Earnings Call Transcript - HDB Q1 2025

Operator, Operator

Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q1 FY '25 Earnings Conference Call on the financial results presented by the Management of HDFC Bank. 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 you, sir.

Srinivasan Vaidyanathan, CFO

Thank you, Nirav. Good evening, and a warm welcome to all the participants. We have Sashi Jagdishan, our MD and CEO, with us today. Without much ado, I'll hand it off to him to get the meeting started, and then we'll take it from there. Sashi, over to you, please.

Sashidhar Jagdishan, MD and CEO

Thank you, Srini, and good evening everyone. It's great to connect with you after the last quarter. I want to revisit some guidance we've shared over the past few quarters. We’ve noted our intention to refrain from providing guidance as this diverts focus from our long-term goals. This is a transitional phase post-merger, and it’s essential for us to concentrate on maintaining the stability of key metrics and achieving medium to long-term objectives. The core of our strategy hinges on deposits. Are we satisfied with the current numbers? Not exactly; they've fallen short of what we expected. However, it’s worth noting that the fluctuations we’re observing are not entirely surprising. There’s an element of seasonality involved, and as a substantial player in the market, we’re aware of these trends. Typically, our net deposit growth aligns with market norms. Yet, we were taken aback by recent period-end numbers due to unexpected increases in current account flows. As a reminder, during the last earnings call, we warned of unusual transitory flows in the current account, which have now been realized. Consequently, those significant outflows, combined with INR 160 billion in former HDFC non-retail deposits that have decreased, led to a subdued net change at period-end. You might have noticed that we've begun to disclose average deposit figures in one of our investor presentations. This decision stems from a desire to provide clarity, not as a tactic to mask period-end performance. Our goal is also to remind our teams to focus on fundamental daily operations instead of getting caught up in specific period-end metrics, which may create unnecessary pressure. By examining average deposit numbers from Q1 FY '22 to Q1 FY '25, you will observe a consistent upward trend, indicating a steady buildup over time despite some seasonal variances. While it’s easy to focus on period-end figures, we encourage looking at longer-term averages as a sign of our organizational resilience, which we anticipate will persist. I want to reiterate something from our recent annual report: we expect to see slower growth in our advances relative to deposit growth. This isn’t a new trend; we’ve communicated this intention at several public forums where we emphasized our commitment to profitable growth rather than just growth for its own sake. It’s in our best interest to reduce our loan-to-deposit ratios more swiftly than anticipated, a matter I’d be happy to clarify during the Q&A. Since our merger on July 1, 2023, we have a starting pro forma financial setup that is publicly accessible in our investor presentations. Key metrics like NIMs, CASA ratios, cost-to-income ratios, and GNPA have remained stable. For instance, NIMs have hovered between 3.4% and 3.5%, showing a slight upward trend, while CASA ratios are maintained between 36% and 38%. Our cost-to-income ratio recently showed a downward trend from 41% towards 40%, and GNPA remains within 1.2% to 1.4%, declining properly when excluding agricultural seasonality. Overall, we’ve upheld stability, demonstrating the resilience of both merged organizations, even amid changes in liquidity and competitive pressure. I wanted to emphasize these points as we open up for questions. Thank you.

Srinivasan Vaidyanathan, CFO

Okay. Thank you, Sashi, for the opening remarks. Nirav, with that, we can open it up for questions. I do want to draw all the participants' attention that if you need to refer to a deck, I think it's on the website. You can refer to it if you need to at any time. Nirav, you can please prepare the queue and open it up for questions.

Operator, Operator

The first question is from Mahrukh Adajania from Nuvama Wealth Management.

Mahrukh Adajania, Analyst

Sashi, my first question is about LDR. When you mention that LDRs might decrease faster than expected, are you referring to the large private banks? One is above 90%, but most are averaging between 83% and 87%. Is this the type of LDR you're hinting at, and what timeframe are we looking at? This clarity is important for anticipating loan growth. Additionally, aside from commercial vehicles, retail and other segments have seen growth below 2% quarter-over-quarter. I'm unclear on the seasonality in the first quarter. If your focus is on profitability rather than growth, and considering growth remains weak compared to historical trends, would it be easy to regain market share once your balance sheet improves? You may be giving up some share, and while you could perform better in growth, we are aware of the deposit constraints. That's my question regarding HDFC Bank. Also, could you explain the high provisioning for HDB Financial?

