Flagship event for us for the year. I think the gentlemen on the dais do not need any introduction. However, we will start the curtain raiser with opening remarks by Mr. Sashidhar Jagdishan, MD and CEO, and Mr. Srinivasan Vaidyanathan, CFO of the bank. Thanks, and over to you, sir.
Morning to all of you. What a pleasure. I see a lot of familiar faces, and it's such a pleasure to meet some of you after such a long time. Thank you for coming over. There are questions in the minds of you and many other people in the world at large as to what is the rationale of the merger. Two is what do we see on the macro side? What do we see even on home mortgages? What is our kind of runway that we have? Let me try and cover some of these. I know some of you probably would have seen our presentation two days ago to the sell-side analysts, and I'm sure most of you would have either seen it or probably absorbed some portion of it.
Sorry, this may be a repetition, but just indulge me in that. The first is, a lot of questions have been asked about India macro, in my interactions with a lot of investors, both in India and even doutside India over the last 20-30 days. Our house view is slightly more optimistic, even with the situation that we are in from a macro perspective. I think, if you really look at it most, you know, it's like carrying coals to Newcastle. You guys are probably much more aware of the macro than I do, but still my summary thought process, let me just express that.
One is, I think, the bond between RBI and the government. I think they have orchestrated it extremely well to ensure that there's a very gentle landing of the inflation situation. We peaked in April. I think with all the measures that we've taken, both on the monetary policy now and what we are planning to do, what the governor has spelled out, say at 3,500 basis points over the next three to four d quarters, and the fiscal measures like dropping off the excise duties on some of the petroleum products or, you know, clamping on some of the export duties so that we can have more on the domestic consumption side, reduce the input costs.
I think we should sort of see the inflation go from May to September a bit and then glide down to the pre-COVID levels by May 2020, by March 2023. This gives you a huge amount of comfort as to where we stand as against where some of the other countries are. Typically, we sort of refer to the United States where the gap between interest rates and inflation is too large. I think by March of 2023, the way the expectations are, I know there are a lot of assumptions in oil. I think if you go by what the experts have put in, I think it's roughly around $100 at the moment.
Obviously, all things remaining same, as long as the Ukraine-Russia war does not sort of deteriorate into something which is southwards, and that creates a bit of a crisis on both from a social, political, geopolitical and also from an oil perspective. If oil does not go to $150-$175, I think we seem to be reasonably sanguine that our interest rate should not be more than 75-100 basis points. Our inflation should be going back to the pre-COVID levels around the 5%-5.5%. Our growth rate should be around 7.2%-7.5%. This is a summary that we have from an in-house view.
We believe that when you look at, compare this across the globe, we are probably one of the best economies, resilient enough to take on anyone else. We'll be the fastest growing economy. I know Mr. Dimon, I believe, someone sent me, what Jamie Dimon sort of spoke about it yesterday, where he feels, there's a hurricane on the horizon. That's his perspective when he looks at, quantitative tightening and the gap between interest rates and inflation in, U.S. They have a rather bleak view of, how the Ukraine war is likely to take shape. As I said, that's the only risk factor that we need to factor it in.
I think India is reasonably resilient, and they have balances very well, from a multiple perspective, including, you know, having a forward contract with, Russia in terms of the oil purchases. From a macro perspective, I think, we seem to be sanguine, and we believe that we are probably at an inflection point in terms of, where the country's economy is gonna be. We are very bullish. A $3 trillion going to a $5 trillion and a $7 trillion over the next eight to 10 years is a distinct possibility. We will be the third-largest economy, and therefore, we are quite excited because as HDFC Bank, which is a play on the Indian economy, I think we are well-positioned to ride on that kind of a growth.
This is, you know, you will say that what is giving you that kind of confidence? Number one, you look at the per capita income itself. I mean, that's dramatically chaKged over the years. Today, on a purchase orparity basis, I think we are at about, there it is in terms, in the slide, $7,000+. You know, we probably are many more times as to what it was when U.S. in 1982 was exploding. I think we are at that inflection point, so that gives a lot of excitement. Two, the kind of capital expenditure that or the infrastructure spending that the government is likely to do, and you will probably hear it. I don't know whether Rakesh is gonna talk about it or he's spoken about it in the sales side. They will be.
They are, you know, in regular engagement with the government in across multiple sectors. The theme of the government now is how to make projects bankable. That's a completely different thought process as against what was there in the past. We believe in eight to 10 months' time, this is what we are expecting. You will see a lot of projects getting unveiled that will only sort of carry the heft in terms of the growth into the future. The third aspect is the China Plus One strategy.
The kind of, you know, some of the groups that we have been engaging, both from a company perspective and also from a personal perspective, where we believe that, large groups are gonna be spending a huge amount of investments, whether it's in semiconductors, whether it's in chips or the solar cells, whether it's in batteries, whether it's in renewable, whether it's green hydrogen. I know a lot of you probably are interacting with some of these groups, and you probably have a better view of that. This is from our own call reports, and that's quite exciting about it. These are you know, when you look at this is something that gave us the confidence that when we keep telling you that India is very underserved and under-penetrated for banking services. We have a massive runway.
We've been saying this for a long time. We're just about 11.5% of the system from an advances perspective. We believe that the runway is pretty long for us to continue the kind of growth that we have seen over the last 27 years. On top of it, we found an opportunity last year, you know, and that is on the housing sector. Housing sector has been languishing long time, and you guys probably know this much more than I do. It is a sector which has been which has a malaise due to its own creation, you know, in terms of project delivery, in terms of the diversion of funds. I think this was a fraternity which sort of had a lot of ills, I think, which got corrected in many ways in the last eight years.
One of them is the RERA Act, which sort of changed the ballgame altogether. It brought in a huge amount of discipline into the sector. Two is the asset quality review which happened in 2014 for banks. Then post the IL&FS and DHFL issue, the same asset quality review that happened for the NBFCs strangulated the funding to such an extent that only people with financial discipline were able to get the funds. There could be outliers as we speak today, but largely, I think this sector has come into a better shape than what it was eight years ago.
As we entered COVID, apart from a couple of other sectors like capital markets, where a lot of funds were sloshing, the housing sector started to have a U-turn because the builders were forced to bring down the price by about 20%-25%. You started to see sales, you started to see the inventory levels come down dramatically from a 60%-50%-month inventory to now a 25%-30%-month inventory. Also, I mean, when you look at the trends of affordability, when I say affordability, if you say on a INR 100 take-home pay, if the home loan EMI was about 50-odd%, approximately, say eight years ago, now it's come down to 20%-23%, thanks to this levels of increase in per capita, also the wage inflation over the last eight years. This is a massive change.
To couple, to sort of look at the behavioral change and the aspirational change that has happened over these years, thanks to telecommunication, internet, media, television, you know, people have started to, even in smaller towns, are aspiring for better homes. We started to see the aspiration levels go up, not just in the top 10, top 20 cities, towns. We also started to see a large portion of this in the smaller, the tier 3, tier 4, tier 5, tier 6, tier 7 cities, as well. Some of the macro strategies on the housing sector, most of you know them, have estimated a demand of 2.5 billion sq ft of housing space over the next five to seven years. It's a massive amount of opportunity that's gonna be there, that's gonna be powering Indian economy.
With it, you will have the collateral benefits of steel and cement also getting powered with it. When Srini presented to us in May of 2021, it was compelling for me to look up, for all of us to say that, "Hey, it's an opportunity that we cannot miss." Then he juxtaposed this with certain amount of data, which whilst I may have unconsciously known it, I was a bit shocked. You know, He said that, "Look, ultimately, we pride ourselves in our distribution heft with 6,000+ branches, 70 million customer base. We are the largest retail asset bank in the country, ex-mortgages." When you come to the home loan distribution, we ere probably x and your larger banks had a 3x. That was something very puzzling. We didn't realize that.
See, until now, we never sort of looked at it seriously. We had our plates full. Anyway, the sector was languishing, so we didn't have to really focus too much. The home loan growth was not so bad as well. It was growing at about 24.5% compounded CAGR. It didn't strike us that there is an opportunity we're missing until he made this presentation to us. That sort of made us think deeply to say that, "What is it that we're missing? I mean, why is it that we are not, our distribution in home loans is not as good or if not better than some of the other banks which had a smaller distribution?" We had to go down to the peel the onion, go down to the frontline to understand what is happening.
Obviously, we always waxed our eloquence on the kind of arrangement that we had with HDFC Limited, where just to recap that, we said that we will distribute. You know, because we did not want brand confusion in the market, we said that, "Why create another home loan product? There is a company which has excelled in this product for 40-odd years." I mean, this is now going back to 2003, 20-odd years. Why would we want to duplicate that? We can sort of distribute their product and get a fee, and we can have an option to buy back, and it was a wonderful arrangement. I mean, on paper, it's a great arrangement, and we have no regrets about that.
To buy back what we distribute, at least 70% of what we distribute back as a triple-A securitized paper or a loan assignment, as the case may be, for which we pay an annuity through the life of the loan. Frankly, this was wonderful because the economics that we agreed upon was much better than setting it up. That was just one part of it, and we probably said that, "Okay, while we were setting up the bank, the retail bank, this is also one product offering," and you started to see a growth. As I mentioned, since this was something that never struck us because the sector was languishing for a long time, we went on with the flow.
We realized that, look, there's something which is missing in this kind of environment, macro environment, where we are seeing a kind of a dramatic change, and we will see a dramatic change in the future. When we went down to the ground level, we realized that, look, after all, it's an agency arrangement. This product is not our manufactured product. It is someone else's product. So the frontline staff had no visibility as to whether this particular customer who's gonna come in with an application, whether he or she will be given a loan or not. Because all that we were doing is take the application, scan the documents, and send it to HDFC Limited. Now, the average turnaround time was about eight to 10 days. And as you know, they had only about 600 branches as against our 6,000 branches.
Branches which are far away from their hubs, the turnaround time was about 10-15 days. Now, obviously, you all know we all are, we've all bought home loans. We realized that, look, some of us who are loyalists would will not mind maybe eight to 10 days or 10-15 days. But in this world of intense competition, it's an oligopoly market with an intense competition. It's eight to 10 days is a long time, or 10-15 days is a long time. Obviously, we started to see people used to move on, and that's exactly what happened because that's what gave me the second shocker. He also presented the second set of numbers which again surprised us negatively.
He said that while we are theoretically open to sell home loans in about 6,000-odd branches, in reality, only one-third of the branches are selling home loans. Which sort of really puzzled, but I could now understand as we went deeper. Then he made another one saying that while you've tried in terms of customer acquisition, we've been ramping up customer acquisition in the recent past. There's 70 million customer base. Only 2% have been sold a HDFC home loan. That was even a shocker when you compare with the kind of, kind of, what shall I say, penetrations we have in other manufactured products. The reality is that the frontline people are youngsters. They are in the age of 23, 30. They are the young ones who are manning the branches. When they want to engage.
Psychologically, when they want to engage with the customer, they need a lot of confidence. They will do only where they're very confident of. We have enabled the frontline team with tools like customer relationship management system, which have a lot of insights or the horoscope of a customer in front of them. With our vast analytics refined over a period of time, today we have the ability to tell what is the propensity of a product that a customer is gonna take with the narrative, with the scripting, which is near personalized. We are still not there. We're working on that.
I'm sure when you hear our tech and digital teams in the during the course of the day, you will see that what are the kind of partnerships we are doing with a lot of other great partners globally, like an Adobe and a lot of other people, in terms of getting even refined analytics to into our stable. That's the possibility that is there when you talk about our manufactured products. Today, if someone is searching the web for a new car, we have the ability to tell the customer, "Sir, I believe you're looking out for a car. The We have an offer for you. You have a pre-approved sanction limit of INR 35 lakhs or INR 30 lakhs or INR 20 lakhs as the case may be, and you can take it in 10 seconds whenever you decide.
Right.
We have because we are one of the largest distributor of auto loans, we have a great relationship with say top 700 dealers across the country. We can arrange for a test drive. We can also have your existing car valued. We can exchange, and we'll give you a loan in ten seconds. That's a kind of a very powerful narrative when it comes to that. That's all that stability that we have to our frontline staff. When it came to home loans, we never had that because it's a different company. We never had the ability to know whether that particular customer is gonna be sanctioned or not. Look at the confidence.
The person, the youngster at the front end will never proactively sell a home loan because he doesn't want an egg on his face because what if that particular application gets rejected for anything? It may not be for credit, it could be for collateral, it may be for the builder. These are some of the things that is ground reality, which we probably did not sort of go deeper because there was no necessity to do so up until now. This was around May or June 2021, and therefore his crying, you know, his saying was, "Look, I think there's an opportunity, and we are going to miss an opportunity." The icing on the cake was when he presented the next data point.
He said, "While only 2% have taken a home loan, two things I will tell you. The 2% who have taken a home loan actually is giving you an average liability balance, which is 5x-7x more than a normal average customer." Now, that's massive because, you know. It's quite intuitive because a home loan customer, especially in a country like India, especially where they're gonna be staying in that house, is very emotional to that particular person. He or she will ensure that balances are built so that the checks don't bounce or the EMIs don't bounce. It's a normal thought process. Naturally, one could figure out as to why the average balances were 5x-7x the value of the normal balance. That's massive. That's an opportunity. He went on to the second data point, the last data point.
He said, "While you may think only 2% has penetrated with a HDFC home loan, there's a 5% which have taken home loans from a smattering of other banks, and that 5% is equivalent to another HDFC retail bank." That made me saying that, "Wow, while we have ceded control, we have ceded an opportunity. My mind was just racing to say that there's a massive opportunity waiting for us to be tapped. He ended the presentation with saying that, "Here is an opportunity that we should not miss." The first time I was kicking myself to say that, "Yes, how did we miss this?" Obviously these things may be elementary, but it didn't sort of strike my mind, and this is the time that I took notice of this. There were two things that I could have done.
Either we go back to HDFC management and say that, "How can you correct it?" I requested him, "Let's do one thing. I know that in 2014, we developed a model to see whether the merger makes economic sense." He dusted off that model along with his team, and they worked on it. I had reasonable confidence that it's going to be the same answer. No. Around October of 2021, I think he came back and said that, "You'll be surprised. We would like to present something to you." All the boxes that we said did not make sense now seem to make sense.
Obviously we've sort of deep dived and challenged ourselves on that to see what has changed and why is it different than what it was eight years ago. Let's face it, this is. Someone said the marriage was an obvious but not an obvious kind of subject matter. For 20 years, all of you have been listening to this. We've all been, you know, talking about this, and we've always said we're always on the back foot saying that it doesn't make sense, or we're not ready, or the regulations have to change. This is it. Obviously, in these eight years, a lot of things have changed.
Going back to 2014 when we last did this, HDFC Bank approximately, if my memory serves right, had about an INR 300,000 crore balance sheet when we did the work at that time. I think INR 75,000 crore was non-retail and about INR 225,000 crore was retail mortgages. The total INR 300,000 crore with the corresponding funding, with deposits and also with interbank loans and some bonds also there. But not so much of bonds, more on the interbank and more on bank borrowings and more on deposits. An INR 300,000 crore balance sheet approximately, the regulatory threshold for reserve requirement was around 26%-27% or 26%. Just take 30% for simplicity. On an INR 33 lakh crore, it'll be INR 90,000 crore.
Between INR 80,000 crore-INR 90,000 crore was the reserve requirements that one had to maintain if it becomes a bank, which meant that we had to raise incremental funding and then put it in government securities to the extent of about INR 80,000 crore then. That's part one. Part two was the same INR 300,000 crore on the asset side would be subjected to priority sector. That at 40% of INR 33 lakh crore was INR 120,000 crore. There were certain exemptions of, you know, which were there. It came down to further about INR 80,000 crore-INR 90,000 crore. Effectively, we had to raise incremental funding of about INR 150,000 crore and then put it in government securities and priority sector assets or rural infrastructure development bonds. This is the ask.
When you compare with that, the bank at that point in time had a capacity to raise INR 60,000 crore-INR 70,000 crore of liabilities per annum. That is all it had the capacity. Just imagine, an engine which is generating INR 60,000 crore-INR 70,000 crore, how do I do INR 150,000 crore? Which is a tall order. Respectfully, I think we, all of us, both the leadership teams, decided that we'll wait for further changes in regulations over a period of time. That is how we buried the subject. After eight years, a lot of things have changed, and that is where we were surprised. I think ever since the IL&FS issue and the DHFL issue, I think the regulations on large NBFCs have undergone a series of changes.
The first thing I think they realized is liquidity is so important for NBFCs after the IL&FS crisis and the DHFL and during that period, how all of us, including you, looked at NBFCs, including our credit teams. You know, we were all worried about their liquidity, et cetera. What did the regulations do? I think they started to slap liquidity coverage ratio for the NBFCs, especially the large NBFCs, as a part of the convergence of large NBFCs into the banking norms. There were a lot of other changes in terms of the NPA recognition, in terms of the daily stamping as per Ind AS. HDFC Limited, you know, always ahead of the curve. You know, eight years ago, they had INR 4,000 crore of government securities. Now, when you look at it, they have INR 40,000 crore-INR 50,000 crore on an average.
Maybe later as we go into the future, it'll be more. INR 40,000 crore-INR 50,000 crore of government securities in their books now. Since October of 2017, when we started to change track in terms of our philosophy on liquidity, we have been keeping excess liquidity reserves in the form of high-quality liquid assets, including government securities. We also run about INR 20,000 crore-INR 30,000 crore on an average excess government securities over and above what we require. When you look at the requirement today, one, the 26% has come down to 22%. They have a liability today of or at least in December, they had about INR 4.4 lakh crore, say INR 4.5 lakh crore . At 22% lesser exemptions, it came to about roughly INR 70,000 crore-INR 80,000 crore is the ask.
INR 70,000 crore in CRR. Roughly about INR 80,000 crore-INR 85,000 crore. When you look at the excesses that we are holding between INR 40,000 crore-INR 50,000 crore or INR 20,000-INR 30,000 crore, the ask that is there now to raise incremental liabilities and put it in government securities, it comes down dramatically. It's just the balance is who knows? I mean, our hunch, the way we are going, I think by the time the effective date happens, we may not need any incremental funding and put it there. That's a massive change from what it was eight years ago. Even on priority sector, there's been a wonderful innovation that has happened over the last eight years called the Priority Sector Lending Certificates.
It's a brilliant innovation where people with excess priority sector can sell for a fee, and people who are short can buy for a cost. These are all screen-based trading, so effectively, you don't need any incremental funding to meet your directed lending requirements. The market is INR 600,000 crore today. It's growing at about 10%-15%. We have been patronizing this. We will continue to patronize this. Our estimates is that if the requirement is about, whatever, INR 75,000 crore of priority sector, 50% of that can be achieved through the Priority Sector Lending Certificates for a cost, which hovers around 1.5%-2%.
The balance, we will have to put it up in either our RIDF or in priority sector assets, which means that we have to raise liabilities and then put it into that, which is the INR 80,000 crore-90,000 crore. Mind you, we have. When you look at the total priority sector requirements of 40%, that's just total. That's not a problem. None of the institutions, hardly few institutions would be not meeting that. Most of us meet it. Combination of our core organic priority sector, which is at a 3%+ ROA, or we buy priority sector either in the form of interbank participation certificates from other banks or priority sector lending certificates, the lending certificates that I just spoke about. This INR 80,000 crore, INR 90,000 crore is what we have 33 months from now to raise the incremental liabilities and start building this.
When I say 33 months, how did you arrive at that? We believe the approval could take about 18 months and then another 15 months, so 33 months to meet maybe December 2024 is when we need to ensure that we have liabilities and put it in either our RIDF or a part of it in priority sector funds. That's a reasonably long window that we have. We have a larger runway, so we believe we can sort of manage this without too much of an effort.
This, these two were a big change, where effectively from INR 150,000 crore of incremental liabilities to put it into various regulatory requirements for an engine which is doing INR 60,000 crore-INR 70,000 crore on a per annum basis, to moving to just INR 80,000 crore-INR 90,000 crore, where now the engine, which is the HDFC Bank engine, is doing INR 200,000 crore of annual liabilities without too much of sweat. And that too at not its full capacity. When I say not at full capacity, you see the time deposit growth at just about 7%. We have said that we will manage our funding only to the extent that we require. Can we push the engine to do more? Absolutely, and that is one of our strategies. The picture changed dramatically.
The icing on the cake for us to really go on the front foot was on the pricing itself. HDFC Limited, eight years ago, was priced at 6 x book. We were at 3.5 x. Now , 8x , which means that they were 1.3x our share price. Now they are 0.8x . They are 3.5x book, 0.8x that of HDFC Bank. It's clear. The purchase consideration has come down dramatically, which means that the clinching one is that we are gonna take $40 billion of net assets. You know, there's gonna be capital coming in, so the denominator is gonna go up. We will see a depression in the ROE, the return on equity, on day zero. However, within the 4-5 years, you are going back to the pre-merger ROE.
Bases are natural growth rates, nothing extraordinary. This was a completely different picture as against what we saw 8 years ago when we did not have the shorter horizon to see when we will get back the pre-merger ROE. This was the icing. When you looked at the macro, which is screaming, saying that, "You don't correct yourself, you will miss out as a great opportunity overlaying on your otherwise baking opportunity in the housing sector." Two is the convergence of all the metrics which were not in favor 8 years ago is now there, so why not go and talk to them to say that why not? That is how for the first time in 25 years, we bat on the front foot saying that we need the merger.
This was around November 21, and I think they came back to us, or rather we sat together under one roof at the end of February, and we agreed that, yes, it makes sense. Therefore, we started to close this out as quickly as possible, which culminated in the fourth of April announcement. What are we trying to see here? We are seeing that whilst we have a great runway in terms of the bank, well-positioned post-COVID, where we have navigated reasonably well during this two-year period. We are now, all our segments are firing on all cylinders in terms of growth. Yes, the clouds being only on the Ukraine-Russia impact and probably any. I hope we don't have a COVID fourth, COVID five, et cetera.
Other than that, I think India's macro is gonna be on a roll. We're a player in Indian economy. We are well-positioned for growth. We have a visibility of a 20- to 30-year runway in terms of whatever we have been doing for 27 years, consistently growing. Then there is another macro overlay on the housing sector, which we believe will take us to a different level of growth. We can virtually have a durable growth in terms of better duration, in terms of that we don't catch our own tail every 18-24 months. We have a massive opportunity to see the ROAs going even beyond because there's a cost of funds opportunity. The HDFC's cost of fund opportunity, cost of funds is about 580 basis points or so.
We are at about 360 basis points, so there is a 220 basis point differential. Even if you were to shave off a 120 basis point, just hypothetically speaking, which is not gonna be the case, but hypothetically, you want to put in more investments in terms of, you know, more credit officers, more distribution, and also in technology or in raising more liabilities, because we will want to raise more, and that is a key factor. You know, we are now looking at a product which is a 2%+ ROE, which itself is very good, to a 3%+ ROE. It's gonna be a
When you multiply that, you know, with even a certain leverage of 9 or 10, it's a wonderful, you know, 18%-20% ROE business. Why not? We'll be virtually doubling a bank every 5 years when you take, when you look at it very, we use your models without too much of sweat. We are not saying that we're gonna be aggressive, but just the fact that here is a product which is a very emotional product, which is a very sticky product, and this is an easy product for our front line to sell because it is very close to everyone's heart. The narrative to a customer is gonna be very good, and we are, and this is a franchise which is supposed to be the best in India. The opportunity to.
Look at the multiple opportunities that's gonna be. Number one, as I mentioned to you, the liability franchise, which is a part and parcel of this cross-sell is going to be 5x-7x more. So it's gonna be, you know, kind of a double advantage. Look at the third advantage. We are the largest consumer durable finance company outside of Bajaj Finance now. Whenever a customer wants a home loan, the opportunity to cross-sell a consumer durable is inherently very high. So the bundling opportunity with a home loan is something that will take us to the new level, whether it's a new furniture, new kitchen, a new consumer durable, it's a massive cross-sell opportunity. That also is a high ROA product. The last but not the least is the fact that today, in 27 years, our credit architecture has excelled in the unsecured debt.
The unsecured lending on an overall basis, including corporate, SME, and retail, is about 35% of the total. I think, and from a retail perspective, it says about 41%. When you overlay that with housing, when it comes down into the total business mix, it comes down 22%. You know, whether it's the leadership team, whether it's regulator, whether it's the credit teams or all of them, with even though we have executed this very well, there's always this niggling doubt, are we having a high concentration on unsecured? It's natural. You will ask this. We ask ourselves. Our credit team keeps worrying. I mean, you can see when you speak to Jimmy Tata, his ears become red when he talks about high concentration on unsecured. Anyway, this will give a huge amount of relief for all, seeing that the runway is there.
It's a high ROA, high ROE, and a low credit cost product. We're proud of this. We just imagine the kind of a multiplicative impact when you talk about just one product being put to the customer. That is why we believe that here is a once-in-a-lifetime opportunity to take the bank, which on the date of merger could be churning $6 billion-$7 billion of profit on an annual basis to go to $14 billion-$15 billion in five years' time. Now, that's the kind of, you know, massive growth that we're talking about. It's virtually gonna double the bank every five years. When you look at the product penetration, when you look at credit cards, our penetration is about 20% or in the 20s. Our unsecured loans is somewhere in the 13%. Vehicle loans are 6%.
Mortgage is less than 2%. Just by focusing on an emotional product, a product which is easy to sell because that's what every Indian wants, and the fact that we have a distribution which is not really harnessed, the taking of vision from a 2 to a 7 to a 12, because you add every 5%, which is what creating another HDFC Bank is gonna take the bank into a new level. This is the reason why the rational thought process behind this. We're quite excited. There are a lot of others you probably will be meeting, you know, look at our distribution, et cetera. One of the key limiting factors here, let me upfront tell you, is on the liabilities. Growth is gonna be pouring out of ears. I mean, that's...
Growth is something that is within our control, the asset growth. What is gonna be limiting is our liability engine. We have to have a strategy to ensure that we are able to absorb this kind of growth. We're now in 3,000 towns and 6,300 branches. The branch distribution has been what in the forefront of deposit mobilization. We have 60% of our branches. You know, when you look at the branch distribution of 6,300 branches, there are various branches which are zero-to-five-year bucket, five-to-ten-year bucket, ten-to-fifteen-year bucket, and greater than fifteen years. If the zero-to-five-year bucket gives you X amount of liabilities per branch in a year, the five-to-ten gives you 3x. The ten-to-fifteen gives you 10x.
The greater than 15 gives you 25x. So we have 60% of our branches which are now less than 15 years or 10 years?
10 years.
Ten years. As it matures, the ability to generate more liabilities is something that keeps happening, and that is a positive. Two, we're quite excited about this growth opportunity. What are we gonna do? We're gonna be doing something very, very tough, but it's my key objective. It's a vision. It's a direction. We're gonna be opening 1,500-2,000 branches a year because we don't wanna miss this opportunity. We're virtually gonna be doubling our network or near doubling our network in three years' time. We've done 730 branches this year, which itself is the highest in our 27-year history during the COVID period.
We're gonna take the tall order of saying that, "Look, I think if that is a goal, let us put our might behind," because today the team has excelled. You know, they can turn around. We had a branch open in one of the remotest parts of the country, in Himachal. There's a Keylong district, Keylong, Spiti.
Spiti Valley.
Spiti Valley in Keylong. It's a remote part of the country. You know, to get your technology, to get your branch, we did it in 16 days. If you can, if you want to, we can execute. That's the kind of, you know, target that we are giving to our teams combined to ensure that we start to churn branches more. You may say that, "Look, at this age, why do you need branches?" It's not. Our branches is a self sales and service outfit, and I will explain to you. India is still different demography than anyone else. It's gonna be digital. You will have two sections. You will have the unassisted sections, where customers can come in and do their transactions, do their products, buy on their own, or we can have an assisted section.
It's gonna be digital, but we will have the difference, the differentiation between a digital world and HDFC Bank is that we will be having an engagement. We will have with a human factor. There will be an empathy factor out there. You know, the Gen Z may be, you know, on mobiles. They don't wanna meet anyone. They wanna be in their own room. They don't wanna even talk to the parents. They wanna do their own stuff. They wanna do everything on their own. It's reality. But as they mature, as they move from this Gen Z to the thirties, to the forties, you know, their lifestyle changes, their lifestyle requirements will take a change. They will need to be engaged, and that is the differentiation that bank, a large bank like us will bring to the table, different from a fintech.
Ultimately, people want to be respected. You give respect, you get respect. Newton's third law of motion. Every action has an equal and opposite reaction. The moment you give respect. They're not asking for anything different or difficult. It's just saying that give respect in terms of speed of reaction, and you get two times over the move. Our objective is to move the primary banking. Selling a product is just not the main point. The annuity and valuations and whatever your value, whatever models you have is how my annuity comes in. Annuity comes in when you move the primary banking to us. The cross-sell, when we say that it's gonna build balances, that is the duty. It's not the three-year or five-year loan that's gonna give me earnings. No.
It's the kind of the banking relationship that is gonna be there for a perpetual period. That is where the valuations come from, and that is exactly what we want. We are not perfect, but we this is what we have put in our rails, whether it is distribution, whether it's multiple other. We have an alternative banking channel, which is gonna be an alternate to capture India, et cetera. See, when you look at the India pyramid, you have villages, you have blocks, you have districts, you have states, and you have the country. We have 6,300 branches. We are in 3,000 towns. We'll be double in about 3 years' time. We still have the average distance in a branch just about 5-7 km. It's 7 km.
