Ladies and gentlemen, good day and welcome to the Q1 FY 2027 earnings conference call of HDFC Life Insurance Company. 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, 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 Ms. Vibha Padalkar, MD and CEO of HDFC Life. Thank you, and over to you, ma'am.
Thank you, Darwin. Good evening, everyone, and thank you for joining our earnings conference call for the quarter ended June 30th, 2026. Our results, along with the investor presentation, press release, and regulatory disclosures are available on our website and with the stock exchanges. Joining me on today's call are Niraj Shah , Executive Director and CFO; Vineet Arora, Executive Director and Chief Business Officer; Eshwari Murugan , Appointed Actuary; and Kunal Jain, Head, IR, Business Planning, and Strategy. Moving on to the macroeconomic front. Let me begin with the broader macroeconomic context. FY 2027 opened on a firmer footing than we anticipated a quarter ago. The RBI's Financial Stability Report reaffirmed that the banking and corporate sectors remain healthy, providing a stronger cushion against external shocks than in past episodes of stress. That said, the environment is not without its watch points.
Geopolitical escalations and risks can resurface quickly, and we are watching this closely given its bearing on oil prices and broader market sentiment. El Niño also remains a factor we are tracking, t hough we do not see this as a broad-based risk at this stage. We believe this improving macro backdrop is constructive for long-term savings and protection businesses like ours, and we remain watchful for any material shifts as we go through the year. Moving on to our business performance. We commenced FY 2027 with quarter one individual APE and WRP growing by 7% and 8% respectively, while overall APE growth was stronger at 9%, supported by robust growth in credit life and group business. On a two-year CAGR basis, individual APE growth was 10% and our retail private market share stood at 16.3%.
Growth during the quarter was underpinned by strong customer acquisition, with the number of policies growing in double digits and ahead of industry. Retail protection continued to outperform the company average, growing by 42%, and retail sum assured also continued to outpace the industry, which is a reflection of the quality of our business mix and our sustained focus on long-term protection outcomes. Importantly, this growth was broad-based. Channels other than HDFC Bank collectively grew at 17% in quarter one FY 2027, led by a strong performance by our agency channel and healthy momentum across non-bank alliances, demonstrating that the underlying engine of our business remains well set up. Business through the HDFC Bank channel remains subdued this quarter, reflecting softer volumes at the overall bank level.
We have worked closely with our parent and encouragingly, our counter share within the bank improved through the quarter and is now trending closer to where it stood at the same time last year, and this is on a run rate basis. While it is early days, we see growth pick up as a matter of time rather than anything structural, and we expect the channel to progressively contribute to growth as the year progresses. Our agency channel grew ahead of the company average at 21%, with particularly healthy traction in protection and annuity, a continuing payoff from our investments over the past few years. This is in distribution reach, frontline capability, and branch productivity. Our non-bank alliances also delivered a strong quarter, with retail protection growing by 60% year-on-year and market share across partners remaining largely stable.
For FY 2027, we continue to hold ourselves to two clear markers, growing in line with or faster than the industry over the course of the year and delivering VNB growth broadly in line with APE growth as we prioritize profitable market share gains this year. We remain disciplined in our approach, anchored in customer acquisition, product competitiveness, and quality of business, and confident that the machinery we have built is positioned to deliver on both. Moving on to product mix. Our product mix remained well- diversified. Unit-linked products contributed 44% of individual APE, non-par savings 22%, participating products 15%, retail protection 8%, and annuities 11%. Non-par savings crossed mid-20s on a run rate basis by the end of the quarter, aided by calibrated rate actioning across select cohorts, supported by a favorable yield environment.
We also saw some benefit from competitive repositioning in the category, alongside a gradual shift in customer preference towards guaranteed return products, a trend we will continue to watch as the year progresses. Protection continued to be a standout, growing over 40% year-on-year as we carried forward the momentum from the second half of FY 2026. Retail protection's share of our business rose from around 6% to 8% and to nearly 11% including riders. Credit Protect also delivered healthy growth of 19%, supported by a recovery in the MFI segment. Annuity saw strong momentum on the back of our variable annuity proposition launched in quarter four FY 2026, which now accounts for just under half of our annuity mix and has opened new conversations with both distributors and customers. We believe continued innovation in this category will expand our addressable market over time. Unit-linked demand remained resilient despite market volatility.
Looking ahead, we expect our product portfolio to remain balanced. We do not anticipate unit mix increasing meaningfully from current levels and expect the share of non-par savings products to improve gradually as customers rebalance their asset allocation towards long-term guaranteed solutions amidst evolving market conditions. We also expect protection to remain a key growth driver, although growth rates may moderate in the second half as the impact of recent tailwinds normalizes. Moving on to financial and operating metrics. Our value of new business grew 9% to INR 879 crore during the quarter, aided by improvement in new business margins by 100 basis points sequentially versus quarter four. On a two-year CAGR basis, VNB growth was 11%. New business margins stood at 25%, aided by better product profile, which helped absorb scale-related pressure and a GST impact of approximately 60 basis points.
Residual GST impact now stands at 60 basis points, and w e remain on track to fully neutralize it over the coming quarters. Going forward, while margins should improve with scale and product mix, as stated at the beginning of this year, we will continue to prioritize growth over margin expansion, and hence we expect new business margins to remain range-bound at current levels. Renewal collections registered a healthy growth of 19%, a 13-month persistency moderated by around 200 basis points to 84%, broadly in line with our expectations and driven largely by specific cohorts and softer collections in unit-linked products. We view this as within our anticipated range, and w e are working across customer engagement, collections, and retention to drive improvement through the year. 61st month persistency improved by over 150 basis points to 65%.