Sashidhar Jagdishan, MD and CEO

Thank you, Mahrukh. First, there isn't any requirement from anyone, including the regulator, for a specific loan-deposit ratio. It is in our interest to have a gradual approach. You are correct that ideally, I would prefer to achieve this in one year, but we must consider the feasibility and practicality, especially with our goal of profitable growth. It is not realistic to make sudden changes completely. Now, if we break it down by segment, we have a machinery that requires careful management. Providing loans to customers across retail, MSME, and corporate segments plays an important role in primary banking and our overall liabilities. There is an optimal level we need to maintain. We can't just reduce these levels abruptly, so we need to manage this very cautiously. The tight liquidity environment is our reality. The end-of-period numbers may not accurately reflect the strength of our deposits. In fact, the trend shows that gross inflows across various deposit products have been increasing, which is positive. One challenge we face is the variability in current account flows, which can create some uncertainty around specific numbers. This has caused some level of disappointment, but when you analyze the averages over a longer time frame, they remain quite stable. Regarding the advances in the first quarter, they do not indicate our plans moving forward. This is just an adjustment phase, and you will see developments in the next three quarters. We have strong relationships in the corporate sector, even if we are currently experiencing slight negative growth. We are purposefully allowing transactional business to decline as it doesn't meet our pricing standards. This approach might allow us to optimize our mix during this adjustment period, and while we can’t sustain this forever, we believe it's the right time to make these changes. I don't have a specific number to share, as that could pressure the system. We have internal benchmarks and no regulatory requirements, but we aim to meet our goals as quickly as possible while ensuring profitable growth.

Srinivasan Vaidyanathan, CFO

Two more things that you alluded to that I can describe is that the activity at the various distribution points, we did add 2.2 million new customer relationships in the quarter. So the last quarter was very similar. From that sense, the pace at which the ground teams are operating is quite strong. We do get the new account value. It is those existing customers or the transactional balances in the current account that I've seen that outflow. Now coming to the other aspect that Sashi alluded to in terms of the inflows. We measure inflows monthly to see what are the credits coming into various customers' accounts at individual, aggregate, branch level and so on. When we look at the inflows that come and compare those inflows that are coming to the similar time period last year, the monthly inflows are up over 20%. So we do see enormous traction happening in the account, which means the credit flows that are coming, cash that is coming in, when I say cash, I mean funds that are coming in, is of a good order. It gets deployed in various means. But again, this is across current account, savings account, across all of these and the salaries, so when I say savings that include the salary account that we have, is gaining good traction from inflows that come at aggregate level. And then one other point she had was about the HDB IPO. I do want to...

Sashidhar Jagdishan, MD and CEO

HDB credit cost.

Srinivasan Vaidyanathan, CFO

HDB credit costs are at a GNPA ratio that has remained flat at 1.9%. Stage 3 levels are stable. Higher credit costs are due to seasonal factors; various challenges have affected collection abilities this quarter. The heatwave and electoral distractions have contributed to this seasonality. Increased early flows have led to higher provisions, but NPAs have remained stable. The influx into the NPA category is limited, though there is a need for more proactive measures.

Operator, Operator

Next question is from Chintan Joshi from Autonomous.

Chintan Joshi, Analyst

Sir, to begin with the question about deposit market share, historically you've averaged around 18% to 19% over the past five to six years. Last year was approximately 12%, assuming my figures are accurate. The banking system is now much healthier, with everyone well-capitalized, strong asset quality, and low risks. In this context, do you plan to aim for a certain level of additional market share over the next two to four years? Is that something you consider? If so, what can we anticipate regarding market share? Clearly, deposit growth presents a challenge for the system and all banks will encounter this limitation. However, I hope that HDFC can maintain its historical trend in market share. That was one question, and I have another one.

