Housing Development Finance Corporation Ltd (HDFC) Q1 FY23 Earnings Concall Transcript

Housing Development Finance Corporation Ltd (NSE:HDFC) Q1 FY23 Earnings Concall dated Jul. 29, 2022

Corporate Participants:

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Renu Sud Karnad — Managing Director, Executive Director

Conrad D’Souza — Chief Investor Relations Officer, Member of Executive Management

Vedanthachari Srinivasa Rangan — Executive Director

Analysts:

Suresh Ganapathy — Macquarie Capital — Analyst

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Kunal Shah — ICICI Securities — Analyst

Anand Bhavnani — White Oak Capital — Analyst

Nidhesh Jain — Investec — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Adarsh Parasrampuria — CLSA — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

Presentation:

Operator

Ladies and gentlemen, good day, and welcome to HDFC Limited Q1 FY ’21 Earnings Conference Call. [Operator Instructions]

We have with us HDFC’s Vice Chairman and CEO; Mr. Keki Minoo Mistry, Managing Director, Ms. Renu Sud Karnad, Executive Director; Mr. V.S. Rangan, Member of Executive Management and Chief Investor Relations Officer; Mr. Conrad D’Souza; and General Manager, Ms. Anjalee Tarapore.

I now hand the conference over to Mr. Keki Mistry. Thank you, and over to you, sir.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Well, thank you very much, and good afternoon, everyone. At the outset, I would like to welcome all of STFC’s earnings call for the first quarter of the current financial year. The Board of Directors at this meeting held earlier today approved the financial results for the quarter ended June 30, 2022. — which were subjected to a limited revenue. Let me start with outlining a few developments in the economy over the last 3 months, which have a bearing on the corporation. The Monori committee at its meeting held in May 2022 and June 2022, respectively, increased the policy report by an aggregate of 90 basis points. This was mainly on account of the uncertainty in the inflation category. As a result, there has been an uptick in interest rates consequent to which we have increased deposit rates as well as rates on our loan products. As we will discuss later, the interest rate actions have had a short-term impact on both net interest income and net interest margin during the first quarter. In July 2022, the RBI increased the limit of external commercial borrowing under the automatic route from USD750 million to USD1.5 billion a year. We are in the process of raising funds under this window of about USD1.1 billion.

The momentum in the economy was extremely strong throughout the quarter and is reflected in the recap in individual loan disbursements and a 19% growth in the individual loan book which is the highest growth that we have achieved in the last 32 quarters. Similarly, collection efficiency has continued to improve month after month with over 99% collection efficiency on a cumulative basis during the quarter. Over the next few minutes, I will give you a summary of the key highlights of the performance for the quarter. Let me start by quickly summarizing the progress of our business throughout the fourth quarter. Our individual loan approvals for the quarter in June 30, 2022, were higher by 60 percentage compared to the corresponding quarter in the previous year. For the quarter ended June 30, 2022, individual loan disbursements grew by 66% over the corresponding quarter in the previous year. Disbursements in quarter 1 were the highest-ever disbursements in the first quarter of any financial year and were over 60% higher than the previous best. Housing disbursements constituted 93% of individual disbursements in the first quarter of financial year ’23. Growth in home loans were seen in the affordable housing segment as well as in the middle and high income grows 92% of new loan applications were received through the digital channel. During the first quarter, we sold individual loans aggregating to INR9,533 crores.

The individual loans sold during the last 12 months amounted to INR32,499 crores. These loans were all assigned to HDFC Bank pursuant to the market sharing agreement with Individual loan book growth on an AUM basis was 19%. If the loans amounting to INR3,299 crores, had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 28%. This is the highest percentage growth in the individual loan AUM in nearly 8 years. Our individual loan book increased to INR4 47,402 crores, a growth of 19% over the previous year. In addition to this, the individual loans sold by the corporation and outstanding as on June 30, 2022, amounted to INR88,856 crores. HDFC continues to service these loans loans outstanding on an AUM basis amounted to INR5,658 crores. As of June 30, 2022, our nonindividual loan book grew by 8% on an AUM basis compared to the previous year. We continue to have a reasonably healthy pipeline of nonindividual business over the last 12 months. We have also seen some repayments and prepayments of earlier facilities and resolution of some stressed assets, and this has resulted in a lower growth in the nonindividual segment. We currently have a good pipeline of construction commenced loans as well as in the lease rental discounting segment, and we expect nonindividual AUM growth to accelerate in the coming quarters.

The overall loan book is now INR584 crores, a growth of 16%. The total assets under management as at June 30, 2022, amounted to INR671,364 crores as compared to INR5,74,136 crores in the previous year a growth of 17%. If no loans have been sold during the preceding 12 months, then the growth in the total loan book would have been 23%. Prepayments on retail loans on an annualized basis amounted to 10.2% of the opening loan book. This is within the normal range, which is between 10% and 12%. The average size of individual loans for the quarter ended June 30, 2022, stood at INR35.7 lakh as compared to INR33.1 lakhs in FY 2022. The contribution in value terms from the higher income group defined as customers with an annual family income of INR18 lakhs or more has increased during the year to 50% from 45% during the corresponding period in the previous year. Our trust on affordable housing loans continued. During the quarter ended June 30, 2020, 23% of home loans approved in terms of number of customers and 10% in value terms were to customers from economically like section and the lower income group. The average home loan to customers in the economically weaker segment amounted to INR11.1 lakh and to customers in the lower income group segment amounted to INR19.7 lakhs. If we break up the loan book outstanding on 30th June 2020 on an AUM basis into different categories, then individual loans constituted 79% of the total loan book was seen as compared to the previous year.

