Housing Development Finance Corporation Ltd (HDFC) Q2 FY23 Earnings Concall Transcript

Housing Development Finance Corporation Ltd (NSE:HDFC) Q2 FY23 Earnings Concall dated Nov. 03, 2022

Corporate Participants:

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Mr. V. Srinivasa Rangan — Executive Director

Ms. Renu Sud Karnad — Managing Director

Analysts:

Suresh Ganapathy — Macquarie — Analyst

Mahrukh Adajania — Nuvama — Analyst

Kunal Shah — ICICI Securities — Analyst

Jignesh Shial — InCred Capital — Analyst

Bunty Chawla — IDBI — Analyst

Shweta Daptardar — Elara Capital — Analyst

Nilanjan Karfa — Nomura — Analyst

Saurabh — JPMorgan — Analyst

Deepak Kapur — an individual investor — Analyst

Presentation:

Operator

Ladies and gentlemen, good afternoon, and welcome to HDFC Limited’s Q2 FY ’21 Earnings Conference Call. [Operator Instructions] Please note that this conference is being recorded. We have with us HDFC’s Vice Chairman and CEO, Mr. Keki M. 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 additional Senior General Manager, Anjalee Tarapore.

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

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Well, thank you, everyone, and good afternoon to all of you. 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 this meeting held earlier today approved the financial results for the half year ended September 30, 2022, which were subjected to a limited review. Let me start with outlining a few developments in the economy over the last three months, which have had a bearing on the corporation.

The Monetary Policy Committee at its meeting held in August and September 2022, increased the policy repo rate by 100 basis points in aggregate, mainly on account of the uncertainty in the inflation trajectory. 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 had mentioned in our previous earnings call, too, the interest rate actions have had a short-term impact on both the net interest income and net interest margin during the last six months.

Over the last few months, we have seen rate action by RBI, and we have correspondingly passed on the rate increases to our customers. There has, however, been a transmission lag between the increase in the interest cost and our liabilities and asset repricing. I will explain this in detail later on. In July 2022, the RBI had increased the limit of external commercial borrowings under the automatic route from USD750 million to USD1.5 billion per financial year.

In August 2022, we have raised USD1.1 billion under this window. ECB is the largest social loan globally and the first social ECB loan out of India. The momentum in the economy was strong throughout the first half of the current year. This is reflected in a sharp pickup in individual loan disbursements and a 20% growth in the individual loan book on an AUM basis. This is the highest growth that we have seen in individual loans in the last eight years. Similarly, collection efficiency has continued to improve with over 99% collection efficiency during the quarter.

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, 2022. Let me start by quickly summarizing the progress of our business throughout the quarter. Our individual loan approvals for the half year ended September 30, 2022, were higher by 35% compared to the corresponding period in the previous year. For the same period, individual loan disbursements grew by 36% over the corresponding period in the previous year.

Housing disbursements constituted 93% of individual disbursements in the current year. Growth in home loans were seen in the affordable housing segment as well as in the middle and higher income groups. 92% of new loan applications were received through digital channels. During the second quarter, we sold individual loans aggregating to INR9,145 crores. The individual loans sold during the last 12 months amounted to INR34,513 crores. The total loans sold during the six months ended September 2022 amounted to INR18,678 crores.

These loans were assigned to HDFC Bank pursuant to the mortgage sharing arrangement that we have with the bank. The individual loan book growth on an AUM basis was 20%. If the amount of INR34,513 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 28%. On a balance sheet basis, our individual loan book increased to INR465,752 crores, a growth of 19% over the previous year. In addition to this, the individual loans sold by the corporation and outstanding as on September 30, 2022, amounted to INR93,566 crores.

HDFC continues to service these loans, individual loans outstanding on an AUM basis amounted to INR559,318 crores. As at September 30, 2022, our nonindividual loan book grew by 1% on an AUM basis compared to the previous year. Whilst we continue to have a pipeline of nonindividual business over the last 12 months, we have also seen 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 pipeline of construction finance loans as well as in the lease rental discounting segment, and we expect nonindividual AUM growth to accelerate in the coming quarters. Construction finance loans, unlike these rental discounting loans have a longer disbursement period as they are dispersed based on progress of construction and that to after the developer has brought in his equity. The total assets under management as at September 30, 2022, amounted to INR699,284 crores as compared to INR597,339 crores in the previous year, a growth of 16%.

If no loans had been sold during the preceding 12 months, then the growth in the total loan book would have been 21%. Prepayments on retail loans on an annualized basis amounted to 10.3% of the opening loan book. This is in line with what we have been seeing for the last few quarters. The average size of individual loans for the period ended September 30, 2022, stood at INR35.7 lakhs as compared to INR33.1 lakh in financial year 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 43% during the corresponding period in the previous year. Our cost on affordable housing has continued. During the half year ended September 30, 2022, 23% of home loans approved in terms of number of customers and 10% in value terms were to customers from the economically weaker section and the lower income groups.

The average home loan to customers in an economically weaker section amounted to INR10.9 lakhs and to customers in the lower income group amounted to INR19.7 lakhs. If we break up the loan book outstanding on September 30, 2022, on an AUM basis into different categories, then individual loans constituted 81% of the total loan book as compared to 78% in the previous year. Construction Finance constituted 9% of the total loan book, lease rental discounting loans constitute 6% of the total loan book, while corporate loans constituted 4%.

If we were to look at the incremental loan book growth then for the half year ended September 30, 2022, the entire growth is from individual loans. 98% 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 51% of the loans sourced whilst HDFC Bank accounted for 30%. Third-party DSAs accounted for 17%. Thus, 83% 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 COVID pandemic. Under ECLGS 1, two and 3, the corporation has disbursed an aggregate amount of INR1,783 crores, amounts disbursed under this facility are guaranteed by the central government. The Reserve Bank of India permitted a onetime restructuring of loans under its resolution for COVID-19-related stress. As of September 30, 2022, the outstanding loans under the OTR one and OTR two facility amounted to INR4,244 crores, equivalent to 0.7% of the loan growth.

