Ladies and gentlemen, good day and welcome to the HDFC Bank Conference Call. As a reminder, all participant lines will be in the listen-only mode, and there will be an opportunity for you to ask questions after the presentation concludes. Should you need assistance during the conference call, please signal an operator by pressing star then zero on your touch-tone phone. Please note that this conference is being recorded. I now hand the conference over to Mr. Ridham Desai, Managing Director and Head of Equity Research. Thank you, and over to you, sir.
Thank you. Welcome to everyone on this call. Good evening to those in Asia, and good afternoon and good morning to those in the Western Hemisphere. We have a very special call today with HDFC Bank. Your hosts for this call, Sumeet, our Banks Analyst, Sanjay, who is our co-CEO and Head of Equities for India, and yours truly. From HDFC Bank, I've got Srini, who is the Chief Financial Officer. He joined the bank about two years ago but has more than 27 years in Citibank behind him, so three decades in the banking sector. I have Sashi. All of you know Sashi. He's the Group Head and has been with the bank for almost a quarter of a century, has led various businesses.
The finance division notably has been responsible for the growth trajectory, is currently the change agent for HDFC Bank, overseeing all the strategic initiatives which will put HDFC Bank into its next growth path. Finally, and not the least, I have Mr. Aditya Puri, who needs no introduction whatsoever. I have to say a few things here nevertheless. Mr. Puri joined the bank in September 1994. The bank got listed in May 1995. At the time of listing, HDFC Bank was about $200 million in market cap, INR 7 billion. The exchange rate was very different. What do we have today? We have the third-largest listed entity in India, which is worth $83 billion in market cap. That's a compounded annual growth in wealth of about 27%. The EPS has compounded at about 28%.
I can very safely say that Mr. Puri is India's biggest ever wealth creator in history. With those words, let me hand it over to Mr. Puri.
Thanks, Ridham, and welcome all of you, and I hope you're all safe and secure, which I do believe you are since you're on the call. Let me give you a different twist to this call. I was thinking that if I was to want to join as a CEO of a bank in India today, what would I look for in that bank? When I thought about it, I said I would want to see if the fellow had a good brand name. I'd want to see if there was enough capital adequacy. I'd like to see if there was a great retail franchise, especially in the liability side. I would like to see whether cumulatively he understood his business to create a balance sheet where there was no stress or very manageable stress as expected and conceived by the bank.
I would like to see the bank have gone through the technological change from moving from core to middleware to enterprise to software-as-a-service. Last but not the least, did it have the trained manpower and the team that could exercise a strategic vision which was reasonably clear? Was in a market where market share was available for the asking and had a medium- and long-term growth potential barring COVID of somewhere between 5%-7% could be more. When I looked at this, then I said we've done a good job at HDFC Bank. When you look at all of that, there are some key decisions that we took. More than the key decision was that when there was this secular shift in telecommunications, technology, social media, artificial intelligence, et cetera, there were a bunch of companies who changed their operating models.
It was the Amazons and the Googles and the Alipays and the Netflix. There were others like Borders and HMV, et cetera, who said, "Oh, we've got the distribution. We've got the brand. Nobody can touch us." When they started telling us way back, about five to six years back, when they started telling us that, "Hey, listen, the fintech fellows are going to kill you. You're going to be dinosaurs." None of us wanted that 25 years of work would leave us to be as dinosaurs.
I went to Silicon Valley, when I looked at what all the so-called fintechs were doing, I came back and I do remember telling Ridham, "It's not the fintech, it's the platform companies that could be our competition." The fintechs, while doing a good job, can be your partners, but they cannot really give you that much competition because they don't have the money and the expertise that would be required to meet the technological change which will disrupt the banks. We came back and we sat down and we figured that since most of the offerings were over the top of an established banking system, why couldn't we do it ourselves? We formed a team of everybody. We sat down, we came out with what we needed to do strategically. This was about two years back.
What we needed to do strategically and understand what was necessary to make it happen? Most change fails because either people don't believe in the change, or you don't have the right monitoring mechanism, or you don't have the right people. We brought in the people who we thought would run the bank for the future, and we also brought in a change agent to make sure that everybody bought in. This cannot be driven by mandate. Everybody bought into the concept, and we came out with our clear plans as to what would happen. The plans were very clear. We said, as far as our service is concerned, we can't talk bank, because that will be obsolete. We want frictionless delivery with a good customer experience. That will be something like what you would get in a Google or an Amazon.
To do that, what you had to do was, you had to move from an enterprise basis to software-as-a-service, which allows you to deliver on the run a better product to the customer across a channel of his choice with customer convenience. That was the technology part of it. We said, let's look at India. What do we want? We said semi-urban and rural India, which we had actually identified four years, five years before that, is a virgin territory. 60% of India lives there. Whereas all the banks are there, they're only on the liability side of the balance sheet, and there also, they're not providing the required service level. We said semi-urban and rural is definitely a great opportunity. The payment landscape would change. We said that's a great opportunity.
