Housing Development Finance Corporation Ltd (HDFC) Q4 2022 Earnings Concall Transcript

Housing Development Finance Corporation Ltd  (NSE: HDFC) Q4 2022 earnings concall dated May 2, 2022

Corporate Participants:

Keki M. Mistry — Vice Chairman and Chief Executive Officer

S. Rangan— Executive Director

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

Analysts:

Suresh Ganapathy — Macquarie — Analyst

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Shubhranshu Mishra — Systematix Group — Analyst

Adarsh Parasrampuria — CLSA — Analyst

Shweta Daptardar — Elara Capital plc — Analyst

Gurpreet Arora — Aviva Life India — Analyst

Subrat Dwibedy — SBI Life Insurance — Analyst

Kunal Thanvi — Banyan Tree Advisors — Analyst

Abhijit Tibrewal — Motilal Oswal — Analyst

Nischint Chawathe — Kotak Securities — Analyst

Aditya Jain — Citigroup — Analyst

Rahul Jain — Goldman Sachs — Analyst

Mayank Bukrediwala — Citadel LLC — Analyst

Ravi Naredi — Naredi Investments — Analyst

Unidentified Participant — — Analyst

Presentation:

Operator

Ladies and gentlemen, good afternoon and welcome to HDFC Limited Q4 FY ’22 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 Relations Officer, Mr. Conrad D’Souza; and General Manager, Ms. Anjalee Tarapore.

I now 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

Good afternoon, everyone. At the outset here, I would like to welcome all of you to HDFC’s earning call for the current financial year. The Board of Directors at its meeting held earlier today approved key financial results for the year and the quarter ended March 31, 2022, which were subjected to an audit. Over the next few months — few minutes, I will give you a quick summary of the highlights of the performance.

As I had mentioned in our earlier earnings call, business during the first half of the year was partially disrupted as a result of the second wave. We, however, saw a sharp recovery in the second half of the year. The third wave in January 2022 saw a rise in infections, but with lesser severity and disruption was minimal. Consequently, we had a strong growth during the quarter ended March 2022.

The following were the main highlights of the fourth quarter. RBI has continued to ensure that there is adequate liquidity in the system and we generally had stable interest rates during the quarter. In the fourth quarter, we have seen a slight uptick in interest rates consequent to which we have increased deposit rates as well as rights on our non-individual loan products.

The inflation trajectory was within the RBI’s comfort zone. RBI had on November 12, 2021 issued guidelines on harmonizing NPAs across the financial system. On February 15, 2022, RBI clarified that the applicability of the revised NPA norms will be from September 2022. We have, however, continued to report NPAs under the new norms based on the November 12, 2021.

Operator

Ladies and gentlemen, please stay connected. The line for the management dropped. [Technical Issues] Ladies and gentlemen, thank you for your patience. We have the line for the management reconnected. Sir, you may go ahead.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, I’m sorry. There were some technical glitch. So let me start from where I left off. RBI head on November 12, 2021 issued guidelines on harmonizing NPAs across the financial system. On February 15, 2022 RBI clarified that the applicability of the revised NPA norms will be from September 2022. We have, however, continued to report NPAs under the new norms issued on November 12, 2021. Liquidity coverage ratio became applicable from December 1, 2021. This has resulted in higher levels of liquidity carried during the second half of the year.

Let me start by quickly summarizing the progress of our business through the quarter. Our individual loan approvals for the year ended March 31, 2022 were higher by 38% compared to the corresponding period in the previous year. For the year ended March 31, 2022 individual loan disbursements grew by 37% over the corresponding period in the previous year.

Individual loan disbursements in the fourth quarter were 18% higher compared to the corresponding period in the previous year and was sequentially 21% higher than during the third quarter. Similarly, individual loan approvals were 24% higher than in the corresponding quarter of the previous year.

It is important to note here that during the third and fourth quarters of the previous year, we had the reduction in stamp duties in Maharashtra, which had resulted in substantial growth during that period. The month of March 2022 saw the highest monthly individual disbursements ever in HDFC’s history at INR20,944 crores. Housing disbursements constitute 94% of individual disbursements during the financial year. Growth in home loans were seen in both the affordable housing segment as well as in the middle and high-income groups. 91% of new loan applications were received through the digital channels.

During the fourth quarter, we sold individual loans aggregating to INR8,367 crores. The total loans sold during the year ended March 31, 2022 amounted to INR28,455 crores. 99% of these loans were assigned to HDFC Bank pursuant to the mortgage sharing agreement with the bank. Besides individual loans, the corporation also assigned INR1,500 crores of standard non-individual loans during the quarter.

Individual loan growth on an AUM basis was 17%. If the loans amounting to INR28,455 crores had not been sold during the preceding 12 months, then the growth in the individual loan book would have been 25%. Our individual loan book increased to INR4,31,533 crores, a growth of 17% over the previous year. In addition to this, the loans securitized by the corporation and outstanding as on March 31, 2022 amounted to INR83,880 crores. HDFC continues to service these loans. Individual loans outstanding on an AUM basis amounted to INR5,15,433 crores.

With regard to the non-individual portfolio, we have seen a pickup in the book during the fourth quarter. We presently have a strong pipeline of construction [Technical Issues] as well as in the lease rental discounting segment. And as I had mentioned during the last quarter’s earnings call, we have seen a strong Q4 for the non-individual portfolio.

As at March 31, 2022, our non-individual loan book grew by 7% on an AUM basis compared to the previous year and by 6% sequentially from December 2021 to March 2022. The overall loan book is now INR5,68,363 crores, a growth of 14%. The total assets under management as at March 31, 2022 amounted to INR6,53,902 crores as compared to INR5,69,894 crores in the previous year, a growth of 15%. If no loans had been sold during the preceding 12 months, then the growth in the total loan book on an AUM basis would have been 20%.

Prepayments on retail loans for the current year on an annualized basis amounted to 10.3% of the opening loan book, which is the same as it was in the previous year. The average size of individual loans for the year ended March 31, 2022 stood at INR33 lakhs as compared to INR29.5 lakhs in the previous year. The contribution from the higher income group defined as customers with an annual family income of INR18 lakhs or more has increased during the year to 45% from 40% during FY 2021.

Our trust on affordable housing loans continued. During the year ended March 31, 2022, 29% 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 EWS segment amounted to INR11.2 crores and to customers in the LIG segment amounted to INR19.7 lakhs.

