Housing Development Finance Corporation Ltd (HDFC) Q3 FY23 Earnings Concall Transcript

Housing Development Finance Corporation Ltd (NSE:HDFC) Q3 FY23 Earnings Concall dated Feb. 02, 2023.

Corporate Participants:

Keki M. Mistry — Vice Chairman and Chief Executive Officer

V. Srinivasa Rangan — Executive Director

Unidentified Speaker —

Analysts:

Suresh Ganapathy — Macquarie Group — Analyst

Mahrukh Adajania — Nuvama — Analyst

Akshat Hariya — Multi-Act PMS — Analyst

Nishant Shah — Millennium Capital Management — Analyst

Santosh Keshri — Keshri Wealth — Analyst

Presentation:

Operator

Ladies and gentlemen, good afternoon and welcome to HDFC Limited Q3 FY ’23 Earnings Conference Call. [Operator Instructions].

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 Relation Officer, Mr. Conrad D’Souza; and Additional Senior 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 M. 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, 2022 which were subjected to limited review.

Let me start with outlining a few developments in the economy over the last three months, which has had a bearing on the Corporation. The monetary policy committee at its meeting held in December 2022 increased the policy repo rate by 35 basis points mainly on account of the need to keep inflation expectations anchored. This was in addition to the 50 basis points increase in the repo rate in October 2022.

As a result, there has been a further uptick in interest rates consequent to which we have increased deposit rates as well as rates on loan products. As we had mentioned in our previous earnings call too, the interest rate actions have a short-term impact on net interest income. While we have seen great action by RBI and have correspondingly passed on the rate increases to our customers, there is always a transmission lag between the increase in interest cost on our liabilities and the repricing of our assets. I will explain this in detail later.

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. We have fully utilized this limit in the current year. In August 2022 we had raised USD1.1 billion as a social loan under this window. Further, December 2022 IFC disbursed a loan of USD400 million, which will be utilized primarily for the green affordable housing portfolio.

The borrowings are fully hedged for currency and interest rate risk. And the all-in cost on the borrowing is comparable with our domestic cost of funds for a matching tenor. The momentum in the economy was strong right through the nine months of the current year. This is reflected in the pickup in the individual loan disbursements and an 18% growth in the individual loan book on an AUM basis. During the quarter, the loan book crossed INR6 lakh crores and AUM crossed INR7 lakh crores.

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, 2022. Let me start by summarizing the progress of our business through the quarter. Our individual loan approvals for the nine months ended December 31, 2022 were higher by 21% compared to the corresponding period in the previous year. For the same period, individual loan disbursements grew by 23% over the corresponding period.

I may mention here that due to the holiday season in October, November the monthly disbursements were marginally lower than the previous month, but December saw a return to the normal trajectory. Housing disbursements constituted 93% of individual loan disbursements in the current year. Growth in home loans was seen in all segments of the market, 94% of new loan applications were received through digital channels. During the third quarter, we sold individual loans aggregating to INR8,892 crores. Individual loans sold during the last 12 months amounted to INR35,937 crores. The total loans sold during the nine months ended December 2022 amounted to INR27,570 crores. These loans were all assigned to HDFC Bank pursuant to the mortgage sharing agreement with the bank.

Individual loan book growth on an AUM basis was 18% if the loans amounting to INR35,937 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 26%. On a balance sheet basis, our individual loan book increased to INR4,79,316 crores. In addition to this, the individual loans sold by the Corporation and outstanding as on December 31, 2022 amounted to INR97,700 crores.

HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to INR5,77,016 crores, a growth of 18% over the previous year. As at December 31, 2022, our non-individual loan book on an AUM basis was INR1,24,469 crores. As mentioned in our earlier calls, construction finance loans unlike lease rental discounting loans have a longer disbursements period as we have disbursed based on progress of construction and after the developer has brought in the A share of the equity.

Further over the last few quarters, we have seen some scheduled repayments of earlier facilities and resolution of some stressed assets. We have also on maturity gun down exposures in the loan book, which are non-compliant with accounts applicable to commercial banks in view of the impending merger. The total assets under management as of December 31, 2022 amounted to INR7,01,485 crores as compared to INR6,18,917 crores in the previous year, a growth of 13%. If no loans have been sold during the preceding 12 months, then the growth in the total loan book would have been 18%.

