Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q4 and full year FY 2026 earnings conference call on the financial results presented by the management of HDFC Bank. 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 this 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. Srinivasan Vaidyanathan, Chief Financial Officer, HDFC Bank. Thank you, and over to Mr. Vaidyanathan.
Thank you, Nirav. Good evening, and warm welcome to all the participants. Today we have with us our Chairman, Mr. Keki Mistry, our CEO, Mr. Sashidhar Jagdishan, and our Deputy Managing Director, Mr. Kaizad Bharucha. I will hand off for opening remarks to Sashidhar. Over to you, Sashidhar. We can get on to the other agenda.
Thank you, Srinivasan Vaidyanathan, and thank you all. Good afternoon to you, and welcome to the full year FY 2026 annual results call. Let me dive straight into the key aspects of FY 2026 performance. We had estimated the system credit growth to be around 10.5%-11.5%. We did 12%, up from 5.5% last year. As you can see, there is positive momentum, as we had expected. Deposit growth rate at 14.4% continues to grow faster than the credit growth, which is what we've always been doing. The growth rate is better than the system growth rate yet again. Net income growth clocked at 11%, similar to the last financial year, while EPS growth of 10% versus 3% last year. The yield on assets had a faster transmission as against deposits on a full year basis, leading to a NIM drop.
Despite the drop in NIMs, the return on assets continued to be stable at 1.9% due to cost efficiencies, with cost to income declining from 40.5% to 39.5% on a core basis and focus on quality growth reflecting in lower credit costs. I would like to remind the sizable investments we made over the last five to six years, which will bear fruit in the coming years. These investments were despite we witnessing significant events such as COVID, a complex and one of the largest mergers in corporate history. The distribution nearly doubled to 9,700 branches. The number of customers nearly doubled to 100 million customers. Our tech investments more than quadrupled to around $1 billion. The merger with mortgage company HDFC Limited too is an investment for the future.
The bank navigated the same in a stable manner over the last three years, despite changing economic outlook and regulatory stance. The above is going to provide a huge operating leverage in the future. Sometimes all of us have short memories and forget the core business foundation, which remains our moat and strength. Customers at 100 million, we continue to acquire about 6 million-8 million customers a year. This will be the funnel for future growth. 22% of our customers are actually 30 years of age, 42% are less than 40 years of age. This enables us an opportunity to engage through their life cycle, which would be the future engine of growth. We continue to be market leaders in our core franchise offerings, such as cash management. In the capital market segment, we continue to hold about 35%-40% of the account settlements.
In the bank tranche issue, we hold about 40%-50% of the escrow settlements. In the trade part of the business, almost 18%-20% of the country exports goes through us. In the imports, 13%-15% of the country's imports goes through us. In the cards merchant acquiring, almost about 35%-36% of acquiring comes through the bank. On the issuance of credit cards, 21%-22% of the issuances of the system is from us. In the spends, almost 26%-28% of the card spends in the market is through our cards. We are a dominant salary relationship bank in the private sector. We are among the top two MSME banks in the country. As in the mortgages, we are among the top two mortgage bank in the country.
In the wheels business, whether it's auto or transportation, we're the top wheels bank in the country. The above, despite intense competitive environment, reflects the excellence and execution capability of the bank. Our financial parameters reflect strength and resilience of the bank. We have a strong capital position at 19.7%. Our asset quality is extremely healthy at 1.15% gross NPAs. This has been tested across three decades of business cycles. The bank has created a large provisioning buffer of almost 125 basis points to absorb any shocks in the future. Where this is obviously contingent upon any future events that may occur in the future, we don't have any stress in our portfolio as we speak. Our focus is on profitability while pursuing growth opportunities. The loan deposit ratio is not a constraint. The regulator has come out and talked about it.
We have demonstrated our ability to gain market share on deposits every year, almost around 30-50 basis points over the last five years. Hence, it's no longer a binding constraint. We have been building granular and sustainable deposit franchise, which is reflected thus. In the less than INR 3 crore retail liabilities, we have moved up from 31% of the net total accretion to about 47% of the total net deposit accretion for the year. This reflects the focus on granular and sustainable deposits. Having said that, the bank will continue to improve its quality of deposit franchise over the years to come. The bank witnessed an unprecedented event recently, but its strength and resilience were seen with stable and strong deposit flows.