Srinivasan Vaidyanathan, CFO

Chintan, regarding our market share, you are correct that over the past 3 to 4 years, we started at just above 8% in March 2020. By 2024, we have increased to slightly above 11%. This represents an increase of more than 300 basis points, with 50 to 60 basis points attributed to the merger. Apart from that, we have gradually added about 50 to 60 basis points annually to our market share. I also want to highlight that there is still significant opportunity for us to increase our market share. Our distribution market share currently stands at 6%, which is about 1.8 times our value market share. Approximately half of our branches, which are over 10 years old, have a market share that is 20% to 30% above our average. The other half consists of newer branches, established in the last five years, which have a market share considerably below the average. As these newer branches mature, there is a chance for growth. Our goal is to expand our distribution reach and onboard more customers to increase our market share. We are confident in our progress and the pace at which we are moving, which supports our ambition to capture more market share. This growth applies across all products, from term deposits to current accounts. As Sashi mentioned, we achieved INR 540 billion in current accounts in the March quarter, and saw utilization of INR 430 billion in the June quarter. Despite these fluctuations, we remain the largest current account bank, with current accounts making up 11% of our total deposits, down from 14% in March. Regardless, we maintain our position as the largest bank in both current accounts and term deposits.

Sashidhar Jagdishan, MD and CEO

And Chintan, just to clarify, right, you mentioned that our incremental market share was around 12%. I think it's a bit higher, and there's a different way to compute it, but 12% doesn't seem to come to our maths anywhere.

Chintan Joshi, Analyst

Understood. I was looking at the flows, but we can discuss that later. The other question I had was regarding a couple of detailed inquiries. What is your current shortfall in the SMF category excluding PSLCs? And did the reclassification of investments have any effect on the NIIs?

Srinivasan Vaidyanathan, CFO

Yes. The SMF category as of March, which we have published in our report or in various disclosures, the SMF category target is, of course, the obligation is 10%. We were close to 9% in the past year. But as of June, we did not see much. We've tried to close it on as of June. It's an ongoing number; it's a moving number as every quarter it changes. So that's one. Then from a reclassification, when we reclassified, the new accounting on investments got adopted. On a post-tax basis, it was slightly under INR 500 million, INR 480 crores or something that has gone to general reserves.

Operator, Operator

Next question is from Suresh Ganapathy from Macquarie Capital.

Suresh Ganapathy, Analyst

I have two questions. First, regarding the PSLC. Last year's RIDF bonds and PSLC have increased by 25%. This is considering the base of INR 16 trillion, which escalated to INR 24 trillion due to last year's high base. Are you confident in meeting some of these obligations, particularly the shortfall in the SMF, while still maintaining your margins, given that the environment is becoming tougher? My second question concerns costs. After three or four quarters post-merger, costs have remained fairly stable at 40% to 41%. Sashi, I recall you mentioning a target to reduce this to 30% in the long term. Are you still confident that you are on track to achieve this, especially with the various pressures in the system? I'll pause there.

Srinivasan Vaidyanathan, CFO

Suresh, on the PSCL, see, the way the math works is, the RIDF is for the entire book, including what was the past shortfall. So you cannot compare the book RIDF, the PSLC is a flow-through in the P&L. So the way to compute this is not to see whether the book RIDF and the PSLC divided by the balance sheet to see whether the growth or not. Right? So it's cumulative; it needs to be thought through differently, and then we'll chat offline on that one, but it's from a direction-wise if you see annual report as well, you'll see that year-on-year, we have become much better in terms of compliance, and that's something which we'll continue to do. Sashi, do you want to do the cost?

Sashidhar Jagdishan, MD and CEO

Sure. Regarding the cost to income, I have a positive outlook for the medium to long term. However, we are currently in a transitional phase due to some long-term borrowings, and we will need to wait for those maturities to appear in the annual report. We are anticipating an improvement in revenues as these bonds mature and are replaced by deposits. During this challenging economic climate, maintaining a stable cost to earnings ratio, with a slight downward trend, is commendable for a large organization like ours, and we are committed to not compromising on strategic investments such as distribution and technology. Our focus is on increasing efficiencies through digitization and improved productivity. The effort is being emphasized across the organization to enhance this. Ultimately, you will see the results in fiscal year '25, which should provide you with confidence that we are on track to achieve our medium to long-term goals.