Prepayments on retail loans on an annualized basis amounted to 10.7% of the opening loan book. And as you’d be aware over the years, historically our prepayments have range between 10% and 12%. The average size of individual loans for the period ended December 31, 2022 stood at INR35.7 lakhs as compared to INR33.1 lakh in financial year 2022. The contribution in value terms from customers with annual family income of INR18 lakhs or more has increased during the year to 52% from 44% during the corresponding period in the previous year. Our trust on affordable housing loans has continued during months ended December 31, 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 group.

The average home loans to customers in the EWS segment amounted to INR10.8 lakhs and to customers in the LIG segment amounted to INR19.5 lakhs. If we break up the loan book outstanding on December 31, 2022 on an AUM basis into different categories, then individual loans constituted 82% of the total loan book as compared to 79% in the previous year. Construction finance constituted 8% of the total loan book, lease rental discounting loans constituted 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 nine months ended December 31, 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 while HDFC Bank had a 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, 2 and 3, the Corporation has disbursed in aggregate amount of INR1,876 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 at December 31, 2022, the outstanding loans under OTR 1 and OTR 2 together amount to INR4,085 crores, which is equivalent to 0.7% of the loan book, as compared to a peak of 1.4% in September last year. 98% of the OTR loans are in individual loan category.

The average collection efficiency for individual loans on a cumulative basis over the last nine months is 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 which is this quarter. HDFC however, has continued to report NPAs in accordance with the revised RBI circular of November 12, 2021. There has been a significant improvement in asset quality over the last 18 months.

December 2021 was the first quarter when we were required to report NPAs under the new norms brought in by RBI. Since then, we have reengineered our recovery mechanism and processes and I’m happy to report that as of December 31, 2022 the gross non-performing individual loans calculated under the new drop stood at 0.86% down from 1.44% in December last year. Similarly, gross non-performing non-individual loans stood at 3.89% down from 5.04% in December last year. As per the new regulatory norms, the gross non-performing loans as at December 31, 2022 stood at INR8,880 crores, this is equivalent to 1.49% of the loan portfolio, which is down from 2.32% in December last year.

Calculated under the earlier norms, the gross non-performing loans as of December 2022 would be 1.38% comprising 0.79% [Phonetic] for individual loans and the same 3.89% for non-individual loans. The improvements in credit quality is also reflected in the credit costs, which I will cover later. As at December 31, 2022, the Corporation carried a provision of INR13,274 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, which is principal plus interest of INR6,01,765 crores is broken up as follows. Stage 1 loans constitute 94.5% of the total loans. Stage 2 is 3.7% and Stage 3 is 1.4%.

We have seen a very sharp 3.7 percentage point reduction in the aggregate of Stage 2 and Stage 3 assets from the peak of 9.2% in June last year to 5.5% of the exposure at default over the last six quarters. In fact, in the current financial year itself, we have seen a 120 basis points reduction in the aggregate of Stage 2 and Stage 3 assets from 6.7% in March 2022 to 5.5% in December 2022.

During the quarter, we have charged the profit and loss account with a sum of INR370 crores towards provisioning. The aggregate charge to the profit and loss account for the nine months is INR1,357 crores. The ECL to EAG coverage ratio for Stage 2 assets is now 25% and for Stage 3 is 56%. The provisions carried as a percentage of DAD amounted to 2.21%. As a result of the improvement in asset quality over the last six quarters, annualized credit cost for quarter 3 was 22 basis points, down from 33 basis points and 29 basis points during quarter 1 and quarter 2 of the current year respectively.

Credit cost for the nine-month period now stand at 28 basis points on an annualized basis. We have stated in an earlier earnings calls that as asset quality related issues kept resolved, we assured over a period of time be able to normalize the credit costs to pre-COVID levels on a sustainable basis. This in turn will have a very positive impact on the return on equity.

Let me now come to investments. We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all other subsidiaries and associate companies at the original cost of acquisition, which is the price we had paid by making those investments. These investments are not accounted for on a fair value basis. If we were to mark to market the listed investments as at December 31, 2022, the unrealized gain, that is the unrecognized gain, which is the difference between the market price on December 31, 2022 and the carrying cost would be INR2,55,883 crores. This unrecognized gain is not part of our net worth nor has it been considered in our capital adequacy calculations.

Our capital adequacy ratio on December 31, 2022 stood at 23.7% of which Tier 1 capital is 23.2% and Tier 2 capital is 0.5%. The capital adequacy is well above the regulatory requirement. At this stage, it is important to talk of return on equity. Under the Ind AS accounting norms, net worth includes certain items, which do not form part of Tier 1 capital under the prudential regulations. These include Ind AS transition reserve, deferred tax liability on special reserve, fair value gains on investments through OCI, investments in subsidiaries and associates, in excess of 10% of net worth.