It'll come down to maybe 4-5 km in 3 years' time, but that's still a large distance. Just imagine, visualize you and I walking or going 5 km to do banking. We need to own the catchment. We need to have a higher density, and that's reality. We are not looking at big branches. We are looking at small digital banking units with a personal banker who will be or a relationship manager who will be able to engage with the customers. What are we trying to do to fix the gap in the meantime? We're gonna have an alternative. We have now almost about 15,000 BCs, and we have a lot of partnerships with India Post, Airtel Payments Bank, StoreKing, Manipal, which will all come together now.
We are now in the final stages of identifying all this. We will be expanding. It's a kind of an octopus kind of a structure. The branch out here, and you will have various BCs who will be digitally distributing our products. To take care of the engagement, all our branches, as I said, will have an assisted personal bank relationship where they can keep on engaging with the customers. We, as you know, we experimented with this three years ago. We now have a full-fledged, which is gonna be increasing our virtual relationship management program. Thanks to COVID, people, you and I, have started to engage virtually far more efficiently than in person. We are okay. I mean, prior to COVID, we always would think, "Why a video call?
I mean, I don't like videos, et cetera." I mean, we never engaged. Today, we meet investors virtually now. It's very efficient. Of course, the joy of meeting in person is different. Engagement is a way of giving respect to the customer, and that is the thing. 50% of our customers at any point in time will have the engagement model, which means that we our objective is to move the primary banking. Combination of acquisition, combination of spreading the acquisition through the alternate banking channels, combination of acquisition, which you will start to see when the technology team will unveil what they're planning to launch between June and September. That's gonna be a game changer, and I'm not even factoring that in because your customer acquisition, which is 10 million today per annum, will rise.
Apart from our own physical distribution, the technology platform, I don't wanna even hazard a guess. That should be. You know, I was quite excited with reading what YONO has done. It's a remarkable feat. If we believe we can also do this or even better. I think if a large bank like an SBI can do that, why should we not be able to do that? That is what you'll see this when we unveil some of our digital products that's gonna be coming out, whether it's June, September. I don't wanna push anybody. I don't wanna, you know, create another crisis. Whenever they are ready, whenever they test it as within the RBI parameters, let them launch. When they launch, I think it will surprise the world at large.
That's gonna be positive. To overlay on that is the relationship management. I think we are on a roll. We have a massive opportunity, the durability of the organization to continue to power and extend banking to different parts of Bharat and India, to the various. Look at the segment. We're just 70 million today. We may be 100 million in 3 years' time or slightly more. The segment itself is 500 million opportunity, and I'm not even talking how when you look at the 1.5 billion population, it's the first part. The second part, which is another 500 million, is moving with the per capita increasing. You will see migrations happening. The runway is very large even there.
I'm not even talking about the second segment where we will be participating through our subsidiaries or on our own in future. I'm not even taking that into account. This is gonna be a 50- to 100-year durable organization where we have seen a certain amount of consistent growth. We will continue to see similar kinds of growth, if not better, is what I believe. It's all about our execution now. We are quite excited about this. I will pause out here. I think you will probably see the management heft, the kind of depth that we have. Each one of them are excellent leaders, par excellence than anyone else in the industry. You will enjoy their presentations. As I said, it's a great leadership team.
You will see the might of this organization, and I will pause out here for any questions of interest. Thank you.
Hi, Sashi. Thanks.
Hi.
Just wanted to get a context of like, you know, one plus one becoming more than two post the merger, right? In some of the numbers that you presented, you said that, two percent of your customers have mortgage from HDFC Limited, whereas five percent have mortgages in total. Basically, the penetration is only forty percent of the guys who want mortgages bank with you and have taken from a group company. You also mentioned that six percent of your customers have auto loans from you. If you can give some data in terms of, you know, how many customers may have auto loans from someone else. Just to get a context of like, you know, to what extent this forty percent penetration can go up.
In terms of not all your branches distribute mortgage products because HDFC does not have a footprint there, right? Again, going back to, say, auto loans or some, you know, well-penetrated product. The branches which distribute both mortgages and PV loans versus branches who distribute only PV loans and don't do mortgages. The first cohort will account for what percentage of your, say, auto loan book?
Sure.
That, you know, that is context.
Let me.
And-
Yeah, sorry.
Sorry.
No, go ahead.
Okay, thanks. One more question in terms of like, you know, say, suppose on 31st of March 2022, right? If you look at your numbers plus HDFC Limited numbers. At what level of SLR would the combined entity be, assuming that both of them are, you know, treated as one entity and are subject to the same reserve requirements? And what will be the LCR number? Just to get a context of like, you know, how much is already achieved and how much is yet to be achieved.
Let me answer the last one first because that's easy, and that's something that he had put it up on the slide. Our estimates is that when we do merge, as he spells out, we need about INR 85,000 crore between SLR and CRR. Between the two organizations, we'll be more or less near that. Incremental effort, I know the effective date is 18 months away. There are a lot of things that we can do. Like, for example, the reality is we've used the 31st March as part of our high-quality liquid assets. If you see the March numbers of our own HDFC Bank growth rate on the corporate side, there is a massive run-up in terms of opportunities.
We have grown rather quickly in the last quarter, which utilized some of the high-quality liquid assets, and we put it in the corporate assets, which is in the 30-, 60-, 90-day bucket. It's as good as we said that why not get the 25 basis points as a short-term opportunity? It's all right to get that, but that'll come back. When you look at the requirement as of March, and when you extrapolate the growth and we try and see what it will be, say, in September 2023, which is probably the expected date of where the merger approvals could come, we believe that the incremental effort could be either very negligible or even zero. This particular INR 85,000 crore as against. Because he's now currently having INR 40,000 crore-INR 50,000 crore.
I do not know what is the 31st March numbers of government securities at HDFC Limited, but I vividly remember it's somewhere around the INR 40,000 crore-INR 50,000 crore. We ourselves have, as I mentioned, a rather large unsecured team. Let's look at unsecured loans. All our 6,300 branches, which is our marquee product, sells unsecured loans across, and all our 6,000 branches sells it. Which is not the case when it comes to home loans. We have to now really engineer, you know, a lot of things.
Now that the two leadership teams have come together, so the ideologies are now converged, so we will now look at what is necessary to change without compromising on our, on the risk part of it, to see how to ensure that all the 8,630 branches start to sell home loans. You may wonder, what are these? Simple things. Normally, HDFC Limited likes to give a home loan if the property collateral is in probably the metropolitan location or so, some of the top urban centers like Chandigarh, Jaipur, et cetera, et cetera. Urban saleable property. When it comes to the semi-urban and rural, which is good, I mean, the tier 3 to tier 6 towns, say a Palanpur, say a Haldwani, say a Roorkee, say a Rishikesh, Dharamshala, McLeodganj. McLeodganj, leave it. It's a small hill town. That's okay. Leave that.
There could be complications in terms of title for McLeodganj or whether even in, which is a place, Mussoorie, et cetera. Leave aside all that. I'm saying that they may be restricting themselves only to town limits. See, normally these towns, as you go to tier 3 to tier 6, the radius is very small. You and I, or the segment that we are talking about, we may be the upper middle income, but the middle income also would like to stay on the outskirts, outside the town limits because you have good quality life. They don't want to be in the hustle bustle of that small town. It's a small town. They won't be there. So these are some of the changes that we have to do. You may say that, "Is it safe?" Absolutely. Digital India has done wonders.
Today, when you travel 50 km away from Palanpur, you will be able to know whether a particular plot is registered mortgage or not digitally. You get onto the CERSAI website, you check out, you will know whether this particular property is mortgaged to a bank or not. That's the kind of visibility that is there, and that is all that we need. You know, we talk about hypothecation here. You have it in the Tehsil records or registered mortgage, which is digitized. I mean, some states have to do it, but even if it's not there, it's there in the Tehsil records. It's all about how you are able to change these things so that I'm able to open up. A branch in Roorkee can start to say, "Why not here?" I mean, it may be doing that. Roorkee is given.
I'm talking about the smaller towns of Palanpur or [Buntheer] or you name it. These are some of the changes that will happen so that I can ramp this up into 6,300 branches. Then the third part of it is on you have a 2% and you have lost 5%. What about auto loans? We do have a fair amount of people who take loans from outside. You may wonder why. The reality is that in there is intense competition. You know, you have sometimes the NBFCs far faster than some of us altogether. What are we trying to do?
We are trying to ensure that how we can try using our AI/ML platform, try and see, using analytics to see when that particular person has that thought that I need a home loan or I need to have a car or I need to renovate my home. That moment of truth is something that we need to pre-empt, which means that we need to know that. We need to get into the minds of the customer. That's where our digital heft will help, our technology heft. We are doing a lot on data. We probably have done a fair amount on analytics. We have. We are very advanced, but I think we can do better.
I'm not too sure whether these are presentations which are there today, but there are a lot of things that are going on in the background to be able to get to know. We call it the need-based selling, wherein I'm able to try and see whether I can contact the customer when he has a thought and not as a post-facto. We still have today, even with the kind of growth, even though we are the largest retail asset bank in the country today, ex-mortgages, we still have a fair amount of our customers moving out. A, it could be credit reasons. We are not comfortable with the credit. Leave aside that. They're not approved. I'm talking about even where they are approved, we do have. Why? It's possible we have not been able to reach out to them faster than the.
all the associates in the system. Mind you, if you think that the competition is not intense, it has always been intense. It's a myth that we never had intense competition. Competition was intense. It continues to be intense. It'll be even more intense. We have to continue our story, and we have demonstrated that. I mean, you look at our, despite the intensity, look at the kind of gains that we have had. If you take a five-year horizon, a three-year horizon, a two-year horizon, a one-year horizon, the gains that we've had, whether it's on assets or liabilities, with all this intensity, is such that it's greater or much more than the combined peer banks put together. We are in an environment where we will continue to see intensity of competition, but we will continue to power despite that.
It's a great question that what do we have to do? It's an, again, an execution capability. The way we leverage on our technology, the way we re-leverage on data, the way we leverage on analytics, the way we leverage on AI, ML layer to power all this, to be able to give us information way ahead of time to say that, "Hey, go and meet the customer much before he is committed or he's predisposed to take it from another institution," et cetera. This is one of our biggest objectives. This is exactly what our focus area is. It's a reality today that we do lose. It's not. The opportunity for us, I mean, today, when you look at our what we have, you'll be amazed to know the potential.
Today, we know so much about our customers that we have pre-approved a massive amount of customers with offers where one, we can give a 10-second loan. You know, it's equivalent to five times our current retail book. I think it's almost about INR 32 lakh crore. I mean, that is the kind. Yeah, it is. Yeah. You know, look at the kind of offers on the retail side. 77 million pre-approved offers, which aggregates to INR 32 lakh crore. I mean, virtually 5-6 times the retail book that we have. That's the potential. Just imagine if we refine our methodologies, our analytics, the ability to go and tap into the customer when he or she needs it and is thinking about it, that will be the ACIC.
That is what our job is, and that is exactly what we are trying to do. You know, people look at platforms, which is equally important, but the amount of work that we're doing in the background to be able to come to this kind of a precision, to this kind of a advantage is something that is going to take us to the new level. I'm not even hazarding a guess as to how, but that's gonna be one of our key objectives.
Thanks, Sashi.
Yeah.
Hello, good morning.
Hi.
Just the first question that, given the fact that, as for the house view, the macro looks good and everything else that we have talked about, the balance sheet doubling in 5 years, which comes to slightly less than 15% on a CAGR basis. Why that? If you peel the onion on that, what's the thought behind that number? Because-
That's the most conservative thought I felt. See, one of the most asked questions by your fraternity and by your fraternity across outside of India is that on such a large scale, we'll be able to grow. If you look at our track record as it is here, we have been virtually doing 2.4 times the balance sheet, which is almost equivalent to a much faster growth rate, an 18%-20% CAGR, whether you take 2012-2017 or 2017-2022. We have that potential. What we're trying to say is, even with a very conservative estimate, the power of the bank to continue to grow even on this kind of a scale is possible.
Eminently possible, because we have demonstrated a much faster track record in the past. I mean, is it there? In terms of, the growth rates, 2.4-2.5 times is there. No, not this one, the other one where we have grown.
Let me just ask the other way. Barring the caveats around the war escalating, the COVID coming in, this number looks like probably if I
Yeah, yeah.
In the back, it should be much better.
See, the point is, you know, this is just a kind of a, you know, to tell you. I mean, you may say it's 15%, okay? The point is, at a larger scale, to do 15% and 15%-20% is a massive effort, because what we're gonna be adding is gonna be many banks. You need to appreciate that it's not just pure Excel spreadsheet that you're extrapolating. It's a lot of effort at the ground level, as I said. You have to generate liabilities. You have to ensure that you maintain your credit quality, et cetera. All we wanted to convey is that at a very modest growth rate, at such a high level, just imagine the scale that this organization will generate every five years.
Does it mean that we can do faster? Absolutely. I don't wanna commit to that, but I'm just trying to showcase that if we can do at these compounded growth rates, doubling the balance sheet every five years or creating a new HDFC Bank every five years, you know, and you try and do it versus your historical trend, it's gonna be much faster.
Great. Just one last question, and it's around the mortgage, couple of things that you shared. If, let's say the ROA is gonna go from 2% to 3%, the ROE number is 20%, that's a 6x leverage or odd, which. But I-
See, the reason for that is. Good question. When we are adequately capitalized today. Today, the reason for that is our growth rates, ever since we raised capital in July 2018, was actually less than the sustainable growth rate. We have not consumed capital, we've actually added capital. We've added about 200+ basis points of capital ratio from July of 2018, instead of consuming 60-70 basis points of capital. Because of various factors. The economy was sliding even before COVID struck us, and COVID itself sort of was a kind of tumultuous event. HDFC Limited also has a larger capital ratio. They have been monetizing their assets, and they have a large capital base. The good part is we don't need probably capital all the way to 2030. I mean, that's my rough estimate.
Srini probably would probably have a better pulse of that. Here I'm talking about, you're right, at a 3% ROE, one should have a higher %, but that's upon the leverage. The leverage will happen how you consume capital. Because you have excess capital, you will have that slightly lower, because you will. Even if you now grow, you'll be consuming 60, 70 basis points. The leverage, which is roughly about 9x today, will take time to go to a 10-11, et cetera. It's all about how I consume capital, and therefore, my point is, if you exclude the excess that is there, you are a 20%+ ROE company.
Actually I'll cede the floor one more. Sorry for just holding it back. If I assume there are already mortgage-heavy peers who do a lot of mortgage inside a banking structure, and if there is anything differentiated, I would love to know. If I plug in the same math in their ROAs, which is doing this kind of a number with 10 times leverage and actually generating 20% ROA on mortgage book, the aggregate ROAs are not supporting that. Why is it-
No, you have answered it.
I don't know about the others, but you do have to look at the cost to income of the mortgage business. Anybody who's got very heavy mortgages, what is their cost to income? Cost to income of HDFC Limited, which has got quite heavy mortgage, you can see what that cost to income is. It is all about.
Yeah, yeah.
how efficiently you execute.
See, I think you probably have, I am not sure, but I guess this entire fraternity probably has been tracking HDFC Limited for almost 42 years. Let's face it, you know, they have. There is a certain amount of excellence that they have done. Cost of origination, the spreads are low in this mortgage business in India because it's been an intense competition. I think he's the only company, not just in India, but globally, wherein they've managed the cost of operations at this kind of levels of less than 10%. The asset quality to be probably far superior than anyone else. You know, whilst you know this, you probably have. It's visible for you from your side when you talk to them. It's visible from our side as well, because we are a mirror of what we.
We have our sales force, we have similar, probably higher cost structure. We still have a 2%+ ROE on the book that we buy from HDFC Limited. It is. I know this was a kind of a surprise to all of you saying that, "Is it a 2%+?" It is a 2%+ ROE. That is why it's in a very attractive franchise. That is why it is impossible not to ignore this. That is why it isn't sort of. It's stupid on our part to miss out an opportunity to merge. It does not make sense even to build your own book because the quality of franchise that I'll be taking over.
Also, there's a brand impact, because ultimately, whether you like it or not, because of the convergence of the regulations, at some point in time, being wholesale funded, he will have to merge with some bank. It may not be ours. If it doesn't, if it's not HDFC Bank, we will lose the brand. We will not be an HDFC Bank anymore. It's an important, very huge consideration. That is the reason why it made sense for us to go and bat on the front foot on this particular aspect. Yeah.
May I jump in? Yeah. Yeah, thanks, sir. Just, taking up two points that were spoken about already. One is, the aggressive branch addition plan that you were talking about.
Yeah.
Right? I'm assuming a large part of it, as you highlighted some examples, are going to be outside the urban locations in remote places. There, if you're adding a branch, you'll not just source deposits, you'll be lending as well, which means you have to set up credit, you have to set up collections, everything. When you're talking about 1,500-2,000 branch additions in a year, what does that translate into employee count?
Yeah.
How many employees are gonna be required?
No, good question. We are not gonna be apologetic. We're gonna use this opportunity to invest in technology, invest in distribution, invest in people. Ex-mortgages, leave aside this particular event of a merger, even otherwise, whilst you may see. Look, the cost to earnings prior to COVID, we had brought it down from 49% to a 39%. During COVID, retail, we clamped down retail because there was so much of uncertainty. Therefore, retail is a high cost. There's a lot of variable cost which is linked to disbursements. Therefore, you start to see the cost to earnings go down to 36% odd. Now, when you're going, coming back out of COVID, you will see this go back to 38%-39% in with additional investment in branches, et cetera.
I'm happy even if the cost to earnings deteriorates to 40%. It's all right. The reality is that the operating leverage will start to kick in because ultimately it's a scale game, it's a revenue game, so the jaws will widen, and you will start to see in 3-5 years' time, the cost to earnings coming back, ex-mortgages, ex-merger into the mid-20s, mid-30s. Which means that if on the merger, hypothetically on a pro forma basis, we get a cost to earnings of 32%, you know, their 9% and our 38-39%, we will be less than 30% in 3-5 years' time after the merger. That's the kind of an operating leverage we are gonna see. We will continue the investments.
Our jaws will widen, and you will start to see efficiencies coming in. That's given.
Sure.
That is something we'll be on track and that is our key focus area.
Sure. I don't think, given the scale at which you're talking about additions, any one of us would be, you know, you know, expecting a reduction in cost-to-income ratio. The point was basically to understand when you do lending in these remote locations where you're opening branches, what type of physical manpower, scale that would require?
Even that will also go. You will see increase in manpower because, see, ultimately, you know, with every addition in branch, you will see us start to have roughly about 6-8 or 8-10 people per branch addition. You have to estimate that.
Sure.
These are all the army, you know, largely whether it's on the acquisition side, whether it's on the credit side, you will need manpower, or collection side.
Sure.
You will need it. At the same time, as I said, the pace at which our operating expenses will grow will be slower than your revenue growth.
Sure. The second bit is on the mortgage, you know, the chart that's being talked about, the 2% and the 5%. The 7% of your customer base having mortgage loans, if you add the 2% and 5% up.
Yeah.
If you compare it with other banks, what does the number look like?
I wouldn't know that. I mean, this is the first time.
I mean.
I don't have that visibility.
If you look at the entire industry that has about some 10-
No, see, look at this. My point is, we're talking about an industry which is going to be on an upswing. We're talking about a sector which is going to be, which is so lowly penetrated, which is gonna see a huge change. We're talking about growth not just coming in from the top 100 towns, but we're going to see in tier 3 to tier 6 cities where we are well-positioned. Today, we are missing out on that opportunity. Today, we are not even sweating that opportunity which is there. The point is, apart from having our own customer base in urban and metropolitan, which we have not proactively, you know, done a need-based selling on this particular emotional product, just imagine the opportunity when we go down to tier 3 to tier 4.
Right.
Even though the penetration, I mean, it is willy-nilly. I mean, it is evident when you have only 11% of GDP on this, the fact that it's a runway that is there for us, it's a runway that will be there for other institutions as well. Here is an opportunity where, as I mentioned, we have not really sweated our liability franchise to the fullest. As I mentioned, in FY 2021, we added incrementally INR 100,000+ crore of assets. We just had enough liabilities to fund that kind of a growth, and CASA grew at about 24-25%. The balance was the granular, the time deposits. In FY 2022, we added INR 200,000+ crore of assets. We funded that with granular liabilities, with CASA growing at 24.5%, but time deposits growing only by what?
7%, which means that we said enough, just enough to do that. Now, when you look at the 70 million customer base, only 14% of our customers have term deposits. Now, when you look at, take a poll in this room, all of us will have some time deposit in the bank, in some bank with us, in our portfolio. Willy-nilly, why is it that only 14% of our customers have? Because we have not sort of kept it as a key initiative. We've said that, "Look, we have a lot of other things to do. This is necessary only to the extent that we need." The moment you make this as a part of a scorecard at the front end, you know, you can move the needle.
When you talk about liabilities, that's one of our strategy. Every 1% change, a 14% to a 15% change gives you a $6 billion-$7 billion or $6 billion of incremental liabilities. We need to have a vision over a 3-year period to move from a 14% to a 16% to 18% to a 20% to a 25%. I mean, why not? Because we have never focused on this. The moment you start to focus like all other aspects, we should sort of. This is a part of our execution, this is our responsibility, apart from the ramping up of a distribution, to see that our liability growth. You will start to see. I mean, obviously, you need to be comfortable.
Even before the merger, as we see probably, I'm not talking about this current quarter, maybe next quarter onwards, you will start our liability machinery growing faster than our assets. Which means that we will have.
One other thing maybe that's helpful on day one of the merger. It is not envisaged that the funding side of HDFC Limited is replaced by the deposits of HDFC Bank. It is not envisaged like that. The contractual liabilities of HDFC Limited will run through its course, and as it runs through its course over the next 3-5 years after the effective date, it will get replaced by the bank deposits.
Shashi? Over here.
Sorry. Hi.
Hi. Just wanted to ask one question. You said the entire thesis is on extending the relationship, engagement. In the existing customer, can you give a rough thesis that what the customer relationship value has gone up to?
Oh.
After this merger, what are your internal targets you want to take it to?
You have any metrics on that?
I may not have at this juncture. It's not that we don't look at it. We do look at it, but offhand it's not there. Broadly, because we acquire a large portion of our customers every year, and if you see the last five years, the vintage of our customer acquisition has been very large. Out of the 70 million customers, a large portion would have come in over the last five years. We were maybe five years ago, 1.5 million, then a 3 million, then a 6 million, then an 8 million, then 10 million. When you aggregate that, the 70 million that we're talking about is all recently acquired.
When you stratify the 70 million into A, the top end, which is the private banking, when you talk about the Preferred, where you have an RM, the relationship management, when you talk about the virtual relationship, which is one level notch below, and then when you talk about the mass affluent, which is non-managed, the product penetration is different. The first one will have. I'm talking about revenue products, not, we're not talking about engagement products like net banking or mobile banking, is the highest for the private banking, which will range between 6%-8%. You go to the next level, which is your Imperia relationship, et cetera, you'll come to 4%-6%. You come down to the next level, which is the virtual relationship management program, that'll be 2%-3%.
The last one will have just a 1 to a 1.5, which is the mass affluent. Weighted average, because a large part of it is in the non-managed part of it, you will have a weighted average product penetration not more than 2-3. That is the weighted average. Or maybe a 1.8 to a 2.2 is where it will be there. That's reality. That also sort of suggests and that also sort of signifies the runway we have. See, ultimately, our job is to engage with customers and serve the customers. The moment you start to focus, you start to penetrate. My point is our 27 years of whatever we are at this juncture is a resultant of our institutionalized sales process and engagement process that we've had.
We probably will be fine-tuning it more and more with better tools and better technology platforms, and you will start to see when our teams start to present in terms of how we can cut down processes, how they can be a self-service or, how we can run this on their own. We believe that without any dramatic change to what it is, I think the runway that we have in terms of just penetrating more. Because ultimately our only job, our main job, which I say internally and also externally, is moving the primary banking to us. The value comes in not from an acquisition, not on putting a product. Value comes in when I move the primary banking where you are the primary bank. It doesn't mean 100% of the cash flows or his transactions have.
At least you should be the market leader with a 30%-40% share, which is the kind of principle we have, whether it's corporate banking, whether it's an MSME. Of course, MSME is different. You know, from a risk perspective, you ask our Chief Credit Officer, he will say that I would like to have 80%-100% flows through me. That's a different model altogether, where we have a self-funding ratio, which is almost about nearing a 100%. We operate between the 90%-100%, and that's a model, the embedded model. Each of the segments that we're talking about, we have an engagement philosophy, engagement process, engagement thought process, various levels, how we because obviously it's, you know, it's not feasible and possible to have 70 million.
We are gonna do the impossible that over a five-year period, we will have a large part of our customers to be engaged either by the physical RMs and the personal bankers or through virtual relationship management programs. Of course, I'm not even talking about the engagement through the digital marketing. That is something that is probably, it may be small today, but it's probably advanced better than what anyone else has globally, and it'll only evolve with better analytics as well.
Sashidhar, just to follow up on this. Can we expect the run rate which you maintain that doubling the balance sheet in five years, the same customer acquisition which you told value-
Yes.
That will also run in the same manner of a 15%? Just on top of that, the private banking, the top-notch, is that segment getting matured in terms of growth? Because the mass affluent can go to 2%-4%, but private banking, that 6% can go to 10%. Is that-
Yeah. Let me answer this in two parts. Number one is when we are talking about a certain amount of growth, we're not compromising on the customer segmentation itself. Our customer segmentation, since you're talking about retail, is the middle and upper middle income segment group. We have a large segment waiting to be tapped. I mean, whether it is already banking with, say, the existing banking system, which is one of our feeders, or it's new to credit, new to banking system as well. We are not compromising on that. When we are not compromising, we have a certain normal distribution curve, which is currently there, which when we are projecting a certain growth rates, which is very conservative, it also factors in this kind of a penetration levels even across.
Since you specifically mentioned about private banking, which you can probably hear Rakesh and team in during the day. Today, we are probably present in a smaller set of locations. The vision for the private banking is that if you are gonna be in thousands in 3,000 centers, our first milestone is we would like to be in 1,000 centers. Now, we are not in the. I don't think we are in the ultra-high net worth kind of category, which is the Julius Baer's, the IFAs, et cetera, or the Motilal Oswal. No. We are probably one notch below, but there's a massive amount of opportunity. You'll be amazed to know that. Just think about it intuitively.
You go to a Roorkee, you go to Dharamshala, you know, you will have 500,000 wealthy people or a Palanpur, where you have 500,000 sight unseen. You know, people who are there, who are living in Palanpur, who are wealthy enough to be a private banking customer. You'll be surprised to know that this is gonna be a key strategy which will ensure that we will be the largest private banking segment in the country today after we reach 1,000, or 2,000 or 3,000. Probably Rakesh will sort of you know explain that even better in his presentations, but that's the opportunity. We're not gonna be trying to do things which we are not an expert. We are not the ultra-high net worth as of now, unless Rakesh, wherever he is.
Yes, unless he has that thought process, which, he will unveil it, in the course of the presentation.
Hi.
Yeah. Hi. Just in the interest of time, we'll go towards the center of the room, if you don't mind, just so we can maximize the ground that we can cover.
Yeah. Hi.
Hi. Just one continuation of the previous question. You know, when you talk about a liability and a customer acquisition and adding the number of customer, one of the key aspect of customer acquisition is, somebody who opens an account for the first time or a minor who turns major-
Yeah. Yeah.
Come to your bank for the first time.
Yeah.
The experience which they get is not very healthy.
I agree.
not exciting, and this is a personal experience I did.
I agree.
In last three months. The kid is so annoying that you have emotional connect with HDFC.
I agree.
That, I don't have that. I don't care a shit, and I'll go to the next bank.
I agree.
What are you trying to do for that?
So-
want to retain him and to become your top-notch customer?
Point taken. Absolutely.
If you can share something about that.
No, you're hit the right point. One of the priorities for me. See, as I said, we all have, the leadership team has inherited a platform and an engine, which is amazing. You know, kudos to the man who built this, Mr. Puri, and his founding team over 27 years. It's a great engine. But one of the things that we need to focus, and that's why it's one of my priorities, is the customer service-first culture. Now, it's a combination of how you interact with the customer, the speed of reaction as frontline people or the touchpoints that you are seeing. And two is even from a process perspective. It is a fact that we probably have not even, you know, re-examined some of the processes which are very, very antiquated, and it's a flaw.
It's a flaw that we need to correct. We've embarked on, especially called the WOW journeys. You know, it's
Walk out working.
Walk out.
Walk out working.
Walk out working. It is. What we're trying to do is the example, a minor to a major, or change of address, or change of mobile number, these are all fundamental instructions. Of course, it is to be in compliance with the regulations, but these are all can be done with a click of a button. I'm not too sure whether the tech teams will do it, but behind, maybe if Arvind is presenting today, one of his most focused areas, along with our quality initiative team, is to see how many can be migrated on a service mode. When I say self-service mode, mean where the customer can do it or when you walk in, whether it can be on an assisted mode. It has to be one click.