This compares to a peak of 1.4% in September last year. 98% of the OTR loans are in the individual loan book. The overall collection efficiency for individual loans has continued to improve and is now even better than what it was in pre-COVID levels. The average collection efficiency for individual loans on a cumulative basis over the last six months is now over 99%. RBI had on November 12, 2021, issued guidelines on harmonizing NPAs across the financial system.

Subsequently, RBI had deferred the effective date of the applicability of these guidelines and the NPA reporting under the revised guidelines was deferred to the quarter ended December 2022. The corporation, however, has continued to report NPAs in accordance with the revised RBI circular of November 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 computation.

As at September 30, 2022, calculated under the old norms, gross nonperforming individual loans stood at 0.73%, down from 1.10% in September 2021. This is a 37 basis points reduction or a 34% improvement in percentage terms. The overall gross nonperforming loans stood at 1.44%, down from 2% in September 2021. This amounts to a 56 basis points reduction or a 28% improvement in percentage terms. Let me now come to nonperforming assets calculated as per the revised RBI norms. December 2021 was the first quarter when we were required to report NPAs under the new norms brought in by RBI.

As of September 30, 2022, calculated under the new norms, gross nonperforming individual loans stood at 0.91%, down from 1.44% in December 2021. Similarly, gross nonperforming nonindividual loans stood at 3.99%, down from 5.04% in December 2021. As per the new regulatory norms, the gross nonperforming loans as at September 30, 2022, stood at INR9,355 crores or equivalent to 1.59% of the loan portfolio, which is down from 2.32% in December 2021. As at September 30, 2022, the corporation carried a provision of INR13,146 crores against the nonperforming loans of INR9,355 crores.

Under IndAS 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 the model, the total exposure at default of INR594,788 crores is broken up as under. Stage one constitutes 94.2%. Stage two is 3.9% and Stage three is 1.9%. We have seen a 3.4 percentage point reduction in the aggregate of Stage two and Stage three assets from the peak of 9.2% in June 2021 to 5.8% of the exposure default over the last five quarters.

During the quarter, we have charged a profit and loss account with a sum of INR473 crores towards provisioning. The aggregate charge to the profit and loss account for the six months towards provisioning is INR987 crores. ECL to EAD coverage ratio for Stage two assets is 23% and for Stage three is 55%. The provisions carried as a percentage of the EAD amounted to 2.21%. Annualized credit cost for quarter two was 29 basis points compared to 33 basis points during quarter one in the current year. Credit costs for the six month period is 31 basis points.

As stated in our earlier earnings call, as asset quality-related issues get resolved, we should, over the next few quarters, be in a position to further normalize the credit cost to pre-COVID levels. This, in turn, will have a positive impact on the return on equity. Coming to investments. We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all our other subsidiaries and associate companies had the original cost of acquisition, which is the price we have paid whilst making those investments.

These investments are not accounted for on a fair value basis. During the quarter, we invested an amount of INR2,000 crores in the equity of HDFC Life. If we were to mark-to-market the listed investments as at September 30, 2022, the unrealized gain, this is the unrecognized gain, which is the difference between the market price on September 30, 2022, and the carrying cost, the difference would be INR224,781 crores. This unrecognized core gain is not part of a net worth nor has it been considered in our capital adequacy calculations.

Our capital adequacy ratio on September 30, 2022, stood at 22.5% of which Tier one capital is 21.9% and Tier two capital is 0.6%. The capital adequacy is well above the regulatory requirements. At this stage, it is important to talk about return on equity. Under the IndAS accounting requirement, net worth includes certain items which do not form part of Tier one capital under their potential norms. These include one is IndAS transition reserve, two, is deferred tax liability on special reserve, three would be fair value gains on investments through OCI.

Fourth would be investments in subsidiaries and associates in excess of 10% of net own funds and the hit would be securitization gains recognized in accordance with IndAS requirements. These items aggregate to INR22,043 crores. Hence, Tier one capital is INR101,398 crores as against a reported net worth in September 2022 of INR123,441 crores. A more appropriate way of calculating the ROE would therefore be on regulatory Tier one capital as against the conventional method of computing the return on equity and total net worth.

Annualized ROE based on Tier one capital for the half year ended September 30, 2022, stood at 16.3%. As at September 30, 2022, the corporation’s total borrowings amounted to INR529,034 crores. Term loans, including the external commercial borrowing of USD1.1 billion drawn in August 2022 and refinance from the National Housing Bank accounted for 27% of the borrowings. Market borrowings that is, NCDs and commercial paper accounted for 42%, deposits as at the quarter end amounted to INR162,884 crores and now constitute 31% of the borrowings.

I will now move to the statement of profit and loss account. The first two quarters have seen a very volatile interest rate environment, and therefore, some of the numbers of the current year are not strictly comparative with the previous year. Firstly, as mentioned earlier, net interest income and net interest margin were impacted by the increases in the repo rate of 190 basis points over the last two quarters and a consequent transmission gap between the increase in borrowing costs and the increase in lending rates. This is a very short-term phenomenon.

Let me now talk on the NII intact. 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 half of financial year 2023, we have had rate actions which have had an immediate impact on borrowing costs, which in turn have not been simultaneous with the transmission of rates on the asset side. Secondly, in the first quarter of the previous year, there was a disruption in overall business activity in the economy due to the second wave.

As a result of ample liquidity in the system during most of the first half of last year, the overnight interest swap rate on with some swaps are benchmarked, delinked from the reverse repo rate and was lower by up to 40 basis points during that period. This led to us benefiting from the lower swap rates, which resulted in a sharp expansion in the net interest margin. At that stake itself, we had indicated that the higher composite level of net interest margin reported in the first half was not sustainable. This delinking corrected in the second half of last year.

Thirdly, RBI increased the repo rate four times since May 2022, aggregating to 190 basis points. The last increase of 50 basis points was on September 30, 2022. In the run-up to the expectation of the rate hike, market rates and swap rates increased, and this has had a negative impact on our borrowing costs. We have increased our lending rates in response to this hike by 50 basis points with effect from October 1, 2022. Therefore, the benefits of this hike will be received over the next 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, the entire loan portfolio reprices over a three month period, that is roughly 1/3 of the portfolio reprices every month. Thus, whilst we have an almost immediate impact on borrowing costs, the lending portfolio reprices over a period of three months. This transmission lag has had an impact on the net interest income growth for this period.