Also securitization gains recognized upfront in accordance with the Ind AS requirements. These items aggregate to INR22,193 crores. Hence, Tier 1 capital is INR1,07,046 crores as against the reported net worth in December 2022 of INR1,29,239 crores. A more appropriate way of calculating the return on equity would therefore be on Regulatory Tier 1 capital as against the conventional method of computing the return on equity on net worth. Annualized return on equity based on Tier 1 capital for the nine months ended December 31, 2022 stood at 15.4%.

During the quarter, 600 warrants were converted into 600 shares of the Corporation, at a price of INR2,165 per share. The last date for conversion of warrants is August 10, 2023. As at December 31, 2022, the Corporation’s total borrowings amounted to INR5,43,664 crores. Term loans including the external commercial borrowings of USD1.5 billion equivalent drawn in the current year, which I referred to earlier and refinanced from the National Housing Bank accounted for 27% of the borrowings.

Market borrowings that is NCDs and commercial paper accounted for 43% of the borrowings. Deposits outside as at the quarter end amounted to INR1,61,521 crores and constitute 30% of the borrowings. It is important to mention here that while the deposit level has remained steady, retail deposits now constitute as much as 70% of total deposits as compared to 62% in March of 2022. We continue to encourage retail deposits and retail deposits have grown 14% during the current year. During the earlier part of the year, we had raised wholesale deposits spending — withdrawal of ECB of USD1.5 billion. These deposits have been repaid on maturity. Wholesale deposits are generally shorter term in nature and are not as attractive as they used to be on account of the liquidity coverage ratio acquired.

I will now move to the statement of profit and loss account. The [Technical Issues] had seen a volatile interest rate environment, as I mentioned earlier, and therefore, some of the numbers of the current year are not strictly comparable with the previous year. There are certain factors which have affected the profits of the current year. These are, first is impact on net interest income due to the transmission lag between increase in funding costs and increase in lending rates.

Secondly, due to volatility, equity markets, we had a loss on fair value of investments through the profit and loss account as compared to a gain in the previous year. Thirdly, the expense ratios are higher as we incurred expenses upfront on staffing IT, then branching to meet the increasing demand for housing loans. There was also an increase in legal expenses due to an increase in business as well as resolution of some stressed assets. Needless to add, whilst these expenses have been incurred upfront, the benefit of these expenses will accrue over the coming periods.

Let me first of all, speak of the issues which have had an impact on the net interest income. In the nine months of FY 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, RBI increased the repo rate 5x since May 2022 in all aggregating to 225 basis points. The last increase of 35 basis points was on December 7, 2022. In the run-up to the expectation of the rate hike, market rates and swap rates increased and this had an impact on our borrowing costs. We have increased our lending rates in response to this hike by a similar 35 basis points with effect from December 20, 2022.

Therefore, the benefit of this hike will be received over the next quarter, whilst the cost remains unchanged assuming there is no further change in interest rates. Thus, whilst we’ve had an immediate impact on borrowing costs, the lending portfolio tends to reprice over a period of one quarter. This transmission lag has had a slight short-term impact on the NII growth for this period, this should be regularized over the coming periods. Lastly, the proportion of the retail loan book, has increased to 82% over the last few quarters. While return on equity on both the retail and the non-individual business is almost similar, the spread on loan individual loans are higher because of the fact that these non-individual loans carry a higher capital allocation requirement and also have higher credit costs.

Net interest income purely on the basis of interest without taking a cognizance of the profit on sale of loans during the quarter ended December 31, 2022 amounted to INR4,840 crores compared to INR4,284 crores in the corresponding quarter of the previous year, a growth of 13%. For the nine months ended December 31, 2022, the net interest income amounted to INR13,926 crores, compared to INR12,519 crores in the corresponding period of the previous year. If we adjust for the one-time 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 for this period would have been 17%.

On the positive side, it is important to note that credit costs are lower on a sequential basis as a result of improved credit quality. We have always targeted a net interest margin of between 3.3% and 3.5%. I’m happy to inform you that after a couple of quarters of reported net interest margin at 3.4%, the net interest margin for the quarter and the nine months ended December 31, 2022 both stood at 3.5%. This is an improvement over the last two quarters and reflects on our ability to manage the transmission lag to it.