If we break up the loan book outstanding on March 31, 2022 on an AUM basis into different categories, then individual loans constituted 79% of the total loan book as compared to 77% in the previous year. Construction finance constituted 9% of the total loan book, lease rental discounting loans constituted 7% of the total loan book while corporate loans constituted 5%.

If you were to look at the incremental loan book growth and split that growth between individuals and non-individuals, then for the quarter ended March 31, 2022 the ratio of growth in individual loans versus non-individual loans would be 78% individuals and 22% non-individuals. For the year ended March 31, 2022, the ratio of incremental growth in the loan book, 88% individuals and 12% non-individual. So clearly you can see the pickup in the fourth quarter.

98% of the loans were sourced through distribution channels. However, this is largely through HDFC Sales, a 100% subsidiary of HDFC and through HDFC Bank. HDFC Sales accounted for 52% of the loans sourced while HDFC Bank accounted for 28%. Third-party DSAs accounted for 18%. That 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 dependament. Under ECLGS 1, 2 and 3, we have approved an aggregate amount of INR2,216 crores, of which INR1,747 crores has been disbursed by March 2022. Amounts disbursed under this facility are guaranteed by the central government. The Reserve Bank of India permitted a one-time restructuring of loans under its resolution for COVID-19 related stress. Out of the total restructured loans, just one non-individual account constituted as much as INR2,764 crores. And I’m happy to mention that in the last quarter, we have recovered the entire exposure against this account.

As at March 31, 2022, the outstanding loans under OTR 1 and OTR 2 amount to INR4,572 crores, which is equivalent to 0.80% of the loan book as compared to a peak of 1.4% in September of 2021. 98% of the OTR loans are in the individual loan category. The overall collection efficiency for individual loans has improved significantly in the fourth quarter.

The average collection efficiency for individual loans on a cumulative basis, I repeat this is cumulative basis, over the last quarter is over 99%. RBI had on November 12, 2021 issued guidelines on harmonizing NPAs across the financial system. Subsequently, RBI has deferred the effective date of the applicability of these guidelines to September 2022. We have, however, continued to report NPAs for the quarter ended March 31, 2022 in accordance with the revised RBI circular of November 12, 2021.

As of March 31, 2022 calculated under these new norms, gross non-performing individual loans stood at 0.99%, down from 1.44% in December 2021 while gross non-performing non-individual loans stood at 4.76%, down from 5.04% in December 2021. As per the new regulatory norms, the gross non-performing loans as of March 31, 2022 stood at INR10,741 crores equivalent to 1.91% of the loan portfolio, down from 2.32% in December 2021.

Based on the earlier method of calculating NPAs prior to the RBI circular, individual NPAs as at 31st March would have been 0.78%, which is 21 basis points lower than under the new method. While total gross non-performing loans in the aggregate would have been 1.74%, which is 17 basis points lower than under the new method. As at March 31, 2022 we carried a total provision of INR13,506 crores. Under Ind AS accounting, both asset classification and provisioning have moved from the incurred loss model to the expected growth loss volume.

Based on this model, the total exposure at default of INR5,67,927 crores is broken up as follows, Stage 1 is 93.3%, Stage 2 is 4.4% and Stage 3 is 2.3%. So as you can see, we have seen a 2.5 percentage point reduction in the aggregate of Stage 2 and Stage 3 assets from the peak of 9.2% in June 2021 to the current level of 6.7% of the exposure at default in March 2022.

During this quarter, we have charged a profit and loss account with a sum of INR401 crores towards provisioning. The aggregate charge to profit and loss account for the year is INR1,932 crores. The ECL to EAD coverage ratio for Stage 2 assets is now 20% and for Stage 3 is 54%. The provisions carried as a percentage of the EAD amounts now to 2.38%. Annualized credit cost for quarter four was 26 basis points compared to 50 basis points during quarter one, 32 basis points during quarter two and 27 basis points during quarter three.

For the year ended 31st March 2022, the total credit cost amounted to 33 basis points, down from 56 basis points in the previous year. As asset quality related issues normalize over time, we should over the next few quarters be in a position to further normalize the credit cost to pre-COVID levels. This in turn will have a positive impact on the return on equity.

We continue to hold all our investments in HDFC Bank, HDFC Life, HDFC Asset Management and all our other subsidiaries and associated companies at the original cost of acquisition, which is the price we have paid whilst making those investments. These investments are not accounted for on a fair value basis.

If we were to mark-to-market the listed investments, as at March 31, 2022, the unrealized gain, which is the difference between the market price on March 31, 2022 and the carrying cost, would be INR2,34,246 crores. This unrecognized gain is not part of our network nor has it been considered in our capital adequacy calculations.

Our Tier 1 capital as of March 31, 2022 stood at INR98,024 crores. Risk-weighted assets as of that date amounted to INR4,41,000 crores. Accordingly, the capital adequacy ratio is 22.8% for Tier 1 and 0.6% for Tier 2. This capital adequacy is well above the regulatory requirement.

At this stage, it is important to talk about return on equity. Under the Ind AS accounting requirement, net worth includes certain items which do not form part of Tier 1 capital under the potential norms. These include Ind AS transition reserve, deferred tax liability and special reserve, fair value gains on investments to OCI, investments in subsidiaries and associates in excess of 10% of net owned funds, securitization gains recognized upfront in accordance with the Ind AS accounting requirement. These items aggregate to INR22,227 crores. Hence, Tier 1 capital is INR98,024 crores as against the reported net worth of INR1,20,251 crores.

A more appropriate way of calculating the ROE would therefore be on regulatory Tier 1 capital as against the conventional method of computing it on total net worth. Annualized return on equity on Tier 1 capital for the year ended March 31, 2022 stood at 15%. As at March 31, 2022, the corporation’s total borrowings amounted to INR4,88,681 crores. Term loans, including external commercial borrowing and refinance from NHB, accounted for 28% of these borrowings.

Market borrowings, that is NCDs and commercial paper, accounted for 40%, while deposits at the end of the quarter amounted to INR1,60,900 crores and constituted 32% of the borrowings. 67% of the deposits were onboarded digitally. Before I get to the net interest income, let me outline issues which would have an impact on the NI. In the second half of the current year — current quarter, RBI has introduced a liquidity coverage ratio, which needs to be invested in high quality liquid assets.