Offering a product to the customer which gave him the entire range, that is banking, his loans, his shopping, his advisory, his third-party products, the payment of his tax, and running his business in a manner that was convenient. Either he got it on a mobile phone, if he was a corporate, he got it on a host-to-host, or he had an API integration with you. We would be able to get depth both into our customer franchise, which is consumer, as well as our wholesale franchise. We also looked at, we said, hey, listen, if we want to maintain our cost of funds and our margin, then we can't keep depending on fixed deposits. We have to have an appropriate mix between current savings and fixed deposits so that it gives us the regular cost of funds. People were crying for deposits at that point in time.
When we sat down, we figured that whereas the credit deposit ratio in urban India was about 120-odd%, the credit deposit ratio in semi-urban and rural India was 37%. They had money coming out of their ears. Guess what we did? 50% of our branches are there, and we have banking correspondents. Srini will give you the exact numbers. On a combined basis, we would have major touchpoints exceeding over the next one year, one and a half years, exceeding 20,000 with a complete product range that is suited to semi-urban and rural India. That was one, what we would do in semi-urban India, what we would do with our liability franchise.
We then said, if we were to penetrate and have an appropriate business strategy which would allow us to get more bang from the buck from our customers, get a higher acquisition rate as far as customers is concerned, both for corporate as well as retail, and have a faster turnaround time on our products. Our acquisition over a two or three-year period, and please don't catch me, I'm getting a little old now, please don't catch me on the exact figures. The figures will be given by Srini and those will be the right figure. I think we went from about a new acquisition of 2 million to about 6 million, maybe 5.7 million, I don't know, something like that's not important.
Then we also had a situation where we were able and we worked, and we were probably the first globally, where for even the SMEs, we could do most of our credit assessment online based on publicly available information, and then the relationship manager only had a few questions to ask, and he could complete the transaction. We also decided, based on our analysis of various banks all over the world, that for MSME, normally the self-funding ratio ranges from 75 to 100. When you go in for an MSME, you want his entire universe. You want his uncle, aunt, father, grandfather, the whole lot who are involved in their business, all their accounts and their liquidity. That really helps when times get tough. Most of our businesses have a very high self-funding ratio. This is the other part we went in.
We said, look at the payment business. We are market leaders in credit cards. Some 40-odd% of the transactions go through us, whether it's an Amazon sale, Flipkart sale or no sale. We are leaders in the acquisition business. There were very few banks in both the origination and the acquisition business. We also figured that these merchants are a good risk anywhere in the world. They're not leveraged. They give you the liability side of the balance sheet, and they give you the assets that you want. They either want a motorcycle or they want a car or they may want a loan against something. That works.
We went big into the payment side of the business, which included our launching our own marketing platform, whereby we don't deliver the products, but you can get a wide range of services, and do your shopping along with discounts. We are now moving to make sure that this marketplace will offer discounts almost throughout the year. Of course, we will do the Amazon sales, et cetera, and most of the people are willing to come onto this platform. We said we need to have our people trained appropriately because in digital delivery, you do not have a hierarchical system. You deliver the bank at the point of contact. Any of you is free to visit any of our branches. He'll give you the same story with almost as much detail as I'm giving you. We had a trained force that was working.
Srini and Sashi will cover. We had about seven initiatives, and all those initiatives are not bird in the sky. They are initiatives which are working, which are delivering to plan, and now we are continuing to add scale. We have final touches on our digital, whereby we said we want to bring our cost to revenue down, and we see a cost to revenue reduction over the next three to four years of between 2% and 3%, because as things move digitally. There again, we tied up with the best in the world so that you have your touch point at the target. You have the ability to look at, you don't need to have structured data through a data warehouse. You can have analytics on unstructured data. On the run, you give him his offer, and he clicks, and he goes.
We also went in for banking at the edge, where we would deal with people like Google and Facebook and all of these guys to see how we could jointly deliver a product to the customer across our strengths. We also work with people to figure out, use artificial intelligence as to see which search resulted in what kind of lead. All this is in place. The people who are going to be running each of these businesses and two downs are in place. I was very amused when somebody said, "Oh my God, you're losing senior management. You lost Nitin Chugh, and you lost Rajesh Kumar." I said, "Are you nuts? So what." We are a $100 billion corporation. This fellow's four levels down, and you think two of those guys is a major attrition from the bank? Our CTO going, which was a planned exit.
We have those, and we were one of the few companies, and I've even told the guys this year that gave their increments, that gave the bonuses, that gave the promotions. In this process, what we did was we wanted to keep our delivery capability intact. What we did was when we reduced, and I'll come to this very shortly, and then I think I want to sip some of my tea. We wanted to keep our delivery capability intact.