The spread on loans over the cost of borrowings for the nine months ended December 31, 2022 was 2.29%, the spread on the individual loan book was 1.91% and on the non-individual book was 3.69%. Income earned from deployment of surplus funds in cash management schemes of mutual funds and government securities was much lower at INR172 crores as compared to INR329 crores in the corresponding period of the previous year. This was due to average levels invested this year in liquid funds at INR4,507 crores as compared to INR13,549 crores in the corresponding period in the previous year. With the introduction of the liquidity coverage ratio in December 2021, the Corporation’s liability is largely held in — I’m sorry, the Corporation’s liquidity is largely held in government securities.

The government securities and liquid fund holding as of December 31, 2022 is around INR56,000 crores. The average level of liquidity held during the quarter was INR51,000 crores. There was no profit on sale of investments during this quarter. However, there was a profit of INR184 crores on sale of investments during the nine-month period compared to INR263 crores in the same period last year. Dividend received during the quarter was INR482 crores, compared to INR195 crores in the corresponding quarter of the previous year. During the nine months of this year, we earned INR2,528 crores by way of dividend income as compared to INR1,400 crores in the corresponding period of the previous year.

Dividend during the year was received predominantly from our group companies. Largely owing to volatility in equity markets during the quarter ended December 31, 2022, foreign investments classified as fair value through profit and loss account, there is a debit to the profit and loss account of INR62 [Phonetic] crores has against the net gain of INR124 crores in the corresponding quarter of the previous year. For the nine months for investments classified as fair value through profit and loss account, the net gain on fair value changes stood at INR89 crores, which is significantly lower when compared to INR672 crores in the corresponding period of the previous year.

On the Indian 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 include an amount of INR176 crores compared to INR329 crores during the same period in the previous year. For the period ended December 31, 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 technology and legal costs also contributed to the increase in the cost income ratio. We expect the cost income ratio to remain in single digits for the year. For the nine months ended December 31, 2022 the standalone profit before tax was INR14,616 crores compared to INR12,624 crores in the previous year, giving a growth of 16%. Tax provision during the nine months ended December stood at INR2,802 crores, compared to INR2,582 crores in the previous year. The standalone profit after tax for the nine months stood at INR11,814 crores compared to INR10,042 crores in the previous year, a growth of 18%.

For the quarter ended December 31, 2022, the standalone profit before tax was INR4,612 crores compared to INR4,048 crores in the third quarter of the previous year, a growth of 14%. Tax provision for the third quarter amounted to INR921 crores, compared to INR787 crores in the third quarter of the previous year. The standalone profit after tax for the third quarter stood at INR3,691 crores compared to INR3,261 crores in the third quarter of the previous year resulting in a growth of 13%. Pre-tax return on average assets was 3.0%, post-tax return on average assets was 2.4%. The basic and diluted EPS on a face value of INR2 per share was INR64.9 and INR64.5 respectively. The consolidated profit before tax for the nine months stood at INR22,826 crores as compared to INR20,195 crores in the corresponding period last year.

After providing INR3,131 crores for tax, the consolidated profit after tax for the period stood at INR19,695 crores as compared to INR17,150 crores, a growth of 15%. The profit attributable to the Corporation was INR18,537 crores as compared to INR16,136 crores in the previous year, a growth of 15%. As at December 31, 2022, the Corporation had 3,925 employees. Total assets per employee stood at INR171 crores, annualized net profit per employee was INR4 crores compared to INR3.8 crores during the same period in the previous year.

Let me spend a couple of minutes to give you an update on the merger. As you are aware, on April 4, 2022, the Board of Directors of HDFC Limited and HDFC Bank Limited approved a composite scheme of amalgamation of HDFC with HDFC Bank, subject to requisite approvals from various regulators, statutory, authority, shareholders and creditors.

Under the scheme — upon the scheme becoming effective, the subsidiaries associates of the Corporation would become subsidiaries 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 various authorities, the Competition Commission of India had approved the proposed amalgamation. Further, the National Company Law Tribunal, that’s the NCLT Mumbai branch had passed an order in the matter of the amalgamation pursuant to which a meeting of the shareholders of the Corporation was convened in this quarter on November 23, 2022, the resolution approving the scheme of amalgamation was sparked by 99.9% of the shareholders voting in favor.

The final hearing of NCLT is scheduled to be held tomorrow, which is February 3, 2023. Clarification from RBI on the various requested dispensations, grandfathering of assets and liabilities and shareholder limits in subsidiaries and sustainability. HDFC’s distribution network spans 724 outlets, which include 213 offices of HDFC’s wholly-owned distribution company, HDFC Sales Limited. HDFC covers additional locations through its outreach programs. We continue to engage with all our stakeholders on ESG. Our ESG reports are on our website, including a recent report, which is an introductory framework on climate-related financial disclosures.

