Housing Development Finance Corporation Ltd (HDFC) Q3 FY22 Earnings Concall Transcript

Housing Development Finance Corporation Ltd (NSE: HDFC) Q3 FY22 Earnings Concall dated Feb. 02, 2022

Corporate Participants:

Keki Mistry — Vice Chairman and Chief Executive Officer

V. Srinivasa Rangan — Executive Director

Renu Sud Karnad — Managing Director

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

Analysts:

Mahrukh Adajania — Edelweiss Securities — Analyst

Kunal Shah — ICICI Securities — Analyst

Suresh Ganapathy — Macquarie Capital — Analyst

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Nidhesh Jain — Investec India — Analyst

Shubhranshu Mishra — Systematix Group — Analyst

Bunty Chawla — IDBI Capital — Analyst

Alpesh Mehta — IIFL Institutional Equities — Analyst

Karan Agarwal — Tusk Investments — Analyst

Sameer Bhise — JM Financial Ltd — Analyst

Hiren Kumar Desai — Private Investor — Analyst

Umang Shah — Sarath Capital — Analyst

Presentation:

Operator

Ladies and gentlemen, good afternoon and welcome to HDFC Limited’s Q3 FY ’22 Earnings Conference Call. As a reminder, all participant lines will be in listen-only mode and there will be an opportunity for you to ask questions after the presentation concludes.

[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, Chief Investor Relations Officer, Mr. Conrad D’Souza; and General Manager, Anjalee Tarapore.

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

Keki Mistry — Vice Chairman and Chief Executive Officer

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 third quarter of the current financial year.

The Board of Directors at its meeting held earlier today approved the financial results for the nine months ended December 31, 2021 which were 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 nine months and the quarter ended December 31, 2021.

Let’s first talk of individual loans. As I had mentioned in the last earnings call, business during the first quarter was partially disrupted as a result of the second wave. We, however, saw a sharp recovery in the second quarter, and this momentum has continued through the third quarter. The third wave in January 2022 has seen a rise in infections, but with significantly lesser severity. We have had partial disruption at some locations, but there has not been a material impact on business.

Some of the highlights of the performance for the third quarter. Let me try and enumerate that. Firstly, RBI has continued to ensure that there is adequate liquidity in the system and we generally had stable interest rates during the quarter. In January 2022, we have seen a slight uptick in rates. We have increased deposit rates as well as rates on our non-individual loan products. The inflation trajectory is within the RBI’s comfort zone.

RBI has on November 12, 2021 issued guidelines on harmonizing NPAs across the financial system. Accordingly, NPAs for the quarter — for this quarter have been computed in accordance with the circular.

Liquidity coverage ratio became applicable from the quarter ended December 31, 2021. This has resulted in higher levels of liquidity carried during the quarter.

Let me start by quickly summarizing the progress of our business during the quarter. Our individual loan approvals for the nine months ended December 31, 2021 were higher by 45% compared to the corresponding period in the previous year. During the nine months ended December 31, 2021, individual loan disbursements grew by 48% over the corresponding period in the previous year.

It is important to note that in the third quarter of the previous year, we also had the reduction in stamp duties in Maharashtra. And therefore, we had seen a very sharp spurt in business during the third quarter last year. Despite this, individual loan disbursements in the current year in the third quarter were 15% higher compared to the corresponding period in the previous year. And sequentially, if we were to look at third quarter over second quarter, they were 5% higher compared to the second quarter of this year. Similarly, individual loan approvals were 20% higher than in the corresponding quarter of the previous year.

The month of December 2021 saw the second highest monthly individual disbursements ever in HDFC’s history. Growth in home loans was seen in both the affordable housing segment as well as in high income groups. 89% of new loan applications were received through digital channels.

Approvals and disbursements continued to be strong in January. As at January 31, 2022, approvals and disbursements have crossed the full year of the previous financial year, which is financial year 2021 and are both at about 105% of the FY 2021 full year levels. Retail loan applications inflow in January 2021 has continued to be strong.

During the third quarter, we sold individual loans aggregating to INR7,468 crores. With this, the total loans sold during the nine months ended December 31, 2021 amounted to INR20,089 crores. These loans were all assigned to HDFC Bank pursuant to the mortgage sharing agreement with the bank.

Individual loans sold in the preceding 12 months amounted to INR27,591 crores as compared to INR16,956 crores in the previous year. Individual loan growth on an AUM basis was 16%. If the loans amounting to INR27,591 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 24%.

Our individual loan book increased to INR4,08,356 crores, which is a growth of 16% over the previous year. In addition to this, the loans securitized by HDFC and outstanding as on December 31, 2021 amounted to INR79,748 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to INR4,88,104 crores.

With regard to the non-individual portfolio, we have seen a pick up in the lease rental discounting book since June of 2021. LRDs — that is, lease rental discounting loans — are disbursed against ready projects with tenants in place and hence the turnaround between approvals and disbursements is relatively short. However, disbursement for construction finance is based on progress of construction and accordingly has a longer lead time between approval and full disbursement of the facility.

We presently have a reasonably good pipeline in construction finance loans as well as in the lease rental discounting segment and, as I had mentioned in the last quarter, we expect to see a positive growth in non-individual loans for the full year. As at December 31, 2021, our non-individual loan book amounted to INR1,30,638 crores. The overall loan book is now INR5,38,994 crores.

The total assets under management as at December 31, 2021 amounted to INR6,18,917 crores as compared to INR5,52,167 crores in the previous year, which is a growth of 12%. Prepayments on retail loans for the current year, on an annualized basis, amounted to 10% of the opening loan book. So, this is within the band of 10% to 12% that we’ve always had historically.

The average size of individual loans for the period ended December 31, 2021 stood at INR32.3 lakhs as compared to INR28.5 lakhs in the previous year. For the third quarter, the average size of individual loans amounted to INR33 lakhs.

The contribution from the higher income group, defined as customers with an annual family income of Rs 18 lakhs or more, has increased during the first nine months to 44% from 40% during financial year 2021.