We, therefore, have a higher liquidity buffer as compared to the previous year. Secondly, the interest earned on net worth in the current year is lower than the previous year due to lower interest rates. Thirdly, in the current year, the proportion of retail loans has increased from 77% to 79%.

Net interest income purely on the basis of interest without taking cognizance of the profit and sale of loans during the year ended March 31, 2022 amounted to INR17,119 crores compared to INR14,970 crores in the previous year. The net interest income calculated in a similar manner for the quarter ended March 31, 2022, was INR4,601 crores compared to INR4,027 crores in the corresponding quarter of the previous year, which is a growth of 14.3% and this is despite the higher level of liquidity we now carry.

The sequential growth in net interest income during the fourth quarter compared to the third quarter was 7%. The sequential growth in the loan book during the same period, which is fourth quarter compared to the third quarter was 5.4%. Net interest margin for the year ended March 31, 2022 stood at 3.5%, same as in the previous year. The spread on loans over the cost of borrowing for the year stood at 2.29%. The spread on loans during the previous year was a similar 2.29%.

Income deployed — income earned from deployment of surplus funds in cash management schemes of mutual funds and government securities was much lower at INR561 crores as compared to INR813 crores in the previous year. This was due to average level invested this year in liquid funds at INR11,800 crores as compared to INR21,700 crores in the previous year as also due to lower return on liquid funds during the year. There was no profit on sale of investments during the fourth quarter.

During this year, the corporation has booked profit on sale of investments amounting to only INR263 crores compared to INR1,398 crores during the previous year. Under Ind AS accounting standards, the stock options granted to employees are measured at fair value of the options on the date of the grant. This fair value is accounted for as employee compensation cost over divesting period of the options. Accordingly, employee benefit expenses for the year includes a charge of INR390 crores compared to INR338 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 year ended March 31, 2022 the cost-income ratio stood at 8.1%. For the year ended March 31, 2022, the standalone profit before tax was INR17,246 crores compared to INR14,815 crores in the previous year, a growth of 16.4%.

Tax provision during the year ended March amounted to INR3,504 crores compared to INR2,788 crores in the previous year. The tax rate for the year was 20.3%. The stand-alone profit after tax for the year stood at INR13,742 crores compared to INR12,027 crores in the previous year. For the quarter ended March 31, 2022 the standalone profit before tax was INR4,622 crores compared to INR3,924 crores during the fourth quarter of the previous year, a growth of 17.8%.

The standalone profit after tax for the fourth quarter stood at INR3,700 crores compared to INR3,180 crores in the fourth quarter of the previous year, representing a growth of 16.4%. Pre-tax 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 was INR76.01 and INR75.20 respectively.

The consolidated profit before tax for the year stood at INR28,252 crores as compared to INR24,237 crores during the previous year, a growth of 17%. After providing INR4,210 crores for tax, the consolidated profit after tax for the year — for the period stood at INR24,042 crores as compared to INR20,488 crores, a 17% increase over the previous year. The profit attributable to the corporation was INR22,595 crores as compared to INR18,740 crores in the previous year, an increase of 21%.

The Board of Directors after assessing the capital buffers and liquidity levels have recommended a dividend of INR30 per equity share of INR2 each as compared to INR23 per share in the previous year. The dividend payout ratio is 39.6%. As at March 31, 2022 we had a total of 3,599 employees and 97% of our staff has been vaccinated. Total assets per employee stood at INR173 crores and net profit per employee stood at INR3.8 crores.

Let me now spend a few minutes to give you an update on the merger. As you are aware, on April 4, 2022 the Board of Directors of HDFC Limited and HDFC Bank Limited approved a composite scheme of amalgamation of HDFC with HDFC Bank subject to requisite approvals from various regulatory and statutory authorities, respective shareholders and creditors. Upon the scheme becoming effective, the subsidiaries and associates of the corporation would become subsidiaries and associates of HDFC Bank. HDFC Bank will then be 100% owned by public shareholders and existing shareholders of HDFC will own 41% of HDFC Bank.

A question which a lot of people ask is why now? We have, over the years from time to time evaluated the option of merging HDFC and HDFC Bank. However, in the past we found the cost of a merger to be high and hence did not proceed further.

In recent years, however, there has been a series of regulatory changes, which now makes the merger extremely attractive. Some of these changes have been as follows. Firstly, the requirement to maintain CRR and SLR has been progressively reduced over the years to a current level of 22%. Secondly, interest rates are lower today so the negative carry, if any, on meeting any regulatory requirements of liquidity is much lower. Thirdly, RBI now permits banks to hold priority sector lending certificates. These certificates are instruments that enable banks to achieve their priority sector lending targets without actually disbursing the loans.

Fourthly, HDFC presently has non-convertible bonds of nearly INR90,000 crores, which had an original maturity of over seven years. Subject to RBI approval, these bonds would qualify as affordable housing bonds and consequently would not carry CRR, SLR or PSL requirement. Fifthly, there has been a harmonization of the regulations governing NBFCs and banks. Consequent to the introduction of the liquidity coverage ratio, we now carry significantly higher levels of liquidity than before.

The merger will benefit the shareholders of both HDFC and HDFC Bank as follows. The merger will provide the combined entity with a host of synergies, lower cost of funds will be made available for the mortgage business. The mortgage business has immense potential and hence the merger will help the group enhance its market share consequently leveraging on the distribution network of HDFC Bank. The bank will have access to the time-tested mortgage origination and loan servicing processes of HDFC, which have been built up over the last 40-plus years. The combined entity will be in a position to enhance operational efficiencies and offer the mortgage product seamlessly as against the current arrangement between HDFC and HDFC Bank wherein the bank sources mortgages and acquires a predetermined percentage of the loans sourced through the assignment route.

As per our estimate, 70% of the customers of HDFC and its subsidiaries do not bank at HDFC Bank and hence, the merger will provide the ability to cross-sell banking products to this large pool of customers. Presently the bank does not source housing loans from all their branches, but only from those branches which are within close proximity of the HDFC office. Post completion of the merger, progressively more and more of the branches of HDFC Bank will source housing loans. The merger will enable the delivery of the home loan offering to a large base of over 68 million customers of HDFC Bank in a seamless manner. Today just 8% of the bank’s customers have a mortgage product and just 2% of the customers have a mortgage from HDFC.

Also under the banking structure, the features of a mortgage product can be enhanced in terms of product design, etc. Apart from the synergies mentioned above, the value of HDFC will not be depressed by the holding company discount so far as it relates to the shares of the bank. The unrealized gain on HDFC Bank shares as of March 31 amounted to INR157,118 crores. HDFC does not get full credit for this and the market typically applies a holding company discount, which in some cases is as high as 40%.