When we rapidly cut down on our retail lending, only till we got clarity to see that we were only in the top- tier and all I had been at least continuously saying that most of our retail lending, which is clean, is in the AA A corporates, and they are not going to lose jobs in what is a health crisis that metaphorized itself into a financial crisis, and that's how it's turned out. You saw, these guys will cover on the moratorium what kind of risks you have. You would have also seen that we used artificial intelligence to make sure we brought our NPA recognition back to normality, I think we may have been over-conservative. That's Sashi's, there's nothing I can do about it. He's a good guy.
He works hard, I have to allow him to have his way as he goes along. With that, we had all our salespeople trained for collections. We've also introduced work for home. Now I am very clear we could have some fluctuations. We don't give forward guidance. We could have some fluctuations in our performance one quarter or the other quarter, depending upon how the COVID god treats us. By and large, I stick to what I said in the balance sheet. The best is yet to come. I would very much like the rest of my colleagues to earn their salary. With that, I will now only come back at question time. Thank you. Hello?
Shall we open up for Q&A?
I don't know. Ask Srini or Sashi or these guys.
Yeah, Mr. Puri. I think we can open up for question and answers.
Okay. Do whatever you want, no?
Yeah. Sure.
Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Anyone who wishes to ask a question may please press star then one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star then two. Participants are requested to use handsets while asking a question. Anyone who wishes to ask questions, please press star then one. Participants who would like to ask questions, please press star then one. The first question is from the line of Teeja Boye from Sands Capital Management. Please go ahead.
Hi. Good morning from the U.S. Mr. Puri, thank you so much for the introductory comments. I was wondering whether you have any thoughts on the moratorium. The Indian press is reporting that we could see the moratorium being extended, but only for certain sectors. I don't know if you have any thoughts on that, on how that would impact HDFC Bank. Thank you.
Okay. Srini, you want to cover the moratorium because the others will also have the same questions as to what we did. I just covered that. I think there will not be a global moratorium extension. Some sectors could get it. Effect on HDFC Bank would be, let Srini cover it. I don't think much. Yeah.
Yeah. See, from a moratorium point of view, we gave a number. At this moment as of June end, we said 9% of the book is what availed of the moratorium. Even the moratorium is a misnomer when we think about at least our bank context I can talk about. The reason to think about it as a misnomer for us is that the moratorium 2.0, which started on 1st June, and the 9%, majority of them, which is in the high- 90%, they are all current in the sense that people wanted to conserve liquidity and they come and take a moratorium so that they can accumulate three months of cash. If anything were to come as a problem, they are having liquidity at their disposal.
We have very high percentage that we have noticed of people who are 0 DPD, which means that they don't have overdue sitting there, and they still come and take moratorium. There are some people who do take a moratorium because they have a strapped cash flow, and that is part of our analytics about how we analyze and how we are able to make anticipatory provisions and so on. We've taken care of that. From a moratorium extension, if another one had to come, as Mr. Puri alluded to, we should operate like a business as usual in terms of how we look at the portfolio and how we are able to contain it and work through it.
Thanks. I have another question. Mr. Puri, I would be interested also in your thoughts on the Indian macro. As you would appreciate, even before the COVID situation, the economy was in a very difficult spot. I appreciate that the COVID would have to be under control before you can start thinking about the economy recovering again. People have also pointed to the fact that the government has limited resources in helping to stimulate the economy. What do you think it would take even beyond the COVID situation for the economy to get back on its feet?
Okay, no problem. There are three, four things. One is when let's cover this business about limited availability. What India has been lucky with is the banking system is flush with funds. They have more than enough money, and the route the government has adopted is saying that if you have issues and are not willing to lend because you're not very sure and you need some help in assessing as to how we will cross over COVID, we will give you a government guarantee. This figure, Sashi, how much is this liquidity that the banking system has in dollars here?
INR 650,000 crore, which would be about, call it, even if we say 10, close to $100 billion we're talking about.
That's the liquidity available, and that even if you haven't asked the question, that liquidity, in my opinion, even just through OMOs, is sufficient to meet even the additional requirement of the government funding that is required without having to. That's why you see the yields on the government securities being relatively stable. Going down, no doubt, but stable. Now we come to the situation of how we see it going forward. You must realize that the drop in oil price is a bonanza, the drop in commodity prices is a bonanza, and what we are looking at, if you see, India normally reacts in a crisis.
Things are moving very fast to, one, what we're going to be doing with the agri sector, what we will do with semi-urban and rural India, the expenditure on infrastructure, the expenditure on the stimulus that has been put in there. I do feel that somewhere we will at least, and that's what's being reflected. The recovery of the economy has been faster than expected. We shouldn't be too euphoric about that because we have to see whether this is the pent-up demand or the full demand that comes. We do feel that medium- to long- term, the prospects for India in the new world economic order are good. That includes the difference that they have taken in terms of Make in India, where the attitude now is, what does it take to get the guy into India?
