HDFC Life Insurance Company Ltd (HDFCLIFE) Q4 FY23 Earnings Concall Transcript

HDFC Life Insurance Company Ltd (NSE:HDFCLIFE) Q4 FY23 Earnings Concall dated Apr. 26, 2023.

Corporate Participants:

Vibha Padalkar — Managing Director and Chief Executive Officer

Niraj Shah — Chief Financial Officer

Suresh Badami — Deputy Managing Director

Analysts:

Suresh Ganapathy — Macquarie Group — Analyst

Deepika Mundra — J.P. Morgan — Analyst

Avinash Singh — Emkay Global — Analyst

Sanketh Godha — Avendus Spark — Analyst

Swarnabha Mukherjee — B&K Securities — Analyst

Madhukar Ladha — Nuvama Wealth — Analyst

Nidhesh Jain — Investec India — Analyst

Nischint Chawathe — Kotak Institutional Equities — Analyst

Eshwari Murugan — Appointed Actuary

Akshen Thakkar — Fidelity International — Analyst

Supratim Datta — Ambit Capital — Analyst

Parag Thakkar — Anvil Wealth Management Private Limited — Analyst

Dipanjan Ghosh — Citi — Analyst

Nitin Agarwal — Motilal Oswal Financial Services — Analyst

Pallavi Deshpande — Sameeksha Capital — Analyst

Viraj Shah — Axis Capital — Analyst

Neeraj Toshniwal — UBS India — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to the HDFC Life Insurance Company Conference Call. [Operator Instructions] There will be an opportunity for you to ask questions after the presentation concludes. [Operator Instructions]

I now hand the conference over to Ms. Vibha Padalkar, MD and CEO of HDFC Life. Thank you, and over to you, ma’am.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you, Robin. Good evening, everyone. Thank you for participating in this conference call to discuss the financial highlights of the year ended March 31, 2023. Our results, which include the investor presentation, press release and regulatory disclosures have already been made available on both our website and the stock exchanges. Accompanying me are Suresh Badami, Deputy Managing Director; Niraj Shah, CFO; Eshwari Murugan, our Appointed Actuary; and Kunal Jain, Investor Relations.

I will provide an overview of our FY’23 results and be happy to respond to any queries following that. As was done in the previous year, we will be presenting the financials, including the acquired business, therefore it is possible that the numbers from the previous year might not be entirely comparable. Before I proceed, I would like to take this opportunity to congratulate Niraj on his elevation to the Board of HDFC Life as Executive Director and CFO.

As you may be aware, the RBI has permitted HDFC Bank or HDFC Limited to increase their shareholding in HDFC Life to more than 50% prior the effective date, thus clearing any uncertainty around HDFC Bank’s eventual shareholding in us. We look forward to collaborating with our parent to be, towards creating value for all stakeholders.

Moving on to our operating performance during the year. We closed the year with a strong growth of 27% in individual WRP with a market share of 16.5% and 10.8% in the private and overall sector respectively, clocking expansion of 40 basis points and 70 basis points, respectively. We continue to grow faster than the private sector and we ranked amongst the top three life insurer across individual and group businesses.

In terms of individual WRP, we have outpaced the private industry over multiple timeframes, including in the past three, five and seven years, thereby consistently demonstrating growth leadership. As you are aware, the fourth quarter saw budget announcements with respect to changes in tax regulations effective April 1, 2023. Individual WRC growth till February was about 15% and did not have any impact of budget changes. The new business premium recorded in the month of March, 2023 was boid on account of the additional demand, especially in the non-par and high-ticket size segments.

The incremental business can be estimated for us as the distance between actual growth for the year of — for the year of 27%, an extrapolation of the 11-month growth trajectory of around 15% to 16%. In the month of March, we were able to leverage the opportunity by offering competitive solutions, whilst managing profitability and adhering to a calibrated risk management approach. In this month, we stood number one across agency, broker, bancassurance as well as sales through our website, which quadrupled. As a result, we registered a growth of 56% in quarter four, more than 2x growth of the industry and ranked number one amongst private players.

Looking ahead, in the medium to long-term growth opportunity in our sector remains intact. The long-term guaranteed savings product proposition is unique and the returns offered our best-in-class, even after the recent tax changes. We believe that the opportunity has only widened with the tax changes for certain other asset classes. Moreover, protection and annuity remain areas that are exclusive to life Insurance. In light of the above, we remain confident about being able to grow our APE in FY’24, after adjusting for the additional business that was generated in March and we will continue to aspire for higher than industry growth.

Our focus will be on broadening our customer base and increasing number of policies sold and the lives covered. The building aided by our diversified network of distribution partnerships and agency distribution, which was boosted by our acquisition of Exide Life. These avenues give us the ability to reach out to multiple customer segments across Tier 2 and 3 cities and deepen our reach. Further, our largest distributor and our parent to be HDFC Bank has embarked upon its branch expansion in Tier 2 and 3 locations, which will be complementary to our strategy. We recognize that the persistency and mortality experience would be different for some of these segments and the same is being factored in our overall actuarial assumptions. Our distribution continues to be supported by suitable product propositions for this segment.

Our overall product mix remain balanced. Amongst the savings products, non-par savings was at 45%, participating products at 27% and ULIP at 19% of individual APE. The non-par share increased to 53% in quarter four, due to the higher demand and is expected to normalize in FY’24. Within the non-par segment, our shorter tenure product Sanchay Fixed Maturity Plan comprised about 13% to 15%. There has been an increase in protection share in total MBP from 24% in FY’22 to 29% in FY’23.

Our overall protection APE grew by about 20% in FY ’23. This was led by our market leadership in credit life, delivering strong growth of 46% across nearly 300 plus partnerships. Retail protection trends remain encouraging with sequential growth of over 50% and Y-o-Y growth of over 40% in quarter four. Our FY’24 outlook for retail protection is positive on the back of the growth trends experienced over the last three quarters across channels.

On the retirement funds, we have steadily gained market share in the annuity business. Our annuity business in FY’23 grew by 18% on received premium basis, compared to a 2% growth for the industry. APE growth is much higher at 59% due to a pickup in our regular premium annuity product, Systematic Retirement Plan during the year.

Moving onto key financial and operating metrics. Our new business margin for the year was 27.6%, thereby delivering value of new business of INR3,674 crores, which is a growth of 37%. Margin neutrality after considering the acquired business was achieved well ahead of target. The full year margin factors in an investment of INR50 crores, that was made towards our technology transformation strategic initiative named Project Inspire, which I’ve spoken about in the last analyst call.

We expect to continue our VNB expansion in FY’24 through faster than industry APE growth, whilst maintaining close to FY’23 margins. We will increase our investments in technology and distribution including our proprietary channels to take advantage of digital opportunities as well as achieve our growth objectives. We anticipate further investments of about INR100 crores each in FY’24 and FY’25 towards Project Inspire to make us agile and future-ready, by providing a 360 degree view of our customers, seamless integration with new partners, resulting in an improved customer experience and productivity across channels.

Our embedded value stood at INR39,527 crores as on March 31, 2023 with an operating return on embedded value of 19.7% for FY’23. Profit after tax for FY’23 stood at INR1,360 crores, robust Y-o-Y increase of 13%. This was despite the increased new business strain arising from the higher growth in quarter four. The profit emergence continues to be aided by strong growth of 27% in backbook surplus.

The Board has recommended a final dividend of INR1.90 per share, translating to a payout of about 30% of our PAT, in-line with [Technical Issues] payout since FY’17. Our solvency ratio was 203% as on March 31, 2023. Renewal collection trends continue to be healthy at the back of steady persistency. Our 13th and 61st month persistency for limited and regular pay policies stood at 87% and 52%, respectively, compared to 87% and 54% last year.

Next on channel performance. Our bancassurance channel grew by over 25% in FY’23 based on individual APE. We are witnessing robust growth in all our partnership. Our collaboration with HDFC Bank remains strong as we strive to enhance insurance accessibility to the bank’s customer base. Our agency channel witnessed strong growth surpassing company level growth by more than 1.5 times in terms of individual APE. It has grown at a five-year CAGR of 34%, almost doubling its share from 11% in FY’18 to 20% in FY’23, aided partly by a strong performance in the marketplace as well as by inorganic growth. Our focus remains on enhancing activation and productivity of our financial consultants, and aim to drive growth by expanding our presence in new territories and reaching out to a wider range of customers.

Our subsidiary HDFC Pension Management company doubled its assets under management in a year — sorry, in a year-and-a-half, to exceed INR45,000 crores as of 31st March, 2023. It is the largest and fastest growing pension fund manager in both retail and corporate NPS AUM segment. Our market share has increased from 36.9% to 41.2% over the last year with 60% growth in assets under management. Our subsidiary HDFC International has received the final approval from the concerned regulatory authority, enabling us to establish a branch in GIFT City. We are excited about the new opportunities it present for us to expand our global presence as we target to commence operations in quarter one of FY’24.