We also crossed an important milestone this quarter with our assets under management exceeding INR 4 trillion. Following the successful completion of the preferential capital issuance by HDFC Bank, our solvency ratio improved to 185%, giving us a strong capital position to support growth ahead. Profit after tax for the quarter was INR 611 crore, registering a year-on-year growth of 12%. Excluding impact of GST, this would have been 17% growth. Embedded value stood at INR 65,860 crore. We would highlight that our five-year absolute EV accretion has compounded at 18%, which we believe is the more meaningful measure of sustained value creation, particularly as the business scales. On the regulatory front, IFRS implementation remains on track, and w e look forward to further clarity on the timelines for implementation of the risk-based solvency framework.
Separately, the RBI's regulations on third-party product distribution, finalized last month and effective January 1st, provide a framework around bestselling practices for distributors, and w e are working closely with our partners to implement these seamlessly. We also await the discussion paper on distribution remuneration from IRDAI and are hopeful that ensuing regulations would help in achieving their long-term vision of insurance for all by 2047. Moving on to our subsidiaries. Our wholly- owned subsidiary, HDFC Pension Fund Management, continued to strengthen its leadership position with a market share of 43%, with assets under management of approximately INR 1.75 lakh crore, delivering 33% growth year-on-year. Our reinsurance subsidiary, HDFC International Re, continued to deliver steady performance with encouraging traction in its Gift City operations.
To conclude, as I outlined at the start of this call, the broader environment has been constructive, and w e believe the machinery we have built, namely a diversified distribution franchise, a well-balanced product mix, and a disciplined approach to pricing and capital, is working as intended. For FY 2027, our aspiration remains unchanged to grow in line with or faster than the industry and to deliver VNB growth broadly in line with APE growth. With GST transition largely behind us and encouraging trends emerging within our bank channel, we remain confident in our ability to deliver profitable growth over the course of the year. For a more detailed discussion on our performance and outlook, please refer to the investor presentation. We will be happy to take your questions now.
Thank you very much. We will now begin the question- and- answer session. Anyone who wishes to ask a question may press star and one on their touch-tone telephone. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to please use handsets while asking a question. Ladies and gentlemen, we will now wait for a moment while the question queue assembles. Our first question comes from the line of Avinash with Emkay Global. Please go ahead.
Yeah. Hi. Thank you for the opportunity. Couple of questions. The first one would be more on the longer horizon. If we were to look back, maybe over a longer horizon post your listing, o ne thing that kind of, you know, we have seen the peers margin improving materially because, I mean, post-listing and all, you had this non-par savings product boost kind of coming that was not that prevalent, and the margin expansion has been very, very material, w hereas in your case, I mean, you had one of the best margins when you had listed, as compared to peers, t he margin has kind of gone up in between. But today, if I look at last year, full- year margin or now, the improvement over the last seven, eight years is relatively limited. With product mix turning favorable, operating kind of, you know, scale going up, what has kind of put this kind of bit of a constraint on margin that your margin improvement in this journey has been relatively limited?
Second question would be, you know, looking forward, I mean, broadly you are maintaining the guidance of, I mean, industry in line growth and the VNB and APE growth to be in line, basically flat margins. That suggests, I mean, I presume that, okay, this is for individual APE. The start has been kind of relatively slower. Now, going forward, if we were to look, what is giving you the confidence? Is it any sort of a specific channel issue that a particular agency that you have a solution in sight, or you expect that the weakness in HDFC Bank channel to be compensated by maybe a partner or agency grows faster? So, what is giving you the confidence that, okay, kind of it will improve from here onwards? Thank you.
Yeah. Hi, Avinash. On the margins, actually, fundamentally, our margins would have grown. I don't want to say relative to peers because some are in open architecture, some in closed architecture, some are at market intensely competitive market commercials, some are at favorable commercials, and so on. Just in terms of, if you look at our own numbers, you'll see that margin expansion was clearly on the cards. This is, if you see on slide five, every dip or any volatility that you see, so i f you were to look at FY 2016 onwards, there has been a steady FY 2016, FY 2018, every two years, FY 2020, till FY 2022, there was almost a sequential growth or a linear growth in margins, almost between 100- 200 or 150 basis points increase in margins, exactly to your point. This happened as recently as FY 2022.
Thereafter, there were three very significant, either regulatory or government- related impact on the sector, which we have called out. To say first one, between FY 2022 to FY 2024, there was a 90 basis points decline in our margins and thereafter because of the withdrawal of 80CCD or the 5 lakh and above would be taxed, very significant impact. Also, because some of our customers were perhaps more affluent, and so we were operating at a higher ticket size. So, like we articulated at that time, we changed our strategy to move away from those kinds, only on those or largely on those kinds of customers to a more broad-based, a lot more Tier 2 and 3 model. And around this time, we articulated and rolled out our Tier 2 and 3 strategy.
Happy to share that now, close to 70%-75% of our new business comes from Tier 2 and 3, when you look at number of policies. So, that has worked very well. Thereafter, when you fast forward margins, we have reached 26.3%. From 26.3% in FY 2024 to 25.6% in FY 2025, you had surrender charges, and we had called out that there was 100- basis- point impact on our margins due to surrender charges. And again, in terms of surrender charges, as you know, we were the architects of non-par product Sanchay Plus, which has now become ubiquitous in the sector. Again, it took us time for us to recalibrate and look at how we are able to change our business model, economics with distributors, some of it sharing with distributors, and that is what took us some time between FY 2024 and FY 2025.