Suresh Ganapathy, Analyst

Okay. Regarding the HDFC One App, where the aim is to cross-sell and integrate every group product under one umbrella, how far are we from achieving that? Are we making significant progress in that direction?

Sashidhar Jagdishan, MD and CEO

Good question. First, we aimed to ensure that our home loan franchise gradually attracts the primary banking or savings accounts of our home loan borrowers. We’re now tracking what percentage of these borrowers are opting for over 85%. You’re likely aware of this already. The bundling of additional products, including consumer durable loans, credit cards, and insurance, has begun. We wanted this to happen first, and it's now in motion. We expect to streamline our subsidiary journeys, particularly in insurance, soon. This will provide a seamless experience for our team to cross-sell, enhancing the process even further. While we haven’t publicly disclosed everything yet, we’ve seen notable success with home loan customers who don’t hold an HDFC bank account. I know you’re curious about the specifics, but we ask for a bit more time to observe our success and gain significant momentum before we share those details. You’ll be surprised by the sustained efforts at the ground level since the merger announcement, which have even exceeded my expectations. While we won't see immediate results, we’re pleased with the progress so far. Regarding our subsidiaries, leveraging our distribution capabilities has seen notable improvements, especially in asset management, general insurance, and life insurance, with their share of business increasing. We’re not favoring one area over another; we are committed to an open architecture approach. All parties involved have worked hard to increase distribution from our franchise, and it’s progressing positively. Anyone expecting rapid, dramatic changes overnight may be setting unrealistic expectations, but there’s a steady upward trend, and we may share relevant numbers in the future.

Operator, Operator

Next question is from the line of Ravi Purohit from SiMPL.

Ravi Purohit, Analyst

I have two questions. First, regarding the debt reduction we've observed over the past two quarters, there's been a significant decrease in borrowings—INR 75,000 crores in the March quarter and approximately INR 60,000 crores in the June quarter. This is aiding our effort to deleverage the book. Could you clarify what the repayment strategy looks like? I believe your annual report indicates that around 15% of the HDFC borrowing book is set to mature each year for the next three years. With the noticeable decline in borrowings over the last two quarters, it would be helpful to understand how these repayments are being managed. My second question pertains to the deposits. HDFC Limited previously had a substantial amount of deposits, particularly from corporate clients. Can we assume that many of these deposits decreased significantly following the merger? Consequently, the deposit growth we're seeing now includes a substantial share that was earlier withdrawn, which largely comprised larger or corporate deposits. Could you provide some insights on how the situation has evolved since then?

Srinivasan Vaidyanathan, CFO

Okay. Ravi, your understanding is accurate regarding the eHDFC Limited deposits totaling INR 1.5 trillion. Some of these came from corporates, trusts, and certain institutions that were more expensive, as we have observed over the past three quarters. In the December quarter, we mentioned this to some extent; in March, we did as well; and in this quarter, we provided you with the figure of INR 160 billion that declined in term deposits. They are acceptable figures, and we prefer a more retail-focused, branch-driven approach. If these deposits are rate-sensitive or if other market participants offer higher rates, that is acceptable to us. Regarding borrowings, if additional borrowing is necessary, we will pursue that, but we will not compete at higher rates to attract larger ticket-size deposits. In this quarter, we reduced our borrowings by approximately INR 60,000 crores or INR 600 billion. About INR 150 billion was from maturing commercial papers that we needed to pay off. We prefer not to rely on such instruments, so once they matured, we paid them down. The remaining borrowings were roughly split in half: one half was due to maturities that we paid off, and the rest were borrowings we had the opportunity to reduce, which we did. You would also see in the abridged balance sheet that borrowings have decreased by nearly INR 600 billion.

Ravi Purohit, Analyst

So can we sustain this run rate? Or would a bulk of it has already been kind of done for the year?