Whereas I do not believe that we're going to be jumping to the 8% and 10% overnight, I do believe that within the next 12 months on a run- rate, we will be around in the 5%-6% category. We are very safe on our balance of payments. Our reserves are just going up, that's not an issue. Our foreign debt is limited. As far as we're concerned, we do see a good medium- to long-term growth, which in our mind is described as 5%-7%. I also want to take this opportunity where people talk about, oh, there is a financial sector risk. No, there is no systemic risk to the financial sector. The government banks are supported by the government ownership. As far as the private banks are concerned, the larger private banks have capital adequacy ranging between 17%-19%.
I don't think there's a systemic risk there. As far as what is concerned, everybody started in March, "Oh, now we're going to have a doubling of NPA," and we will have that. I think that situation, Srini will cover that if any of you ask on our portfolio as well as the country portfolio. Each one may have a different level, but it is way below all the, what should I call it, alarm that came about after March. Those kind of NPA levels are not coming. I was talking to the State Bank fellow. I think you will be happier with the results. He hadn't given me any results, but other than to say that the alarm probably was overdone. What we feel, we feel there's a growth between 5% and 7%.
We feel that we can participate in that growth very substantially because of our product range and capital adequacy, and we think we will gain market share faster than we had ever done in the past.
Thank you, sir.
Thank you.
Welcome.
The next question is from the line of Vivek Ramakrishnan from DSP Mutual Fund. Please go ahead.
Hi. Sir, my question was, you've built out such a good retail franchise, and you have an NBFC below HDB. I just want to know, what is the long-term strategic thought on this NBFC? Will it exist?
I give you both long-term, short-term, medium-term thought very simplistically.
Okay.
Okay, what's the other question?
No. I just wanted to know, is it going to be part of a gain? Sorry.
No, let me answer. No, you'll keep asking questions only. First let me answer, that will answer all your questions.
Answer. That's the only question.
Okay, only question. Let me answer it now, boss. When we floated HDB, what was happening is that the bank operates in a certain target market. The finance companies operate in a target market, which is one category below the bank. When there was the finance crisis, I don't know whenever, 10, 12 years back, we said, "Look, this is risky business, but the top 20% of what they do, those guys are doing fine." That was the genesis. HDB is not a strategic initiative for us. HDB is an initiative for us capturing a higher section of the market. All options are open if we want to use it as a generator of capital, if we want to use it as a generator of dividends, as if we want to use it as a generator of market share.
That I will leave the future fellows to tell you, as in when it comes, what they do. All options are open, but it's not strategically important for the bank. It is another segment where we think there is tremendous demand, and we want to be a leader there as well. We have all options are open to us.
Thank you, sir, and good luck.
Thank you. A reminder to the participants, to ask a question, please press star then one. The next question is from the line of Habib Subjally from RBC GAM. Please go ahead.
Hi. Greetings from London. One comment and then two questions. The first comment is as someone who's been a shareholder for many years now, maybe 8, 10 years. A big thank you to.
You didn't say happy shareholder.
Well, yeah. Clearly a happy shareholder.
Good. No, I like to hear this. As my age moves on, I like to hear such things.
Well, we have been meeting for many years now.
I know that. I wouldn't take liberties with you otherwise. Yeah.
Listen, I hope we get a chance to meet face to face.
We will. I'll see if I can come on the October road show, yeah.
I think that would be I mean, just for old times' sake, whatever. It's good to say a proper thank you.
Right.
My two questions were.
Please.
About you selecting and developing your successor. What is the process and timing on that? Secondly, you talked a lot. I was going to ask about what are the things that you're proud of that you've achieved, I see you've already talked about that. What are the one or two things that you'd expect from the next team over the next decade that you would want to see them do?
Okay. Let me answer the second question first. We were just talking, Ridham, Sanjay, Sashi, me, Srini, and Sashi was complaining that I'm making them work too hard at this point of time. I said it's going to be good for the company for the long- term because we have strategies in place that will take us at least for the next three to five years. The first one I'm really amused with, and I'm very loving that you asked this question on succession. Ours has been the most talked about and most screwed up discussion on succession that I have ever seen in my life. I got to tell you, let's be very open. Who's going to do it? Whose influence will be more? What kind of fellow he get? This guy's fellow will come, that guy's fellow will come.
Poor me, I don't have any power. I just said the best guy for the bank will come. As it stands, we have given our order of preference three candidates to the RBI. We should get the approval. Till now at least, they've never altered the order, whatever you propose, they normally approve. Coming to what we have done about succession. I have been planning this for the last four years. There are three key things that have to happen. One, people had to know who the guy. Not necessarily know who the guy was, because that was not apparent. We went through the search committee process and all of that. They needed to know the people who would lead the company. They needed to have loyalty to the person. They needed to know that person will take care of them.