Our thrust on affordable housing loans continued. During the nine months ended December 31, 2021, 30% of home loans approved in terms of number of customers and 13% in value terms were to customers from the economically weaker section or the lower income groups. The average home loan to customers in the economically weaker section amounted to INR11.10 lakhs and to customers in the lower income group amounted to INR19.5 lakhs.

If we break up the loan book outstanding on December 31, 2021 on an AUM basis into different categories, then individual loans constituted 79% of the total loan book as compared to 76% in the previous year. Construction finance constitutes 9% of the total loan book, lease rental discounting loans constitute 7% of the total loan book, while corporate loans constitute 5%.

If we were to look at the incremental loan book growth and split that growth between individuals and non-individuals, then for the quarter ended December 31, 2021, the ratio of growth in individual loans to non-individual growth is 94:6, which means that 94% of the incremental growth in the loan book came from individual loans.

If you were to look at a similar number for the nine months ended December 31, 2021, the ratio of incremental growth in the loan book is 95:5. In other words, 95% of the growth in the loan book during the nine-month period came from individual loans.

98% of the loans were sourced through distribution channels. However, this is largely through HDFC Sales, which is a 100% subsidiary of HDFC and HDFC Bank. HDFC Sales accounted for 52% of the loans sourced, while HDFC Bank accounted for 28%. Third-party DSAs accounted for 18%. 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 INR2,215 crores, of which INR1,643 crores has been disbursed till December 31, 2021. All amounts disbursed under this facility are guaranteed by the government.

The Reserve Bank of India permitted a one-time restructuring of loans under its resolution for COVD-19 related stress. In this regard, the net aggregate amount of loans for which restructuring has been implemented under both OTR 1 and OTR 2 constitutes 1.34% of the loan book. 64% of these loans are individual loans and 36% are non-individual loans. Also, out of the total restructured loans, as much as 34% is in respect of just one non individual account. I am happy to mention that, in January 2022, which is after the quarter, we have recovered…

Operator

This is the operator, Mr. Mistry. Are you able to hear us? Seems like we lost the connection for the speaker. I request all the participants to stay connected while we reconnect.

Keki Mistry — Vice Chairman and Chief Executive Officer

The overall collection efficiency for individual loans has further improved in the third quarter. The average collection efficiency for individual loans on a cumulative basis over the last quarter is 98.9%.

RBI has on November 12, 2021 issued guidelines on harmonizing NPAs across the financial system. NPAs reported for the quarter December 31, 2021 are consequently in accordance with the RBI circular.

We had earlier indicated that as a result of the revised norms, the reported NPA would go higher without a material change in credit costs. As you will observe, NPAs have increased in December 2021, whilst credit costs have reduced during the quarter to 27 basis points on an annualized basis.

As of December 31 2021, gross non-performing individual loans amounted to 1.44%, while gross non-performing non-individual loans amounted to 5.04%. As per regulatory norms, the gross non-performing loans as at December 31, 2021 stood at INR12,419 crores. This is equivalent to 2.32% of the loan portfolio.

Out of the total reported gross NPAs of INR12,419 crores, INR1,219 crores is on account of individual loans which have been reclassified as non-performing, in accordance with the November 12 circular but are less than 90 days past due. Similarly, in respect of the non-individual portfolio, an amount of INR1,527 crores is in respect of loans which are less than 90 days past due as of 31st December. This accounts for 30 basis points of the individual loan portfolio and 117 basis points of the non-individual loan portfolio. Therefore, against a reported NPA of 2.32%, 51 basis points consists of loans which are less than 90 days past due on 31st December, but have been classified phase 3 loans and have been treated as non-performing loans.

As per the revised regulatory norms, the corporation is required to carry a total provision of INR7,450 crores as of December 31, 2021. As against this, the actual provision carried is INR13,195 crores. The excess provision over the regulatory requirement is INR5,745 crores.

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 model, the total exposure at default of INR5,38,543 crores is broken up as under: Stage 1 is 92.2%, stage 2 is 5.1% and stage 3 is 2.7%. Stage 3 includes accounts with exposure at default of INR2,795 crores, which are classified as Stage 3 where loans are outstanding for less than 90 days.

Even after considering the impact of the RBI circular, we have seen a reduction in the aggregate of Stage 2 and Stage 3 assets from the peak of 9.2% in June 2021 to 7.8% of the exposure at default as of December 2021. Exposure at default and ECL for stage 2 and stage 3 are lower than the levels as at June 2021 by INR3,953 crores and INR282 crores respectively. This clearly reflects an improvement in the collection efficiency as well as stabilization of credit costs on a marginal basis.

During the quarter, we have charged the profit and loss account with a sum of INR393 crores towards provisioning. The aggregate charge to the profit and loss account for the nine months for the expected credit loss is INR1,531 crores. The ECL to EAD coverage ratio for stage 2 assets is 17% and for stage 3 is 49%. The provisions carried as a percentage of the EAD amounted to 2.45%. As of December 31, 2021, we carry a COVID-19 provisioning of INR1,187 crores, which is 9% of the overall provision.

Annual credit costs for quarter 3 was lower at 27 basis points compared to 50 basis points and 32 basis points during quarter 1 and quarter 2 respectively. For the nine-month period, the average annualized credit cost amounted to 35 basis points. As asset quality related issues normalize, we should over the next few quarters be in a position to both normalize the credit costs to pre-COVID levels and, at the same time, this will have a positive impact on the return on equity.

We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all our other subsidiaries and associate companies at the original cost of acquisition, which is the price we had paid whilst making these investments. These investments are not accounted for on a fair value basis. If we were to mark-to-market the listed investments as at December 31, 2021, the unrealized gain, which is the difference between the market price on December 31, 2021 and the carrying cost, would have been INR2,49,914 crores. This unrecognized gain is not part of our net worth nor has it been considered in our capital adequacy calculations.

As a part of the capital raise in August 2020, we raised warrants at an issue price of INR180 and an exercise price of INR2,165 per share. The exercise period of the warrants is up to August 2023. As of date, no warrants have been converted into equity shares.