Construction Finance constituted 9% of the total loan book, lease rental discounting loans constituted 7% of the total loan book, while corporate loans constituted 5%. If you were to look at the incremental loan book growth then for the quarter ended June 30 year 2022, the entire growth has strong individual loans. However, we expect the proportion of individually to nonindividual AUM to normalize in the coming quarters. 97% of the loans were sourced through distribution channels. However, this is largely through HDFC sales, a 100% subsidiary of HDFC Limited as well as through HDFC Bank. HDFC sales accounted for 50% of the loans sourced while HDFC Bank accounted for 30%. — third-party DFCs accounted for set. Thus, 83% of HDFC’s individual business was sourced directly or through our associates. The emergency credit line guarantee them was extended to mitigate the economic distress caused by the Cobitpandenige. Under ECLGS 2 the corporation is a put an aggregate amount of INR217 crores, of which 80% that is INR1,764 crores has been disbursed in June 30, 2020 amounts disbursed under this facility are guaranteed by the central.

The Reserve Bank of India permitted a one-time restructuring of loans and regulation for COVID-19-related stress. As at June 30, 2022, the outstanding loans under both OTR-1 and OTR 2 together amount to INR4,410 crores in equivalent to 0.77% of the as compared to a peak of 1.4% in September 2021. 98% of the OTR loans are in the individual loan book. The overall collection efficiency for intimation loans has continued to improve month after month and is now even better than your recoverage levels. The average collection efficiency for individual loans on a cumulative basis over the last quarter is over 99%. I RBI had on November 12, 2021, issued guidelines on harmonizing NPAs across the financial system. Subsequently, RBI deferred the effective date of the applicability of plans to September 2022. The corporation, however, has continued to report NPAs for the quarter ended June 30, 2022, in accordance with the revised RBI circular of November 1, 2021. There has been a significant improvement in asset quality over the last 12 months. To facilitate comparison on a like-to-like basis, we have compared the nonperforming assets based on the old method of competition since in June 2021, it was all method that was prevalent. As of June 30, 2022, calculated under these old norms, gross nonperforming individual loans, 0.75% down from 1.37% in June 2021, which is a 62 basis points reduction or a 45% improvement in percentage sales.

The overall gross nonperforming loans stood at 1.61%, down from 2.24% in June 2021. This amount exceeds 3 basis points reduction or a 28% improvement in percentage is terms. Let me now come to nonperforming loans calculated and as per the realized RBI norm. As of June 30, 2022, calculated under the new norms, gross nonperforming individual loans stood at 0.98%, down from 1.44% in December 2020. Similarly, gross nonperforming nonindividual loans stood at 4.44%, down from 5.04% in December 2021. December 2021 was the first quarter when we were required to report NPA under the new norms brought in BBI. As per the new regulatory norms, the gross nonperforming loans as of June 30, 2022, stood at INR10,288 crores, equivalent to 1.78% of the loan portfolio, down from 2.32% in December 21, which is the time when we first reported the number. As at June 30, 2022, the corporation carried a provision of INR13,328 crores in the balance sheet. Under index accounting norms, both asset classification and provisioning have moved from the incurred loss model to the expected credit loss model for providing for future credit losses. Based on this model, the total exposure at default of INR579,98 crores is broken up as under Stage 1 constitutes 93.5% and Stage 2 was 4.4% and same tree 1%. We have seen a 2.7 percentage point reduction in the aggregate of Stage 2 and Stage 3 assets. from 9.2% in June 2021 to 6.5% of the exposure at default as of June 2022. During the quarter, we have charged a profit and loss account with a sum of INR514 crores to as provision. TCL to D coverage ratio for Stage 2 assets is 23% and for stage 3, it’s 53%.

The provisions carried as a percentage of the EDauntedt23. Annualized credit cost for quarter 1 was 33 basis points compared to 50 basis points during quarter 1 in the previous year. As stated in our earlier earnings call, as asset quality-related issues get resolved, we should over the next 2 quarters as be in a position to further normalize the credit cost to recover level. This, in turn, is a positive impact on the return equity. We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all other subsidiary and associate company had the original cost of acquisition, which is the price we have paid while we’re making those investments. These investments are not accounted for on a fair value basis. If we were to mark-to-market the listed investments as at June 30, 2022, the unrealized them which is the difference between the market price on 30 June 2022, be carrying cost would be as much as INR7,223 crores. This unrecognized gain is not part of a network nor has it been considered in our capital adequacy cancel. Our capital adequacy ratio on June 30, 2022, stood at 21.9% of which Tier 1 capital is 21.4% and Tier 2 capital 0.5%. The capital adequacy is well above the regulatory pole. Dividend at INR30 per equity share of place for financial year 2022 was approved by the shareholders at the Annual General Meeting ended on June 30, 2022, and has been accounted for in the first quarter. At this stage, it is important to talk about the return on equity. Under the IndAS accounting requirements, network includes certain items which do not form part of Tier 1 capital under the prudential regulations.

