Earnings Call Transcript - HDB Q4 2022

Operator, Operator

Ladies and gentlemen, good day and welcome to HDFC Bank Limited Q4 FY22 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 of HDFC Bank. Thank you, and over to you, sir.

Srinivasan Vaidyanathan, Chief Financial Officer

Okay. Thank you, Rutuja. Good evening and a warm welcome to all the participants. Let's start by the current state of the business as we begin. It seems the saga of COVID is hopefully behind us, at least for now. We cannot forget the efforts of the individuals who dedicated their lives in the service of the bank during the year and the thousands of others who were solely dedicated to serving our customers during this time. At this time last year, we were in an unimaginable crisis. Most, if not all, of the restrictions are behind us. Thanks to our team and, equally important, thanks to you all for being with us through this journey to get us here. Let's begin with providing context on the environment and policies during the quarter which are manifesting signs of speedy recovery. We'll skip over the basic details of GST collections and PMI that show a growth of ₹10 crores. Around the mid-part of the recent quarter, geopolitical tensions rose across the world, leading to global uncertainties. This has significantly impacted global economies, evident in the surge in crude oil prices and other major commodity prices leading to global supply chain disruptions. CPI inflation is on an upward trend due to higher crude oil and LPG prices. The RBI kept its monetary stance unchanged. However, it is expected that this accommodative stance shall be shifted to a neutral stance in the next MPC. We also saw the introduction of the SBS and the RBI reverting to a pre-pandemic policy corridor of 50 basis points, with a lower bound SBF and the upper bound MSF. We are confident that the policy measures are supportive, providing us the impetus for continued growth. Let's go through 4 key themes at a high level. The first is about investment in capital and human capital, branches supported by best-in-class technology. During the quarter, we added 7,167 employees, and for the year, we added 21,486 employees, which is an all-time high, to ensure productivity as the economy accelerates. During the quarter, we added 563 branches. For the year, we added 734 branches, which is about 2 branches per day, and a further 150 branches are in the pipeline to open soon. The bank is accelerating the technology and digital transformation agenda. We continue to invest in creating a seamless customer experience across digital touchpoints. There are significant improvements being made through initiatives like the Customer Experience Hub, PayZapp, which is a revamped payments and wallet experience, and refreshed offerings for our MSME and wealth management customer base. Our focused digital and enterprise factory approach is enabling us to create and co-create technological IP. Initiatives such as disaster recovery resiliency on our hybrid cloud strategy continue to fortify our IT infrastructure and architecture backbone. Our progress over the past year has resulted in the lifting of restrictions on new card acquisitions in August '21, followed by the removal of the embargo on the Digital 2.0 program in March '22. We have taken multiple steps to ensure a robust, scalable, and secure technology setup for further strengthening. In Q4, we received a total of 234 million visits on our website, averaging 29 million unique customers per month, with a year-on-year growth of around 8%. Compared to our public or private sector peers, we had 35% to 75% more visits on our website. Close to 57% of the visits were through mobile devices, indicating the mobile simplicity of the footfall. Secondly, let's discuss the business growth that continues to gain momentum across diverse products and segments driven through relationship management and enhanced digital offerings. Total advances were ₹13,68,821 crores, which grew by 8.6% sequentially and 20.8% over the prior year. This signifies an addition of approximately ₹1,08,000 crores during the quarter and ₹2,36,000 crores since the prior year. The commercial and rural banking businesses grew by 10% over the prior quarter and 30% over the prior year. This segment is a significant contributor of PSL assets. In retail, we witnessed healthy growth in disbursements across products, resulting in asset growth of 5%, both over the prior quarter and 15% over the prior year. This segment is gaining momentum and could have performed even better if not for the supply chain issues affecting the vehicle segment. The wholesale business also showed a sharp rebound across sectors, growing by 11.6% over the prior quarter and 17.4% over the prior year. Franchise building continues to remain robust due to our persistent focus on granular deposits and bringing in new customer relationships, thereby further strengthening our market share. During the quarter, we opened 2.4 million new liability relationships and 8.7 million new liability relationships during the year, showing an incredible growth of 25% over the prior year, enabling the broad basing and deepening of new relationships. Total deposits increased to ₹15,59,000 crores, marking a 16.8% rise year-on-year. This is an addition of approximately ₹1,13,000 crores in the quarter and ₹2,24,000 crores since the prior year. CASA deposits recorded strong growth of 22% year-on-year, bringing the quarter-end total to ₹7,51,000 crores with a CASA ratio of 48%. Retail deposits contributed over 80% of total deposits. As of March '22, the bank had 16.5 