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 focused primarily on healthcare, education, persons with disabilities and environmental sustainability. CSR activities were conducted either directly or through the HT Parekh Foundation. The CR — CSR spend during the nine months was INR161 crores.

In conclusion, let me also state that we’ve been happy to receive first few awards in this quarter. We won the award for the Best Performing Housing Finance Company for CLSS under the Pradhan Mantri Awas Yojana by the Ministry of Housing and Urban Affairs, and the 19th Inclusive Finance India Awards, the Corporation was awarded, the Jury’s Special Award for Contribution to Financial Inclusion, and the Business Transformation Leaders Awards by Mint and TechCircle, the Corporation was declared the winner for Project DASH, which is Digital Agile Seamless Home Loans, marking its digital transformation trend. The above are some of the highlights of the results for the period ended December 31, 2022.

You may now proceed to question-and-answers. I would request you to kindly introduce yourself and be brief with the questions.

Questions and Answers:

Operator

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

Suresh Ganapathy — Macquarie Group — Analyst

Yeah, hi. Keki, I have two questions, both on your loan growth and deposit growth. And first on deposit growth, the share of retail deposits, as you said, has gone up from 62% to 70% year till date, which means that you have — if I were to calculate it backwards, the net accretion has been INR13,000 crores of retail deposits, so over the nine-month period. I’ve heard, of course, you guys have launched the Sapphire deposit in the previous quarter. Can you let me know how much mobilization you did through that deposit, and on a Q-o-Q basis, what would have been the retail deposit accretion? This INR13,000 crores is a nine-month number, but I also want to know the Q-o-Q number.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right.

V. Srinivasa Rangan — Executive Director

On the Sapphire alone, I think it was around INR10,000 crores, that is what we mobilized from the launch of Sapphire to the [Technical Issues].

Suresh Ganapathy — Macquarie Group — Analyst

Okay. But Rangan, the total mobilization is still at INR13,000 crores in retail on a nine-month basis. If I take 70% of the current deposit base and I take 62% of March ’22 number, the absolute difference comes out to be only INR13,000 crore and you’re saying INR10,000 crore alone you have got from Sapphire. So some of the numbers are not tallying. So…

Unidentified Speaker —

So, Suresh, just to — it may not tally because there would be some repayments, which could have got converted. So it’s not right to look at it from that perspective. But to answer your question as to how much of — what was the net accretion to retail deposits in the third quarter, it’s about INR5,750 crores.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

V. Srinivasa Rangan — Executive Director

In the quarter.

Unidentified Speaker —

In the quarter. In the quarter.

Suresh Ganapathy — Macquarie Group — Analyst

In the quarter. 3Q over 2Q, net accretion is INR5,750 crores and the nine-month number is INR13,000 crores. Okay, fine. So that’s based on the calculation. Now my point here is this, can the 70% go to 80%, I mean because of the fact that you might have to do more corporate deposit run down. Is that the outlook going forward? Because on an absolute — if I were to look at on a total deposit base, the Q-o-Q decline has been minus 1% and Y-o-Y has only been 4%, right? So can this continue in the coming quarters also because of the LCR requirements and — yeah.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yeah. So, Suresh, it’s not that there is no availability of corporate deposits. There is a very large availability of corporate deposits, which typically we have kept turning down. And the only reason we kept turning it down because of the LCR requirement, if you have a short-term deposit, there is a very large LCR requirement that comes in. Now incrementally, we could look at probably maintaining a similar kind of a ratio by the end of the financial year.

V. Srinivasa Rangan — Executive Director

Yeah. At the same time, if there are corporate deposits — see, unfortunately, there are these corporate deposits, lot of them, they come with a withdrawal option actually. A withdrawal option doesn’t work too much regularly on an LCR basis. That’s why [Technical Issues] been going a little bit thing, but wherever we could get the money on the basis of non withdrawability or a limited withdrawability sort of clauses, so there we are open to actually — we are actually accepting the deposits. But through withdrawability for a very short term, it doesn’t really makes sense actually.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

See, the reason is that [Indecipherable] will not withdraw money. I mean this is a historical experience over the last 30 years, 35 years. In actual practice from a LCR perspective, [Technical Issues] in the first bucket, just because it is withdrawing the deposit, which then defeats the — it becomes very expensive from a LCR requirement. That’s the reason why we are discouraging it. But we will try to pursue it more of the companies to give us deposits if we need — if at all, we need, where they don’t have this withdrawable option, because in reality, this withdrawable option is rarely, rarely, actually, rarely if ever exercised.