As we have passed on the increase in rates by increasing our prime lending rates, there was a slight short-term impact on NII growth during this period. This should be regularized over the next few months. In July 2022, we have revised the reset norms for our incremental individual loans from a quarterly cycle to a monthly cycle to reduce the impact of transmission of rate changes. This should minimize the risk of transmission in the event of future rate hikes for new loans.

Lastly, the proportion of the retail loan book has increased to 81% over the last few quarters. Whilst the return on equity on both the retail and the nonindividual business is the same, the spread on the nonindividual loans are higher due to higher capital allocation as well as higher credit costs. Net interest income purely on the basis of interest without taking cognizance of the profit on sale of loans during the quarter ended September 30, 2022, amounted to INR4,639 crores compared to INR4,110 crores in the corresponding period of the previous year, a growth of 13%.

For the half year ended September 30, 2022, the net interest income amounted to INR9,086 crores compared to INR8,235 crores in the corresponding period of the previous year. 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% compared to an annualized AUM growth of a similar 16%.

Secondly, as a result of volatile equity markets, the gain on fair value of investments through the profit and loss account was INR151 crores in the first half as compared to INR548 crores in the corresponding period of the previous year. Thirdly, the expense ratios are higher as we incur expenses upfront on staffing, loan processing and branching to meet the significant increase in volumes arising out of the much higher demand for housing loam. There was also an increase in legal expenses as we saw an increase in business as well as the resolution of some stressed assets.

Needless to add, while these expenses have been incurred upfront, the benefit of these expenses will accrue over the next few quarters. On the positive side, it is important to note that credit costs are lower on a sequential basis as a result of improved asset quality. Dividend in the second quarter is higher than the corresponding quarter of the previous year, primarily on account of the dividend received from HDFC Bank. We have always targeted a net interest margin of between 3.3% and 3.5%.

This is something we have consistently told investors. Net interest margin for the quarter and the half year ended September 30, 2022, stood at 3.4%. The spread on loans over the cost of borrowing for the half year ended September 30 was 2.28%. Individual loans had a spread of 1.91% and nonindividual loans a spread of 3.65%. The spread out on loans during the first half of the previous year was 2.29%. Income earned from deployment of surplus funds in cash management schemes of mutual funds and government securities was lower at INR95 crores as compared to INR228 crores in the corresponding period of the previous year.

This is due to average level invested this year in liquid funds at INR4,185 crores as compared to INR12,800 crores in the corresponding period of the previous year. With the introduction of the liquidity coverage ratio in December 2021, the corporation’s liquidity is now largely held in government securities. The government security holding as at September 30, 2022, is around INR45,000 crores. The average level of liquidity held during the period was INR41,000 crores as compared to INR25,000 crores in the corresponding period last year.

There was no profit on sale of investments during the second quarter. There had been a profit of INR184 crores on sale of investments during the half year compared to INR263 crores in the same period last year. This was on account of the corporation’s 10% stake sale in HDFC Capital Advisors during the first quarter. Dividend received during the quarter was INR1,360 crores compared to INR1,171 crores in the second quarter of last year.

During the half year, we earned INR2,046 crores by way of dividend as compared to INR1,188 crores in the corresponding period of the previous year. Dividend during the year was received predominantly from our group companies, namely HDFC Bank, HDFC Asset Management, HDFC Life, HDFC Sales and HDFC Credila. During the quarter ended September 2020 — September 30, 2022, for investments classified as fair value to profit and loss account the net gain on fair value changes stood at INR142 crores.

For the half year, for investments classified as fair value through profit and loss account, the net gain stood at INR151 crores as compared to INR548 crores in the corresponding period of the previous year. This is largely on account of the volatility in the equity markets during the current year. Under IndAS accounting standards, the stock options granted to employees are measured at the fair value of the options on the date of grant. The fair value is accounted for as employee compensation cost were over the vesting period of the options.

Accordingly, employee benefit expenses for the half year includes an amount of INR145 crores in this regard. For the period ended September 30, 2022, the cost income ratio stood at 9.5%. The cost income ratio is relatively higher during the period on account of the increased retail business over the last year as well as the increase in the branch network. The benefits of these cost increases will be derived over the next few quarters. Increased legal costs are also contributing to the increase in the cost income ratio. We expect the cost income ratio to remain in single digits for the full year.

For the half year ended September 30, 2022, the stand-alone profit before tax was INR10,004 crores compared to INR5,576 crores in the previous year, a growth of 17%. Tax provision during the six months ended September 30 stood at INR1,881 crores. The stand-alone profit after tax for the half year stood at INR8,123 crores compared to INR6,781 crores in the previous year, a growth of 20%. For the quarter ended September 30, 2022, the standalone profit before tax was INR5,414 crores compared to INR4,671 crores in the second quarter of the previous year, a growth of 16%.

Tax provision for the second quarter amounted to INR960 crores compared to INR890 crores in the second quarter of the previous year. The stand-alone profit after tax for the second quarter stood at INR4,454 crores compared to INR3,781 crores in the second quarter of the previous year, resulting in a growth of 18%. Pretax return on average assets was 3.1%, post-tax return on average assets was 2.6%. The basic and diluted EPS on a face value of INR two per share was INR44.7 and INR44.5, respectively.

This is on a INR two share. The consolidated profit before tax for the half year stood at INR14,765 crores as compared to INR13,075 crores in the corresponding period last year. After providing INR2,148 crores for tax, the consolidated profit after tax for the period stood at INR12,617 crores as compared to INR10,981 crores, a growth of 15%. The profit attributable to the corporation was INR11,862 crores as compared to INR10,299 crores in the previous year, a growth of 15%. As at September 30, 2022, the corporation had 3,869 employees.

Total assets per employee stood at INR169 crores compared to INR167 crores in the corresponding period of the previous year. Annualized net profit per employee was INR4.2 crores compared to INR3.9 crores during the same period in the previous year. Let me now 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 Limited 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.

Under the scheme — upon the scheme becoming effective, the subsidiaries and associates of HDFC would become subsidiaries and associates of HDFC Bank. HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank. Pursuant to the no objection for the merger from the stock exchanges, NSE and BSE, the Pension Fund Regulatory and Development Authority, SEBI, IRDA and RBI, the Competition Commission of India has approved the proposed amalgamation.