Srinivasan Vaidyanathan, CFO

There is a maturity profile for the year that we have shared. For this year, the maturity profile is approximately INR 650 billion. The scheduled maturity is INR 600 billion, of which around INR 250 billion was paid in the June quarter. Additionally, we made other payments on top of that maturity and exercised certain options regarding other borrowings. More will be happening throughout the year, as outlined in our annual report, which details the maturity profile for the next three to four years.

Ravi Purohit, Analyst

I have a question for Mr. Jagdishan. During the merger and in subsequent communications, we indicated that the merger is expected to positively impact our earnings per share from day one. Were there specific assumptions regarding regulatory approvals for things like infrastructure bonds or other classifications that have not come to fruition? Or were there other assumptions that did not pan out? It would be helpful to understand these deviations to appreciate the differences between then and now. Those are all my questions.

Srinivasan Vaidyanathan, CFO

Yes, Ravi. At the time of the merger, the economic conditions, including liquidity and the RBI's approach to managing the economy and funds in the country, were different compared to today. So, the conditions have changed. Additionally, some of the forbearances, such as those related to infrastructure borrowing for funding affordable housing and certain deposit categories we acquired, operate under different assumptions now. Furthermore, I want to highlight the EPS since you mentioned it. The EPS for the bank in June before the merger was 21.4 last year, and for this quarter, it was 21.3. It's around similar levels. If you examine the quarter, it ranges between 21.1, 21.6, 21.7, and 21.3.

Operator, Operator

Next question is from Kunal Shah from Citi.

Kunal Shah, Analyst

So the question is on PSL, again. When we look at it almost like 53%, but again, that's from last year's balance sheet. But looking at it in terms of the sell-downs also, which have been there in PSL what we have disclosed in the annual report. The overall CRB growth also being lower, is it giving an indication that we are relatively more comfortable on PSL? And then in that context, how should we look at the overall CRB growth vis-a-vis the overall loan book?

Srinivasan Vaidyanathan, CFO

Kunal, regarding PSL, there are two important points to consider. Firstly, we have a significant demand for small and marginal farmers, particularly those who qualify under dual criteria. We need more of these farmers to meet the requirements. Secondly, as you mentioned in relation to CRB, this segment is primarily influenced by CRB along with non-CRB categories like agricultural and SLI segments, as well as other related business lines. However, we are also comfortable with the other areas of CRB, including business banking and certain emerging enterprises, which have considerable PSL-driven portfolios. Our aim is to maximize support for small and marginal farmers with dual qualifications, and while we are reaching out to many villages, our credit offerings are limited to fit the scale of these small farms. This means we cannot provide excessive credit beyond their actual needs. Therefore, we may need to explore options beyond our organic growth strategy. I hope this clarifies that our main focus is on the small and marginal farmer segment within CRB and PSL.

Kunal Shah, Analyst

I was saying maybe in terms of the PSL, are we more confident in terms of the achievement? We have been the net sellers of PSLC as well.

Srinivasan Vaidyanathan, CFO

We have significant confidence in our ability to be present where opportunities exist. The challenge lies in the supply. We are actively creating demand, positioning ourselves to purchase and originate. However, the limitation is in availability. Last year, we were able to navigate this well, and we did the same this quarter. I can't predict what the future holds regarding availability, but we are actively engaged. That's all.

Kunal Shah, Analyst

Yes. And secondly, on the deposit side, as you mentioned, like not really, so Sashi also in the opening comments highlighted not really happy and it has fallen short of expectations. Earlier, we alluded in terms of the aggression on the field staff plus the expansion in the branches, that is something which will drive the deposit. But somehow it's not coming through. So what could be the initiatives now and would rate be ever looked upon, okay, because we are not getting the benefit from the other two getting reflected in terms of the incremental deposit share? And similarly, when we look at the borrowings, almost like, say, 60% of the borrowings are coming up for maturity in less than 3 years. And we mentioned like we would weigh some prepayment opportunities as well. So how do we gather that deposit sort of maybe loan growth could be much lower?