Suresh Ganapathy — Macquarie Group — Analyst

Okay. Now the corresponding question is on the loan side of the balance sheet. So again, there, we have seen a rundown of the corporate book ahead of preparing yourself out of the merger because of certain non-compliant loans. Now again, the number is minus 6% Y-o-Y and 5% Q-o-Q, whatever is the right word. So, and the point here is again, how much can you see this going down? I mean, is there a quantification that you can give that this is the proportion of loans which cannot be taken on HDFC Bank balance sheet and consequently, that is a rundown that we’re expected to see?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So, Suresh, for most of the loans that we had, we have gone to RBI and we sought RBI that these loans were permitted under the NHB guidelines, RBI guidelines, which apply to banks are different and therefore, you grandfather these — grandfather these loans. As I mentioned to you, we still haven’t heard from RBI. Now, hopefully, in the coming quarter, we should hear from RBI, if RBI grandfathers this requirement, then we don’t have to run this down, but for example, there are certain loans, which came up for maturity. And on maturity, we took that money back, we took the loan back.

And the reason we took the loan back and did not give a fresh loan, even though that company may have wanted it, it’s simply because those loans may not have fitted into the RBI and to the banking structure under the RBI. So difficult to give a percentage. But my sense is, as I said, I think we mentioned in the call also, there is a reasonably good pipeline of a lot of construction finance loans that is there with us. But as I’ve been explaining time and again, in a construction financial loan whilst the loan maybe given [Technical Issues] disbursement for that loan is linked to the progress of construction. So you disburse the loan as the project gets constructed.

Now typically, a real estate can run for three years, four years, five years, six years. So typically, what would happen is loans which would have got approved in 2018, 2019, 2020 would be the loans which will be getting disbursed now. Now the period of 2018, 2019, 2020 was a period when there was a slowdown in the real estate sector, which you are aware of, which we [Technical Issues] time and again. The pickup in the real estate market really started in latter part of 2020 and not so in 2021.

So there is therefore, a good pipeline of these loans coming in, but disbursement for these loans may not happen in the third quarter and the fourth quarter of the financial year, may get some of this — a lot of this mainly get disbursed over the next year.

Suresh Ganapathy — Macquarie Group — Analyst

Okay. I think this is — can I squeeze in one more question?

Unidentified Speaker —

Sure.

Suresh Ganapathy — Macquarie Group — Analyst

Yeah. So the retail AUM growth has shown a marginal downtick from 20% last couple of quarters come down to 18%. Not trying to nitpick here, but is there some impact of rising rates because they have gone up 200 basis points on the bottom slowly getting felt here for this Q-o-Q decline, sorry, slower lowdown? Yeah, yeah.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yeah. So, Suresh, I would attribute it to two factors, primarily just you can add rate if you want as a third factor. But the two main factors is that if you look at the first half of last year, and I’m talking of April 2021 to September 2021, the first quarter in particular, April, May, June was significantly impacted because of the second wave. [Technical Issues] And because of that disbursements in that period were relatively low.

Suresh Ganapathy — Macquarie Group — Analyst

Okay.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So, therefore, we — [Technical Issues] relatively lower loan book growth. Now we are comparing our growth into the third quarter with growth in the third quarter of last year, by which time complete normalcy had prevailed. So this goes to my mind, the primary reason why you would see [Technical Issues]. So this — the decline is 20% [Phonetic] to 18.3% [Phonetic] or 18.4% [Phonetic]. But the other is also that we had Diwali and Dussehra in the months of October. As mentioned earlier, we saw relatively lesser disbursements in October and November than what we have seen in September. But having said that December was a normal month. So things picked up from November — sorry from December.

Suresh Ganapathy — Macquarie Group — Analyst

Okay. This is very clear. Thank you so much. Yeah.

Operator

Thank you. We have our next question from the line of Mahrukh Adajania from Nuvama. Please go ahead.

Mahrukh Adajania — Nuvama — Analyst

Yeah, hi. So my first question was that what is the — now what is the size of infra bonds that could qualify, I mean the size of bonds that could qualify as infra bonds?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So the size of the bonds that are qualified, infra bonds with [Technical Issues] would now be to the tune of INR1,18,031 crores.