I would like to take this opportunity to thank the Government of India, the Reserve Bank of India, and SEBI for their unequaled vocal support during that period. However, the most important strength will be our leadership in the technology space. Over the past few years, we have focused on strengthening the bank's long-term competitive position, anchored heavily in our technology architecture to operate as a technology-first institution. A large share of our investment has gone towards improving the digital front and customer experience. We have been upgrading our interfaces, simplifying acquisition and service journeys, and modernizing our digital platforms. We launched in the year our new net banking, mobile banking platforms, and also our payment platform, which we probably did it about a couple of years ago. All of them are at a population scale. Today, our mobile app serves over 16 million registered customer offering.
The features, the USP of our build focuses on security. We have an OTP-less authentication, we have a lock which is for enhanced security, and we have a full stack UPI-enabled wallet, which we call the Zapp Account. A combination of the above will make it extremely secure and probably one of the most secure offerings in the country today. The efforts have increased digital adoption to 97% for payments and service transactions, and 92% for acquisition journeys. Our goal remains simple: Offer customers a seamless, reliable, friction-free experience across all touch points. The next layer after the customer layer is the intelligence layer. This is principally to build an AI-ready engine. We have built a strong intelligence layer that brings automation and analytics to the core of our operations.
By decoupling our front end and back end through a modern API gateway and orchestration layer, we now have a strong foundation for the emerging agent-driven AI model. AI is only as strong as its data. We have built a robust data foundation anchored by a customer level, enterprise level, single source of truth from a customer perspective. We went live with our lakehouse architecture, a centralized, scalable data lake, reusable, enriched data marts. While not always visible externally, this work is essential to our long-term scalability and AI aspirations. The big story is how we created in-house the unified AI platform, which is going to be the center that spans across the entire organization. It allows us to deploy AI agents quickly without building custom interfaces, building systems. The platform brings together enterprise search, document extraction, voice-based agents, a full AI development life cycle.
It supports multi foundational and open models and includes a unified evaluation model for strong governance, compliance, and security. We have an independent unit in the risk team that adds a second line safeguard. The key components includes the Model Context Protocol, or the Agentic Studio and Agentic Mesh. This will enable us to deploy AI agent to scale, placing us amongst a small group of Indian and global banks with such advanced in-house capabilities. We already have five use cases in production and 14 more in development, improving turnaround times, first time right outcomes, and freeing mid-office and back-office capacity for customer-facing roles. The above leadership position will enable us to harness efficiencies across the organization and will be a key driver to enhance return on asset over the next one, two, three years.
The guiding principle is return on assets, loan growth, and deposit growth, and quality of the balance sheet from a risk standpoint. All of it should culminate in a consistent EPS growth. Let me also take on the subject matter relating to some of the matters that we witnessed during the quarter, including the resignation of the former part-time chairman and the Dubai branch related matter. I and the members of the board did provide statements post the March 18th 2026 event. The government of India, the Reserve Bank of India, and SEBI came out with statements in favor of the bank. The legal review, which is what we had committed at the time when we went to the press, is in process.
As and when this happens, we shall provide a summary of the same. The audited financial statements of the bank for the year ended March 26th carry notes which are self-explanatory. On the Dubai branch-related matter, the same has been covered in the notes to accounts as well. There is also an NCDRC order which came out on the March 23rd , which highlights that the complainants are not retail in nature or are not uninformed investors, and they had a clear intent to pursue high-yield, high-risk investment products. We do not have anything incremental other than the above. We would like to pause out here and probably take on questions from here. Thank you.
Thank you, Sashi. Nirav, with that, we can open it up for questions, please.
Thank you very much. We will now begin with the question and answer session. Anyone who wishes to ask a question may press star and one on their touchtone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use handsets while asking a question. Ladies and gentlemen, we will wait for a moment while the questions queue opens up. The first question is from the line of Mahrukh Adajania from Nuvama Wealth Management. Please go ahead.
Yeah, hi. I just have a few questions. Firstly, that in terms of growth next year, what would be the key driver? First of all, where do you see your growth? You'd said possibly above sector. What could that be? What range could that be? Then corporate growth has been a good driver, I guess, for everyone for the fourth quarter, and that's partly to do with yields as well. Do you see corporate growth sustaining or do you see retail growth picking up from these levels? That's my question.
Mahrukh, hi, Kaizad here. If I got your question as to what would be the growth drivers. First, on the corporate side, I think you would have seen in our release the increase that we have done over the previous year. We do see this sustaining as there has been demand. Of course, we will have to temper it given the fallout of what we see in the geopolitical area, which hopefully should not be more than a couple of months going into this financial year. We do see an opportunity in corporate across sectors in electronics, food processing, auto ancillaries, the renewable sector, and the semiconductors. Also, it opens up, as you well know and are aware of the different opportunities which are now available from an acquisition financing point of view, including what was already there for more project finance and supply chain.