Further, the National Company Law Mumbai branch has passed an order in the matter of the amalgamation pursuant to which a meeting of the shareholders of the corporation has been convened on November 25, 2022. HDFC’s distribution network spans 709 outlets, which include 212 offices of HDFC’s wholly-owned distribution company, HDFC Sales Private Limited, HDFC covers additional locations to its outreach programs. Talking of ESG, we continue to engage deeply with all our stakeholders on ESG.

Our disclosures and reports are on the website. For further information on ESG-related queries, you may engage with our Investor Relations team, Anjalee and Conrad. The corporation’s corporate social responsibility activities focus primarily on health care, education, persons with disabilities and environmental sustainability. CSR activities were conducted either directly or through the HT Parekh Foundation. The CSR spend during the half year was INR107 crores.

Under the National CSR Awards 2020 instituted by the Ministry of Corporate Affairs, HDFC was awarded overall excellency in CSR for large companies and CSR in national priority areas, supporting technology incubators. The above are some of the highlights of the results for the period ended September 30, 2022. Before I conclude, I would like to wish each and every one of you, good health and all the very best. Please stay safe. We will now proceed to question and answers. I would request you to kindly introduce ourselves and be brief with your questions.

Your questions will be answered by me or any of my colleagues.

Questions and Answers:

Operator

The first question is from the line of Suresh Ganapathy from Macquarie. Please go-ahead.

Suresh Ganapathy — Macquarie — Analyst

Yeah, thanks. Keki, just a couple of questions. One is the margins. Of course, they have been flat Q-o-Q. The thing here is that all the banks, specifically ones which have had large mortgage portfolio have seen a very sharp quarter-on-quarter increase in margins, whereas your margins have remained flat. Now of course, we understand that the quarterly to monthly reset was done last quarter. So I think this quarter would have seen at least three months and still we have not seen any margin expansion. So what explains this flat margin even on a quarter-on-quarter basis?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Let me answer that question, Suresh, and Conrad or Rangan can butt in and answer further. See, what happens is every time there is an increase in interest rates, our lending rates get revised over a period of three months. So you get the effect 1/3, 1/3, 1/3, whereas the borrowing costs increase immediately. So whatever are the increases in the repo rate prior to June, the full benefit of that as pass on to customers benefit as we received during the course of the current year.

But the increase in interest rates made during the course of the quarter, again, we have increased interest rates simultaneously to our customers, but the benefit of that will come over a period of three years. So for example, if interest rates will include — they were increased, let’s say, theoretically in the end of September, and the benefit of that rate increase on the asset side will start coming in from October, whereas on the borrowing side, the debit starts hitting us from the month of September itself.

So in a rising interest rate environment, this lag is there for roughly about 1.5 months, which results in roughly, I would say, a 10 to 12 basis points compression in margins. But as interest rates stabilize over a period of time, that will go away. The same happens on the reverse side when interest rates go down, you get the immediate benefit straight away and then over a period of 1.5 months, it neutralizes. Now in case of banks, it is different because banks do not reset their assets or they set their loans every three months, they reset their loans every month. So the moment the repo rate goes up, their lending rates go up immediately from that month itself. Whereas for us, it comes with a 1.5 months back.

Suresh Ganapathy — Macquarie — Analyst

Okay. Okay. So to understand this is a bit better. Let’s assume hypothetically that in the October to December quarter, no rate hikes happened by the Reserve Bank of India, nothing changes. Let’s hypothetically assume because of the fact that there is a lead lag issue, logically speaking, October to December should have seen — should see a margin increase for you because the asset repricing lag will happen.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

That is absolutely correct.

Suresh Ganapathy — Macquarie — Analyst

Okay. Okay. And if the rates were to go up in October to December quarter, then this issue is going to persist even in October, and December quarter because you will see the liabilities also getting repriced upwards?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Right.

Suresh Ganapathy — Macquarie — Analyst

Okay. Okay. So this is clear. The second issue is on growth. I mean, it’s not an issue. It’s a good thing. I mean you’re talking about eight year high loan growth. Now we are seeing some slowdown in the IT sector. Rates have gone up. How do you look at it I mean is this growth sustainable? Is it broad-based? I mean just any color, qualitative comment on growth would be great.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

So Suresh, the growth is broad-based. It is happening from every part of the country. The metros, which is the Mumbais, the Delhis, the Bangalores, these were the places which were not really contributing much to business two years ago. And we’ve explained the reasons time and again. And if you’re interested, I can get into more details on why two years ago, the Mumbais and Delhis were growing at a slightly lower rate. Now over the last 1.5 years or two years or so, business in the Mumbais and Delhis and Bangalores has been growing much at a much more brisker and a much more faster rate.

The value of a property in Mumbai or Delhi is obviously going to be a lot higher than the value of the property in a Tier two or a Tier three towns. And therefore, consequently, the average loan amount goes higher. Our average loan amount last year was INR33.1 lakh. Our average loan amount in the current year is INR35.7 lakhs, which reflects the increase in business from the metros. So whilst the growth is broad-based, the Tier two to Tier three towns, which were a larger contributor to growth two years ago, and their contribution to growth has come down slightly, not because they have slowed down, but simply because the metros have grown at an even faster pace. Yes, go ahead.

Ms. Renu Sud Karnad — Managing Director

Even in the metros, the higher-value loans has seen a lot more traction in the last few months than there were earlier. So people have got back and started buying much the INR three crore, INR four crore, INR five crore homes in a more manner than they used to do earlier. I think that within a Bombay within a Delhi also, we’ve seen that happen.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Okay. But having said that, it’s not that the affordable housing segment has not grown that has also continued to grow and 23% of the business we did in number terms came from the economically weaker section and the lower income groups.

Unidentified Speaker —

Suresh.

Suresh Ganapathy — Macquarie — Analyst

Yes. Go ahead, yes.

Unidentified Speaker —

Just to clarify on your first question on the fact that we have moved from quarterly to monthly. These are only incremental disbursement since then. So the earlier discussion on how the rate hikes would play out over a quarter will continue for most of the book. It’s only on the incremental that we move on.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. But if RBI does not — as you said, theoretically, there’s nothing on interest rates in the coming quarter, then obviously, there’ll be doing. I mean the full benefit of the rate hikes made till 30th September will flow through to the P&L account.