Our Tier I capital as of December 31, 2021 stands at INR92,942 crores. Risk-weighted assets as of that date amounted to INR4,28,000 crores. Accordingly, capital adequacy ratio stands at 22.4%, of which Tier I capital is 21.7% and Tier II capital is 0.7%. 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, net worth includes certain items which do not form part of Tier I capital under the prudential regulations. These include Ind As transition reserve, deferred tax liability on special reserve, fair value gains on investments through OCI, investments in subsidiaries/associates in excess of 10% of the net owned funds, and securitization gains recognized upfront in accordance with Ind AS requirement These items aggregate to INR22,458 crores. Hence, Tier I Capital is actually INR92,942 crores as against a reported net worth of INR1,15,400 crores. A more appropriate way, therefore, of calculating the return of equity would, therefore, be on regulatory Tier I capital as against the conventional method of computing it on total net worth. Annualized return on equity on Tier I capital for the nine months ended December 31, 2021 stands at 15%.

As at December 31, 2021, our total borrowings amounted to INR4,89,002 crores. Term loans including external commercial borrowings and refinance from the National Housing Bank accounted for 27% of borrowings. Market borrowings — that is, NCDs and commercial paper — accounted for 41% of borrowings.

Deposits as at the quarter-end amounted to INR1,55,807 crores and constitute 32% of the borrowings. 61% of the deposits were onboarded digitally.

Let me come to the profit and loss items. Before I get to the net interest income, let me outline issues which have had an impact on the NII. In the current quarter, RBI has introduced a liquidity coverage ratio which has to be invested in high quality liquid assets.

As at December 2021, for the purpose of LCR, the corporation carried approximately INR27 crores (sic) [INR27,000 crores] in unencumbered high quality liquid assets held entirely in government securities. Further, approximately INR13,000 crores is held in high quality liquid assets as SLR against deposits and INR15,000 crores is maintained for general liquidity purpose. The corporation therefore has a liquidity buffer of approximately INR55,000 crores as compared to INR28,000 crores in the corresponding quarter of the previous year. Therefore, there is an increased impact of negative carry.

There was uncertainty on the eligibility of SLR holdings which qualify for the purpose of LCR. As a result, we carried a higher level of liquidity as at December 31, 2021. Post receipt of clarifications on the matter, the revised high quality liquid asset requirements are INR11,000 crores lower than what we actually carried, which shall bring down the excess liquidity during the course of the fourth quarter, in line with the clarifications.

Interest earned on net worth in the current year is lower than the previous year due to lower interest rates. This is the second point. And the third point is that, in the current year, the proportion of retail loan book has increased from 76% to 79%.

Net interest Income calculated purely on the basis of interest without taking cognizance of the profit on sale of — straight sale of loans during the nine months ended December 31, 2021 amounted to INR12,519 crores compared to INR10,943 crores in the corresponding period in the previous year, which represents a growth of 14%.

The net interest income calculated in a similar manner for the quarter ended December 31, 2021 was INR4,284 crores compared to INR4,005 crores in the corresponding quarter of the previous year.

If you were to look at it sequentially, then the sequential growth in the net interest income during the third quarter compared to the second quarter was 4.24%. The sequential growth in the loan book during the quarter was 3.49%.

Net interest margin for the nine months ended December 31, 2021 stood at 3.6% compared to 3.5% during the corresponding period of the previous year. The spread on loans over the cost of borrowings for the period ended December 31, 2021 was 2.26%. Spread on the individual book was 1.93% and on the non-individual book was 3.25%. The spread on loans during the corresponding period of the previous year was 2.28%.

Income earned from deployment of surplus funds in cash management schemes of mutual funds was much lower at INR329 crores as compared to INR666 crores in the corresponding period of the previous year. This was due to a sharp drop in short term rates where we earned 3.12% on our surplus liquidity as compared to 3.66% in the previous year and also the average level invested this year in liquid funds is INR13,549 crores as compared to INR23,749 crores in the previous year.

Dividend income. During this quarter, we received dividend income aggregating to INR195 crores. During the nine months, we earned INR1,383 crores by way of dividend income as compared to INR623 crores in the corresponding period in the previous year.

There was no profit on sale of investments during the third quarter. During the nine months, the corporation has booked profit on sale of investments amounting to INR263 crores compared to INR1,398 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 date 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 nine months includes an amount of INR329 crores compared to INR194 crores during the same period in the previous year. The charge is on account of stock options which were granted during the second quarter of the previous year.

For the period ending December 31, 2021, the cost income ratio stood at 8.1%, the same as during the corresponding period of the previous year.

For the quarter ended December 31, 2021, the standalone profit before tax was INR4,048 crores compared to INR3,753 crores during the third quarter of the previous year. The standalone profit after tax for the third quarter stood at INR3,261 crores compared to INR2,926 crores in the third quarter of the previous year, representing a growth of 11%.

For the nine months ended December 31, 2021, the standalone profit before tax was INR12,624 crores compared to INR10,891 crores in the previous year, a growth of 16%. Tax provision during the nine months ended December 2021 stood at INR2,582 crores compared to INR2,044 crores in the previous year. The standalone profit after tax for the nine months stood at INR10,042 crores compared to INR8,847 crores in the previous year, a growth of 14%.

Pretax return on average assets was 2.9%. Post-tax return on average assets was 2.3%.

The basic and diluted earnings per share on a face value of INR2 per share were INR55.58 and INR54.91 respectively.

The consolidated profit before tax for the nine months stood at INR20,195 crores as compared to INR17,533 crores in the corresponding period last year, a growth of 15%. After providing INR3,045 crores for tax as compared to INR2,715 crores in the previous year, the consolidated profit after tax for the period stood at INR17,150 crores compared to INR14,818 crores, a 16% increase over the corresponding period in the previous year. The profit attributable to the corporation was INR16,136 crores as compared to INR13,390 crores in the previous year, an increase of 21%.

As at December 31, 2021, we had as much as 3,514 employees, and 97% of our staff have been fully vaccinated. Total assets per employee stood at INR172 crores. Net profit per employee stands at 3.8 crores.

HDFC’s distribution network spans 651 outlets, which include 206 offices of HDFC’s wholly-owned distribution company, HDFC Sales Private Limited. We cover additional locations through our outreach programs.