million cards. During the quarter, we issued 8.2 lakh cards, and a total of 21.8 lakh cards were issued since the lifting of the embargo within the 7 months of this financial year. Card strength has increased by 28% over the prior year. As of March, the bank had 3 million acceptance points, showing a year-on-year growth of 37%. Acquiring business volumes, including UPI and DirectPay, grew 30% over the prior year. Moving on to the third point regarding market share. Our market share in advances improved from 10% to 11% during the year. Our incremental share of credit growth in the economy was at 24%. We have previously demonstrated that our rate of growth is not inhibited by our market share. To illustrate, over the past 5 years, despite our market share increasing from 7% to 11%, we have maintained our advances growth rate at around 20% annually. In deposit mobilization, our market share improved from 8.8% to 9.5% over the year. Now the fourth item pertains to our strong balance sheet, which is positioned to capitalize on market opportunities for growth. The balance sheet remains resilient with a capital adequacy ratio of 18.9% and a CET1 of 16.7%. Liquidity is consistently strong, with an average LCR for the quarter at 112%. The GNPA ratio stands at 1.17%. We continue to originate loans in conformity with our established credit models, with floating and contingent provisions aggregating to ₹11,000 crores, effectively de-risking the balance sheet and positioning it for growth. Let's now start with our net revenues. Net revenues reached ₹26,510 crores. Excluding trading income, net revenues grew by 10.4% over the prior year and 3.8% over the previous quarter, driven by advances growth of 20.8% and deposits growth of 16.8%. The net interest income for the quarter was ₹18,873 crores, accounting for 71% of net revenues, growing by 10.2% over the prior year and 2.3% over the previous quarter. The core net interest margin was at 4% for the quarter, while based on interest-earning assets, the NIM was at 4.2%. The full-year core net interest margin was at 4.1%, and based on interest-earning assets, it was at 4.3%. Our asset mix shifted towards higher-rated segments during the COVID period, albeit at lower yields. Consequently, the NII growth has been slower, counterbalanced by credit cards that have lower historical averages. Moreover, if we evaluate through another lens, our NII to credit RWA (Risk-Weighted Assets) has improved over pre-COVID levels by approximately 20 basis points and is currently around 7%, representing our optimized pricing for higher-rated segment volumes. Regarding details of other income, total other income reached ₹7,637 crores. Excluding trading income, total other income grew by 10.6% over the prior year and by 7.6% over the previous quarter. Fees and commission income, which constitutes three-quarters of other income, amounted to ₹5,630 crores, and grew by 12.1% over the prior year and 10.9% over the prior quarter. Retail constituted approximately 94% of these fees. Bank retail branches performed well in terms of fees and commission income, correlating with healthy asset growth during the quarter. Fees on payment products remained subdued due to lower risk-related fees, over-limit fees, late payment fees, etc., reflecting our cautious approach to card-based lending and customer preferences. However, card sales and interchange income grew robustly. Overall, this had an impact of about 4% on fees. The fixed and derivatives income was at ₹892 crores, which was higher by 1% compared to the prior year's ₹879 crores. Trading income recorded a negative ₹40 crores for the quarter. In the prior year, it was at ₹655 crores, and in the previous quarter, it was at ₹1,046 crores, benefiting from opportunistic gains from our investment portfolio. Other miscellaneous income of ₹1,155 crores includes recoveries from written-off accounts and dividends from subsidiaries. Moving on to operating expenses for the quarter, which amounted to ₹10,153 crores, an increase of 10.6% over the prior year. During the quarter, I mentioned the addition of 563 branches and the 734 branches and 2,043 ATMs added, bringing the total network strength to 6,342 branches, 18,130 ATMs, and 15,046 business correspondents managed by common service centers. We are further expanding our distribution network through partnerships with Airtel Payments Bank, India Post Payment Bank, and Manipal Business Solutions, which have approximately 60 million, 50 million, and 13 million customers, respectively, providing access to a broader customer base. The cost-to-income ratio for the quarter was at 38%. With the elevated investments in technology, we anticipate the spend levels to rise, driven by volumes, sales, promotional activities, and discretionary expenses. Moving on to PPOP, Pre-provision operating profit stood at ₹16,357 crores. Excluding trading income, PPOP grew by 10.2% year-on-year and 4.2% sequentially. Regarding asset quality, the GNPA ratio was at 1.17%, compared to 1.26% in the prior quarter and 1.32% a year ago. It is significant to note that of this, about 19 basis points were standard. These are included by NPAs under one of the other facilities of the borrower identified as NPA. The net NPA ratio was at 0.32%, compared to 0.37% in the preceding quarter. The annualized slippage ratio for the current quarter was approximately 1.3%, amounting to about ₹4,000 crores, compared to 1.6% in the prior quarter. During this quarter, recoveries and upgrades amounted to ₹2,100 crores, or approximately 18 basis points. Write-offs for the quarter were ₹1,700 crores, or about 