These include IndAS transition reserve, deferred tax liability on special reserve fair value gains on investments to OCI, investments in subsidiaries and associates in excess of 10% of the net loan funds and securitization gains recognized upfront in accordance with IndAS requirements. These items aggregate to INR19,886crores. Hence, Tier 1 capital is INR98,455 crores as against the reported network in June 2022 of INR11,331 crores. A more appropriate way of calculating the return on equity would therefore be on regulatory Tier 1 capital as against the conventional method of completing it on total network. Annualized return on equity based on Tier 1 capital for the quarter ended June 30, 2022, is 15%. I — as at June 30, 2022, the corporation’s total borrowings amounted to INR17,452 crores. Term loans, including external commercial borrowings of USD1.6 billion equivalent and refinanced from the National Housing Bank accounted for 26% of the borrowings. Market borrowings such as NCDs and commercial paper accounted for 41% of the borrowings. Deposits as at the quarter end amounted to INR1,782 crores and constitute 33% of the borrowings — further to RBI increasing the limit of external commercial borrowing under the automatic route, the corporation is in the process of raising a 3-year external commercial borrowing for on lending for affordable housing and the facility will also align with some of the sustainable development goals. Further details will be implemented shortly, but the expected all-in costs on a fully hedged basis will be comparable with domestic borrowing rates for a similar an — our immediate plan is to raise an amount of USD1.1 billion. I will now move to the statement of profit and loss account.

The first quarter has seen a somewhat volatile interest rate environment. And therefore, some of the numbers of the current year are not very strictly comparative with the previous year. Firstly, as mentioned earlier, net interest income and net interest margin were temporarily impacted by the mid-month increase in rates in both May and June and the transmission lag between the increase in borrowing costs and the increase in lending rates. I’ll come to that in a minute. Secondly, as a result of volatile equity markets, the gain on fair value of investments through the profit and loss account was just INR80 crores in this quarter. And this compares to as much as INR402 crores in the first quarter of the previous year. Thirdly, the expense ratios are higher as we incur expenses upfront on staff paying, loan processing and branching to meet the significant increase in demand for housing levels. There was also an increase in legal expenses during the quarter as we saw an increase in business as well as resolution of some stressed assets. Needless to add, while these expenses have been incurred upfront, the benefit of the expenses incurred will accrue over the next few quarters. On the positive side, it is important to note that credit costs are lower than the credit cost in the corresponding quarter and the previous year as a result of improved asset quality and higher collection efficiency. Dividend in the first quarter is higher than the first quarter of the previous year, primarily on account of dividend received from group companies. dividend from HDFC Bank will be received in the second quarter.

Before I get to the net interest income, let me detail issues, which have had an impact on the net interest income. In the first quarter of financial year 2023, we have had great actions which have had an immediate impact on borrowing costs, which in turn have not been simultaneous with the transformation of REITs on the asset side. Secondly, in the first quarter of the year, there was a disruption in the business activity in the economy as a result of the secondary as a result of ample liquidity in the system during quarter 1 of last year, towerlike interest rate swap, which is the is rate on ritanswaps are benchmark dealing from the reverse reporting and was lower by 24 points during that quarter. This led to us benefiting from the lower swap rates, which resulted in an expansion in NIM to 3.7% during the first quarter of the previous year. At that stage itself, we had categorically indicated that this level of NIM was not sustainable. This delinking corrected in the latter half of last. Thirdly, in May 2022, RBI increased 38 40 basis points and there was a further increase of 50 basis points in the report in June 2022, making it an aggregate of 90 basis points during the quarter. As you are aware, each individual loan has a quarterly reset mechanism and is based on the original month in which the loan is disbursed. Thus, in the event of any interest rate change in the entire loan portfolio reprices over a 3-month period, that is roughly 1/3 of the portfolio reprices each month.

Thus, while we have had an immediate impact on borrowing costs, the lending portfolio will reprice over the quarter. This transmission lag has had a material impact on NII growth for this quarter. We have passed on the increase in rates by increasing our PLRs by 90 basis points, but there was a short-term impact on NII growth during the quarter. This should be regularized over the next few months. We have seen since revised the reset norms for our incremental individual loans from a particle to a monthly cycle to reduce the impact of transmission of rate changes. This should minimize the risk of transmission in the event of any future rate hikes for new loans. Lastly, the proportion of the retail loan book has increased to 79% over the last 2 to 3 years. Net interest income purely on the basis of interest without taking cognizance of the profit on sale of loans during the quarter ended June 30 year 2022 amounted to INR4,447 crores compared to INR4,125 crores in the quarter of the previous year, a growth of — if we adjust for the onetime impact of the transmission lag in passing on the rate hikes to the customers as well as the impact of the swap benefits in the previous year, the NII growth would have been 16%, which is in line with the growth on the AUM. Net interest margin for the quarter ended June 30, 2022, stood at 3.4%. I — the spread of loans over the cost of borrowing for the quarter ended June 30, 2022, was 2.25%. Individual loans carried a spread of 1.91% and the nonindividual book 3.5%.

The spread on loans during the first quarter of the previous year was 2.29%. Income earned from deployment of surplus funds and cash management schemes of mutual funds and government securities was much lower at INR39 crores as compared to INR124 crores in the first quarter of the previous year. This was largely due to average levels invested this year in liquid funds at about INR3,900 crores as compared to INR15,500 crores in the corresponding period of the previous year. With introduction of the liquidity coverage ratio in December 2021, the corporation’s liquidity is largely held in government security. The government securities holding as of June 30, 2022, is around INR36,000 crores. The average level of liquidity held during the quarter was INR40,000 crores as compared to INR38,000 crores in the first quarter of the previous year. There was a profit of INR184 crores on sale of investments during the first of this year compared to INR263 crores in the first quarter of last year. This year’s profit was on account of the corporation’s 10% stake sale in the CFC Capital Advisors. The profit on SLF investments in the first quarter of the previous year was on account of divestment of a small part of our stake in HDFC go and the entire stake in good host spaces, which was an associate company. Dividend received during the quarter was INR687 crores compared to INR16 crores in the first quarter of last year.