It cannot be that it takes the kind of pain that you went through in converting from a minor to a major. It is a point. Today, we do have complaints. It is not. It may be from, for the kind of balance sheet and this, it may be small, but it is not good. We have brought it down by 20%-30%, but it's not enough. So the leadership team, it's one of the biggest priorities apart from employee culture, is a service-first culture, wherein we are focusing on to see how we can get down, you know, to the basic respect to the customer. It's a kind of a wave that we are going at it. We are not perfect. We are not still there. The second one is how do we convert our processes to be a self-service one-click experience?
This is, you know, as I said, when we are talking about key objectives, which is under my radar and in my responsibility, these are some of the things that we are working on, and this is something that may not happen overnight, but it is going down on a wave. We are focusing on this. We have a lot to do. We are not there. I think if I need to have sustainability of growth into the future, that is why this is one of our priorities. You will start to see, in fact, probably, maybe we can unveil it in a public forum, in a public document as to how many such, you know, transactions, instructions that a customer would like to do, how much of this is moving towards a one-click experience. Maybe we will start to put that out.
Just a continuation.
Oh.
Even the eKYC.
I agree.
We see a lot of that on social media, especially a non-individual account eKYC. I think the team, even at a [Bharti branchO, they have a-
Yeah.
They don't know the number of documents required.
So-
The customer needs to keep.
You're right. You're right.
he gets very frustrated, and you lose a very important account from your bank.
No.
It's not something which we as an investor would love to see.
No, I agree with you. These are, especially on the current accounts or the non-individual accounts that you're talking about, a pain. It is a pain area which has been identified, and Rakesh is here as head of the overall product team. It is their responsibility, along with a cohort of people, to ensure that we digitize all these things. We re-examine the compliance requirements, we re-examine the documentation requirements. There is a lot of work to be done on this. Yes. We are saying that whatever we are talking about is with all these inadequacies and inefficiencies baked in. Just imagine by changing all this, you know, you are only going to make it even better. These are priorities that we have recognized, we acknowledge. We have a lot of work to do.
It is my responsibility on this one.
Yeah.
Hi, Sashi.
Sorry. Just in the interest of time, if you can restrict yourself to just one question.
Yeah.
We'll take three or four hands at best.
Yeah.
Thanks.
Yeah. Hi, Sashi. Just two questions.
Yeah.
One is on the from now till merger, when you build your regression on your deposit accretion, how do you see the loan to deposit ratios moving, and how do you see the margins moving during that time? The second part is, post the merger, when you are just a couple of points lower than the SBI in terms of the overall industry market share, would your philosophy on the wholesale loan change, from a more working capital and balance sheet funding to a more project financing kind of a structures?
Good questions. The credit deposit ratio should start to change. I mean, we are probably in the mid-80s% at the moment. Is that right?
Yeah.
Yeah. It has to come down as we start to demonstrate to ourselves, forget about the world at large, that we, our liability machinery can absorb this growth. I wouldn't say overnight, but it should have a glide path to come down from an 85 to an 80 to a 75, et cetera. That's part one. It's not an easy, it's an execution on our part. I think we still have 18 months, and you will start to see that. What will it have an impact? Absolutely. Normally, if you do deploy and put it in high quality liquid assets, it's still a positive 2% ROA. It's not a problem at all. Yes, the spreads will be smaller.
You will have a margin impact anywhere between 15-20 basis points, depending on the size of the excesses that we have. Because, you know, these are things that we have been doing it right from October 2017, so it's already embedded. You know, for a long period of time, we have been carrying a drag of 15-20 basis points. I don't see any reason why we should, we will not be carrying this drag even into the future. It's all right. It's part of the business model now. What is it? The ROA will be +2% because, you know. You wanna explain that why is it 2% ROA?
Well, no. The cost of deposits, when you compare the cost of deposits to the yield that you get on an HQLA, the margin is quite enough that gives you the 2%+ ROA. It's not ROA accretive. The second thing is that from an ROE point of view, also it is actually accretive to ROE, because securities typically don't have capital. You will have leverage capital, not risk-weighted capital. Keeping additional reserves or higher liquidity is actually not a bad thing. It's actually a good thing.
Okay.
If you could just-
Sorry, what was the third question?
For both the-
Yeah. See, I think while we are one of the largest working capital banks in the country today, there is a little bit of a myth saying that we are not into term finance or project finance or infrastructure lending. I think over the last 10 years, I think the bank has great expertise in assessing infrastructure projects, term finance, and you can probably get to hear about it. You can sort of ask, Nirav and Rakesh, and Jimmy in the next presentation, which you'll be surprised.
Today, they will tell you that, you know, over the last 10 years, I think we've become one of the second largest loan and debt syndicator in that particular part of the business, which means that we have been participating in term finance, et cetera. We may have probably started off as only in the brownfield projects, but now I think I'm sure, you know, we are doing a lot of greenfield projects in sectors and in areas that we are extremely comfortable also. I think with one of the advantages, which I did not mention, what the merger will do is to give us the runway for our ability to build for a larger proportion without compromising on credit on the term finance as well. You
It's just going to add to that advantage, because we have that ability to assess credit much better than what we did maybe 15 years ago. I think we're not gonna sort of go back to an era where we're gonna be doling out like biscuits. Obviously, you know, that's not our philosophy. Our credit architecture is independent, so we're gonna do only what makes economic sense. By the way, the businesses, whether it's investment banking team or the business team or the corporate side, are all mature enough and they themselves are, you know, first levels of filters even otherwise. It's an opportunity, and we will be having that advantage to bat on the front foot in terms of bidding for projects and finance, term finance, because we'll have a larger amount of capital than we'll have.
The concentration risk today will be much lower as the capital comes in.
We'll take Ashwini, and then I'll come to you definitely. Yeah. Ashwini, just one question if you don't mind.
Hi, sir. So just one clarification.
Yeah.
You said you'll double the balance sheet in the next five years. Is it post the merger or from the current date? It doesn't matter whichever way.
Anyway, we are doing at 2.4x every four to five years, so.
No, the equation changes substantially because
No, I know. See, the point is, it's as I said, again, at the cost of repetition, growth is not an issue. Growth is gonna be pouring over years. It's how we execute in terms of funding that growth is important. That is the reason why, you know, it's theoretically possible that I can grow faster, but would we want to do that? Because there are two things, and this is 27 years of rich experience, not just for me, but for the leadership team out here, which you will mention. When you start to grow faster than what you can, you know, you get a bit uneasy. If it's possible, we will do it, but we wouldn't want to do that. We would want to restrict only to the extent that our stomach.
You know, sometimes, you know, we've all been taught, and that is one of the greatest USPs of the HDFC Bank, is sometimes the stomach will say, "Slow down," et cetera. Even, you know, even you look at even the COVID period, you know, it's it may be hindsight now, but when March happened, when COVID struck, none of us knew what was happening. But look at the intuition of the entire organization. They just clamped it. They just said, "Enough, we can grow, but we don't wanna grow." Because, you know, this is the beauty about the architecture that we're talking about. I can grow faster, we can grow faster, but do we wanna grow? No, we will try and see multiple aspects, the macro, the early indicators, be the funding.
There are a lot of, you know, points that we need to keep in mind when we are trying to talk about. Theoretically possible, but do you want to really stretch beyond your limits? I don't think we will do that. Yes. When I'm talking about it's conservative because our track record says that we have done faster. Maybe that'll happen. Maybe that'll happen even more because if it is a secure product like a mortgage, and that is driving growth, why not? It's a great secure product with a fantastic quality, asset quality. Okay? But I don't want to push myself and give something to you, and then you will keep us. You know, the very fact that I'm saying that we'll double it serves a big departure from our normal. We don't have a good guidance.
I think we should be happy with what I've said thus far. Anything beyond is a bonus.
Sashi, if you don't mind, I'll just take one question and then come back.
Sure.
Yeah, if you could just, I know you don't have a mic, but I can probably paraphrase. Yeah.
Sir, just probably 50% of your time is now focused on the merger and also the management bandwidth. What is the thought process or what's the growth that you are looking for the non-mortgage retail portfolio during the transition period and the post-merger? This is more relevant also for the post-merger because the salesperson will have one more product to sell to a customer who doesn't have more than five relationships with HDFC. Whether he would be selling a mortgage, a vehicle or credit card. The book is increasing and probably he will be getting more cross-sells. There are two questions.
Two parts to it. Number one is, unlike a bank-to-bank merger, which we have done in the past in 2000 with Times Bank, 2008 with Centurion Bank, this is gonna be a less intensive, it's gonna occupy a lesser bandwidth, and I'll tell you the reason why. They have just 600 branches. We have 6,300 branches. All of them are quality branches, so it's a. I'm adding, as I said, we want to add 1,500-2,000 branches, so it's a straight, simple, akin, in fact it's.
There is a lot of overlap.
It's not there. You know, when you really come down to the grassroots, it's not there. It's just about 6 or 7 branches which will have an overlap. I you know, the quality is so good that we may want to keep it because of spaces. You know, it's even if it's out in Ahmedabad, I have an HDFC opposite and I have the HDFC main branch, you know, opposite to each other. Why not? I have the home loan operations there, so it's good. These are minimal overlaps, so the integration of branches is gonna be so easy for me. Two is on people. 3,500 people, 1,41,000 people. It's no sweat. We are adding almost about 15,000-20,000 people per annum. The quality of people, when you look at HDFC, is fantastic.
You know, they will all probably, they were all handling a monoline product, now they will handle multiple products. It's gonna be upgrading themselves, upgrading their career, giving them a new career path and growth. That's not an easy issue. I've said this openly to the leadership team in HDFC Limited, we wanna welcome all of them. We have seen what it is. Third aspect is on technology. See, unlike a bank where you have millions of transactions on a per millisecond basis, in an asset company, you have a loan to be booked and you have the back end to set up for EMIs, et cetera. It's not a high intensity system.
All that is required, we have where I just consume the APIs into our system so that we can integrate the GL and the aspects of it and into our various relationship programs. Fortunately, that's an advantage now. Unlike in the past, you have a services-based architecture which was not there many years ago. What was the last question?
The growth rate for the non-mortgage
Yeah. Effectively, what I'm trying to say is, am I gonna be spending too much time on the or whether the leadership team is gonna be spending time on the integration? No. We need a battery of compliance teams and the legal teams to do all that is required. We probably need a finance team. Others are gonna be very peripheral. It's gonna be a low intensity, low bandwidth integration. Last but not least on your question. Today, home loan is a part of our product portfolio. It's a part of the product offering. We are not selling it because we don't have the tools or the enablers to help the frontline team to sell.
That is the reason why we have such a low penetration or low set of branches doing it. The moment you start to converge, the moment you start to have your policies converge, open up to be able for the frontline team to sell, actually, he will be delighted or he or she will be delighted. It's a positive because when you look at it is the most easiest product because it's an emotional product. You know, people would love to have a home loan, you know, as against fishing for, oh, whether you want a personal loan or a consumer durable or a car. It is. I believe it's gonna be a going by and you can check it when you go down and you interview the people at the ground level.
You'll be surprised to see the joy that the frontline people will have when they say that, "I now have all the enabling tools to sell a home loan." That is the reason why we have not been able to. Now, when you enable them, it's gonna be a positive.
Just in the interest of time, I need to bring this to an end. We are at 1:00 P.M., if you don't mind. I know I missed out a handful of people, but the sessions beyond lunch are going to give you a lot of those answers as well. If you don't mind, we'll now disperse for lunch. I'm extremely sorry. Thanks.
Anyone who has further questions, I mean, you know, we are on call.
Yeah.
We can be reached. I know some familiar faces.
Yeah, we'll come offline. Yeah.
Happy to take calls. Happy to sort of, you know, talk to them even on a 10, 15-minute basis even outside.
Yeah, we'll do small huddles maybe.
Thank you so much.
Thank you.
What a pleasure to meet all of you. Thank you.
Secondly, RBI kept ample liquidity into the system to fuel growth. What it provided us as an opportunity was, one, in terms of refinancing some of the existing debt that was sitting with some of the other banks. Second, it gave us an opportunity. There were a set of companies who were very uncertain about future and wanted to keep ample liquidity on their balance sheets, and they ended up taking working capital drawings. Third is, we participated into the TLTRO program, and we were one of the most active participants on that particular space. There were certain green shoots. There were opportunities on the CapEx side, and that is what we participated in. While everyone was working from home, we were working in a manner that how do we facilitate work from home better?
That is where we ended up integrating with a lot of our corporate clients on their ERP platforms. Today, as we speak, 94% of transactions, collections and payments are straight through processing at HDFC Bank. 87% of trade is untouched by human hand. We today are one of the largest movers of cash in the country, and I'll cover the volumes as well, but we managed to digitize. For us, pandemic acted like a catalyst to grow our volumes. Over the last six months, what we've seen is, while private CapEx has been subdued, government expenditure has been high. There has been asset monetizations. There have been InvIT structures that have come in.
There is a production-linked incentive scheme of the government wherein fresh CapEx demand is visible and we continue to participate in the growth opportunity. The other thing that people witnessed was in terms of supply chain disruptions. It's not only in terms of the price, but also in terms of availability. All large companies wanted to stitch up their supply chain better, and both in terms of financing and too, in terms of settlements. We did a lot of work there. In Q3 of FY 2022, we launched an altogether new supply chain platform. While whatever I said, what did it translate into? It translated into a 15.7% growth over the last one year in my corporate book, in spite of foreclosures, which were never seen before. How does this compare?
If you look at large credit growth, large corporate credit growth was 0.9% and we grew at 15.7%, so we were growing sixteen times faster than the market. If we see it over a period of 2 years, we have grown at a CAGR of 22%. The good part is the book has been carefully built. Now, different ways in which you can cut this particular book, and we cut it in multiple ways. One way of looking at it is in terms of the breakup of the book between PSUs and non-PSUs. Today 62% of the book is non-PSU, 38% is PSU clients. If you look at it in terms of both parts of the book have been growing well, the PSU book growing at 13%, non-PSU growing at 17%.
The other way you would cut it is in terms of the rating of our customers. My PSU book today has an internal rating of 2.84, which typically translates to triple A. My non-PSU domestic large company book carries a rating of 3.83, which is where at a portfolio level would fall somewhere between a double A plus to a double A at a portfolio level. If I was to just look at it a little differently, today A, double A, triple A-rated customers constitute 93%, 93.5% of my book. If I was to look at double A and triple A, it is 87%. Pure triple A customers are at 49%.
It's not only in terms of the cut, but even when you look at it from the point of view of industry exposures, we are well spread across industries. There were certain industries where we witnessed better growth. The growth came in from agri, food processing, beverages. It came in from infrastructure spends. It came from telecom and services. There were certain sectors like telecom, pharma, chemicals, cement, which saw more foreclosures during this particular period. The beauty of the book is that it has been built in a manner.
While we look at this particular book composition, there is a lot of science that has gone behind the book in terms of whether it is the mix of working capital and term, even within term, what is manufacturing, what is infrastructure, what is greenfield, what is brownfield, in terms of rating-wise distribution. You typically end up having a larger tenor book in better-rated companies and as you keep going down. In terms of historically, this is a business that the bank has built, and we are very proud of the pristine book that we've created in this particular space. Now, putting out asset is just one part of it. Our journey is actually in terms of how are we participating in the larger ecosystem of our corporate clients. That is where working capital and term is one part of it.
How are we facilitating their international trade? How are we moving cash within the country, whether it is collections and payments? How are we adding value by funding both the customers and the vendors of our clients? How are we actually providing digital integration? What are we doing for employees of our corporate clients? What are we doing in terms of tax collections? How are we distributing all the profits corporates are generating by way of dividend distribution? This is one department that does not work only for corporate bank, but works for the entire bank. In true sense, it's one bank that we deliver to the client because some of the products that we offer to our corporate clients does not sit in my P&L. Just to touch upon some of these products.
Today I have amongst corporate clients 2,000-odd relationships, where I have a salary relationship. We have 44 lakh employees working in these, 2,000-plus companies who have their salary accounts with us. Now, this has grown at 14% over the previous year. If I look at balances in these salary accounts, it's INR 54,000 crore plus is the balance sitting in these accounts. That has grown at 21%. I'm not even counting in terms of the retail asset cross-sell that happens on this particular portfolio. We've leveraged our asset relationship to bring in a lot of cross-sell. In terms of trade, we are present across both products, across both domestic and international trade. We are present through domestic factoring, invoice discounting, bill discounting. We are present through export funding solutions and very well spread.
We participate through the non-funded space. Again, there is a science that has gone behind. If you look at my letters of credit book, 82% of my transactions are for cross-border. This not only provides me the ability to handle volumes, but also generates FX income for the bank. If I look at the guarantee space, it's the other way around, wherein 93% of guarantees are issued for domestic purposes, where risk associated is substantially lower than cross-border guarantees that we issue. Now, we handle trade not only in terms of discounting, but even in terms of document handling. If we look at our trade volumes, discounting, collections, imports, exports all put together, we have seen a great traction wherein 48% of growth in our trade transactions over the previous year.
What we have done over this particular period is integrated our solutions with the clients. Today when it comes to EDPMS, IDPMS, and automatic reconciliation, that is where we add value. The 48% growth in volume has not come by magic. It has come because we have delivered a solution to the client that the customer finds useful. Just to take an example, if there is an importer, he has imported a particular article. That import is physically reflecting under the DGFT data against him. We help populate that particular data on our TradeOnNet system. The customer is able to make payment. We reconcile the physical import with the payment going out, report it to RBI, and help reconcile it to the customer's end.
These are kind of value-added solutions that we have offered to our clients to actually come a lot closer and become the primary bank for our customers. If we look at pure TON, when you look at it, there are two parts. If you look at the numbers, there has been 16% growth in total transactions routed through TradeOnNet platform. If you look at digital transaction, there has been a 26% growth. While on one side, we keep acquiring clients, keep acquiring volumes, and once acquired, very soon we try and move it to a digital platform, which helps build volumes without actually incurring a high cost of processing. I mentioned in terms of the supply chain platform that we provided, this product has a great potential, and I have a slide which covers the larger ecosystem here.
Just to quickly tell you, this product will allow me to, one, do everything digitally. At this particular point in time, 80% of supply chain transactions have already moved to a digital platform. Whether it would be going forward in future, whether it is credit underwriting, whether it is loan booking, account opening, documentation execution, all of it would be done digitally. The turnaround time will be the best in the industry. In terms of cash management, this particular service, we are market leaders. There are multiple benefits that we accrue out of this. The first one is, in terms of, for a corporate, current account float is nothing but the time gap between collections and payments. Now, this gives me the more volumes I handle, the larger float I have.
We have seen data over last five years, there is a direct correlation between your collection volumes, value and the kind of current account float that you build in. So this is a business where we have seen, again, in spite of a very large base, as you see in terms of number of transactions, we have grown volumes by 24% and value growth has been 35%. It's spread across industries, and we actually have a solution for each of the industries. What we have also seen is a very quick adoption of the API platforms and host-to-host integration, and the volume growth here is even higher. This is a product that creates more stickiness around the customer.
While we've covered in terms of volumes, which are unparalleled in the market, 94% of total transactions, if I split it into collections and payments, 97% of payments are straight through today. Collections is at 92%, overall at a 94%. While I handle these kind of volumes, my cost to income is in low single digit on transaction processing. When we look at statutory payments, the total direct plus indirect, individual plus corporate tax collection in India last year was INR 27 lakh crore. We ended up collecting purely out of our corporate bank customers, a tax of INR 2.25 lakh crore last year. To this, now that we have the mandate to collect e-freight, customs duty and better engagement with clients, we are going to see the share going up.
This is only corporate bank. As a bank, the share will be even higher, but this is what we contribute in terms of corporate bank. Now, we all would wonder, why am I talking so much about transaction volumes? Now, we handle volumes for a particular reason. If you look at my change in my liability book for corporate bank, CASA ratio was 44%, 45% as of March 2021. With all the digitizations, integrations and garnering a higher share of volume, my liability franchise has improved, wherein, my CASA provides me 50% and fixed deposits are 50%. The quality of the liability book has improved. Similarly, whatever we do, it's for a corporate bank, it is not only about asset income.
If you look at it in terms of various, whether it is fees, whether it is FX, whether it is cross-sell, whatever else I do for rest of the bank, that is what gives me kicker on my revenues. Asset contribution to the total income is reducing, which shows the richness of what we do, leveraging on the balance sheet that we extend to these set of clients. The other important aspect is in terms of my risk-adjusted return on capital, and this is what we measure in terms of profitability. There is only 7% of my customers who figure into a high capital, low return. If I was to be more conservative, if I add high capital, high return, that is another 1% of my book.
There is only 8% of the book today that is consuming high capital but does not generate commensurate return. Now, there is a monthly review that we have in terms of how do we get these 8% customers down. It's simple. Either you get the facilities rated or you improve cross-sell. That's something that is there in our DNA that would always remain. While we talking about corporate bank business, there is a lot of digitalization that can be built on the corporate bank also. We have embarked on an architecture wherein we are redesigning and moving away from the legacy system into a cloud native, resilient, agile, scalable API platform. That is where you saw in terms of the volume growth. We are redesigning both the RM journey as well as the corporate customer journey.
For an RM, what we are trying to bring in is a lot of artificial intelligence in terms of how things can be done. Whether it is in terms of providing a one view to the customer or giving him insight into what product your customer is most likely to buy or timing of a particular sell, or arming him with information in terms of how to price your loan better, or what are peers in the same industry paying, or people with similar rating paying. We've completely changed in terms of the way an RM handles. There is another beautiful initiative that we run today that is called Perform to Potential. Here, what we are trying to do is we've realized that within the same industry business models are very similar.
You pick up an automobile company and you will find that there is a similar model between a Tata Motors to a Mahindra & Mahindra to an Ashok Leyland. If you pick up pharma companies, you will find they have a similar arrangement when it comes to their distribution. Same will be the case with all the cement companies, same will be the case with all the tire companies. If there is something that you are doing right for one of the companies, you've understood the pain point of that particular industry, how well can you replicate it to others? We've realized that all the engagements and volume growth that we are getting today is on the back of not providing a product, but extending a solution.
That is what the technology platform is going to help RM to do better. In terms of customer experience, we are trying to see what more can be done digitally. We are also seeing what on a self-service mode, what a corporate client can do. This, in addition to the transaction banking platform, which is on the supply chain side, in terms of the TradeOnNet side, there is a lot that would happen. The last block is on the ecosystem banking, and we are partnering with a lot of fintechs who bring in certain specialty skills to further sharpen our offering in the market.
It's not only in terms of collecting money today, but if I can do an invoice-level reconciliation for a client and then directly upload it into the ERP system, the customer is ready to pay me a lot more for the services that I extend. Here I'm just, while I've covered in terms of digital, I was told, "Keep a lot of time for Q&A," so I'm just going to very quickly tell you. This is in terms of the client testimonials. Some of the things that they've been mentioning is that we are technology is very flexible, the ease of implementation, direct integration with the ERP system, and all offerings and mindset of digitizing everything. This is what is helping us win clients at this point in time. I spoke about the supply chain landscape. Just visualize this.
There is a corporate at the center. Up to now, offerings from most banks was limited to the tier one vendor. Now we have developed capabilities of even doing tier two vendor finance. This is the deep tier funding that we would be able to do. Corporate may be cash rich, may not require money. Tier one vendor may or may not need money, but the tier two vendor definitely needs money. How do we take the corporate risk of a cash flow and go right up to the tier two? Similarly, there would be with GST, there are large warehouses coming. Certain businesses, you have the 2P, 3P manufacturers coming in.
If you look at it on the entire vendor side, you have large part of your credit risk is mitigated, somewhere partially and somewhere fully. Similarly, when we look at the sales side, there are distributors, there are dealers. There would be things that we would be able to build digitally and picking up with the consent of the customer GST details. A lot of underwriting can be built based on customer experience or vintage with a corporate client of ours. Some of it would be with recourse, some of it would be without recourse. In certain cases, we will partner with the rest of the bank, whether it is our business banking, whether emerging enterprises group, wherein we will create a funnel of customers for them through our corporate engagement.
Primarily, our competition here used to be banks, and we are looking at seeing whether partnerships internally or with fintechs, how do we actually leverage this a lot more. This is another interesting business, and this is a vision. While we would be leaders across a lot of businesses, and more particularly when it comes to corporate bank, we would either be number one or number two across products or at an overall business point of view. This is a business which, where we feel growth potential is large. This is multinational clients. We have a vision that over the next 3 years, we want to become the largest Indian bank to multinational companies in India. At this particular point in time, I have 653 odd relationships, and last one year itself, we have acquired 59 new relationships.
If you look at composition of this particular book, these are customers who prefer to be a satellite in India. Look at the contribution in terms of the liability, FX, cross-sell, salary accounts that these set of customers provide us. At this point in time, as per our identification, we have 2,000 more MNC clients that are available in the country for us to go and tap. This has been divided by country of origin. It has been divided cut across industries. It has been divided across geographies. It has been divided across chambers of commerce or consul general. How do we attack them? To that effect, we have now a Korean-speaking RM as part of the team to go and market to these Korean companies.
That is the kind of focus that we are bringing in to these set of clients and trying to see how we achieve this particular dream. The other growth driver for corporate bank, there are a lot of it is not, you will do search, you will not get these details. Whether it is getting data from various industry sources, rating agencies, ROC database, at this particular point in time, there are 2,237 companies with turnover more than INR 1,000 crore, and that's the segment corporate bank deals with.
Out of this, we have credit relationship with 1,066 customers already. Out of the balance names, if I was to do a simple filter that companies who have rating, external rating better than A and have not been reported ever to the bureau for any kind of overdues or evidence of stress, you come across 617 companies. Now, these 617 companies between them are currently sitting on a debt of INR 11 lakh crore. 80% of it is term, 20% of it is working capital. It is not that because they are rated and not reported SMA, it's not that we may have appetite to deal with all of them. It is not that all of them would want to deal with me.
Even if in terms of a runway for me, in terms of if I was to convert, whatever number out of it comes and sits over what my existing customers provide me as, growth. When you compare it with a INR 4 lakh crore book at this particular point in time, this particular new-to-bank initiative itself is capable of providing us a much larger growth. The next initiative is, and everyone is talking about PLI. What does the PLI opportunity provide us? There are, at this point in time, 14 sectors, 16 schemes. Government has announced various investments. The total incentive announced up to now is to the tune of INR 2,34,000 crore. There are two sectors where the winning applicants have not been announced as yet.
Across the 12 sectors where winners have been announced, it's 600-odd companies that are there. Some of them are existing customers of HDFC Bank. Some of them happen to be new-to-bank clients for me as well as other parts of the bank. We've engaged with a lot of these clients. Some of them have crystallized their debt requirements. Some of them are still in the process of figuring out their total debt needs. A lot of them are looking at raising equity. A lot of them are looking at bringing in foreign direct investment. We are very actively engaged with them, not only in terms of participating in their debt needs, but also in terms of offering services on the FX and other products that the bank offers. Now, opportunities are large.
It is for us to decide what makes sense to us and what do we take. Just to summarize in terms of Corporate Bank, where do we see this particular business going forward? Let me start with the existing-to-bank customers. One is I will continue to work towards increasing my share of wallet on products that I've already sold to the client, and I will try to bring in new products to existing clients. And our exercise on Perform to Potential and benchmarking to the best and bringing in solution should help this endeavor. Second thing is in terms of the new-to-bank clients, we showed you the space where we are not present. In spite of being one of the largest corporate banks in the country, there is still a lot more that can be done.
Third thing is, there is an opportunity that the economy has provided, whether it is in terms of production-linked incentive or it can be to do with asset monetization. We have engaged with a lot of agencies, just to take a name, NHAI, in terms of we are looking at monetizing 26,000 km of road. If you look at it lately, whatever monetization has happened, where does the money come in or who are the new acquirers? These are international companies who are coming and buying assets that are generating stable cash flows for a long period of time. These are the kind of opportunities, whether it is through PLI or asset monetization or the CapEx cycle, as and when they kick in, will provide us avenues for growth.
I spoke about supply chain. It is a risk mitigation tool as well as an avenue for us to lend at better yields at the same risk of lending to a corporate. That is where it fits into our future strategy. There are a lot of new products that the corporates are asking for which the banking system does not provide or does not provide it as widely as the need is felt, whether it is in terms of international trade, export, factoring and a lot of things. While domestic factoring is popular, there are transactions and structures around international trade. All of it would provide better returns than the traditional way of doing things. We are investing into products. We are investing into partnerships that would help us grow this particular business.
I have spoken in terms of the vision to be a very large bank to multinational companies in India. We do believe that digital is the way to go, so continuing to improve our platforms that we extend to clients. In fact, we are now live on TReDS for SME bill discounting, which would help Corporate Bank to even meet the priority sector needs. There are enough and more opportunities that still exist. In spite of coming from a back of two great growth years, we do believe that Corporate Bank can continue to grow and add value to the organization. Thank you.
Wanted to just understand, are there any sectors or segments that you want to avoid at this point of time in the corporate banking space?
Not really. We try to focus on the top performers in all sectors. Of course there will be some sectors where we are more cautious, more wary, but we don't have a blacklist, if that's what your question is. We look to interact as actively as we can with the better performers in every sector. Of course, there are some industries that have many more well-rated companies than others. I'm talking about rating on our own scale. That's how we go about it. We don't blacklist anybody. You'll probably find someone from every industry on our books.
Sure. Would you like to call out sectors on which you're cautious about?
I don't think it's appropriate given that people will be my clients, honestly.
Okay.
Jigney, do you want to move the mic a little bit?
Sure, yeah. Sorry about that.
Sure. Thirdly.