16 basis points, with these figures based on annualized basis points. The restructuring under the RBI resolution framework for COVID-19 as of March end stands at 114 basis points of ₹15,700 crores. This is at a borrower level and this increase was approximately 17 basis points of facilities from the same borrower that were not restructured but included here. Of the total COVID restructured standard book, approximately 37% pertains to customers who chose to restructure only one facility. Of the remaining 63%, 41% are secured and 59% are unsecured. Of the unsecured portion, 84% had good CIBIL scores or were not delinquent at the time of restructuring. This positions us well within a manageable range with a maximum potential impact on our GNPA ratio of 10 to 20 basis points in any given quarter, as we have noted previously. Provisions for core specific loan losses for the quarter were at ₹1,778 crores, compared to ₹1,821 crores in the previous quarter and ₹3,153 crores for the prior year. Total provisions reported were ₹3,312 crores compared to ₹2,994 crores in the previous quarter and ₹4,694 crores for the prior year. Total provisions in the current quarter included additional contingent provisions of approximately ₹1,000 crores. The specific provision coverage ratio stood at 73%. There are no technical write-offs. Our head office and branch networks are fully integrated. At the end of the current quarter, contingent provisions for loans were approximately ₹9,700 crores. The bank's floating provisions remained at ₹1,450 crores, and general provisions were at ₹6,600 crores. As of March end, total provisions, comprising specific, floating, contingent, and general provisions, amounted to 182% of gross non-performing loans, in addition to the securities held as collateral in several cases. Looking at another angle, floating, contingent, and general provisions were 1.28% of gross advances as of March quarter-end. Moving on to credit cost ratios, the core credit cost ratio, specifically the loan loss ratio, stands at 52 basis points for the quarter, compared to 57 basis points for the prior quarter and 110 basis points for the previous year. Recoveries recorded as miscellaneous income amount to 26 basis points of gross advances for the quarter, compared to 25 basis points for both the prior quarter and prior year. The total annualized credit cost for the quarter stood at 96 basis points, which includes the impact of contingent provisions approximating 30 basis points. In the prior year, this was at 1.64%, and in the prior quarter, it was at 0.94%. Reported profit before tax for the quarter was ₹13,045 crores, growing 20.3% over the prior year. Net profit for the quarter was ₹10,055 crores, representing a growth of 22.8% over the prior year. Net profit for the year ending March '22 stood at ₹36,961 crores, increasing by 18.8% over the prior year. Now on to some highlights of HDBFSL, based on IndAS. Total advances were ₹61,326 crores, with 76% secured. Disbursements improved in Q4, growing 11% quarter-on-quarter and 7% year-on-year. For the quarter ending March 31, HDBFSL's net revenues were ₹2,141 crores, reflecting a growth of 8%. Provisions and contingencies for the quarter totaled ₹422 crores, including ₹223 crores of management overlay, versus ₹429 crores for the quarter ending March '21 and ₹540 crores, including ₹98 crores of contingent management overlay in the prior sequential quarter. The growth in Stage 3 stood at 4.9%, down from 6.05% from the sequential quarter. This includes an impact of 1.27% due to new RBI guidelines issued in November '21. 80% of the Stage 3 book is secured, carrying a provision coverage of 44% as of March 31, '22, and is fully collateralized. 20% of the Stage 3 book, which is unsecured, had a provision coverage of 87%. Overall, HDB remains well-capitalized with a total capital adequacy ratio of 20.2% and Tier 1 capital adequacy of 15.2%. LCR was at 102%. Profit after tax for the quarter ended March '22 was ₹427 crores. Earnings per share for the quarter were at ₹5.41, with a book value per share of ₹120.69. As of March '22, HDBFSL maintained 1,374 branches across 989 cities and towns. Moving on to HSL. HDFC Securities has a wide network presence of 216 branches across 147 cities and towns. The overall client base has significantly increased to over 3.8 million customers as of March end, reflecting a 40% increase over the prior year. 86% of HSL's revenues stem from transactions conducted by customers on its digital platforms. HSL's revenue reached ₹510 crores for Q4 2022, a 16% increase versus the corresponding period a year ago. Net profit after tax was ₹236 crores for the quarter. Earnings per share for the quarter stood at ₹148.8 crores, with a book value per share of ₹1,050. In summary, we remain committed to offering our customers a comprehensive range of products and services while capitalizing on growth opportunities. We have maintained consistent performance over the years and remain dedicated to a culture of excellence. The quarterly results reflect 21% growth in advances, 17% growth in deposits, and 23% increase in profit after tax, demonstrating a consistent profit growth rate and return on asset of over 2% as well as ROE of over 17%. Earnings per share for the quarter reached ₹18.1, with an increase in book value per share of ₹18.6 to ₹433. The economy is on a growth trajectory. Businesses are robust. Credit demand is high. Savings growth is strong. Customers have cash to spend and are actively spending. We are here to serve. With that, may I request the operator to open the line for questions. Thank you.