Moving on to regulations, IRDAI is proposing several changes that would enhance insurance penetration, facilitate sustainable growth and ease the operating environment. We are enthused about the new EOM regulations, which provide greater flexibility for cost management, encourage the development of longer-term products and improved persistency by offering higher allowances on renewals. These changes will also aid in the revival of the Pension segment.

Slide five of our investor deck slots how we have faired better than the industry, post every major turbulence. The first significant disruption was in FY’11, post the new unit linked guidelines. The second was when HDFC Bank adopted open architecture in FY’18. The third upheaval was the pandemic with the industry being hit both by business disruption as well as the massive surge in claims, as well as change in unit-linked tax exemption limit in FY’21. The latest disruption is due to the budget announcement made on 1st of February, 2023.

Between the first and second disruption, which is unit-linked to open architecture, we delivered 2x industry growth. Between the second and third disruption, i.e., open architecture to COVID, we delivered 1.5 times industry growth. In the last three years, we delivered 2 times industry growth despite COVID and the unit-linked tax changes. Hence, we have consistently doubled on all metrics, including new business premium, renewal premium, value of new business, embedded value amongst others across multiple blocks for four years.

Being able to deliver a predictable performance, predicated on sustainable business practices remains a hallmark of our way of conducting business. Hence, we believe that the recent changes, whether on taxation, business models or regulations are part of the growth banks of the private life insurance sector that has only recently reached adulthood. The larger companies with strong corporate governance and disclosure standards are poised to fare better holistically on growth, profitability, business quality as well as risk management.

To conclude, our focus remains to provide a wide range of insurance products that cater to the diverse needs of our customers, thereby ensuring their financial security. Furthermore, we are dedicated to leveraging technology and digital advancement to create a smooth and convenient customer journey. We are optimistic about the growth prospects of the industry and are committed to driving a significant increase in insurance penetration in line with the regulators visions. The detailed disclosures on our results is available in our investor presentation. We are happy to take questions.

Questions and Answers:

Operator

Thank you very much. We will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Suresh Ganapathy from Macquarie Group. Please go ahead.

Suresh Ganapathy — Macquarie Group — Analyst

Yeah, sure. Thanks. Vibha, too many questions I have got. First, here you said something about the contribution of this high-ticket policy. So just to understand this a bit better, your full year APE growth was 37% and your whole Q APE growth was 70% plus. So — I mean, what is the contribution of high-ticket policies to the overall business done in 4Q? Can you tell in percentage terms, greater than — [Technical Issues]

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. Hi, Suresh. I can give you some indication in terms of —

Niraj Shah — Chief Financial Officer

Yeah, Suresh, for the year, it was in the region of about 12% to 14% and for the quarter four it was about 35% odd of the business would have come in that ticket size. And that’s the reason why we referenced the growth, actual growth and the normalized. Basically you could take it as 27% actual growth and 16% normalized growth, the delta would basically be the impact of the budget. That’s what we are thinking.

Suresh Ganapathy — Macquarie Group — Analyst

Sir, 27% normalized growth what? It is confusing. Full year you ended up 27%, right. So what are the normal here we get?

Niraj Shah — Chief Financial Officer

27% is the full year actual.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

Niraj Shah — Chief Financial Officer

February, we were at 16%, right.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

Niraj Shah — Chief Financial Officer

That was actually in the month of March, which is the incremental business, that’s what we called out.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

Vibha Padalkar — Managing Director and Chief Executive Officer

Suresh, February had next to no impact. Most of the impact came from about the second week of March and there the delta works out to about INR1,000 crores.

Suresh Ganapathy — Macquarie Group — Analyst

INR1,000 crores?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah.

Suresh Ganapathy — Macquarie Group — Analyst

Okay, cool. Now the other two questions, I have got is the fact that you ended — you added 37% VNB growth for FY’23 means that there is a very strong base Vibha and Niraj. So on the backdrop — backdrop of this strong base, can you deliver — I mean I’m not putting any particular number here, but can you deliver a strong VNB growth heading into FY’24?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, we are very confident, Suresh, that we should be able to deliver growth that is in line with the APE growth, while more or less holding margins. The only caveat is the investment that I talked about in the tech transformation, but even that I have articulated, which is the — see overall it’s about INR250 crores of which we have spent INR50 crore, 100-100 give or take would be the outlay. Otherwise, we should be able to deliver similar kind of margins, except for this tech transformation.

Suresh Ganapathy — Macquarie Group — Analyst

Okay. And the last two questions. One is on the relationship with HDFC Bank. You said 45% to 47% is the contribution earlier — in the earlier call, and that has come down from 50%. What is the target here? I mean, any conversations with Sashi that you have done that you can share, you can increase it to 60% or whatever it is, can you give us some guidance on it?

And finally on the EOM guidelines, you know, how good does this work? I mean, depending upon each players competitive advantage, either in the product space or in the distribution space, there can be adverse effects, right? I mean, if I want to pay a bank — banker more, I can pay more. If I want to push a particular non-par product, I can pay more and push it, and create an adverse effect in that particular channel because it gives you complete freedom and flexibility. Do you think that’s the way it plays out or there will be say in the competition in the entire market? Yeah, that’s it.

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. On the first point on percentage, we don’t track as a percentage of our overall composition, because different channels can grow at a different rate and by targeting that bancassurance has to be this and HDFC — and then you have to calibrate others. So that’s not how we look at it. Yes, the counter share at HDFC Bank, as HDFC Bank and Sashi, Srini have articulated is that, as they are now our parent to be, that should start inching up. And those are conversations that will fall in place, because if you were to look at it, it’s not just that HDFC Bank, but if you look at all the other new partnerships, we have been making very significant inroads even without them being our parent.

So it is in terms of, do we have the best triangulation between product, between pricing, between the brand, between claim settlement. It’s a package. And so if we are making inroads in other banks then even here, as a parent, that should organically happened. And of course, we will be the best in terms of presence in the branches and so on. So you should start seeing that trending upwards, but not tracking in terms of percentage of our business, but certainly percentage of the business that’s being done by HDFC Bank. So that is on that front.

And on the second one on this whole EOM, see, it all depends on how the regulator is looking at it is that, to move towards a principle-based approach to sell more longer-term products and that very well augurs to, that’s really how we have been selling and this is an aspect wherein we pride ourselves that we have one of the biggest share of longer-term products. We also give some of this information.

So not very onerous for us. And also really it depends on affordability. Different companies, and this is public domain, different companies have different levels of expense of management. So that determines affordability. So 100 minus the expense of management is the maximum that you can go to. At the same time, we want to — we hope that everyone triangulates in terms of distributor, what are the customer economics as well as regulators direction to bring costs down. So it’s a three-way triangulation, which will evolve. For us, we have 300 partners and these conversations are going on, keeping this principle based approach in mind.

Suresh Ganapathy — Macquarie Group — Analyst

Okay. Fine. Thank you.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Deepika Mundra from J.P. Morgan. Please go ahead.

Deepika Mundra — J.P. Morgan — Analyst

Yes, thank you. Thanks, Vibha. In terms of the margin guidance that you mentioned looking at flattish next year, could you comment on in terms of the key drivers between the merger synergies expenses as well as product mix?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, sure. I’ll start off and hand it over to Niraj. The way we look at this is that, the VNB certainly like I mentioned will be driven by APE growth. Margins, there will be more and more margin extraction from some of the nuances on products. For example on protection and I also mentioned the quarter-on-quarter trend is also there in our investor presentation. So that will continue to go up. I also mentioned about credit life continuing to do well. So that will continue to give us the upside.

Also in terms of investments that we have made on a lot of partnership, whether it is in AU Small Finance Bank, and Indian Post Payment Bank and Yes Bank and so on. As you know, we have to invest ahead in terms of manpower before the revenue starts kicking in. So we expect that also to happen. Also the acquisition of Exide Life and our Tier 2 and 3 locations, so what I’m trying to say is that the costs have already been incurred and are being carried in our P&L and reflected in our margins, at least, exit margins in March. So the upside should start coming in, in terms of productivity increase. Niraj, you want to add to that?

Niraj Shah — Chief Financial Officer

No Vibha, you covered it.

Vibha Padalkar — Managing Director and Chief Executive Officer

Right. I hope that answers your question, Deepika?

Deepika Mundra — J.P. Morgan — Analyst

Yeah, it does very much. So, thank you. And any comments on the potential for composite licenses? And how do you all think about the health offering in conjunction with HDFC Ergo or would you like to do it standalone?