Thereafter, once surrender charges was done and dusted with, we had the GST between FY 2025 and FY 2026. What we have shown last year is that GST came in the second half of the year. Excluding the impact of GST, we actually had a margin expansion. Inherently, margins have gone up and not down, and net of GST, we had that impact. So, really, the only reason I would attribute is these three very material shifts in and impact on business model. Hopefully, that's answered your question in terms of the downward, maybe 100 basis points kind of downward shift in margins. That's why even when you look at this quarter, actually, our margins have expanded. If you were to back out the impact of GST, our margins are actually ending up at 25.6%.
Right, b ecause of the 0.6, so i t's a 25.6% versus opening of 25.1%. So, again, a margin expansion. And like we have articulated, the 300-basis- point impact of GST, we ended last year having digested everything but 110 basis points or thereabout. 60 basis points has been digested in quarter one, and we have about 60 basis points left yet to go ahead, which we are reasonably confident for us to get over that as well. As regards your second question on growth, I'll hand it over to Vineet.
Yeah. Hi, this is Vineet. I think on the growth, the way I think , Vibha also covered in our opening this thing, our growth this quarter, if we keep HDFC Bank aside for a minute, has been very broad-based and across all the channels. This has been led by our agency channel and our own proprietary channels, which has led this by growing faster than 20%. All the channels combined outside HDFC Bank grew at about 17%, and our proprietary channels grew in excess of 20% in this quarter. So, the growth has been fairly broad-based. Now, coming to HDFC Bank. Within HDFC Bank, like we have been, I think, talking about this in the last maybe two quarters or so, that how certain competitive pressures which we were not comfortable participating in, we had let some share go in those six months of, four months of the last financial year.
In this quarter, a lot of that has evened out. Most of the competition is now completely benign on those products, which were obviously not profitable for them as well. Hence, we have seen the market share coming back. Overall, HDFC Bank has not grown this quarter because of a large base. But overall, but given that factor, our market share within HDFC Bank has now come back. Now, as the bank continues to grow and we continue the momentum of our market share increase going forward as well, we are very confident of getting good growth from HDFC Bank as well.
Okay, thanks.
Thank you. Our next question comes from the line of Shreya Shivani with Nomura. Please go ahead.
Yeah. Thank you for the opportunity and congratulations on a good quarter. I wanted to understand how the product-wise growth shall pan out for the remaining three quarters of the year. So, protection clearly will have a high base coming in from third quarter, but o n the non-par segment, it's good to hear that the competitive intensity within the HDFC Bank channel has come down. Is there any other pressure or other competition from FD or any other products that may create a problem for us in that product going ahead and within that channel specifically? So, yeah, a product-wise outlook on what can pan out in the coming three quarters. Thus, to that extent, will our margins remain at these elevated levels or should we see a little bit more compression coming in if ULIP growth kicks in from second quarter?
Yeah, thanks, Shreya. At a broad level, product mix, the couple of shifts that are very noticeable are in protection by 2 percentage points from 6% to 8% over the same period last year. Also, as we had indicated over the last few months, the non-par savings bucket has started moving in the right direction. We closed at about 19- odd % last year and for the period, it's 22% now. On a run rate basis, it's close to 25%. The third bit, which is, again, within the non-par savings category but falls into the annuity bucket, has more than doubled from 5% mix last year to about 11- odd %. This is on the back of a new product launch that we had done in Q4 of last year on the variable annuity front.
We have a couple of product structures there which have been received extremely well by customers and our distribution partnerships. That is something that has also added to the richness of the product profile. Unit- linked, as anticipated over the same period last year, has gone up by about 6 percentage points. As such on a full- year basis, are very similar levels, not having moved too much. So, our outlook for the rest of the year on the product mix is going to be not very different from what you're seeing now. Protection as a percentage is likely to stay there or thereabout. We expect a higher level of growth in the next nine months, so lower ticket size protection products may not be able to match in terms of the mix percentage. That is something that you could see.
Annuity as a segment, we expect that to continue, which will be significantly higher than last year. Non-par also meaningfully higher than last year. We don't know where it kind of settles, but mid-20s looks like a fairly good base from where we would like to build. Unit- linked, again, not very different from last year. We don't expect any meaningful elevation from here, n either do we expect a very significant downward movement from here on. In terms of mix, this is where we are. To your question in terms of where do we see margins settle as a consequence of this, v ery similar to current levels at about 25-odd%. We basically have mentioned about wanting to recoup some of our loss on account of the GST. Last part of it has been done, as Vibha indicated.
We endeavor to mitigate the rest of the impact over the next few months. Anyway, from H2, it will be in the base. We expect to hold our margins at levels similar to where we see today and focusing on VNB growth in line with APE a s the rest of the year shapes up. So, no big movement in the levels of margin from where you are seeing it today, so d efinitely looking for a higher level than what we delivered last year, but similar to where we are at this point in time.
Just to add to what Niraj has said, I think inherent margins hopefully should go up a little bit, but we want to reinvest it back into business for growth.
Right. That makes sense. Just a follow-up question is on the agency channel and the kind of growth momentum over there. Is it fair to say this is the portion where your majority of Tier 3, 4 market expansion story is playing out? That'll be a fair assessment, right? As in your agency channel is expanding more into the Bharat market, et cetera.
It's not just from the agency channel. Even the bank channels have a big reach in the Bharat and the Tier 3 towns, et cetera, so i t's a very fair mix in these towns. Agency channel expansion is also happening in Tier 1 and Tier 2 cities, not just Tier 3 cities. We did expand branches, and we are also deepening in existing cities where we had lower share of agency channels. When we expanded branches, we expanded across one, to increase our reach, and second, to increase our depth.