Consequent to the merger, the holding company discount will not be there and this by itself should add over INR62,000 crores to the market capitalization of the combined entity. The holding company discount will go away in as far as it relates to the shares of HDFC Bank. Thirdly, post the effective date, HDFC shareholding of 21% in HDFC Bank will be canceled. This will open up a potential leg room of over 10% of further holding for FBIs in HDFC Bank. The cancellation will also be EPS accretive for the combined entity.

Fifth — or fourthly, the mortgage product will increase the asset duration of the bank’s retail book. HDFC Bank currently has 11% of its assets in mortgages. Post the merger, this percentage is expected to increase to over 30% with the potential to grow much higher. Infusion of capital in the bank will no longer be a drag on the return on equity of the mortgage business. So these were some of the attractions of the merger.

The bank has requested RBI for phased compliance in terms of timelines for CRR SLR and priority sector lending requirements. The bank has also requested RBI to permit the bank to hold equity in the subsidiaries and associate companies of HDFC Limited. These requests are under consideration by RBI. HDFC’s distribution network spans 675 outlets, which include 211 offices of HDFC’s wholly owned distribution company HDFC Sales Limited. HDFC covers additional locations towards help these programs.

We have continued to engage deeply with all our stakeholders on ESG. Our disclosures and reports are on the website. And for further information on ESG related queries, you may engage with our Investor Relations team, Anjalee and Conrad. During the year, the corporation’s social — corporate social responsibility activities focused primarily on COVID-19 relief, health care, sanitation, education and livelihoods. Additionally, our support for the specially able cut across all focus areas. CSR activities were conducted either directly or through the H T Parekh Foundation. The total CSR spend during the year was INR191 crores. These are some of the highlights of the results for the year ended March 31, 2022 and the quarter ended on that date. Before I conclude, I would like to wish each one of you good health and all the very best. Please stay safe.

We may now proceed to question and answers. I would request you to kindly introduce yourself and be as brief as possible with your questions.

Questions and Answers:

Operator

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

Suresh Ganapathy — Macquarie — Analyst

Yes. Hi. Keki, my question is the strategy ahead of the merger. First to begin with, would you like to grow your non-individual book now because it’s shown some traction in the last couple of quarters? But ahead of the merger, you still want to focus on this segment because obviously the bank perhaps would like to have a lower proportion. That’s question number one.

The other two questions is again related to the issues surrounding it. For example, as per RBI rules, banks cannot borrow from other banks. Term loans are not allowed and I’m seeing 25% of your entire borrowings is term loans. So what would you do 12 to 18 months down the line because that is not allowed as per RBI?

And the other aspect is your tie-ups with RBL and others, again once it goes to the bank, those tie-ups won’t be there. Now that is another 10%, 15%. I mean I don’t know the direct selling agents and others put together is 18% of your sourcing. So just wanted to get a clarity on all these three aspects. Thanks, Keki.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right. So the first one to answer your question, Suresh, is that the bank recognizes that to do retail individual housing loans, you also need to do construction finance loads. So the activity of giving construction finance loans will continue even in the banking structure. This was the question number one. Your question number three I think you said was on borrowings. So we have asked RBI to grandfather the existing balance sheet and grandfather the assets and liabilities. Whenever these liabilities mature, at that point of time, these will have to be replaced by other liabilities. That was your second question. And your third question was tied up with the likes of RBLs and banks — bank structure and other agents.

Total loans sourced through all distribution partners other than HDFC Bank and HDFC Sales is 18%. But out of that 18%, the amount which is sourced to RBL Bank is very, very small, extremely small. We can give you the exact percentage in a while. But as far as the other agents are concerned, they can continue to distribute housing loan products for the bank. There is no embargo on agents sourcing asset products for banks. So they would continue.

Suresh Ganapathy — Macquarie — Analyst

Okay, that’s very clear. And, Keki, one last question is, the moral or the motivation of employees ahead of the merger. Obviously there is a lot of uncertainty. So the next 12 to 18 months, you are confident that the employees will be pretty motivated, because the numbers are pretty good, right? So you have really delivered this particular year despite being a very tough year. So you can expect that to continue in the coming year also?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. We certainly expect that to continue in the current year. And, here, when you talk of integration, what you must understand is that unlike the merger of two banks, where both banks will have similar products, both banks will have credit cards, both clients will have personal loans, both banks will have housing loans and so and so forth, in our case, that is not the case. There is complete uniqueness in these mortgage products. So HDFC Bank does not directly do housing loans, as you know, and would like to do housing loans because it adds to the duration of their assets.

So all of HDFC’s employees will be fitted into the bank, will have a major role to play in the bank and the bank wants to drive the mortgage business going forward. So to my mind, the morale is high. There will obviously be some amount of people sometimes feel little uncomfortable when something like this happens, but to my mind, the morale by and large is very, very high.

Suresh Ganapathy — Macquarie — Analyst

Okay. Thanks, Keki, for all the answers.

Operator

Thank you. The next question is from the line of Mahrukh Adajania from Edelweiss Financial Service. Please go ahead.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Hello. Congratulations. So my first question really is on sector demand. If you see total bank housing loans and that does not include HFC, you’ve grown by 9% year-on-year when there’s so much talk about an uptick in real estate and so many registrations. Of course the larger players are growing much higher including yourself. But why is the overall banking sector demand only at 9% and how does this go for future demand? I mean despite so much rate competition, everyone wants to grow mortgages?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

All right. So the answer, Mahrukh, is that we have grown our individual loan book both on an AUM basis as well as on a net basis by 17% on a very, very large base. As you said, housing loans in the banking system have grown at sub-10% and that clearly answers the question which I’ve been repeatedly telling investors that whilst there is competition in the market, there is no aggressive competition. No one is trying to make — to do unreasonable things or give loans at very low interest rates or anything of that sort. So there is competition in the market, it is healthy competition.

Now why the banks are not growing the mortgage book is, I guess a question the bank itself will have to answer. But to my mind, the structural demand for housing in India is extremely strong. We saw a period from 2017 to 2020 when there was a slowdown in demand in the metro cities, but post COVID that demand has also come back.