We continue to engage deeply with all our stakeholders on ESG. During the quarter, HDFC was conferred with the Best Integrated Report by the Asian Center for Corporate Governance and Sustainability. 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 above are some of the highlights of the results for the period ended December 31, 2021. But before I conclude, I would like to wish each one of you good health and all the very best. Please stay safe.

I’m just told that there was some portion which got missed out because there was a connectivity issue. This was on the restructured loans. So, I’ll just repeat that portion.

64% of our restructured loans are individual loans and 36% are non-individual loans. Out of the total restructured loans, as much as 34% is in respect of just one non individual account. I am happy to mention that, in January 2022 we have recovered INR683 crores against this account and we expect the residual to be settled shortly. Post this recovery, in January 2022, the total restructured book now constitutes 1.21% of the loan book.

The overall collection efficiency for individual loans has further improved in the third quarter. The average collection efficiency for individual loans on a cumulative basis over the last quarter is 98.9%

I think this was the portion which got missed out when the line got disconnected. And we can take questions, if you wish.

Questions and Answers:

Operator

Thank you very much, sir. We will now begin the question-and-answer session. [Operator Instructions]. The first question is from the line of Mahrukh Adajania from Edelweiss. Please go ahead.

Mahrukh Adajania — Edelweiss Securities — Analyst

Yeah, hello. My question is on re-pricing of loans when you hike rates. So, the old book does not re-price, right? So, you can hike rates on new loans without re-pricing the old book?

Keki Mistry — Vice Chairman and Chief Executive Officer

Well, it depends on how we re-price the loans. The way we would normally do it is we would increase the retail prime lending rate. When we increase the retail prime lending rate, then the existing loans, all loans are linked to the retail prime lending rate, and accordingly, even existing customers end up paying a higher rate.

Mahrukh Adajania — Edelweiss Securities — Analyst

Right. But it happens effective that day only.

Keki Mistry — Vice Chairman and Chief Executive Officer

That would be effective from that moment, from whatever date we do it.

Mahrukh Adajania — Edelweiss Securities — Analyst

Okay. And what proportion of your liabilities would be linked to external benchmark?

Keki Mistry — Vice Chairman and Chief Executive Officer

Rangan, you have a [Indecipherable] on that, what percentage is linked to external benchmark?

V. Srinivasa Rangan — Executive Director

Yes. Broadly, almost the entire bank loan book is actually linked to external benchmark. Either it is linked to repo or it is linked to the T Bill rate or the CP rate. And over and above that, our NCDs, we have a swap book of close to about INR1,20,000 crores, where we have converted our NCDs from fixed rate to floating rate and this entire floating rate is actually linked to the MIBOR, the daily setting of the MIBOR. So, basically, if you look at our bank loan book, it is close to about INR97,000 crores, plus this is about INR1,20,000 crores. Say about 50% to 60% of the liability book is actually linked to external benchmark directly. The rest of the book, obviously, may not necessarily be linked to external benchmark, but we have an option of either re-pricing them or repaying them based on our own — during the course of the tenor of the loan, etc. That’s the way the book is actually composed of.

Mahrukh Adajania — Edelweiss Securities — Analyst

Thanks a lot. Thanks.

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. Sir, firstly on LCR, so you said, like, with the eligibility of SLR, now this will actually come up to 11k. But still when we look at it, given well matched ALM and even if we have to look at it in terms of the shorter tenor maturity, does it seem like this is more of a one-off because of some repayments due or this is the normal LCR requirement, which will be carried forward? And given this is 50-odd-percent, in fact, that number seems to be quite high. So, how should we look at it? It is more like we will retain this or this is more one-off or — and just the introduction of the norms?

Keki Mistry — Vice Chairman and Chief Executive Officer

I think a little bit of this is a one-off because there would be some amount of fairly large repayment which would have been due in the next month which is why it is high. My sense is that going forward it would be a little lower than this.

V. Srinivasa Rangan — Executive Director

Keki, can I answer a little bit on this? So, just, Kunal, on the — basically, the LCR is next 30 days repayments and disbursements and all that, which needs to be covered. So, what is happening is, over a period of time, as we are borrowing, the new borrowings are also happening for a longer duration. So, automatically, the LCR number also keeps readjusting themselves to a lower level. So, you can readjust the LCR to a lower level depending upon the duration in which you are borrowing your this thing — liabilities also. So, as Keki said, we would think that this would have a room to go down further, yeah.

Kunal Shah — ICICI Securities — Analyst

And this is 50% yet or maybe we have covered entirely?

V. Srinivasa Rangan — Executive Director

The starting is 50%. So, as we reported, we are at about 120%. So, somewhere I think against the 50%, we want to be there at about 60%, 70%. That’s the range in which we will want to probably operate. So that will leave us with the gap of the surplus which we can use to deploy for the loans or we can sort of repay some of the liabilities and things like that.

Kunal Shah — ICICI Securities — Analyst

Okay, perfect.

Keki Mistry — Vice Chairman and Chief Executive Officer

Basically, Kunal, we would not want to be exactly at 50%, but the 120% that we are at, it’s obviously very high. And we would want to bring it down over the coming quarter.

Kunal Shah — ICICI Securities — Analyst

So, currently it is 120% with this INR27,000 crores earmarked.

V. Srinivasa Rangan — Executive Director

Yes, exactly.

Kunal Shah — ICICI Securities — Analyst

Okay, got it. And secondly, with respect to…

Operator

Mr. Shah, may we request you to rejoin the queue, sir, for any follow-ups.

Kunal Shah — ICICI Securities — Analyst

Yeah.

Operator

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

Suresh Ganapathy — Macquarie Capital — Analyst

Yeah, hello. Firstly, I am just not clear about this NPL increase. So, you are saying that some INR2,700-odd crores was standard or less than 90-day overdue, but you still decided to keep it as an NPA. And in housing loan, were you not following daily method of calculation of NPA or were you upgrading assets even without complete three months of repayment? Why this discrepancy between the reported NPA and the RBI rule?

