Housing Development Finance Corporation Ltd (HDFC) Q2 FY22 Earnings Concall Transcript

Housing Development Finance Corporation Ltd (NSE:HDFC) Q2 FY22 Earnings Concall dated Nov. 01, 2021

Corporate Participants:

Keki Mistry — Vice Chairman and Chief Executive Officer

Renu Sud Karnad — Managing Director

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

Rangan V Srinivasa — Executive Director

Analysts:

Mahrukh Adajania — Elara Securities — Analyst

Bunty Chawla — IDBI Capital — Analyst

Sanket Chheda — B&K Securities — Analyst

Suresh Ganapathy — Macquarie — Analyst

Aditya Jain — Citigroup — Analyst

Kunal Shah — ICICI Securities — Analyst

Kaushik Agarwal — Haitong Securities — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Rahul — Goldman Sachs — Analyst

Abhishek Murarka — HSBC — Analyst

Kunal Thanvi — Banyan Tree Advisors — Analyst

Hiren Kumar Desai — Individual Investor — Analyst

Manjeet Buaria — Solidarity Investment — Analyst

Presentation:

Operator

Ladies and gentlemen. Good afternoon and welcome to HDFC Limited Q2 FY ’22 Earnings Conference Call. As a reminder, all participant lines will be in the listen-only mode. And there will be an opportunity for you to ask questions after the presentation. [Operator Instructions]

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

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

Keki Mistry — Vice Chairman and Chief Executive Officer

Well, thank you very much and good afternoon everyone. At the outset I would like to welcome all of you to HDFC’s earnings call for the second quarter of the current financial year. The Board of Directors at its meeting held earlier today approved the financial results for the half-year ended September 30, 2021 which was subjected to a limited review.

Over the next few minutes I will give you a summary of the key highlights of the performance for the half year and the quarter ended September 30, 2021. As we had mentioned in our earlier call business during the first quarter was partially disrupted as a result of the second wave, particularly during the latter part of April, and in the month of May. There has been a sharp recovery in business from June onwards this momentum has continued through the second quarter.

The following were the main highlights of the second quarter RBI has continued to ensure that there is adequate liquidity in the system and that the liquidity is made available to all segments of the market. Interest rates have by and large been stable. The inflation trajectory is within the RBIs comfort zone. Business has bounced back from the disruption in April and May 2021 and asset quality has improved during this quarter compared to June 21, particularly in respect of individual loans. Let me start by quickly summarizing the progress of our business through the quarter.

Our individual loan approvals for the 6-month ended September 30, 2021 were higher by 67% compared to the corresponding period in the previous year. During the half-year ended September 30, 2021 individual loan disbursements grew by 80% over the corresponding period in the previous year. Individual loan disbursements in the second quarter were 48% higher than during the first quarter and 44% higher compared to the corresponding period in the previous year. October 2021 disbursements are the highest ever. October 2021 means as of yesterday. These disbursements were the highest ever in long quarter and month and this momentum post the second wave has continued.

Growth in home loans was seen in both the affordable housing segment as well as indeed high-income groups, 89% of new loan applications we received through the digital channel during the second quarter we sold loans aggregating to INR7,132 crores. The total loans sold during the 6 months ended September 2021 amounted to 12,621 crores. These loans were all assigned to HDFC bank pursuant to the mortgage sharing arrangement that we have at the bank.

Individual loans sold in the preceding 12 months amounted to INR27,199 crores as compared to INR14,138 crores in the previous year. Individual loan growth on an AUM basis was 16% if the loans amounting to INR27,199 crores had not been sold, then the growth in the individual loan book would have been 23%. Our individual loan book increased to INR391,195 crores, a growth of 15% over the previous year. This is on a balance sheet basis. In addition to this the loans securitized by the Corporation and outstanding as of September 30, 2021 amounted to INR76,366 crores.

HDFC continues to service these loans. Individual loans outstanding on an AUM basis as of 30 September amounted to INR467,561 crores. With regards to the non-individual portfolio. We have seen a pickup in the loan book during the second quarter driven significantly by the LRD component. Although we continue to report a growth as compared to the previous year. We have seen a healthy growth during the quarter ended September 21. We presently have a good pipeline and we expect to see a positive growth for the whole year.

As at September 30, 2021 our non-individual loan book amounted to INR129,603 crores. The overall loan book is now 520,798 crores. If we add back the loans of securities, which are still being serviced by us then the total assets under management at of September 30, 2021 amounted to INR597,339 crores as compared to INR540,270 crores in the previous year, a growth of 11%.

Prepayments on retail loans for the half year on an annualized basis was 9.6% of the opening loan book. The average size of individual loans for the period ended September 30, 2021 stood at INR31.9 lacs. For the second quarter, the average loan was 32.7 lacs. The contribution from the higher income group defined as customers with an annual family income of INR18 lakh or more has increased during the first six months to 43% from 40% during the previous financial year.

Our trust on affordable housing continued unabated. During the half-year ended September 30, 2021, 30 of our home loans approved in volume terms and 14% in value terms were to customers from the economically weaker section or deep lower income groups. The average home loan to customers in the AWS segment amounted to INR11.1 lakh and to customers in the lower income segment amounted to rupees 19.4 lakhs. If you break up the loan book outstanding on September 30, 2021 on an AUM basis into different categories, then individual loans constituted 78% of the total loan book as compared to 75% in the previous year.

Construction finance constitutes 9% of the total loan book. Lease rental discounting loans constitute 8% of the total loan book, while corporate loans constitute 5%. If we were to look at incremental loan book growth and split that growth between individuals and non-individuals. Then for the quarter ended September 30, 2021, the ratio of growth in individual loans versus non-individual loans is 75 by 25. In other words 75% of the growth in the loan book. During the quarter came on individual loans and 25% came on non-individual loans.

The increase in the non-individual loan book. During the quarter is almost entirely on account of loans disbursed under the lease rental discounting strategy. For the 6 months ended September 30, the ratio of incremental growth to the loan book is 96% individual loans and 4% non-individuals loan. Total loans sourced from distribution channels is 99% of which HDFC sales is 53%, HDFC Bank is 28% and third-party because 18%. As you are aware, HDFC Sales is a wholly owned subsidiary of HDFC Limited. Thus 82% of HDFC’s individual business was sourced directly or through our associates.

The emergency credit line guarantee scheme was extended to mitigate the economic distress caused by the second wave of the pandemic. Under ECLGS 1, 2 and 3, the Corporation has approved an aggregate amount of INR2,418 crores of which INR1,738 crores has been disbursed as of September 30, 2021. Amounts disbursed under this facility are guaranteed by the government.

The Reserve Bank of India permitted a one-time restructuring of loans under this resolution for COVID 19 Related Stress. In this regard, the aggregate amount of loans for which restructuring has been implemented under both OTR 1 and OTR 2 constitute 1.4% of the loan book. As informed earlier, loan restructured under OTR 1 had constitute 0.9% of the then loan book. Out of the loans restructured under OTR 1 and 2, 63% are individual loans and 37% are non-individual loans. Also out of the total restructured loans as much as 35% is in respect of just one non-individual account we are happy to say that we expect nearly 50% of this exposure to be settled in the near future.