So today we are seeing demand from across the country, whether it is in Tier 1 cities or Tier 2 cities or otherwise, and we expect that growth momentum, that demand will continue in the period ahead. You must also realize one thing that structurally in India, housing as a product will always grow and it will grow by virtue of the fact that, as most of you would know, two-thirds of India’s population is below 35 years of age and the average age of a first-time home buyer is about 37 or 38 years. So so many of India’s population today, so many of India’s younger people have not even thought of buying a house. But structurally over the next one, three, five, seven, 10, 15 years, all these younger people will get to an age where they will necessarily have to buy a house. And a house gives — the ownership of a house gives the individual that much more security and therefore to my mind structurally, the demand will always remain strong.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

I have a few number related questions. Firstly, what will be the stock of government securities at March-end total?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

It’s about INR40,000 crores approximately.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. And in terms of your total priority sector or your total loans that could qualify as priority sector for the bank as on March, what would that number be?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

We have an additional — I don’t have the exact number with me right now. We can give you the number a little later. But we were carrying an excess stock of priority sector loans, which have not been assigned to anyone where we have not borrowed money from banks against all, we have not sold to the bank. When we saw it some time ago, it was over INR20,000 crore, INR25,000 crores. But this is a number which will keep changing and we will build on that number in due course.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

But would that be allowed as priority post merger or because of the bonds, it won’t be allowed because you have affordable bonds, right? So it would be lower of the two or how does this work?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, no, both. This qualifies for both. The affordable bonds that you are talking of, which is seven-year bonds, gives you exemption both from CRR SLR and as the money is used for doing priority sector loans, it also qualifies for exemption from priority sector requirement. Please read that circular.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Yes. Yes. No, my confusion on the circular was that RBI allows INR250 billion or INR25,000 crores as priority or just the amount of affordable bonds as priority?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No. The amount raised, which has been utilized for doing affordable loans, which would be the full amount. Whatever we borrowed, the nine — the seven-year plus bonds of INR90,000 crores would entirely have been used in doing affordable housing loans and the affordable housing loans would be more than that, would be higher than the INR90,000 crores that we have borrowed.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. And my last question really is on deposit. I heard the grandfathering the slide that you gave. But on deposits, it’s a bit more complicated, right? Because the rates on deposits, which if they’re allowed grandfathering would be higher than the rate that HDFC Bank would be offering to its customers. So will that also be allowed?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I mean there is — the rates are determined by the bank. Whatever rate a customer or a depositor has got money at, that customer will or that depositor will continue getting the same rate from the bank. Subsequently upon the deposit maturing, if the depositor wants the deposit to be renewed, which is most probably — at least most people renew their deposit, then it will move to whatever rate the bank wishes to offer at that point of time. But the current rate at which the deposit has been taken, that rate will sustain, will continue.

Mahrukh Adajania — Edelweiss Financial Service — Analyst

Okay. Thank you so much.

Operator

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

Shubhranshu Mishra — Systematix Group — Analyst

Hi, sir. Thank you for the opportunity. Two quick questions. One is that you mentioned about the overlap with the HDFC Bank branches. HDFC Bank presently caters to around 45%, 50% of the AUM capacity. What is the estimate? Where does it go after the merger? Because you said that a couple of branches won’t cater to the HDFC home loans.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

What I said if it was not clear was that all HDFC Bank branches do not source housing loans currently. The reason is that we would like to — like the bank to source loans from locations where we have a nearby office because we would like to be in touch with the customer, meet the customer, etc. before the loan is given. Now once we become a merged entity, then obviously that requirement will not be there and the bank will be able to source loans from all their 6,500 branches over a period of time naturally.

Shubhranshu Mishra — Systematix Group — Analyst

Right. So what is the aspirational number as a percentage of AUM? Where do we get to?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

What is — which number is the percentage of AUM?

Shubhranshu Mishra — Systematix Group — Analyst

HDFC Bank, that’s roughly sourced around 26%, 27% of the AUM.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. So HDFC Bank currently sources 28% of the new business that we have done and they have a right to buy back up to 70% of these loans. So the 70% does not appear in our balance sheet anymore, it would go to the bank. The total loans outstanding, which are being sold to the bank, is about INR88,000 odd crores — INR83,000 crores, I’m sorry. INR83,880 crores, if memory serves me right.

Shubhranshu Mishra — Systematix Group — Analyst

Right. And this 28% would go to what kind of the number in the future once this merger happens? That’s the question that I’m asking.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

28% will go to what number over time? Well, I mean I would not be able to put a number on the table at the moment. But obviously that 28% number has the potential to become significantly higher because today the bank is not sourcing loans from all their 6,500 branches. And as they progressively start doing that, that 28% number can become very, very significant.

Shubhranshu Mishra — Systematix Group — Analyst

Sure. My second question is on the yields on home loans last and —

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Your voice is not coming clearly. Maybe you could speak closer to the mic.

Shubhranshu Mishra — Systematix Group — Analyst

All right, sir. So I wanted to know the yield and the incremental yield on home loans, LAP, LRD and construction finance?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

You want the breakdown?

Shubhranshu Mishra — Systematix Group — Analyst

Individual yields on these books, sir, and incremental yields.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Why don’t you get to all those details later on from Conrad? If you look at the split of our loans, I’ve already given you. Individual loans constitute 79% of our total loans, construction finance is 9%, lease rental discounting loans is 7% and corporate loans is 5%.

Shubhranshu Mishra — Systematix Group — Analyst

Sure, sir. Thank you.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

If we look at incremental growth, that figure also I mentioned in the call. If we look at the full year, then 88% of our loans were to — for individuals and 12% were for non-individuals. If we were to look only at the fourth quarter, it was 78% individuals and 22% non-individuals. And you may recall that in the — when we were giving our results in the first quarter, we had mentioned that progressively over a period of the year the proportion of non-individual loans as a proportion of incremental lending will go higher. So you see in the fourth quarter, it has become 78%, 22%.

Shubhranshu Mishra — Systematix Group — Analyst

Sure, sir. Thank you so much.

Operator

Thank you. The next question is from the line of Adarsh from CLSA. Please go ahead.