Keki Mistry — Vice Chairman and Chief Executive Officer

Because, historically, the NPAs — historically, what used to happen is that if a loan was outstanding for more than 90 days and the customer paid, let’s say, two instalments and not the entire three instalments, the loan would get upgraded and would no longer be classified as a non-performing loan. That was the regulations that used to apply to us. Now, based on the clarification or the guidelines or whatever RBI has issued in November 2021, a loan cannot get upgraded to a standard asset till and until the entire outstanding in respect of that account have been received. Now, the difference on that on individual loans is about 30 basis points. As far as the non-individual loans are concerned, there is no difference between the RBI guidelines and what we have. The reason you have this large amount of loans which are less than 90 days outstanding, but have been classified as NPLs, is because we started — either we started seeing some stress on those accounts, and therefore, we downgraded them to NPA, they were always stage 2, we downgraded them to stage 3, or alternatively, it could have been a case of, I think, one or two loans which were restructured and therefore, were classified as non-performing loans.

Suresh Ganapathy — Macquarie Capital — Analyst

So, in other words, just to understand, this INR2,700 crore could also be loans which have paid two EMIs, but earlier was shown as standard and now you have decided to show us NPA, would that…

Keki Mistry — Vice Chairman and Chief Executive Officer

That would have been shown as standard, meaning they were shown as stage 2 and now they would be shown as stage 3.

Suresh Ganapathy — Macquarie Capital — Analyst

How do you look at this — final question, sir. I just want to reiterate this point, how do I look at this number? Do you carry any excess provision or do you think the two numbers to look at is 1.8 and all this provision which is there…?

Keki Mistry — Vice Chairman and Chief Executive Officer

No, what number you wish to look at really honestly your call, but the reported NPL as per the RBI guidelines is 2.32%. I am only mentioning that, out of that 2.32%, 51 basis points is in respect of accounts where the outstanding is not 90 days, but obviously there is a stress on those accounts.

Suresh Ganapathy — Macquarie Capital — Analyst

Okay. I’m fine with it. Thank you.

Operator

Thank you. The next question is from the line of Sanket Chheda from B&K. Please go ahead.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Yeah. Hi, sir. So, my question was on traction on the non-retail book this quarter. Last quarter, we had about equal amount of growth that we had in retail. So, how do we see it panning from here on? We are seeing a lot of revival in activities, particularly in real estate and a lot of construction activities also taking place. And we being maybe one of the pioneers or only the few good guys wherein NPL issues have not hit. So, are we thinking to go aggressive on non-retail in the coming quarters? How do we see it?

Keki Mistry — Vice Chairman and Chief Executive Officer

All right. Let me answer that question. So, as I told you, the individual loan book as of 31st December stood at 79% and the non-individual book stands at 21%. And of that 21%, the breakup is 9% construction finance, 7% LRD and 5% corporate loans. This is outstanding on 31st December. If we were to look at the incremental growth in the loan book during the third quarter, it was 94% individuals and 6% non-individuals. Now, as I mentioned in the talk, what happens is that when we have a LRD loan, for example, the entire loan gets disbursed in one go. Whereas, if you have a construction finance loan, the construction finance loan gets disbursed over a period of time because it takes a while for the construction to keep taking place. And then as the construction keeps taking place, the disbursement happens.

I also mentioned that we have a reasonable pipeline of such loans, and we would expect to close the year with a positive growth in the non-individual segment against the negative minus 1% growth that we had in the December period.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

Okay. And I remember last quarter, you had guided that 3.6%, 3.7% margins are not sustainable and we should ultimately move towards 3.3%, 3.4% kind of level. So this quarter, though, we have seen some reduction in spread for individual loans, overall NIMs have not changed. Do we expect 10, 15, 20 bps reduction in the coming quarters?

Keki Mistry — Vice Chairman and Chief Executive Officer

I don’t want to make a forward-looking statement because honestly a lot of this depends on where interest rates are headed, how we change our rates, and so on and so forth. What I mentioned last quarter was that the 3.6%, I think we had last quarter, had come down from the 3.7%, which it was earlier. And I said that somewhere NIMs will settle between the historical rate, which was about 3.2-odd-percent and that 3.6% that we had last time. This quarter, we have not seen any change in the net interest margin, which continues to remain at 3.6%. So I would hope that we would be able to continue maintaining net interest margin at these levels. I would hope so. But as I said, a lot will depend on how interest rates pan out.

Operator

Sure, sir. That helps. Thanks a lot.

Sanket Chheda — B&K Securities India Pvt Ltd — Analyst

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

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Yeah, hi. A couple of questions from my side. The first is, there was a sharp reduction in the non-individual NPA, especially when I compare it on a like-to-like basis, which is removing the impact of the RBI definition change. So, was this like a particular account? Or were there number of accounts out here? And if you could give some guidance in terms of the…?

Keki Mistry — Vice Chairman and Chief Executive Officer

Sorry, I didn’t — I couldn’t follow the question. You are saying that there was a reduction in the NPA.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

In the non-individual segment, excluding — if I just set aside the impact of…

Keki Mistry — Vice Chairman and Chief Executive Officer

In the non-individual segment, there will be movement because these are bulky loans. So, in a quarter, if you are able to recover money on some loan and the loan moves away or the loan gets fully paid off, then naturally the level of account, the level of stage 2 or stage 3 accounts will change.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

But this quarter, was there any bulky account or…?

Keki Mistry — Vice Chairman and Chief Executive Officer

Yes, there would be. There would be. There would be a lot of accounts, no? We have so many accounts. There would be some large account, which would have got paid off during the quarter.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

And now that the definition of NPL or gross stage 3, whatever you call it, has been sort of reset, would you look at revisiting the PD ratios in your retail calculations?

Keki Mistry — Vice Chairman and Chief Executive Officer

See, obviously, it is something that we would look at in the fourth quarter, which is when we normally do an analysis of likelihood of default and so on and so forth. But the reality of the matter is that the loss ratio, it is not going to change just because the definition of NPL changes. The loss ratio is still going to remain the same.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

So, the PD has to probably come down.