Srinivasan Vaidyanathan, CFO

Kunal, the first thing is that rate is not a predominant determinate or a driver for us to have an engagement. You've seen that it can compare our rates. We don't get into rate competition. We are priced fairly with our peers. So rate is not something that we want to use to get or gather more deposits. So that's one. So let's get the rates out of the way. That's not something that predominantly influences us. Having said that, it is about that engagement and service delivery that is what we endeavor to distinguish, differentiate, get on more customers, and that is the reason I alluded to, to talk about the inflows. That means the engagement and the service delivery should create more of our customer funds coming into our accounts, which is what I alluded to in another context of someone's question that when we look at the June quarter, we measure that monthly. The monthly inflows that come are in excess of 20% higher than what it was the similar time period last year. So we see the traction gaining. It's a question of both the environment and other opportunities and the spend levels that the customers see that balances this out. Essentially, we are there and the opportunity is there, it is going to stick more, the probability of fixing and resting with us is far more.

Sashidhar Jagdishan, MD and CEO

Kunal, please take a look at the 12-quarter data in front of you and examine the quarterly momentum; this will provide a good level of confidence regarding the resilience of the build-up. The team is putting in a tremendous amount of effort on the ground, which is truly reflected in our earnings derived from daily averages. Historically, we have reported period-end numbers, but I recognize that this may not accurately convey the situation, especially given the volatility. While it's somewhat disappointing to see lackluster period-end results, I want to emphasize the hard work my teams have put in. I encourage them to maintain their engagement intensity and the effort they have invested without feeling pressured by period-end numbers. They are consistently working hard daily to meet realization goals. I am very confident that my team will surprise everyone, including yourselves, when we release the full year numbers.

Operator, Operator

Next question is from Rahul Jain from Goldman Sachs.

Rahul Jain, Analyst

I have 3, 4 questions. First is on the margins trajectory, right? So the governor recently talked about, again, the transmission of pricing. We are seeing massive fight going on for deposit market share, and HDFC Bank has been very, very disciplined on pricing. So any point in time, do you need to relent and start increasing the deposit rates? How do you see the scenario shape up for you all? And what will be the impact on margins because you're trying very hard to kind of maintain it or keep improving it? So in this scenario, how do you envisage this profitability to shape up for you all in the coming quarters?

Srinivasan Vaidyanathan, CFO

Yes, Rahul, if you look at the publicly available data, there's a weighted average term deposit cost published on the regulatory website. Over the last 12 months, you can see how each bank reports this data. The PSU bank weighted average term deposit cost has gone up, with three line graphs representing the PSU banks, scheduled commercial banks, and HDFC bank. We have aimed to stay disciplined on pricing to attract customers through engagement and service delivery, avoiding significant moves in rates. We hope to maintain this approach going forward. To improve our margin, we focus on CASA, market conditions permitting. This quarter, the market did not allow for CASA growth, resulting in term deposit growth only. Historically, the CASA ratio cycles have shown growth, and we are confident that our engagement will boost CASA levels. As we acquire new customers, their savings account balances are performing well, and we aim to bring in more customers to increase those balances. We'll need to be patient for the market cycle to turn and for customer preferences to shift, which will positively affect our CASA mix. Currently, the CASA mix is affected by about 3 to 4 percentage points due to the merger because we only received term deposits as part of that acquisition. This impact, along with market dynamics and changing customer preferences over the last couple of quarters, plays a role in our current situation. I’ll leave it there and move to your next question.

Operator, Operator

Next question is from the line of Manish Shukla from Axis Capital.

Manish Shukla, Analyst

On unsecured personal loans, your growth has been sharply lower than some of the peers. What's your thought process on that segment? And how do you think that changes?

Sashidhar Jagdishan, MD and CEO

No, that is a very conscious decision. As I mentioned, our internal early systems likely identified this trend quite early, and they have been rather conservative. This is why we were comfortable with slowing down growth. This aligns with what the regulator has been emphasizing as well. It has gone against the trend we’ve seen in industry growth, not just recently but in the past as well. At the appropriate time, we will accelerate our efforts.

Manish Shukla, Analyst

One data point, what is the share of repo-linked book as of June?

Srinivasan Vaidyanathan, CFO

Share of...?

Manish Shukla, Analyst

Repo-linked loans.

