the effectiveness of that through the better cost of acquisition, which is the optimal cost of acquisition, that’s where it gravitates to. Because branch brings in accounts, brings in relationships at a cost that is much better than the fintech or better than a partnership, that is where things gravitate to, right. That’s part of the cost of acquisition model, that’s how you think about that. You can set another fintech or a service or a mobile banking feature or various other things that goes in customer servicing, that is enabling customers to do things where it can be done on self-service or where it is done through a relationship management, how on a straight-through basis, on a paperless basis that we execute. But here you measure that to a cost to income, whether are you at an optimum level in a cost to income where you are able to support the customers’ activity in an optimum manner. So that you measure through how we are executing on that aspect of it, right.
Now, on the relationship management, which is where the most of the money, right, which somewhere in the past we have done, we have said even last year, I think we mentioned it, call it about a third — less than a third, little less than 30% of our customers provide little more than two-thirds of value to the bank, right. And 30% of the customers are the ones where we have a relationship management. So at the end of the day, you can bring in any customers through any channel, optimum cost of acquisition, you service them through digital approach to anyway, at the end of the day, the value it comes to relationship management, right. That’s what at least in our case, we have published that and we have talked about this in the past. So it is about the relationship management that brings in.
Now, there are certain things in relationship management. For example, in the relationship management, we implemented, we’ve talked about over the last 12 months actually during the COVID period, the analytics-based engagement with the customer, the next best action that we implemented, right, in terms of how it rank orders customer preferences based on product, behavior, and intent to purchase. And that the recommendations that come, we have for 20 million customers, we have recommendations that we have an engagement with them. Again, it is digitally driven, proprietary driven internally through analytics technology helps there, but the delivery is through relationship management.
So this is — it can’t be delivered through a mobile banking or an Internet banking or a fintech partnership or any other partnership can’t be delivered, right. It gets delivered through — because that’s where the value comes through a relationship approach, right. So that is something that the capability is coming from there. So, that’s — probably I’ll leave it there, I’ve taken a minute or two more than what I’ve said I will do. I hope that gives a perspective of how we think about it.
Rahul Jain — Goldman Sachs (India) Securities Pvt Ltd. — Analyst
Yes. Yes. Thank you so much, Srini. Will definitely take it offline as well. Thank you so much.
Operator
Thank you. The next question is from the line of Saurabh [Phonetic] from J.P. Morgan. Please go ahead.
Saurabh — J.P. Morgan — Analyst
Hi. Good evening, Srini. So, just one question. One — this is on your net interest margin. So, how should we think about the progression from here? The book mix clearly seems to be getting better, and if rates rise, you clearly seem to be better positioned. So, would you expect that the NIM should go out from here? And in that context, your earlier comment that PPOP will grow in line with loan growth, shouldn’t ideally this growth be better? Thanks, sir.
Srinivasan Vaidyanathan — Chief Financial Officer
Okay. See, Saurabh thanks for asking. Again, the very key part of the dynamics from the P&L to think about, right, see, historically over a period of 3 years, 5, 10, 15, right, we have seen all of those and which you have seen too. The bank has operated in the band of, call it, 3.94% to 4.45%, right, to 4.4%, 4.5%. That’s the bond at which — by the way, that is based on average assets not interest-earning asset because I don’t want to get confused with the denominator being what it is. The denominator in this case that I quoted the numbers is average assets because there is a process, I think, in industry about using interest-earning asset but that’s a different matter, I would say, 3.94% to 4.4%, 4.5%, right, that’s the band at which.
Currently, we’re at the low end of the band because the retail products where we see much more of yield coming, much more of the spread coming, and it comes with the higher RWA, right. It comes with a better — with a higher risk rating on those, right, that comes there. We brought that down and it’s in the mid-40s, and it’s starting to take its own legs and start to grow, right. So, one, is that it needs to take its time to grow back to what it was, call it, two years, right. So that’s the journey. And the journey if you look at the sequential that you have seen, about 4.5%, call it 18% or so is the growth on the retail portfolio, right.