Keki Mistry — Vice Chairman and Chief Executive Officer

Yes. So, whilst there might be some impact because of the default, the loss ratio to my mind would not change. But this is a statistical model, which will be worked on during the fourth quarter. And when we have the March numbers, the March numbers would reflect the changes in the model.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

And just final one, in light of improvement in the overall real estate cycle, how do you see the construction finance book growing from these levels?

Keki Mistry — Vice Chairman and Chief Executive Officer

I mentioned earlier that we are seeing a pipeline, a recent pipeline of construction finance loans, but as I said also that lease rental discounting loan, the disbursement is immediate because the property is occupied, the rentals are coming in. So we can disburse the whole amount in one go. Whereas in a construction finance case, the disbursement happens progressively based on how the construction takes place, the disbursement is more progressive. So, there is a decent pipeline. And we are — as I said, would expect to see a positive growth for the whole year.

Nischint Chawathe — Kotak Securities Ltd. — Analyst

Perfect. Those were my questions. Thank you very much. And all the best.

Keki Mistry — Vice Chairman and Chief Executive Officer

Thank you.

Operator

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

Nidhesh Jain — Investec India — Analyst

Thanks for the opportunity. What is the share of individual housing loan in overall assets to comply with the RBI guidelines for the classification? I just want to understand whether we have headroom to increase the share of non-individual loans in overall assets or not, going forward?

Keki Mistry — Vice Chairman and Chief Executive Officer

So, the requirement is that 50% of our total housing loans have to be — I’m sorry, 60%. Sorry, is it 50%, Rangan?

V. Srinivasa Rangan — Executive Director

Which one?

Renu Sud Karnad — Managing Director

50% retail. 50% retail and 50% housing.

Keki Mistry — Vice Chairman and Chief Executive Officer

Oh, yeah. I’m sorry. So, 60% has to be retail. And at the moment, we are ahead of 60%.

Renu Sud Karnad — Managing Director

No, no, no. Keki, one second. Keki, hold on. 50% has to be housing. Of that, 50% has to be retail.

V. Srinivasa Rangan — Executive Director

The total housing book has to be 60%. Of that, retail has to be 50% housing. And against that 50% — and this is to be achieved over a period of three years, which kicks in somewhere in 2024. And as of now — as on December, we are 53.13% against that…

Keki Mistry — Vice Chairman and Chief Executive Officer

Requirement of 50%. So, from a headroom point of view, we have enough headroom.

V. Srinivasa Rangan — Executive Director

The other one, we are 57.7% against the 52%.

Nidhesh Jain — Investec India — Analyst

And all these numbers are on asset side, so total assets, right? Or on loan book?

V. Srinivasa Rangan — Executive Director

It is on total assets, right? It has to be computed on total assets.

Nidhesh Jain — Investec India — Analyst

So, as the LCR liquidity runs down, we may have slightly more headroom on that?

V. Srinivasa Rangan — Executive Director

Yeah. So, that cash, whatever is there, it will get deployed in assets. So, depending on which assets it gets deployed, the composition will change. Today it is classified as a non-housing asset. So, as that money gets deployed into retail housing loans, it will start reflecting on the housing.

Keki Mistry — Vice Chairman and Chief Executive Officer

Just to put that in perspective, against the 50% required for individuals we are at 53%. Now, on a balance sheet size as big as ours, a 3% margin can be quite substantial.

Nidhesh Jain — Investec India — Analyst

Understood. Thank you, sir. That’s it from my side.

Operator

Thank you. The next question is from the line of Shubhranshu Mishra from Systematix. Please go ahead.

Shubhranshu Mishra — Systematix Group — Analyst

The first question is that you can split the HL book into Cat A, Cat B and Cat C employees. And again, within the HL, if you can speak on the customer, what is his average age, average income? What is the average FOIRs that is on book as of now, not the onboarding FOIR, sir? Yeah, that’s about it.

Keki Mistry — Vice Chairman and Chief Executive Officer

You want to know the average income of a customer?

Shubhranshu Mishra — Systematix Group — Analyst

Yes, sir.

Keki Mistry — Vice Chairman and Chief Executive Officer

Renu, you have some figures?

Renu Sud Karnad — Managing Director

No, no. I don’t think we will have those figures. The average age would be around 37, 38 years. And FOIRS, I can tell you what we don’t do. If you really want these numbers, we can get back to you. These are such varied loans to get an average might give you a different idea. But we can give you, depends on whether they are in the larger cities, whether it’s a self- employed, whether it’s an employed loan, so all these things are there. But generally, our effort is that, the FOIRs, we are willing to live with, should not be more than about 55% to 50% of the person’s income, otherwise we won’t give the loan. The loan is based on his ability to repay. It is really customized to every customer, depending on what his other liabilities are. And based on that, we work out an eligibility. Of course, we don’t go beyond what we can fund as per NHB guidelines, which is 75% for loans over Rs. 75 lakh. Keeping that in view, the credit underwriting is based on what his other loans are and, normally, we are within that — the total liabilities that he has should not exceed between 50% to 55%. But we can give you exact numbers if you get back to us.

Keki Mistry — Vice Chairman and Chief Executive Officer

The average age of a customer is about 38 years and the average loan-to-value ratio at origination, I repeat, at origination, is about 67% to 68%, which means an individual at origination has about a 30% to 33% equity in the property and all our loans are repaid through equated monthly instalments which start immediately. So, the moment the loan gets disbursed, the next month the individual starts paying an instalment and that instalment has got a principal component. So with every passing month, the outstanding amount to the loan keeps declining. And if we were to assume stable property prices, it means that the loan-to-value ratio for the loans outstanding in the books will over a period of time keep reducing.

Shubhranshu Mishra — Systematix Group — Analyst

And my second question is unanswered, sir. If you can split the salaried book into Cat A, Cat B and Cat C?

Keki Mistry — Vice Chairman and Chief Executive Officer

We can’t hear you.

Shubhranshu Mishra — Systematix Group — Analyst

And my second question was, the split of the housing loan book into Cat A, Cat B and Cat C customers?

Renu Sud Karnad — Managing Director

The housing loans book into Cat A, Cat B and Cat C customers?

Shubhranshu Mishra — Systematix Group — Analyst

Cat A companies, Cat B companies, you would have that split.