Vibha Padalkar — Managing Director and Chief Executive Officer

So, if you recall out of all the committees that we have formed, HDFC Life chaired the development and penetration committee. And in that report, we did ask for composite. It’s no surprise that, that has come through. We asked a whole host of other things like the genesis of the massive government to have a marketplace and also we talked about being allowed to distribute products — other financial services products including other products that are regulated by IRDAI and other regulators. So we’re happy that this is — this is hopefully seeing light of day wherein the bill gets passed and we were able to do this.

Now in terms of, okay, if you’re allowed to do this, there is a next step is the regulator needs to form regulations to be — to be able to say what is it that they would like to see. But assuming that they are on-board to your last question, we’re not really interested in redistributing the pie. We want to grow the pie. And when you triangulate that wherein 60%, 70% is still out of pocket and the numbers are not even a 1 percentage in terms of penetration, much lower than what it is in Life Insurance, then I think we would be doing disservice by just redistributing the pie. So not really want to play just in the mediclaim space. But having to juxtapose between Life and mediclaim. There are many, many layers. It could be in terms of riders, it could be in terms of embedding health solutions within a Life product and so on. So we do have a few ideas that are ready to press the button, if you’re allowed to sell it.

At the very least, our ask has been, which is in the earlier committee that at least allow us to distribute health products, if not to manufacture. Yes, that is admittedly, not the best outcome, but at least that. So all these options are open and worldwide health sits much closer with Life and underwriting becomes easier, understanding the person’s health condition becomes easier and so on. So we’ll wait and watch, but we certainly have our plan ready, depending on any of these avatars that we’re allowed to do.

Deepika Mundra — J.P. Morgan — Analyst

Okay. Thank you. That’s very clear.

Vibha Padalkar — Managing Director and Chief Executive Officer

Sure. Thank you, Deepika.

Operator

Thank you. The next question is from the line of Avinash Singh from Emkay Global. Please go ahead.

Avinash Singh — Emkay Global — Analyst

Yeah, hi. Good evening. Couple of questions. First one is on, I mean, with your backbook surplus in this NSIC [Phonetic], I mean, if I were to adjust for the last year’s excess mortality results, I mean the backbook surplus estimation looks like 7%, 8%. I mean, typically much weaker than your typical trajectory. So if you could provide some more color on that? That’s my question one.

And second question is more, again, to just repeat perhaps, you’re kind of FY’24 outlook that is — on this strong bumper base, do you expect your APEs to grow in FY’24. And on the similar thing, the margin I’m a bit confused because I mean, of course, you are seeing a positive trajectory for retail protection, you’re going to see probably more granular growth as far as the non-par policies are concerned and probably some synergy from HDFC Life thing and also exide the best performance, improving going forward as well? So those synergies playing out. Yet, you’re sort of being guarded on margin guidance? So these are my questions. Thank you.

Niraj Shah — Chief Financial Officer

So, let’s start with the margin question what you spoke about. What Vibha already mentioned is that, there will be basically a couple of things here. One is in terms of from the product mix side, we said that there will be more longer-term business that we would expect to get over the next year. We will look at the product mix beyond that. As we’ve said in terms of protection for the quarter, we had a significant growth around 40% odd, and we expect protection to continue to grow on a normalized basis as we go forward as well.

Some of these things will obviously help in margin accretion, that will be balanced by the investments that we have made and we’ll continue to make in building our distribution in terms of people on the ground as well as in terms of the technology investments that Vibha spoke about. We’ve started that and we will continue with that over the next couple of years.

So the idea really is to generate VNB growth out of APE growth. We did mention that we are fairly confident about delivering growth next year on a normalized basis as well. And we — our aspiration will be to continue to grow faster than the industry. And all our VNB growth, we expect to come from APE growth next year, while maintaining margins in spite of all the investments that we will make. And of course, there will be adjustments that will happen as the year progresses in terms of how the market evolves, the earlier question around EOM and the practices that may be followed across the industry. So we’ll have to look at all of that as well. But all-in-all, we have talked about directionally how we would like to approach it and that’s how we’re looking at margins for next year.

As far as the question on BB surplus is concerned, even on a normalized basis, we’re basically looking at — adjusting for the COVID number that you talked about, 18% to 20% BB surplus growth. So that is something that we believe has — has been achieved and something that we will expect to continue.

Avinash Singh — Emkay Global — Analyst

No, my question on the backbook surplus, that is on slide — that has gone from [Indecipherable]. So that’s on slide 10. Yeah, yeah, so that 44.9% [Phonetic], if you normalize for a fixed mortality reserve for that COVID Delta variant, it goes to 41.4 and from there 44.2 is like some 7%, 8% kind of growth. That is a lot muted considering your past. I mean, of course, FY ’21-’22 had some COVID impact. So, what is driving this sort of a slower than your trajectory of backbook surplus in the Sanjeevani Exide Life or is something else?

Niraj Shah — Chief Financial Officer

So I think what you’re doing is basically taking the full COVID impact into the BB surplus. That’s not really the right way to look at it, because there was a new business impact as well. So you have to actually distribute the impact on new business as well as on existing business. And that’s the reason I mentioned the number [Technical Issues]

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, so to add to that, there has been some other impacts like we have assumption changes or some asserting areas that would formed that idea. So just completely excluding the COVID impact would not be the right way to look at the underwriting profit of the existing business profit emergence.

Avinash Singh — Emkay Global — Analyst

Okay. Thank you.

Operator

Thank you. The next question is from the line of Sanketh Godha from Avendus Spark. Please go ahead.

Sanketh Godha — Avendus Spark — Analyst

Yeah. Thank you for the opportunity. Vibha, I just wanted to understand that the HDFC Bank, which will ultimately become 50% owner — ownership, whether whether it will be a new fresh capital infusion or it will be a secondary market purchase? So just to understand, if it’s a first capital increase in the way HDFC Limited did in the early part of this year, then what kind of capital or solvency you would be looking at? And the second, maybe after you answer that question probably — probably I have couple of data keeping questions.

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. Yeah, sure. See at this point in time, we haven’t had concrete discussions with HDFC Bank. We will over the next few days. But we don’t require extra capital. As you know, we raised INR2,000 crores. So in all probability, it will be secondary.

Sanketh Godha — Avendus Spark — Analyst

Okay. Perfect. And if I look at the unwind rate, probably it is lower compared to what it was last year, which you even guided at the start of the year at around 8%. So given — given the interest rate little higher, so can we expect that your ROEVs next year could be driven by the better unwind rate?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. Like that we mentioned in the first quarter, we have completed the unwind for the year based on the assets that we had and the cash flow pattern at the start of the year. For the coming, that is FY’24, we will do the same exercise and based on the competition, we will let you know what the unwind rate will be in the first quarter. But yes, as you rightly said as the interest rate curve has gone up, we expect the unwind rate to be higher, but it’s not that it’s going to be completely only increased by the interest rate increase in the shorter and whereas the longer end the interest rate has been fairly similar. So depending upon the composition of the cash flow that comprise the width, the unwind rate will be influenced by the average of the movement. And then we will definitely let you know the computation in the first quarter of the year.

Sanketh Godha — Avendus Spark — Analyst

Got it. And last one, probably — honestly the 12% or 13% of the entire year’s business, which is high-ticket, if entirely gets disrupted, so assuming entirely gets disrupted or you can’t regain that business in FY’24. Then your confidence of the APE growth is largely driven by the market share increase in HDFC Bank or somewhere — somewhere additional business could come from other channels? Just I wanted to understand the thought process, because 10% disruption, I mean 100 becoming 90, and 90, even if it grows by 20% for the next year, then the growth what we are looking is 7%, 8%. So in that sense I’m asking you, what gives you the confident that the APE growth could be driven even — even if that high-ticket get disrupted next year?

Suresh Badami — Deputy Managing Director

Yeah, hi. This is Suresh. I mean, just to let you know, look, even till February before this spike came in March because of the budget changes, we were growing in the range of 15% to 16%. And as you really look at the growth, which has come in has come across product segments and has come across different channels. So our proprietary channels, which is agency and direct have been growing.

A lot of our new banca partners and other banca partners, other than HDFC Bank have also given us great support. So you know whether it’s Yes Bank and one, the IDFC, we have been tremendously supported in terms of growth from them and we see that trend continuing as they expand. The third piece of course is the fact that, there are certain opportunities which we see in the smaller ticket par and non-par also, because, look, that will be a segment which will open up, the number of policies that we’ll be able to gather from there should be fairly high.

Lastly, most importantly, we do believe that now with HDFC Bank as parent, they will give us a fair amount of spike in terms of market share and we are working towards that and close coordination with them. So the — while we will definitely like how we have done in the past, target to grow faster than industry, we are fairly confident of that. Now, whether we are confident whether it’s a 10% to 15%, I think like Vibha mentioned earlier, there have been four, five instance of disruption in the market and across all those disruptions, you will find that we have somehow managed to grow in the range of anywhere between 10% to 15%, and we are hoping that even in this case, we will be able to replicate that.