The dividend during the year was received predominantly from our group companies, namely HDFC Asset Management, HDFC Life, HDFC sales and HD Sereda. Dividend from HDFC Bank was received in July 2022 and will be accounted for in quarter 2 of the current financial year. During the quarter ended June 30, 2022, for investments classified as fair value to profit and loss account, the net gain on fair value changes stood at only INR8 crores a much lower as compared to INR400 crores INR2 crores for responding quarter of the previous year. This is largely on account of the volatility in the equity markets during the quarter. Under Ind accounting standards, the stock productions granted to employees are measured at the fair value of the options on the date of branch. This fair value is accounted for as employee compensation costs over the vesting period of the options. Accordingly, employee benefit expenses for the quarter includes an amount to INR76 crores compared to INR146 crores during the first quarter of the previous year. The current year’s charge includes an amount of INR18 crores, but an increase substrate in the first quarter. For the quarter ended June 30, 2022, the cost/income ratio stood at 9.5%. The cost-to-income ratio was higher during the quarter as a result of the increased retail business over the last 6 months as well as the increase in the branch network to cope up with this higher volume. The benefit of these cost increases will be derived over the next few quarters.

Increased legal costs also contributed to the increase in the cost income ratio. We expect the cost income ratio to remain in single digits for the year. For the quarter ended June 30, 2022, the standalone profit before tax was INR4,590 crores on compared to INR3,905 crores in the first quarter of the previous year, a growth of 17.5%. Tax provision during the first quarter amounted to INR921 crores and compared to INR904 crores in the first quarter of the previous year. The tax rate for the quarter was 20.1% compared to 23.1% in the corresponding quarter of last year. The tax rate is lower than the previous year as dividends earned from group companies is set up against dividend paid by the corporation and hence, the dividend income is tax-free. The stand-alone profit after tax for the first quarter stood at INR3,669 crores compared to INR3,001 crores in the first quarter of the this year, resulting in a growth of 2.3%. Pretax return on average assets was 2.9%. — post-tax return on average assets was 2.3%. The basic and diluted EPS on a face value of INR2 per share was INR20.2 and INR20.1%, respectively. The consolidated profit before tax for the first quarter stood at INR6,544 crores as competitive INR695 crores last year. After providing INR970 crores per tax quarter 1 last year was INR984 crores.

The consolidated profit after tax for the first quarter stood at INR5,574 crores as compared to INR5,311 crores. The profit attributable to the corporation was INR5,308 crores as compared to INR5,041 crores in the corresponding quarter. As at June 30, 2022, the corporation at 3,766 employees. Gross total assets per employee stood at INR169 crores and per employee compared to INR164 crores in the corresponding period of the previous quarter. Annualized net profit per employee was INR3.9 crores compared to INR3.6 crores during the first quarter of the previous year. Let me spend a couple of minutes to give you an update on the merger. As you are aware, on April 4, 2022, the Board of Directors of HDFC Limited and HDFC Bank approved a composite scheme of amalgamation of HDFC with HDFC Bank. — subject to requisite approvals from various regulatory and statutory authorities, respective shareholders and creditors. Upon the scheme becoming effective, subsidiaries, associates of the corporation will become subsidiaries associates of HDFC Bank. HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will loan 41% of HDFC Bank. — both the stock exchanges, the NSE and BSE, pension fund Regulatory and Development Authority and RBI have accorded no objection for the merger.

The application has been made to the CCI to the Competition Commission, and we are awaiting approvals. HDFC’s distribution network spend 695 outlets, which include 214 offices of HDFC’s wholly owned distribution company HDFC Limited. — additional locations to its outreach program. We continue to engage deeply with all our stakeholders on the industry. Our disclosures and reports are on our website the business responsibility and sustainability support or late audible, which will be a mandatory requirement from financial year 3. On a voluntary basis, the corporation has prepared this report for financial year 2022, and the same is hosted on our website. The integrated report for the year ending March 2022, has also been released and posted on our website. For further information, on ESG-related queries, you may engage with our Investor Relations team, Anjali and Conrad. During the period, the corporation’s corporate social responsibility activities focused primarily on COVID-19 relief as allocation education and lands. Additionally, a support for the specially even cut across all our focus areas. CSR activities were conducted directly or through the HP Foundation, the CRR spend during the quarter was INR5 crores. above are some of the highlights of the results for the quarter ended June 30, 2022.

Before I conclude, I would like to wish you good health and all the very best. Please stay safe. We can now proceed to question and answer I would request you to confine your questions to the financial results and to continue to ourself, and we brief with your questions. Thank you very much.

Questions and Answers:

Operator

We’ll now begin the question-and-answer session. [Operator Instructions] First question is from the line of Suresh Ganapathy from Macquarie Capital. Please go ahead.

Suresh Ganapathy — Macquarie Capital — Analyst

I just had a question on this life insurance stake increase. Now what is the logic of going up just by 1%? I understand HDFC Life just wanted INR2,000 crores — but can you not take it to 50%? Or have you discussed with RBI that you can take it to 50%. Just some contours of the deal would be great.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

All right. So I’ll tell you quickly. The HDFC Life’s solvency ratio has come down to about 176% as a result of the merger with Exide Life Consequent to that, it was necessary for them to raise additional capital. And therefore, the idea was to take the solvency ratio to about 210%, and this INR2,000 crores will take it up to.