The overall collection efficiency for individual loans has improved in the second quarter. The collection efficiency for individual loans on a cumulative basis, I repeat cumulative basis which means it takes into account outstanding of the earlier months, the collection efficiency for individual loans over the last quarter is over 98%, and this cumulative.

As of September 30, 2021, non-performing individual loans stood at 1.1%, while non-performing, non-individual loans stood at 4.69%. As per regulatory norms. The gross, non-performing loans as of September 30, 2021 stood at INR10,341 crores. This is equivalent to 2% of the loan portfolio. Non-performing individual loans have increased in June, 21 due to slippages on account of the impact of the second wave of the pandemic. Since then we have seen a pullback by about 27 basis points, which reflects a significant recovery from the impact of second wave. This is also reflected in an improvement in the collection efficiency.

The non-individual asset quality has held reasonably well and we have seen an 18 basis points reduction in NPAs during the quarter. During the quarter. We have also seen some resolution in certain non-individual loans. As per regulatory norms, based solely on the period of default, the Corporation is required to carry a total provision of INR6,605 crores as of September 30, 2021, as against this, the actual provision carried is INR13,340 cores. The excess provision over the regulatory requirement is INR6,735 crores, that is 102% higher than the minimum required, under the regulations.

Under Ind AS accounting, 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 the models. The total exposure at default of INR520,358 crores is broken up as under; stage one loans constitute 91.3%, Stage 2 loans constitute 6.2% and Stage 3 loans constitute 2.5%. During the second quarter, we have seen a reduction in the aggregate of stage 2 and stage 3 assets from 9.2% in June to 8.7% of the EAD as of September 2021. Stage 3 includes accounts, with an exposure at default of INR624 crores, which are classified as Stage 3 account on a qualitative basis under Ind AS but are outstanding for less than 90 days and accordingly have not been classified as non-performing loans.

During the quarter we have charged those accounts with a sum of INR452 crores towards provisioning. The aggregate charge to the profit-loss account for the 6 months is rupees 1,138 crores. The expected credit loss to exposure at default coverage ratio for Stage 2 assets is 15% and for Stage 3 it’s 55%. The provisions carried as a percentage of the EAV amounted to rupees 2.56%. As of September 30, 2021, we carry COVID 19 provision of INR1,304 crores, which is about 10% of the overall provision.

We will in the course of the next few quarters review whether we need to continue carrying this provision. Annualized credit cost for quarter two was lower at 32 basis points compared to 50 basis points during quarter one. For the 6-month period, the annualized credit cost amounted to 40 basis points. We believe that as the situation further normalizes, we should over the next 2 to 3 years be in a position to further reduce the credit costs. This in turn will have a positive impact on the return on equity.

As far as investments are concerned. We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all our other subsidiary and associate companies at their original cost of acquisition, which is the price we had paid whilst 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 of September 30, 2021 the unrealized schemes, which is a difference between the market price as of September 30, 2021 and the carrying cost would be INR275,917 crores. This unrecognized gain of INR275,917 crores is not part of our net worth, nor has it been considered in a capital adequacy calculations. As a part of the capital raise in October 2020 we raised warrants at an issue price of INR180 and an exercise price of INR2,165 per share. The exercise price of the volumes is up to August 2023. As of date no warrants have been converted into equity shares.

Our Tier 1 capital as of September 30, 2021 is INR89,111 crores. Risk weighted assets as of that date amounted to INR411,815 crores. Accordingly, capital adequacy ratio is 22.4% of which Tier 1 capital is 21.6% and Tier 2 capital stands at 0.8%. The capital adequacy is well above the regulatory requirement of what we are required to carry.

At this stage, it is important to talk about the return on equity. Under the Ind AS accounting requirement, network includes certain items which do not form part of Tier 1 capital under the prudential regulations. These include Ind AS transition reserve, deferred tax liability on special reserve, fair value gains on investments to OCI. Investments in subsidiaries associates in excess of 10% of the net own funds, securitization gains recognized upfront and a couple of other items.

These items aggregate to INR22707 crores. Hence, Tier 1 capital is INR89,111 crores as against a reported networth of INR111,818 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 computing it on total network. Annualized return on equity on Tier 1 capital for the half-year ended September 30, stands at 15.5%.

As at September 30, 2021, the Corporations total borrowings amounted to INR462,737 crores. Term loans including external commercial borrowings and refinance from the National Housing Bank accounted for 24% of borrowings. Market borrowings that is NCDs and commercial paper accounted for 41% of borrowings. Deposits were a major source of funding during the year. Deposits as at the quarter end amounted to INR161,388 crores and constitute 35% of total borrowings. 61% of the deposits were onboarded digitally.

During the quarter the Corporation has drawn two external commercial borrowings from International Finance Corporation, Washington, as well as from the Asian Infrastructure and Investment Bank, aggregating in all to $450 million. The funds raised under these loans will be utilized to promote affordable green housing finance for low-income borrowers and for financing green housing projects. HDFC at HD foreign exchange risk on these loans.

Net Interest income purely on the basis of interest without taking cognizance of the profit on sale of investments during the 6 months ended September 30, 2021 amounted to INR8,255 crores compared to INR7,039 crores in the corresponding quarter of the previous year, giving a growth of 17%. The net Interest income calculated in a similar manner for the quarter ended September 30, 2021 was INR4,109 crores compared to INR3,647 crores in the corresponding quarter of the previous year.

The other way to calculate the net interest income is to also consider the income that is accounted for at the time of selling a loan under Ind AS. During the quarter we sold loans aggregating to INR7,132 crores and booked an income of INR128 crores. If you were to include this amount of INR128 crores as part of the net interest income and also consider similar income in the corresponding quarter of the previous year, then the NII for the quarter would have been INR4,236 crores.

Calculated in a similar manner. The net interest income during the 6-month period ended September 30, 2021 would have been INR8,650 crores. Net interest margin for the half-year ended September 30, 2021 stood at 3.6% compared to 3.2% during the corresponding period in the previous year.

Net interest margin in the previous year was impacted by the negative carry on the liquidity carried by the Corporation. The spread of on loans over the cost of borrowing for the period ended September 30, 2021 was 2.29%. The spread on the individual loan book was 1.93% and on the non-individual book was 3.37%. The spread on housing loans during the corresponding period of the previous year was 2.27%. So effectively there has been a 2 basis points increase.

Income earned from deployment of surplus funds in cash management schemes of mutual funds was much lower at INR228 crores as compared to rupees 539 crores in the corresponding period of the previous year. This was due to a sharp drop in short-term rates, where we earned 3.1% on our surplus liquidity as compared to 3.9% in the previous year as also on account of lower levels of liquidity.