Suresh Ganapathy — Macquarie — Analyst

Okay. Great. Okay. So it’s only implement. Okay. One last question was squeeze in regarding the merger. Now you, of course, have INR five lakh crores of borrowings and deposits put together. First, to begin with your deposits, of course, are at a higher rate. Now is there a worry that — it’s a difficult question for you guys to answer, but the fact that once it moves on to the bank and it gets reset at a lower rate, some of these depositors will move. Is there an engagement which is being carried out with the deposited network that now this is with the cooperation and maybe they’ll stay on. So something on that, any qualitative…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Let me start by answering that question. And then Rangan, if you’re on the call, you can add to what I’m saying. See, the point is that as far as HDFC itself is concerned, when a depositor has placed a deposit at HDFC, let’s say, for a period of five years and that rate is theoretically, let’s say, 25% and 25% is a theoretical number, 25 basis points higher than the bank rate, then that higher rate will continue through the life of that deposit. So if it’s a five year deposit, it will be for five years.

If it’s a one year deposit it will be for one year. On maturity at the end of that period, which may be five years or one year or whatever it is later, then the deposits will get repriced to the current rate. But till that time, it will continue at the old rate. We have come out with a new product recently, which we call Sapphire Deposits. Rangan, you may want to just talk about how much money we have mobilized in a matter of — in a very short period of time.

Mr. V. Srinivasa Rangan — Executive Director

So we launched this medium-term deposits. So this is — basically, we called it as a Sapphire Deposits, and it’s done quite well. Actually, I must say that we launched it in just about three to four weeks. It’s basically garnering almost close to INR5,000 crores, and there is a lot of good demand in the medium-term segment actually and what Keki said on that…

Unidentified Speaker —

Deposit one, they will actually graduate into the bank. And on maturity, they will obviously get repriced to whatever is the current rate at that point in time in the banking system.

Suresh Ganapathy — Macquarie — Analyst

Okay. Fine. And what about the borrowings front, because we eventually want to — I mean, are you putting long-dated borrowings so that you get some breathing space for the bank when the merger happens incrementally I’m seeing in the market a lot of tenure NCDs being placed. So just give any color on that, Keki.

Unidentified Speaker —

So just basically, I think on the longer term, one obviously is the fact that the book being longer on the — there is a good growth on the retail side, which are obviously longer-term loans. So therefore, you need to augment it with long-term money, which we are doing it in any case. And if you really look at the way the interest rate curve in the market is concerned. Obviously, you’ll have to swap these liabilities into floating rate for appropriate duration. You may have to stop it for a one year, two year, three year period depending on where the interest rates are.

And accordingly, you then come back to a floating rate where you start matching it to the lending rate on the retail side. So that’s what we are doing as far as this thing is concerned. So obviously, it also in a way helps in terms of what you are saying about in terms of elongating the time and eventually probably having lesser maturities as you get into the bank. But that is more incidental, I would say. But from a business perspective, as a stand-alone balance sheet, it makes sense to do it this way because the assets are actually growing on the longer side. So we’ll have to build up the liability on the longer side.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

So as you are aware, sir, we have always kept the match balance sheet. We do not take mismatches on maturity. And therefore, since the duration of our loans is — on individual loans is longer than the duration on non-individual loans, we have to necessarily marginally increase the duration of alacrity.

Suresh Ganapathy — Macquarie — Analyst

Okay thanks so much for answering the questions.

Operator

Thank you. [Operator Instructions] The next question is from the line of Mahrukh Adajania from Nuvama. Please go-ahead.

Mahrukh Adajania — Nuvama — Analyst

Yeah hi. I just wanted to know the stock of SLRs investments?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

We have INR45,000 crores of investment in government securities at HDFC.

Mahrukh Adajania — Nuvama — Analyst

Okay. And the LCR is?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

79%. 79%.

Mahrukh Adajania — Nuvama — Analyst

79%. Okay. And you did mention about the slower growth in lease rentals and in the nonindividual segment, but if you could give some more color it’s only largely driven by prepayments or…?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

No. So I’ve explained this in the last call also, but I’ll do it once again. If you look at it historically, construction finance loans used to constitute roughly between 13% and 14% of our total loan book. If you go back to pre-COVID days or if you go back to 2017 or ’18, you would have seen that proportion. Over the last three or four years, construction finance loans as a component of total loans has come down from 14% to 9%, the lease rental discounting loans have broadly remained in the same match been roughly 6% to 7%. Current level is 6%.

So that has not declined. It’s the construction finance component, which has largely declined. Now the reason for the decline in the construction finance component was that the period from 2017 to 2020 was the period which saw some degree of stress in the real estate sector, sector — in areas like Mumbai and Delhi in the metros. And we can go into details on why that happened if you were interested, but you discussed this time and again.

Now because of the stress in the real estate sector, there was a lot of media talk and analyst reports about unsold property, properties, which were ready but had not been sold. And because of this unsold property, there were not too many projects that were launched during that period. Markets started picking up, the real estate sector, particularly in the metros in the Mumbai and Delhi and Bangalore started picking up from the — from around October of 2020, with the reduction in the stamp duty rates and many other things, which happened at that point of time.

So after 2020, a number of new projects have got launched. We have a very healthy pipeline in terms of customers who are taking loans. We have a very healthy pipeline of construction finance loans, which we’ve approved. But here, you must understand that the disbursement for a construction finance loan is much lower and much more back-ended than the disbursement for a lease rental discounting low. In a lease renting discounting loan, the disbursement is made upfront because the property is ready, the property is leased out, there is rental being received, and therefore, the disbursement is made upfront.

But in a construction finance loan, the disbursement will be made progressively over a period of time based on the progress of construction. And in that also, the developer has to first put in his share of the equity before we start making disbursements. And if you take a project in a Mumbai or a Delhi, typically, it would take anything between three to five years to do the project, depending on the size of the project.