And happy to share, did we mention the 15%? The branches that we opened in our agency channel, which we have articulated in the past, that now contributes, you know, what we opened in the past 24 months, it contributes almost 16% to our agency APE.
All right. And most of these branches were in deeper pockets or that's, again, fairly diversified across geographies?
The newer branches were in the Tier 2, Tier 3 markets.
Yeah.
But the growth is more broad-based across Tier 1, 2, and 3. But yeah, the more recent branches are in the smaller markets. The expansion that we took over in the last two years, the phase one and two of those expansions were more to cover the geographies. The Tier 3 expansion is more in deepening. So, there is a portion of the expansion also, which is for depth.
Got it. This is very useful. Thank you so much and all the best.
Thank you.
Thank you. Our next question comes from the line of Sanketh Godha with Avendus Spark. Please go ahead.
Yeah. Thank you for the opportunity. Just on that banker thing, you said that market share is coming back in HDFC Bank. Maybe last year, we alluded that we were at early 60s, and we used to be mid-60s. So, when we say that market share is back, are we back to mid-60s or we still have a scope to go back to mid-60s in HDFC Bank?
See, Sanketh, we are very selective in which segment we want our market share to go up. I think that is important. The headline number is not something that necessarily is how we look at things. Obviously, in some of the segments that we talked about just now, non-par especially, as well as in protection and even in par, that's where probably our focus is a lot more than in unit-linked . We are very granular in terms of what are we tracking. But suffice to say that we are on track is what I can say in terms of a level playing field. We are also competitive on our product architecture, we talked about that earlier, and a few other things that position us well to pick up any demand.
We're also looking at this in a very granular fashion of which are the laggard branches and so on and having a very bespoke strategy to fix it. The intention certainly of the bank will aid some of what I'm saying.
So, Vibha, is it fair to say that compared to last year, in current year or at least for first three, four months, you are operating in a relatively better environment in HDFC Bank compared to what you witnessed in FY 2026? So, probably, if the bank comes back with the growth, you will invariably do very well in this particular channel?
Yeah, I think you more or less captured it.
Okay. Perfect. Second question which I had was that this par meaningful slowdown, what you see is predominantly because of our conscious focus to de-grow the immediate cashback plans which we launched in par or is it in general migration of business which was par previously catered to variable annuity or non-par? Just wanted to understand the color of slowdown in par business.
Yeah. So, it's a combination. Our focus has been on non-par, and you'll agree that we've shown a fair bit of traction on non-par from the late teens to moving exit rate, like we said, around 25%. Some of that has happened, but also, I think the overall operating environment, there are preferences of customers when there's a lot more of market volatility. There is some level of re-looking at guaranteed products, at least for some part of people's portfolio, as they should, plus a ided by a favorable yield curve environment. So, it's a combination of all of those.
The reason why I'm asking, Vibha, is that in the previous result call, the articulation was little different that non-par business is still not convinced you, but the commentary what you are giving seems to be little different. It is bit confusing to make a clear conclusion whether the demand has come back to really non-par either because your offering or industry is offering better yields because of yield curve benefit or it's just some ULIP demand or some other product demand is migrating towards non-par.
It's a combination, Sanketh. So, I'll just start with non-par. Non-par, we've been having a product mix in the 30s for the last few years, ever since we launched a category of products, and l ast year, where we saw a significant downward shift at about 18-odd%. The reason for that was twofold. We had mentioned that largely, it's basically the customer mindset moved towards ULIP products in a fairly big way. That was one. Second, we did see a significant amount of competitive intensity in this space, which, like Vineet mentioned, we took a step back to only focus on business, which we thought was viable from a medium to long-term perspective. These were the two reasons why the non-par mix went down.
Also, as we mentioned, the environment is a little more, let's just say, benign on the ground because of which ability to kind of compete on sensible terms is higher at this point in time. Alongside that, yes, the interest rate environment does help because the headline rates available now are better than what they were maybe same time last year. It's more in terms of some of these things which have increased our ability to get to a non-par share to this level. It's not necessarily dependent only on, let's say, the interest rate environment or any one single factor. The customer thought process on asset allocation will, in our minds, always be a very significant guiding factor on product mix. We just want to ensure that we are well-positioned across each of these categories and are competing on sensible terms. That's what we would like to maintain.
Sure. Cut clear. Lastly, one small point, whether variable annuity products margins will be better than the company average in general? I just wanted to understand the color if the product sees attraction. Lastly, in the VNB walk, you have an assumption change negative impact of 40 basis points outside the 60 basis points negative impact due to GST. Just wanted to understand this 40-basis- point assumption change is related to what line item?
Yeah. So, on the first bit, yeah, sorry, on your second one, assumption change is largely linked to what we had spoken about last year on the persistency variance that we had. This is something that we have corrected for and taken a hit upfront on the embedded value for adjustment. On your variable annuity question, yes, the margins will be higher than company average. It basically depends on the kind of structure that the customer chooses in terms of how many premiums they decide to pay. It could be anywhere between an annuity product that you saw, the traditional annuity product or a non-par product, depending on the structure, but higher than company average.
Perfect. This is useful. Thanks for the answer.
Thank you. Our next question comes from the line of Swarnabha Mukherjee with 360 ONE Capital. Please go ahead.