And the next part of that could also be on the retail front itself, the mix of the retail front, right, whether in the current rate scenario, what sort of loans that yield, right. It also depends on the segment in which we operate. In the recent past, we have had a good growth in retail, this quarter 4.5%, last quarter also it was 4-something, right. So, it’s going to take a few quarters for that to come back to life. But within that, as we came out of COVID and started to focus on this, we have five categorizations for the corporate salaried segment, which where many of our high yield products are targeted to, right. Category A, B, C, D, E, right. And category A, B, C — cat A, cat B, cat C is a kind of a very popular where we’ve had a good success to start with right now. And we should have it broad-based as we go along with better yield when the rates also are going up, right. So, that is something to keep in mind that.
And the other aspect of it is also the government segment. The government segment in our analytics — risk analytics model can typically be a low risk relative to the rest. And will come in a risk based pricing model, it will come as a low, relatively lower yield than the rest. So, that is something also we’ve focused and continuing to focus on that also. So, at the end of the day, it will take few quarters for this mix of retail and within the mix of retails to be much more broad-based across all the segments within the retail that we are talking about to come up. So, that is one aspect of what we can think about the NIM coming up.
The other aspect of the NIM is also about the rate itself, right. If you think about the repo rate, loans linked to repo rate slightly under a third right now, right, about 31%, 32%, slightly under one-third of our loan book is linked to a repo rate. And about a little mid-single digit or so is linked to T-bills, right. And so, which is if you go back two, three years ago when we were in the mid to high-end of that NIM range, the components — that means the composition of these two were very meager, right, were very low, call it — I wouldn’t call it single-digit, but very low it was. So, it has really has moved and now the rate starts to move up, that is going to give something. And of course, the cost — as the rate starts to move up that will have an impact on the cost of funds too. But the cost of funds can come with a lag. And the savings deposits may not necessarily. On the time deposits, it can come with a lag, right. So, that’s the kind of way you think about it, saying one, is the rate environment and another is a mix of retail that can come and bring in that.
Saurabh — J.P. Morgan — Analyst
Got it, Srini. So ideally, it should move up, so that’s what I was coming to that if your NIMs tend to move up, shouldn’t your operating profit be better than loan growth is the limited point I was trying to get at.
Srinivasan Vaidyanathan — Chief Financial Officer
See, Saurabh it’s a good point that you said, right. But from at least my point of view, my perspective I will tell you that you need to be continuously investing, right. And when you make those continuous investments, then that is where you get to the long term. So, in a static book, what you say is right, right. Like if you look at it in the short term say, hey, don’t make any other change, just allow these two changes, change the mix from the loan, and change the segment between retail, get a higher-yield segment, and should that be, yes, it will be.
But you know that this is not a unidimensional model, right. It should be a dynamic model where you invest for the future. That’s why I alluded to in my opening remarks that about the branch investment, about the people investment, about the technology investment. We need to do that for the future. You don’t see a return on it today. You will see the return on it in a couple of years’ time, right. Because the branch maturity model takes anywhere from two to three years to be in a reasonable state and between five to 10 years to get to be a robust state, right.
Same with people productivity. And so, you need to make those continuous investments on those. And so, that is why the ones that I mentioned that the pre-provision operating profit or PPOP limiting kind of a lending growth rate. That’s how historically we’ve been because continuously, we have added branches. So if you think about in the last five to 10 years, we’ve added 2,600 branches in the last five years to 10 years. In the last one to three years, we’ve added 1,100 branches, right. And so, these are the kind of investments continuously we do to model so that it’s dynamically maintained for a longer term to come.
Saurabh — J.P. Morgan — Analyst
Got it. Thank you, Srini. Thank you. Thank you, sir.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you. Thank you.