Because half the thing in financial services is motivation. I needed to have somebody who would be able to execute. We, most people, as you would realize, Habib, have been an execution story. We will be an execution story. We are in a damn good market, as long as we can execute perfectly and position slightly before the rest of the market. His execution skills must be perfect. He must love the organization. The people must love him, and he should not necessarily be my carbon copy, but he should at least have the empathy, have the decision-making, have the urgency, and have a fair understanding of technology. If you ask me, between the team and the team below him must know where he's the first among equals, but each of those business guys must run their business and know it inside out, and they need to work as a team.
Most things, if you see now, are delivered as a team. They can't be delivered alone. They are three parts, three legs or four legs, depending upon what kind of stool you're looking at, or table. Technology has to be an integral part, credit has to be an integral part, marketing has to be an integral part, distribution has to be an integral part, and operation. Only would you be able to deliver to the customer. Where do I stand today? That's why I gave you my lecture to begin with. I am very pleased. I'm pleased in a way, and not so pleased in a way. Why most of you guys couldn't see it, but I am extremely pleased with the end result, that we've got a fantastic team.
We will have a leader that I am very sure will be able to deliver. We've got our strategy so clear. When we talk to the likes of a Nuvei or a Google or a Facebook, they're talking to us first because they say, "You fellows understand what we're talking about." Habib, I'm very happy. Now tell me what more you want to know.
No, I think what's important for us is that you're placing the right importance on succession. It's just that for us, it hasn't been clear, especially when there's such a large generational shift. How should I put this? Big boots to fill.
No. I can tell you the transition is almost through, and people won't even realize, both inside and outside, when I collect my money and go and sit on a yacht and watch you fellows, I think I'll be happy for that.
Excellent. Well, in one sense, it'll be a great loss to not have you there at the helm and to have our chances to speak with you. It's kind of unsettling when you have such a big personality talking about exiting the stage. We don't know who the next person is.
I know.
Thing you have to understand is a bit unsettling. Internally, you may have it worked out.
Habib, I know, I know you know the market and the people and the technology and the strategy.
Okay. Well, thank you. We wait to hear it.
Yeah. Thank you.
Thank you. The next question is from the line of Sumeet Kariwala from Morgan Stanley. Please go ahead.
Hello, Mr. Puri. Thanks again for the detailed strategy and your insights. I had a question with respect to one of the emerging trends in financials, where the tech giants are increasingly focusing on providing various financial services. They started with payments, now they're expanding into lending other fee related services. As you mentioned that you've done a lot of changes to evolve into a frictionless service, and the approach as I see right now is more of collaboration between the tech giants and banks. I had two questions related to this. One, if you can talk about the initiatives that you are working on. Second is, from a five to ten-year perspective, do you think the approach of tech giants can change from being collaborative and turning into serious competition? Thank you.
You fellows are good fellows. Why don't you ask Google if he does want to become a bank and take his ass taken? Hello?
Yeah.
You think you got the authority to not be subject to so many regulations. One thing, and I've been talking to the CEOs of all these companies. The last thing they want to become is a bank. Could they become a finance company? Yes. Will there be competition? Yes. The issue is, based on discussions that we are having just now, they have a platform. You will be seeing us come out with some joint platforms with my global leaders where each one's products, once the fellow comes in into almost a co-branded platform, then he has an opportunity to go to anyone, which is the banking at the edge that I talked about. My own view is that it'll be more collaboration. I think people are too focused on Alibaba. Alibaba was an aberration of regulations in China.
Once you take that regulations and take regulations that now prevail across the world, I don't think any of the platform companies would be wanting to become banks. Would they be wanting to be in the financing and payment business? Yes. We hope that this will be jointly with us. We are also positioned to make sure that we have the customer base. We are substantially ramping- up our customer base, as well as if you see what we are offering. We will be with them and we will be without them. They will be with us and they will be without us. When you, for instance, talk to a Google or a, what's it called, Facebook, et cetera, these guys don't get into exclusive arrangements. Even their arrangements with Reliance are not exclusive.
I think they'll all be wanting to look at partnerships, and we will all be looking at what works, and we are very focused on making sure that we are a part of that working, as well as we do have our own opportunities and strengths, which is a must. We look at both collaboration as well as individually. Head-on competition, I doubt whether they will come across most areas for the bank. They will be in the consumer side of the business, and we are there as well. We have competed with some of them, and we do believe we can take them on. We are collaborating with some of them, and we believe we will be in a good partnership. I think we are here to stay. I think we've transformed.
I was talking to you, will be hearing about some joint almost partnerships without a partnership that we have with some of the leading companies in software which have moved to software-as-a-service. There will be, hopefully a joint interview with me and him, which will clearly explain to you where we are, where we are going, where we can work independently, where we will work in partnership, and we have the technology behind that.