As informed to the exchanges, we have during the quarter received dividend income from HDFC Bank, HDFC Life and HDFC Asset Management aggregating to rupees 1,171 crores. During the half year we earned INR1,188 crores by way of dividend income. If you look at profit on sale of investments, there was no profit investments during the second quarter. During the half year period, the Corporation has booked profit on sale of investments amounting to INR263 crores compared to as much as INR1,241 crores during the same period in the previous year. Under Ind AS accounting standards, the stock options granted to employees are measured at the fair value of the options on the wait of grant. This fair value is accounted for as employee compensation cost over the vesting period of the options. Accordingly employee benefit expenses for the half year includes an amount of INR268 crores compared to INR47 crores during the same period in the previous year. The charges on account of stock options, which were granted during the second quarter of the previous year.

For the period ended September 30, 2021. The cost income ratio stood at 8.2% as compared to 8.5% during the corresponding period of the previous year. For the quarter ended September 30, 2021, the standalone profit before tax was INR4,671 crores compared to rupees 3,532 crores during the second quarter of the previous year, representing a growth of 32%.

Tax for the second quarter stood at INR891 crores compared to INR662 crores in the second quarter of the previous year. The tax rate for the quarter was 19.1% compared to 18.7% during the corresponding quarter in the previous year. The standalone profit after tax for the second quarter stood at INR3,780 crores compared to rupees 2,870 crores in the second quarter of the previous year, representing a growth of 32%. For the half-year ended September 30, 2021 the standalone profit before tax was INR8,576 crores compared to INR7,139 crores in the previous year, giving a growth of 20%.

Tax provision during the 6 months ended September stood at INR1,795 crores compared to INR1,217 crores in the previous year. The tax rate for the 6 month period during the current year was 20.9% compared to a much lower rate in the previous year. The standalone profit after tax for the half year stood at INR6,781 crores compared to INR5,922 crores in the previous year.

Pre-tax return on average assets was 3% is 3.0% [Phonetic] and the post-tax return on average assets stood at 2.4%. The basic and diluted earnings per share on a face value of INR2 per share was INR37.56 and INR37.16 respectively. The consolidated profit before tax for the half years stood at INR13,075 crores as compared to INR10,722 crores in the corresponding period of the previous year. This represents a growth of 22%. After providing INR2,093 crores for tax compared to 1,628 crores in the previous year. The consolidated profit after tax for the period stood at INR10,982 crores as compared to 9,094 crores, a 21% increase over the corresponding period in the previous year.

The profit attributable to the Corporation was INR10,299 crores as compared to INR8,213 crores in the previous year, giving an increase of 25%. As at September 30, 2021 the Corporation had 3,448 employees. Total assets per employee stood at INR167 crores, whilest net profit per employee was 3.9 crores. HDFC’s distribution network spend 616 outlets, which include 202 offices of HDFC’s wholly-owned distribution company HDFC Sales Private Limited. HDFC covers additional locations through its outreach programs. On the ESG front, we continue to engage deeply with all our stakeholders. On a voluntary basis the Corporation had prepared the business responsibility and sustainability report for the year ended March 2021. This report has been hosted on the Corporation’s website. For further information you can engage with our Investor Relations team Anjali and contact.

The above are some of the highlights of the results for the period ended September 30, 2021. Before I conclude, I would like to wish each one of you good health and a very happy festive season ahead. Please stay safe. We may now proceed to question and answers. I would request you to kindly introduce yourself and please be as brief as you can with the question and answer. Thank you so much.

Questions and Answers:

Operator

Thank you very much, ladies and gentlemen we will now begin the question-and-answer session. [Operator Instructions] The first question is from the line of Mahrukh Adajania from Elara Securities, please go ahead.

Mahrukh Adajania — Elara Securities — Analyst

Yes, hi. My first question is on credit cost, so you did mention that going ahead, you would see a further decline in credit cost, though have already declined this quarter. So are you planning to drawdown on existing reserves in the next say 6, 9 months.

Keki Mistry — Vice Chairman and Chief Executive Officer

Mahrukh, let me answer the question. what I said is that over the next 2 to 3 years, we will start seeing credit cost come down, it’s not going to be a dramatic reduction in cost in any particular quarter. That’s number one. Number 2. Obviously, we will keep reviewing the provisioning that we carry, specifically the COVID related provisioning and take a call whether we need to continue with that provisioning or not, but at least in the short term, there is certainly no plan to reverse that at this point of time.

Mahrukh Adajania — Elara Securities — Analyst

Okay. But when would you look to reverse next year or no.

Keki Mistry — Vice Chairman and Chief Executive Officer

Mahruk, difficult to answer that question there is so much of uncertainty around COVID whether there will be a third wave, will not be a third wave. So it all depends on what the circumstances are at that point of time, but we are happy to look at it in due course and hopefully over the next, as I said a couple of years, we should start seeing credit cost diminishing as they’ve already seen a decline in this quarter itself.

Mahrukh Adajania — Elara Securities — Analyst

And just in terms of restocking, so both in individual and non-individual what are the terms of restructuring in terms of moratorium extension of tenure, what would be the maximum moratorium and maximum extension of tenure in both these groups. In my mind, these are strictly as per the regulations.

Keki Mistry — Vice Chairman and Chief Executive Officer

Conrad you can answer that, lead term.

Renu Sud Karnad — Managing Director

So Keki, maybe I can just come in, Renu here. So the retail, the terms have been extended from maybe 6 months to about 18 months. That is what we’ve done. We have also encouraged people to pay part EMI, it’s not completely a full moratorium also. So there is a mix, Mahrukh of all various options that we gave, which are all under the regulations.

Keki Mistry — Vice Chairman and Chief Executive Officer

But Mahrukh, just to repeat, the totally restructured loans in in OTR 1 and OTR 2 taken together amount to 1.4%. And we would have informed you much earlier, a couple of quarters earlier that under OTR 1, the restructured loans at that time were 0.9%.

Mahrukh Adajania — Elara Securities — Analyst

And my last question is on the growth in the non-individual book. So any guidance there in terms of when it could pick up?

Keki Mistry — Vice Chairman and Chief Executive Officer

Well, we have, see we have a reasonably healthy pipeline, the reason you saw the non-individual loan book decline, particularly in the quarter to June was because of two, three reasons. One reason was that we had the second wave of COVID in April, May, and obviously during the second wave construction activity had come to a standstill and therefore we could not disburse any loans for construction finance. This was one reason. Second reason was in the course of the last 12 months, we had seen a lot of repayment of loans through our product.

So customers who had taken loans from us went for a REIT issue. We are 2 large customers, Brookfield Mindspace. And the loans, which they have taken got repaid through the restructure. But the success of the REIT has made it now more attractive for more and more developers to look at REIT, look at constructing commercial property, which will initially start off as construction loans. And then in due course, once the property is ready and leased out will then move into a LRD, a lease rental discounting. So the pipeline looks reasonably good I can’t commit numbers. But as I said, indeed in the talk itself that I would expect that we should close the financial year with a positive growth as against the minus 5% negative growth that we have as of September 2021. Also the negative growth of minus 5% is lower than the negative growth, which was almost, if I recall right, minus 8% or minus 9% in the first quarter.