Suresh Ganapathy — Macquarie Capital — Analyst

Yes. But then I mean, is there any communication from the RBI? Can you hold why can’t you put another 1% and take it to 50% because it then really doesn’t — I mean, face your problem of asking for reduction of the stake, right, or increase of the stake, sorry. If you were to do that.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes,

Renu Sud Karnad — Managing Director, Executive Director

Suresh, when we — when we announced the merger at that time, we had said that we would like Castinthe insurance company to go up to over 50%. So that we still are seeing a detailed guidelines on what the RBI was like — so if we were to do any further stake increase, which would obviously be with the knowledge and comfort of RBI. This stake sale was necessary largely in — as a result of the reduction in the solvency ratio of HDFC.

Suresh Ganapathy — Macquarie Capital — Analyst

Okay. and doesn’t require any approval from any regulatory authorities, right?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Is talk to the IRD — we’ve already letter to RBI, but this is more a regulatory requirement. So it was the regulatory requirement to increase the capital and promoter stake.

Suresh Ganapathy — Macquarie Capital — Analyst

Okay. Fine. Okay. That’s clear. And the second aspect is on margins. Of course, it’s come down a bit because of the interest rate resets and of course, the increase in cost that you’re talking about. But now with the likely resets going to happen over the course of next coming quarters, can you see these margins inching up from the current 3.4% levels and have a better NII growth?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I would certainly expect the NII growth to go higher as the quarters progress. I mentioned that in my opening remarks also. The NII growth was impacted largely because of specific events which happened during the quarter. And if you adjust for the transmission time lag and the higher base in the previous year, then the actual growth in NII would have — and we have one can review those calculations, 16%, which is in line with the growth in the A1. So we would certainly expect the NI numbers to normalize in the coming quarters.

Suresh Ganapathy — Macquarie Capital — Analyst

And what about the nonindividual?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes, sorry. Yes. Sorry, go ahead,

Suresh Ganapathy — Macquarie Capital — Analyst

Sorry. NII goes up.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Logically, even the net interest margin, you should show some improvement Historically, as you will be aware, our net interest margin in earlier years used to be in the 3.3% to 3.4% range.

Suresh Ganapathy — Macquarie Capital — Analyst

Okay. And the final question on the nonindividual book growth. Of course, it’s gone up from a 9% decline about 1 year ago, 28% growth. I mean, with the pipeline and everything which is there, which you talked about, you guys are okay driving this growth, say, to double digits, of course, not specific guidance that you’re asking for, but you’re confident of driving this growth even ahead of the merger?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I would expect the growth numbers to go up. It’s been a little low in this first quarter. If you actually see the absolute amount of nonindividual loans is lower by about INR3,000 crores compared to where we were in March. That is because of resolution 2 cases and also because of scheduled repayments, which have happened in a few cases. But yes, we have a decent pipeline. We would certainly expect this number to rise. I would say, double-digit growth is something which is not very much on the card as the year progresses.

Operator

Next question is from the line of Mahrukh Adajania from Edelweiss Financial Service. Please go ahead.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

My first question is, could you please quantify the disbursements during the quarter.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

The disbursements during the quarter were a little over 42,000.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Individual?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Individuals, yes.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. Got it. And and the quantum of GTC, I heard liquidity was INR40,000 crores was — but the quantum of Gas You said was about INR36,000 crores, roughly.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

In average.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. Got it. And I just had a question on the merger. So basically, when the merger happened, how much of HGS’s book does not qualify for our bank book.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Not very significant at all. Most — almost everything that we do is something the bank can also do then maybe just 1 or 2 small we do, like, for example, if there is a loan often shares or something like that, then that would not qualify in the bank. But that for us is a very, very, very small market.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. So it will be like less than 1% to 2% of the total loan

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I would say less

Renu Sud Karnad — Managing Director, Executive Director

Yes, I think it would be less than not two.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay.

Operator

[Operator Instructions] Next question is from the line of Kunal Shah from ICICI Securities. Please go ahead.

Kunal Shah — ICICI Securities — Analyst

So firstly, with respect to this repricing, just taking the question forward. So in terms of the rates, it’s fair to assume that we would have also passed on 90-odd basis points. So looking at the increase which has been the

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I mentioned that whatever has been the rate increase, the DI has been fully passed on to consumers. the effect of those rates come through over a period of 3 months as you are aware in the agreement.

Kunal Shah — ICICI Securities — Analyst

So this — when we have to fairly look at it in terms of the repricing, okay? Because I think on the nonindividual side, we have already increased the rates earlier as well. So if I have to look on the overall pool, okay, how much would get repriced over maybe a month, maybe you said like you have moved it to monthly reset as well to benefit, say, from this transmission — so how much of the overall book would get repriced? And would it be fair to assume that on the borrowing side, given the way MCLR hikes have been and particularly for our deposit hikes have been that would be relatively lower than the rates which we have increased on the lending side.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Well, first of all, the rates that we have increased on the lending side is equivalent to the increase in the interest rates in the system babe.We’ve increased our or we call it retail prime lending rate. We’ve increased that by 19.

Kunal Shah — ICICI Securities — Analyst

Yes.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Now when a rate — when we increase the rate, the customers rate gets repriced every 3 months, you must be aware of that. So it’s not that supposing we reprice the loan less than in the month of June. And the customer has taken a loan, let’s say, in the month of hypothetically in the month of May. — then this loan will only get we said 3 months from me, which means it will get reset in August. So even though we would have increased the interest rate in June, this particular customer loan will get reset in August. So to answer your question, 100% of the book will get and repriced over a period of 3. Now incrementally, going forward for new loans, — what we’ve done is we have reduced the period from 3 months to 1 month.