We see the corporate sector, the emerging corporates and corporates, holding up in the year ahead. Coming to your point on retail growth. Mahrukh, if you really see our retail growth has certainly stepped up from where we were last year, and we have seen a better step up, if you've followed our results, in the last three quarters. This step-up has been there across our wholesale business as well as on the personal loan, business loan side. To add to that, we've also seen consistent holding of demand on the mortgage book, and that has also performed well. We've seen a growth overall, if you look at it or if you look at the balance sheet, we've been about 53%-54% in the retail and the balance coming out of wholesale.
Got it. What kind of growth trajectory should we look at for FY 2027? Because I guess the earlier guidance was of above-sector growth, but the sector growth has also moved up substantially.
Yeah. Mahrukh, if you really see our loan growth last year was 5% and our loan growth this year is 12%. I think we will continue to have a good momentum and trajectory in our growth. You have to keep in mind what the geopolitical situation and that fallout is going to be. We are confident that we see the positivity continuing. We've not seen any alarm bells go up as yet, and therefore, we will continue to focus on all these areas that I covered earlier.
Thank you. Mahrukh, I request you to come back for a follow-up question. Thank you. I request all the participants, kindly limit yourself to two questions per participant, and rejoin the queue for a follow-up question. Next question is from the line of Nitin Aggarwal from Motilal Oswal. Please go ahead.
Yeah, hi. Good evening. Am I audible?
Yes, Nitin.
Hi, am I audible?
Yes, Nitin. Go ahead. Yeah.
Yes, Nitin, you're audible. Please go ahead.
Okay, great. Firstly, congrats on a good quarter in a very challenging environment. My question is two questions. Firstly, on the deposits, so how do you look at the deposit market share? We have done very well in this quarter, but if I look at it in context of how the system itself has done, we have seen a very sharp pickup in the deposit accretion for the system overall. How do you look at the market share that HDFC Bank has been able to garner this quarter in context of system number? Any color, if you can also share on what has driven this huge surge in the business numbers over the last fortnight.
Okay. Let me take that, if that's okay. See, if you look at the quarter, the INR 2.45 lakh crores of deposits that came in, typically you see that the market is pretty active and accretes maximum, almost more than close to half or slightly above half of what the year accretes in the last quarter. In this year, it's no exception. If anything, it has been more squeezed towards the last month of the quarter rather than the full quarter, because January was still tight all across. Somewhere from later part of February to March it has been quite easy and liquid, and possibility of deposit gathering is there. If you look at the composition, so that's one. There is a market tailwind that is there.
I think the system growth, as we saw somewhere reported a couple of days ago, was about, at an aggregate level, 11.5% or so system type of growth. Now, when you look at the composition of the deposits between retail and wholesale, there is some level of wholesale deposits that come in March quarter, naturally because of relationships as well as how the corporates manage their balance sheets towards the end of their financial year.
You'll see that the average of the retail versus wholesale is about a percentage point or two different in this quarter, which in our earnings check, you'll notice that there is 82% against 84% or something, 82%, 83% against 84%. Retail, I'm talking about the retail. Retail continues to power and stays ahead of the 80% mark. Within that, when we look at the composition of the deposits between the core retail. When I say core retail, I mean the higher-ticket size NRIs or certain other institutions that are managed through the branches and so on.
When you look at it, the core retail is faster and almost close to the total, despite there is a good power coming from the wholesale business, but core retail is also almost at that level. We feel quite enthused by the relationship managers gathering and engaging to get these things done. We are quite positioned for continued growth on this area.
Right. Srinivasan, also the other part of the question is any color if you can share on what has driven this huge surge in the business numbers over the last fortnight of the year? I mean, this time the pickup is exceptionally strong across the system.
Yes. If you look at it, the liquidity. Look at the system, what kind of funds that have been available in the system. I think the last time we did quite a significant volume was like INR 175,000 crore or INR 180,000 crore or something like that. This year, given that we have added much more customers and much more distribution strength and more stronger corporate relationships because we've been lending this year. Remember that we have grown corporate loans by 13%. We get higher levels of share from each one of them.
Thank you. Nitin, I'll request to come back for a follow-up question. Next question is from the line of Kunal Shah from Citigroup. Please go ahead.