Niraj Shah — Chief Financial Officer

Just to add to that, apart from on the distribution side that Suresh spoke about, on the product front itself, this whole premise of 100 going to 90 and 90 being the starting position is something that we don’t necessarily believe in. Because even after the budget changes and specifically more after the other announcements that were made around debt mutual funds, we believe that this product category is still is incomparable. There is no product proposition that exists over this period of time, which gives this kind of proposition even on a post-tax basis. So you know to — we don’t really subscribe to this thought process of starting position being lower. Of course the bump up that has happened, we have definitely — we are looking at normalizing that. But the starting position in our mind will not be less than 100 from that perspective, and we will aspire to grow from a normalized basis.

Vibha Padalkar — Managing Director and Chief Executive Officer

And I’m going to add one more point to this. While there is a lot of talk and focus on more than INR5 lakhs in budget, an important data point is that in the month of March, our below INR5 lakh grew by close to 50%. So it is not that there is no growth in that. Another data point is that unit-link also when this INR2.5 lakh tax change happened, our composition of unit-link has actually has gone up significantly. So rather than one would have expected it to have gone down. So there is a fair bit of decoupling between tax being the reason at least for our section of customers and it actually translating into their buying behaviors.

Sanketh Godha — Avendus Spark — Analyst

Got it, Vibha. Thanks. Thanks for your answer. That’s it from my side.

Operator

Thank you. The next question is from the line of Swarnabha Mukherjee from B&K Securities. Please go ahead.

Swarnabha Mukherjee — B&K Securities — Analyst

Yeah. Good evening. Thank you for the opportunity. So first question is on the cost structure. So given that the VNB walk that you had provided, given that we have had a very strong scale up in FY’23, despite that I see that the VNB has a negative impact coming from fixed cost absorption. While I would have thought that because of the strong growth, there will be some amount of operating leverage actually playing out in the positive manner. So I wanted to understand, how to read this and what will be the proportion of say variable cost in this cost structure, which is resulting in this? And also if we could look at it from the lens of the EOM ratio glide path, so where are we? I mean, our EOM ratio I think is almost closer to 20%, the number that you report. So how should we look at it? Are we above the limits that you know the IRDAI calculations prescribe and how the glide path would be? So this cost slippage will be my first question.

And secondly, in terms of persistency, I see that in the 61st month bracket, there is a drop in the persistency, while in all other cohorts, you have ensured the persistency. So just wanted to understand, so is this related to some kind of persistency in the ULIP book that has played out particularly or anything else to read into that? Thank you. These are my two questions.

Niraj Shah — Chief Financial Officer

Yeah. Just quickly, start with the second question on persistency, 61st month that you’re referring to, it’s largely the impact of the merger. There were certain cohorts of business — of the acquired business, which was historically trading at lower persistency. While there has been improvement across the business that has happened over the last few years in Exide Life, the business that was written six or seven years back did indeed have poorer persistency, that is something that is getting addressed, and that was basically the impact that you saw. If you look at whether it’s a category-wise in terms of product segment or in terms of ticket size, persistency across the board has been improving over the past few years and we expect that trend to continue as we go forward as well.

For your question on the VNB trajectory, there has been clearly some operating leverage that we saw in Q4, because of the volume pickup. Some of that got neutralized by the investments that we have made and continue to make in — on the people front as well as on the technology front that we spoke about. And this also does carry the impact of the Exide Life business, which was operating at a particular scale. And while some of the synergies have been realized in this period, and the cost of acquisition or cost of writing business has come down from over 100% to in the 70% or 75%, we expect that to go down even further, going forward as well.

Swarnabha Mukherjee — B&K Securities — Analyst

Got it. So just a follow-up on this answer. So the INR100 crore investment that we plan to make this year, how much headroom does it leaves us to pushing some kind of favorable terms in terms of commission it creates in certain products? We have a lot of headroom, given that we would also have to have a glide path for EOM directionally, which should be lower?

Vibha Padalkar — Managing Director and Chief Executive Officer

So, I didn’t understand your question. Are you saying that whether we can afford the INR100 crores within EOM? Yes very comfortably we can. Because we do have a fair bit of headroom on — and have had for the last several years. We have been one of the few companies that have been compliant both at the company level as well as at the segment level. So no issue at all on that front. Sure. Very clear, ma’am. Thank you. Thanks.

Operator

Thank you. [Operator Instructions] The next question is from the line of Madhukar Ladha from Nuvama Wealth. Please go ahead.

Madhukar Ladha — Nuvama Wealth — Analyst

Hi, good evening. Thank you for taking my questions. First, I missed out a little bit in the beginning. So when you see the growth in this quarter, it was what 16% normalized and 11% was the high-ticket size tax impact, right? So, are these numbers on what basis — these numbers are for the full year or for the quarter? Because for the full year, the individual APE has grown about 39% year-over-year and for the quarter it’s about 75%, right? So I didn’t quite follow — follow these numbers. And —

Vibha Padalkar — Managing Director and Chief Executive Officer

Madhukar, you need to take — sorry, you need to take Exide Life into the base, so the growth is 27%. And what we explained at the beginning of the fall is that, if you were to look at where we were trending, which is YTD Feb, we were trending above 15%, 16%. So if you back out from 27%, you back out 15%, 16%, that’s — that could be attributed, which comes to about — about INR1,000 crores is what we said is the March effect.

Madhukar Ladha — Nuvama Wealth — Analyst

Okay. Got it. Got it. No, I missed the Exide Life part of it in the earlier part of the call. Sorry about that. And the other thing also about this Project Inspire, what exactly are you trying to do out here?

Vibha Padalkar — Managing Director and Chief Executive Officer

So it is a holistic transformation of everything from having the 360 degree view of the customer and looking at various capabilities, for example, looking at our application architecture, the IT governance model, our cloud strategy. Especially on the roadmap on the cloud strategy, while we’ve embarked upon it, suitability in terms of which of our IT assets, the tech assets, how much would be on-prem, how much would be on cloud to look at our overall architecture. Typically, we would have the core policy admin system every life insurer, whether in India or abroad would have that and then you have a middleware. But that does reduce our speed to market, both in terms of customer propositions, partner integration, new products and so on. So apart from having a single view of the customer that I mentioned, the 360 degree view.

And not only of the customer, but we would like to have a 360 degree view of the family as well with a lot of adjacencies that we can triangulate, as well as having data strategy at the core of it. So it’s a — not only tech, but tech plus data. We already have a data labs in Bangalore. And how do we use data, also enriched by what IIB is trying to do, Bima Sugam will hopefully happen. And triangulating that how can we reduce the pain that a customer goes through in terms of underwriting? How can we give pre-approved sum assured? How can we have customer nudges? How can we triangulate wherein exactly like you have, when we start watching a movie on one device and then end up on a handheld device when you’re traveling. Similarly, how can we have a customer conversation on sales or servicing on one platform and end up seamlessly on another platform and many, many things like that. When the time is right, we do intend to have and we haven’t had one for some time, we do intend to have a Tech Day, wherein we would like to showcase to all of you in terms of the inroads that we have made towards in this journey.

Madhukar Ladha — Nuvama Wealth — Analyst

Understood. And one final question. So you also mentioned that you saw growth of about 50% year-over-year in the less than INR5 lakh category as well. So are you worried or what are your thoughts on how much pre-buying is sort of happened so that people keep their INR5 lakh limit available for FY’24 and beyond? Could that sort of dampen sales a little bit in FY’24?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, I just know very, very categorically, I don’t believe and Niraj mentioned this, but I just want to mention this again and Suresh mentioned this at all. I have no doubt in my mind about the prospects of life insurance and that has nothing to do with the year-end now, tax or no tax. Also because now there is clarity, which is rightly so between similar kinds of products, right. With that Niraj also alluded to, even if I exclude life cover thrown in, our IRR’s are better and the product proposition, that’s the most important in terms of — there is no other product that give long-term assurance of return. I think there is somewhere minimizing it and narrowing it down to an IRR conversation that an HNI will want. I think that cannot be further away from truth.

Another part is that, a lot of HNI, whether fortunately or unfortunately have very low tax rate. So tax is often not the driver for it. And the fact that you get non — no ambiguity in terms of what am I going to get 20 years from now, no other product can give that. So that hasn’t changed. So — and that’s what gives us the confidence that, if we go back to basics in terms of engaging with the customer and explaining some of the nuances, and to say that, okay, if unfortunately something were to happen to you, your dependent will get this no matter whether a person is there or not. Suresh, would you like to add?