Srinivasan Vaidyanathan, CFO

Market linked mortgages account for approximately 30%, with around 70% being external. Mortgages represent about 27%, while non-mortgages are around 40%, which are linked to EBLR.

Operator, Operator

We move on to the next participant. Next question is from the line of M.B. Mahesh from Kotak Securities.

M. B. Mahesh, Analyst

Just one question on the noninterest income line. This miscellaneous income has gone up quite sharply. So just trying to understand what has driven that. And also on the fee income line, there's a slowdown, but largely the growth has come from third-party products. If you could just kind of give an explanation to that, sir?

Srinivasan Vaidyanathan, CFO

Two things occurred here. The third-party products are seasonal; they peak in the March quarter and decline in the first quarter. Additionally, miscellaneous income has increased due to recoveries, both credit recoveries and dividends from subsidiaries, which are also seasonal and largely offset each other. As you observe, the decline in third-party seasonality in the first quarter coincides with the incoming dividends, resulting in this offset. These are the two main factors at play.

Operator, Operator

Next question is from the line of Sameer Bhise from JM Financial. Vaidyanathan, the CFO, mentioned that there are two key factors at play. The seasonal nature of third-party products sees the highest activity in the March quarter, which then decreases in the first quarter. Additionally, miscellaneous income includes credit recoveries and dividends from subsidiaries, which are also seasonal and generally counterbalance each other. As a result, the decrease in third-party activity in the first quarter is offset by the incoming dividends. These are the two items to consider.

Sameer Bhise, Analyst

Just wanted to ask on the HDFC Limited borrowings that you have mentioned. Is there a case for any repricing in terms of floating versus fixed for what is due for repayment over the next 3 years?

Srinivasan Vaidyanathan, CFO

No, a good amount of that is fixed. A good amount also we have hedged. We have hedges on some of them. And where there is a floating rate, that's again subject to periodic discussions and negotiations.

Sameer Bhise, Analyst

Okay. But you would say a large amount is fixed in nature?

Srinivasan Vaidyanathan, CFO

There's a mix of fixed and floating rates involved. For fixed rates, we have some hedges in place. For floating rates, some are negotiable while others are not. We regularly review this on a quarterly or even monthly basis in our ALCO meetings to determine how to optimize the situation and identify new opportunities. Therefore, we don't have a single approach that we can definitively state we will follow.

Sashidhar Jagdishan, MD and CEO

I'm not entirely certain if this data exists. However, when you examine the modified duration of our assets and liabilities, the fact that it remains within a narrow band indicates that what Srini is referring to aligns with our actions. This approach has been in place for a long time to ensure that these elements are consistently matched within a narrow range. This is one reason we can maintain our margins within the specified range mentioned at the start of the discussion.

Srinivasan Vaidyanathan, CFO

So that's true before the merger and true after the merger, the gaps remain very closely and tightly managed.

Sameer Bhise, Analyst

Yes. And just one last thing on staff costs. So while there was a one-off last quarter, there is a bit of a jump even on a sequential basis for this quarter. Anything to read into it?

Srinivasan Vaidyanathan, CFO

No, other than a quarter-to-quarter impact because some people additions of last quarter could have been part of the quarter, coming into the full quarter this quarter. Those changes will be there. Certain compensation changes will happen and will continue to happen as we go along. So there's nothing new other than the ex-gratia amount that was there last quarter and not this quarter. I do not know where you are seeing an increase, but that's different.

Operator, Operator

Ladies and gentlemen, we have come to the end of the allotted time. I would now like to hand the conference back to Mr. Vaidyanathan for closing comments.

Srinivasan Vaidyanathan, CFO

Thank you to all the participants for joining us today. We appreciate your time and your engagement with us. If you have any additional questions, comments, or suggestions, please feel free to reach out. Our Investor Relations team, led by Bhavin, is available at any time. I will also make myself available for discussions. Thank you, and have a great weekend.

Operator, Operator

Thank you very much. On behalf of HDFC Bank Limited, that concludes this conference. Thank you for joining us, and you may now disconnect your lines. Thank you.