Adarsh Parasrampuria — CLSA — Analyst

Yes. Hi, sir. Congrats on good numbers. Question on the NII, seemed quite strong in this quarter so just wanted your sense. The NII growth is like close to 8%, 9%, so and interest rates have kind of headed up on the funding side. So if you could just explain what helped the momentum on NII?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So NII has continued to remain strong. We saw a slight reduction in NII growth during the third quarter because of the higher level of liquidity that we were carrying. We were carrying about INR55,000 crores of liquidity at that time. The average level of liquidity during this quarter has been about 46,000. So because the level of liquidity has gone lower, the net interest margin has consequently gone higher. Again this is something which we had guided for towards the — when we were giving the December results. So this is one reason. And the other reason is when you talk of interest rates going up, at the end of the day we do a transaction where we move from a fixed rate to a floating rate. And given the yield curve, we are able to raise money at a lower cost after swapping it into a floating rate.

Adarsh Parasrampuria — CLSA — Analyst

Got it, sir. And my second question was when you speak about the disbursements by the bank, just wanted to check all these disbursements are by the bank’s branches, right? So is the bank very actively using its non-bank channels, DTAs and TSAs now or is there an incremental delta that even that channel of the bank will start sourcing mortgages?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I would say that that channel of the bank will also start sourcing mortgages and that will also contribute to the overall growth that you would see in the mortgage business. So it’s not just the branches of the bank. It will also be the other channels who source asset products for the bank.

Adarsh Parasrampuria — CLSA — Analyst

Because the margins that will be a large number, right, because it’s secured products for share of agency versus bank getting business is quite a lot.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. That’s right. So that’s also a — will contribute to the higher growth in the mortgage business.

Adarsh Parasrampuria — CLSA — Analyst

Got it, sir. This is helpful. Thanks. Thanks a lot.

Operator

Thank you very much. [Operator Instructions] Next question is from the line of Shweta Daptardar from Elara Capital plc. Please go ahead.

Shweta Daptardar — Elara Capital plc — Analyst

Congratulations on a good set of numbers. Sir, what percentage of HDFC borrowings are linked to external benchmark rates whether it’s REPO or LIBOR or treasury then?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Well, we match our assets and liabilities in a manner in which the liabilities are linked to certain external benchmarks. There are different external benchmarks that are used. This is part of the treasury operations, which are there and the details you will find in the annual report. Rangan, you want to add anything?

S. Rangan— Executive Director

Yes. Just wanted to say that, I mean if you — there are various benchmarks as you rightly said. We gave for example the bank borrowing, almost 95% of the bank borrowings are actually linked to external benchmark borrowing. And on the debentures and all, as you rightly said, we do conversion of those liabilities into floating rates and these are again linked to either the treasury bills and the structured benchmarks.

Shweta Daptardar — Elara Capital plc — Analyst

Sure. Noticed. Thank you.

Operator

Thank you. The next question is from the line of Gurpreet Arora from Aviva Life India. Please go ahead.

Gurpreet Arora — Aviva Life India — Analyst

Yes, hi. Sir, how do we look at the composition of liabilities for the current year? I mean what sort of paper issuances, what sort of deposit accretions are you looking at? And a related question to that is what cost of funds are we looking at for this full year, sir?

S. Rangan— Executive Director

The source of liabilities will keep changing depending on what is the best at that point in time. But broadly I think the endeavor would obviously as the interest rate curve is currently sort of —

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I think the line dropped for a bit. Sorry, our line dropped. So please carry on, carry on.

S. Rangan— Executive Director

So the — as we are looking at the current level of interest rate, I think you basically end up borrowing medium to longer term and then sourcing it back to an appropriate benchmark so that you can be both on the interest rate as well as on the duration curve you are on the right part of the balance sheet. So that would be broadly — this thing. But in terms of the actual borrowing of how much exactly you will borrow through a debenture or a bond, deposits, bank loans, this would actually depend upon at that point in time what is the best source in the quantum and trades, which are available at that point in time.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Please carry on.

Operator

Gurpreet, do you have any follow-up question?

Gurpreet Arora — Aviva Life India — Analyst

No, I’m done. Thank you.

Operator

Thank you. The next question is from the line of Subrat from SBI Life Insurance. Please go ahead.

Subrat Dwibedy — SBI Life Insurance — Analyst

Yes. Thanks for taking my question. So this is a follow-up of what was discussed in the previous question about the funding mix. So what I understood was that the funding decision — funding mix decision would be based on market and not influenced by the pending merger. Is that right?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. Absolutely correct. Absolutely correct.

Subrat Dwibedy — SBI Life Insurance — Analyst

Okay. That’s all. Thanks.

Operator

Thank you. The next question is from the line of Kunal Thanvi from Banyan Tree Advisors. Please go ahead.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Yes, hi. Thanks for the opportunity. I have two questions. One was on — you mentioned about the fact that while the overall banking credit you see the mortgages they’ve been doing at 8%, 9%. When you look at the top private banks, there the mortgages which have doing at a fast rate and we also have been doing at a fast rate. Now how does one interpret into it? Is it market share gain on the back of balance guidance transfers or FFCs are growing faster than banks because it kind of makes a confusion in the mind because the underlying credit — overall credit is not growing, but the players within the card growing. Can you explain that to me?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

It’s difficult for me to explain it how — why the bank credit is not growing fast enough. My sense is — some of my sense and I do not know, but my sense is that when some of the banks report their mortgage number, they might be including loans which are not strictly housing loans. For example, if we look at certain reports, I’ve also seen cases where construction finance loans given for residential purposes are included as part of housing because at the end of the day, it is supposed to be housing finance. But we don’t include that. So when RBI — and again this is my interpretation, when RBI prepares this consolidation, they would actually look at only the housing loan numbers and that would come to whatever the 9% number, which is there in public domain.

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. Sure. Got it. And the second question was on our loan mix prior to other banks. I mean you see there are three large components. One is the retail or the individual book, then there is a construction finance and then is the corporate book. Construction finance, you have given an explanation that will continue with the bank coming in. Any sense on the corporate book, which of course is like 5%, 6% of our book as of 4Q FY ’22?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

That would also continue because the bank also does corporate loans. But as you mentioned, it’s not a very large part. It’s just 5% of our total lending, but that would continue because the bank does corporate loans in any case.9

Kunal Thanvi — Banyan Tree Advisors — Analyst

Sure. Got it. Thank you so much. All the best.