Got it. Very clear. Thank you.
Thank you. The next question is from the line of Nick Cileli from Fiera Capital. Please go ahead.
Yes. Hi, thank you for the call. I'll also mention that we are long-term holders too, holding the stock for over 10 years and very happy. Thank you for that.
Thank you.
My first question will be, since we do have a very long-term approach, just looking back at your Investor Day last year, could you maybe expand on whether any of those five key initiatives have changed? I don't know if the COVID has had any impact. I'm sure short-term, whether long-term it will impact these strategic initiatives. My second question is, overall, the tone you've painted so far has been quite optimistic on the COVID and just your operations in general. If I just look at specifically the numbers in Q1, the retail sales, retail loans declined sequentially, like, I think it was 4%. How do I reconcile the fairly upbeat outlook and seeing that decline in sequential both in the retail loans?
Oh, no problem. I see you fellows are all being kind to my current age by asking simple questions. Let me tell you what. I'll tell you why that is. What we saw clearly that when there was going to be a lockdown, the retail demand would fall drastically. That we saw very clearly. Did the retail demand for loans fall drastically? Absolutely. What did we say? The retail demand is falling. We were sitting on about INR 5 billion-INR 6 billion in liquidity, which I think we're still sitting on. We said, "Let's go and grab every AA A asset we can get before the yields start falling." We never push demand. The demand has to be there, and we go and get it. We don't like to push because then you will get adverse selection.
Retail fell drastically, and we compensated by seeing the opportunity because we had the liability franchise, as well as we had semi-urban and rural India, where people hadn't gone into, and we went there and we got that. If you see the first quarter, and then you will see the second quarter. What we have is, at this point of time, retail is starting to pick up because some of the concerns that we ourselves had, we said you fellows frightened us, saying, "Oh my God, you're going to have the whole world unemployed, and then we are screwed." I have to thank you for that because it's good conservatism.
We actually said, "Hey, listen, what if they're right?" We sat down and we went through a tremendous amount of analysis across some 15 years to see what was happening, and we said, "No, it's not there." The demand wasn't there. Now the demand, as the people see that the companies are also coming. Slowly the retail will pick up. For instance, if you see our two-wheeler demand today, it's almost back to pre-COVID levels because people don't want to use public transport. Who sneezed, man?
I did.
Okay. God bless. Surprisingly, auto is also at 65%-70%. We are seeing that somewhere along September we should on a runway. Forget about analyzing what the GDP for this year is. What's gone is gone, and the two quarters, even if it's gone, we've come out fine. We are thrilled with that. We don't get forward, but I think we're largely fine. COVID has had a major impact on one thing, that it has really helped in our digital push, and it's taken off, and we do see more and more business coming, and we are treating digital almost like another channel/bank in itself. Once you move straight through and processing as well as origination, then it becomes a self-contained bank. That doesn't mean your other channels don't work. Digital, it's actually had a great fill, and we are very convinced about that.
That is something that will go through. Sashi, you want to talk about the five initiatives and whether I don't think COVID has affected, but it's good if you just for refreshing everybody's memory because these guys have lots of companies coming to them, if you run through that along with whether there's any, yeah.
Sure. Thank you, Mr. Puri. Mr. Puri did mention or allude to the five strategic initiatives which we launched two years ago, collectively as a team. As he mentioned, I think all of them are not a bird in the sky. They're all in progress and it is implemented, the momentum has picked up and we should see the scale over the next three to five years. When we met you last, I'm sure on the call we've been meeting a lot of people over the last one year, there were a lot of commitments that we had given. For example, the first strategic initiative was we have the branch channel, which is one of our largest feeder of business.
We said that we will reimagine this channel, we'll institutionalize the sales process, we will ride on technology, we'll ride on analytics to be able to provide, A, a great narrative to customer, a value proposition to the customer, and also a reasonably assisted frictionless experience to the customer. We said that we will take the acquisition, as Mr. Puri was mentioning, doubling it from the 3 million about a year ago to about 5 million-6 million, and we did achieve 5.7 million by March 2020. That is something on track. With COVID, one of the fear factors that we had is that now how are we going to engage with the customers? This is where I think the energy levels of the team really amazed us. I think they swung into action.
We have now made all our touch points, the customer touch points, to be digitally enabled. They have the customer relationship management programs on their mobile, and the ability to interact with the customers on the mobile, on a voice, and at the same time provide not just services, but products on a seamless basis, which Mr. Puri mentioned. One of the biggest things that have happened is the faster adoption of technology, both from our side in terms of trying to make it more frictionless and even from the acceptance from the customer side to say, "Yes, I'm willing to sort of deal with you digitally sitting at home," or wherever he is, or wherever he or she is.