Suresh Badami — Deputy Managing Director

No. I think Vibha covered it. But you know, one is not the issue in terms of whether pre-buying has happened. I think the fact that now almost everybody who is less than INR5 lakhs in terms of the number of unique lives that we can cover can see this as a product that they can buy. Because of a very strong value proposition below INR5 lakhs in any case, right, because it’s not that that has gone away below INR5 lakhs. So the number of customers who may want to look at this almost like an 80C even from a tax perspective is almost similar to that to say that, look, why don’t I invest at least INR5 lakh into it, and we should be able to broad base and this is really in line with the vision to share with the smaller ticket size everybody should have insurance in India. We should be now able to maybe drive multiple policies, because the product proposition resume [Phonetic].

Vibha Padalkar — Managing Director and Chief Executive Officer

And the last point I want to make is that, in the overall objective of going back to basics, HDFC Life has been a middle class to upper middle class to affordable segment focused insurers. It’s somewhere we were getting pulled into, as the market was pulling us into the high networth segment. So it is in a way playing to our strengths to come back to the core of what we are comfortable with, wherein the levels of underwriting especially on mortality. Because it’s not difficult to say, I won’t ask any questions. I’ll ask very few questions. I will keep this on my books. You just have to triangulate with a lot of public information that is available of a lot of insurers that have kept more and more — retained more and more in their books. Now some of this, listen to believe why that retention at high-ticket sizes is okay and it’s going to pan out the way it is going to pan out. So limited point is, we are now playing to the strengths of HDFC Life and that’s what gives us also the comfort and the confidence that the growth is unaffected.

Madhukar Ladha — Nuvama Wealth — Analyst

Great. Got it. All the best, Vibha.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Nidhesh from Investec. Please go ahead.

Nidhesh Jain — Investec India — Analyst

Thanks for the opportunity. Sir, two questions. So first, on the protection, the growth that we have seen in this quarter, is it any channel-specific or are we seeing broad-based growth? And if you can comment how the growth we have seen in the agencies, on our agency side, specifically on the protection? Secondly, if you can share the mix of APE, which is coming from more than INR5 lakh category, because I remember that when the budget announcement came, at that point in time we have shared that such policies contribute to around 10% to 12% of our business. And I believe in Q4 that share of business would have gone up quite significantly from those policies. So what is the share as from the full year from INR5 lakh plus policies in our APE?

Vibha Padalkar — Managing Director and Chief Executive Officer

So, the growth if you were to look at, almost all channels have done fairly well, but one noteworthy aspect that is showing very good traction is our bancassurance channel and also on the back of some of the product launches that we’ve had. And another noteworthy aspect is that, other than the top 10 cities, we are beginning to see traction in the protection space. So this, absolutely, we’re delighted by that kind of traction that we’re seeing. Of course, somewhat early days because we’re talking about a quarter, but that’s — that is quite noticeable.

And also if you were to look at HDFC Bank itself, the branch activation on protection, and this is there on slide 15, that has increased by 50% year-on-year. So, that focus will only increase and we’ve had multiple conversations with HDFC Bank to say that this is an opportunity. It’s a question of focus and there are solutions such as the return of premium and so on to give lighter touch underwriting. So all of that has come through and worked well. Also — to summarize, all channels have done well, but noteworthy is what we see in bancassurance. Sorry, your second question, I —

Nidhesh Jain — Investec India — Analyst

So what is the share of high-ticket more than INR5 lakh policies for full year? We remember that last time when you shared the data, that number was around 10% to 12%, given that we have seen very sharp growth in Q4, that number would have been quite high. So what is the number for the full year?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, so it remains, see, until February, it was 10% to 12%. And for the month of March, Niraj has given this number.

Niraj Shah — Chief Financial Officer

About a third for the month of March, Nidhesh.

Nidhesh Jain — Investec India — Analyst

And when we are talking about normalized base, should we remove the entire number from FY’23 APE or should we just remove INR1,000 crores of delta that we have seen in March ’23?

Niraj Shah — Chief Financial Officer

Yeah, Nidhesh. That’s what we should do, because honestly all this — lot of it is conjecture in terms of what will happen to greater than INR5 lakhs, less than INR5 lakhs and all that and we’ll all have our points of view on that. But what is data is, what was the growth YTD February, which was normalized growth and what has happened in March. You just back that out, and you take 15%, 16% as a normalized growth for the year, that’s what we would have actually achieved, had it not been for the budget. That’s what we are working with. And then various segments within that, I guess, will anyway evolve as the business progress is going forward.

Nidhesh Jain — Investec India — Analyst

Sure. So basically we’re guiding that on the INR12,300 crores of APE, we expect positive growth next year?

Niraj Shah — Chief Financial Officer

Yes, absolutely.

Nidhesh Jain — Investec India — Analyst

Okay. Thank you. Thank you. That’s it from my side.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Nischint Chawathe from Kotak Institutional Equities. Please go ahead.

Nischint Chawathe — Kotak Institutional Equities — Analyst

Yeah. Thanks for taking my question. Two questions actually. If I look at the increase in existing business surplus, is a part of it kind of contributed because of the merger as well?

Niraj Shah — Chief Financial Officer

No Nischint, actually if we just look at the standalone business, which we now don’t track, there isn’t any significant accretion to the fact or EB surplus coming from that business because of the cost at which the business is getting done. Like I just mentioned that, at the time of acquisition, the cost was over 100%, now, you’ve brought it down significantly below that. So there wasn’t any significant EB surplus generation from that business yet.

Nischint Chawathe — Kotak Institutional Equities — Analyst

Sure. And any specific drivers that you could call out for this growth?

Vibha Padalkar — Managing Director and Chief Executive Officer

So our product mix has been changing quite significantly over the years and it is taking longer for profits to emerge. And if you recall, we started on this non-par as well as some of the new par products last about four, five years ago, and that has increased in its intensity. So it has taken about four to five years for the, — for those profits to emerge as against more of a unit-link strategy or even the power strategy, which will — which will emerge sooner over the two, three year kind of time horizon. You want to add anything, Eshwari?

Eshwari Murugan — Appointed Actuary

Yeah. Just to add to that. Unlike the earlier product mix where unit-link profits could be mostly coming in the first five years and not much later on, the contracts that we’re writing now are longer term in nature and will continue to get the profits over a period of 25, 30 years, which means that after five, 10 years the EB surplus and margins for the growth will be much higher. But because in the transaction period of that areas business getting replaced, the emergence of the growth looks lower.

Nischint Chawathe — Kotak Institutional Equities — Analyst

Perfect. Got it. And just one more question is about the new business — sorry, about the business that you’re looking at from the new branches of HDFC Bank. You somewhere mentioned that the — that the persistency outcomes and the mortality outcomes could be different. Does it mean that margins in those branches would be a little lower?

Vibha Padalkar — Managing Director and Chief Executive Officer

No, overall looking — it’s a portfolio approach. So we don’t really see it that way, wherein overall — it’s an overall approach, and it will be subsumed within the company level margin.

Niraj Shah — Chief Financial Officer

Yeah. So, Nischint, just to add to what Vibha mentioned, the good thing is we’ve been tracking our persistency across geographies, customer segments and there has been an improvement across the board. And that’s the reason why we’re very confident about getting into Tier 2, Tier 3 with very good experience now compared to what we would have done probably three years to fives years back. So what we basically are saying is that, can we expect Tier 1 kind of persistency in a Tier 3 market? Maybe not. But will our Tier 3 persistency keep improving from where it is today? The answer is yes. So all of this would be priced into our products and we will ensure that this is factored into our assumption setting as well.

Nischint Chawathe — Kotak Institutional Equities — Analyst

Perfect. Got it. Thank you very much and all the best.

Operator

Thank you. The next question is from the line of Akshen Thakkar from Fidelity. Please go ahead.

Akshen Thakkar — Fidelity International — Analyst

Yeah. Most of my questions have been answered. But just going back to the point on growth on sort of 27% and 15%, that’s largely towards retail APE, right? The Group business shouldn’t get impacted by that?

Vibha Padalkar — Managing Director and Chief Executive Officer

That’s right, yes.

Akshen Thakkar — Fidelity International — Analyst

Okay. All right. And so broadly just assume INR1,000 crores of excess APE and then think about growth, and the way you’re thinking about it is on a normalized base you see industry leading growth INR1,000 crores maybe doesn’t repeat?

Vibha Padalkar — Managing Director and Chief Executive Officer

That’s right, yeah.

Akshen Thakkar — Fidelity International — Analyst

Okay. Great. Thanks. I’ll fall back in queue if I have other questions. Thanks.

Vibha Padalkar — Managing Director and Chief Executive Officer

Sure. Thanks, Akshen.

Operator

Thank you. The next question is from the line of Supratim Datta from Ambit Capital. Please go ahead.

Supratim Datta — Ambit Capital — Analyst

Thanks for the opportunity. So two questions here. One, on the annuity side, it looks like the growth in the fourth quarter slowed. So is there any particular reason for that? And number two would be, do you see a scope for this INR5 lakh threshold that you are currently been given, also being taken away going forward? And based on that, what kind of product innovations are you looking at? So that would be two questions. Thank you.