Hi. Good afternoon, everyone. Thank you for the opportunity. Two questions. First of all, in terms of the growth, just wanted to have your view on how should we see it panning out over this year. Because if I look at, say, the numbers from April to June, we had a stronger print in April and then the print kind of tapered. If I were to calculate a two-year CAGR kind of a number, it is broadly around early teens for each of these months. Just wanted to understand that when we think about for the remaining part of the year, should we expect a similar kind of a two-year CAGR or should we think that now with a broader portfolio of products seeing pickup in growth, we should be able to have the growth print at a higher level? That is my first question.
Second, in terms of for the variable annuity product, just wanted to understand, like, the customer base which we are targeting on this, what is the opportunity size for you? Of course, this is an innovation, but would we expect that there could be a competitive intensity gradually picking up in this? If you could share your thoughts on this. Thirdly, in terms of the solvency margin, I understand it has improved after the preferential raise, but just wanted to understand that with the retail protection run rate we are seeing, what kind of runway do we have before we need to go for a fund raise? These will be my three questions. Thanks.
I think I'll take the first question, Vineet here. Like we have articulated, our endeavor is to go in line with the market, both on VNB as well as on the top line and that, I think, we maintain it for the rest of the year also. Whatever we have seen in the first three months makes us fairly confident that we should be able to deliver that.
To your question on variable annuity, yes, it's a very exciting space. We started out by offering a product and have now expanded to two product categories within variable annuities and we expect over the next few years as the regulator engages with us to develop this category further. We believe there's a lot more scope for innovation and more options from a customer perspective. The customer segments that we're focusing on, at least to start with, was someone a little more nuanced and discerning in terms of ability to live with the variability in the product because the traditional annuity product was a guaranteed product with no upside or downside potential. But this product allows the customer an opportunity over a 15, 20-year period to get meaningful upside, and t hat can be illustrated through at the time of engaging with the customer.
That is something that we started off with. As we expanded our product portfolio, we have seen that customers are willing to commit for a longer period of time from an investment perspective. They are typically slightly younger in age than folks taking a single premium product. So, there, we are able to widen the customer segment and offer ticket sizes which are slightly lower than what we would do for single premium products as well. As we understand the customer behavior in our engagement, we will look at how we can expand the customer segments, but w e have been fairly watchful to ensure that the customers understand what this offering is because it is different from what the traditional guaranteed product that everyone understood.
On solvency, as of now, we are at about 185-odd% after the preferential allotment capacity to raise INR 1,000 crore of sub-debt, as and when INR 500 crore of sub-debt as and when required to give us additional 4% solvency. The run rate that we are at this point in time, we are comfortable with a 15, 18- odd months runway with the current capital that we have along with the sub-debt capacity. We would expect the transition to RBC to happen at this point in time. With the current run rate on protection and non-par or any of the product categories, we believe we should be okay as far as capital is concerned, and we definitely look forward to the implementation of the risk-based capital framework.
Understood, sir. Very clear. Thank you. All the best.
Thank you. The next question is from the line of Nischint with Kotak. Please go ahead.
Could you comment a bit on growth in the banker channel beyond HDFC Bank?
We had a similar experience last year. We spoke about competitive intensity in all the bank channels, including the other banks beyond HDFC Bank, and we have seen that also mellow down to a large extent, and our growth in those bank channels have also improved. The quarter growth for this quarter is about 15% in the non-HDFC Bank channel. No, the banker beyond HDFC Bank.
Got it. In that sense, HDFC Bank is probably a decline is what we are seeing right now.
Marginally lower, but let's say flattish.
Just to add to here, Nischint, if you see on a two-year CAGR basis, HDFC Bank is very similar to other banks, but t hey had a higher base effect because of very good growth last year.
Typically, HDFC Bank is from between sort of a growth trajectory, which you believe should catch up towards for the entire year, is that your reading or?
I think 10%-12% because of all these regulatory changes. Al so, spooks distribution. So, I think a 10%-12% kind of a growth of late. That's what even other banks have largely grown. If I look at a two-year CAGR basis, I think two-year CAGR, they are about 10%, yeah. And so are some of the banks.
Sure. And agency is kind of trending quite well at around 21%. Do you see this kind of continuing? Because I'm just trying to connect the dots to the overall guidance.
Yeah. So, Nischint, we are quietly confident. See, agency is a channel that one can't really buy business, certainly not make money if you buy business, so i t is a very bottoms-up funnel. We already have that funnel of new agents. They have been trained, and we look at different buckets of 0-12 months, 12-24 months in terms of productivity, products, our presence in all the 250+ branches that we have added that are now contributing 15% to our agency business. It was probably in high single digits last year. It's a very bottoms-up, brick by brick growth. We have some visibility, all things being equal on the regulatory front and so on. We have some visibility in terms of what gives us the confidence that our agency channel should continue to trend well.
And not just that, we are very happy that term and annuity together has been growing disproportionately high in our agency channel. That also improves our profitability in the channel. If you were to look at slide 15 of our investor presentation, term and annuity has gone up from 15% to 27%. So, not just the growth is good, but also consequently aiding profitability. Other things like our active agent count and all of those, we have put it out, but that's what I mean by the building blocks, underlying building blocks of this channel.
Anything specific to read in the sharp increase in non-bank alliances, the term business in non-bank alliances?
Non-bank alliances, largely, the protection business that you see increases mainly from the aggregators, and that's where you see a large traction of term coming in. There's also a base impact which happened post-GST. Obviously, pre-GST , post-GST, there will be some normalization on this business. That's the large contributor.
Also, the correct will be the exit rate in FY 2026. If you look at that, it is 19%. If you further deconstruct that into H1 and H2, it might actually be a shade higher in FY 2026 second half. So, more or less in the zone, and it should kind of trend there. We have also done many things on our product competitive proposition, and that has also helped.