Did you have a reason? I don't mind explaining to you what our ethos is and what we are. If you have a reason or
If you can just pick up a sector of your choice, and between the two of us, we can tell you how do you pick a winner in that sector.
Let's say something like a road project. Road projects, you know, where the right-of-way challenges are.
One of which?
Okay. Let me tell you in terms of the
Good one.
You mentioned in terms of road. If you see evolution of funding roads, it started off with a BOT, then it moved into annuities, then it moved into EPC, and then it moved into hybrid annuities. Now, if you look at it over the years, the risk associated with funding road has progressively kept coming down. Now, what you are looking at when it comes to road, the biggest thing is that you need to look at whether are you taking a traffic risk or are you taking an annuity risk. In terms of traffic risk, if you are taking a traffic risk, and we would be more comfortable if there is an annuity over a traffic, then you are looking at alternate routes that are coming in. You look at who the sponsor is.
You look at how aggressive the debt equity mix is. You look at what kind of support that is being provided. You look at two or three other estimates in terms of traffic that would come in. While people may associate a higher risk, there is so much of opportunity that is coming out in the road space. It's not that I want to participate in every single project, so I will only pick up projects which makes sense to me, and where at the end of it I need to have a good night's sleep, so I don't want to end up having something. What we have built incrementally besides sector capabilities at the stage of underwriting, but we have built our own post-funding, post-sanction, post-disbursement monitoring tools around each sector to pick up early warning signals and take corrective action.
It's not only about originating right or underwriting right, but it is in terms of monitoring it through the life cycle of the project. That is where you will end up picking better exposures in sectors people may perceive are more risky.
I think your example was very, very well placed. There would be several players in the road sector who we don't deal with, and there are several who we do. I hope that's why you understand I didn't want to, because my client is in that industry.
Yeah.
There are pharma companies we would not want to bank with. There are IT companies we would not want to bank with. Now, those are known to be very highly rated sectors. They wouldn't be on anybody's negative list if there is a negative list. That's why I said we look at the good quality in every single industry, and you will find good players in every single industry.
Yeah. I'll just go towards the middle first and then,
Just one last question.
Sure.
You know, there in the last couple of years, you know, and based on concalls that we've had, the corporate banking focus had largely been on working capital financing and maybe on shorter duration loans. Is the focus continues to be on that or are you open to-
Not in the last couple of years. If you went 5, 6 years back, you would probably be right. Over the last 5 years or so, the corporate bank has looked at increasing the duration of the book in a selective, cautious way, and term exposures have now grown to a reasonable proportion of that book. They all remain within the same well-rated entities that you just saw. They're all focused into that space. I would say since at least 5 years or so, the corporate bank has been moving into longer maturities, into project loans, some infra, some manufacturing. It's quite a good mix of these.
Sir. Yeah. Just to add to what Jigney said, term is not only infrastructure, term is also manufacturing companies.
Sure.
Term is also somewhere where you're not taking a project risk. It can be a completed project. Term is also where you are relying on a balance sheet funding, that there is a new CapEx requirement for the corporate, but existing cash flows are capable of repaying the debt even if the project does not generate one rupee of revenue. There are a lot of things that go behind. What is more important is, it's easy to build a term book. What is more required is in terms of maturity while you are building the term book. At this particular point in time, we have triggers in terms of the rating of the client, how much is going term.
At a portfolio level, the system will start throwing out triggers if we are doing anything which is not within our risk appetite. There is, if you end up doing too much of lowly rated guys term exposure, the scores will start going up and it would come into amber or red. If you are doing too much of term vis-a-vis even with better rated companies, there would be triggers that would be thrown. There are control mechanisms that are built in that, while you may create a portion of your book as term, but you are not unduly taking more risk than what you are typically used to from HDFC Bank.
What is the average?
If you don't mind, we'll just move around. Yeah.
What's that?
Sesh, you have the mic. I'll come to you as well, sir. Thanks.
Yeah. Thanks. I just want to discuss the competitive environment in the corporate banking segment. My understanding is that a large part of your success in the last 5-7 years has been taking share away from PSU banks, and that's been driven by two factors. One, that the PSU banks themselves have been constrained by capital and resolving their NPA issues and your superior technology. Reason number one is going. The PSU banks, especially post the couple of private banks, their liquidity also has improved, so they are in a position to start growing. I'm also hearing, you know, from a couple of corporates that some of the PSU banks are seriously upping their technology game by outsourcing to tech companies, et cetera.
Have you sort of run that gamut of taking market share away from PSU banks or that funnel that you referred to in slide 20? Is this a large opportunity to take market share away? What role does the expanded distribution that Sashi was referring to play in your ability to penetrate more corporates?
Okay. Let me try and answer this in three parts. First is, today competition was intense in corporate banking even 25 years back, was intense 20 years back, and continues to be intense even today. What is changing is the way corporates are looking at dealing with the bank. It is, today everyone wants to reduce their touch points. Today, there was a time wherein you would see a typical consortium of lenders to a large company with 20 lenders, and today you would find that they have all cut down their dealings with 8-10 banks. Second thing is there has been this new current account circular, which says that you can only run operational banking with banks who have more than 10% share of your total funded needs.
When you look at it, there were banks with marginal share but were present in those banks. It is not about what they are offering, but are they material to the customer's needs. That is where some of the stronger banks who offer a wide array of products tend to benefit at the cost of smaller banks. That is where one part of the growth that is going to come in. Second thing is a product by itself will not sell. I can believe that, my ENet platform is the best, my TON platform is the best, but in terms of the effort it takes to go across to the client, make him familiar with the product, help him, handhold him through the initial days. Today, for a corporate, in a large company, it is not about going to the head office.
Today, my relationship managers travel the length and breadth of the country. They would visit 12 plants of the client to ensure that they start using a digital product and do it. That is where the execution part of it also plays a role in addition to the product itself. Third thing is, in terms of, today for a company, it is important what kind of quality of engagement that you have. We are a financial supermarket and I can offer everything right from a debt and capital market requirements to working capital to advisory to salary to foreign exchange. The quality of that interaction is very important. At this particular point in time, if you look at it, corporates typically used to keep borrowing foreign currency because it was cheaper. If you have followed what happened.
One, the U.S. interest rates went up before Indian interest rates went up. Two, forward premiums were very high. On a fully hedged basis, it was a lot cheaper for someone to borrow in rupees, even for an export-oriented unit. You can sell dollars, your effective cost of debt would be cheaper than the dollar debt that people were selling. Now, someone needs to keep looking at opportunities and arbitrage that is available in the market and advise the customers in terms of what are the possibilities that they have. Similarly, there are regulations around ECB refinance. A lot of companies ended up taking ECB at a time. Today, if someone was to cover their LIBOR risk or after a year, the SOFR risk, the cost of that particular debt is substantially higher.
If they meet various criteria of RBI to do refinance? This is where engagement is very different. Today, the conversation that you have, you have a client in the cement industry. I can go and tell him, "Okay, give me cash management, give me payments." The customer says, "This guy will come and only talk about one particular thing." If you engage with him very differently, saying that this is what is happening in the industry, this is the area where growth is, this is where you should be looking at a grinding unit, this is where you should be looking at a clinker capacity. The conversation and the value that you bring to that particular conversation is going to differentiate whether you deal with a finance manager or a finance director.
It is going to differentiate whether everything else being equal, who gets the business.
Our effort is to change the narrative and engagement with clients, and that's the differentiating factor for us.
Thank you. That's great, Kalash. Over to Shashi.
Can I add a small word to what he said?
Yeah.
You know, I think throughout our history, I think I used to be in the corporate bank with him right in the beginning. I don't think we ever looked out for who's weak and who we can go after. I don't think that's how we've looked at it. We've actually looked on the other side of the clientele, who's strong and who can we go after. That is what you need to succeed in this. You obviously need the product range, which we have. You need the reputation and the longevity of your business, which we now have, and in the earlier days obviously was much harder. You need perseverance and determination, and you need the tenacity never to give up, because these are very hard clients to break into.
Okay. Hi, I'm Rahul Shukla. I run this new beast called Commercial and Rural Banking. It was created on first May last year. You know, we are one year old. Obviously, my body size, et cetera, may not make you think that I'm a one-year-old baby, but that is, you know, how it is. Shashi, you know, created this group. Obviously the bank had all these, you know, businesses existing, and he put it, you know, all together and said, "This is commercial and rural banking." Now, if you think about, you know, basically this business, there are six pieces of business over here. One is mid-corporate, then we have wholesale SME businesses, so it keeps going down. Retail SME business. You have healthcare finance.
You have commercial where you finance, you know, dealers, their working capital, inventory funding, also retail and so on and so forth. You have the rural financing where you actually finance farmers. This is, you know, what the scope of, you know, this business is. On March 31st, I think, you know, basically the size of the business in terms of book size, asset size was about INR 4,95,000 crore. I think if you look at just the advances, you know, share of the bank, it would be somewhere between 35%-40%, you know, in terms of share. That is what it is. The fact is that, you know, how does this all come together?
Why is this, you know, basically even together, you know, these disparate pieces of business? That was my question, and I think, you know, I could think of only, you know, two or three reasons. Number one is that this is a PSL heavy business. This business mission, you know, has to be that I have to create, you know, PSL for the bank so that retail can grow and, you know, basically, wholesale can grow. I keep telling my team that we are like the middle child. You know, nobody likes the middle child, right? You know, you always think that the eldest is, you know, the closest and the youngest is dearest to the parent.
I said, "But if bloody I create, you know, PSL, then, the company is going to, you know, basically love me for that," right? You know, I enable everybody else to grow. Today, about 65%-70% of, you know, the bank's PSL is contributed by this group and we are increasing, you know, the book size, in terms of just the PSL origination. The second thing is that, if you actually take a look at, you know, where these products get distributed, obviously there is metro and, urban, but, it has a large semi-urban and rural, you know, focus. Semi-urban and rural, you know, that again, basically there is, you can say different businesses, but they-- where we are distributing there is a geography synergy over there, right?
I can, you know, cross-fertilize and I can, you know, run that. It comes with, you know, basically the PSL nature of the bank. That is, you know, the second piece. The third is obviously high growth. 25%-30%, you know, from day one I said, you know. Now it's like the guillotine on my head, and that we have to continue at 25%-30%, otherwise okay. Hi, I'm Rahul Shukla. I run this new beast called Commercial and Rural Banking. It was created on first May last year. You know, we are one year old. Obviously, my body size, et cetera, may not make you think that I'm a one-year-old baby, but that is, you know, how it is. Sashi, you know, created this group.
Obviously the bank had all these, you know, businesses existing and he put it, you know, all together and said, "This is Commercial and Rural Banking." Now, if you think about, you know, basically this business, there are six pieces of business over here. One is mid-corporate, then we have wholesale SME businesses, so it keeps going down. Retail SME business. You have healthcare finance. You have transport where you finance, you know, dealers, their working capital, inventory funding, also retail and so on and so forth. Then you have the rural financing where you actually finance farmers. So this is, you know, what the scope of, you know, this business is.
On March 31, I think, you know, basically the size of the business in terms of book size, asset size was about INR 495,000 crore. I think if you look at just the advances, you know, share of the bank, it would be somewhere between 35%-40%, you know, in terms of share. That is what it is. The fact is that, you know, how does this all come together? Why is this, you know, basically being together, you know, these disparate pieces of business? That was my question, and I think, you know, I could think of only, you know, two or three reasons. Number one is that this is a PSL heavy business.
This business mission, you know, has to be that I have to create, you know, PSL for the bank so that retail can grow and, you know, basically, wholesale can grow. I keep telling my team that we are like the middle child. You know, nobody likes the middle child, right? You know, you always think that the eldest is, you know, the closest and the youngest is dearest to the parent. I said, "if bloody I create, you know, PSL, then, the company is going to, you know, basically love me for that," right? You know, I enable everybody else to grow. Today, about 65%-70% of, you know, the bank's PSL is contributed by this group and we are increasing, you know, the book size, in terms of just the PSL origination.
The second thing is that if you actually take a look at, you know, where these products get distributed, obviously there is metro and urban, but it has a large semi-urban and rural, you know, focus. Semi-urban and rural, you know, that again, basically there is you can say different businesses, but where we are distributing there is a geography synergy over there, right? I can, you know, cross-fertilize and I can, you know, run that. It comes with, you know, basically the PSL nature of the bank. That is, you know, the second piece. The third is obviously high growth. 25%-30%, you know, from day one I said, you know.
Now it's like the guillotine on my head, and that we have to continue at 25%-30%, otherwise they normally have about 1.5 bank relationships, but the bank which was the main bank when they were SME continues to get 70% of the business. When they become large corporate, right, over a twenty-year period, and there would be, you know, 15 banks at that point of time, even then, the original bank where they started will get, you know, 40% of the business share of wallet of that thing. It is very important that the bank manages it very well. In our economy, what is happening is that, you know, it is expected, consulting studies would show that by 2030 there would be about 10,000, you know, SMEs who will become, you know, mid-corporate.
By then there would be about, you know, 1,000, you know, mid-corporate companies who will become large corporate, right? That is, you know, the continuum that you're riding and a lot of, you know, stuff basically comes along with that. This is our performance snapshot. The average asset, you know, last two years, 11% growth, and then 26% growth last year. The income or the revenues that we make, you know, which is just the core income, right? Not the cross sell that comes, you know, other parts of the bank, et cetera, just the core income. In 18% it grew and then it grew, you know, 26%, right?
Obviously one can say, you know, fabulous performance, you know, which is what I'm gonna be saying in my, you know, performance appraisal, you know, discussion with my supervisors, et cetera. But the fact is that is this sustainable? Can this continue? And those are the only two questions that I have to answer for you guys. Is the market big enough, you know, to continue this growth? That is, you know, roughly INR 6, 25,000 crore- INR 6,5 0,000 crore in a year. Maybe, you know, you pull it off. What about next year and what about next year, right? Is the market big enough and do I have an executable strategy, something that is, you know, commonsensical that you know I can continue to grow? These two questions is, you know, what I will answer.
The first piece is the MSME piece, right? You know, I mean, this is a INR 50 lakh crore, you know, credit market, right? Today, banks and NBFCs only cover INR 20 lakh crore. That is the second column. The first is total demand is INR 50 lakh crore. This is a BCG, Jefferies, you know, consulting data and TransUnion and CIBIL. INR 20 lakh crore is what is currently being done by banks and NBFCs. There is another INR 10 lakh crore where borrowers are, you know, borrowing in proprietor's name against LAP and, you know, so on and so forth. There is about INR 20 lakh crore, which is, you know, being serviced through the informal, you know, system. There, you know, the rate of interest is 3%-4%. Right. Now, if they get pulled into, you know, the banking system, it's pretty simple.
Instead of paying 3%-4% per annum, you're suddenly, you know, basically looking at significantly lower interest rate. You make more money, you expand your business, you create more jobs. Jobs is basically an issue that is, you know, quite front and center in the economy today, right? That is why you see a lot of regulatory and government focus in trying to formalize, you know, the MSME system. ECLGS, you know, supported that system. Now they are looking at, you know, other schemes, et cetera. There are a lot of schemes, and they keep getting pulled in. I look at not, you know, that I have as per TransUnion CIBIL 14% market share on INR 20 lakh crore.
You know, as per RBI data where NBFCs are not included, I have 18.4% market share or something like that, right? I look at, you know, on INR 50 lakh crore, my market share is, you know, just about 5%, yeah. I can continue to grow, you know, for a while, you know, unhindered in a way, right? That is, you know, one way we think about this. The next is just take a look at, you know, our growth of lending. And I show this to, you know, make a point. The bars don't have, you know, basically numbers because we don't disclose this.
If you look at, you know, from FY 2016, you know, the CAGR of the growth rate of the asset book in the SME is 26%, and last year is 44%. What happened, you know, basically this 26%? If you see the last three years, the slope, you know, basically becomes, you know, sharper, right? You know, compared to the growth before. These are, you know, the periods that were coincided with the pandemic. During the pandemic, if you were, you know, basically a SME, who was sitting, maybe in Karur or somewhere else, right? You know, you were banking with a particular bank and your digital wasn't working, it was a question of survival.
You needed a bank whose digital systems were working, and you could, you know, basically do trade, LCs, bids, collections, payments, everything, you know, all together. There's a lot of talk, right, you know, on digital, digital. You know, I mean, you can be a digital idiot, and you can sound, you know, digitally very savvy. That is just how it is. The fact is, does that digital work? Now, I can demonstrate to you that my digital works and 100% it works, you know, better than the other banks. When I look at SLBC data and what proportion of our customers are digitally activated and what proportion are using it. That effectively has helped us. You know, the proof of the pudding is in the eating. The branch was there and the digital systems were there.
Even today when I buy, I don't know about you, I buy a laptop in Croma, I tell them to, you know, set it up. I don't try and do it yourself, you know, DIY in my house. You know, that is how it works, that the customer has the benefit that somebody is handholding them, and customer has a benefit, you know, basically, that the systems are good. Obviously, a lot of customers gush, you know, that they can't, you know, do business without our systems. I can tell you that today those systems are so good. You know, what does the SME need? He has to give stock statement monthly.
If the stock statement is, you know, not given, then the limits will drop. If the limits will drop, then 2% penal interest will, you know, happen. Okay, they will email you know, stock statement or give it, and, from the branch, it will go to some central office in a nationalized banking system, and somebody has to update it. There's a gap, and it's a big issue. It's not a small issue, right? In my system, they can upload it on the system, and it gets ticked off automatically by the system as having been submitted. Their limits will not drop, their checks will not bounce, right? They will not have to do penal interest, you know, reconciliation. These are very simple things. The needs of the customers are very simple. You are bidding, you know, today for a contract, right?
You want suddenly you've used up your limits and you need, you know, 20% additional limits. You go to, you know, basically a nationalized banking system and you want those limits. You will have to pony up collateral. You'll have to give data. You know, you will basically take another 60 days for evaluation. There are many areas, you know, like in Andhra. I said the other day also that 6 months, you know, limit renewals haven't happened. Now, if that is, you know, the situation, in HDFC Bank system, you basically apply for that 20% so that you can get that order. It's QED, you know, why customers are, you know, coming to us, you know, upward sloping curve, right? You know, I mean, that is the point that I'm trying to make, that the systems are such.
The second thing is last year's 44%. I today believe that we have a heft in the marketplace that the other than the branches and you know, all our other channels we'll talk about, today the promoters are getting other promoters for us. From the association, you know, if they have their son married, you know, into a family that is also a, you know, promoter family, they will, you know, get. That network effect is, you know, what is basically helping us. It's fantastic because this can continue for a few years, right? You know, it is just a, you know, a positive spiral, curve that, you know, works. This is, MSME market share as per, you know, RBI's data. This does not include NBFCs, 12% in March 2020, 14.6% March 2021, and 18.4%.
For everyone, you know, who basically looks at MSME, micro is a very important, you know, need, right? In the micro and small segment that also we have a 16.6% market share. So we are quite, you know, pretty strong in, you know, this particular area. How we look at, you know, basically our presence, it is the geographical spread. We believe that we have to be everywhere, okay? I mean, our goal is to go out and do banking in 650 districts in the country. There are total 730 districts in the country. I didn't know this number, you know, four years ago, but we all learn, you know, as we go along. But that is where we want to do business. Today, I'm not looking at my position in a state that I'm number one.
I am number one in Gujarat, but if you go down, you know, basically from that small hump, right? You know, from Porbandar to Veraval, my market share is low. I may be strong around, you know, Chennai and you know, around Coimbatore, but if you go to the middle Tamil Nadu around Pudukkottai, my market share is low. Rajasthan, we are number one MSME bank, you know, as a state. If you drive from Bikaner to Bhilwara, my market share is low. Why should I shy away today from doing business in Srinagar? Because now SARFAESI is applicable, right? All the steel guys, you know, in the government infrastructure contract, they have no, you know, basically inventory. All sold out. Cement, all sold out. Why should we not do it? Why have the fear? Because today, you know, things have changed.
Today, there are at least 6 states in which you can do digital mortgage. That is the thing that, you know, basically compresses disbursement timeframe from, you know, 2-3 months to about 2 days. We are pushing that it should be done across. Do you know that in Kashmir today, there is a land passport that is given which is in 3 languages, in Urdu, English and Hindi. Anybody who had any issues about, you know, land ownership, you know, details, et cetera, it is all there. In Uttarakhand, you can create a mortgage digitally, right? You know, I mean, this is how, you know, things are changing so that we can go out and accelerate, you know, giving credit even further. Fairly evenly distributed.
When you look at growth, you know, one of the channels that we use is HDFC Bank branches. Out of 6,300, 5,300 branches do MSME business. Out of 5,300, if we are 35%-40% of the advances of the bank, now just take, you know, how many branches have MSME advances more than 25% of the branches advances. It's only about, you know, 2,300. I still have 3,000 branches where we can push and increase our market share around, you know, that particular region. It comes with referral. People know, you know, it is the same community, et cetera. Good business comes, and that is how you look at it.
We have a long runway other than the market, you know, within our system to continue to grow. This is our MSME GNPA trends. It's you know, TransUnion CIBIL data. You know, the numbers are not there, but the numbers will be available to you if you look hard enough. The topmost line is the public sector banks, you know, GNPA, that's about, you know, 21%. The second line is the NBFCs, you know, GNPA, that's about 11%. The third is private sector banks excluding HDFC Bank, which is about, you know, 7.8%. The lowest line is, you know, 1.4%, you know, which is us, which is as of December, and then it, you know, went down further. I come back to the same point.
Keep growing high. Manage your NIMs, you know, properly. When we grew 44%, you know, on the MSME business, everybody says, you know. I basically go back and say, we grew 44%. But do you know what was the impact on my NIM? We were in a very soft environment, right? Our NIM went down by 1 basis point. 1.44 times, you know, is basically the book growth and 0.99 is, you know, the multiplier, you know, for the, for the NIM. I'm still, you know, growing quite dramatically, right? If you're able to control this, look at the amount of, you know, basically cash that gets generated for the firm. This is a strong moat for the bank. This is not replicable easily.
There are only two banks around, you know, the INR 3 lakh crore, you know, mark. Every single private sector bank is less than INR 1 lakh crore. Whenever they ask me about competition, I say, "Please don't ask me about competition," because we want to do business together with State Bank of India, and we will continue to do that. We don't want to compete. There is enough business for us to go out and do it, but there's a strong moat and the bank knows how to do it. This is our agri business, you know, market share. It is strategically important for the bank. Now, what do I have as a market share? Today I have 6.4%, right, as a bank.
We aspire to go to 9% because, you know, we have to meet our agriculture, you know, lending guidelines, etc. The total business, you know, in this space is about INR 15 lakh crore. That is, you know, the size of the agri lending in the country. Out of that, about INR 5 lakh crore is secured and INR 10 lakh crore is unsecured. The fallacy today in our system is that there are 10 crore farmer families. If you divide, you can say that every farmer has got, you know, from the banking system INR 1.5 lakh of credit. In reality, the banking system has failed our farmers because 6-7 crore farmer families do not have access to any credit. They're not.
Okay, I can be fearful of, you know, basically doing unsecured for, you know, small and marginal, right? But why have that fear? Today you have FPO, you can go out and do that. You have corporate supply chain, you can go out and do that. You can, you know, basically take a security of, you know, gold. Today every farmer has two, three other sources of, you know, cash flows. You can go out and do that. If you go forward and our goal is very simple. First, you know, control the NPA. Our NPA was 4.73%. It was, you know, we're trying to, you know, bring it down to a GNPA number of, you know, about 4% or so.
If you go out and think about it, you know, we are expanding our footprint to 2 lakh villages. There are 6.4 lakh villages in this country. You know, we were at 98,000 last year, March. You know, we were 1.3 lakh as of this March. We will in 2 years be 2 lakh. My push is only to find 2 farmers in every village and give credit. That's all. Only 2 farmers. I'll be able to, you know, basically get all this market share increase and all that, right? A lot is changing because, you know, there is a push towards growing, you know, farm income, farmer's income, et cetera, right?
There are about 25 to 40, you know, different central schemes and then there are many other schemes which basically promote piggery, fishery, you know, ECLGS was one, CGTMSE is another. There are all other, you know, types of rural Agriculture Infrastructure Fund, that where you have government support, you know, guarantee as well as subvention that you can go out and do that. You would have heard that, you know, we did ECLGS fantastic, great. In Agriculture Infrastructure Fund, we were the only private sector bank which met its target that was given by the ministry, and they ran a competition from first February to, you know, fifteenth of March. No other private sector bank did it. Second point is that in terms of total amount of disbursement, we were second only to Punjab National Bank.
All other banks were behind, you know, the bank. The bank believed in that the fact that there is, you know, basically a Agri Infra Fund and, you know, warehouse, et cetera, creation that has to be done. If you go out and do that, the cold, you know, refrigerated LCVs, you know, that were financed for COVID, you know, vaccination transfer, et cetera, you are basically again building a moat, you know, not just around agri-financing, but rural financing, where we have a strong presence, you know, through our GIB business who run, you know, rural ecosystem. The bank is, you know, basically pushing deeper and deeper into, you know, that space without being very afraid of, you know, NPA. This is, you know, our strategy, geography penetration I talked about. Diversification from staple crop.
We don't want to only finance, you know, sugarcane, rice and wheat. We don't have allergy to it, but we want to do, you know, other stuff. Today what happens is that if you are a rice farmer in one acre, you make, you know, INR 25,000 a year. But if you move into a fruit, then suddenly you're making, you know, INR 3 lakh. Go to Kachchh, you know, they call it Kamalam, but it's actually the Chinese dragon fruit, right? You know, I mean there's farms and farms of, you know, dragon fruit. Great supply. From there it goes to the, you know, Kandla Port, gets exported too. Those are, you know, sort of things that are happening. You look at, you know, basically Kashmir today. The apple farming is changing to, you know, high density apple farming.
You go to Imphal today, just 1 km outside. Today, they do rice and fish farming together in the field at the same time. You go to Darbhanga area, you know 55% of your fox nuts or makhana. All of you are English educated and all that, so you will know fox nuts. I know makhana. We eat during, you know, Navratri and all that. That is grown in that area. Makhana grows in a water body or a pond together with fish. You go out and, you know, basically look at financing. There is enough and more opportunities in this country to finance and keep growing. Government schemes we spoke about and small and marginal farmers we spoke about. We just have to shed, you know, inhibition and keep at it. We are on that path.
Small and marginal farmer, we are small. We grew, you know, 37% last year. We are planning for a 100% jump, you know, this year. It's a paradigm shift that we are trying to achieve. Transportation segment, you know, we were—Well, we are number one. Our HCV market share is 28%. CE, commercial equipment, you know, basically 17%, 8%, et cetera. The fact is that whether you take a look at either a captive NBFC of an OEM, you take a look at any NBFC specializing in transportation finance, and you compare my numbers, our numbers are today larger than anybody else.
That is, you know, what the bank basically is doing. Now, the question in this business always is that, you know, this business does great when the GDP growth is there, and then it goes through a three-year cycle, right? You know, that is the transportation business. We have to make sure that our growth is, you know, proofed from GDP growth rate, irrespective of the GDP growth rate. So a few things that we are doing. MHCV, strong. LCV, slightly lower market share. Can I use the CGTMSE, you know, scheme more effectively, right? I can also get, you know, certain OEM support, et cetera.
The second thing that we look at is that, okay, there are INR 3.5 lakh equipment, you know, that gets sold in CV every year, but there is INR 2 lakh, you know, which gets traded in used commercial vehicle, right? That's a Shriram, you know, business. Why am I not strong in that? I have to, you know, basically push that, right? The third thing that you think about is that all the new equipment that gets sold, that's INR 3 lakh crore, right? Every year. Or last year was INR 3.5 lakh crore and, you know, it was three lakh crore. But together with that, when the transporter uses for FASTag, for diesel, you know, for spare parts, for tires, that expenditure in a year is INR 7 lakh crore.
All that we need to do is that you have the largest bunch of, you know, transporters with you and you know their history, and you move into, you know, financing their working capital needs. As you basically start getting even half the market share, for the next five years, you've proved it that, you know, you can continue to grow. Two things that happen. One is that the market size is much bigger than what we think of, and the second is that, you know, how to transition into that, which is, you know, where we are working, you know, in this particular year, in this ecosystem. Healthcare, again, a major growth area. It's a small part of our portfolio. It's a high market share, but, you know, it's just small. Today, every district has a hospital coming up, right?
In UP before elections, you know, they had announced in 14 districts, you know, that there will be a new hospital, and now they're going to cover all. There's a government scheme also which supports, you know, basically with guarantees, et cetera. We are looking at this. It's a very interesting, you know, play. We already have a large market share because if you have 17,000 chemists, 14,000, you know, laboratories, 6,000+ hospitals and, you know, 3.2 lakh doctors, we are just, you know, basically trying to capture more and more, out of this. This is our goal, growth, PSL, and income, which we have to deliver for the firm. How we are gonna do it? A lot, you know, I've spoken about. Geography expansion is a fundamental tenet.
Market share gain continues to happen at a rapid pace. Whether, you know, you can call it is the HDFC Bank DNA or of DNA not of aggression, but of service. Of service. That we want to basically, you know, push credit into, you know, the system. I mean, we are a country where 70% of the rural districts today have a credit to deposit ratio of less than 10%. Then people talk about, you know, growth rate of banks. The banks here can grow, you know, until 2050. So that is, you know, something that we need to do. The government schemes, you know, we have to follow because these are very thoughtful schemes which are changing, you know, the landscape. You know, looking at high cash crop, you know, clusters, et cetera.