Operator
Thank you. The next question is from the line of Suresh Ganapathy from Macquarie. Please go ahead.
Suresh Ganapathy — Macquarie Capital Securities (India) Pvt Ltd. — Analyst
Yeah. Hi, Srini, I have a question on these — on the fee for the payments products in the sense that, are you seeing pressure on interchange fees, are the MDR levels coming down? So, the reason why I’m asking this question is that, first, of course, you can just tell us what has been the experience? And secondly, from a — from the new digital payments paper, I know it’s always difficult to second guess what the regulator is thinking. But you really think there can be further reduction with respect to MDRs on debit cards?
Can there be something on credit cards? Can UPI be monetizable? I’m just asking all these questions because everything has got to do with the payment-related fees. So, if the regulator is thinking only in one direction as to bring down the transaction cost, then this is not going to be one quarter phenomenon. You’re going to be prepared for subsequent several quarters. How is the management thinking about taking care of some of the regulatory challenges here? Thanks so much, Srini. Yeah.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you. Thank you, Suresh, and that’s indeed important to address it and think about and say about what we think, right. There are two aspects to this. One is the experience itself in terms of what we see on the interchange or the interchange or the MDR. There has been no pressure on interchange or the MDR from a rate point of view, right. It has been quite steady and quite nice. So, that is something from our recent experience that has not been inhibiting our kind of a fee line. The rate is quite all right.
Now, now, when the MDR, we’ll address that because it is easy to address, we’ll come to interchange. See, MDR, we don’t make — on a net basis we don’t make much — we don’t make anything on MDR, for that matter. That means, if it is an internal customer that means we have a issuing card, our MDR business stays interchange to the issuing card, right. So — and if it is a third-party card, card, our MDR business case interchange to a third-party issuer, okay. So MDR business are such is pretty neutral.
But we still very, very vehemently pursue MDR relationship or merchant relationship 2.85 million and we continuously grow that because of the sandwich strategy, which is along with that comes the liability and complete asset value, right, which liability we’ve already started, and assets we are working on various models and we have come to a reasonable value there. We still have to do a lot to grow there, but that’s part of that strategy so that MDR as such, there is nothing to take it away on MDR because there’s nothing there to take it away. So that’s one.
Now coming to the interchange, it being held steady. If there is any other pressure on interchange, Suresh, as I alluded to little earlier in some other context of the question, which is, see, interchange in isolation for us should not be looked at. Interchange should be looked at in the context of what is the rewards that is offered on the card, right. What are the rewards, cost of the rewards points, cost of the cash back points that are such — cash back cost which is there.
Cost of the sales and promotion marketing type of cost that are there, right. So these — when you draw a P&L only on the sales, so that means keep the revolvers to the side, keep those people who do the cash advances and who do the limit enhancements or spend more than the limits and who habitually pay late and keep them to the side, right. And so pure transactors if you see and you draw a P&L on the transactors, it is like that MDR sandwich strategy.
You keep the customer engaged because you got a slope on the liability side with the customer, and you’re able to do certain things on the asset side of the customer. So, if the interchange for any reason, right, which you can’t predict but if any reason that has to move up or down, then you get the other levers on the P&L gets operated, right, which is when you look at rewards, when you look at your cashbacks, then you look at your marketing and sales promotion. And so, you look at all of those and try to manage the P&L to profitability.
Suresh Ganapathy — Macquarie Capital Securities (India) Pvt Ltd. — Analyst
Okay. Okay. Thanks.
Srinivasan Vaidyanathan — Chief Financial Officer
Thank you.
Operator
Thank you. Ladies and gentlemen, that 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
Okay. Thank you, Jennifer. Thanks for all the participants for dialing in today. We appreciate your engagement. And if you do have anything more that we could help you from your understanding, Ajit Shetty in our Investor Relations will be available to talk at some point in time in the future. Please stay in touch with us. Thank you.
Operator
[Operator Closing Remarks]