And also to remind you, as I mentioned in the call, 96% of the incremental growth in the loan book in the 6-month period is individuals, 4% is non-individuals. This is for the 6-month period. But if you were to look at only the second quarter in isolation, then as much as 25% of the growth in the loan book during the quarter was on non-individual loans.

Mahrukh Adajania — Elara Securities — Analyst

Sure. Thanks a lot. Thank you.

Operator

Thank you. [Operator Instructions] The next question is from the line of Bunty Chawla from IDBI Capital. Please go ahead.

Bunty Chawla — IDBI Capital — Analyst

Thank you, sir. Thank you for giving me the opportunity and congrats on a strong set of numbers. So on the data point percent, if you can share what will be the percentage of individual book, which is on the projects that are currently under construction?

Keki Mistry — Vice Chairman and Chief Executive Officer

My sense is, it would be about 10%, or 11%. I don’t have a number, readily available, but before the end of this call, we will give you that number.

Bunty Chawla — IDBI Capital — Analyst

Thank you, sir. And secondly, sir, on the restructuring, as you share that 60% comes from the individual, if you can more share what will be bifurcation between salaried non-salaried and if any specific states are more impacted by this. If you can share something on that. That’s it from my side.

Keki Mistry — Vice Chairman and Chief Executive Officer

Conrad you want to say something there? So if we were to look at the split between employed and self-employed on an incremental basis, I don’t have the split readily available for OTR cases, we can get it in a short while. But if you look at incremental growth in the loan book, approximately 21% is on self-employed and about 79% is employed. But specifically on the OTR cases, Conrad would come back with specific numbers.

Bunty Chawla — IDBI Capital — Analyst

Thank you, sir. Thank you very much and best wishes for Diwali sir.

Keki Mistry — Vice Chairman and Chief Executive Officer

And also, there is no particular state, it is broadly spread across the length and breadth of the country. But I repeat that the total amount between OTR 1 which happened last year and OTR 2 is 1.4% and what happened last year, which is, OTR 1 was itself 0.9%.

Bunty Chawla — IDBI Capital — Analyst

Okay, sir. And sir. Lastly, this OTR1 which is 0.9% and it could be mostly more than 3 to 6 months old. So how that behaving, that portfolio behaving how could be the collection efficiency in that portfolio?

Keki Mistry — Vice Chairman and Chief Executive Officer

It’s reasonably good. We have not seen any significant asset quality on the restructure terms. And generally, generally of course, there with of course be exceptions, payments are being made as scheduled.

Bunty Chawla — IDBI Capital — Analyst

Thank you. Thank you, very much. And best of luck.

Operator

The next question is from the line of Sanket Chheda from B&K Securities, please go ahead.

Sanket Chheda — B&K Securities — Analyst

Yes, sir. So in this quarter, while — if you see the asset quality on stage wise, we have increased the PCR meaningfully on stage 3 and rather the reduce it — reduce the same on Stage 2. So I just wanted to reconfirm, this 1.4% restructured loan are part of stage 2, right?

Keki Mistry — Vice Chairman and Chief Executive Officer

They are all part of stage 2.

Sanket Chheda — B&K Securities — Analyst

So any reason to maybe lower the coverage rather on Stage 2 and increase on Stage 3, wherein we were already at 48% on Stage 3. And historically LGDs have been much lower than that, right.

Keki Mistry — Vice Chairman and Chief Executive Officer

Then the reason for Stage 2 reduction is because a lot of these, some of these stage 2 projects, which were there has started seeing sales happening and because sales are happening the stress, which was earlier at least that’s on the pricing. Some of these obviously not all has reduced and therefore to that extent the provisioning has also come back. And as far as Stage 3 is concerned, there is accrual of income which comes every time. So, because there is accrual of income that gets reversed through the, through the provisioning.

Sanket Chheda — B&K Securities — Analyst

Sure sir, that was the only question from my side. Thanks a lot.

Keki Mistry — Vice Chairman and Chief Executive Officer

And that’s an Ind As requirement as you may know.

Operator

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

Suresh Ganapathy — Macquarie — Analyst

Yeah. Couple of questions Keki. First is on this 50% settlement that you’re expecting, that is only the near-term settlement from the restructured account. Longer term, the numbers are going to be higher than 50% right?

Keki Mistry — Vice Chairman and Chief Executive Officer

Sorry, which 50% you’re talking of?

Suresh Ganapathy — Macquarie — Analyst

50% of the Shapoorji Pallonji account, the restructured account is from 35%.

Keki Mistry — Vice Chairman and Chief Executive Officer

The account that we were talking of, the non-individual accounts. We expect the 50%, roughly 50% of the money to be received hopefully in this quarter. Hopefully in this quarter.

Suresh Ganapathy — Macquarie — Analyst

The balance will come over a period of time, right, considering a collateral.

Keki Mistry — Vice Chairman and Chief Executive Officer

But hopefully as they settle this 50%, the remaining 50%, we hope will also not take too long to settle, hopefully [Indecipherable] at the moment.

Suresh Ganapathy — Macquarie — Analyst

Okay. And the other thing is, can you tell us what could be the impact of the new securitization guidelines, specifically with respect to the direct assignment that you do with HDFC Bank. Anything specific that changes, either in terms of capital or any other requirement here?

Keki Mistry — Vice Chairman and Chief Executive Officer

Conrad you want to answer that question.

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

Yeah, Suresh, on the securitization piece, yes, there is a RBI rules have come in. But broadly on assignment transaction, there is no change in the capital and other parameters except for the loans, which has to be sold, they have said that it has to be on a current basis and you’re selling it. So basically that is the — so when you’re selling it, it should have a sort of a zero outstanding on the date of sale. That is the requirement. Earlier it was like any standard asset could be sold. Now it is like a zero [Indecipherable].

Suresh Ganapathy — Macquarie — Analyst

. Okay. So this is no way is going to affect either the volumes or anything that you do with HDFC Bank, right?

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

Not really, not really.

Suresh Ganapathy — Macquarie — Analyst

Okay. And any — and one last question is on the Bandhan stake, which is less than 10% that you own. What is the future here, do you plan to trim it down, maintain it, is it purely a financial investment at this point in time. Any color, that would be great.

Keki Mistry — Vice Chairman and Chief Executive Officer

We have always said that the investment in Bandhan is a financial investment, it is not a strategic investment. We continue monitoring the investment quarter after quarter and in due course the Investment Committee will take a call on what to do with the equity investment. But as I said earlier, there are certain investments that we’ve carried in the balance sheet for years and years without a sort of trimming our sake or increasing our stake or anything. So it’s a call that the Investment Committee will have to take and which they will take quarter after quarter.

Suresh Ganapathy — Macquarie — Analyst

Thanks. Thanks, Keki.

Operator

Thank you. The next question is from the line of Aditya Jain from Citigroup. Please go ahead.

Aditya Jain — Citigroup — Analyst

Thank you. Couple of things, one, if I heard right. You mentioned that repayments in individual loans are 9.6%. I don’t know whether it was for 2Q or for the entire 1H?