We use the channels. We have direct sourcing. We use, you know, branches. We do digital sourcing, you know, through our website. Clients can apply. VRM, you know, today we sell tractors as well as CV, you know, through that, Sampathkumar's, you know, virtual relationship management team. Common service center, there again, you know, we basically look at Kisan credit, you know, et cetera, and we just have to scale all of that up. Our focus is on people, succession planning. Three levels down, you know, if there is anybody who moves to other part of the bank or, you know, leaves, within 24 hours, we should be able to be announcing a replacement, you know, which is where we are ready today.
This business is, you know, about basically going deeper, then you need lot more supervisors in every district and every such place, and you have to get their mindset together. We spend a lot of time in that, and it helps also develop, you know, the managerial bench. Training and focus on productivity is, you know, key tenets for us. This is geographical expansion. You know, from 135 cities, you know, we will be in 250 cities. From 573 districts, you know, we will be in 650 districts. From 1.35 lakh villages, we will be by next year 1.65 lakh villages. You know this. We talked about SME digital offerings. You know, we have all of this stuff.
You know, the key thing I will just come back and, you know, basically show you know, one simple thing. This is our goal. Our strategy for PSL on the right side, and then we are going to do one plus one, you know, for the next three years. Our strategy is very simple. One plus one, then one plus one, and then one plus one. The first one plus one for FY 2023, very simple. Whatever was our book as of March 31 in the MSME business, we are going to do the same amount of disbursement, you know, in this year.
Anybody who comes in, you know, small NBFC says, "You know, my book is INR 1,100 crores." I ask them, you know, "Next year, will it be INR 25,000 crores?" If they're falling off, I say, "Look, you know, the largest market share, book built over 26 years. The bank, you know, basically has the desire to basically do the same amount of disbursement." We will be changing, you know, our systems, which is under development. Those systems are not 5% or 10% upgrade. Those new systems should have the ability of handling 2.5 crore more customers who will come from the informal system, you know, towards the formal system. That is getting rolled out, you know, this year.
Next year, our 1+1 is doubling the number of entities that we bank with. That doubling, you know, before anybody says, you know, we're gonna dilute standards, that is not going to happen because Jimmy is here. Oh, karne nahi dega. The fact is that on 11 lakh customers that we have and our NPA is, you know, excluding Agri 1.15%, out of 6.5 crore customers, you know, we will be able to find 11 lakh more customers of acceptable equivalent capacity. You just have to go deep into, you know, our country. The third year is, you know, basically from FY 2022 doubling of, you know, basically our revenues in the business.
Now, just on digital, you know, I just share with you know, this one slide and I came across this data. There is, you know, one district called Samba, which is on the border of, you know, basically, India and Pakistan, right? It's a very small border. If you take a look at, you know, basically this data, HDFC Bank has 780 customers, which is second only to Jammu & Kashmir Bank. They are the largest bank in, you know, the state, so we acknowledge that. We have the second-largest number of, you know, business accounts. Hey, by the way, you know, 778, 100% is digitally activated. This is not my data. This is SLBC data.
I mean, you can go back and look at all your digital favorites and see, you know, what is their number of customers and what is their activation, right? So in this, same thing, you know, if I show you for, Srinagar, right? Even more stark, right? 8,210 accounts. You know, 8,155, 99% digitally, you know, basically, activated today. So when you come back and look at the secret for success in the MSME business, you have to have distribution, whether it's Srinagar, Samba or Arunachal Pradesh, the bank has distribution and you have to have digital that works. Look at third-party data.
Don't look at internal data because there will always be ideologues internally who will be saying, "See, utilization is so good." So third-party data is a validation, which is what we look at, which is what we live by. I stop there. Thank you very much for listening to my monologue.
Thanks a lot, Rahul. We have about 10 minutes. I think we should start with the right in case there's anybody. Could you please raise your hand and we'll have someone get to you with the mic.
So good because-
Yeah.
Now you're convinced that the market is very big and my strategy is perfect, no? Near perfect.
No. Great presentation and always been learning, listening to you.
Not great presentation. Great delivery.
Yeah.
If you say it like that, all management is sitting here.
Yes. I correct myself. You know, now that we're going to merge ahead-
Uh-huh
In terms of PSL and semi-urban and rural, we always had a strategy to move deeper into PA, semi-urban and rural.
Uh-huh.
With the balance sheet size getting so much larger and PSL is very important, the scale at which we'll have to move up, is it different? What is the strategy in the merged entities context?
No, that's correct. You're absolutely right because that is a challenge. That is also an opportunity. You know, many times you are so successful in doing what you're doing that the windows in your, you know, between your ears inside is all closed. You don't look outside, right? When you go out and say, "How can I do small and marginal?" You will find a way. When you go out and find, you know, affordable housing, you will, you know, then go out and find a way because she must have, you know, spoken a lot about that, right? Farmer expansion, we are doing it. This was our plan even without the merger. Now there is a certain amount of urgency that you have to go. Now, the system offers you two things.
You can do organic or you can do, you know, basically inorganic through PSLC, IBPC, et cetera, right? You will have to transition to a glide path and go out and do that because what is your, you know, solution otherwise? Non-compliance is equal to, you know, putting money in RIDF. That's not, you know, the right way because if the government is pushing you for it, you have to find ways of doing it, you know, responsibly and, you know, that urgency is there.
Necessity is the mother of invention. I can remember a time in the bank when we didn't want to do agriculture. We thought it was very high risk. We probably have India's second-largest agriculture book today with India's lowest delinquency. It's possible. You just have to apply your mind.
On the agri book, you know, all private sector banks excluding HDFC Bank, the total Kisan Credit Card outstanding is about INR 80,000 crore. HDFC Bank alone is, you know, around INR 65,000 crore against that. Their this much, ours this much. At the end of the day between December thirty-first of last year and year prior, we have reduced, shrunk our NPA by, I think 1.2% or 1.3%. Everybody else has, you know, basically dramatically increased their NPA. That's what, you know, basically the situation is. We have to do it. We are seized of it. We've put, you know, people behind it. We've put, you know, policies behind it, and we are measuring and tracking and, you know, we take great pride in that fact, yeah.
In case there's anyone on the left side, if you could just raise your hand.
First question from the last benchers. You said regarding the farmers, right?
Mm-hmm.
What about the farmers who have taken the loans and because of floods, droughts or certain problems, the government waives the farmers loans, like from the government agri banks?
Yeah. Just stop there.
Okay.
I get. So what happens, you know, when there is a waiver and all that? I don't want to wade into that question, but I'll tell you what happens. Okay? Today, you know, you have a Fasal Bima Yojana, and if there is a crop failure today, right? You know, the farmer gets the money. That money, you know, basically takes care of his needs and investments, but that money does not, you know, go out and repay, you know, the lending. Right? So you have to work with insurers to have a better product that not only takes care of the farmer's loss and livelihood, but also takes care of retirement of debt. The system is, you know, basically gradually moving towards that.
The second thing that I would say is that even a 10-year-old NPA does not need to be written off, because there comes a time where the farmer comes out and, you know, basically gives you back the money. For example, in the month of April, we kept disbursing, you know, new loans, but our book was, you know, only shrinking. Why was it shrinking? Because they had so much cash flows from wheat. They were only repaying and repaying and repaying. That is what, you know, you basically went through. Certain systemic changes have to happen. Fasal Bima Yojana is a good first step. Combining insurance for loan repayment is another step. The third thing we are pushing is, you know, for expansion of the pledge financing.
What happens is that the farmer, you know, when they have the produce and they don't have the ability to store it, then they have to go out and, you know, basically sell it at the prevailing price. That could be high, that could be very low. You know, we are buying tomatoes at INR 100. If you go where tomatoes are being produced, that is about, you know, INR 3 or INR 5 at this point of time.
Now, it allows, you know, the farmer, the pledge financing expansion through the regulatory changes to store it and then, you know, basically sell it later, but not have, you know, basically the debt overhang on their head because the bank takes, you know, the risk, or does lending, you know, basically against the collateral that you have with a warehouse, you know, collateral manager, and you give them the money and they repay, you know, their crop loan. That is where the system is going. The rural ecosystem is completely changing. Look, we always think about rural from a agri PSL perspective. That's 1971 when 70% of the GDP was agriculture. Today, only 15% of the GDP is agriculture, but 60% people are still living in, you know, rural areas.
The needs of, you know, credit have dramatically changed. It's not just, you know, farmer financing. Today, the next three, you know, basically big things for which, you know, the farmer goes out and takes loan is home improvement. We can do that. They go out and, you know, basically do consumer durable financing against security. Whichever security, you can go out and do that, and they do two-wheeler and four-wheeler loans. That space is just completely changing, and agri-processing is becoming a reality in this country. You go to Marathwada, where the farmer, you know, used to make in a good crop season INR 25,000 earnings per acre. Today, because they have moved, you know, with the help of, you know, people into fruits, that is about INR 3 lakh , you know, per annum in terms of earnings.
Things are changing on the ground quite dramatically and quite fast.
Yeah. We'll just take one last query this side. Thanks.
I just wanted to know your thoughts on the book which is under Emergency Credit Line Guarantee Scheme. How do you see the asset quality of that book?
Let me just tell you this. ECLGS, you know, when it came, people can think about it, you know, in many different ways. I'm proud of how our bank thought about it, right. You know, MSME lending, everybody does on personal collateral of, you know, the proprietor. Because for years, the proprietor was, you know, basically taking money from the business and, you know, buying property and creating, and you were doing it. Today, after GST, they're not able to take out, you know, basically that cash. The cash remains. So it is transitioning into you don't have collateral buildup. You want, you know, more credit. There's no collateral, and you have to look at, you know, basically the net worth of the company and, you know, then to go out and do lending. That system is, you know, changing.
After 2025, that will be, you know, the predominant mode of, you know, financing. The bank took a view that let's follow the government support. That is number one. My team basically said, "If we give ECLGS, the rate is lower than OD. You know, we're gonna lose earnings. No problem." The fact is that they got 30% extra credit at no extra collateral, right? Now, what did they do in the beginning? When they took, you know, basically that 20%, that is how it started. They went on reduce, you know, utilization of the OD. Today, because of that INR 42,000 crore or INR 43,000 crore that we have lent and we are the number one disperser, the OD utilizations are going up. You've given, you know, basically with the help of government, 30% extra credit without, you know, basically additional collateral.
From 2025, you know, that is also going to, you know, change quite dramatically. The next half of, you know, the decade will be a completely different, you know, scale and game in terms of MSME lending, where you will see a lot of pain, you know, across the banking system, and you will see some clear winners, you know, increasing their lead. Obviously, you know, we would put ourselves in that clear winner, you know, category. Yeah.
ECLGS-
Yeah. Sorry.
Depends on the original clientele you had. If you had good client selection, ECLGS was a liquidity tool for an MSME customer. ECLGS was not a stress management tool. It was liquidity to kickstart another working capital cycle. It was just liquidity, which held up well. It's a misnomer to think that it was a stress management tool.
Great. Well, many thanks. We'll bring this session to an end. Many thanks, Rahul. Jimmy, if you could stay with us, we'll get our next speaker, Mr. Arvind Kapil, Group Head, Retail Assets and SLI. He seems seated just next to us.
Very good afternoon to all of you. Hi, Jimmy. I had the opportunity to meet a couple of you today afternoon. Let me take this opportunity. We presented a day before yesterday, which many of you up here it's uploaded. Let me make an effort to kind of personally take you through a couple of interesting parts. I've tried to make a presentation which kind of touches on a few items. It's a quick one where we kind of touch on. I think I'm taking the opportunity to start with something which we are excited about. That's an end-to-end digital car loan indigenous, which we believe is the first in the industry across India and at times across the world as well, with whatever information we've seen.
Why it's relevant is because I think it's something which is not a me-too product. It's something which we've actually sat inside for hours between us as a team on the business side, credit, operations, and actually come up with a customer at the center and see how we can connect the dots. It took us two years. I've also taken the opportunity to get some dealer feedbacks to give you a first sense of what it is. It's basically after that, I'm gonna cover your retail assets, a few tenets as to how I believe probably you should look at us and what's our plans in terms of across products. A quick memory on what all indigenous stuff that we've done, because I do see a lot of questions at times on the fact that how ready we are on the digital.
Let me start with that as well. Straight dive into it. We call it the Xpress Digital. It's nothing but an end-to-end. Today when a customer, 90% of the customers, if you see today, their car buying journey begins online. If you see, can any of them get disbursed? It's around 1% or 2% which actually can get disbursed. Today, what happens when you wanna buy a car, you land up with a test drive, you land up at the dealership, but you don't walk out after disbursing the cash. You predominantly walk out selecting a car at best. Again, it's an open issue. It doesn't help the dealer. The productivity of the financier doesn't go up. The dealer counter guy is still chasing in multiple calls, all that ecosystem.
Inspired by our 10-second loan, which is of course for existing customers, this product serves the purpose of an end-to-end digital journey. A customer who's not an account holder could walk into my branch and say, "I have an account in a public sector bank or another private sector bank," and in 30 minutes walk out with a disbursal to his dealer with a car booked. You can have an end-to-end, you have a seamless across geographies with the bank that you're hearing are focused on the semi-urban and rural. With our liability franchise expanding at a rapid rate from here on, you need less to-and-fro with the customers, and this is gonna be pan-India across massive amount of touch points. Of course, it's 24 hours by 7, so you can considering most of the 90% of the journeys, as I began, actually begin online.
This could be a great opportunity in itself for us to leverage this at effective cost structures as we go along. A quick summary of this. 90%, the major assumptions when we started this work, 90% of car buying journeys is online. We're looking at 20%-30% of our business moving on to this platform because this is assisted online. On multiple platforms you can do this, even the physical assisted model. You have 40% of annual auto credit products grow in the semi-urban and rural, and that substantiates your case for that belt. If you look at 50% of incremental sales growth likely to come in from that segment and our reach of this to-and-fro in the rural, which is far more scattered, I think could really give us a cutting edge there.
80% of OEMs actually are already building a lot of online API platforms, and I think that is something which we could, together with them and together with the dealer, leverage that strength. Unless we are ahead of the curve, we'll not be able to leverage that. If I can... Can I... Is this the journey?
Yes.
Yeah. I think let me take you quickly through the journey, and you have a digital head who's also gonna repeat this just for you to get a quick sense. The application is around 3-5 steps. You go on Google and everybody searches for a loan. You virtually have this, and then it moves on to your next slide where we've made financing as three simple. If your pre-eligible is done, your mobile number is asked, your data, it'll give you various checkpoints. It'll ask you for an OTP, and it's kind of moving at its own speed. I think just to give you a sense that within no time, approximately 5-10 minutes, your loan and dispersal can be done if your KYC is already with us.
That 30 minutes or 20, 25 minutes has been kept for video KYC in case you're ready. We can do it. A, this builds in massive amount of transparency as well from a governing standard point of view, and the speed of execution across rural and semi-urban. You set up your EMI mandate, your disbursement letter is right there, and that's it. Your loan's done. You're completely seamless, hassle-free. You don't have to carry any documents. If you're filing respectable returns, I don't think you have a problem at all. Can we have the video, please? This is a video of couple of dealer feedbacks. If I can just take a minute or two, it might be worth. These are one of the best in the country.
It's regarding the Xpress Loan, which HDFC has launched, and it's a very good innovation from HDFC Bank. I just told them, take advantage of this. The more faster you do it, the better sales you'll have. In this digital world, the customer doesn't need any verification or even the KYC will be done on the video call. I think this will be a very good venture.
I think this new product that HDFC has launched, Xpress Car Loan, is a fabulous product. This is one more feather in HDFC's cap. First in India, I think first in the world, where such a loan is happening without any manual intervention and end-to-end digital.
Yesterday, I was reviewing one of my GM sales, and he showed me a presentation on how HDFC Bank does an auto loan disbursement within 20-30 minutes. I was really so shocked and, in fact, very happy that this process of a very shortcut, first time heard in the industry, would help us to increase our sales.
HDFC have come up with a super fast sanctioning the finance for our customers. Super fast, I mean to say in 30-40 minutes without any intervention. Just give some small details and the bank will process digitally their finance, which is absolutely fantastic.
When we ourselves experienced HDFC Xpress Car Loan from HDFC, which is the end-to-end digital with their online approval, KYC disbursement capability. We believe now financing experience will also be in our control. With HDFC Bank, we can extend the best high-speed, car buying experience to our customers.
HDFC has come out with a product where HDFC can disburse a loan within 30 minutes. I think I must compliment the entire team of HDFC for bringing such an innovation to the auto retail industry.
Recently, I got to know about the Xpress Car Loan facility, which has been initiated by HDFC Bank. When I got to know about it, I felt that it's going to be a very interesting product as they propose that it's going to take only 30 minutes to disburse a loan to the customer. In the past week, I got to know that a couple of files were disbursed through this process, and it was lightning fast.
Team was excited to see this kind of end-to-end digital process for the first time. Without any documents, customers are getting approval and digital disbursement. Even KYC on video call.
I think these are the six tenets. The top three are the more fundamental ones. I would suggest you should keep these three in mind when you look at our business strategy, because we will keep hand in hand all three. For example, a consistent good quality portfolio, an absolute non-compromisable entity for us. If you look at, we would operate at the best in class yields and margins across industry. That will be our endeavor at all times. Of course, most consistent prudent pricing as a result of that. If you look at the next three, which I see as our strengths and things we're gonna leverage on, the first right of refusal as an open market acquisition.
If you look at most of our products, with distribution and entrepreneurs that we are working, we very clearly have the strength of the first right of refusal. That really means that we almost get the best quality credit or probably the first set of best customers because we probably process it the fastest, as well as our consistency of response. If you look at the indigenous products that I introduced to you, and if you look at the set that I refresh your memory with at the end of the presentation, you realize it's a substantially solid strength, I believe, that the bank and the retail assets and lending rests on. If you look at government business, I specifically put this.
I think this offers a similar opportunity for HDFC Bank as it offered when probably HDFC Bank and private sector banks were launched vis-à-vis the public sector. I think there's a great opportunity here for private versus public on the business side. I think considering the banks focusing big time on this segment as well, on retail lending, we've seen some fantastic growth rates coming in on this segment, and we see that is really growing. Couple of our indigenous digital products will also make it much more seamless and across the table closure. You don't have to make repeat visits because it's much tougher there. Quick aligns in some of the businesses that we do as to what we're planning.
Like I mentioned to you on the unsecured, I see a very big strength coming out of the government segment. We're seeing a very high accelerated growth on this segment. We see that over the next 3-5 years as being lead growth driver for us, where opportunity is unleashing big time. This is also corroborated with the fact that our liabilities is penetrating and our percentages of the public sector is substantially high, and that's gonna unleash massive amount of growth here. If you look at the digital car loans that I showed, we believe that an industry first, 24/7, this should unleash a productivity edge on the auto side and expand our business. Of course, subject to the car availability is coming in.
If you look at the gold loan branches, we want 100% of our branches to be gold loan. Probably there will be some amount of infrastructure putting in on our new branches. We're making effort to put in the requisite space, and all of you are aware that gold needs a certain security and some 70-80 sq ft at the minimum. All new branches, it's our endeavor to kind of strengthen it with that infrastructure. Also, it has a direct synergy with our rural and semi-urban strategy that we are putting in place, and I think we are putting in a lot of effort here. I see that probably yielding over 3 times our present distribution now, and probably by third quarter we should get close to most of the branches that we are launching. The digital end-to-end personal loans.
Today we have a 10-second loan for our existing customers. We are work in progress and hopefully by the third quarter, closer to the end of third quarter, we should be in a position to do an algorithm-based, a very smart option, even for a quick digital personal loans for even non-account holders. That should unveil the next level of agility and growth, even on the assisted model, because we do believe the assisted model also will run parallel to an end-to-end digital model for couple of years to come. On the expanding geographies, I think, for retail assets, we're constantly expanding with speed and semi-urban and rural in the home loan and unsecured loans to cater to demand of enhanced productivity. We're seeing that. We're setting ourselves ready for that opportunity to tap in.
I think one of our strengths that I wanted to highlight was that the digital really leads to a substantial reduction in our TATs. Even if the customer is not fully digitally accessing us, we've managed to connect it, whether it's open market or slowly connected even to the branch, where the customer could be serviced in an assisted form and in a safe environment where he could actually be closing it and the delight kind of stays exactly the way we had planned it for. I think on the home loan side, yes, we've announced the merger and we will take it as it comes in on the regulatory side. I think on the home loans piece that we do, we are looking at three fundamental tenets where we see that the bank brings in massive strength.
One is HDFC Bank's strength on the corporate salary base and on our multi-product bouquet that we kind of connect up on the corporate side with multiple teams. I think home could see a substantial strength there. On the government segment, as I shared with you, we're putting in massive amount of focus, and I think that's another area where there's a fantastic connect to synergy, and we see that playing out very well on the home loan side. One more big area, I think if you look at our right of first refusal at the entrepreneurs and DSAs, both for unsecured and for couple of other products, I think that distribution is substantially solid, consistent. They work with us for 10-20 years, and I think that strength, a lot of them do home loans.
Considering that we are market leaders in most bouquet of products, this itself should unleash the new level of strength for us on the synergy side. Analytics skill is the cornerstone for our backbone in terms of a lot of stuff that we succeeded, because a lot of stuff is not just technology, it's also the way our risk guys are able to connect the dots and unleash that strength. Plus, added together, the analytics arm both on the marketing side and on the risk side, for us to optimize our efforts. I think over the next three to five years, we see robust growth rates with those three tenets that I shared with you. We see a consistency of us going in, and I think in my limited view, merger should add substantial value.
A quick before I close, a quick recap on the stuff we had done on the indigenous side. The reason I'm highlighting this is to just share with you the strengths, because at times, a lot of us think that everybody does digital, but how many of them, as retail lending that I represent today, are able to launch indigenous products, which could be the first in the industry, not once, not twice, but we do it repeatedly. You look at the 10 seconds we'd launched, it's a fantastic success. We do substantial business today. It opened up multiple doors for the bank. If we look at the digital loans against shares. The loans against shares was not invented by the bank, but we did convert this to digital. What did it do? The 7 days became 3 minutes.
Today almost 80% cases get processed digitally. A lot of them are assisted. Imagine the convenience that the customer has. Even a branch could help him to close it. Similarly, if you see loans against mutual funds, the minute we made it digital, today we exude a strength of 90%. We didn't invent this product. We kind of connected the dots that it made the 6-7 days come down. It expanded our reach to rural areas massively. We had to have a couple of meetings with the regulators here, because it's not an easy product. Even if you look at Xpress loans, it's not a straight like a personal loan where it directly credits to your account. Yeah, the next one. I think this is a product that I shared with you. We're excited about this.
By hopefully close to third quarter, we should be coming up and launching this. We have been more prudent on this one. This is an unsecured version. The idea was not just to launch digital products, but launch and sensibly build on it. I hope we'll be able to. We're quite proud and excited about it, but I think let the rubber hit the road and let's see how we pull this off with success. The aim is to constantly challenge ourselves. There's nobody in the market that we really need to look up to right now. I think the whole idea is that can we keep challenging ourselves and keep moving in a certain direction and connect the dots, whether it's on segments, whether it's on indigenized products, or whether it's building the framework for us to be consistent growth at sensible pricing.
I think it all connects up to be a business model that can stay in business for years to come at sensible terms.
Yeah, Sashi. Yep. Thank you so much. Over to any questions if you guys have any. Thanks. Sorry about this. Yeah. I think this we need to change.
We can do a quick round of questions. I see a hand up here. If we could get the mic to this table, please.
Yeah. Hi. Yeah, my question is more towards gold loans. I mean, you've clearly stated that you want to be aggressive and you want to increase the become a pan-India sort of a player. My question is, what are the ticket sizes that you are targeting right now in gold loans, or are you sort of indifferent to it? Secondly, we've already seen a lot of, we can say a pricing pressure in the NBFCs, given that the PSU banks have been very aggressive. Now, even if the private banks are now getting aggressive. How do you see this space entirely? Do you see a lot of migration happening from the NBFC space, or do you feel that the market, gold loan market itself is seeing a lot of expansion from here on?
Okay. Before I think, Jimmy, why don't you take up the risk side, and I'll come back to answer.
I don't think we get aggressive on gold or any other product. We're already a national player, and all we want to do is distribute gold loans through a larger and larger number of branches, and soon enough, virtually every single branch that we have. Ticket sizes in gold loans don't really need to be regulated because, of course, there are some norms and, you know, you can't do more than 50 grams of bullion and that sort of stuff, and frankly, we don't even do that. You don't need to regulate it because it comes at a relatively granular level in any way. The thing about gold loans, it's an extremely low risk product if you get your operating risk right. There's minimal credit risk in a gold loan, but operating risk is what you need to manage.
The moment you put in the right infrastructure, the right training and the right people, you need, as I think Arvind mentioned a little earlier, in a very small area, you just need to have that infrastructure in place. You need it backed up. You need a cool 100% redundancy on that technology because you can't afford to get a single case wrong. Once you actually have the gold in the bank, it doesn't really matter what the ticket size was. It doesn't matter very much who the customer was. Of course, we have our filters and cutoffs, and we have them beyond where we are. Historically, our gold loan customers have been a little different from what you would find in many NBFCs, but that may not remain, and it doesn't need to remain, is the point I'm trying to make.
You control your operating risk, you will not have a problem in gold loans. It's as simple as that.
Yeah. No, I think one of the reasons we are also rapidly expanding is we're planning it much better in terms of, because like Jimmy also alluded to it. You need a separate vault and a separate space of that 65-80 sq ft. I think we're planning it much better. As you get it more in the semi-urban space and start getting into carpet bombing situation, I think gold can be a very high synergy is the feedback, and I think that's where we're leveraging that strength. Where will we get our growth? I think we have a one way up from where the kind of size we do in gold. I think that's where we should be able to build strengths on that.
I said a little earlier, and I just want to repeat, we're not targeting nationalized banks and we're not targeting NBFCs. We're targeting customers. I think that's a point I'd really like to express because it's never been our strategy to look at somebody else's plate and see how much food we can take off it. That's not us. That's not us.
In case you have any further queries. Yeah. Could we get the mic here, please?
In the morning and also a lot of times you have talked about the pre-approved loans and say there are something like 77 million-
Sumit, do you want to take that mic maybe?
In the morning, Sashi was also talking about the pre-approved loan. Also, you have been talking about pre-approved loan. I just wanted to get a sense out of, say, 77 million customer that you have offered a pre-approved loan?
Mm-hmm.
How much typically get converted at, say, year one, year two or year three? Second question is how much is your mix of new to bank and new to credit, customers in the retail portfolio?
What percentage you would be comfortable? Is it 25%, 30% or 35%, 40% also you are willing to go?
Of internal customers?
The new to bank and the new to customers. There are two questions. Out of the pre-approved loans that you offer, how much typically get converted? And second thing is what is the max that you would like to be comfortable on the retail side for a new to bank or a new to credit side?
The new to credit we are very cautious about, so I'll be honest and open about that. New to bank does not impact us because we have the models and we have the programs, whether it be auto underwritten, which is the straight through or the manually underwritten, we have programs for everything in every product. The mix of internal penetration into products differs quite significantly. If you look at credit cards, we have extremely high penetration, and I think Shashi mentioned the penetration that we have on auto loans. You have to understand the difference there in terms of customer need. Everyone shops, everyone eats, everyone wants a card. You need to first want a car before you can have the car loan. There is a difference in the penetration due to the nature of that product itself.
When it comes to how much we would be comfortable in terms of mixing the pre-approved along with the regular underwritten, we don't frankly have a target, and you could go to 100%, it doesn't matter to us, and I'll just explain why for a second. We are very, very fortunate that we have the largest and longest database of retail customer behavior in the country, and this allows us to do the analytics that we are famous for. I'm never trying to say that we are the smartest people in the world. Everyone is capable of doing it, but it's the ingredient that's in short supply. We are very fortunate that we have that. Because of that and the head start that that has provided us, as Arun was saying a minute ago, we have to just keep improving what we are doing.
Unlike a lot of what fintechs do, we don't just build models. Despite having better data, we don't just rely on the model that gets built. We actually overlay filters over those. This is what allows it to be done successfully. Product by product, I can tell you the auto underwritten portfolio of HDFC Bank has a lower delinquency than the manually underwritten. This is not because we are geniuses, again. It's because we have the flexibility to control it. Take for example, March 2020, we had a pre-approved base. We were able to truncate it to the extent we thought was safe in the prevailing circumstances at that point in time. We again have the ability to lease it again. We have a very large. You asked how large it is. It is extremely large.
We could probably make a new retail bank if we wanted to. What we release out to the sales staff at any point of time is a mix of what we want to do from a credit perspective, looking at the macro parameters at that point in time. Of course, as I think perhaps Parag or Ravi or someone will explain to you a little later, what the marketing strategy is at that point in time and who we wish to target and which products we need to put at that point of time. That is a restriction. Otherwise the base is huge.
I think we're, what's more important is that, while Jimmy said we are not geniuses, I think we have a process by which we are constantly ahead of the curve. That set of agility does, in my limited assessment, set us apart. The way we have the courage, because every door that you start opening, it opens new doors, for sure. Otherwise, you'll not have courage enough to build your pre-approved, connected with digital, connecting all of that and putting it to the customer for the end result to really work. Yes, it's our constant endeavor, by the way. The most time is spent in saying how your liability franchise, which is constantly acquiring customers, how the bank which is acquiring, as you rightly said, are the new to bank customers, how do we connect the dots?