Kunal Shah — ICICI Securities — Analyst

Okay. So that’s only on the incremental loans. Got it. Okay. And to assume that the borrowing side increase would be relatively lower. — apart from the — maybe the bond market borrowing, but if I were to look at it on the bank borrowing and the deposits.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

See, over a period of time, interest rates have been so volatile that for me to give you a number on where the interest rates are which just changes literally every second or third day because with the Fed now raising rates by 75 basis points, as you know, our bond markets have rallied and there has been a general believe that prices will not be as significant as the or earlier expected. So a combination of all of this is that it’s a little difficult to sort of predict where the interest rate rises would sort of end up. But yes, you are logically, you’re right. Deposits while we increase rates, the rate might be almost similar or a little less than the rate increase on the lending side.

Kunal Shah — ICICI Securities — Analyst

And on restructuring. So restructuring book still seems to be flat. So I just wanted to understand, is it like the regular because you mentioned 98% is also individual within this — so are the repayments which are coming through. But somehow, I think it was like last quarter also, it was 0.8% this quarter, it is 0.77. And when do we see the repayments coming through for this entire restructured loan.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

So Kunal to make you understand, repayments are coming every day Normal But what is happening is that the 0.8% will come to a lower number as the loan rates fully paid off. So loan is going to not necessarily going to get fully paid off unless it gets prepaid, that number would not necessarily come down, even though the payments are on track. So when I talk of this 99% plus collection efficiency on a cumulative basis, — it obviously takes into account all the restructured loans.

Kunal Shah — ICICI Securities — Analyst

Yes. No, on principal moratory, so once that’s over, you will get some payment towards the principal as well and we should see that proportion coming down, yes.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes. So Kunal, we do report it. And I think if you look at the March numbers, and I think, again, it will be there in the September results, you will see what proportion of these this portfolio has slipped into NPA. But the number is very, very low. So which means money is coming as per the restructured payment plan.

Kunal Shah — ICICI Securities — Analyst

And also the borrower is making the payment for the the borrower is paying an EM equated monthly installment, which has a principal component.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes.

Renu Sud Karnad — Managing Director, Executive Director

Yes. Yes. So that’s maybe the question was maybe when should we actually see it coming off a bit is take it offline from Conrad as well. And a couple of data points. So one is where do we stand in terms of We are at 71%.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

51%. We are at 71%. The regulatory requirement, however, is lesser, the regulatory requirement at this point of time stands at — so we are about 11% higher than what is required by

Renu Sud Karnad — Managing Director, Executive Director

And last quarter, it was 8.

Kunal Shah — ICICI Securities — Analyst

Last quarter?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

This percentage changes on a daily basis depending on maturities. It’s a rolling 20 days. So it will never be a static number, but the average for this quarter has been 71%. On certain days, it could be 80%. The 80, which was reported would have been the report would have been the number as of 31st of March.

Kunal Shah — ICICI Securities — Analyst

Got it. Okay. And any write-downs during the quarter? — quantum of write-offs?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I mean there will be some usual write-offs, which should have happened. I think it’s about INR400-odd crores, which you don’t Normal done Also for — from a prudential sort of standpoint.

Kunal Shah — ICICI Securities — Analyst

Okay. Thanks.

Operator

Thank you. Next question is from the line of Anand Bhavnani from White Oak Capital. Please go ahead.

Anand Bhavnani — White Oak Capital — Analyst

Two questions from my end. One is in the opening remarks. You had given a number that about 30% of the loans were sourced from our associates. So can you give us a sense of how many testing branches of the 600-odd branches that HDFC Bank has would have contributed to olorination?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

HDFC Bank accounted for 30% of the business that was sort of done by this period. They have about 6.5 branches as of March. — and they would be sourcing loans from at the moment from less than 2,000 branches. I wouldn’t have the exact number, but I would say it’s closer to about 1,800 or something in that range.

Anand Bhavnani — White Oak Capital — Analyst

So historically, what have been the reasons that we have not used the full extent of their on-ground presence.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Reasons, which we talked about in the past also when we talked about the merger, which would you may be aware of, we had said that we would like to do loans only from locations where we have a near by HDFC office. — because at the end of the day, the credit appraisal, the legal processes, the technical processes all have to be seen by HDFC. So that’s why we did not have gross loans from other locations. Also, in a way we want to sort of keep some sort of limit on the total amount of business that just the bank could generate. But now after the merger is completed, there will obviously be no such requirement and period of time. The entire 6,500-plus branches of the bank will start sourcing housing loans for us. Also, I think HDFC Bank has put on record that we have about 68 million customers and out of 68 million customers, just about 8% have taken housing. And only 2% have taken housing loans from SBS. So therefore, there is an ability to sell to this vast pool of customers who have not taken

Anand Bhavnani — White Oak Capital — Analyst

Okay. Second, sir, the accounting query. I see there is other comprehensive income — can you give us some color on that? It’s quite a sizable number. Renu Sud, do you want to answer that? It will be largely the mark-to-market investments. So there have been some appreciation in the value of probably Gandel Bank or something like that, which should have contributed to the higher other companies.

Renu Sud Karnad — Managing Director, Executive Director

No, sir, it’s negative figure actually, it’s INR469 negative. So I add. So it could contribute to the lower other comprehensive income. This is a figure which is not in our control. This is market determinant. — cementing most investments other than the investment in things like RBL Bank, all our investments in cans. Most of our other investments are in through the OCI route. So market price of shares will go up and down quarter-by-quarter. Some quarters may be higher, some quarters may be lower. So this is only a reflection of that, nothing else market price really will also see that there are certain investments like cams and RBL Bank, where we take the mark-to-market gain or loss through the use — and there, as I mentioned earlier, against a gain of over INR400 crores last year’s first quarter, this year’s gain has been only INR8, and this is because of the oil that you see — the next quarter, this number could be higher and lower, we don’t know. If on the way markets have been over the last few days, if that trend continues, obviously, it will be a lot.