Operator

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

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes, sir. Thank you for taking the question. Sir, just a small clarification. You report spreads on non-individual loans on a cumulative basis. I think I see what is right in front of me is, I mean you’ve reported 3.25% as the spread on your non-individual loans as on nine months and at the end of this year it’s 3.4%. So is this increase that we’re seeing in this quarter predominantly coming from that one non-individual account where you have completely kind of resolved and recovered?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Not entirely, but some bit of it would be because that particular account would have been carrying a lower rate because it was to a customer who was AAA. But there would be other reasons also. There’s been a pickup in the construction finance portfolio, which would contribute to a higher yield and so on so forth. Also the book itself has really grown a lot in this quarter compared to the earlier quarters. We had a negative 1% growth in the non-individual book till December and we now have a positive 7% growth.

Abhijit Tibrewal — Motilal Oswal — Analyst

Yes. And sir, I mean would it then be fair to say that I mean as the incremental lending that you’re doing, which you probably did in 4Q or what you’re doing in 1Q now, I mean are happening at rates which are maybe significantly better than the rates at which you were doing non-individual disbursement [Indecipherable]?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I mean at the end of the day, interest rates in the economy by and large have been increasing. As interest rates go up, naturally the lending rate will also go higher. But the increase is from 3.3% to 3.4% or something. It is not some very significant increases, can be 10 basis points or 12 basis points or something.

Abhijit Tibrewal — Motilal Oswal — Analyst

Got it. All right. Thank you so much and wish you the very best for the upcoming event. Thank you.

Operator

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

Nischint Chawathe — Kotak Securities — Analyst

Hi. Just two small questions. Last quarter there was some pressure on margins because of higher liquidity that you were running on the balance sheet. So just wanted to check has that liquidity come down?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I mentioned that — I mentioned that total excess liquidity which we were carrying or total liquidity that we were carrying last quarter was INR55,000 crores and this quarter the average is INR46,000 crores.

Nischint Chawathe — Kotak Securities — Analyst

Sure. But if I look at the schedules from P&L on the standalone numbers, the other interest and surplus on deployment of liquid instruments, that number has actually grown significantly quarter-on-quarter from around INR736 crores to around INR920 crores.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I think we can look at those numbers in detail and maybe Conrad can explain.

Nischint Chawathe — Kotak Securities — Analyst

So no problem. Just one last data keeping question again was if you could share the individual disbursement number, which you’ve been sharing for last three quarters?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Individual disbursements for the quarter or for the —

Nischint Chawathe — Kotak Securities — Analyst

For the quarter because I think you mentioned the number for March.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

We’ll give it to you. We’ll give it to you in a minute. Also there was a question earlier on how much RBL Bank sources for us and it comes to 10 basis points. 10 basis points, 0.10%. So not material at all. I think this was Suresh Ganapathy’s question.

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

Nischint, the disbursements for this quarter was INR48,000 crores.

Nischint Chawathe — Kotak Securities — Analyst

INR48,000 crores. Okay. Sure. Thank you very much and all the best.

Operator

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

Aditya Jain — Citigroup — Analyst

Thank you. The INR46,000 crores of average liquidity was kept in this quarter. Would you call this a normal level or is there scope for reducing this further?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Well, it is still higher than what is required by regulation. It’s something which we will evaluate from time to time and take a call. But yes, technically there is cope to bring it down little further. But we might like to internally decide to carry a higher buffer. That’s a call the CLM committee will have to take. But it is higher at the moment than what the regulatory requirement is.

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

Got it. Can you comment on the inward balance transfer now versus historical experience if it is possible to get a sense of it?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So our total prepayments which have been made, which we received during this year, was the same as in the previous year in percentage terms. So it was 10.3% of the total opening loan book and out of the 10.3%, typically you would find that part — this part prepayments, which is people who want to just reduce their liability, they get a bonus at the end of the year or they get some lump sum payment at the end of the year and they sort of reduce their liability. That could normally be about half the total prepayment trend we see. And in the amount of loans we received versus the amount of loans we were sort of giving away would broadly be the same.

Aditya Jain — Citigroup — Analyst

Okay. So inward balance transfers and outward would be roughly equal?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Broadly the same, yes.

Aditya Jain — Citigroup — Analyst

Okay. So effectively are you saying that inward balance transfers are broadly in line with historical levels. The reason I’m asking is related to the sector growth versus HDFC?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, yes, broadly in line, also reflected in the fact that total prepayments have also been similar as a percentage of the book.

Aditya Jain — Citigroup — Analyst

Got it. Got it. Thank you.

Operator

Thank you. Next question is from the line of Rahul Jain from Goldman Sachs. Please go ahead.

Rahul Jain — Goldman Sachs — Analyst

Yes, hi. Keki, just two questions. One is if I’m not wrong, I think HDFC Bank had taken some approval to buy back INR60,000 crores worth of loan in this financial year fiscal ’23. So would that be applicable now in this event of merger?

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

So during the current year, I think it’s business as usual. So the same principles will apply as to whatever they source, they have the option of buying back 70%.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So Rahul, as you know, the arrangement is that the bank sources loans for us. We do the credit appraisal, the legal appraisal, the technical appraisal. We decide whether to lend money to a particular customer or not. If we decide to lend money, we make the disbursement and then the agreement with the bank is that they have a right to buy back up to 70% of these loans. So you can calculate backwards. We’ve given you the percentage of loans sourced by the bank, we’ve given you the total loans done during the year. You can work backwards and see what 70% of that would be.

Rahul Jain — Goldman Sachs — Analyst

Correct. No, I was referring more towards the next 12 months, which is fiscal ’23, I think they had taken approval from the shareholders under the AGM to buy back INR60,000 crores.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

You need approval from shareholders when you take approval from shareholders. This is now a SEBI requirement because it’s a third-party transaction. You can’t calculate an amount, you can’t calculate the number so you always keep a buffer. So you take shareholder approval for a higher amount and then whatever you actually do, you do. But the actual what gets done will be equivalent to 70% of what they source. So it is business as usual, Rahul, nothing changes.

Rahul Jain — Goldman Sachs — Analyst

Sure. Sure. Appreciate it. The second question is with regards to the liquidity. So I appreciate you ran it down somewhat in this quarter. But given the SLR CRR requirement closer to the merger approval or consummation date, let’s say, 12 months, 15 months out, will we need to rebuild this liquidity if we need to hold more or we can continue with the regulation?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

We do not believe we will need to build up further liquidity. We do not believe so.

Rahul Jain — Goldman Sachs — Analyst

Okay. So at the most, we can maintain or we can run it down to the extent possible?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes, excepting that the total amount of liquidity we need to carry I think progressively increases by I think 10% or something.