How do we connect his information with his buy-in on giving him the bouquet of products in the most seamless manner? It's like if you had asked me five years ago to now, I think a lot of the time, whether you call it the risk part of it or marketing part of it, we're constantly with these teams, working towards to get future ready.
77 million pre-approved, so probably the most of the credit check would have been done. Just-
Unless there was-
What is happening is a lot of banks are also offering pre-approved loans and those things, but it hardly matters if the conversion doesn't happen. I'm looking at it out of this 77 million-
Ours is a big piece on actual disbursement.
By the way, I didn't say we have INR 77 million pre-approved in any product. It's not a number we put out.
First, in the morning, I think Sashi mentioned some number about 77 million customers. That.
Sorry.
Some, yeah. How much-
No, but that's not the point. Yeah, please.
Yeah. How much, though, how much typically it get converted? Because every banks talk about, "Hey, boss, we have a pre-approved 10-minute loans," and those things. At the end of the day, it has to be getting converted.
I can ask if you just ask Ajit or someone, we can give you what the share of pre-approved is in the portfolio.
A couple of these things we don't put it in the public domain. I mean, it's a very substantial part of the strategy. That should give you a sense on-
It's large.
how important. Yeah, it's very large.
It's very large.
It's a very high focus because it's very large, and it, this is how it connects us to build our strengths, because we have a lot of liability customers, and this becomes very critical for us not to reopen the entire open market chain and really build up this.
See, it's a very meaningful share as it stands today, but it could easily be made much larger if we want it to. We don't want to take the risk. That's the best way I can answer you.
Yeah.
If we could just get the mic from Sumit just behind you.
Yeah, just two quick questions. One is, I see the launch of these new products. How will these be nudged and discovered in the market? What is the strategy?
How will this be?
How will they be discovered by the customers? Will they be-
How will they be discovered?
Yeah. Because they are gonna think that the bank is when they are thinking of buying a car, right?
No. See, you have, presently you have an online Google search where you go, that's one touch point, just to give you a few examples. You have your distribution, physical distribution. Where do you go for car loans? Where the cars are, which is your dealers. We have counters at almost 100% of the dealers. If you look at the telecalling setup, they themselves will be briefed. Virtually, whether you in your bedroom just say that, "I want car financing. Can I close a loan right now?" From every touch point of the chain, we'll be visible to the customer. Our sales teams right now are physically embedded everywhere.
Everything which is done digitally will either be online without assisted option or right now will run with assisted option, where you have an executive there, but with his assisted help, you can close it there, and he doesn't have to call you again. The loan is done and over with by the time the customer walks out.
The question I'm trying to understand is that I get it that your delight of the customer delights goes up, the NPS improves, and the costs also drop. Doesn't it also give you the opportunity to create net new growth, which you could already be underwriting 20% from the way you have been doing with your network expansion? Does this produce a layer of growth over and above your existing infrastructure? Can your assets grow at maybe, if they were growing at 20, can you do 25?
See, that's the whole idea. I mean, we didn't do this. See, I would assume customer delight. It consolidates your first right to refusal at the counters. It makes the customers talk about you. If you manage to close a loan in 20, 30 minutes, I would assume you will talk to four people, and they will. It'll create a kind of a bullwhip effect, and that's natural to happen. Every customer delight that we try and create in the bank, the idea is to create a massive amount of productivity, massive amount of good name out there, which starts leading into more productivities of various products, including the product that you're selling. That's the whole idea. Including, look at rural areas. Now, rural is so much more fragmented.
Even if you have a branch in any of the rural areas, and the more deeper you get, how many times are you gonna go to the customer to pick up this document, that document? Let's say if he's got a certain teacher in a panchayat, they wanna close for a two-wheeler or for that auto for that matter, and the car can easily get disbursed in one visit. I think other than the cost efficiencies, customer delight, word of mouth, I would tend to believe that it should be. We're very optimistic about it. You have to be on the ball. I mean, there's no magic. You've got to constantly. I don't have a magic wand. If it doesn't work, we'll find something that works, yeah. We'll work. The attitude is, I'm just exuding that attitude.
It's not some magic I have. It's worked so far. The first month has been fantastic, this month. I mean, we will be at it.
Reading into your question a little more, if I can maybe be presumptive and read your mind. It's not just, it's virtually a new channel, but it's also very, very safe and low risk. All these people have been pre-approved.
Mm-hmm.
We know they are safe.
Not the Xpress loans ones.
Not the express ones.
Yeah.
Not the express ones. We're talking about our pre-approved channel. We know they are safe. When they are safe, you would like to preempt the ability of someone to shop around, and you would like to give that instant gratification so that you do get the good low-risk customers. Across our pre-approved basis, yes. Sorry, you're talking about the express loan. That's new to bank. Over here, we definitely believe that it's adding a safer layer. Don't look at a pre-approved ten-second loan as something that's higher risk.
Yeah.
If you do it well, it's actually lower risk. I'd like to emphasize that.
Since you're with this channel, you're also helping the OEM close the sale faster. Are you also seeing you know conversations with OEM which are kind of you know pushing you and giving you some kind of incentives?
That's the next phase. As a matter of fact, OEMs have their own APIs. We are creating our own, so that's not connected yet. As they start building on it, that's what we want to do.
You could even give the customer another reason to kind of.
I think it could be a larger platform. It could be more interesting, where the customer could have an online car selection, the sorts from the dealer, which he can do partly now with OEMs. It could be even on his website, you'll have our option.
The SmartBuy like thing, you know, where if on SmartBuy you get these extra points, which nudges you to do that.
We could look at it, depending on what regulator allows. Yeah.
Okay. Thank you.
Right. In case there are no further questions, we'll bring this session to an end. Many thanks.
Thank you so much.
Now we'll quickly break for 15 minutes for tea, and we'll reassemble. Thanks a lot, Arvind. Thanks a lot, Jyoti.
Thank you.
Thank you. Very good evening and welcome back. We will begin with the post-Tea session. We're now joined by Mr. Arvind Vohra, Group Head, Retail Branch Banking, and Ms. Smita Bhagat, Group Head, Government and Institutional Business, Partnerships, Ecosystems and Inclusive Banking and Startups. Arvind and Smita, please.
Good afternoon, everyone. My name is Arvind Vohra. I look after Retail Branch Banking, and I'm gonna talk about customer franchise build-up, managing life cycle, and how we have been managing our retail liabilities franchise, and how we propose to manage it in future. My colleague, Smita Bhagat, will talk about government and institutional side of business and also alternative banking channels. I'm gonna talk about three things largely. What has been our strategy? We have a simple strategy in place. How we have been executing, and what's our ambition? What is the strategy delivering in context of the credibility that we have built over the last three years? The key part of our strategy is multi-format distribution.
I know there was a discussion in the morning about branch expansion plans that we have and the numbers, but we'll talk about the numbers is not important part. How we are looking at it bottoms up process of looking at what is the right micro markets from both financial and customer point of view and strategic point of view to look at expansion and which kind of format, right? What is our approach to manage customer life cycle? Because you acquire a customer, and then you manage that life cycle with the focus on proactively understanding customer need and then serving them and then be really able to extract the right financial solutions and engage with them with the right solutions as per their needs.
How are you using AI-led analytics to proactively identify customer needs and then build need-focused conversations? Building a service-first focus culture is really the bottom line of our relationship management architecture. Enabling phygital transformation. When you think of branches, we talk about the multiple formats, but don't think of just branches as brick-and-mortar stores, because I think we are transforming our branches. They're neither branches nor offices. They are more of phygital stores or outlets, where we are going to be doing digital rendering while keeping the relationship and humanization quotient intact. Then we'll talk about the growth segments, the rural employee banking and government. What has this strategy delivered us in last three years? Yeah. 2x retail CASA in last three years and 1.9x on retail CASA term deposit.
Just about double the business in about 3 years, few months, right? What is our ambition? Our ambition is exactly similar to that, right? Double it in next 3.5 years or so. Okay? We come to you with a credibility that we have done it in last 3 years, and we're gonna again do it in next 3.5 years. Let's start with the key point, you know. How we are trying to build the customer franchise. If you look at our journey over last 3 years, we used to acquire about 3.5 million, 4, 5 years back, number of customers or customer accounts. In 2018-19, the FY 2019 year that we ended, we acquired 4.4 million accounts, which has grown to 8.28.
The important question is, hey, you're acquiring customers, what are you doing with them? How are they helping you? If you look at the deposit franchise that we have gained from this 1.9x growth in units is actually 2.1x. Yeah. The new customer acquisition value, the financial value we just added, is over INR 71,000 crores, which is larger than the deposit franchise of many banks in this country. Our unique customer portfolio, which means that if you exclude the joint accounts and all of that and put them only under one customer family in that sense, CustID is what we call them, has grown more than 60%, from 27 million to 43 million.
I'll also share with you before I go on to my distribution slide in terms of the strategy and what is the way forward that we are thinking. Number of people we had in March 2019 was, and I just took these figures, some 36,600. 36,600 people in March 2019 in retail branch banking, everybody put together. Number of people in March 2022 is a little over 47,000 people. We've grown our number of people by 28% in three-year period, and we've grown our unit acquisition by 2x and our value acquisition by 2.1x. This set of people not only deliver the CASA franchise, the fundamental core franchise that we build up, they also deliver more than half of retail assets, almost 80%-90% of our business banking assets.
Because assets come in as a hook based on the customer life cycle and the needs at different point in time, right? Retail branch banking is really the owner of creating a customer franchise, managing that in a certain life cycle, and we'll just explain welcome, immerse, nourish, how we have these processes in place. We won't delve deep into the how part. Different interventions come in to engage with customers based on their needs. Our immediate ambition in next 12 months is to scale up to 12 million new customer accounts on an annualized run rate with a new acquisition value ambition of INR 100,000 crore+. This is from the new acquisition value alone. I'll talk about the change in base.
I'll talk about the growth segments separately as well. The six levers that we spoke about, I'll just go into that. First of all, how is our distribution strategy playing out? I know Sashi spoke about numbers in the morning. I have numbers in this same slide as well. The numbers that we're talking about for branch expansion, right? It's a bottoms-up number based on where we see that we are going to have profitable growth delivering it. What is the micro market science we identify or we build on to understand that where do we really put up a branch if we really want to sort of extract market share? It is straightaway linked to our market share goal objectives for a particular territory.
For example, just to a+mplify the point, we aren't looking at setting up too many branches in large cities, right? Where are we looking at? Sashidhar spoke about the example of Keylong. INR 500 crore market. If you set up a branch there, get 10% market share in 2-3 years, that's INR 50 crore of deposit franchise, right? We identified RBI centers where we don't have presence in. We have presence in 6 of 660 districts, right? The centers which are large enough, with INR 1,000+ crore kind of a potential, we have only one branch that has broken even 2-3 years back, more than INR 100 crore of franchise. How do we add there?
Within those also, we use Google Maps, we use delinquency trends, we use assets trends to understand which exact micro market we should be, you know, having our standard branch. A lot of these branches would be having rural salience. They will all be phygital enabled. When I say phygital enabled, I'm going to explain that what kind of interventions. It's all about digital delivery in a physical outlet, so that we bring the best of both worlds. We bring the digitization angle and combine that with the humanization angle to deliver the competitive advantage in the marketplace. In terms of formats, branches is what we usually see, but we have four formats, and Smita will talk about business correspondents in detail.
Other than the standard branches, we are looking at smart banking lobbies, the neighborhood small outlet with just one relationship manager. Digital banking unit with just two resources. The cost, the rentals of these, some of these smart banking lobbies and digital banking units are as low as close to an ATM, right? Behind the distribution numbers that we're talking about, there is detailed bottom-up P&L-led planning on where we are going to be delivering our top line per sq ft and bottom line per sq ft. The way any retail setup or a globally well set up or well-managed retail network should be managed. Within these also, not just set up branches.
I mean, five, six years back, most of the, a lot of banks would just say that every cluster head set up two branches and things like those. Now, yes, we look at bureau data and population, et cetera, but we made it a lot more granular. The chart that you see is every cluster head would have this kind of a chart for every district, right? Every state. Now, this is for Alwar district. It has three colors for different pin codes, right? High, medium, low potential. The potential comes from the analytics-led scoring that we do. You press in the link into this, you go down to a community level data. When you go to an Uber and Ola, you see that where your communities are, right? We identify pockets where a community life is, where a school is, a college is, university is, a campus is.
Right? That's the level of granularity. I don't think in banking anybody in banking industry is planning distribution. It's typically consumer industry way of planning distribution, but that's the kind of science we are, you know, putting behind it. What is that giving us? You know, our typical break-even period has been 30-36 months historically, right? We've cut it down to 55% of our branches breaking even in 12-24 months. Not just that, there are a lot of branches that have broken even in 6, 7, 9 months. Maybe a smaller number, about 10, 15%.
Example of a branch, if you're breaking even in 6, 9 months, you can imagine that location was crying out loud, "Hey, you have a big gap in distribution here." It is not just about expanding branches, it is about putting the right distribution point. It could be a small branch with 4 members, right? Our average branch typically has 10 members. When we start, we just put 4. Rural versus urban. A lot of new branches are going to be coming in rural centers, semi-urban and rural, right? Then identifying the right format. Whether it's a standard 3, 4-member branch or a smart banking unit, or a digital banking unit in terms of giving us the right format in the right place at the right cost.
It's a bottoms-up plan led by financials and customer lens and market share and market opportunity lens. There is no top-down view in terms of we're trying to look at it. Our last three-year growth has come from branch expansion. If I tell you the data on the first slide, I'll go back to that. This growth that we're talking about on the deposit franchise, between March 2019 and 2022, 95% of growth has come from same store. As in retail industry, we talk about same stores and new stores. If March 2019 I had X number of branches, those branches have contributed to 95% of the growth in last three years.
The new branches have contributed 5%, but a lot of these new branches will now start delivering in the next 3-year cycles as they become more mature. We look at our retail franchise in terms of top line, bottom line, catchment market opportunity, as well as same store versus incremental stores and how the contribution is moving. With people strength growing by 28% or 28%-29%, new customer acquisition almost doubling. New customer acquisition value more than doubling is almost 50% growth in our productivity over a 3-year period, right? It's a mix of both productivity-led growth as well as right distribution-led growth that is coming. When we set up a branch, what do we do there?
You know, you get a phygital unit. It could be an SBL, it could be a DBU, it could be a small branch. You do the catchment scoping, where you identify all the customers in 10 different segments. I'll just talk about which those 10 and each one of them is then split into sub-segments, which are 83 in number, 8 of 10, this thing. Each of these segments we identify do the potential dimensioning. We acquire customers. We have welcome call process or welcome visit process. Immersion and nourishment in first 30 to 90 days. We have AI-led tools like Recommendation Advisor and Next Best Action that help our teams to engage with customers based on predictively understanding their needs, using our AI engine.
Relationship management architecture is the overarching piece. In our catchment scoping, these are the 10 segments: education, healthcare, entertainment, localized industries, merchants, rural, government, start-ups, trusts, and prominent individuals. Each of them has 10 to 14 sub-segments. If you were to ask me that, you know, 6,300 branches, how many of start-ups have been mapped in the catchment of these? We can give you that number. I have that number, and I have the number in terms of each of these start-ups further into edtech, healthtech, and seven, eight of the start-up segments. That how many are mapped, how many are in conversion cycle over the next 2 to 3 months, right? It is not just the branch teams working.
You go, typically, a branch team would go and meet the customer, understand the need, and then the branch resources, retail, trade, and Forex resources are a very important part of business customers. EG or BVG resource. We build a team, meet that customer and holistically, you know, bring the HDFC Bank one bank value proposition alive for him. Next Best Action is our tool really for analytics-led predictively understanding customer needs. I think there were questions around pre-approved offer in Arvind Kapil's session. Pre-approved offers is the way to go. But hey, you know, the question I think is right that why spend your time, right?
We predict that, and then it goes in the form of an extension of an NBS, immediate NB, which means the contact and engagement has to be done within 24 hours of loading up into the CRM, right? Interventions like those. We've launched this only immediate NB about 3-4 months back. Customers have got surprised, some of them, that, "Hey, how did you know that I was already thinking about this?" I think we need to do a better and better job. We are not yet perfect, right? SparkBeyond is our partner in helping us do this, and it will keep becoming better. Because RM's feedback also goes back as one of the inputs to the AI engine, because that will keep improving it as the time goes by, because of the machine learning algorithm.
You see some numbers here. Not just liabilities, but we've grown our retail assets, dispersal growth, liability change in base book of more than INR 16,000 crore. From a liability perspective, we have specific enablers, the predictive loss of relationship, which is about low balances, loan rejection. Sometimes you reject a file, you know that liability balance start to dissipate, right? There are surrogates we build to proactively, predictively understand if there's going to be loss of relationship, and then you engage with them. Attracted relationship, value enhancements basis wallet size. My ATS may be a lakh of rupees, but if somebody living in a Nariman Point, having a lakh of rupees comparison to wallet size, I mean, wallet size, it's nothing, isn't it? Probably he should have millions, you know, with us in the bank.
We do all of that analysis and then engage with customers. Hey, what is that? Again, it's not really about going and asking for money. That's not how things work. You meet the customers, you understand the right hooks for the customer from a financial solutioning point of view, and build a holistic relationship and sort of then take it along. You see an example. There is a customer who's doing self-transfer to other banks. He has a loan outside the HDFC Bank of INR 4.8 crores. The hook here has to be you take over that loan and so you get the loan back into the bank, and you also get the self transfers to other banks stopping.
Change in base, if you observe, a lot of banks are not able to grow that. Reason being it typically moves up and down by 2% here and there. We've been able to grow by more than INR 16,000 crore, and that's something that will continue to sharpen as we go forward. We spoke about NAV earlier or the new acquisition value. This is about the base, frozen base or change in base that we talk about. Relationship management architecture, we have the largest in the industry. 13.5 million customers, 5.5 million branch managed RMs, and another 8 million virtual managed RMs. We are constantly innovating there. Imperia, Preferred, Classic have been our standard programs. At the top end now we are adding Infiniti.
You know, more than INR 5 crore of net relationship value. We're adding a differentiated program for semi-urban and rural. How many of you think that Imperia is a word most people in rural will understand? Right? No bank has a rural specific relationship management architecture, right? We are now working Vishesh, Vishishta are some of the things that we are working on, but that has to have very rural centric value adds. Maybe a soil testing program, maybe a crop insurance, maybe a few other things, right? We hope to launch this as early as July. Service first is really the base or the most underlying part of our relationship management architecture, because whatever technology other things we bring in, it's really about serving the customer well.
Just a glimpse of this in about a minute show. A lot of fundamental work in terms of customer experience basics, etiquette, grooming, training. You know, we started this journey of Infinite Smiles or net promoter score. The first thing was that, you know, treat the customer with a smile. You know, experience in HDFC Bank should be as pleasant going to an Oberoi Hotel or a hospitality industry. Long statement to make, but that is what we endeavor to do. Why can't it happen like that? Why don't you get an Oberoi Hotel feeling when you enter an HDFC branch or any bank branch, right? Service is the culture that we are building. Our MD, Sashi, he reads each and every email on customer complaint. I read each and every email.
We would agree that we are not perfect, but our intent is to be the best customer experience brand across industries. When you think of Amazon in your living room, right? We want HDFC Bank name from a service point of view, from customer experience point of view, to be right up there. We don't treat other banks as our competitors, but we treat the best of the digital brands or phygital brands to be our competitors. That's the ambition that we have. We are not there yet, but we're gonna be there over the next 2 to 3 years. We rolled out net promoter score program, Infinite Smiles. We call that Smile Score. Net Promoter Score seemed very jargonese for a large number of people, and we wanted to keep it emotive.
The meat is not measuring just the net promoter score. The meat is in understanding detractors, right? Each of the detractors, getting back to those detractors and see that what is that we need to improve. NPS fundamentally is an improvement philosophy, right? There are a lot of processes we have improving basis this, but there's a lot more we need to do. There are some big ones which are sort of work in progress at this point in time, but we know that which are the processes we need to keep a pace with time. The first part is engaging back with detractors, listening to them, understanding them. That itself is start of a positive relationship even with a detractor. Our NPS score have moved. This is an independent external benchmarking study.
We have an internal interaction NPS also, but we are sharing an external benchmark. This is by Prism, which is done independently by Bain & Company. We have been consistently improving our scores at about 51. You see the peer banks scores there as well. As I said, the real meat is using this as an improvement philosophy rather than just get caught in scores. Yes, improving scores always gives us some satisfaction. How are we achieving the phygital transformation? 3 years back, we had some 67 registers in HDFC Bank branches. They have been cut to by more than 60%. We want to be 0 register, 0 paper, right?
The digital banking units that we are setting up, we are gonna bring them into branches, putting up interesting stuff there, self-service kiosk, tabs with walk out working journeys, and so on and so forth. We also believe that it's important to completely transform how we serve customers, especially if you have to connect to the youth, millennials and Gen Z, much better. This is the age of the QR codes, WhatsApp banking, and so on and so forth, right? Really bank through any channel, whatever you prefer. Whichever channels customers prefer, we should be available in the most easiest way. We are delivering on the walk out working journeys. 100% branches we've enabled with biometric. The concept of walk out working journey is very simple.
Come to my website or come to my branch. By the time you're going out of the door, your journey or the request is executed, right? E-sign for legal documentation and, you know, automating all the journeys. Do we have a video here or next one? Reimagining CRM. Our entire team is now enabled with CRM on the go so that they don't have to sit in an office to do it. You could be doing the CRM interactions, the NB interactions, recommendations, advisor interactions on the go, even be able to register a service request or a complaint from a customer. This is the concept of walk out working, which is what we are going to be enabling, not just in branches, but our website, WhatsApp, QR code, all pervasive, right?
Hi, I'm Rashida Sharma, and I've been a customer of HDFC Bank for more than a decade now. I visited the branch today, Zirakpur HDFC branch, because I had to get my address changed on my savings account. The manager of the branch, Mr. Varun Kapoor, and the concerned staff, they helped me and I could change my address, update it on real-time basis using the WoW Journey app. I am really thankful. I am so elated that I could do it, like, within a second. Thank you so much.
The point here is that, if all of this is available in net banking, WhatsApp, QR, not only customers get delightful experiences, but you know, earlier the process was there is a page in the net banking, you fill that form, it goes to the back end. We have a TAT of two days. There is a sole sitting at the back end. He takes the form, checks it, and does it. Not only we get better experience, but we take the cost out at the back end, right? In this process, it's just written real-time basis into the system. Lot of other digitization programs. Insta Savings is already a big part of our account acquisition. We're already 56% digital between smart app and Insta account app. We wanna take it to 70%.
Current account, Digi Current account and the integrated journeys. There were some interesting questions in Arvind Kapil's session again on, you know, NTP for PL and assets. We want to have the integrated journeys also because the way we manage our life cycle historically, the way I just explained it, even in an NTP scenario, if PL is a hook, right? We could give the customer the option of opening a savings account right there and then itself if it's an NTP customer, right? It's an option. We may not want to mandate it, but at least an option we could give them. You already have the journey through Insta Savings account available, right? Because the preference is if you get the savings out of the customer, it's a lifelong relationship you build. Today, you're giving a PL. Tomorrow, the same customer may need an auto loan.
Tomorrow, the same customer may need a mortgage, right? That's really the glue that sort of works. Integrated journeys of saving with FD, savings with credit card, Demat, personal loans will be on the way in next 3-9 months. Business Express is again for small businesses and MSMEs, where there could be requirements of, you know, bulk salary transfers, completely digitizing their world, where the net banking is not good enough for them and the corporate net banking is really a high-end system, which is a desktop-based system. This is something which is also coming in about next 3-6 months.
It will meet all the requirements of the trade, forex, bulk salary payments, GSTs and all of those related things to enable the small businesses on the go, on the mobile, while they focus on their business part. The other enabler is the life-centric propositions, like typically, you know, any consumer category we should do. A lot of products, end of the day, can get commoditized in our industry, right? But the trick is in understanding customer needs and then create propositions. Some of the propositions may seem very simple: My Account, My Choice. But, hey, can you guess what is the kind of book size we built on My Account, My Choice, which is really about giving number of customers preferences, birthday, his daughter's birthday or a number nine it might be adding up to.
Can somebody guess what is the kind of book size we built on MAMC? Right? INR 25,000 crore over the last three years. Imagine if a customer has a number which has he or she has affinity for, do you think he's going to leave that account ever if he's put his daughter's birthday, right? Simple insight, right? There's no big rocket science or radical innovation there. Similarly, you know, shore cover FDs, health cover FDs, the insight is safety, right? Along with safety, if you talk about a health cover or hospicash, and especially in a COVID scenario, if you get hospitalized, your medical insurance, there are, you know, the companies a lot of times deduct some monies, et cetera, et cetera.
This gives them maybe INR 1,000 per day for up to a maximum of 15 days. The point is not in bundling hospicash. The point is that the team that we have built is able to create, if safety is the insight, then you're able to, you know, put together a set of propositions where that is sort of delivered to the customer. Super Kids program, 3 times or 4 times the ATS. How? Because, you know, the meat is not in the savings account. The meat is in, you know, the tie-up with the BYJU'S and the tie-up with the Jambore, which can counsel students and get them free counseling sessions when they are to study abroad or study in higher education.
Similarly, unique benefits for employee banking, XSPACE and special for the lifestyle customers or lifestyle-focused customers, where Taj, Epicure memberships and other stuff is available. You saw the segment led slide, right? There's a segment led go-to-market and there's a segment led proposition development based on the insight specific to that segment. I'm going to have a doctor's product. We're going to have a senior citizen premium product, right? Imagine a senior citizen, we give them a real good high quality benefit of, hospitalization discount or a medical discount, right? Then when you take it to them, that's where the magic happens.
It's the combination of segment-led go-to-market and segment-led proposition development is one of the backbones, along with the phygital transformation and the digital part that we spoke about behind this customer franchise build-up and journey. Rural. We spoke about rural, why we need a differentiated approach. Opportunity is very, very large. INR 26 lakh crore on deposits, INR 15 lakh crore on credit. Other than the distribution expansion, we are looking at a curated program for rural relationship architecture. More curated credit products for rural propositions, rural opinion leader program, partnership with agri universities. There are 67 of them, and we're planning to partner with them on how to spread financial education and also give the focused value adds, be it soil testing programs and others in partnership with them, and Sarpanch Samaro programs in form of the customer.
There's a completely different and unique go-to-market propositions we're going to build for rural, which is a vertical we have set up, in the vertical that we've set up, recently. Because here our ambition is not doubling in three years, we're doubling in 18-20 months. This is the outcomes that we briefly touched upon. Consistently last three years we have grown, and this is the retail deposit. This is not the total deposit of the bank. Wholesale corporate is separate. More than 2x of the industry, right? We have been gaining market share on all the legs, current savings as well as time. Even on time deposits, which has been little sluggish in that industry level, we have grown more than 2x of that. Right?
If you look at the growth dispersion, not just the growth, right? We've gained market share in 90% of the districts we are present in. Right? That validates the science of how we are building a bottoms-up approach of not just where we need a standard branch, but what kind of branch, and what kind of format do we, you know, need that. This is really our strategy. Customer franchise build-up, be the best customer experience brand, consistently grow at more than 2x of the industry growth rate, and let us focus customer conversation, phygital transformation, and in terms of ambition, deliver 2x again in next 3 to 3.5 years. Yeah. That's all from my side, and we'll be happy to take questions.
I hand it over to my colleague, Smita, talk about government and alternate channels. Thank you.
Good evening everyone. I'm Smita and out of the verticals I look after in the bank, I will talk about government and institutional business and alternate banking channels. Why government? Historically, all of us know that government funds have been with nationalized banks. I would say that they have been enjoying CASA without making much efforts because all the government accounts are with nationalized banks. In last three years, the government has opened up agency business for private sector banks and also lifted embargo in many states on doing business with private sector banks. That is where opportunity has come up. What have we done and why we are focusing here? We have government business is all about payment and collection, and it touches everyone's lives. I'm sure all of us are paying taxes.
All of us are paying bills on a daily basis. Somewhere government touches all our lives and payment and collection has to happen through banks. We have built digital solutions which actually differentiate us and help us to actually take the market share from nationalized banks. Actually in line with Digital India initiative of government, we are able to provide the solutions. On the institutional side, education, religious institutions, healthcare touch everyone's life. Now, today, all of us know that in a play school today, the fees could be between INR 5,000-INR 25,000, and ultimately you have to pay from your bank account. Whether you use any payment mode, you have to use a bank account. Now here giving digital solutions to educational institutions, universities, colleges, coaching centers, et cetera, is a huge opportunity.
I mean, more than INR 2.5 lakh crores is the budget of Government of India for educational institution. Similar budget is for healthcare institutions. We all know that religious institutions touch our lives. 40% of tourism today in the world is religious tourism. All of us. The opportunity across the government and institutional segment is enormous. We have only just scratched the surface. Our strategy focuses on three pillars. The first is central government, state government and local bodies. The second is the institutional business encompassing educational institutions, trusts, NGOs, residential societies, religious bodies, healthcare clubs and associations. The third is expanding reach by leveraging alternate banking channels and partners to increase the reach and distribution of HDFC Bank pan-India with flows of over INR 39 lakh crores budgeted for FY 2022/2023 for various schemes and payouts.