Hi.
Kunal Shah go ahead .
Thanks for taking the question. Firstly, again, touching upon on the growth side. We indicated we will try to grow in line with the industry average, but we are seeing industry average being upwards of 15%, we are still at 12%. We have been below it. Next year, would we retain the guidance of growing above the industry average or would we say we will still grow in line with the industry average because industry average itself has picked up to a very large extent? On the deposits, how much of this is the transitory nature and how much of this it can sustain? Because last year we indicated that we will more focus on the sustainable deposits even during the period end.
Just want to get the sense because the difference between the end of period and average deposit is quite high during this quarter.
Okay, let me take one by one. The first one is on the growth in the system. At least if you see through large part of FY 2026, the nominal GDP growth expected was somewhere around 9%-9.5%. One consensus until a large part of the year was a system credit growth of around 10.5%-11.5%. This is what we had expected, and we calibrated our strategies and our growth in line with that, and that is why we grew at 12%. You have said 16% or 15%, but actually, when you compare the period-end numbers as of March 31st, which is published by the Reserve Bank of India.
You sort of make the math, it comes to somewhere around the 13.5%-13.9%. That's the system growth. Obviously, it has been faster. It is something that we have to navigate, but it's not too far away from the momentum we have seen from a 5.4% growth in FY 2025 to a 12% growth. I think, as Kaizad was mentioning, we are very well-positioned to continue that kind of a momentum in a manner that we do responsible growth, and we don't want to overstretch beyond what could potentially have some landmines in future. That's the reason why we're not because of this dichotomy in terms of the growth being slightly more than what one expected in relation to the nominal GDP growth.
I think we would like to sort of just leave it as that to say that our trajectory is in the right direction, and we will do what is appropriate from our risk and reward perspective. That's part one. Part two on the, what was the second question on this?
Deposits.
On the deposits. Let me first take the granularity of deposits. The retail has always been, as a proportion of total deposits, has been about 80%-85% of the total bank's deposits. You have three significant verticals where we have a lot of close relationship being, whether it's corporate banking or whether it is the capital market segment as well. Now let's talk about the 80%-85%, which is the retail segment. Within that, there is definitely a focus on trying to see how we can garner more granular time deposits. If you see, as I mentioned in my opening remarks, the granularity of the deposits has stepped up significantly. In fact, the less than INR 3 crore deposits, which has been mobilized in 2026 on a net basis, has grown up almost about 74% over the net incremental deposits for FY 2025 on that less than INR 3 crore bucket.
What constituted 31% of the total net accretion in FY 2025 now constitutes 47%. It's a very significant number because these are all very less volatile and very sustainable, and that is something that we are emphasizing as we move ahead, and this particular number should go up even in future. As regard the-
47% is less than INR 3 crore?
On the time deposits.
On incremental.
Of the incremental.
Got it.
If we have mobilized INR 3.9 lakh crore for the full year, 47% is that. Now, in terms of the volatile or the high-frequency deposits, it's quite natural when you have corporate as a significant part of our corporate and capital markets, which contribute 55% or 53% of the balance sheet, you will have large relationships which you need to patronize. That aspect of the 15% of the total deposits will be volatile in nature. You will see that moving out and probably coming back during every month-end or quarter-end as well. The endeavor is to try and see how, on a full year basis, we try and inch upwards the net incremental mobilization, and that is what we are all working towards.
That gives the confidence on LCR at 114-odd percent because now we are below 115%. How would we look at LCR? Because now LDR is not in focus, but obviously we would want to manage LCR. What range we would want to sustain the LCR within?
Kunal, in the past, we have mentioned that our endeavor for LCR is to be between 110-120. We are somewhere in the middle. Last quarter, I think we were about 116, now we are 114. Thereabout, that's the kind of range at which we intend to operate, to be in the middle. Sometimes it goes higher, sometimes it comes below, but somewhere in the middle is where we endeavor.
Got it. Thank you. Yeah.
Thank you. Next question is from the line of Pranav from Bernstein. Please go ahead.
Hi. Thanks for taking my questions. My first question, Sashidhar Jagdishan, is more on guidance. I think if I heard you right, you said LDR is no longer kind of relevant or a constraint. I also heard you saying that loan growth, you would rather focus on improving momentum rather than benchmarking the system. Is there one metric that you use internally to assess performance which kind of captures some of these pushes and pulls you have on the different metrics? That would also be helpful for, I guess, going to track performance. That's the first question. Second question is on your NIMs. The borrowings have come off almost 11% year-over-year. The NIM trajectory is broadly similar with what some of your peers have reported. Is that something you expected a year back, meaning borrowings comes up, but NIM doesn't really get impacted?