So, the term tailwind essentially is outside banca and agency, I think, if I have to read it this way.
No, it's an agency.
I mean, [crosstalk].
No, agency also.
Outside banca, but agency also.
Here in this slide 17, it might not look like agency as such, but if you were to look at that 12% underlying, there's a lot more happening in terms of exit rates and agency are trending well. The quality of the protection business is also getting reasonably better. Our direct channel also has seen a fair bit of uptick, material uptick from about 8% last year to 12% this year, and 8% exit rate last year versus that of 12%. So, propriety channels, more broadly in terms of agency plus direct is trending pretty well on protection. Both protection and annuity.
Got it. Thank you very much, and all the best.
Thank you.
The next question comes from the line of Dipanjan Ghosh with Citi. Please go ahead.
Hi. Good evening, everyone. Vibha, I think at the start of this call, you kind of alluded to this fact that you're looking at HDFC Bank from a more granular perspective, both in terms of products and customers. Previously, you've also alluded to the VNB counter share at that channel. Now, if you were to look at, let's say, 1Q 20 27 and compare how much of the incremental wallet in terms of term or annuity or non-par of HDFC Bank in particular you're able to garner, i s there any color on either VNB counter share has been kind of the trajectory on that or the product level counter share that you're having rather than the blended number? Some color on that would be useful. And also, [crosstalk].
Yes. Sorry. Just take that question. It is higher. At the same time, you will appreciate that we are in an intense open architecture scenario, and so, s ome of that is difficult for us to share. These are competitive dynamics, but they are higher, noticeably higher.
Got it. The second question was in terms of the non-par business. Now, if you compare your high-ticket business mix in non-par versus, let's say, pre-change in taxation levels and immediately post that, how would those ratios be tracking on a run rate basis?
All our ticket sizes are doing very well, whether it is lower ticket, INR 50,000-INR 100,000, as well as the higher ticket sizes. Really, it's almost secular growth across ticket sizes.
Got it. And last [audio distortion].
Sorry, I just want to preempt that our overall ticket size looks muted in terms of growth. The only reason there is that the proportion of our INR 50,000 and thereabout ticket size, that proportion has gone up. It's a mixed impact, but different cohorts of ticket sizes, whether it's INR 50,000-INR 75,000, INR 100,000-INR 250,000, all of those have largely shown growth, but it's a mixed impact.
Got it. Fair.
From the protection business.
Yes.
Fair enough.
As protection grows, the ticket size is going to go down, overall ticket size.
Sure. Fair enough. The last question, I think Niraj touched on the fact that over the next two years, even the regulator and the companies might be more focused on co-developing differentiated products on the variable annuity part. I just wanted to get some contours or lines of discussion with the regulator on what incremental strategies or what kind of variations can come in this particular category.
The introduction of the category itself was a fairly big step because this product is understood. It is at a fairly sensitive age segment, at 60 and above as such. Increasingly, over the last few years, we had developed deferred annuity products as an innovation, and we had started getting younger customers engaged to this category. Over a period of time, single premium products got enhanced with regular premium products for customers who are willing to accumulate more regularly. Now, with variable annuity, I think the level of risk that a customer is able to take, I think the product development is going to be more linked to that, and that is obviously going to be based on how comfortable the regulator is in terms of opening up this segment over a period of time.
What is also equally important is the development of the asset side of the market through direct instruments as well as through derivative participation, because that is something that will help manage risk for the customer as well as provide that upside. A lot of these things are linked. We are in constant engagement with the regulator. You would have seen one paper, which is in the draft stage at this point in time, where life insurance companies will be allowed to participate in the repo market. That is a very big step in the direction to be able to manage risk in a more diversified way, rather than being dependent only on counter-parties. These are some of the things that the regulator will look at from time to time based on our engagement, and that will further develop this category over a period of time.
Got it. Thank you, everyone, and all the best.
Thank you.
Thank you. The next question comes from the line of Nidhesh Jain with Investec. Please go ahead.
Thanks for the opportunity. Two questions. Firstly, on persistency. If we look at the trends in the traditional business, the persistency used to be 88%, 89%. That has now come down to 83%. So, is it a reflection of surrender value regulations, where the surrender value is high on the first year and that is leading to lower persistency? And should we treat this persistency as now, the steady state persistency across our business? That is one. Second is, what gives you confidence that HDFC Bank channel will start to revive soon? What is exactly happening there? Because last year also, growth was soft for us, and this year again, quarter one is quite weak for HDFC Bank channel.
On the persistency, it's a combination of things. The 88%, 89% persistency was seen when the segment had a large proportion of high-ticket size cases. Post the withdrawal of the tax exemption for beyond 5 lakh, the ticket size has been reducing, the persistency also has been lower. One other thing that has happened in the last year, and which we had alluded to in the previous calls was that there was one product feature which was resulting in a lower persistency. We have taken actions to ensure that the feature is moderated and also are engaging with the distribution channels as well as the customers to influence the persistency. That is one of the reasons why the persistency has fallen from 84% to 83.5% something. So 40, 50 basis points change.
The other thing is that generally, in the first quarter of the financial year, because of the March base, which is quite large and doesn't get enough time for collection, the persistency is slightly lower. These are the reasons. On the experience being reflected in the assumptions, all these factors which influence the experience, that is your ticket size, channel, et cetera, is already captured, and that is why our variance is not anything big or material in terms of the EV walk that we have shown.
Sure. So, going forward, the numbers should improve, right? Persistency improve for the traditional business also.