So disbursements tend to be back ended. Now if we had a pickup in the disbursements in 2020 or a pickup in new projects being launched in the latter half of 2020, the disbursement for these projects would largely happen in the coming quarters. Whereas what we would have disbursed now in this quarter would have been a loan which would have got approved in 2018 or 2019, when in any case, the launch of new projects was slower.

Mahrukh Adajania — Nuvama — Analyst

Got it thanks so much thanks a lot.

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 thanks for taking the question. So firstly, on the nonindividual portfolio, as we get into the entire merger process, is there any portfolio which has been earmarked, which might not be acquired by the bank and there is a resolution or maybe the repayments which are being assured in that portfolio? And if any, what would be the quantum of that, yes?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Okay. Rangan, do you want to answer that?

Mr. V. Srinivasa Rangan — Executive Director

Yes. On the nonindividual portfolio, we have not actually gone into the items which we will not go into the bank and so on and so forth because still there is a lot of — we have asked RBI certain — part of the merger we have asked for certain forbearance on the assets and liabilities, which are moving into the bank. That is number one. Number two is, as far as the — some of the loans, which may not qualify in the bank, which in the final event in the RBI in the forbearance, they want us to be sort of paid out later. So we don’t think that amount is actually going to be very substantial, and it’s going to be a very, very manageable a few thousand crores of rupees that’s all.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

So in reality, the answer to your question is that we — generally the loans that we do are loans that banks would do. We don’t do anything which a bank would not be able to do, except just two things. One is acquisition funding, which may — we may have done occasionally in the past. And the other is loans against shares for corporates, which again, we may have done occasionally in the past. To my mind, these are only the two broad categories of loans, which we do — which we could have done and which banks can’t do. And the value of those loans, as Rangan said, will be very, very — will not be material at all.

Kunal Shah — ICICI Securities — Analyst

Sure. And any reason for increase in the spreads apart from maybe the overall pool of NPA coming down and that would have helped in terms of the interest accrual. But otherwise, we see that spreads on quarter-on-quarter basis would have been up by almost 35, 40-odd basis points because it was 3.45%.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, the reason spread would have gone up was because of what I mentioned. What I answered Suresh’s question that when interest rates go up, the cost — the change in cost or the increase in cost to us is immediate. The benefit of that increase, which is in terms of the increase in lending rates, that comes over a period of three months. So whatever were the increases in interest rates in the first quarter when we saw some pretty sharp increases by RBI, that benefit, which would have flown in, in the second quarter, which was not there in the first quarter. That probably explains what does.

Kunal Shah — ICICI Securities — Analyst

On nonindividual side?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, both the individual non-innovation.

Kunal Shah — ICICI Securities — Analyst

Okay. And lastly, in terms of any add-on…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Nonindividual would also be because of the resolution of some of these stressed assets.

Kunal Shah — ICICI Securities — Analyst

Yes, it would be timely because of the resolution because there is almost like 35, 40 bps kind of an increase on account…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

The spread change on individual loans will be because of the…

Kunal Shah — ICICI Securities — Analyst

Yes, that from most plans, yes.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, and nonindividuals will be because of resolution.

Kunal Shah — ICICI Securities — Analyst

Yes. And during this entire repricing, do we offer any discounts to the existing customers, so to ensure that the repayments and prepayments are low? And would that have any impact on the spreads on the individual loans or that’s the normal course of business here?

Mr. V. Srinivasa Rangan — Executive Director

No, Kunal, there is no discount. It’s just that we — since it’s based on a term extension method, you retain the installment and extend the term and there would be a few cases which will go beyond a certain threshold term which we negotiate and get a part prepayment or whatever way of adjusting it or increasing the installment. But there are no discounts given.

Kunal Shah — ICICI Securities — Analyst

Yes. So maybe a strong relationship with a particular corporate salaried account, okay, and maybe we would have sourced loans from them — sourced loans for them also or maybe a particular developer and then trying to see that if they come with, say, some price bargain, do we do that after these hikes which have been there?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, we have not done in a single case, not a single case.

Kunal Shah — ICICI Securities — Analyst

Okay okay sure thanks thanks a lot yeah.

Operator

Thank you. The next question is from the line of Jignesh Shial from InCred Capital. Please go ahead.

Jignesh Shial — InCred Capital — Analyst

Yes. Am I audible?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, yes, you are audible.

Jignesh Shial — InCred Capital — Analyst

On the spreads and margins, you had quite a detailed explanation you’ve already given. I had two things, just more clarity over it, that incrementally, we are seeing that if the rates are consistently going up, definitely, somehow the demand is likely to get disturbed out here. So do we see going forward, we will be taking a bit of a hit on our spreads just to make sure that the overall demand momentum remains pretty decent. And along with that, is it easier for us to pass on the rate hike to affordable segment side compared to premium segment side or a mid-income level segment side. Is it — is there a difference in passing it on or it remains more or less same? That’s my first question.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right. The second — answer to the second question is it makes no difference whether it’s in an affordable housing segment or in higher income growth. The income — the change in interest rates is always passed on immediately to the customer. Your first question on whether how higher interest rates will impact demand. My answer to that would be as follows, that in a — let’s take a comparison of a housing loan, which is over a 15-year time frame even though the duration may be shorter, the original term is 15 years.

And let’s say a personal loan, which has a 15-month period or 15-month term. In a personal you’re taking a personal loan for buying some expensive equipment, for example, you want to borrow that money at a time when interest rates are at their lowest because for the entire 15-month period, you’re not going to see any dramatic reduction in interest rates in the next 15 months. And therefore, you would want to borrow money at a time when rates are low because then those rates will more or less sustain during the next 15 months.

However, in a housing loan, it is very different because the housing loan is a 15-year loan. Interest rates in India will go up and interest rates will come down. You will continue to see — and if you take the last 15, 20 years, I have — I mean, in my experience, we have seen so many, many, many innumerable cycles of rates going up, then stabilizing for some time, then rates going down, stabilizing, going up and going down. So when you’re taking a 15-year loan, it really does not make so much difference where interest rates are at the point of time when you take a loan.

Because over the period of 15 years, if rates were low, they will become higher at some point if they were higher, they’ll become lower at some point. And everybody in India gives floating rate loans, no one gets fixed rate loans. And in the floating rate loan, you will get the benefit of falling rates when rates come down and you’ll have to pay the higher cost when rates goes up. So it makes a much lesser difference from an economic standpoint in a long-term loan as compared to a short-term loan.