Has something changed in there? More importantly, will a reduction in borrowings have a meaningful impact on NIM, going forward? Is that even a lever that you are thinking about? Those are my questions. Thank you.
Okay. Let me talk about what you ascribed to the borrowings mix changing. Yes, changing of the borrowings mix is a favorable item, where costs that are higher, essentially the spreads that you pay, you can save on that and get to the bottom. However, if you see what has happened, the rate cycle, when you go back about a year, when you were in March, April of last year, the rate hiking cycle had just started in February, and there was no kind of an indication that it would end up 125 basis points in the cycle so far.
Rate reduction.
Rate reduction. Not hiking, the reduction. Rate reduction cycle, 125 basis points was not something that was anticipated last March, last April. When that happens, and little above 70% of the loans are floating rate and immediately the transmission takes place, deposit, as you know, is managed. Within the deposit, when there is a higher propensity for time deposit, which we have seen, the time deposit rate of growth was 15.5% year-on-year when you see now. When the total deposit rate of growth was 14.4%, the time deposit was 15.5%. This is a higher propensity towards the time deposit, which is again, on a relative basis, higher price than the CASA, of course.
That is where it is sitting, and it needs to unlock itself both from how the rate cycle plays out as well as how the mix of the deposits change. Essentially it is moved from one type of funding, which is borrowing, into another type of funding, which also in the funding stack is of a higher order than the CASA. That is where it has gone to be and still needs to unlock fully. That's on the borrowings and where it is. On the question of the NIM, I think we talked about how to think about NIM, which is, see the policy rate, when it started to come down, the assets came down faster and more or less fully there. The deposit has moved.
The pricing on the deposit, if you look at the transmission that has happened, is only about 40-50 basis points that has come into that so far. It's not fully compensated for what the asset pricing has moved down. As we see now, due to the geopolitical situation and uncertainty that is there, the rate cycle is currently paused. If anything, the tendency, at least we are seeing from the G-Secs market, is that the rates have gone up a bit, right? While we don't want to hazard a guess whether the rate reduction cycle is done and it's bottomed and now it's going to start going up, I don't want to hazard. At least by all indications, looking at the G-Secs market, it seems to be going up.
Depends on how the geopolitical situation settles, and so thereby, countries' liquidity and borrowing needs, depending on how the oil prices settle, will determine our trajectory of the NIM. More important, I think what Sashi alluded to in his preamble, in his opening remarks is that what we are focused more than on the NIM is on the returns.
When any of those on the NIM that we manage as best as we could, given the market environment, we do have those levers of enhancing our efficiency both from an operating side as well as from the credit side to realize. That is what in the recent time periods you have seen, where when the NIM has been in a small range-bound, minus or plus, the offsets have come from these to keep that return stable in that range. The quarter was 1.96%, but the year was 1.94%, similar to the full year that you saw last year on the return on asset.
Understood. You see, just if I may just ask a follow-up. My question is more on relative. Hypothetically, if let's say, borrowings were declined by 75%, right? Let's say your borrowings just come down to 6% or 7% of liabilities today, do you think NIM will improve very significantly?
Yeah. If all else remaining same, that means no other factors play in, borrowing percentage coming down will change the NIM trajectory upwards and all else on the other side also remaining same will boost the returns.
Okay, got it. On the first questions on the metric, I think I heard you say that you focus more on returns rather than just NIM. So is some version of PPOP the metric that would be appropriate? What would be your best metric then?
ROA is what we should focus on. PPOP is an intermediate, right? You take higher risk and take it in the top line. You give it away on the credit cost below the PPOP. PPOP doesn't determine what returns you can get, so we focus on the return on asset.
Okay, but that doesn't capture growth, right? I mean.
Yeah. I'd say growth, right? Profit growth and returns. EPS.
Top line growth.
Top line growth and returns.
The combination and EPS.
EPS. That's what we always look to.
Okay. Understood. Thank you, sir. Thank you. That's helpful.
Thank you.
Thank you.
Thank you. Next question is from Seshadri Sen from Emkay Global. Please go ahead.
Seshadri, can I request you to unmute your line and proceed with your question?
Sir, can you hear me?
Yes, go ahead.
Am I audible?
Yes.
Yes, Seshadri.