Keki Mistry — Vice Chairman and Chief Executive Officer

This is for the period, for the 6-month period.

Aditya Jain — Citigroup — Analyst

Okay. So in 1Q it is…

Keki Mistry — Vice Chairman and Chief Executive Officer

[Speech Overlap] 9.6% is on an annualized basis. It’s not that repayments in 6 months were 9.6% of the loan book, no.

Aditya Jain — Citigroup — Analyst

All right, I understand, but in 1Q this — this — the prepayment rate was 8.2%. So the increase seems fairly high or would you say that 1Q was depressed.

Keki Mistry — Vice Chairman and Chief Executive Officer

[Indecipherable] so the normal level of prepayments we get. And this has been a historical trend, which analysts who’ve been covering our stock for the last 25 years know. A typical trend is that the total amount of prepayments we receive in the year are between 10% and 12% of the loans outstanding at the beginning of the year. And obviously in the first quarter, there was some impact on prepaid just as there was impact on disbursements. There was also an impact on prepayments because of the second wave. But now with everything normalizing, prepayments would have gone back to the — gone back to earlier levels to I must say that even in the second quarter, the level of prepayments we’ve had, have been lower than what the historical average has been. The historical average being between 10% and 12%.

Aditya Jain — Citigroup — Analyst

The GST in wholesale gross Stage 3 loans in wholesale is up.

Keki Mistry — Vice Chairman and Chief Executive Officer

Sorry. I’m sorry I couldn’t hear you.

Aditya Jain — Citigroup — Analyst

Gross Stage 3 assets in wholesale, non-individual are up quarter over quarter 5.8% to 6.2%. Could you just talk about where this is coming from. And is it something, which you would expect to [Speech Overlap].

Keki Mistry — Vice Chairman and Chief Executive Officer

So Aditya, we have said this in repeated calls in the past that any loan which we classify as a Stage 2 account, we keep looking at that account on a quarterly basis. There are certain benchmark, certain targets that we set in terms of progress and if those targets are not met, we would be — we’ll be looking to downgrade those loans from Stage 2 to Stage 3. So this is something we have said historically. So the slight increase that you see in Stage 3 loans would be arising out of that fact that the loans were originally Stage 2 loans and because the progress was not as much as we would have expected, we would have downgraded those loans from Stage 2 to Stage 3.

Aditya Jain — Citigroup — Analyst

So they would not necessarily have crossed into 90 days past due, but proactively you might have downgraded them.

Keki Mistry — Vice Chairman and Chief Executive Officer

Some of them, yes. I mentioned in the call itself that there were some loans, which were not 90 days outstanding, but have been classified as Stage 3.

Aditya Jain — Citigroup — Analyst

Got it. thank you.

Operator

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

Kunal Shah — ICICI Securities — Analyst

Yeah, hi, sir. The question was on collection efficiency. When we look at it on a cumulative basis, it’s still at around about 98 odd percent. I think that’s the number, which has been there for March, June. We are not seeing an improvement there. Actually, so how should we read that maybe in terms of, and this is also on the individual loan, but it’s getting sticky at 98 and our Stage 3 assets in individual is 1.3. So maybe, does that pose a risk or maybe this is the quarter number and September would be much better?

Keki Mistry — Vice Chairman and Chief Executive Officer

I would put it this way that typically even historically even in pre-COVID times the collection efficiency on a cumulative basis was always be around 98% to — around 98%. It would have been range from 97.5% to 98.2%, 98.3%, 98.5% and not much more than that. What do you need to understand is that, if the customer is faced some difficulty and is not able to make payment, then with every month the instalment that is to be collected from that customer keeps increasing. These are not collections for the month, these are cumulative collections.

So if someone has not paid for last month and the month before that and the month before that, for example, then he would continue to appear in the numerator. And therefore to that extent we collect — I’m sorry, in the denominator and therefore to that extent the collection efficiency gets lower. But typically 98%, 98%, 98.2%, 98.3% collection efficiency ratios generally, we would consider it as fairly satisfactory.

Kunal Shah — ICICI Securities — Analyst

Sure. And secondly, in terms of restructuring. If I look at, particularly the proportion of individual. So almost 1.2% of individual loans have got restructured, it’s 2% for the non-individual and that’s where we get to 1.4 average. But what is the, maybe now, were we anticipating that there will be a request to the extent of 1.2 odd percent or that seems to be relatively on the higher side?

Keki Mistry — Vice Chairman and Chief Executive Officer

See, Kunal, first of all let me tell you that this 1.2% that you’re talking about is or whatever that number is, is a cumulative number. It is not that that has happened this quarter or last quarter. This includes the restructuring figure of 1.4% is both in respect of what was done last year as well as what was done in the current year as a result of the second wave of COVID. So some people, particularly, I would say — I would say a little more of the self employed people would have got impacted during the second wave because their businesses could not open and they had to shut down or temporarily close their businesses and therefore would have sought restructuring. But you must also remember that restructuring is allowed only for accounts which was stranded up to a certain point.

So it’s not bad loans, which get restructured, it is good loans that get restructure. And when we do restructuring, we look at the future likelihood of the customer coming out of his short-term problems or whatever it is before we agreed to a restructuring.

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

Keki, if I may just add here. Kunal whilst the numbers are not very high. The reason why it may be slightly higher in the OTR 2 compared to 1, although in aggregate, the numbers are not material. One of the reasons is the fact that in the OTR 1 it happened after 6 months of moratorium. This time around there was no moratorium. So that explains why the number in two is, it was expected to be higher.

Kunal Shah — ICICI Securities — Analyst

Sure, sure. Got it. Okay. And one last question, in terms of the disbursement, so we gave the first half number in terms of the disbursement growth. Last time it was 181 now it is 80, but if I were to look at it, particularly this quarter and what would be the disbursements and if you can share the absolute number as well. Yeah.

Keki Mistry — Vice Chairman and Chief Executive Officer

Yeah, sure. So whilst Conrad gives you that number, the actual growth in disbursements in individuals in the 6-month period was 80% in the second quarter compared to the second quarter of last year was 44%. And if we compare quarter two versus quarter one, it works 48%. Conrad, can you give the exact number of disbursements?

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

So Kunal the disbursements for this quarter were 38,000 crores as compared to 26,000 crores last year for the same quarter, which is the 44% growth that Keki is speaking about.

Kunal Shah — ICICI Securities — Analyst

And this is individual, yes, 38,000 individuals.

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

Yeah. Individual.

Kunal Shah — ICICI Securities — Analyst

Yes. Got it. Perfect. Okay, good.

Keki Mistry — Vice Chairman and Chief Executive Officer

Also Kunal I should say that post quarter,the October, the month of October with has got over yesterday, we had record disbursements. We have never disbursed that much amount in any non-quarter in a month. And even if you include quarter in months, this would be the second highest disbursements we ever made in any month, including a quarter and moth.