Jignesh Shial — InCred Capital — Analyst

Understood. Understood. So I mean I completely get your point. So basically, we are seeing that initially post lockdown, the momentum had been pretty decent in the housing loan demand side specifically. Initially, it was definitely some benefits coming up from the government in the case of stability reduction and all. But according to you being on the grounds, what basically is driving this demand, specifically in the metros and in the Tier one cities, that is the key reason why you think that the demand is pretty heavy. And do you see this sustaining over a period of next six or 12 months or so?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

My sense is that the demand will sustain. It’s very early to talk about the current month, for example, but two or three days that we’ve seen in December — in November, has seen a fairly healthy number of new applications that we’ve received. But it’s early days, so I don’t want to make a commitment on it. But my sense is that the demand — strong demand will continue.

Housing is a basic necessity in India. And as long as people are comfortable with their jobs, they believe that their jobs are not at risk, their salaries are being received, people will need to buy a house. So it’s a requirement. It’s a necessity. It is not something that you are buying a house because you just want to put an investment. You’re buying a house because they need a house to stay in.

Jignesh Shial — InCred Capital — Analyst

Understood. And my second question was on the — on your developer portfolio altogether, how you are seeing that particular portfolio shaping up in coming periods? Has the — we have a sort of consolidation happen within the developer segment altogether by the — many of the large developers are taking over the smaller ones and all. How is your experience into developer lending portfolio side? And how do you see that demand getting budgeted that we see going forward?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. I responded to that in detail in the question, which I think Mahrukh had asked. Just to quickly recap, a period of three years between 2018 and 2020 saw a slowdown in the launch of new projects. Because of that, the disbursements that we are seeing today are lesser than what they would otherwise have been. However, post 2020, post the second half of 2020, project launches have increased as project launches increase, the demand for construction finance loans also increases.

But as I said in response to the earlier question, a construction finance loan on like a lease rental discounting loan, the disbursement is made gradually, slowly over the life of the loan because it is linked to the construction of the project. As the developer has to first put in his equity, he has to come — at least his construction has to come up to a certain level. Then he puts in more then he comes in for additional funding. And at that stage, our inspectors go and look at what construction has happened and then disperse. So the point is that the disbursements tend to be back-ended unlike a lease rental discounting loan.

Jignesh Shial — InCred Capital — Analyst

Understood. So now because the disbursements have been…

Operator

Mr. Shial, sir, sorry to interrupt, but for any follow-up questions, may we request you to rejoin the queue please. Thank you. [Operator Instructions] Next question is from the line of Bunty Chawla from IDBI. Please go-ahead.

Bunty Chawla — IDBI — Analyst

Yeah thank you sir thank you for giving the opportunity. Just two data points, if you can share. First is the absolute disbursement for the quarter as well as restructured assets as of September 2022.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

The disbursements are 44,000 retail disbursements. 44,000.

Bunty Chawla — IDBI — Analyst

Yes. And restructured assets, sir.

Mr. V. Srinivasa Rangan — Executive Director

It’s 0.7% of the book. So there is not much of a — there’s no increase from the September numbers.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

So the restructured book now stands at 0.7%. I mentioned that in my opening statement.

Bunty Chawla — IDBI — Analyst

Thank you thank you very much.

Operator

Thank you. The next question is from the line of Shweta Daptardar from Elara Capital. Please go-ahead.

Shweta Daptardar — Elara Capital — Analyst

And to some of the opportunities just two questions. The first one being, what is the interest rate differential between our LAP and home loans?

Mr. V. Srinivasa Rangan — Executive Director

The rough interest rate differential would be between 1.5% to 2%, generally 1.5% to 2%.

Shweta Daptardar — Elara Capital — Analyst

Okay. And secondly, sir, what is our incremental cost of funds?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Rangan, you want to answer incremental cost of funds? I mean incremental depends on where you are borrowing, what term you are borrowing, which instrument you’re borrowing from? You can’t give an incremental number like that. But Rangan, if you want to attempt something, please go ahead.

Mr. V. Srinivasa Rangan — Executive Director

Yes, if you have to look at I mean, incrementally, what we borrowed in…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Incrementally what we bought is…

Mr. V. Srinivasa Rangan — Executive Director

September. In the month of September, for example, the incremental cost was around 7%. But this is on a…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. But this is — let’s understand that this 7% that he’s talking about is annualized cost, whereas the lending rate that we are talking of is with a monthly rest. So comparison in this context is not correct.

Shweta Daptardar — Elara Capital — Analyst

Sure no that’s helpful thank you.

Operator

Okay thank you. The next question is from the line of Nilanjan Karfa from Nomura. Please go-ahead.

Nilanjan Karfa — Nomura — Analyst

Thank you so much for taking my call. Keki, just a question on, let’s say, the incremental number of loans, let’s say, that we would have done in the last six to nine months from the newer centers where we were not operating or HDFC Bank was not operating or the relation was not happening. Any color what those incremental loan’s ticket sizes roughly would be? Whether this will be more salaried or more self-employed? Any color on the incremental loans that we are doing.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Renu, you want to answer that?

Ms. Renu Sud Karnad — Managing Director

Yes, I really think there is no much difference at all in that. I think what has happened is the HDFC Bank has extended their acquiring for some of the smaller branches, some of newer locations. So the average ticket size maybe, in some of those cases, a little lower. But I think in terms of self-employed, employed, we have not seen any change. Our self-employed has been reasonably good in the last few quarters. And so there hasn’t been any great hike or any differences yet.

Nilanjan Karfa — Nomura — Analyst

Right. I mean the point of asking is there are so many newer affordable housing finance companies which are thinking about growing bigger. My point is, are we — we are obviously trying to get into that space. But…

Ms. Renu Sud Karnad — Managing Director

Yes. As Mr. Mistry already said, we have — 23% of our loans are in that segment. And we continue to grow in that segment. And these are — when you say affordable, these are basically lower-cost homes also as you go into smaller geographies, as we mentioned earlier, the costs also come down, right? So in terms of what we are seeing right now more is that the middle income, the low middle income they are all actually coming back into the market in the last one year, three, four quarters. And I think that is what you’re seeing the growth rate. But in employed, self-employed, the mix continues to be the same.