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. So on the annuity front, so we held our market share and continued to be robust even in quarter four. So it was — overall, it was an industry thing in terms of — and also what are the government employees and is there some deferment or is there lesser in terms of the funds that are flowing into annuity? Sometimes the release is not done by the public sector undertaking, might we had of issues like that. You want to add anything, Suresh?

Suresh Badami — Deputy Managing Director

Thank you. The idea was also to maximize on the opportunity and the March numbers are almost like a full year number of what normally happens across some of the others. The volume, the channel, everything was devoted to this. And we ensured that we didn’t slowdown on annuity. We continue to maintain our market share as such.

So — and like Vibha mentioned, some of the Group annuity number depends on a lot of other factors on the ground in terms of how many people are coming in. But really the channel and the field were quite swamped with the kind of budget related business, which flowed into us. Thanks to the brand as well as the product. In fact, our annuity business in FY’23 grew by almost 18% on received premium basis compared to maybe a 2% growth for the industry. So you can see that we focus on annuity like what we’ve been saying continues to be there.

Supratim Datta — Ambit Capital — Analyst

And on the second question?

Vibha Padalkar — Managing Director and Chief Executive Officer

Sorry, can you just repeat that question?

Supratim Datta — Ambit Capital — Analyst

Yeah. So what I was saying is that now you have been given a INR5 lakh threshold, but similar threshold has not been given to either deck MFs or fixed deposits. So should the government take that away, what will be your strategy here? Are you — have you started strategizing for a similar event or not?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yes, absolutely. And it goes back to what I mentioned that we have no doubt in our mind that the whole concept of reinvestment risk is understood. See, if this had happened just when we had launched Sanchay Plus and nobody else was — and the industry was selling Sanchay Plus, then people who would not have appreciated what reinvestment risk does in long-term assurance of returns. Now that almost every player in the — amongst our peer set is selling some avatar of this product, a category has been born over the last two, three years and there is a pull for this product. And it is well understood versus the nuances of a fixed deposit or a debt mutual fund.

So we believe that if you go back to the basics of asset allocation, if a person has, let’s say INR50 lakh, maybe there could be INR30 lakhs into a Sanchay Plus kind of a product and INR20 lakh or INR10 lakhs, INR10 lakhs into other forms of — which will give them more liquidity, that could happen. But it’s not going to go down to zero, and that’s what gives us the confidence that whether the — I mean the INR5 lakh going away will be somewhat of unfortunate outcome because of the fact that people do need to save longer-term, and something that they don’t dip into at the shortest or the first emergency or first discretionary spending, that is very important. But, yes, we do believe that it goes back to the fundamentals of what this product has to offer and that’s not going change.

And sorry, and last point is, the math very clearly shows that the post-tax IRR is more attractive versus any other product that is there. And also today, people buy annuity. Just now we talked about and you raised a valid point about annuity and that we are market leaders by a mile. Annuity is taxed and that is something that was factored in by people. So it doesn’t deter people from buying annuity and these are not only people, who are buying annuity because they — that’s the feature, but also people buy annuity in open market. So longevity risk is very well understood and that’s only going to increase as people — our population shifts more and more towards 50 and above.

Supratim Datta — Ambit Capital — Analyst

Got it. Thank you.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of Parag Thakkar from Anvil Wealth. Please go ahead. Mr. Parakh Thakkar, your line has been unmuted. You may go ahead with your question.

Parag Thakkar — Anvil Wealth Management Private Limited — Analyst

Yeah. So, first of all congratulations for the entire team and HDFC Group that you’ve got relaxation and due to which HDFC Bank will be able to increase stake. And definitely with skin in the game, I can also understand that now every branch and the entire machinery of HDFC Bank will be more willing to sell HDFC Life products. And the one another trend, which I am seeing is that, again in order to mobilize more and more deposits, including HDFC Bank, which is taking the lead from the front, because of merger with HDFC Limited, many other banks are also opening branches in Tier 2, Tier 3, Tier 4 cities. So I would say that, whether HDFC Life is very focused on developing products for this Tier 2, Tier 3, Tier 4 cities, where HDFC Bank is now going to open branch or any other banks are also going to open branch to attract those customers because there is rather the ticket size might be small and the insurance penetration might be negligible.

Niraj Shah — Chief Financial Officer

Absolutely. So thanks for the question. I think like we just discussed in terms of our progression to Tier 2, Tier 3 in terms of quality of business. And that gives us the confidence that as we broad base our customer base in these branches that you’re talking about across not just HDFC Bank, but other new partnerships that we have like AU Small Finance Bank and some of the other larger banks, which have — which are also increasing presence in Tier 2, Tier 3. And also our variable agency business, which is primarily in Tier 2, Tier 3 markets. We are very confident of being able to not just distribute and get growth out of that, but get growth with quality and maintaining our profitability.

In terms of product constructs, yeah, definitely, what we have to address is in terms of recognizing that the kind of documentation that’s probably available in Tier 1, Tier 2 may not be available in Tier 3. We are looking at a lot of solutions around that as well. Lot of information is now available across third-party databases, which we are able to leverage. And lower ticket size is typically the kind of underwriting from a medical perspective that’s required is a lot limited. We are already in arrangements and discussions with our reinsurers to be able to participate in this kind of an opportunity and the reinsurers maybe enthusiastic about it. So all of this put together gives us a lot of confidence in our ability to not just create products and reach out to these customers, but do that business at scale and on a sustainable basis.

Parag Thakkar — Anvil Wealth Management Private Limited — Analyst

Yeah. So basically, if we put all this together, that banks are opening branches in Tier 2, Tier 3 towns, where insurance penetration is not there. Looking at this, if you just leave aside FY’24, where you have a disadvantage of FY’23 is very high base because of budget thing. But what is the one on an expectation of growth over the next three to four years, considering the under penetration of insurance and considering the fact that now banks are opening branches everywhere, because in order to mobilize deposits?

Suresh Badami — Deputy Managing Director

You’re absolutely right. Suresh, here. But I think, look, our whole strategy of ensuring that we reach to every segment in every part of the country, we’ve been working on this for the past several years. And of course, we have the advantage of HDFC Bank, which now has increased their branch network to 7,800. They added some 638 branch even during the last quarter, right. And [Indecipherable], whether it’s Bandhan in the East, whether it’s CSP, SIB, Ujjivan, Equitas, whether it’s Capital Small Finance Bank, whether it’s Utkarsh, whether it’s AU Small Finance Bank, a lot of them have very, very strong regional presence and we’ve been actually getting extremely good support, like I mentioned earlier for all of them.

So clearly if we have to work with them, think our strategy in terms of their growth plan on deposits, we will find our growth in our product strategy also sinking with what they’re doing. Of course, we’ve had the advantage of now getting the entire Exide Life. And if you remember, the entire proposition of looking at the acquisition of Exide Life was to look at the South market, which was a little weak for us as well as the Tier 2, Tier 3. There’s a lot of learning, which has come in terms of their product and the way that they go about, whether it’s in terms of venue marketing, whether it’s in terms of the agency model that they have and we plan to now scale that up and take it across.

Thirdly, more importantly, I think being pioneers in technology, we had a fairly strong presence in a lot of ecosystem partners. Now with multiple things happening in terms of the India stack, in terms of 5G, in terms of mobile penetration, in terms of how we have been working in the past, we do believe that this is again an opportunity in terms of increasing the NOP, as well as our penetration into the Tier 2, Tier 3 markets. So clearly this year, we will focus in terms of how do we expand in some of these markets. And of course, the regulator is also looking at some of the other initiatives like Bima Vistaar, which will go through Bima Vahak, these are great initiatives to be able to take markets beyond even the Tier 2, Tier 3.

Parag Thakkar — Anvil Wealth Management Private Limited — Analyst

Great. Congratulations. And the HDFC Bank increasing stake, so HDFC Life does not need capital. So mostly it will happen through secondary route, right? And your Standard Life, because generally Standard Life is seen that they have been selling stakes in the past. So what is the stance over there?

Vibha Padalkar — Managing Director and Chief Executive Officer

So, you’re right. In all the probability, it’ll be secondary because we don’t need capital. And you’re also right that Aberdeen has been a seller and there is a last bit that is there of 1.66% more because, whatever, it is part of the promoter group and so on. So these are all conversation between HDFC Bank and who they want to buy the stakes from. And I guess that should materialize in the next month or so.

Parag Thakkar — Anvil Wealth Management Private Limited — Analyst

Okay. Great. Great. Thanks a lot. All the best.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. The next question is from the line of the Dipanjan Ghosh from Citi. Please go ahead.