Renu Sud Karnad — Managing Director

So, I would just say, we have — a huge component of our loans are government. They are either Central Government or they are State Government or they are the Armed Forces. And I would say that we would put them as far as that is concerned in Cat A, right?

So, in terms of — again, it all depends on the person’s position, his income, and that is how we appraise the case. It’s not necessary that he has to be working with a Cat A employer. It is very customized, customized to that individual, to what his income is, what his savings habits have been, what is the past record or how his CIBIL score has been. And so, it’s really based on that, it’s really not based on an employer categorization.

Shubhranshu Mishra — Systematix Group — Analyst

Sure, 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

So, the question was with respect to one of the non-individual account wherein some resolution was happening and that was at a steep haircut and HDFC was the largest lender to it. So, given that overall provisioning under stage 2 and stage 3 on the non-individual side, that’s in fact coming off or stable, is it fair to assume that it’s well accounted for and there would be no impact on account of that big resolution or maybe a higher haircut?

Keki Mistry — Vice Chairman and Chief Executive Officer

No, there would not be any impact. You would see that the credit costs for the quarter has actually come down to INR393 crores.

Kunal Shah — ICICI Securities — Analyst

So it’s well accounted for.

Keki Mistry — Vice Chairman and Chief Executive Officer

Yes, it’s well accounted for.

Kunal Shah — ICICI Securities — Analyst

And secondly, in terms of ESOPs, so should we assume that maybe in couple of quarters, this cost will move away or in terms of…?

Keki Mistry — Vice Chairman and Chief Executive Officer

So, these ESOPs were granted in August of 2020. And there is a two-year vesting period. So in some part of the stock options, the vesting period was one year and for the other part, it is two years. So for a portion which is one year vesting, that is over. So there will be no further charge to the profit and loss account in respect of that vesting. For the second vesting, which takes place in August 2022, there will continue to be some charge to the profit and loss account till August 2022. But obviously, the charge will come down. Because till August 2021, the charge was at its peak because you had both the first round of options and the second round of options, for both of which our charged was being debited to the profit and loss account.

Kunal Shah — ICICI Securities — Analyst

Sure, sir. Got it. Okay. Yeah, thanks.

Operator

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

Bunty Chawla — IDBI Capital — Analyst

Yeah, thank you, sir. Thank you for giving me the opportunity. My question has been answered. Just a single data point, if you can share. Absolute number, the disbursement done during this quarter, sir?

Keki Mistry — Vice Chairman and Chief Executive Officer

Conrad, you have a figure.

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

Sorry. The retail disbursements are around INR40,000 crores.

Bunty Chawla — IDBI Capital — Analyst

INR40,000 crores?

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

Yeah.

Bunty Chawla — IDBI Capital — Analyst

Thank you. Thank you very much, sir.

Operator

Thank you. The next question is from the line of Alpesh Mehta from IIFL Securities. Please go ahead.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Hi. And thanks for giving me the opportunity. Just one question, if I look at the total cumulative provisions from the balance sheet, the number has gone down from INR13,320 crores to INR13,195 crores and the charge to P&L is around INR400 crores. So, it looks like almost INR540 crores of either a termination losses or the write-off [Indecipherable] is the understanding right [Indecipherable].

Keki Mistry — Vice Chairman and Chief Executive Officer

I think we can give you that reconciliation later on. I wouldn’t be able to give it to you off the cuff, but Conrad can give it to you later.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Okay, thank you.

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

Alpesh, I will give it to you later.

Alpesh Mehta — IIFL Institutional Equities — Analyst

Yeah, yeah. Thank you.

Operator

Thank you. The next question is from the line of Karan Agarwal from Tusk Investments. Please go ahead.

Karan Agarwal — Tusk Investments — Analyst

Hello.

Keki Mistry — Vice Chairman and Chief Executive Officer

Yeah, yeah. Go ahead.

Karan Agarwal — Tusk Investments — Analyst

[Indecipherable] question. So, from what I can see from your presentation is that [Indecipherable]…

Operator

Mr. Agarwal, sorry to interrupt. Your voice is breaking up, sir. If you can take the phone off speaker, please.

Karan Agarwal — Tusk Investments — Analyst

Is it better now?

Keki Mistry — Vice Chairman and Chief Executive Officer

Slightly.

Karan Agarwal — Tusk Investments — Analyst

So, if I look at your presentation, as our number — it states that 30% of the loans have been — in volumes terms, have been disbursed to low income group or middle income group, is that correct?

Keki Mistry — Vice Chairman and Chief Executive Officer

Yeah.

Karan Agarwal — Tusk Investments — Analyst

Yes. So, from what I understand is that it is a different ballgame to disbursed loans in this customer segment, which basically belong to tier 2, tier 3 cities versus disbursing loans in tier 1 metro cities. So, how are we sourcing these loans? And what are the underwriting standards on these loans?

Keki Mistry — Vice Chairman and Chief Executive Officer

All right. So, Renu, you can answer the underwriting part. But I’ll just mention that this 30% has been there for a very long time. It has always been in the range of around 30% to 32% — between 30% and 32% for a very long time.

Renu Sud Karnad — Managing Director

And let me just say that these are from tier 2 and tier 3 cities, but many of them are employed, as it is today our self-employed is 20%, 80% of people are employed. So, the underwriting standards are very similar. Again, it goes really back to the person’s saving, how much is his income, how much are we willing to — how much of the loan will be — based on what percentage of the income. How much is he putting in and what is his own contribution? Honestly, being in a metro, to get a loan from HDFC doesn’t give you any benefit or being in a smaller city is not a negative at all because this is a housing loan, it’s based on the value of the property, location of the property, salability of the property, how much is the person putting in, what is the rent that he is paying currently, it’s all based on that. So, honestly, to do this business, we have not reduced or brought down our guards at all. The way we appraise the case has continued to be the same. We are equally cautious, we are equally careful for the loan that we do in the larger cities as we do in a smaller city. So, I don’t think there is any change in the way we are looking at it because these are not really — in case you have in mind that these are not cases where they are slum dwellers or they are not loans of INR3 lakhs or INR5 lakhs that we are doing. The average loan in these affordable housing is also about INR9 lakh, INR10 lakhs. So people have income, they have regular income, these are not based on assumed income. So, I just wanted to say the credit underwriting norms are really not different or actually brought down to be able to do this business.