Hi. Thank you for the opportunity. Two questions. One is, I was hearing Sashidhar with interest in terms of the investments that has been made in the last five years. Are we now entering a cycle where the cost-income ratio has peaked, and we can expect significant benefits to come through? I know part of it will come from revenue growth itself because loan growth is bouncing back. This should be a better year for margins, et cetera. On the OpEx side, is there a possibility that the overall OpEx could slow down from here because a large part of these investments that you made are done? Or do you think this is an ongoing process and there are not too many levers?
Yeah. Seshadri, yes. If you look at the cost growth that we have, we have seen that at a level, almost at, call it 6.5%, 7% or so is the full year, right? Quarter-to-quarter variations happen, but full-year, call it 6.5%, 7% rate of growth is lower than the top-line growth. You're seeing that benefit coming in. Having said that, the cost to income is a relative ratio, as you know, as you also just alluded to. Even the top line moves faster, you get that relative ratio. More important is also to look at cost to assets. Cost to assets is at about 1.9 or so. We do think that the cost to assets at 1.9 is best in class. However, we do see that there is an opportunity space even in that aspect of it due to various technology implementations.
Which is what I mentioned, Seshadri, that if we just focus on the investments that we have made in technology and implement them across the organization, you should see operating leverage kicking in and enhancing your ROAs.
Thanks. The second question is on retail loan growth. You've done well in terms of recovering the overall loan growth, but retail is still at, I think it's in the single digits. I think it has some upside for a franchise like yours. Going forward, what would be the levers to accelerate retail loan growth? Which products, which channels, more harvesting of cross-selling within your existing customer base? Should we expect some forward momentum in that part of the business in the coming FY 2027 early in the year, and would it be back-ended or front-ended?
I think, I did cover it in my opening response to Mahrukh. We have seen good traction across our products in wheels, personal loans, as well as in the mortgages space over the last three quarters sequentially. In terms of levers today, if I just take mortgages, we were doing mortgages earlier out of about 6,800 locations. We are now covering mortgages from more than 7,800 locations, closer to 8,000. One is we are using distribution. Two is we've got our digital channels working very well, and we have seen a higher utilization of our 10-second loans, both in our Xpress Loans in auto loans and personal loans. We've also seen more addition to the customer acquisition base. That is what Sashidhar referred to earlier, as well as the foray that we have done in the salary accounts.
These salary accounts create the base for us for better cross-sell and penetration of our retail products. We are the leading bank in salary accounts and the quality of the franchise we have out over there. If you look at our physical distribution of branches, if you look at the better penetration and utilization of our digital channels, as well as you look at the increasing acquisition that we have in what we call our pre-approved base because we have the history of the client, because of the salaried relationship, has obviously created the momentum without going down the asset quality ladder.
One is disbursement.
Yeah. Okay, I'm being prompted by Sashi on a very important metric. We have seen our disbursements go up quarter-on-quarter, which is another parameter on the retail space. We do know that on the mortgages side, I do believe that we would be among the top two with hardly a gap in terms of the quarterly disbursements that we have been doing. In the auto loan space, we have grown well. We continue to be market leaders, and we have the largest engagement with all the OEMs as well as their dealer base, which acts as the real feeder for the retail loans. Between the physical channels, between the digital channels, between the customer acquisitions, and across the set of our core retail products, we do see that growing well.
We also see ourselves doing well in a product that we have launched over the last year and has come up very well, has been our gold loan business. We've built a good quality book out over there, and I do see that also continuing to contribute. The last lever I may touch upon, to give you a sense, has been on our SME business. We have been market leaders in our SME business, and today we are number one in the country on the entire SME space or MSME space. To give you some granularity, we are number one in 15 out of 28 states, and we are number one in the top two in 25 out of the 28 states in MSME. If you also see the pack which my colleagues have put out, we've grown our business banking, which is mainly representative of our MSME.
We've grown at about 20% year-over-year, and that will continue to also be in that range of 18%-20%, 21%, depending upon, obviously, some of the developments in the economy. That should give you, I hope, a good sense of what will be the levers on our consumer bank and the channels through which we will get it.
Can you talk about the merger synergies as well?
That wasn't the question, but I'm happy to cover it.
Yeah.