Dipanjan Ghosh — Citi — Analyst

Hi. Good evening. Just two or three direct keeping questions. If you can provide your rider attachment rates? Second, some color on the credit life growth maybe across your channel partners, maybe segregated across some of the channel partners out there on the MFI side? And lastly on the annuity margins, we have seen the market leader take multiple rate hikes. So how are the margins shaping up across that particular business segment without taking into consideration the mix change within annuities?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah, see, on rider, we are growing. Not really giving out specifics of that, but the focus continues to be there at every product that we can attach and so on at every channel level. Yes, there are pushes and pulls, but that has grown fairly well both in terms of individual and group riders. Your second question was in terms of MFI, so MFI —

Dipanjan Ghosh — Citi — Analyst

Sorry on the credit life business across channels and MFI?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. Credit life, we’re very, very happy. Over the years in terms of how well distributed it is and the reason why we are happy is that many possible business disruptions are one kind of a sector goes up or down or one kind of line of business is unattractive, mortgage is unattractive for something or it is attractive with something, something else lap is — so it’s about one-third, one-third, one-third, so about MFI is about a third and HDFC is about less than a third, and balances whole host of marquee banks and NBFCs. So that’s how it is and similarly, we are very well spread across the lines of business as well.

Dipanjan Ghosh — Citi — Analyst

Sure. And maybe the last part on the annuity margins and how — for the industry that is shaping up?

Vibha Padalkar — Managing Director and Chief Executive Officer

Very robust, you want to — and you know I was a bit surprised, I thought we were the market leaders on annuities in the private sector, but maybe you’re referring to —

Dipanjan Ghosh — Citi — Analyst

Yeah, I just talked about the PSU — PSU play out there?

Vibha Padalkar — Managing Director and Chief Executive Officer

Right. Okay.

Niraj Shah — Chief Financial Officer

So the annuity market has been developing quite well. And what we’re really seeing is a fairly calibrated approach from all the players, who are participating in this, primarily the three or four large players who are writing this business. And if you were to track in terms of how the market is behaving, you’ll find fairly frequent repricing that is happening in the marketplace as a consequence of any changes in the interest rate environment. And that’s something that we expect to continue to see given that this is a long-term risk management product and we will be in a position to manage our spreads and maintain higher than company level profitability in the annuity business as we go forward because of market conduct that we’ve seen over the past many years since this product category has expanded.

And across the whole business, there are multiple sources from this business really comes, whether it’s what Vibha mentioned in terms of discretionary savings that as a category — that as a segment has been growing in the annuity business. As the NPS business becomes larger, that is also contributing fairly well to this category of business. And in terms of — we did discuss in terms of some of the regulatory changes that have happened more recently in terms of EOM, we do expect that pension category as a product will also get revived very shortly. When that happens that will also become a feeder to the annuity business as it was still a few years back.

Dipanjan Ghosh — Citi — Analyst

Sure. Sure. Thanks and all the best.

Niraj Shah — Chief Financial Officer

Thank you.

Operator

Thank you. We have the next question from the line of Nitin Agarwal from Motilal Oswal. Please go ahead.

Nitin Agarwal — Motilal Oswal Financial Services — Analyst

Yeah, hi. Thanks for the opportunity. So Vibha, like one question around, how easy do you think it will be to redesign the KRA and change the overall strategy focusing on granularity, so as to limit the impact of budget changes? And also if you can provide as to how April has trended so far to suggest that the impact of new tax law is minimal?

Vibha Padalkar — Managing Director and Chief Executive Officer

So on the first one, it’s going by, if you look at three years to four years previously, we were exactly doing this. Wherein we were selling to more and more customers. We were selling a lot more to, like I said middle class, upper middle class kind of customers, as well as solving for how do we broad base growth. So it’s going back to that. It plays to our strengths, again, because of the DNA. So I think it’s a question of maybe a quarter or so, if at all, this was coming.

And really one point I want to make is that even if the budget had not come, this is exactly what we would have done. And this is something that my management team is very aware of that our focus has been to go back to basics about number of policies, because that broad basing and getting more and more customers was equally important. And so this is not really a budget-led re-calibration of KRA sheets, and that gives me a fair bit of confidence. As regards April, etc., this is a forward-looking statement and that’s something that we will give you an indication when we come to our June numbers.

Nitin Agarwal — Motilal Oswal Financial Services — Analyst

Okay. Sure. And one more question as to how do you see the HDFC Bank counter share now moving over coming years?

Vibha Padalkar — Managing Director and Chief Executive Officer

You want to take, Suresh?

Suresh Badami — Deputy Managing Director

Yeah. So look, I think, obviously, the overall strategy once it becomes a parent, they will see it more closely and we expect a huge amount of support in terms of how HDFC Life is. It’s not that we don’t have that support right now, but I think the way we are looking at it is, in any of the business that we do, we have always looked at the right balance between the quality of the business as well as the risk that we take. And given the relationship that we have at all levels across the bank and their comfort with HDFC Life brand, we do see the more on counter share moving up.

In various forums, we’ve had the senior management of both the entities saying that, look, we will inch it back up to the 70% mark and I don’t see any reason why we shouldn’t be heading there. Obviously, it is open architecture and HDFC Bank has very clearly stated that they would want to remain in the open architecture mode. So we will have to be competitive, whether it’s in terms of product or whether it’s in terms of servicing or whether — so those actions clearly are planned for us. So, but you will see a sequential quarter-on-quarter growth in terms of our market share and we are working very closely with the team there to see how we can take this up.

Nitin Agarwal — Motilal Oswal Financial Services — Analyst

Yeah. Thank you. This is very helpful. Thanks a lot.

Operator

Thank you. We have the next participant in queue, Ms. Pallavi Deshpande from Sameeksha Capital with the next question. Please go ahead.

Pallavi Deshpande — Sameeksha Capital — Analyst

Yes, sir. Thank you for taking my question. I wanted to know what could be the share of ROP in our product mix and any expected hardening on the reinsurance — reinsurance trend?

Niraj Shah — Chief Financial Officer

ROP overall would be about 20%-odd of the business. It has gradually expanded over the last couple of years. We started in single digits a couple of years back, and now it has caught on as we go deeper into Tier 2, Tier 3 markets and also in terms of the Exide Life business, which was catering to this segment. So we are around 20%-odd at this point in time.

On the reinsurance front, I think it’s — it’s been a fair bit of the conversations that we’ve had with them in terms of how they’re looking at the marketplace, now. While two of the insurers are fairly active now and I did mentioned sometime back in terms of they’re fairly excited about now getting back to the growth mode, given the situation that was in terms of — from a funding perspective, there was a bit of defensiveness, of course, at that point in time, but all of that is now gone. It clearly is in terms of ensuring that we are back to growth in this segment. There is a lot of excitement around the protection growth coming back and there is a fair bit of enthusiasm among the reinsurers on that front as well in terms of taking on new risks, new segments as well as deepening the current business.

Also the a good bit here is that some of the practices have been put in place, which will safeguard the interests of the customer as well as the insurance and the reinsurers. We expect that to continue and pricing will continue to reflect the changing risk environment. So as you go deeper into Tier 2, Tier 3 markets, the mortality experience is likely to be different and that will get priced in as appropriate.

Pallavi Deshpande — Sameeksha Capital — Analyst

Right, sir. And sir, lastly on the Banca channel, you mentioned HDFC Bank there, which — will it be, which are the products that would be the more focused ones out there?

Vibha Padalkar — Managing Director and Chief Executive Officer

We are having a balanced product mix at HDFC Bank and that will continue. Really, it’s all the products that we have. The only nuance there, which I alluded to one of the earlier callers is that we are also having through focused strategy, which is semi-urban and rural, and non-top 10 cities — branches in the non-top 10 cities. And there we have seen a fair bit of traction for us in both protection as well as some of the easier underwriting — underwritten products. So that will continue.

Suresh Badami — Deputy Managing Director

So, if I can also add. I think, look, really the way we are looking at our product mix also is in terms of the overall opportunity on the product penetration at every branch level. So we understand at a specified percent level, we’re all at [Indecipherable], what is the opportunity in terms of being able to be par active, non-par active, term active? So while Vibha mentioned that we always drive our balanced product mix. Our objective would be to make sure that we rotary penetrate in terms of the customer base on whether it’s the annuity opportunity, whether it’s in terms of the par opportunity less than INR5 lakhs, as well as the term. And you know in certain markets we will sell ROP in certain markets. But somehow across all the channels and the segments, we should be able to get to the right product mix to the right quality.

Pallavi Deshpande — Sameeksha Capital — Analyst

Thank you so much.

Operator

Thank you. Ladies and gentlemen, we will now take the last two questions. The first from the line of Viraj Shah from Axis Capital. Please go ahead.

Viraj Shah — Axis Capital — Analyst

Hello. Am I audible?

Operator

Yes, you are audible, sir. Go ahead.