Kunal Shah — ICICI Securities — Analyst

Great. Congrats, yes. So hope that trend continues and I wish the entire team a very happy Diwali.

Keki Mistry — Vice Chairman and Chief Executive Officer

Thank you. Wish you to also a very happy Diwali.

Operator

Thank you. The next question is from the line of Kaushik Agarwal from Haitong Securities, please go ahead.

Kaushik Agarwal — Haitong Securities — Analyst

Yeah, hi, sir. Thank you for the opportunity. So my question is with specific to LRD book of the company. Two questions around that. What would be the profitability profile for that segment? Number one. And number 2, what was the incremental business generated in the LRD book during the quarter and are we seeing some competitive pressure. Can you give some color on the pricing side for the business?

Keki Mistry — Vice Chairman and Chief Executive Officer

All right. So if we look at the interim, let’s first talk of the growth in the LRD book. So if you look at the second quarter. And if you break the second-quarter growth in the loan book between individuals and non-individuals, then the growth has come in the — the growth, the differences is 75:25, meaning 25% of the growth was on non-individual loans. Now when you look at these non-individual loans, growth has been primarily or in fact, I would say almost entirely in [Indecipherable].

Profitability of the LRT segment continues to remain good. Obviously, there is competitive pressure, but there has always been competitive pressure because the LRD book is always perceived as a very safe book. The margins that we earn down the LRD book would obviously be lower than the margins that one can earn on the non-individual, on the other kinds of non-individual loans like construction finance, but at the same time, the asset quality on LRD loans will be significantly — significantly superior to almost any other category.

So when you talk of profitability, you have to look at profitability net of provisioning requirement, net of capital requirement and all of that. And we’ve consistently told our investors that while these spread on non-individual loans is higher, than the spread on the individual loans, which is also in the call I mentioned the amount. What you must also understand is that non-individual loans require a higher amount of capital because the risk weight on these loans is higher than the risk weight on individual loans.

So the capital deployed in giving a non-individual loan is higher. To that extent the return on equity gets pulled down. And the second reason is — and the second point to note is that if you look at non-performing loans also, our individual nonperforming loan is 1.1%, whereas a non-individual nonperforming loans a lot higher at 4.69%. So if you factor in the higher amount of non-performing loans and therefore consequently. The higher amount of provisioning that these loans require and also take into account the higher amount of capital required, then to my mind the return on equity in both segments is broadly more or less the same.

Kaushik Agarwal — Haitong Securities — Analyst

Okay, thank you so much, sir.

Operator

Thank you. The next question is from the line of Nischint Chawathe from Kotak Securities. Please go ahead.

Nischint Chawathe — Kotak Securities — Analyst

Yeah, hi. I have just one question now. This is actually pertains to the liability side. If I look at the ratio of bank loans to total borrowings, this is bank loans are almost now one-fourth of the total borrowings. And I believe the peak ratio was somewhere close to one-third or 30%, way back in 2008, 2009. At that point of time, I guess there were different set of constraints or different set of considerations. But at this point of time, clearly you are increasing your bank loans, because it is a more competitive line of funding, but how should we really think of it? Would you want to balance it out at some point of time or will this kind of keep on increasing to 30%, 35%?

Keki Mistry — Vice Chairman and Chief Executive Officer

See, we have, while Rangan can answer that question, let me just give you a broad perspective on our funding. We have been extremely careful through our various ALM meetings that we keep having of ensuring that we manage our funds in a manner in which we minimize the cost of funding for us. And we would always raise money from that source, which gives us access to the cheapest kind of — cheapest form of funding for a certain period of time. So at times we look at 5-year funding, sometimes we look at 3-year funding and so on so forth. So depending on where that fits in, the funding would come from.

Now when you look at the outstanding borrowings as of 30th September and compare that with the outstanding borrowings of March 31, then you would see that of the increase 36% is the bank loans, but deposits is 53%. Rangan you want to say anything there?

Rangan V Srinivasa — Executive Director

Yeah, just wanted to add two more points. One is that we have been quite successful in terms of negotiating most of the bank loans through an external benchmark. So that is from a interest rate perspective, though we are in line with the market. And the second thing is that we have also been able to negotiate at the longer term, I mean even terms as high as 10 years and all that. So that’s also the another positive point from that perspective.

Nischint Chawathe — Kotak Securities — Analyst

Out of roughly 111,000 if you could give some color in terms of how much is linked to an external benchmark. How much would be linked to one year MCLR or?

Keki Mistry — Vice Chairman and Chief Executive Officer

Can give you exactly, but most of them is actually linked to external benchmark as we — as you are talking today because we have been able to renegotiate it, but we will probably give it to you the exact number, yes.

Nischint Chawathe — Kotak Securities — Analyst

Sure. And this gets reset like immediately the next month, next quarter?

Keki Mistry — Vice Chairman and Chief Executive Officer

No. These are basically linked to either a 30 days, 90-day T-Bill or things like that. So it’s not immediately like that.

Nischint Chawathe — Kotak Securities — Analyst

So the way it works is that when the interest rate changes, let’s say, this quarter, probably the next quarter…?

Keki Mistry — Vice Chairman and Chief Executive Officer

Generally it’s liked to a T-Bill and others, so 90 day T-Bill and other.

Nischint Chawathe — Kotak Securities — Analyst

Okay. Perfect, thank you very much. That was my question. All the best.

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

Nischint just to add, just to add to what [Indecipherable] one of the reasons why you have seen a little uptick in the term loans is also because we drew down our ECBs as KK mentioned, $450 million. So that’s also been — that’s also part of the term loans.

Nischint Chawathe — Kotak Securities — Analyst

Okay. That’s right. Sure. Thank you.

Operator

Thank you. The next question is from the line of Shagun Verma from Goldman Sachs. Please go ahead.

Rahul — Goldman Sachs — Analyst

Yeah, hi. This is Rahul [Phonetic] here. Just two questions. One is a strong growth in disbursals. Is it possible to get some color as to if you were to see it in terms of volume growth versus the value growth value growth of course it’s shared. What would it have been in terms of number of clients or the volume of loan account?

Keki Mistry — Vice Chairman and Chief Executive Officer

All right. So whilst that Conrad gives you that number. Let me also say that they have that we have seen a pickup in also in the high-end market, which was relatively quiet for the last 3 years or so, and this is reflected in the fact that that average loan amount has gone up from about INR27 odd lakh last year at this time to about 31.9 lakhs during the 6-month period.

And if you were to look at it specifically in the second quarter, the average loan amount is INR32.7 lakh. Conrad, do you have the rupee, the number increase. So roughly, if you look at. Let me just answer very broadly while Conrad seek that figure.

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

KK I have got that number. So the applications approved the inflow. We average the numbers for the first 6 months is a 42% growth.

Rahul — Goldman Sachs — Analyst

This is for the — for the first 6 months.

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

Yeah. Compared to last year same period.

Rahul — Goldman Sachs — Analyst

Thanks, Conrad. The other question, KK is the new set of guidelines to regulate the NBFCs RBI has put out this — this regulation. So if you were to be classified in upper layer, does it change the business in any way or it is going to be ABAU for us?