Nilanjan Karfa — Nomura — Analyst

Right. Great. Okay. Second, a quick question. I mean what percentage of our individual loans would qualify the RBI priority sector norm?

Ms. Renu Sud Karnad — Managing Director

So I wouldn’t have that number off hand immediately because there are also a value limit as far as the RBI priority sector is concerned because of the difference between what is the metros and otherwise. Maybe we’ll get back to you exactly on our incremental loans, I won’t have that number to give you right now.

Nilanjan Karfa — Nomura — Analyst

No, outstanding also if you have it?

Mr. V. Srinivasa Rangan — Executive Director

It will be about INR120,000 crores.

Ms. Renu Sud Karnad — Managing Director

Yes.

Nilanjan Karfa — Nomura — Analyst

INR120,000 crore. Okay. Okay. Perfect. Thank you so much.

Operator

Thank you. The next question is from the line of Kumar from J.P. Kumar. [Operator Instructions] Please go-ahead.

Saurabh — JPMorgan — Analyst

This is Saurabh [Phonetic] from JPMorgan. Sir, just two questions. One is what percentage of our customers would offer a term increase versus EMI increase? So that’s first. And secondly, will it be fair to assume that the market share in LRD would have remained, I mean, you would be holding on to your market share in LRD and even in public finance? These are the two questions.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, we would certainly be holding on to our market share on LRD. As far as construction finance is concerned, even though you may see that the construction finance book has come down as a proportion of the total book, our market share would actually have gone up because if you see in that 2017, ’18 period when a lot of new projects were — I’m sorry, 2016, ’17 year when a lot of new projects were being launched.

At that time, the biggest lenders in the construction finance business used to be the likes of India Bulls and D-Mart Housing and Piramal and people like that who have become significantly slower in their construction finance lending. So our market share would have gone up. It’s just that, as I said, between 2017 and 2020, not many new projects were launched. Very, very few projects were launched and the disbursement for these loans will only happen now over a period of time. That was your second question. Sorry, what was your first question?

Saurabh — JPMorgan — Analyst

Sir, what percentage of your individual customers would opt for a term increase when the rates go up and what percentage actually would just pay off the higher interest?

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

Renu, do you want to answer that?

Ms. Renu Sud Karnad — Managing Director

Yes, see what happens when the rates go up, we normally — the default option is that the term goes up. The — if you’ve got a 15-year loan, it will become 15 years in a few months. It’s only when we are not able to cover the interest and negative amortization sets in. At that point in time is when we get in touch with the customer and tell him that now you’re — what you’re paying is not covering interest. So it’s in your interest to either increase the EMI or maybe pay back a little portion of the principal, if you’re able to do that.

So I think that’s how it works, so the default option really if the term goes up. And I would say 90%, 95% of them are like that. It’s only in the negative amortizing cases that we actually call in and counsel customers. Because you see what happens very soon, maybe next year, the rates of the interest will come down. And then again, we’ll be able to reduce the terms. So because it’s a long-term loan. It’s anything from eight to 15 years, as you know. So that is the default option that we thought of because of the interest rate variability.

Operator

Thank you. The next question is from the line of Deepak Kapur, an individual investor. Please go-ahead.

Deepak Kapur — an individual investor — Analyst

Yes good afternoon. This is Deepak Kapur. I’m an individual shareholder. I have a couple of questions. One question was regarding the RBI in principal approval on the merger. We haven’t heard anything from RBI on the dispensation you had requested for on the statutory requirements and as to what is their view and thinking on that given the fact that we are having a shareholder meeting later in the month, would we have some indication from RBI as to what is their thought process in the…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right. So we have had no indication as yet from RBI on what their stand is. We have not heard anything from RBI either saying yes or saying no. We would be obliged under regulation to disclose it to the public the moment we get it. At the moment, we have received nothing. But when we envisage the merger and we did our computation about the viability of the merger, we did not, I repeat, did not take into account any forbearance — that we would receive any forbearance.

Deepak Kapur — an individual investor — Analyst

Right. Would you think that information from RBI would be important for the shareholder meeting in terms of the approval to exactly know as to what…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

I think by and large, most shareholders who have — of either HDFC, HDFC Bank have already factored in or have made their assumptions or their calculations on the basis that the RBI approval does not come. If the RBI approval comes, it would be a bonus. It would be something which would be even more positively viewed in the market. But at the moment, I guess, they would have assumed that it is not there because nothing is there in public domain. I mean nothing — they’ve not told us what their views are.

Deepak Kapur — an individual investor — Analyst

Okay. Okay. And my second question was in regards to the news we just recently heard about the NIFTY Index where HDFC might be removed in December or January…

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

I think that has been clarified. Mr. Kapur, I would suggest you please look at the newspaper articles closely because this has been very clearly subsequently clarified by NIFTY that, that is not the case. We can talk to you separately on that. It has been reported in the newspapers also, that we would not drop out of the NIFTY as you have indicated. Yes, that was some analyst view at that point of time. This was discussed both with SEBI and with NSC and they have come out with a clarification.

Operator

Thank you. As there are no further questions, I would now like to hand the conference over to the management for their closing comments.

Mr. Keki M. Mistry — Vice Chairman and Chief Executive Officer

So I would just like to say thank you to everyone. We’ve had a good quarter. We hope and expect that the momentum of that we’ve seen in housing loans now for the last nearly 16 to 18 months will continue unabated in the period ahead. The economy is on strong grounds. The economy is on strong wicket. Job certainty is very high at the moment. And consequently, consumer confidence is generally very high. And as I said, interest rates have gone up, but the impact of interest rates on a long-term loan is a lot lesser than on a shorter-term loan from an economic standpoint. I have no more further in closing comments. If any of my colleagues want to say something?

Mr. V. Srinivasa Rangan — Executive Director

Thank you very much. And should any of you’ll have any follow-on queries, please get in touch with us. And thanks to Stephen.

Ms. Renu Sud Karnad — Managing Director

Thank you, everyone.

Operator

[Operator Closing Remarks]