Okay. Another aspect just to touch on the consumer side and the mortgages business as well as some of the benefits that have accrued over the last couple of years from this business that we acquired. Let me touch on a few of the levers, and I'm sure separately we could give you more color otherwise. From the book we inherited, we had roughly a penetration on the liability side, which was about 36% share. 36% of the people who had home loans with HDFC had their liabilities with us. Net of attritions, net of acquisitions over this journey, this 36% has come as high as 50% within the last two and a half years. That tells you the liability franchise that we've got.
As we'd mentioned in our calls earlier in October and January, happy to update you that we continue to have 98% of all home loans that we disburse, our customers opening a liability account with us. Therefore, you've seen this shift move from 36% to 49%-50% of stock as we sit on today. More importantly, more than the 50% stock that we sit on today, approximately a little over 60%-65% of that stock pays their EMI through my own account, which tells you the synergy which a home loan and a liability bring from a value accretion perspective as well as from a risk perspective. The second thing out over there would be apart from the actual CASA balances that have grown, and at that point in time, we roughly had about INR 50,000 gross value of the CASA balances.
We have today grown that to INR 86,000 crore. That's been the growth in the two and a half years, not only in the numbers, in terms of the engagement of the CASA accounts, mainly SA, but also of the value accretion that has happened. A thing I had mentioned in the past, which had come up and that continues to hold good as the book matures, as the engagement matures, that the average balances that we see of customers that keep their liability with us who have their home loan, goes up 2x-2.25x compared to the standard average balances that will otherwise be witnessed in the banks.
Apart from that, finally, there is what we call the cross-sell thali internally, which consists of a host of products, which while not limited to indicatively are the cross-sell that we do on the credit cards business to this portfolio, the insurance policies that they take to insure their homes, the wealth accounts that we open, as well as engagement on our digital properties, including the SmartWealth and the PayZapp accounts or the PayZapp gateway of our wallet that they use. The engagement is all around. Today, nearly 23% of our home loan customers on stock have our credit cards, which are active. I hope that rounds up, Sashi, as you were mentioning.
Yeah. Thank you
the flavor of how this has grown and in the manner it has grown and the way it will continue.
Thank you, Kaizad. Thank you. That was extremely important as to what we are looking at from a mortgage book perspective. It's not just the book, but the kind of primary relationship that we are all focusing on, and that's going to really be a large, sustainable franchise over a long run.
Quality.
Quality.
Thank you. Very concise. Appreciate it.
We have the lowest NPA percentages as we understand in the industry on a book of our size on the home loan book.
Thank you.
Thank you. Next question is from the line of Rikin Shah from IIFL Capital. Please go ahead.
Good evening. I had three questions. The first one is on the yield on investments. This number is down about 60 basis points in the last two quarters and the overall yields have gone up. Why is the interest income on investment yields going down? That's one. Second, if you could just highlight what's the cost of deposit and what is the residual repricing, if any, remaining from the current levels. Thirdly, it's on the treasury gain. Similarly, there seems to be no impact on the treasury gains or effects, despite the yield movements and the RBI move. How should we think about it as we move into the next year on this particular two points? Thank you.
Okay. One thing that you touched upon is about the investments yield. Investments yield have been coming down, as you know, until the geopolitical risk started to increase, right? At which time it started to go up. It's the effect of what some of the maturing book that goes out and what the new book comes in is one aspect of it. The second one is in terms of how the yield spike is now. You'll not see that because given the size of the book, when you pick up a new security at this new yield, it's a drop in the ocean, right? It'll take time to bring it in. All you're seeing is the effect of the previous rate cycle moving in. Yeah.
Srini, if I can. Even though the geopolitics, the yields, the 10-year G-Secs were decisively moving up, right? In the last six months specifically. The book yields have kept going down. Just wondering what's the missing part here?
See, Rikin, I do want to realize that you should appreciate that there is something called duration. In a rate cycle, up or down, Treasury manages the book they want to do. There are certain duration aspects, which is previously five -plus years of a duration goes to four-plus something. You come on the curve different parts and different cycles. That's one. Second thing is that you don't instantly see, if you look at what the last two quarters of rate that has changed, and if you look at the two quarters of accretion of investments, you will not see. That is going to be a fraction of the total book that you're seeing. Then the way you need to look at it is the movement. What is the security that is moving out?
That means maturing or participating in OMO that moves out, and what is the security that is coming in? That's the in and out. There's a different equation. It's not a simple equation of what you see on the screen of the current yield that you are seeing.
Yeah, fair enough. On the other two questions, sir?
The other one you talked about the cost of funds. I think we published the cost of funds, which is about 4.4% or so. It has marginally come down. From last year to this year, I think so far it has come down by 50 basis points or so. Cost of deposits is part of a component of that, and very similarly, it moves down in line with that.