Keki Mistry — Vice Chairman and Chief Executive Officer

I will leave Rangan to answer that question. But personally, I don’t see changing the business model in any, any manner. Other than the fact that if you were to look at — look at LCR, there is the LCR requirement. This is not, nothing to do with the classification of offer NBFCs into upper tier or lower tier, but there is a requirement to carry a higher level of liquidity. Once the new LCR guidelines set in. Rangan you want to…

Rangan V Srinivasa — Executive Director

So basically from our perspective, I think the upper layer doesn’t change any of the business model construct. It’s more about the governance and other parameters, which largely we are there in that box because being a listed company and otherwise, we are always there in that box. And of course, there are some paragraphs on which they said they will come out with some new circulars and all that. So we’ll have to watch out for that to see exactly whether there is anything sort of likely to have impact or not.

Keki Mistry — Vice Chairman and Chief Executive Officer

Let me answer a question, which was asked earlier where someone wanted to know the distribution of OTR, the one-time restructuring loans into how many were employed and how many were self-employed. So roughly about 35% are employed and 65% are self employed.

Rahul — Goldman Sachs — Analyst

Keki, can I squeeze in one more question, data keeping question? Is it possible to get the loan book breakdown like the way, Conrad, you give it or used to give it traditionally. I mean the breakdown between developer loans, LRD etc. etc. Apologies, in case I missed out.

Keki Mistry — Vice Chairman and Chief Executive Officer

Is this this Abhishek?

Rahul — Goldman Sachs — Analyst

Rahul, yeah.

Keki Mistry — Vice Chairman and Chief Executive Officer

Yeah, Rahul, we can give it you, it’s part of the analyst sheet. But we can’t find it, I’ll send it you. Not an issue.

Rahul — Goldman Sachs — Analyst

Sure. Thank you.

Keki Mistry — Vice Chairman and Chief Executive Officer

It’s already there in the analyst sheet, which will be with you.

Rahul — Goldman Sachs — Analyst

I’ll take a look. Thank you so much. Sorry about that.

Operator

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

Abhishek Murarka — HSBC — Analyst

Yes, good afternoon, everyone. Thanks for taking my question. So I just wanted to know what is the outlook on the construction finance space, just some commentary on how you see business picking up in residential, commercial absorption levels, and in what timeframe do you see any kind of pickup in activity by developers? Just some commentary around that.

Keki Mistry — Vice Chairman and Chief Executive Officer

I would request my colleague Renu talk about it, but just very, very briefly, if I can start. I would say that we saw two to three years, nearly three years when things had slowed down quite a bit in — particularly in the construction finance segment, largely because of the fact that new projects were not getting launched. But what has happened in the last one year is the robustness of growth, the robustness in demand, property — people wanting to buy property, that increase has resulted in more and more developers looking to launch new newer and newer projects. Renu you want to add anything?

Renu Sud Karnad — Managing Director

Yes, sure. So one is really seeing a lot of traction in Tier 2 cities. If you look at our even this month, last month performance, all of Gujarat, Ahmedabad, Surat, Vadodara, Jaipur and of course, New Delhi, are really the ones who have done very, very well. I think one of the other things we need to understand also that there is a large secondary market, the resale market. And numbers are that if you know, you’re doing x in the primary market, the resale market is not just 2 times of that. So that is the other one where we are seeing a lot of growth.

You talk to new projects have started being launched. If you visit some of the sites on the weekend, you see very, very — lots of people, which is a very healthy site that in the next quarter or so these will then translate into buys and then after that buys will translate into loan applications.

I think interest rates and the fact that the interest rates are steady has helped in a big way. So my assessment would be that you would see this positive, the swing that we are seeing upwards continue in the next couple of quarters. And with that also some digital loans in — construction finance loans will also help us and you’ll see more builder developers — developers actually announcing newer projects. And that’s a very real on the ground situation that I’m telling you about.

Abhishek Murarka — HSBC — Analyst

Sure. Renu, on this, most of the places you mentioned that Tier 2 cities or places where project sizes would be smaller, so do you see healthy volume contribution coming to your overall construction finance book in let’s say two quarters or three quarters down the line, as this activity improves?

Renu Sud Karnad — Managing Director

You know, you’re absolutely right. You will see the construction finance maybe, you know, a couple of quarters later, but the disbursements of that will take even longer because when we sanctioned a loan a construction to a developer, they have to first spend their own contribution. They normally come in at least a quarter or two quarters before. And unlike you know receivable discounting loans or corporate loans construction finance loans are always disbursed with progress of construction.

So the absolute value of disbursement that we see, I think will start coming in maybe by the third or fourth quarter from now. So that is very true. Coming back to it, Delhi has done very, very well this month and we — we also saw that happen last month. I think even Mumbai, the interest that is there in the real estate in Mumbai is so strong, you will see that growth happening both in the retail and in very, very carefully picked up construction finance developers who we have confidence in, in the next, I would say, two to three quarters.

Abhishek Murarka — HSBC — Analyst

Sure, thanks for the detail explanation. Just one more data keeping question. Can I see investment in subsidiaries as of the end of 2Q. This is the number?

Keki Mistry — Vice Chairman and Chief Executive Officer

The total amount invested in subsidiaries.

Abhishek Murarka — HSBC — Analyst

Yeah.

Keki Mistry — Vice Chairman and Chief Executive Officer

Conrad you can give a figure while the next question can come.

Abhishek Murarka — HSBC — Analyst

Sure. Thanks, and all the best. Thank you.

Operator

Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. This would, we would take the last three question. Over to you Mr. Thanvi.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Yeah, thanks for the opportunity and congratulations on the good set of numbers. I just wanted to understand on the competitive intensity across the board. But we have been hearing from other NBFCs that there have been largely prepayments happening and banks eating into the share of their loan book. However, in case of HDFC, we have seen the prepayment rates to be lower. So can you help us understand how things are on the competitive side. Most from the banks and NBFCs and how we are able to manage the market share, and like, are we seeing market share gains also?

Keki Mistry — Vice Chairman and Chief Executive Officer

Would say that as the — as an analyst, I’m sure you look at the RBI data which keeps coming out. The data as of Friday shows that housing loans in the banking system increased by 9% during the last 12 months and our balance sheet shows that housing loans in HDFC increased by 16%. So that answers your question on market share. Of course there is competition, in any business there is competition, but you can’t grow at this pace if the competition was unreasonable or the competition was — people are doing what the cost of funds generally for everyone in the system has gone — have come down. And consequently you are seeing some degree of reduction in the lending base.

But you’re also saying that all the players who are there in the market are managing their spreads well are managing the net interest margins well and are showing growth despite that.

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

Keki, I have the answer on that composition of the bank loans. So basically 84% are linked to external benchmark, 10% are fixed rate loans, less than 5% is the [Indecipherable].

Rangan V Srinivasa — Executive Director

Yes and Abhishek the investments in group companies is 20,000 crores, all put together.