Anand Bhavnani — White Oak Capital — Analyst

Sure. And sir, in terms of preparation for a merger, any color that you can give us?

Renu Sud Karnad — Managing Director, Executive Director

I’ve already updated you on the process that we follow and the approvals that the Competition Commission approval — competition commission we applied, we hope to get the approval soon.

Anand Bhavnani — White Oak Capital — Analyst

Noted. And in terms of operations currently, have you changed anything on ground operations?

Renu Sud Karnad — Managing Director, Executive Director

At the moment, nothing. We continue to do businesses

Anand Bhavnani — White Oak Capital — Analyst

Sure. Thank you, sir. All the best.

Operator

[Operator Instructions] The next question is from the line of Nidhesh Jain from Investec. Please go ahead.

Nidhesh Jain — Investec — Analyst

All right, thank you for the opportunity. Sir, the 2 questions, first is — with respect to the merger — in preparation of the merger, do we plan to make any changes to our liability mix before the merger so that the transition is smoother? And if yes, what would be that be? And how it would impact our cost of funds — and secondly, on HDFC Life, sir, is there any clarity that after the merger, how the regulator will look at our stake in HDFC Life, which has been — and are there plans to increase pay more than 50%, which will take away the supply overhang, which the stock may have?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I had mentioned this in response to your question, which I think Suresh and Patara, that why don’t we increase that to 50%. The reason is that today, the INR2,000 crores of capital we put into the insurance or we plan to put into the insurance company is largely a result of the fact that from a regulatory standpoint, their solvency margin has come down, and we would like that number to go up to over 200 — closer to 20%, which is why we are putting in — we have not yet got any confirmation from RBI, we see whether we can take our stake up to 50%, but that has always been a request.

Nidhesh Jain — Investec — Analyst

Sure. But I think you have to take a stake more than 50%, right? — probably close to a…

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

West to RPI is to take it up towards 50%. We have mentioned this when the call after the purchase and on.

Nidhesh Jain — Investec — Analyst

Sure, sure, sure. And any adjustment to the liability profile before the merger?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Very honestly, nothing significant. We are — I mean, the mix of liabilities has broadly remained the same. — whether you are looking at 31st March or you’re looking at 30 years broadly, there would not be no change. As I said, we are looking at this external commercial borrowing of $1.1 billion which was not there in the last couple of years because last two years, because of COVID, there was no way to access the international markets — so that has nothing to do with the merger. That’s nothing to do with the merger.

Operator

Next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.

Nischint Chawathe — Kotak Securities — Analyst

Thanks for taking my question. The question is on your ECL coverage on Stage 1 and Stage 2 loans. We have seen north of 1%, well above I think it’s almost 3, 4 quarters now that the real estate cycle has turned around. So somewhere, we have much more comfort on what’s happening to the asset quality or what can happen to the asset quality or on. So when would you kind of — in some of these provisions are probably write off some of the loans, where do you think that there is going to be genuine stress?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

So we — it’s something we keep reviewing all the time, but we would always like to have a provision level, which is higher than what is by regulation. But having said that, as I mentioned earlier, the credit cost, which is effectively or charged to the P&L account plus steel write-offs has come down from about 50 basis points in the first quarter of last year on an annualized basis, to about 33 basis points in the first quarter of the current year. But this 33 and 50, you must understand is annualized.

Operator

Next question is from the line of Adarsh from CLSA. Please go ahead.

Adarsh Parasrampuria — CLSA — Analyst

Hi, sir. Congrats on good numbers. So this is a follow-up on that liability question. Just thinking while the things have been static in the last few months, as you get more and more regulatory approvals in certain of the merger, would you intend to like increase the duration of some of the some of the borrowings given that the merged entity, the bank would really, even if there is a grandfathering, it just released the pressure. So I’m just trying to understand that as you get into the merger for the next 12, 18 months, will you aim to increase duration and that could cost money because longer-dated paper would cost more money.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes. But you must also understand desolve when you raise long-term money, you swap it into short-term rate. You should swap it into current rates because all our loans are floating rate loans. So whether you’re doing 10-year borrowing or you are doing theoretically 1-year borrowing or your floating rate, the cost is not going to be very different. But yes, there would be a conscious attempt to try and see if we can increase the duration of assets as we move on our liabilities. — as we move into our banking structure. But obviously, it has to be something which has to be fair. Conrad, if you’re there, can you add anything? All right. Let’s carrier.

Conrad D’Souza — Chief Investor Relations Officer, Member of Executive Management

Yes, sir. So I understand the swap but you’re saying that most likely, it should not affect margins in the interim period because you will swap it. Sorry for that. It was not. I mean we don’t need fixed rate funding for long term. We need floating rate funding. So whilst we can extend the duration of our loans, it will not add to an increase in the foreign cost.

Adarsh Parasrampuria — CLSA — Analyst

Perfect. No. So that’s good enough. Thanks and all the best.

Conrad D’Souza — Chief Investor Relations Officer, Member of Executive Management

Thank you.