The residual repricing, if any comments on that? Or are we already at the bottom in terms of the cost of funds?
Residual repricing, if everything else remains the same, there will be further reduction coming on the residual because the time deposit takes five, six quarters or so to go. Some residual again remains to be seen in terms of the preferences for what type of the deposits coming. Yes. All else remaining same, there is a tendency for the repricing to factor in more.
Got it, sir. The last question on the treasury and FX, any comments, if any? There seems to be no negative impact in this quarter. How do we think about it going ahead?
No, there is some negative impact. If you see that the rate of growth on the treasury income is modest. The reason for that modest is that, I'm talking about the FX component of the treasury, is modest because there is a volume impact. Due to various risks on the foreign exchange trade, there have been lower volumes and lower spreads too. Also in terms of the-
Impact of the unwinding.
There is some impact of the unwinding that is also there. Yeah.
Got it. Thank you, sir.
Thank you. Yeah.
Thank you. Next question is from the line of Abhishek Murarka from HSBC. Please go ahead.
Hi. Good evening. Thanks for taking my question. I had a question on the third-party distribution fee. Actually, if I look at it on a full year basis, the growth has been hardly 3.5%. This is lagging your overall customer growth. This is also when you compare it to the retail asset, retail liability fee growth, this is lagging quite a bit. What is really leading to this? Is it just a slowdown or cross-sell has become more difficult or you're refocusing on some product? What's really leading to this lower growth in this line? That's question number one. The other one is on margin. You said that there's some repricing of TDs left, which should be positive. On the other side, the loan mix is gradually changing more towards corporate.
How should we look at margins from here for, let's say, the next year? Does it trend down or does it flatten out?
Again, I'll first take the third-party products. Yes, the third-party products revenue growth has been modest. Both of those components, which is the volume growth, has also been modest. It's positive but modest, given that whatever preferences the customers have. I think last year there was a good amount of spike that we saw as we entered into the fourth quarter.
FY 2025.
FY 2025. There is some volume kind of tippedness that we have seen. The second thing is in terms of spreads. That is, the mix of products that determine the spreads has also impacted. We have seen that the earnings, that means our earnings on the third-party commission, is also subject to mix of products that get taken. There was a mix also had an unfavorable impact. That means lower realization of income there. That's the reason for the contribution.
Mr. Srini, on the mix, so lower life sales, is it? Is that temporary or is some change in process or something which has led to it? Is it just coincidental or nothing really to read into it? How do we look at it?
It's just a question of how our RMs are engaged as much as they are engaged today versus how they were engaged last year. It's a function of what the preference is, and that is why you saw even the product preference is somewhat different. It's a question of how we get on more customers and spread it around to be much more penetrated. We still have only a mid-single-digit penetration in our base, and the opportunity space continues to be there. Enormous opportunity space continues to be there. Again, you talked about the NIM, which is the second part of the question. Again, just to repeat, the transmission has happened on the assets, and the mix of assets can impact depending on what it is. The cost of funds, while time deposit repricing can continue to be there.
Again, it depends on the rate cycle, what happens. You see that there's a stickiness in the rates across. For the last, I think at least four months, we have not seen our time deposit rate change in the market. We are fairly priced with the competition, and we've not seen four months of any kind of a change that has happened. Which again, as one would give some time for change, you've seen that there are other things in the month of March, the geopolitical thing that's coming about, that has hardened the rates again. It remains to be seen, but it's a range-bound is what I would say, but focus more on the returns.
Because if this becomes kind of where it is continues to be within a small range-bound, then we work towards getting returns to be stable to going up through other levers.
Got it. Okay. Thank you for that.
Thank you.
Thank you, and all the best.
Thank you. Next question is from Piran Engineer from CLSA India. Please go ahead.
Yeah. Hi, team. Congratulations.
Piran, sorry, we are losing your audio.
Piran, kindly repeat because we lost your voice.
Sir, we have lost the line for the participant. Ladies and gentlemen, we will take that as our last question, as we have come to the end of the time allotted for the call. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.
Thank you. Thank you all for participating today. We are closing at the appointed time, which is 5:00 P.M., because we have another meeting scheduled soon after this. If there are any more questions, comments to be provided, please feel free to contact our investor relations team. We'll be happy to engage with you over the next few days, weeks, whatever it takes. Thank you. Have a great weekend. Bye-bye.
Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect the line. Thank you.