Keki Mistry — Vice Chairman and Chief Executive Officer

I think he wanted during the quarter, is it?

Rangan V Srinivasa — Executive Director

No during the quarter, there’ll be nothing. This is — he probably wants it from a capital point of view, capital calculation.

Operator

Thank you. The next question is from the line of Hiren Kumar Desai Individual Investor. Please go ahead.

Hiren Kumar Desai — Individual Investor — Analyst

Yeah, the question is in terms of how the housing market is picking up, do you expect prices of real estate to go up and therefore better speed of our loan book growth in value.

Keki Mistry — Vice Chairman and Chief Executive Officer

So whether prices go up or not is going to obviously vary from place to place, depending upon demand and supply. But generally speaking, clearly this is the best time for an individual to buy a house because interest rates are as low as they will ever get, number one. Number 2, the fact is that many developers because some of them had unsold inventory are offering good deals to customers, particularly now with this festive season ahead of them.

So I think a combination of all of this has made housing so much more affordable compared to what it used to be. I’ll just give you a simple example of between 2017 and 2020. To my mind, in the last 3 years. Income level would typically 3 to 4 years — income levels would typically within on an average by about 7% to 8% a year. Even if you take a 7% increase in income over 4 years, it is 28% and when you compound that to annualize that that will become close to 33%, 34%. Property prices are, where they were 3 or 4 years ago, by and large, by and large.

Obviously there will be differences from project to project, city to city and so on and so forth. So income levels are 30% plus higher. Property prices are where they are and therefore the affordability for our customer who is looking to buy a house has never been as good as it is at this point of time.

Renu Sud Karnad — Managing Director

Again, to the interest, are the lowest.

Hiren Kumar Desai — Individual Investor — Analyst

Yeah. No, I understand all of this. My question was that, can we expect to see higher rate of growth on account of overall property price increase for our HDFC loan book.

Keki Mistry — Vice Chairman and Chief Executive Officer

We’ve seen a pickup in growth. If you look at the absolute amount of growth in the loan book over the last four or five years, you would see that the growth in the loan book in this quarter was the highest it’s been to my mind for several years. In absolute terms.

Hiren Kumar Desai — Individual Investor — Analyst

Okay. Thank you, sir.

Operator

Hank you. We take the last question from the line of Manjeet Buaria from Solidarity Investment. Please go ahead.

Manjeet Buaria — Solidarity Investment — Analyst

Thanks for taking my question. Sir, I just wanted to revisit the comment you made to understand it better. The ROE for different segments, if I take individual home loans versus wholesale or construction home loans remains the same, is that the right ambition in growth from your comments?

Keki Mistry — Vice Chairman and Chief Executive Officer

No, what I said is that the return on equity after you factor in the higher amount of provisioning requirement because of asset quality related concerns after you factor in the higher amount of capital that is required, let’s say for a construction finance loan versus an individual loan. So when you factor all of this thing, which you need to do when you’re calculating the return on equity, the broadly the return on equity in all segments of the business would be more or less the same, so the pricing is done accordingly.

Manjeet Buaria — Solidarity Investment — Analyst

So — and the follow-up here was, if you look at the blended ROE for HDFC Limited as a company, the band in which we earned the ROE probably are a dacade back. Is it fair to assume that over the next decade that bank will structurally move down because the competition would be much more higher and you know on the position side, obviously, as industry consolidates, they’ll get better rates, the top players as well as some benefit of different instruments like InvITs [Phonetic] etc.

Keki Mistry — Vice Chairman and Chief Executive Officer

All right, so let me tell you that our lending rates are as good as anybody else’s, because our cost of funding is extremely low, because we are able to access funding from a variety of sources, which many of these smaller players will not be able to. A result of when COVID happened, there is of the — we saw a flight to safety as people started shifting their investments from what they perceived were risky instruments to HDFC deposits. So we’ve always been a beneficiary of times when there is some degree of uncertainty.

Now as far as the competitive question that you were talking about, we have seen competition in our business now for more than 25 years or more, and we have consistently managed to grow with stable spreads over that period of 25 years. I see nothing on the cards today, which would make me believe that the competitive pressure is in any way going to be unreasonable though anyone is going to do anything which is not in the best interest of all the players in the market, simply because the penetration level of mortgages in India is extremely low. There is, scope for everyone to grow.

The outstanding housing loans as a percentage of GDP in India is 11%. You compare that with — forget Western countries, Western countries all in their ’60s and ’70s and ’80s. But if you look at even in emerging market countries, most of them will be in the 25% to 30% range, at least in the 20% to 30%. We are only 11%. Also very important to understand that if you look at the demographics in India, two-thirds of our population is below 35 years of age and unlike what people do the Western countries, in India. The average age of a first-time homebuyer is about 38 or 39 years. So two-thirds of our population today has not even thought of buying a house. But structurally all these people, will over the next 3, 5, 7 years and so on and so forth, look to buy a house. So to my mind there is going to be a structural increase in the demand for housing and therefore Housing Finance in India. So I don’t see any lender needing to do anything very irrational to gain business.

Manjeet Buaria — Solidarity Investment — Analyst

I appreciate that. And I appreciate the fact that HDFC is always the beneficiary in tough times. My question just to push at it once more, if I could reframe it. Let’s say your earning of I don’t know 17%, 18% core ROE and removing [Indecipherable] etc., subsales etc. a decade back. Does this core ROE kind of over time come down as the market penetrates more or do you think that kind of earlier levels remain sustainable? [Speech Overlap].

Keki Mistry — Vice Chairman and Chief Executive Officer

I would say the core ROE on any incremental level of business we do today would be the same as it was 3 years, 5 years, 7 years ago. The only difference that you would see in the reported return on equity number would be the level of leverage that you’re carrying at that point of time.

Currently, the leverage level has come down because the debt equity ratio is lower now at 4.1% compared to as much as 6% and 6.5%, which is where it used to be many years ago. And therefore the reported return on equity looks lower because you are comparing a return on equity on a much larger capital base because the capital adequacy today is a lot higher than before. But structurally, if you look at incremental lending, any new loan that we do, the return on equity to my mind will be broadly borrowed as the same. And I would suggest you can sit with Conrad later on to understand the calculations.

Operator

Thank you, ladies and gentlemen that was the last question for today. I would now like to hand the conference back to the management for closing comments.

Keki Mistry — Vice Chairman and Chief Executive Officer

O, I just like to thank everyone again. My colleagues may want to say something. Just thank everyone for the — for being on the call and wish all of you a very happy festive season ahead. And please stay safe. COVID is not yet over in my opinion. We’ve seen a third wave happening in other countries. We should continue to remain alert.

Renu Sud Karnad — Managing Director

Yes. Happy Diwali and happy all the other festivals that are going to come around. And then the New Year.

Operator

Thank you.

Rangan V Srinivasa — Executive Director

Thank you. Happy Diwali to everyone.

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

Thank you everyone and some of you who want to get back for any specific query please — please connect with us. Thank you.

Operator

[Operator Closing Remarks]