Mahrukh Adajania — Nuvama — Analyst

Okay, sorry. INR1,18,031 crores. Okay. And…

Keki M. Mistry — Vice Chairman and Chief Executive Officer

This number — this number, when we spoke, I think a few months ago used to be a little under INR1 lakh. So we’ve added more of these long-term bonds.

Mahrukh Adajania — Nuvama — Analyst

Correct. And my other question on numbers is that what would be the size of the SLR book now, total SLR?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

INR56,000 crores is that he said.

Mahrukh Adajania — Nuvama — Analyst

Got it, okay. And the other question is, of course, your loan growth has been good. There were some small base effect in October, November, which has corrected in December. But there are a few large banks that have seen some slowdown in home loan growth. So what do you think is the outlook for mortgage growth from here on?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

See Mahrukh, I would never [Technical Issues] this quarter, one quarter, one month high, one month low. There are seasonal factors which have an impact. But the reality of the matter is that [Technical Issues] have gone up, sentiments do get impacted to some extent, but the inherent demand for housing is very strong. What we find is that when interest rates go up, then typically, for the first 8 days to 10 days, we see [Technical Issues] in the number of new applications that we received.

But by the time, the 8 days or 10 days are over, the number of application reverts back to what they used to be before. So this is a temporary phenomenon. And because we’ve had such frequent increase in influenced rates, in this quarter, I think we have two, it could have some temporary impact in terms of — but I think, while interest rates stabilize and then 90% plus of any interest rate hike that could have happened has already happened, we should start seeing a steady underwriting growth.

Mahrukh Adajania — Nuvama — Analyst

Got it. And just one last question, Keki, in terms of these loans, which you have requested RBI to grandfather and hopefully, they should be in terms of what’s eligible for banks and what’s eligible for non-banks. Do you — could you quantify, would there be any rough quantum that you could share?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I won’t be able to give you a rough quantum, but there are things which are very, very small and fairly irrelevant things, like, for example, there could be cases of pledge of loan against shares for example, could be one category.

V. Srinivasa Rangan — Executive Director

So, Mahrukh, I think the — what has gone to RBI is in terms of the loan against shares and all, which are clearly the — not permitted in the bank beyond a certain limit. So those numbers are not more than INR5,000 crores, INR6,000 crores as I have told you in the past. And depending upon how [Technical Issues] comes in, either they will get grandfathered and they will get rundown over a period of time.

Mahrukh Adajania — Nuvama — Analyst

Okay. But we are still talking about that book only, right?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, we are talking of that.

V. Srinivasa Rangan — Executive Director

That is the book which we’re suggesting. The rest of the book is actually sort of, they don’t — I mean, all the construction finance and all that they are all permitted basically…

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So these are the differences between the regulations, the housing finance regulation permitted certain kinds of loans, the banking regulation does not. But as I said, we’ve asked RBI for grandfathering, and I would be hopeful that they would — normally in a merger grandfathering is usually done this time. But the point is that when these loans mature, we do not give a fresh loan or a new loan simply because if it doesn’t qualify in the RBI, we don’t want to have more to delete loans, which do not — which do not form into the banking regulations.

Mahrukh Adajania — Nuvama — Analyst

Got it. Okay, thank you. Thanks a lot.

Operator

Thank you. We have our next question from the line of Rahul Picha from Multi-Act PMS. Please go ahead.

Akshat Hariya — Multi-Act PMS — Analyst

Yeah, hi, this is Akshat here from Multi-Act. I had two questions. One, I wanted to get a hang on the restructured book, and wanted to understand what percentage of our restructured book has now started its repayment, and what would be our collection efficiency on that 0.7% of the book? And second, I wanted to know the disbursement figure for the quarter?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right. So the — this the OTR book that we had — I mentioned that in my initial comments. Our total OTR book now stands at about INR4,000 crores, which is roughly 0.7% of the loan — of the loan book, and a lot of these, the repayments would have started. The repayment terms were never changed.

Akshat Hariya — Multi-Act PMS — Analyst

Okay. So almost the entire book is repaying and our collection efficiency would be similar to that of the overall book?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I mean, more or less the same. It’s such a small amount, INR4,000 crores on a book of a [Indecipherable], it really doesn’t move the needle one way or the other. It might be marginally lower, but not significantly, but nothing which has become sort of very apparent.

Akshat Hariya — Multi-Act PMS — Analyst

Okay. Okay. And…

Unidentified Speaker —

And to answer your second question, disbursements is a little over INR40,000 crores for the quarter.