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

Yes. Rahul, so effective December ’22 — as of now, our minimum requirement is 50%. We are around 80% as of March. But by December ’22, it will go to 60% and so on and then 75%. So progressively that amount — the minimum requirement goes up.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

But we are already carrying more than what the requirement for 2023 would also be. So in that sense, it should not go up.

Rahul Jain — Goldman Sachs — Analyst

Fair enough. Fair enough. Just can I squeeze in one last question. So on this restructuring, part of my ignorance, but I think in this quarter the recovery of INR2,700 crores of one account that you talked about, did it have any impact on the interest income also? Did we recover the entire amount in this quarter because I think we recovered somewhat in the previous quarter?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, the interest would have been accrued from time to time and whatever was due including the increase would have been recovered.

Rahul Jain — Goldman Sachs — Analyst

So what would that quantum be in this quarter just for this quarter?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Recovered from them, but there’s nothing extra which is recovered. Whatever was recoverable up to December would have been accrued up to December. So what you see —

S. Rangan— Executive Director

Standard account KT, so there is no question of —

Rahul Jain — Goldman Sachs — Analyst

Okay. It was — yes. So there was no stopping of the interest accrual when it turned restructured.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, it was never NPA. It was always classified as a Stage 2 account.

Rahul Jain — Goldman Sachs — Analyst

Fair enough. Got it. Appreciate it. Thank you so much.

Operator

Thank you. The next question is from the line of Mayank from Citadel LLC. Please go ahead.

Mayank Bukrediwala — Citadel LLC — Analyst

Thanks for taking my question. I just had a question on the cost of funds. On a calculated basis in my model, I see a close to 40 bps decline in your cost of bond funding. My model could be wrong because these are on end point averages. So could you just give me a sense on what’s been the movement on the bond cost for us as an aggregate?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Rangan, would you be able to answer that?

Mayank Bukrediwala — Citadel LLC — Analyst

The reason I’m asking this question is that since you said that most of our bonds are swapped to short-term rates and short-term rates have moved up in the last three to four months. I’m just trying to understand what you have seen in last quarter and what will you see going ahead.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Yes. Rangan, you want to answer the question on how the swap rates have come down?

S. Rangan— Executive Director

I’ll come back on that.

Mayank Bukrediwala — Citadel LLC — Analyst

Sure.

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

So Mayank, just to give you a quick — for the year if you look at, I’m talking of bonds and all market-related borrowings. Last year the cost — I’m talking of FY ’21, the cost was around 6.5%. This year it has been about 5.7%. This is the interest debit for the year based on the portfolio that we are carrying. So that’s the movement in the cost of the market-related instruments.

Mayank Bukrediwala — Citadel LLC — Analyst

And now that short-term rates are moving up and most of our existing bonds are 70% close to that, maybe is linked to that, are we likely to start seeing this move up from next year?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I don’t believe that there would be any change in the borrowing cost, which would — may not be reflected in terms of a higher yield that we will get. So you would have seen that this morning we have increased the retail prime lending rate by 5 basis points.

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

And also Mayank, we have – over the last four months on the non-individual portfolio, we have increased it by 30 basis points including 10 basis points this morning. So from a spread perspective, we will ensure that we maintain the spreads going forward.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

That also has partly explains the question that somebody else had asked earlier as to why the spread for non-individuals went up from whatever 3.3% to 3.4%.

Mayank Bukrediwala — Citadel LLC — Analyst

Got it. And if I could just get in one more question. So the 5 bps RBL change that we have done, should we read this more as a small adjustment or is this now signaling towards home loan rates increasing?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

I would say this is an adjustment. It doesn’t signify anything. We had — whilst our short-term rates may have gone up a little bit, what we — the 5 basis points that we have done will take care of our requirement in sort of ensuring that the spreads remain stable. Obviously if rates go up further, then there would be some change. If rates come down further, then there would be a change. But at these levels, we are comfortable.

Mayank Bukrediwala — Citadel LLC — Analyst

Got it. Perfect. Perfect. Thank you so much.

Operator

Thank you. Next question is from the line of Ravi Naredi from Naredi Investments. Please go ahead.

Ravi Naredi — Naredi Investments — Analyst

Sir, with due regards to all of you, what will be your role along with Deepakji Parekh and other eminent Board of Directors of HDFC in merged entity?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So as I told you, all employees of HDFC will move to the bank. Specifically role of Deepak Parekh and me, that’s something which the Board of HDFC Bank has to take a call on. But the all employees of HDFC will move into the bank.

Ravi Naredi — Naredi Investments — Analyst

Okay. Thank you. Thank you, sir.

Operator

Thank you. And the next question is from the line of Sardhah Shah [Phonetic], individual investor. Please go ahead.

Unidentified Participant — — Analyst

Good afternoon, sir. So I being an individual investor, just wanted to have a simple calculation as to what would be the ROA of core HDFC business since I was finding it difficult to calculate?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So the ROA on a pre-tax basis is 2.9%, on a post-tax basis is 2.3%.

Unidentified Participant — — Analyst

Okay. So this is on the core HDFC business, right, excluding the investment income and all those things?

Keki M. Mistry — Vice Chairman and Chief Executive Officer

No, no, sorry, this is on the combined. This is on combined. We can work on that, but I just mentioned the total.

Ravi Naredi — Naredi Investments — Analyst

Yes. I heard that in the introduction. Okay. So can I know the core ROA?

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

As of now, I would not have that working, but we can talk separately.

Keki M. Mistry — Vice Chairman and Chief Executive Officer

Why don’t you speak to our company Secretary and he will put you in touch with Conrad D’Souza who’s our Investor Relations.

Ravi Naredi — Naredi Investments — Analyst

Okay. Yes. So that’s it from my side. Thank you.

Operator

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

Keki M. Mistry — Vice Chairman and Chief Executive Officer

So I would only say that the outlook looks — continues to look very strong. As you would have seen in the fourth quarter, the growth has been strong. NIMs have been — come back, the net interest income is higher than what it was in the third quarter and most importantly, collection efficiency has further improved during the course of this quarter to the current level of over 99% during this quarter. So at the moment, things look good. And my sense is that the merger is also on track. We are going ahead with all the discussions, etc., with the regulators. And so far we have been — all the regulators have been extremely supportive and positive. Thank you.

S. Rangan— Executive Director

Okay. I have that number, which is the bonds adjusted for the swap between December and March. The December number is 570 and the March number is 585.

Operator

[Operator Closing Remarks]