Mr. Puri did mention in the call on July 18, what amazed us was the branch channel. By June 30, we had about 6.8 million interactions, out of which we did about 1.2 million new customer acquisitions during this quarter. This would be probably about 80% of the normal run- rate that we saw last year, which is a pretty happy situation to be considering the fact that people thought that there will be paralysis during the lockdown. That's point one. Point two is on the digital front. As Mr. Puri was mentioning, we did a lot ever since the wonderful day that he returned from Silicon Valley.
Since then, I think with the launch of a slew of digital products over the years and getting scale is one of the key reasons why we could sort of get our cost-to-earnings from 48% to 38% as we speak. Having said that, as you said, we are now at an inflection point wherein we are collaborating with lot more people, lot more platforms, and we should be sort of seeing that and deal itself over the next couple of months, which will take [whole more tasks] to the next level in terms of frictionless customer journey. This is something that we are pretty proud of what's happening in the background, but I think at the appropriate time we will do that. Banking at the edge, which means that we open up our APIs and integrate them with the platform, is already certain things in process.
In terms of better collaboration, greater collaboration, better stacks, synergies between what we can offer from a banking perspective and what the platforms can get it from a customer acquisition perspective and also from a frictionless interface perspective, I think this is going to be a great collaboration going forward. The third aspect is our semi-urban and rural journey. As Mr. Puri mentioned, one of the things that has been least impacted, I'm not saying there's zero impact, but there has been, relative to the other parts of the country, the rural and semi-urban India has been relatively least impacted by the pandemic. The good harvest of May, June, and the fact that the monsoons seem to be on track, and it's been a great sowing season for the next harvest.
I think we believe that the economy is going to be having a wonderful run on the agri side, where 60% of India is subsisting. This is where we had invested a lot over a period of time. We have 52% of our distribution. As Mr. Puri mentioned, we had, as a part of a strategic initiative, we said we will ramp- up our partnerships with a lot of business correspondents, so that we can integrate digitally with them to be able to source and service our customers in outreaches where it's very difficult for our branches to set it up.
You'll be amazed, though, that the 5,000 or 6,000 business correspondents that we have tied up, which is virtually double of what we have in terms of branches, were all active, probably active beyond what we have seen in the pre-COVID levels, which itself sort of gives us a fair amount of comfort in terms of the distribution capability going forward. Yes, we have been a bit conservative on the retail asset side. What the rural and semi-urban businesses that are coming in is more on the liability side, on the payment side. I think once we have a bit of a comfort at a policy level, we should be sort of opening this as well. The fourth aspect is on the merchant, on the payment side. Yes, there were a couple of things.
We had said that we would like to, over a period of time, ramp- up our merchant platform. As Mr. Puri mentioned, we are a market leader in that particular space, with almost about 40%-50% of the country's transactions going through our ecosystem. We said there are 50 million merchants in the country today which are not penetrated by the bank financial system. This is where, by our presence in the semi-urban and our dominance in the urban markets, we felt that we are one of the few banks to be on both sides of the payment system, both on the issuance side of the cards and also acquiring the transactions from a merchant. We will ramp it up. We had touched close. We wanted to touch about a 2 million merchant touchpoints by March.
We fell short by, I think we reached about 1.8 million, 1.7 million to 1.8 million. That is pretty much all right because we did get whatever we wanted in terms of complementing our banking strategy. Having said that, during the COVID, while we did not, because you need a lot of feet on street to go there, which is constrained, We used this opportunity during the COVID period to start engaging with that 2 million customer touchpoints or the merchant touchpoints that we were required. Objective is that when you start to engage, even during these times of adversity, this is what relationship is all about. We believe that once it opens up, I think we should see the ramp-up happening as we had envisaged in our strategic vision.
Sashi, also tell them about that hyperlocal, your idea on hyperlocal and where it is.
That's right. One of the things that we did during this period is that, look, we do see a fair amount of people. There was a very somber mood that is enveloping the entire economy. I think it is Mr. Puri and the team said that, "Let's try and break this." All the merchants, both offline and online merchants, said that, "We would like to partner with you." We probably were one of the few people to come out with Summer Treats, and you'll be amazed to know that the lift that we have got, whatever little lift that we have got in consumer, in discretionary spends during the Indian economy has a fair amount of our share has come in from that particular initiative.
The hyperlocal, which is the offline merchants, is what we are now trying to, like how we are trying to have partnered with the online merchants or e-commerce players like an Amazon or a Walmart or others. We are also doing a similar thing in the local catchment offline merchants as well, wherein a customer can digitally sort of order a particular, any discretionary spend or any essentials, if maybe, with great offers for our customers, and he can make a loan. He can sort of make the payments digitally as well as also take a small loan for the same. These are certain things that is already in place. You will see the scale happening as we go into the future. The last aspect of it, which we have been working on, is on the.
Corporate.