Government of India has unlocked a large revenue pool by allowing private sector banks to conduct business for centrally sponsored schemes and central sector schemes. This flow is augmented by the Finance Commission fund flows that have a five-year horizon. Highlights of government business. HDFC Bank is a leading bank in managing government fund flows. Of the total INR 16 lakh crore of fund flow from the center to the states, about 26% flow through HDFC Bank pipes. This share will only grow further.
We target retaining 8%-10% of these funds by acquisition of vendors and beneficiaries using Saksham and beneficiary accounts. The Single Nodal Agency is a new construct introduced in September 2021 by the Government of India. HDFC Bank is recognized by the Ministry of Finance as one of the top 5 banks processing payouts, including DBT transfers through the Public Financial Management System, PFMS, under the aegis of the Single Nodal Agency construct. Of the 150 Centrally Sponsored Schemes, the bank focuses on top 35 schemes that account for 86% of the total budget allocation. The bank is targeting 20% market share in these top 35 schemes in the current financial year. Public Financial Management System, PFMS. The bank aims to exponentially increase its share across the number of registered agencies from 2%-10% in the current financial year.
This will lead to a 3 times increase in volumes over the next 18-24 months. HDFC Bank is empaneled as agency banker to the Government of India. HDFC Bank is the market leader for direct tax collection with 25% market share. It also holds a significant share of GST collections. At 14%, the bank aims to maintain its current market share for direct taxes and achieve 20% market share for GST and custom duty collections in the next 12-18 months. New business opportunities have opened for private sector banks under various central and state government business. Pension opportunities. The target for the pension book is INR 15,000-20,000 crores in the next 3 years. Opportunities on eNAM Ecosystem. HDFC Bank was integrated in the government's National Agriculture Market, eNAM portal in November 2021.
The bank seeks to garner 10% market share in the next 12-18 months, focusing on all constituents across the agricultural value chain. State government opportunities. The total opportunity identified across states is INR 5.75 lakh crore. The bank's goal is to secure a market share of 10%-15% in the next 2-3 years. Our value proposition. HDFC Bank leverages its wide branch network along with alternate and digital banking channels, as well as partnership networks for conducting its government business. Technology plays a pivotal role in acquiring business, given the volumes and values of government collections and disbursements. HDFC Bank Collect Now is a robust solution for collection and payouts. The comprehensive solution is offered to government and institutional customers to manage their businesses effectively. HDFC Bank, through technology service providers, facilitates plug-and-play solutions.
Few examples of plug-and-play solutions are technology for agricultural procurement. As direct payments become the norm for agricultural procurements, the bank has been at the forefront in facilitating latest technology to state agricultural boards. We aim to take this forward in 10-12 states in the next 12-18 months. The e-tendering and e-auction platform is live in 6 states with INR 8.5 lakh crores of EMD collections, and we are looking to expand our footprint across 12-15 states in the next 18 months. Government Project Monitoring System. This solution helps governments to reduce time and cost overruns. Currently, over 5,000 projects are being monitored across 10 live setups in 5 states. The bank is looking to leverage this solution for business across the rest of the states in the next 15-18 months. SLI and CSR initiatives.
The disbursements done by the Inclusive Banking, Sustainable Livelihood Initiative, and Agri teams are showcased as part of a commitment to participate in the nation's development and act as enablers to acquire business. Institutional business opportunity. India has more than 75 lakh institutions with flows of INR 17 lakh crores. The education and healthcare segments account for close to 85% of the total pool. Other segments include religious institutions, housing societies, trust or NGOs, and clubs, which account for the residual 15%. Education. Approach to drive growth. The bank intends to adopt an ecosystem-based approach to harness the opportunity offered by the education industry. Examples include comprehensive solution with key features for managing fee collection, salary payments, payroll management, et cetera. Partnerships with EdTechs adopting an API banking approach to target growing segment. RegTech, the new mantra across religious institutions.
India is a country with 30 lakh religious institutions. These are estimated to receive donations of approximately INR 23,000 crore per year from the public. This also includes 36,000 temples managed by 23 state governments' endowment departments. Leveraging digital solutions integrated with the bank to collect donations, the bank seeks to achieve 10% market share in the next 15-18 months. Aiding convenience across housing societies. We estimate urban India has approximately 6 lakh housing societies in India that offer a revenue pool of INR 72,000 crore. The bank facilitates a wide variety of solutions, including collection of maintenance fee, event booking along with viewing notices, managing vendors and payments to them, etc. Our mission is to tap the opportunities through various initiatives and double the government and institutional book in the next 24 months.
Technology and digital momentum shaping the country give us conviction that it is the right time to build distribution in pockets of opportunities and support the existing network across all geographies. The adoption of technology, penetration of mobile and internet in the country opens avenues to capitalize on untapped fertile ground with large pool of opportunities by digitally connecting the last mile. We have tied up with marquee partners that have a vast agent network. Distribution structure for a new vertical will work in an octopus framework. Existing branch is at the core, which is supported by 5-8 agent centers from the partner tie-up, covering a radius of 10-20 km, acting as HDFC Bank's distribution arms. The authorized agent centers are capacitated with the digital infra, including laptop, printer, webcam, et cetera.
The bank supports these fixed-point delivery centers with branding, creating visibility, and integrating product APIs to function as an HDFC Bank mini branch and cross-sell all our banking products. The bank rides on the partner network to connect and offers liability, assets, payment products, EMI collection, cash deposit, and withdrawal through these centers. Digitally assisted and unassisted journeys are in play with a combination of fintech and lead APIs, which delivers a seamless and quick user experience securely. We have taken a platform approach, and more than 44 APIs power the customer journey from origin to the source system where the business is booked. Building alternate channel brings in several benefits. A, nil infrastructure cost to the bank with minimal manpower requirement. B, low cost of acquisition for every incremental business. C, replacement of loss-making branches and migration of small value transaction.
Expansion of market for bank and increasing collection capability in deep geographies. There is a parallel contribution on the societal side, lending our hand in nation-building and participating in government's key agenda of financial inclusion and women empowerment. The channel has already done more than 2.15 million products with consistent delivery of 1 lakh products per month. We are on a trajectory to scale up to 5 lakh products per month in the next 12-18 months.
Thank you. I just wanted to add to this that rural was always there. What has changed is adoption of technology in rural areas and how now we are leveraging adoption of technology to retail and sell our banking products into the last mile in the country. Thank you, and happy to now take questions.
Thanks. If we could just have the mics going around. Yeah, please. Sorry.
Thank you so much. As you mentioned on the service part, the scaling which you are giving and, the emphasis was also on to improve the service capability. Currently, where are that parameter stands? Like, we give internal targets on the scorecards for the asset side. On the service side, where you stand and where you want to take it?
We shared this external benchmark of the Net Promoter Score. You saw that score of 54, and we're tracking that versus every other bank. Other than this, what we do is, this is the top-down, which is compared with the other banks. Other than that, the other parameters that we look at, interaction NPS in retail branch banking, in our phone banking. Each of the teams, but they represent the scores for the bank. If I have to tell you about how the internal scores are trending, I think in last, we started this Net Promoter Score journey about, I think, two years back or so. We've roughly improved by about 20-25 points, in that two-year period.
Again, as I said that, I think honestly, if you ask me on a scale of 1 to 10, vis-à-vis our ambition, because we don't want to use this to browbeat about that we have achieved enough. We haven't achieved enough, we'll be honest enough to say. I would rate ourselves at maybe, you know, a significant part of journey is yet to be undertaken. I think the start is great. You go to any branch, and I invite all of you, ask any branch manager what's your smile score, because that is outside in perspective. Then we have an inside out perspective, which is service quality index, where we have our TATs, where we have other things, like activation time and so on and so forth. That is all about how well the machine is working.
NPS or smile score is all about how ready is that machine at generating customer delight or customers, you know, are not feeling good about it. Because recently we changed our TATs, you know, from 7 days kind of TATs to 2 days, 3 days. Because I may come up and tell you that I'm achieving 99.7% of my TAT achievement. But the fundamental question is: Is my customer happy with the TAT that I put in the first place? Slides and statistics can sometimes be misleading. I think this journey is about honesty, this journey is about authenticity, this journey is emotive. We're very proud of the way we started off in first two years, but I think we have a significant road to travel.
Sure. As one more question on, as you mentioned about the government side and institutional, that is the asset side which you are looking as flows. But can you give some color on the revenue potential and the profitability you are doing? More importantly, any scheme where you can give a more detail, for an example, MGNREGA or et cetera, where the flows come from the government and it goes to the masses, and how you tap that masses into the liability and the asset side.
Yeah. You saw that in the presentation, out of the INR 16 lakh crore of funds which flow through banking sector, while the government budget is much more. But, you know, finally the money goes to the beneficiaries. It could be, well, you can talk about MGNREGA, you can talk about various, I mean, farmers, et cetera. We have achieved the first leg, which is getting integration with government departments to get the funds flow through HDFC Bank. Second step is what I mentioned in the presentation, is to work towards retaining those funds. We have already put up products, beneficiary and Saksham accounts, and a lot of focus now is to get beneficiary accounts. For example, highways and land acquire.
Now, land acquisition government has to do, and government has to pay money to the farmers or the landowners who are there. We acquire those accounts, so that the funds can be retained. This is a journey which we have started. See, first journey was to get government to approve agency business for private sector banks. I think we have done a reasonably good job by collections, et cetera, and getting funds flow. The next journey definitely is to work on beneficiary and Saksham accounts big time. The other thing which you mentioned about the schemes. See, the government business is changing in last two or three years if you have seen, and what we mentioned about single nodal account.
The money is moving from central government to state government and they want efficiency in funds and that is why you need digital solution in payment and collections. Single nodal account is where a lot of now money will flow. We have already acquired 16% of those accounts, and our aim is to get 20% of those accounts. Now, the money in those accounts come as and when the schemes are approved and fund utilization certificate is governed by the respective state government. You talked about revenue potential. One is the flow which comes. Secondly, when we engage with government, there is potential for lending, potential for Forex business, potential for salary accounts. You saw, I, we mentioned about pension.
The salary bill of almost every government department and corporation is almost 40, it can range between 40%-60% of the total budget allocated. Salary account is a huge opportunity, and you would have seen, Rahul, Arvind mentioning about how everybody's focusing on this segment. There is a huge rep-
Just this, whatever the flows which different ministries you are getting or for agency, do they get rotation basis to the other bank also? Is government-
No, no. Yeah, yeah, sorry.
Yeah.
Let me answer. CBDT collection was, besides nationalized bank, it was opened up only for ICICI and HDFC initially. Last year, they have opened for all private sector banks now. It is dependent that how many customers you have and what is the kind of engagement you have. That is where you see, we are very happy to speak about, while CBDT collections we have been doing now for almost 9 years, GST collection for last 3 or 4 years. Customs duty we started in January, and we already have a 7% share, which is reflection of our, customer base as well as the, relationship management which we have. You also, you may have multiple accounts, but we want the funds to move through our, accounts.
We'll take the next one from Hiten. Hiten.
This refers to the slide 2 in your presentation, where you were saying the growth of CASA and retail TD. It has virtually doubled in last 3 years. The ambition is also of doubling it in the next 3 years.
3-3.5 years.
Yeah, 3.5 years. But, given what we heard in the initial presentation, the focus will be on liabilities. That's a challenge, which you have to prepare before the merger. I was a little curious. I thought that next 3 years should be faster growth in liabilities versus the last 3 years that you reported.
I mean, if you just look at our retail deposit book, it's roughly about INR 11 lakh crore, right? If you are saying doubling from here in three and a half years, it is another INR 11 lakh crore on that large base. At an absolute number level, difficult to give you targets for this financial year, but it's going to jump up. For example, let's say we delivered on retail deposit side is roughly about INR 180,000 crore, 185,000 crore last year. It's going to jump up to something like 300,000, 400,000, 500,000, that kind of numbers. When you look at absolutes, you will see the absolutes are very, very large, right? And that more than meets our sort of the requirements. One is looking at doubling versus doubling.
The second is looking at an absolute rupee value, how much are we adding?
Sure. Another question was on branches.
Sure.
Again, last
I heard this one is a favorite one since morning, so.
Last 5 years, your number of branches has grown at a CAGR of 6%.
Okay.
You're guiding for doubling the branches in next three years.
No, no. First of all, I think, I'm not guiding for any particular number of branches. I've tried to explain. Sashi might have given you his view in terms of how he foresees it, but let me explain this point really, really well. There's no number in mind. I'm not going after expanding. There's no number which is coming top-down, okay? It's all a bottoms-up plan, and I'll tell you this little bit in detail. For example, I'm sure Sashi talked about Keylong because he went there in March to inaugurate that branch. INR 500 crore deposit market, no private bank in that town. None. We're the first one to enter there. If you pick up 10-12% market share in 2-3 years' time, that's INR 50-INR 60 crore, right?
Now, when I cut my RBI centers, there could be X number of centers, right? I'm not giving you numbers, but I'm telling you the thought process in terms of building blocks. Which are above INR 300-400 crore in terms of current size. Leave the growth that catchment will also grow to. Leave that aside. That's a top-up, right? I don't have a presence there today. Alternatively, at layer two, there is a center which is INR 1,200 crore, and I have only one branch, which is INR 120 crores, and that broke even 4 years back, right? A lot of our expansion is going to come in semi-urban and rural, right? There is no number that we are chasing. It is going to come up through this bottoms-up process.
Bottoms-up process also doesn't throw up that I have to do a branch. It could be a branch. It could be a smart banking lobby, which is more of a captive concept. It could be a digital banking unit, right? As I explained that smart banking lobbies and digital banking units are coming to us or almost at the rental cost of an ATM, right? With one or two resources added. They're extremely cost efficient. Based on the catchment potential we see, that whether we put up a physical small branch with let's say 1,200, 1,300 sq ft or a 500, 400 sq ft ATM, kind of an extended ATM, kind of a smart banking lobby. It's a fairly P&L driven exercise, customer driven exercise, and catchment potential driven exercise.
Whatever is going to come through is going to come through this bottoms-up number. Yes, there's a number that has come up when we have run this exercise in last 3, 4, 5 months, okay? For next 1 or 2 years, but we run that for just about 1 or 2 years. We do see a potential where it is going to be not just extremely viable, but it's going to be an eye-popping opportunity. Remember, last 3 years, we've extended our branch expansion, but we cut down our breakeven tenors, right? Our breakeven tenors prior to 2017, 2018 were in the region of 30-36 months. Couple of years for metros and close to 3 years for... Average is about 30 months or so, right?
Now, 60% of the branches, we are breaking even in 12-24 months. There are branches that I explained to you in the morning, and we can share those names. 6 months, 9 months, we have broke even, right? Now, if you had not done those branches, which are breaking even in 6, 9 months' time or 14 months' time or 15 months' time, if we don't do them, we are just committing a harakiri to our own growth. Merger, no merger. End of the day, we've got to do the right thing from the opportunity, the point of view that we, that we see. However, merger is a contextual thing, and I think it is also going to aid in that process, right? Honestly, my view is even if the merger merger or no merger scenario, may be, I'm agnostic to it.
Even then, we would have done the same because it makes business sense for us to do that. It's a bottoms-up kind of an exercise driven through three axes, market opportunity, customer lens, financials. The P&L financials in terms of the top line, bottom line, and the breakeven period that we'll be able to do and the reduced breakeven that we've been able to achieve of 18-24 months or 18 months on average versus about 30 or 35 months. I think we'll be able to sustain this primarily because of our approach, okay? We have 500 cluster heads. Every cluster head has got this kind of a rewarding map that I showed you. What is a PIN code?
There could be 10, 15 PIN codes in a district, which is high, medium, low potential. Then you zoom into that PIN code. Then you understand that here the school is, here the college is, here the bank branches are, here the BCs are. Not mine, industries. Then analyze that which micro pocket should I have a SBL or a DBU or a small branch or a BC. If it's a BC, then we rush to Smita. "Hey, Smita, you know, this is a very low potential branch. We need a very, very low cost, variable cost model. We'll just put up a BC here." Right?
No, I would-
That's how we try to work it out. Octopus strategy you saw is really, you know, working out with that, Smita.
Just to add, like Pulwama, Anantnag, Kargil, Purulia, all these places have huge amount of deposit base. Now, it may not be easier to have many branches out there, but when you have partners who already are working there and integrate your product APIs, you obviously will get that share as well. Complementary strategy with branch expansion, digital units, agent network, partner network, helps us to reach out to all these pockets of deposits.
On branches, it's a bottoms-up exercise, right? The number is an indicative one, but we're going to test our parameters versus the bottoms-up approach, and that's what we are trying to explain here as well.
Yeah, in the interest of time.
Thank you.
We'll bring this session to an end. Many thanks, Arvind. Many thanks, Smita.
Thank you.
Thanks a ton.
Thank you.
We'll now begin with the next session. May I call on stage Parag Rao, Group Head, Payments Business, Digital & IT, Anjani Rathore, Chief Digital Officer at HDFC Bank, and Ramesh Lakshminarayanan, Chief Information Officer at the bank. We just have a very quick. Because the slide deck is very similar to what was shared a couple of days back, we'll not go through the slide deck completely. There'll just be an opening remarks from Parag and team, and then we'll open up for Q&A. That might be more efficient. There's also a little bit of time for demo that Anjani can then take us through. Thanks. We can actually directly begin with the Q&A.
I mean, the slide deck remains very similar to what was already shared in the public domain a couple of days back, so I presume there are no big secrets there. Yeah. In case any of you have any questions for Parag, Anjani or Ramesh, if you could raise your hand we'll make sure the mic reaches you. Or we'll directly take you to demo one of the tools.
Hi, can you hear me? Yeah. Alright, right back.
Yeah.
Hi.
Hi.
If you could talk a little bit about the customer experience on some of the interfaces like the app and so on. Historically, we've had issues and so on. At this point in time, could you walk us through what are the fundamental changes we are doing? Because I understand, like, a lot of the IT stack can be legacy and it might take a long time to change that. Could you walk us through what we are doing fundamentally to make sure that our consumer experience is as good as some of the newer digital players or fintechs and so on? Thanks.
Thanks. Let me put it from a product point of view. If you see in a customer selection and a distribution channel point of view, I think the bank has always been sort of up ahead in terms of addressing customer needs in segments, et cetera, with conventional banking products across the length and breadth of retail and wholesale. Okay? That's been a strength. That's what has sort of led us, the bank, to be what we are today after 27 years of existence.
With the emergence of the digital, if you may call, so do it yourself, sort of environment change which has happened over the last 5-7 years, I think increasingly a little bit of what was exposed is that the customer UI/UX is not up to par compared to many of the apps who work only purely in the digital world. That being true, okay, we clearly said that that's an area which we need to build upon. That alone is not enough in the new digital world. There are added dimensions to our larger transformation.
UI/UX, customer experience, looking at user journeys, making them simpler, focusing on do it yourself, which is what you call unassisted journey, and also having in an India type scenario, the unassisted journey is also available because not everyone can and will be comfortable with just doing everything yourself. That was one layer of experience and change which is part of our transformation journey. Okay? Important, and I'll cover that after this. There are two more legs after that, I think, which has added the scale and enormity of the kind of transformation journeys which we've done. One is obviously the scale. We're an extremely large bank as part of the ecosystem. Number one in most of the products in which we choose to be in.
The scale of transactions, the scale of throughputs, the scale of interactions actually which we go through are clearly number one. If you take on a weighted average across most of the transactions, anywhere between 20-25%, a quarter of the transactions of the larger economy actually flow through our network. What's important from a digital perspective is not just the UI/UX, but also ensuring that the infrastructure is capable of taking that scale. UPI being an example. The kind of retail asset dispersal transactions which we sort of take on. The card volume transactions both on the issuing side and the acceptance side are just examples of the kind of volume throughputs which you sort of go through.
It was imperative as part of the transformation to also look at the core key infrastructure, whether it is the conventional stack, which we've been working on, and the newer stacks and the digital stacks, which we're sort of working on. That's the second bit and a very important bit of the our transformation journey. The third bit, obviously, is that given our stature and status in the industry, we had to significantly strengthen also the network, the security, you know, of transactions. Given the fact that whilst we had done quite a lot in the conventional world, the digital era has brought in different forms and types and velocities of, if you may call fraud risk, operational risk, et cetera, in a much more holistic manner.
These are the three levels in which we've clearly sort of invested in. Our transformation journey is a sliver of all the three processes. It's not just about changing the UI/UX. Changing the UI/UX is only one part of the journey, not enough. Okay. Two other dimensions which I would, I definitely want to mention before I get into your first part of the question which you asked me, is that we're a running bank. All that we did, the infrastructure, the capabilities, the distribution assets, the customer franchise which we built in, and obviously has taken us to the success levels that we are today and the stature which we are today. All of that was great at that point in time. With the changing time, what has changed essentially in the environment?
Customer needs to interact with their principals has very clearly changed in terms of the ways in which he wants to interact with, digital being a clear phenomenon of that. The second bit is obviously demand or consumption or transactions has also grown up in multiple scale. Driven a lot by the fintech and a lot of new players getting into each category. Given that we're a running bank, we had a task of looking at the existing stack, and we chose to go the modernization route of the existing stack. Simultaneously, the second part of our transformation journey is about building new capabilities, practices, and also building new digital platform, which are ground-up approach on a completely new architecture. We've adopted that strategy in our part of our transformation.
If you look at it as a matrix, we looked at it in terms of scale, UI/UX changing, scale capacity and you know, risk and security, and this side looking at modernizing the stack and building on new incremental capabilities. That's the matrix of the transformation which we've gone through right now, and therefore, as you see, UI/UX is one subset of that whole transformation journey. An important subset because that's what you and me as customers also see and feel and experience, and I'll now talk about it. Okay. That was just a sort of, you know, run up to. Ramesh and Anjani can sort of talk a little more about that if you have questions on that front. Coming to the UI/UX, very important part, customers see, feel, experience, et cetera.
A significant amount of work has gone in rebuilding, reimagining a lot of the customers' user journeys at the back end. That is again critical because just changing the UI/UX is not enough and there are constant parts for each and every product journey which have been reimagined. In the UI/UX space, I mean, we've brought in a lot of internal help and professional help to change this thing. What you'll see, I'll give you some three, four examples of completely revamped and changed UI/UX, which you will see, which is going to only aid and abet our growth in the digital space. Some of the demos you'll see soon. PayZapp 2.0.
We had a PayZapp 1.0. Feedback was exactly the same. UI/UX not up to the mark. A, B, C, X, Y, Z. PayZapp 2.0 is a completely reimagined UI/UX experience. Part 1 of that transformation. Part 2 of that, of the transformation is a completely comprehensive set of payment options for a customer and a mobile commerce platform inbuilt into that, the SmartBuy built into the PayZapp. The third is completely built on a new digital, like, ground up, cloud-ready, cloud-native, containerized stack, which therefore factors in for nimble, agile product changes on the fly, and of course, scalability at the front.
You'll see PayZapp 2.0, and we'll take you through a demo of that, an example, one aspect of the kind of UI/UX change which has been designed to take into account current means and also benchmark to competition. SmartHub Vyapar 2.0, which is our version of the mobile merchant ecosystem to ensure which is targeted at the small retail, small retailers, the small grocery. 1.0 was a point solution. It was an app which scanned a QR and the UI/UX was just that. Okay. 2.0 has been once again reimagined to ensure that it's a one app platform solution, plug and play for merchants, which therefore which allows two, three things. Or in short, all payment forms in a box.
The merchant can accept any form of payment which a customer chooses to pay by. Completely interoperable. The SmartHub Vyapar app can scan a Paytm QR or a GPay QR and still initiate a payment. It accepts cards. It accepts remote payments, wallet payments, all interoperable. UI/UX changes accordingly. It offers him, because the bulk of the merchants will also be either potential bank customers or existing bank customers, what you call a suite of banking, core banking products available on the fly, accounts and products related to accounts. Asset build. Part of our strategy is very simple. Enter into the merchant acceptance space through payments, get the liability relationship, use the velocity of transactions and the balances which the merchant displays, and therefore underwrite him for loans.
Small ticket, small tenure loans like dukandar loans, business loans, cards, loan on card, et cetera, et cetera, all available as a pre-approved offer inside the app. Single click money into the account type of products. The fourth is giving him productivity tools which will help him enhance his business. How can he display his product on Facebook, send a link to you remote and collect payment, so on and so forth and so forth. The UI/UX will reflect all of these changes in a completely contemporary manner, designed both for Android and iOS. Aside of the functionalities which we built up and a very strong, robust back end, once again, UI/UX is another form.
Third example which I'll talk about, this thing is our 24 by 7, 360-degree customer servicing platform. Conventional world, call center standalone. Email standalone. SMS standalone. This is a completely digital, omnipresent channel which allows the customer to access queries, questions, complaints, what have you, et cetera, through one digital interface. UI/UX being an important part of this whole thing. Carry forward his interactions seamlessly across any channel, just as much as you see in Netflix. You can start a journey on a mobile and then continue on your iPad or on your laptop seamlessly. To the back-end agent, which sort of responds to it, he gets a one view of the customer interactions.
These are three examples I'll talk about where UI/UX has played an extremely important role of design being designed, customized to today's needs of the customer. We've built it on a platform which is given to us in partnership with Adobe called Forms, which gives us also the flexibility to change those UI/UXs on the fly. Anjani Rathore will talk a little more about that and probably demo you also on that. That's our approach to these three apps, which I talked about, but fundamentally the same approach we've applied across all customer-facing applications. I hope that answers your question.
Yeah. Good.
Hi.
Yes.
Hi, Parag. A quick follow-up on that. Very exciting to hear this, both as a customer and an investor.
You'll see it also.
Yeah.
You'll see it also, by the way.
Uh-
Anjani will talk about when the customers will also see it.
Sure. Sure.
Okay.
My question is, you know, on the next step. You know, in the past, you haven't exactly evangelized your product features as aggressively as you could have. I'll give you a very simple example. PayZapp 1.0 with all its flaws is hardly present on the checkout of most, you know, e-commerce apps, et cetera, as a specific checkout. For that, you know, initially once you launch it, you'll have to spend a little money and, you know, get into that checkout, maybe even offer discounts, et cetera, to, you know, promote the use of these apps. With your user base then it'll probably catch on. So is that part of the strategy? I'll give you another example.
About 6-7 years ago, you had a unified POS machine, right? Where, you know, you said you could pay by your phone, you could pay by your card, you could pay multiple. Was hardly ever evangelized. You know, Pine Labs now is talking about it, but you had it. It was your own machine which was promoting it. I knew because I was an analyst then, but I don't think in general many merchants knew about it, or at least many users did not know about it.
Yeah
You know, revamping the digital, your digital infrastructure is a great first step. What is your strategy in evangelizing this, making sure that they, you know, get taken on? Are you prepared to spend initially for the first year or two to you know speed up the adoption of these apps? Then with your customer base, it should take off fairly well.
Okay. I'll break up your question or the answer to your question in two parts. One is. Yeah, I admit, probably we've not been in the face in terms of advertising, as you call so many of the changes which we do, and there've been a host of changes, new product launches, improvements, et cetera, et cetera. Fundamental belief is that when we directly reach out to customers, a lot of that experience, et cetera, is what he fails to show. We probably need to change that, and you'll see some changes clearly happening over the year and two, because we do believe that, yes, sometimes seeing is also part of the experience. I'll nuance that bit to say, yeah, that's an area where we have clearly said that we will go back.
With properties like PayZapp, which are hardcore consumer apps, properties like even SmartHub or our Xpress, which we're sort of going on, we will be going aggressively to the marketplace, which is a combination of above the line and below the line. Okay? Will we be still up there as the hero in terms of front page ads? Maybe not. Okay. But we'll definitely ensure that through digital and other physical means we'll be there, et cetera, and that's a change which we've clearly done. So admittedly so. Coming to your second point about the relevant type of features being there. You said PayZapp not accepted in many merchants. Once again, yes, that was a clear weakness. Okay?
The way we've addressed it therefore now and even more deeply so than what we was in previous one, the PayZapp 1, only accepted through cards and a wallet. Okay? There was no UPI, there was no many other things. The new PayZapp 2.0, just to sort of quickly mention, will not just have all cards. All cards means not my cards, HDFC Bank, but also other bank cards. Number one, it still has the wallet. It has UPI, clearly with a similar experience as GPay. Like when you test out the product, you'll see that. It has tap and pay. Okay. So I can take the mobile, tap it on a NFC-enabled POS machine, and I can pay therefore in the physical stores.
Of course it reads all QRs in the marketplace, and so therefore there are multiple pays and means in which I can sort of pay. Okay. Leveraging at the ground level and all of that work is actually happening will be to leverage HDFC Bank's very vast acceptance system. But because it's also an interoperable system, it will be accepted at all POS machines. Take your point about. You talked about the DigiPOS, which we called, what, which we had launched, et cetera. Once again, we've not talked about it, but today of our million-plus POS machine base, which carries 46% of the card volumes in the industry, okay, even though it's only 18% of the installed base, okay, 80% are DigiPOS.
Going beyond just the conventional swipe or the tip, we get a significant amount of digital transactions already on that also. Yes, I admit to your point, we've not probably tom-tommed it or talked about it. That's something which we want to sort of address going forward. I hope I've sort of answered your question.