Keki Mistry — Vice Chairman and Chief Executive Officer

Just to put it in perspective, the actual average loan amount to customers in the lower income group is INR19.5 lakhs and to customers in the economically weaker section is INR11.1 lakhs.

Renu Sud Karnad — Managing Director

So, it’s not just small loans. Yeah.

Karan Agarwal — Tusk Investments — Analyst

And what would be the yield that HDFC would be earning on those loans?

Renu Sud Karnad — Managing Director

The rates on these loans are slightly higher. So, it’s currently, as we speak, our rate of interest — again, it all depends on that individual, what his credit rating is. We started using credit rating also as a benchmark as to how we price our loans. And just because they are in a smaller city doesn’t necessarily mean that he will get a higher rate, but by and large customers would be getting anything between 6.7% to 6.75, 6.8%. I am talking about an employed customer. Self-employed customers are different. Rates of interest can vary, it could be higher in self-employed customers, depending on the risk that is perceived by us.

Karan Agarwal — Tusk Investments — Analyst

Got it. Thank you so much for entertaining my questions.

Operator

Thank you. The next question is from the line up Sameer Bhise from JM Financial. Please go ahead.

Sameer Bhise — JM Financial Ltd — Analyst

Yeah, hi. Thanks for the opportunity. Just one quick check, is the entire restructured book in stage 2 or some of it has an NPL overlap?

Keki Mistry — Vice Chairman and Chief Executive Officer

No, the entire restructured book would be either in stage 2 or in stage 3. Some of it would be in Stage 3.

Sameer Bhise — JM Financial Ltd — Analyst

Can you share the split?

Keki Mistry — Vice Chairman and Chief Executive Officer

We can give it to you. I don’t have it off the cuff. Conrad, do you have how much is stage 3 and how much is stage 2?

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

Sameer, as a part of the release to the exchange, it is there as a note. I can give it to you separately, but it is also there in the table.

Sameer Bhise — JM Financial Ltd — Analyst

Thank you.

Operator

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

Hiren Kumar Desai — Private Investor — Analyst

Thank you for the opportunity. Sir, have you seen any uptick in prices of the properties and corresponding change in the average size of loan? That is question one. And second question is the proportion of loan that we give which is fixed rate and floating rate? These are the two questions.

Keki Mistry — Vice Chairman and Chief Executive Officer

All right. So, let me try and answer that question. The average loan amount has gone up during the course of the year. Our total average loan for this year, individual loans for this year is INR32.30 lakhs. The average loan for the third quarter in isolation is INR33 lakhs. And last year, the average loan amount was INR28.5 lakh. If you were to compare second quarter with third quarter, second quarter average loan amount was INR32.7 lakhs, third quarter is INR33 lakh. So effectively, average loan amount has marginally gone up in this quarter, but had gone up, you could say, earlier.

Have property prices gone up? Look, this varies from city to city, location to location. In some locations, yes, could have seen an uptick in prices. But what has happened is income levels have gone up. Income levels have gone up quite sharply over the course of the last one or two years because some of the companies held back on salary increases because during the first wave of COVID and later on, as things started normalizing for them, they started giving salary increases, which would have made the individuals eligible for a higher loan.

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

Sameer, just to answer your question, on the restructured loans, the NPA is around INR130 crores which is under 2% of that portfolio.

Hiren Kumar Desai — Private Investor — Analyst

This is Hiren Desai. My second question was the proportion of loans which are floating rate loans versus…?

Renu Sud Karnad — Managing Director

Most of our loans — retail loans are all floating rate loans, not even 2% or 3% are going to be on a fixed rate basis. We have seen that in the past also, when rates of interest start moving up, a smattering of people come for fixed rate loans, but thereafter — because there is a difference between the fixed rate loan and the floating rate loan. And as you know, housing loans, they don’t keep housing loans for more than four, five years, as you know. Very few people opt for fixed rate loans.

Hiren Kumar Desai — Private Investor — Analyst

Okay, thank you. Thank you. That answers my question.

Operator

Thank you. The next question is from the line of Umang Shah from Sarath Capital. Please go ahead.

Umang Shah — Sarath Capital — Analyst

Hi, sir. Thank you for the opportunity. Sir, we had our last major fundraising in 2018. So, just wanted to understand, at what level of debt to equity do you envisage raising new funds?

Keki Mistry — Vice Chairman and Chief Executive Officer

We do not envisage raising capital for a very, very, very long period of time. We would be guided more by the capital adequacy ratio rather than just the debt equity ratio. As against the regulatory requirements our capital adequacy ratio is significantly higher. Our Tier 1 capital stands at 21.7%. So, what we have to do over the next few years is to sweat the balance sheet more, increase the leverage, increase the debt equity ratio and consequently increase the return on equity. So, we have no plans to raise equity for a very, very long time.

Umang Shah — Sarath Capital — Analyst

Thanks, sir. And, sir, one more if I could to understand. So, the collection infrastructure is all managed in-house, all the employees are on our own payroll or are they outsourced?

Keki Mistry — Vice Chairman and Chief Executive Officer

Yes, it’s all managed in-house.

Umang Shah — Sarath Capital — Analyst

Okay. And even possession and selling off the property, all of it is done in-house?

Keki Mistry — Vice Chairman and Chief Executive Officer

Yeah.

Umang Shah — Sarath Capital — Analyst

Okay. Thank you so much.

Operator

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

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

On behalf of all my colleagues, just thank all of you for attending this call. In case you all do need any further clarifications, either get in touch with Anjalee or me. Thank you, Keki, Renu, Rangan and everybody on the call.

Keki Mistry — Vice Chairman and Chief Executive Officer

Thank you, everyone. Stay safe. That’s the most important thing.

Operator

Thank you. Ladies and gentlemen, on behalf of HDFC Limited, that concludes this conference. We thank you all for joining us and you may now disconnect your lines.