Viraj Shah — Axis Capital — Analyst

The first thing that I wanted to understand is that with the merger going through, the kind of branch addition that is expected to be done in the next two years would be about 1,200 to 1,500. I wanted to understand what could this take the bancassurance contribution to in the overall distribution pie? And what kind of impact could it have on the — on the expenses itself — distribution expenses itself? Could this significantly come down with the addition of the branches and the bancassurance network going up?

And the second question was, there have been various reports about some GST and income tax notices being sent to the company. Is there any ask in terms of what could be the amount? What are the charges? And what could be an impact of this on the company?

Suresh Badami — Deputy Managing Director

Yeah. So Let me answer the first thing about the branch expansion and what will be the bancassurance contribution. Really, we don’t look at that, that way. I think Vibha answered in one of the earlier questions. It’s not to say that, look, we don’t target by contribution. Yes, obviously bancassurance will go up because the branches are expanding and it’s not just at HDFC Bank, I think all our partners. There are like 300 partners, 28 partners on the Scheduled Bank side, where we’ll be expanding, and we can see that growing. But similarly the investment in terms of how we are looking at growing the agency business or where we have a broking partner or where we have large other direct relationships, I think that will also continue to grow. So the way we look at it, each of our channels in some sense are regular business lines and each of them has headed by almost channel’s CEO, who is looking at end-to-end growth, profitability and quality of business.

So yes, we do believe with bancassurance growth and we gain share in HDFC Bank and they expand, maybe the HDFC Bank contribution will go up. But really the idea would be to ensure that we have a diversified distribution mix as well as grow each of the other channels. And obviously, the cost structures will also be accordingly in terms of — you know, if we can get scale and can get volumes. I think we’ve demonstrated that in the past, also, in terms of how this branch expansion and what kind of — and we have amongst the best-in-class productivity across most of our Banca partners. And on the GST, I’ll just just hand it over to Niraj.

Niraj Shah — Chief Financial Officer

Yes, on the GST front, as we are aware, this is an industry wide issue. There has been a request for information to be provided around the deductions that have been availed off on the input tax credit, we’ve been cooperating with the authorities and giving them all the requisite information, and we await to hear from them in terms of a formal show-cause notice and future course of action. We will obviously determine based on what we hear from them. As of now, we are not in receipt of any such communication from the authorities.

Operator

Thank you. The next question is from the line of Neeraj Toshniwal from UBS India. Please go ahead.

Neeraj Toshniwal — UBS India — Analyst

Yeah, hi. So first question is on the product level margin. If I look at the product mix, as it moved significantly towards higher margin products, but in terms of margin outcome with irrespective of the theme. Sir, any gaps here or we would see it is largely because of the investments we are doing into it or there has been some busy treatment, because of the high up, I mean, coming in because of high competition in the last 15 days, how to think about it?

Deepika Mundra — J.P. Morgan — Analyst

If you’re talking about the waterfall of margins, is that what you’re referring to?

Neeraj Toshniwal — UBS India — Analyst

Yeah, that is one question. Waterflow margin is obviously — you can see the result of new business while have been, since has gone down significantly from what was the nine month. But yeah, wanted to understand any change or drop in any product level margins you have seen?

Vibha Padalkar — Managing Director and Chief Executive Officer

Product level margins, no. So — see, actually, that’s a very good point because when there is intense competition that you see, even — you saw that even in the month of March in terms of giving very aggressive rates on non-par, we stayed away from doing that. And that just means preservation of product level margins. You will find the same thing, especially on aggregator platforms. We are really the cheapest because then there is — the pricing becomes extremely thin, especially if even one or two lives are worse off than what you have factored in. So it’s a very calibrated approach and there has been no drop in product level margins. I mean, when you compare, say, March versus before March, or quarter four versus before quarter four, there is nothing that is at historic level.

Neeraj Toshniwal — UBS India — Analyst

Got it. So what kind of margin over the next two, three years, or next year, obviously, told that will be somewhat flattish, but over the next two, three years, where do we aspire to kind of reach in terms of margin profiling?

Vibha Padalkar — Managing Director and Chief Executive Officer

See, over a period of time as the synergies between HDFC Bank and us as its subsidiary starts coming through, then you would see some level of margin expansion. Also there are some optionality that we talked about, that are there in the insurance bill, whether it is internal of being allowed to do some part of health, whether health riders, whether it is in terms of being able to distribute other financial products. So there are a lot of optionalities that are out there. Gift City because we’re talking about next two years to three years, apart from our base, which should not change. We will be able to layer it and be first mover in many things that we have already are. So that will start showing some margin uptick once this — this year, which has a couple of moving parts settles down, then we should get back on to the upward movement on margin.

Neeraj Toshniwal — UBS India — Analyst

Why I’m asking this particularly because at one point, we were the leaders in margins in terms of compared to peers. Now, I think everybody has been in terms of [Indecipherable]. I wanted to know what are different — because we have the best products and still somewhat margin-wise, we are probably not at the best in terms of the product level. So wanted to know when we are getting back to that, because, obviously, that will be an outcome, which will be — there will be lot of factors?

Vibha Padalkar — Managing Director and Chief Executive Officer

Yeah. So, couple of points here. When you say that we are not the best in margins, I think one thing is that we need to look at, are we holding market share? So if you look at HDFC Life, we are holding market share as well as growing market share and holding our positioning. So we are amongst the top three life insurers by in any which way that you cut it in terms of new business and renewal premium and that continues. So without — if you were to give up one or two positions, then the margins can be much higher. So the one is that — so that triangulation between top line margins, VNB growth EVOP. So all of that is a holistic scorecard. That is number one.

Number two is that, if you look at the consistency of margins, because if you take one particular cut, then one can say that, okay in this period you have not grown in terms of margin. But if you look at the four-year period and that’s why we put out a chart in our investor presentation, that if you look at any four-year period, we have doubled in all parameters, right. So I — you would agree that, that is not an easy ask and we will continue to do that, even way forward over the next four years, we will continue to double that. So whether it is embedded value, assets under management, value of new business and so on. So that kind of trajectory, we have time and again showed over many cohorts of four years and not just one cohort of four years, and we’ll continue to do that. So margins will go up over time in a nutshell.

Neeraj Toshniwal — UBS India — Analyst

Got it. Second question in terms of — is on the HDFC Bank —

Vibha Padalkar — Managing Director and Chief Executive Officer

Sorry, the last point I want to make on margin is that, very little in terms of headwinds because — see, open architecture, there are companies wherein the banks have not opened up to open architecture. So it’s more in terms of — is that the right approach and do customers really need a choice, because down the line, if customers don’t have a choice in this world, then in all probability, the younger ones at least are going to wander into other ecosystems, whether it is into an aggregator platform, whether it is into some other kind of digital platform and perhaps at least explore and eventually buy. So information asymmetry cannot contain as a way of life and so those headwinds in that line do exist, which is not the case in HDFC Life.

Neeraj Toshniwal — UBS India — Analyst

So that was actually my second question in terms of HDFC Bank, will we get support in terms of market benchmark rates also, because now they becomes the parent instead of second cousin we had earlier. And the timeline for the 70% wallet share, I think we are at 57%, 58%, how much of timeline we kind of pegged in within to reach that target, 70% mark?

Vibha Padalkar — Managing Director and Chief Executive Officer

So, I couldn’t really understand your — I couldn’t hear you very well on the first part. I think what you’re saying is that —

Suresh Badami — Deputy Managing Director

The question is basically in terms of the timeline on when we will be hitting 70%. I think, look, once the entire merger is through and I’m sure the bank will be equally busy with the merger. But already once you become a subsidiary and we have those discussions, we will want to inch it up quarter-on-quarter. Now how fast, frankly, we’ll be able to get to the 70% mark is in terms of the broad direction, which comes in from the bank as well as probably hard work that we need to put in from HDFC Life. But we do see this happening. Difficult to put a timeline to it, but yeah as early as possible given the efforts on both sides.

Neeraj Toshniwal — UBS India — Analyst

Got it. So first question on — the first part was on the cost side, will we get support on the — on the commissions margin — market benchmark rate or we are — we will continue what we are seeing currently?

Vibha Padalkar — Managing Director and Chief Executive Officer

Look, right now we’re just focused on how do we work more closely with HDFC Bank, and other conversations will follow because the merger announcement or this 50% stake has just come in, the ink is still not dried. And I’m sure over the period — over the next few months, we will have those kind of conversations.

Neeraj Toshniwal — UBS India — Analyst

Got it. Thank you. Thank you so much and all the best.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you.

Operator

Thank you. I would now like to hand the conference over to Ms. Vibha Padalkar for closing comments. Over to you, ma’am.

Vibha Padalkar — Managing Director and Chief Executive Officer

Thank you all for joining us on the call today. Please feel free to reach out to our IR team, if you require further information or have any follow-up queries. We look forward to speaking with you again. Thank you and good night.

Operator

[Operator Closing Remarks]