Operator

Next question is from the line of Abhijit Tibrewal from Motilal Oswal. Please go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes, thank you for taking my questions. Just two questions again, kind of going back to the transmission. I think that you kind of explained the transmission of higher borrowing costs by increasing lending rates. So from what I understood if it is right, from the bad book, I mean, individual retail loans will kind of get repriced every three months. But on incremental net, you have now kind of reduced the replacing sequence from three months to one month. So is my understanding right that?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Let me clarify this. I said three months — yes, three months, but it’s not that every borrower loan will get repriced on any particular date. The repricing happened 3 months from the date caption. So some people’s loans will get repriced in May, some months will get repriced in June. Someone will get repriced in July and over a period of three months, the entire book — and yes, now we have moved it incrementally where we will do it on a monthly basis. So this works both ways. When interest rates go up, it increases your cost when interest rates come down in benefit.

Abhijit Tibrewal — Motilal Oswal — Analyst

So this — I mean reduction from three months to one month because it has been done only on the incremental lending does it still kind of leave you open to the transmission lab, given that there are widening expectations of another 50 to 70 basis 575 basis points increase in reports during the course of this fiscal year?

Conrad D’Souza — Chief Investor Relations Officer, Member of Executive Management

Yes. On the backlog.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes, the bulk of it has already happened. The 90 basis points rate increases happen in a very short period of time. Personally, I don’t believe that you will see a similar kind of an increase in the coming quarters. It would be more sort of extended over a sort of a longer time frame. But technically, very technically speaking, you are right. duration of housing loans is about 5 years. And if all incremental loans that would have been given from the state, we have repriced we’ve changed this rule, which is about 3 months ago, will get repriced immediately.

Renu Sud Karnad — Managing Director, Executive Director

Abhijit, if I may just add, This what KK has been mentioning pertains to the retail wins. As far as the wholesale loans are concerned, they do get repriced on a monthly basis even today. Sorry, I should have mentioned that.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes, I think, I mean, yes, — that’s clear. And second question that I had is, I mean, right now, I mean, when this interest rates are rising and your increasing the lending rates. I mean, is the first thing that we do is kind of tried to extend the tenure of the loan, I mean, to the extent permissible, I mean, maybe back tenure of 30 years maximum age, perhaps of 60 years for an individual. Is that the first thing that we do? Or are we kind of also increasing the EMI? And maybe a related question to this is, I mean, I mean, let’s say, if there is another 50 to 75 basis points increase in I mean reports during the course of this year. And consequently, if they are kind of passed on to an increase in your retail PLR, can you kind of lead to higher delinquencies maybe in the second half of the year?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

I can give you based on past experience. This is not the first time that we’ve seen sharp increases in interest rates. We have seen sharp increases in interest rates have in 2013 was one example, and there are many more where I can’t really recall the year. What happens is while the housing loan on an average has a term of about 12 or 13 years 13 at the time of origination. The actual duration of a housing loan is about 5 years. So it never runs to the full 12 or term as originally as is originally fixed. There are 2 reasons for that. One is all loans are amortizing loans. So the moment you get your loan, you start paying back an installment and that installment has got a principal component — so with every passing month, the outstanding amount of the loan keeps declining. This is number one. Number two is the fact that people tend to prepay now. I mentioned that in my opening remarks that we had about 10.2% of our loans prepaid ahead of schedule during the course of 10.2% is on an annualized basis, but 10.2% is the prepayments that we saw first quarter annualized.

Now these prepayments are not because there are full prepayments or some on refinancing these loans or anything of that — the bulk of these pens happen because people in India continue to remain reasonably debt averse. A lot of people come ahead of time and make a part repayment of the loan to reduce term of the loan or to reduce the amount of the loan or whatever. So it’s a very common practice. So in this particular instance, where we’ve changed initially, it would be a change in the come — so it go up initially from, say, 5 years to, say, 5.5 years or whatever, whatever happens because of the 90 basis points increase. But in every single case, every without exception, the loan is looked at from certain parameters. If the increase in the term is such that we are uncomfortable — or is the increase in the term take him beyond the certainty, then we will ask the customer to increase and we make the customers Eiger and getting to pay a higher amount — this is a trend which has been going on now for the last 25 years, and we’ve never seen any increase in years as a result of the term getting. And…

Abhijit Tibrewal — Motilal Oswal — Analyst

Just a follow-up question here.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes. Please go ahead,.

Vedanthachari Srinivasa Rangan — Executive Director

Yes, go ahead.

Abhijit Tibrewal — Motilal Oswal — Analyst

I mean I had a follow-up question here. So I mean if we kind of increase the tenure, this tenure can be increased without taking explicit consent of the customer, right? I mean this tenure can be extended to keep the EMIs?

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Yes, all that is built into the agreement. But case by case, we would find that there is any discomfort we have, as I said earlier, because the term has gone higher or because beyond that before or because of whatever reason or the age of the customer, then we would ask we would just automatically increase the EMI and the customer will see a higher going forward.

Abhijit Tibrewal — Motilal Oswal — Analyst

Thank you. This is very, very useful. Thank you, sir. And all the very best.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Thank you so much. Thank you very much.

Operator

Thank you very much. I now hand the conference over to the management for closing comments.

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

So I don’t really have any closing comments. I’ve already had my comment. Only I would say is that the NII reduction or the lower growth in ENI was largely a function of the transmission lag. And as the year progresses, this transmission lag will get — will start to reducing and we would expect NSS as I mentioned earlier, if we were to adjust for the transmission that and we were to adjust for the higher in the previous year because of the reasons I mentioned the delinking of the reverse repo, then the net interest income growth would have been 16%, which is in line with the loan to grow.

Operator

[Operator Closing Remarks]

Keki Minoo Mistry — Executive Vice Chairman of the Board, Chief Executive Officer

Thank you. Thank you, everyone, and stay safe. Stay in good health.

Renu Sud Karnad — Managing Director, Executive Director

Thank you, sir

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