We expect it to be in the range of 84%- 85%. It's difficult to say whether it'll go up to 87%, 88%, as we've seen. Although ticket size moderation has happened, but we expect it to get better from the current level.
Sure. Sure.
On your question regarding HDFC Bank, like you said, that this was an irrational competitive intensity in the counters, which led to our share dropping. In this quarter, we have seen that intensity went down and it's been more like a level playing field, and hence our share has come back into the bank business. Bank growth this quarter is muted largely because of the large base of last year. As bank inherently grows from here, we should continue to grow at our expected market share that we used to enjoy in the bank.
Sure. Thank you.
Thank you. Ladies and gentlemen, we request that you please restrict yourselves to one question only per participant. Our next question comes from the line of Prayesh Jain from Motilal Oswal Financial Services Limited. Please go ahead.
Hi, everyone. The question is on the guidance, right? When you mentioned that you will grow either in line with the industry or faster than the industry, what is the assumption of the industry growth that you have in mind? Adding to that, what is the kind of traction that you expect from a HDFC Bank channel, whether it will be at par with the company level growth this year, or it would be more because agency has been doing pretty well for us, so it would be still agency-led and banca and HDFC Bank would still be, say, in single digits kind of number?
Again, on the guidance part, when you say that the VNB growth will be similar to APE growth, you're talking about probably a margin compression from here on because we ended the year last year at 24.2%, and this quarter, we are at 25%. How should we think about this? The question is purely on your guidance. Thanks.
Based on where the industry is at this point in time, the 15%, 17% kind of a number, i f we continue with that base case, the requirement for us for the remaining nine months is to grow maybe a percentage higher than the industry to grow in line with the industry for the full- year basis. If the growth is lower, then the delta required for us over the industry will be smaller, but I think if the current growth momentum continues, then 15% industry growth can be a base case, and we'll probably have to grow at a little over 16% over the next nine months to get to the industry level growth. To your question on VNB, what we've said is a couple of things.
One, we definitely expect margin expansion over last year, which was at 24.2%, and we are at 25% right now. Where we end up, I think, is going to be a combination of what we see in terms of growth. We are fairly constructive in terms of where the growth numbers will be for the remaining nine months compared to where we are at an overall level today. We will toggle between the margin outcome and the growth opportunity. But at an overall level, let's say if the growth settles at industry levels, then we should be able to deliver a VNB growth similar. If the margins are higher than last year, then there could be an opportunity for VNB growth higher than APE.
But at this point in time, the base case is in line given where we are on growth at this point in time, and we'll take it quarter-on- quarter.
When you say in line, it's in line with last year, 24.2% or the current level?
Yeah. Current level is 25%, so i t depends on where our growth finally settles. If our growth is at industry levels, then the margin could be anywhere between last year and where we are today. If the growth is on the lower side, then the margin expansion basically will get us to the same outcome. We want to basically retain that flexibility. At this point in time, we are fairly clear that growth is what we want to drive. Margin is going to be, in some sense, incidental. Some of it will be driven by product mix. H2 protection base was very high last year. Some of the conversations we had earlier on the call. A lot of it is going to be dependent on that. We're not really overthinking that too much. We focus on getting to growth in line with industry.
The margin outcome will kind of be in a range, a fairly narrow range, as we just discussed.
What have you penciled in for HDFC Bank growth?
So, all channels, I don't want to give you channel-wise because again, that's some of the competitive dynamics. But, you know, our philosophy is all channels have to grow and grow to their potential. Some will have a particular base effect. Some will have, like I articulated with HDFC Bank, and some will have some further tailwind like our agency because all the investments that we have made. Each channel is on a different path and we want all our channels to competitively rank, and we do track this very closely. We look at our agency channel in terms of ranking amongst peers and so on, and other channels as well. That's how we track and run the business. Each one will have to grow at least in line with the sector.
Got that. Thank you. All the best.
Thank you.
The next question comes from the line of Vinod Rajamani with Nirmal Bang. Please go ahead.
Thank you for taking my questions. I have a few questions. One is on non-par. If I compare your non-par offerings versus peers, they are able to offer things like, I mean, leave the IRR aside, but they are able to offer things like step-up structures and bundled illness covers and so on. Whereas, we seem to have a slightly more kind of rigid kind of framework in terms of rider-dependent products and so on. So, are we likely to kind of refresh our Sanchay Plus offerings in terms of, I'm not talking about IRRs per se, but just in terms of what features and benefits customers can, so that it's more competitive in the marketplace? That is one. Then, on bank assurance, we have seen this shift away in bank assurance back to ULIP. The ULIP mix seems to have gone up, whereas par has fallen to 14% from 36%.
Is this a deliberate pivot towards, say, volume over value, I mean, how should we think of that? These are the two questions I have.
Yeah. On non-par, I don't know where you got this impression from, but if you look at our product suite, it started with Sanchay Plus, and we've had a fair number of products thereafter, the latest among them being Click 2 Achieve, which is a do-it-yourself product with multiple optionalities for customers. The rider penetration in non-par today is very, very limited. There is no as such dependence on putting this out to customers only on the basis of riders. That is something that we would like to do more of, but it's not yet part of the proposition.
Clearly, the non-par category expansion or product mix increases because of the variety of products that we have for various kinds of customers and preferences that they may have in terms of either taking lump sum benefits or taking benefits over a period of time, taking accelerated benefits or otherwise, and also linked to various levels of protection that they can get within the base product itself. There's a fair bit of options that are available to customers. Like we've always maintained, we will try and be competitive to the extent possible, but we're not going to be competing only on price.