The virtual relationship management channel. This is one channel that we had thought about. It was the team's idea along with Mr. Puri, where they said that, "There are 3 million customers who were contributing to almost 60% of the retail balance sheet." He just asked one nice question. If 3 million can do that, why don't you just triple the relationship managers? That gave birth to an idea to say, "Well, okay, why don't we create a virtual relationship management program where you can engage with customers the way a physical RM does it, but with a twist? We will do it virtually." Mind you, this is something that we conceptualized pre-COVID. As you probably know, we had a recent decent amount of traction on that.
We said that over a three to five year period, the income per customer should mirror the income per customer from a physically managed customer. Today, we have 3,500 RMs managing out of 13 locations in the country in different languages, but virtually. We have 6 million customers tagged in that particular program. It was going pretty well, the productivity of calling was as much as about 28 to 30 customer calls per day per RM. During the lockdown, obviously, we could not sort of send our people to these locations, we had to quickly move on a work-from-home basis.
We sort of intervened and had a new software where people can dial in the way they were dialing in the office premises, sitting from their home with the security and as well as the ability to service both products and services to the customer. Mind you, unfortunately, because of the telecom service providers limitation, the RMs could manage only a four to five hour per day as against eight hours that they could do. Effectively, we had to run multiple shifts going through this particular server capacity. Despite the reduced capacity, what they were doing about 28 calls in a day, these guys working from home could do about 22 calls a day. It's been wonderful, the ability to continue as a business as usual despite reduced capacity and continue to serve the customers during the lockdown has been a tremendous achievement by the team.
These are some of the things we are happy that we started off these strategies and the journey about two years ago. I think as Mr. Puri is mentioning, we are at an inflection point wherein with a bit of a focus and a push and some of the changes that we need to do on the digital side, I think we can probably build scale over the next three years as promised. Thank you.
Thank you. The next question is from the line of Jingsong Wang from Viking Global Investors. Please go ahead.
Hello. Thanks for taking my question. The bank has a very impressive track record in the past. I'm just wondering, your underwriting capabilities have been very strong and it's been proven by history. How do you think about your ultimate addressable market? In terms of market share, where do you think it can get to without compromising the credit quality? Can you maybe elaborate on both retail and corporate?
Yeah, I think we can be like Bank of America, around the 20% +.
Yeah, I think.
Actually, for both retail and corporate?
Yeah. Let me tell you, okay, maybe I made it too concise. The fact of the matter is demand exceeds supply for financial services in this country. That's number one. Number two, 70% of the market share is with the public sector banks. I think all of you have been hoping that one day you'll get your price to book multiple. People live in hope, there's no harm. We, on the other hand, think we can get market share. That increase in market share, as I said when I began my call, is a given. Now as we move, they're not moving.
If you just look at their digital preparedness, if you look at their geographical spread, if you look at their product, it's not a big deal to understand that the market share, and you would have even seen over the last three or four quarters, our market share increase has been phenomenal. Retail, if you see semi-urban and rural India, we're the only game in town. I actually do believe that we are well-positioned to double our market share over the next five years at a minimum.
I think you will have to.
Yeah.
Sorry. We are over the time, Mr. Puri has another meeting to go to. Can we just make this the last question, please? Yeah.
I just want to follow- up on that. I don't doubt the bank's ability to gain market share, I'm just wondering, or a little bit surprised that actually you think 20% of the market actually can reach your credit standards?
Yeah, I'll tell you why. Bank of America can do it in a competitive market like the U.S. The fact of the matter is, even if we grow between 5%-7%, the number of people that will come into our addressable market will grow. If you look at the fact that 60% or 50%, 60%, whatever is the number that lives in semi-urban and rural India, and if you say, or even 25% of them are, within the probably now and over the next two years, with the emphasis on semi-urban and rural, because that's where the election comes from, that's almost a complete new market available for the bank equivalent to the existing market. You superimpose the growth of between 5% and 7%, and you see that the public sector banks that have been losing about 1%, I think they'll soon start losing 2%.
Yeah, Sanjay?
Okay, great. Thank you.
Yeah, Sanjay, over to you.
Oh, wow. Thank you very much. Mr. Puri, Sashi, Srini, thank you for your outstanding insight.
Sanjay, I have to run. I've got the ministry on the other side. Yeah.
Talked to you so many times over the last number of years, it would not be an exaggeration to say HDFC Bank standards for entire of corporate India. I say this on behalf of everyone at Morgan Stanley and almost 400 investors on the phone. Thank you for your leadership, your guidance always, and thank you for your friendship. A safe and a good weekend to all the investors on the phone. Thank you.
Thank you all. Thank you so much.
Thank you.
Thanks. Bye-bye.
Bye.
Thank you very much. Ladies and gentlemen, on behalf of Morgan Stanley, that concludes this conference. Thank you for joining us, and you may now disconnect your lines.