Parag, I just want to.
Thank you.
Just want to take one little more point, one point that went missed out, if I can come in.
Yeah.
Parag, I just wanted to respond, if that's okay. Am I audible?
Yes. Yes, you are.
I think one of the things that you spoke about on the checkouts, on the payment gateway, because it's a very important.
Mm-hmm
Part of the growth hacking that you do, right? What are you going to see in PayZapp 2.0? It's a swipe and pay. No biometric, no this. Everything is combined into one swipe. We have a strategy to proliferate this at every single lookup on the, on any of the gateways that you see today, and it far simplifies. In fact, a lot of focus has gone into growth hacking this, just to give you a little more perspective, because that's where we're learning from the fintech world, that it's not about just putting the app, it's also about putting it in the right place, in the right time and the right way. There's a lot of work that's gone and you will see that.
Actually, in the demo we'll show you how we're kind of looking at that simple swipe and pay options coming through. One is just building the product and, like I said, then distributing the product digitally in a way that it gets adopted. Lot of thoughts have gone in this timeline.
Exactly. You know, in a post-tokenization world, even PayZapp 1.0 is a pretty powerful product, right? If I have my card stored on PayZapp, and by the way, I already can store it. I have a Citibank card stored on my PayZapp.
You know, in a post-tokenization world, it's a very powerful product, right? Because, you know, some vague website, I may not want to store my card, I can go to PayZapp. But in most checkout sites, you know, or even on Razorpay, PayZapp doesn't appear as an option. I have to click on Wallets and then go to PayZapp. If you strike a deal with your payment gateway, right, and install that, and that integration has been.
I'm not, you know, trying to tell you how to run your business, but that aggression somehow has been missing from HDFC Bank, despite having pretty decent digital products, which, you know, somehow are not as visible as it has been. I just want to understand, is that mindset changing? Because this, some of this involves costs, right?
Yeah.
You have to strike a deal with the payment gateway to get your checkout right up there. I, you know, am trying to find out whether the mindset is changing in terms of evangelizing your products.
Yeah, absolutely. I mean, you'll see that. We'll show you how we're thinking of these assets getting plugged into various. There will be a marketing push, so to say. You can't do it without that.
Understood. Thank you. Thank you.
Okay. What you are essentially saying about conventional business where we are number one, etc., scale is important and we've shown aggression, deep aggression in doing that. In the digital world, even more so.
Yes.
Customer acquisition, okay, it is an extremely part of every digital journey and digital app which we've created. The focus is to build that scale, okay? It'll be. And without really naming numbers, over the next two to three years, the pure digital assisted and unassisted will be a significant portion of incremental acquisition going forward. To answer that question of scale, yes, the point is absolutely valid, and we've built it, baked into our strategy, not just the payments, but whether it's Arvind or whether Arvind Kapil, Arvind Vohra, all the businesses, acquisition of new customers at scale is an integral part of our digital journeys.
Thank you so much, and I won't take up too much of your time.
Hi. Yeah.
Yeah.
If I look at HDFC Bank, right, there is the UI that we are discussing right now, right? There is our lending part of the business, right? In lending we've been like a stealth learning machine over the last 20 years. We probably have the best risk-adjusted book, and we've learnt as, you know, in products, you know, asset by asset, and we've kind of got the best asset quality book in this country, right? Whereas in terms of UI of our, be it net banking, be it SmartBuy, be it, you know, wallets or. Consistently we've been, like, subpar, right?
Is there, do we have, I mean, or are we lacking a feedback loop system within our organization which kind of gives us a feedback or some third party audit or some third party feedback which kind of tells us that, look, the UI is like sorely lacking, right? Lagging behind peers, lagging behind new age fintechs or even peer banks, right? I'm just kind of, you know, baffled between the two, right? On one side we are like miles ahead of everybody else, and on the other side, we seem to be either lacking a feedback system or something seems to be amiss, like, you know. If you could just share how do we kind of go about this, you know.
Whereas lending, like, you expressed it every year after year and we kind of hear that and we see it in the numbers, whereas this is something that we kind of cannot solve the, you know, puzzle in our heads. If you could just give a deeper insight as to how are we going about solving, where are the issues, have we identified the issues or something, you know, if you could share.
To understand your question in a lighter vein, you're asking me why am I an ugly duckling? Okay. Jokes apart, I think your question is reasonably similar to the earlier question, which you had to say, is UI/UX an important part of our digital transformation journeys? Okay. Among the other things which I do mention, I think the answer is unequivocally yes. Clearly, we understand that customer experience and the user journey is an extremely important part of the onboarding journey, et cetera, et cetera. We've done multiple things among other things to really look at that.
More than me talking about it, I think the glimpse which we'll give you in the demos, I think will give you an indication of the kind of UI/UX, et cetera, we're doing. Detail, I mean, from a structure perspective, building an in-house and an external design studio to focus on building contemporary UI/UXs, which, sort of, look at what the customer does. A design philosophy which starts from UI/UX first and goes backwards to ensure that the user journeys are adapted to the design philosophy is the second. Clearly, the kind of audits which we do to ensure that user journeys are optimized to the extent that we use automation, and therefore improve the UI/UX.
A couple of the areas which are an integral part of our entire pod structure when we built our MVPs, et cetera, and not just the front end, but also a lot of the back end stuff, et cetera. So I can keep on going back and forth, but these are the things which we're doing at a ground level. They are operating work level related changes which we are doing. I think the proof of the pudding will be to start off with, will be the demos which you'll see and give you an indication of the kind of UI/UXs which we're actually building. Okay.
Sorry, Parag.
I'd probably try to leave it at that because then the demos will speak for themselves.
Yeah. Just to add, right? You know, what you just said, right, I could not really understand, in the sense still as to do we really have a feedback system? Are we working-
I'll. Can I just take that?
Just to give you an example, right? The net banking website just got, like, redesigned a few-
Yeah. I come to the net bank.
Yeah.
I come to the net banking, 'cause that's the question that you asked, net and mobile, right?
Yeah.
Why, why is that you're not able to change? Right? It's a simple question. I mean, you're not asking in the same format. I mean, every other bank's website looks glossy, good UI. Here you have to see the same thing for last seven years, right? That's the fundamental question.
No, glossy is different. UX, ease of use is different.
I'll come to that.
Yeah.
There are two aspects to this. Okay, one, you know, the scale at which the mobile and internet assets of the bank works is extremely different from some of the peer players. Okay, number one. Okay? Changing that at a mass scale is a very, very risky aspect, and we have gone through this multiple times earlier on. What we are doing there is, one is to really make the UI/UX very good, but then if the back end is not holding up, you will again come back into this problem because the problem has largely been to scale up the back end first. That's what we've actually consciously done on our mobile apps and on internet apps of late, actually. A lot of work around DR resiliency, ability to come up quickly, not too many transaction failures.
Those kind of focus we have done actually. You would have seen some of those results coming off if you used our app of late. Making incremental changes on the UI platform on an old technology will only take you that much. What we are doing there is two important things. We are rebuilding and rewriting our entire mobile app, okay? We are saying not just don't look at it only from a front-end perspective, because that's just going to again lead you into trouble. There is a project, in fact, we couldn't cover in the presentation, but if you look up on the presentation, you will see a new mobile bank. In fact, we are actually developing the mobile app because we want to keep the entire front-end experience and the middle on with us, actually.
Not kind of dependent on a third-party partner. You understand a lot of banks today work only as product package, product kind of company, right? They just buy their product. We did that a few years back. If you remember, we are on a platform called BankBase. A lot of you would know that. What it does is that it doesn't allow you to do like the smart rollouts like a fintech because the whole game is three weeks MVP and a quick rollout on the front-end apps. I think there are two strategies here, and that's why mobile and net banking interfaces will start following up. PayZapp will come in. SmartHub, you know, is already in.
Some of the new acquisition journey, the entire look and feel is changing and you will start seeing, you know, some improvements into mobile. In fact, I don't know if you've already looked at 11.1 version that we have done. Some lookups, I wouldn't say it's gone beyond. We're going to launch a new internet banking and that's still a little back-ended in that sense. Then we will introduce our own mobile app, you know, around, let's say around about 9-10 months away at this point of time. You will start seeing one by one all the assets pledge.
What we are doing is we are trying to do it in a way that both back end and front end are completely done in a holistic way because you don't get multiple opportunities to relaunch your mobile and get it right.
Mm-hmm.
I can talk about it as a very different strategy from a back end technology of what we are doing there while we are building the mobile app. These are not just buying the product. We are actually getting into very deep partnership with people like Google, with Aerospike. The programming language has completely changed from Java-based to Go. A lot of those kind of work is happening today on the ground. None of these applications, like Parag said, are built in by enterprise classical thought process. These are quasi startups working in co-working spaces in partnership with design studios. A lot of change that's gone in.
It's just that we don't talk about it because we think, you know, we will need to get some time to start putting these assets on the table and then show what we can do.
Just one example. You know, building a good digital product is actually we also have to architect it properly. Today the way it is architected is we have a good core which has to scale up, it has to perform at scale and always be on. At the top where we have the engagement layer, there we create good experiences.
Both have to work together, and in between is a middleware which allows APIs data and function to be exposed. We have to do it holistically, and a good example is what we have done on UPI. UPI, everybody has a very similar experience. It's a public digital good. Why is it that HDFC Bank has the least amount of failures on that? Because with that kind of experience, we have built a very robust and a resilient back-end and the underlying infrastructure. We are now ready to create new experiences which will, you know, match the best available in the market, and it will be supported by a very resilient infrastructure that we are putting in place, which is cloud-native digital infrastructure to support that kind of experience. This is what we've been doing over the past few quarters.
You will see the results right now. The kind of experiences that we are creating is no less than, you know, what is available by the best in the market today.
None of them.
I think the demos will give us a glimpse of what we
Yeah. None of the demos that you see are on-prem. These are all cloud-native, container-driven, modern kind of stack. These are already on. In fact, we're probably one of the banks which have gone 4-5 apps already onto cloud. We are clear that over a period of next 2-3 years, we're probably 60% on cloud actually as a company actually.
If you allow me, I'll just narrate one small example.
Yeah.
I won't take more than 15 seconds.
Sure.
Sorry. Really 15 seconds.
I think, I mean, the answers might take a bit longer. Right? We can probably go through the demo.
We can connect offline and then have a conversation if that works for you.
Thanks.
Thank you. Sorry. The way in which I pay to anybody, it could be through a credit card, debit card, UPI, by any of the form factors that we use today. This is the kind of experience that we see here on the new PayZapp. I'm a citizen of this country who has got a bank account with some cards available. I switch on my PayZapp. I download it from the App Store. I choose my mobile number, I choose the terms and conditions, move ahead and say okay. I have a dual SIM phone, so I have to choose which SIM I'm gonna use for my transactions.
The moment I give my mobile number, this recognizes me as a customer of HDFC Bank, in this case, and shows my debit card, where I'm being asked for the last 4 digits of my debit card. I enter that and submit. The moment I do this, all my cards and relationship with the bank is available here. I've got 1, 2, 3, few debit cards and credit cards available. This is not all. I am also having a bank account from another bank, which is not HDFC Bank. How do I link my card over there? I just add that. I give the details of that card here. It's a PNB account, so I have to give my OTP to authenticate myself, which comes from the bank. There you see my PNB account and the card is also linked here.
With this, I'm able to onboard myself as a customer with all my credit card, debit cards across any bank in the country. When I proceed from here, I'm able to link my account as well. In this case, I'm just choosing an HDFC Bank account that I have. I choose this particular account which is available and proceed, and this becomes my account on which my UPI handle is going to work. This is my prepaid card, which appears inside PayZapp, and here I am live. I use my authentication with my Face ID or biometric to open the account, which is set up here. This is the onboarding process which is available. This is completely safe and secure. It pulls all my accounts and cards across any banking ecosystem where it is present today. Now, what do I do with this?
I go into a store where I want to use my PayZapp as a payment app. I see a QR code. I choose the amount that I have to pay. Let's say I want to pay INR 500. I choose the account through which I want to pay. I give my UPI pass, and this transaction is done. I'm able to pay using any of the form factors here. This, what I demonstrated just now is only through UPI, but I can pay through a credit card, debit card, all our tokenized cards here. It can. The transaction can go through any of these means. We can add any of the billers here, where I click on linking billers. It uses my mobile number to fetch all the billers that I have, and I can view the bills which are available.
I have a Videocon, a Vodafone Idea, and a HDFC FASTag, which is available. I can see that some of these are due in two days and three days. I can use any of these methods to pay for it. Here you can see that the Videocon outstanding is INR 1,760 on my bill. This is the experience that Parag was talking about. This is a swipe to pay, which is a much easier way and a safer way to pay. I just swipe on my app, which will help me just pay directly. I apply a coupon code, which is available right now through PayZapp. I apply it, I get a discount of INR 20 because I am using the coupon, and then I swipe and pay, and the transaction is done.
This is the experience which is not available today on any of the payment apps across the country. In that same manner, if I want to pay to any of my contacts available in UPI, I go through the app again, I choose send money. I put down the name of the person whom I want to pay. In this case, it is Nirmal. I choose Nirmal's name here. I choose the amount that I want to pay, and then I choose to pay using my UPI pin, which is available here, and I'm able to pay to Nirmal directly through this. Here because of the mapper, which is now available through NPCI, it is possible that the recipient is not with PayZapp. The recipient could be on any of the PSP apps, let's say PhonePe or Google Pay.
I'm able to send money to that person. At the same time we can add PayZapp as a preferred means of receiving money by saying that create UPI handle through PayZapp. I give my mobile number and create a UPI number. PayZapp becomes the preferred way of receiving money from any of the PSP apps across the country here. That's the kind of experience that we are building through the new PayZapp. Just want to take you through, let's say if I want to book a ticket, how can I do that? I go into shop. I choose, let's say, redBus, which is an app which allows me to book tickets. I choose from Chennai to Bangalore on a certain date. Then I get various options which is available from redBus. I choose the option that is suiting me.
I apply the promotion code, and this is what it gives me. I can pay through a credit card, debit card, net banking, or through PayZapp, and I choose to pay with PayZapp. Here again, I swipe to pay and the transaction is done. This is one of the safest way to make payments for commerce as well as any of the marketplaces using the new PayZapp that we are building here. Likewise, if I'm on a website where I want to, let's say, you know, buy some groceries, I go on the website where I need to purchase. I choose my product, add it to the cart, and during checkout option, again, I have here the options to pay with PayZapp. I place the order.
Because I'm going there for the first time, I'm gonna register myself on PayZapp, add the pin which is available here, link my account, which is linked here, and pay using PayZapp here. That's the kind of experience that we are talking about when you do e-commerce, and we are able to pay using PayZapp for each of these properties. I think there was one question around how do we link PayZapp and make it available across all digital e-commerce properties. This is now equipped to do that. The other question, of course, is how do we make it happen across the entire ecosystem which is available in India. This also has, this is a completely self-service app. Customers can raise tickets. We can see smart statements where I can go and see how am I spending, what is my spending details here.
I have spent 35% on food, 20% bills, 15% peer-to-peer transfer, 10% is shopping, and 20% others. I can then get my smart statement regularly on emails as well. That's the kind of experience that we are creating on PayZapp. I'm also gonna take us through another one which is. Can we go to the PPT now? Thank you. That's a sneak preview of PayZapp. I'm just now gonna move on to the customer experience hub, which is what Parag spoke about in his conversation, which is a way to support a customer. A customer today can reach out to the bank through various means. It could be through a voice call, a mobile app, an email, social care, WhatsApp, SMS, video chat. There are multiple ways in which a customer can reach out.
What we are going to demonstrate here is when you call a phone banking line, which is 1800 number now available, what is the kind of experience our customers are going to get?
Hello, Preeti. Welcome to HDFC Bank. How may I help you today?
Hi, I lost my credit card. Can you help me block it, please?
Okay. Let me help you with that. I am initiating the card blocking process for you. I'll have shared a 4-digit OTP on your registered mobile number. Can you please enter that? Thank you for providing the OTP. Your credit card is blocked now, and you will receive a confirmation SMS and email. Do you want to reissue the credit card at your registered address?
Yes, please. That'll be really helpful.
Okay. I have raised a request for the same, and you will receive a confirmation SMS and email shortly. Is there anything else I can help you with?
No. That's all for now. Thank you.
What you heard just now.
What you heard just now was the voice of a bot. This is a digital deflection. A call is coming in to get support from phone banking. The IVR is smart enough to speak to the customer and is able to serve the customer. We have seen that, we've analyzed the calls that come to our call center and various complaints and queries that come. Most of these can be solved using technology today. There are complex queries and questions which will come, which still has to be handled with agents, but a lot of it can be handled using technology. Today, the bots are smart enough, if we can power it with the right kind of APIs to block a credit card, a debit card, issue a new card, those kind of things are possible.
This is one example of the capability that we are bringing in. The same capability will be available on text channels like WhatsApp, or when you tweet and complain. Again, the same bot is going to respond accordingly and is going to get in touch with the customer to solve the customer problem. This kind of digital deflection, we are seeing encouraging results. About 25% of the overall TAT is coming down. If we had a human who was handling this as compared to a bot, we've already launched it at two of the channels, and we are seeing some encouraging results over there. A lot of emails that come today, earlier, somebody used to read that and say, "Okay, this is a credit card related email. It needs to go to the credit card support desk.
This is a P&L related complaint. It needs to go to a P&L desk." Now, all that is being managed through a bot, which is able to sort the emails which are coming in and send it to the right desk. Of course, this is not 100% accurate, and there may be cases where the bot is able to not capture the intent of the customer. In that case, human interventions are needed, but a large part of it is being handled through bots today. We have seen encouraging results. AI/ML is also acting on the same set of things, so bots are learning as well. The first 100,000 emails might be difficult to read, but the next 100,000 emails are easier to read because the bot is constantly reading and understanding some of these things.
That's the kind of customer care platform we are building. Sashi in the morning spoke about building a service first organization, and here is a capability that we are bringing in to serve our customers across multiple channels. After this, I'm gonna show one more capability that we have today, which is around Smart Hubs. What we saw on PayZapp was essentially on the issuing side, how our customers can link their credit card, debit card, UPI handle, et cetera, to make payments. This is a Smart Hub. Parag spoke about creating a merchant ecosystem. We've already got active set of merchants, which are more than 2 million today, and these merchants have taken some time. We had to go to these merchants, open their current account, make them a merchant, onboard them, and now they are ready to accept.
If we have to do the same to get to 20 million, then we have to handle a long tail of merchants. Imagine if I'm a shopkeeper in a rural hinterland in India, how can I become a merchant very quickly with HDFC Bank? Now, that kind of capability is available today with us on the new SmartHub. Want to just demonstrate how a small shopkeeper in any small town can easily become a merchant with HDFC Bank and start accepting payments from its customers and do a lot more. Let's imagine that I'm a merchant, and I download this SmartHub app from the App Store. What can I do with it? I will choose a language here. Then I say I want to register. I choose my mobile number. Then I enter my PAN details.
I agree to the terms and conditions. I give the OTP that is coming on my mobile phone, and my OTP gets verified. I'm setting an MPIN for my new app so that I can use it again and again. The MPIN is set regularly. I mean, this is checking the eligibility for me, whether I can become a merchant or not, and it gives me terms and conditions saying that accept, I can accept payment SMS. Is it visible now? I choose my account with HDFC Bank that I want to link it where I want to accept money. Then I choose the category of merchant I am. So I want to be an apparel merchant. This is for MCC. I give my GSTN ID details, my email ID, I disclose my annual turnover.
Here I say whether I'm helped by an HDFC Bank employee. As Parag mentioned, we have an assisted and an unassisted ecosystem, both is running. If in case I'm helped by an HDFC Bank employee, I can choose this, or if I'm not, I can switch it off. Then I accept the terms and conditions and complete it. Just by following this process, I have become a merchant who is active and ready to accept payment by any customer who comes into my store. Let's see what I can do with this. Now I've become a merchant who's live. I have the first customer walking in. I show my Bharat QR code to that customer and put down the mobile number of the customer. I say I want to collect INR 1,000 and initiate the payment.
Here is a QR code that appears on my phone that the customer is going to scan through her phone and make the payment immediately. I can go to the dashboard and see that I have received INR 1,000 of payment from my first customer who came in. My next customer comes in, takes the stuff and goes back home. Now I have to send a collect UPI instruction to my customer. I'm doing that. I'm sending a INR 1,500 instruction to my customer to initiate a payment. This I send through WhatsApp. My customer gets this message that she has to pay me INR 1,500. I go to the dashboard, I still see INR 1,000. This means my customer has not paid it yet. I see my recent transactions.
I can see a green tick here, which was for INR 1,000, which the customer paid. This is a yellow tick, so my customer who has received the instruction on WhatsApp has actually not paid yet. The moment that customer pays, it becomes green here, and it reflects in my app that I've got INR 2,500 collected from my customer. This enables a small shopkeeper across the country to become a merchant immediately and accept money in any form from the customer. That is one. The second, it allows that shopkeeper to engage with the customer. Typically, a small kirana store will have 100 families in and around who are going to take the suff, take groceries back home. You need to collect money from those families. This allows the shopkeeper to collect all that kind of payments coming from the customer.
Not only this app also enables me to do banking, and this is what we are going to share here. Let's say I am a shopkeeper who's using this app, and I need loan here from HDFC Bank. How can I get a loan? I go to the app again. I see that these are the various options available from HDFC Bank. I've got INR 2 lakh-INR 15 lakh, more than one year. I choose these options, and I say, "What are the loan options available for me as a shopkeeper?" I can see a dukandar overdraft. I can see Flexi ay available, business loan, Insta Loan. Various loan amounts are given. I choose one of the loans, let's say Jumbo Loan, and apply for it. The moment I click on that, I see a new form that appears here.
This is again 100% digital inside the app on my handset. I can give my mobile number. I enter the OTP. It allows me to choose, do I want INR 8 lakh or do I want a little more or less? I choose the tenure here. It shows me how much is the EMI, what is the monthly rate of interest, what is the processing fee. Once I agree to the terms and conditions, this INR 8 lakh is transferred into my account instantly and I get the loan here from HDFC Bank. This SmartHub Vyapar allows me to actually grow my business as well. I can engage with my customers, I can accept payments, and this is a bank in a box for me. I don't really need to go into a bank branch or talk to any bank officer.
I can be in any part of the country, and this is available as long as I have connectivity. This is another way on the acquiring side where our merchants can grow faster in partnership with HDFC Bank. I'm going to just stop here with these three examples.
Yeah. Sorry.
Any questions that we have?
We'll just do a very quick round of one or two questions maximum, and then mic in the middle, and then we'll take the one last question at the end, yeah? Just switch it on.
Yeah. Hello?
Just one here.
Yeah, a couple of questions. You know, when you are putting this aspiration to build this technology stack, what is the target you're benchmarking against? Is it the equivalent of the best in fintech or the best bank? What is the aspirational level and what is the timeline for that aspirational level?
First of all, what you are seeing here is not an aspiration. This is something, for example, SmartHub is already live in the market today with few of the stores. We've not rolled it out across the country. It is available. What you saw on the Sprinklr, that is again available today for the two channels. We are doing the pilot in one of our phone banking centers in Jaipur. Some of these things are real and live. It's that we are testing it till we are thoroughly satisfied that it's going to work at the scale that we have and make it work. Now, in terms of experience, our benchmark is consumer tech companies. It's not financial services. It's not fintech. When you get up in the morning, you don't want to go into a bank.
You are used to dealing with technology in a certain manner, which is actually being propagated over the last so many years in consumer tech. When I watch Netflix, I know which movie I'm going into. If I pause a film, I can come back tomorrow again, it starts from there. My consumer habit is being framed not just by fintechs or financial services or banks.
It is being, you know, inculcated in me through various touchpoints of technology, and that is the kind of experience that we want to bring in. When you call a phone banking channel, do you really want a banker to pick up the phone and answer your query, or you're okay that, you know, a bot answers that, it just gives you an OTP, authenticates you and blocks your card? Because in the end, you had called to block your credit card because you lost it. You want to reissue a card. You can just do that conversation and move on. The kind of experience that we are building should be so seamless that it is not a chore for a customer. It is a, it is fun to interact and get some of these things done. Yeah.
On this same, you know, on a different axis on this, you want to benchmark in this consumer tech. Consumer tech companies do a great job of using whatever data they can get on customers to customize and solve problems. The banks sit on treasure trove of data. You know, you know where, which mobile operator I use, what is my monthly electricity bill because I paid electricity bill on your app. You know whether I have how many kids because school fees gets paid. There's treasure trove data, what my salaries are, my home loans are, vehicle loans are. Where I eat, by the way, because your credit cards get swiped. What way do I shop? How do you use this treasure trove data to take better decisions, you know?
You have all the data sitting inside the bank, right, unlike other platforms. How do you use this data to take, offer better products to customers? Even today I see, you know, you might know everything about me, but in fact, my credit decisions are taken by a CIBIL Score. Yeah. Despite the fact that I may have a 15-year history with you as a bank, as a bank customer.
I'll respond to that question quickly because you asked, and other questions in the group. See, banks had a very poor data strategy. Okay? Why? Because a lot of them chased monolithic data warehouses. Okay. Enterprise projects, Netezzas, you know, Teradatas of the world, centrally run, IT running, trying to put all the data together. It hasn't worked. Let's be honest. Every single bank, globally, you name it.
What happened with big techs, the way they used the data was very different. Basically, they used the compute of new technology like Spark. Hadoop came in, actually left. Now Spark is like the de facto, and then the cloud databases started coming in. The entire data strategy moved from an on-prem, monolithic, clunky stuff to a very agile, scalable cloud data lake, right? First is to facilitate. The bank is already, in fact, we're moving away from our centralized data warehouse thought process to a cloud data lake. We are actually working with Microsoft. We're going Azure Data Lake, actually. But that doesn't solve. That's still consolidating the data. The second is you actually overlay with what I call this, every API has to be tagged along with a data API, because that's where the decision points come, right?
If you're fetching an account query balance, and there's a data API equivalent to give an insight on that, then you make it much more powerful for a cross-sell, right, at every point of time. The API-fication of the data platform is the second part of the journey. Then comes the third part, which is the holy grail, which when you can apply the AI/ML on top of it. Where are we in this journey? We just started the movement from a classical core data driven, centralized data-driven to cloud, and there's a lot of work happening. The way we're looking at it is each of these data points are federated lakes for the businesses to really leverage. Because rather than centralizing everything and running, and that's been the problem actually. There is a lot of work that's happening in this area.
It's a long-standing project, but you'll start seeing MVPs coming out actually far much faster. In fact, we're already doing something very interesting called SparkBeyond actually in the marketing side, which is a interesting cloud-enabled data analytics platform, where the cross-sell analytics is coming through. A lot of work to do. Just to answer the question. Fundamentally, the foundation has already started being built and clearly moving away from classical data thought process to a new age data thought process. You're right, this is a trove of data to be used. The lakes will come, the business ownership will come, the API data will come, and then the AI/MLs will start firing on that. It's still a long way to go from there.
In the morning session, you saw Sashi and Srini talking about 77 million pre-approved customer base and the offers that we have today. With 70 million customers, when we mine their data, we've got 77 million product offers which are available. So technically, just by looking at our own data, we can create another HDFC Bank out of the products that we can target and personalize. What you saw is an application which works on APIs, but analytics is a big part of it. App APIs and analytics together are going to do that magic. This journey is underway, but you will see some of this personalization happening now. In fact, some of the thought process on the digital banking also come from that. For example, a lot of work today is moving on headless CRMs, right?
No, no longer people log into service CRMs or sales CRMs because the analytics behind do that. I don't know how many of you use Outlook and Viva Sales today. I don't know if anybody is using out here on your daily Outlook, right? I mean, it just kind of organizes and give. That's the kind of intelligence, data intelligence. In fact, we are planning to build as a part of the digital banking unit. Imagine the sales guys, actually, why should they log in and do 4 clicks to get a data point? Your AI/ML engine can tell you these are the top 3 customers to call. This is very the relationship value of that particular 4 customers, and this is probably where you have to focus your sales on, right?
It's an intuitive thing that can come from the back end. Not just that, in fact, it's moved much beyond today. We're working with Microsoft on a very interesting project where you get a third party. Suppose the RM calls up the customer, and assume you need to convert those notes, right? Because, you know, it's a conversation. Then you have bots today sitting in between, you know, listening to the conversation, converting it, and then making insights, and then pushing it to your Outlook or Teams kind of stuff, rather than kind of you logging into the CRM. In fact, our entire digital bank strategy would actually emanate from that. When an HDFC Limited customer walks into a bank, I can actually take a consent API, and I can look at a 360 of the group companies.
That's where we would want to actually go as a directional thing. The part of that strategy starts with building the data lake and then it, like, getting the API, data API architecture right, and then comes the AI/ML overlay on that. That's the direction that we plan to go. Foundational. Lot of work to be done. I definitely want to qualify that. It's the beginning. In fact, we just signed up with Microsoft on a very large enterprise data lake, you know, structure, and moving all our data to the Azure cloud actually.
Is this your mic? Yeah. Just in the interest of time, that was the last, I mean, question. Thanks for your, I mean, patience. Thanks, Anjani, Parag, and Ramesh as well. If you still have the energy, we can take some of this offline. I'll just call Unmesh. I'll just request Unmesh or Varun. Varun, if you could just step in for a very quick vote of thanks. Thanks.