Right. Say, for example, wellness integration and so on. Like for example, peers like Tata AIA are able to offer Vitality and so on. Wellness will become a more relevant kind of proposition going forward and so on. Are you thinking more holistically in terms of offering a better kind of suite of benefits and features to kind of keep customers engaged? Besides the IRR, IRR is one aspect, but leaving the IRR aside, are you trying to entice customers through other ways?
Yes.
I'll take that question and maybe, Niraj, you can add to it. Clearly, see, there are customers when they come to different product categories, they look at different needs. In non-par, usually it's a long-term saving, and IRR becomes the most important criteria. Anything you add to it also starts to differentiate or they erode the IRR away. Hence, the penetration of riders, even though it's available, is less on non-par. However, if you look at ULIP on the other side, and we have seen a good penetration of riders and typically like the products that you mentioned about. We also have equivalent products available, and those are well-placed with most of our ULIP sales right now.
That also is leading to an answer for your ULIP question, that the ULIP margin now are much more palatable and something because of the built-up protection and riders on the ULIP as well.
Right. Thank you for that. Just on the question on bancassurance, please.
Sorry to interrupt. I'm sorry, go ahead.
Yeah, just a point on bancassurance. Is the shift towards ULIP, is that deliberate, or how should we think of that?
Shift to ULIP is not deliberate from our side, but there is a preference that we are seeing from the banking channels for customers wanting to buy ULIP. We thought that this might peak out and might even go down, but given even the current market conditions, we are seeing that this demand is reasonably definite. What we have done structurally is that we have made sure that our ULIP proposition is profitable and is giving us margins which are better than just plain ULIPs. Most of the ULIP business, not most of the ULIP business, but a reasonable contribution of the ULIP business now comes attached with the riders and hence with better profitability.
Okay. All right. Thank you so much. Thank you.
Thank you. Our next question is from the line of Saima Ali with JP Morgan. Please go ahead.
Hi, this is Madhukar Ladha from JP Morgan. Sorry, this discussion around HDFC Bank left me a little bit confused. I just wanted to understand what is our counter share in the last quarter at HDFC Bank channel. Are we now at least in the early 60s? If you could give some number. And what proportion of our individual APE is coming from the HDFC Bank channel? Finally, where do we see ourselves getting back to, because in the foreseeable future, are we looking to get back to sort of late 60s, t he mid-60s, late 60s percentage sort of a number? Sorry if I'm repeating this question but would like to hear your views on this. Thanks.
I think one from our counter share within HDFC Bank, w e stated this earlier, but let me just explain that we have seen an increase in some irrational pricing and competitive intensity and hence we have taken a step back to which is now mellowed down and hence our market share now is back to what it used to be in the first quarter last year. We're saying we are back to that number. Going forward also we believe that this should remain and as inherent growth in HDFC Bank channel comes back we should see our growth also from that channel coming back. On contribution of HDFC Bank, j ust coming to the contribution of HDFC Bank in the retail APE, i n this quarter, it has been at 47%.
Understood. Got it. Thanks. All the best.
Thank you. The next question is from the line of Mohit Mangal with Centrum. Please go ahead.
Thanks for the opportunity and good evening, everyone. I've got two questions. My first question is on credit products. I think you have mentioned right now we are on 19% growth. Now, assuming that conditions kind of remain stable, should we kind of expect this growth to be sustained for the entire year? That's question number one. Question number two, we have seen you adding more and more branches over the last two years, so j ust wanted to know what is your strategy on adding more branches and how much time does it take for a branch to break even?
On the credit product, I think as the credit environment has been good and disbursements are up, we have seen the growth continuing and as we believe, this environment seems to be continuing on the credit growth. Hence, I don't see a challenge on credit product growth. Even within that, the MFI segment has started to come back, and we have seen a faster growth in MFI, even though it has still not come down to the same level that it used to be about one and a half years back. There could be some upside from the MFI business as that continues to recover. Even though some of that business is now also, there's a gold loan business which is a new segment which has come up, which shows growth beyond MFI.
Even as MFI starts to improve, there could be an upside on this growth. The other question was on branches. We did a significant expansion over the last two years. One branch typically takes about 18 months to break even and start delivering margins and positive profits. One and a half years, it becomes more mature and starts to. That's a typical cycle for a branch. We have already done a significant expansion and as we said the phase one and two were focused on widening our reach and phase three of the branch expansion was focused on deepening our reach. Right now, we have slowed down the expansion, only in selective cores where we clearly feel that there is a gap and we need to do it, we are doing it in this year.
As these branches stabilize and become mature, we could see that whether further deepening is required. I think from a widening angle, we have reached 700+ branches across maybe 600+ cities, which is a significant reach.
Just one follow-up. You said breakeven is 18 months. That's true for Tier 2 and Tier 3 cities as well, right?
Yeah. So, this number varies between larger markets and smaller markets. Larger markets break even faster. That would be anywhere between 12-18 months. The smaller markets will take anywhere between 18-24 months or 30 months, depending on the size of the market and the kind of productivity they're able to drive. It's really dependent on the size of the market and really linked to that.
This is largely a portfolio number, so it could vary across different markets.
All right. This is helpful. Thank you and wish you all the best.
Thank you.
Thank you. As there are no further questions from the participants, I now hand the conference over to Ms. Vibha Padalkar for closing comments. Over to you, ma'am.
Thank you, Darwin. Thank you all for joining us today. Should you have any follow-up questions, please feel free to reach out to our investor relations team. Thank you and good evening.
Thank you. On behalf of HDFC Life Insurance Company, that concludes this conference. Thank you all for joining us. You may now disconnect your lines.