Akshat Hariya — Multi-Act PMS — Analyst

Okay. Thank you. That’s all.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Individual.

Unidentified Speaker —

These are retail loans.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Retail loans.

Akshat Hariya — Multi-Act PMS — Analyst

Yes, correct.

Operator

Thank you. We have our next question from the line of Nishant Shah from Millennium Capital Management. Please go ahead.

Nishant Shah — Millennium Capital Management — Analyst

Hey, hi, thanks for this. Just one data-keeping question, what is the proportion of the book that is eligible for priority sector lending today? And what is the pace that this book is growing by?

V. Srinivasa Rangan — Executive Director

See, on a outstanding basis, I think the last number which we rolled out was coming to around close to INR1,20,000 crores [Phonetic], the priority sector book — in our book. Net of the book sold actually. It doesn’t include the books…

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So this is loans given by HDFC, which would qualify as priority sector in a banking structure.

Nishant Shah — Millennium Capital Management — Analyst

Understood. And is this book growing faster than the rest of the book?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I mean, it’s going in more or less the same line as the rest of the book.

Nishant Shah — Millennium Capital Management — Analyst

Okay, all right, sure. And just one, I want to confirm if I got the number right. Infra bonds that you mentioned was INR1,18,000 crores?

V. Srinivasa Rangan — Executive Director

Correct.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yeah, INR1,18,000 crores.

Nishant Shah — Millennium Capital Management — Analyst

All right.

V. Srinivasa Rangan — Executive Director

These are bonds which have a original maturity of seven-year and above.

Nishant Shah — Millennium Capital Management — Analyst

Understood. Perfect, thanks. That’s it from me.

Operator

Thank you. We’ll take our last question from the line of Santosh Keshri from Keshri Wealth. Please go ahead.

Santosh Keshri — Keshri Wealth — Analyst

Hi, thank you for giving me a chance. Am I audible?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, yes, very much. Yeah. Yeah.

Santosh Keshri — Keshri Wealth — Analyst

Mr. Keki, just one question, after the NCLT hearing tomorrow, are we expecting — other than RBI, are we waiting for some other approval, some other big regulatory approval or it will all be done after that?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

There will — no, so there will be other processes and I’ll request my colleague, Rangan to talk about it. But basically the way it works, I’ll give you an example, we have an asset management company. Now through the asset management company we’ve raised money through thousands and thousands of lakhs of customers. Now under the SEBI rules, we have to write a note to each one of these unitholders and give them the option if they wish to withdraw their money, because the promoter of HDFC Asset Management will now be HDFC Bank and not HDFC Limited.

So in reality, no one is going to withdraw the money because of that because HDFC Bank and HDFC Limited are equally strong, but it is still a process, which has to be gone through. So there are processes like this, which are required by different regulators, but these processes, it’s more a formality rather than anything which will be an impediment to the merger or something, which will create a stoppage to the merger.

Santosh Keshri — Keshri Wealth — Analyst

Okay, got it. So other than this, nothing big like in terms of, one is NCLT, secondly, RBI?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

That’s correct. NCLT, RBI, RBI’s approval plus they have to give us a response to the fault there instead we have sought plus we have to write to all the stakeholders in SEBI.

V. Srinivasa Rangan — Executive Director

IRDA.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Then IRDA…

V. Srinivasa Rangan — Executive Director

IRDA will be one because there is a change of promoter there. So that will also be — obviously once RBI gives it, IRDA will also follow.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

But I must also say that all these regulators have given an in-principal approval or a no objection approval a few months ago. So therefore in that sense, there is no real reason, where anyone would delay things too much other than the certain processes which need to be followed.

Santosh Keshri — Keshri Wealth — Analyst

Yeah, exactly, yeah. So in-principal approval is there. Yes, I noted it. Thank you so much, Mr. Keki and the team.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Thank you very much. Thank you. Thank you.

Operator

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

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, thank you very much. And I can only say that the outlook for housing continues to be extremely strong. My sense is that the interest rates have now more or less peaked, you might see a 0.25% [Phonetic] rise in rates going forward, but I don’t see too much more than that. And therefore, I would say that the coming quarter and the quarter after that should continue start — market should start seeing a strong growth in the loan book. As far as non individual loans are concerned, the construction finance loans are concerned, as I told you, there is a reasonably decent pipeline, but the disbursements of these loans will be linked to the construction and therefore, may not happen in the initial quarter.

Operator

Thank you.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Thank you so much.

Operator

[Operator Closing Remarks]