Operator, Operator

The first question is from Mahrukh Adajania from Edelweiss.

Mahrukh Adajania, Analyst

Yes, so I had two questions. My first question is on margins. During the second quarter, we outlined that there could be margin improvements with a lag once retail loans pick up, which could happen over the next 3 to 4 quarters. And now in the fourth quarter, margins have declined further. Is the margin expansion still on track? How do we view margins from here on? That's my first question. Also, connected to margin, could you provide a rough indication of the commercial banking yield excluding agriculture?

Srinivasan Vaidyanathan, Chief Financial Officer

Okay. Let's take these questions. Regarding margins, I mentioned it a few minutes ago during my presentation. Our asset mix has shifted significantly from unsecured to higher-rated segments, which came about through the pandemic. As you noted, retail loan growth declined and it increased in wholesale and commercial and rural segments. If you go back to pre-pandemic 2019, the Basel disclosures show wholesale at 45%, retail at nearly 55%. Now things have reversed; retail is at 45% and wholesale is at 55%. In fact, in this quarter, wholesale grew even more with 10% sequential growth. Retail also grew well at over 5%, which represents just over an annualized growth of 20.5% on retail. However, wholesale is outperforming. This mix impacts our margins; higher-rated segments typically yield lower returns. We traded off NIM to operating costs and credit costs to sustain profitability in this scenario. You'll appreciate that NII or NIM is inherently a function of risk, and there must be alignment to credit. We opted for a cautious approach throughout the pandemic, thus we mentioned months prior that it could take 3, 4, or even 6 quarters to return to form. Retail is picking up, but wholesale opportunities persist. We’re comfortable with whichever pathway yields profitable quality whenever it presents itself. If we consider our NII to credit RWA, it’s now 7%, up by about 20 basis points from pre-COVID levels, indicating we are optimizing our margin. Likewise, our net credit margin, reflecting NIM minus credit cost, is at 3.5% in this quarter, compared to 3.1% last year at the same time. Overall, pricing for risk has improved, and looking at full-year metrics, net credit margin for FY'22 stands at 3.3%, compared to FY'21's 3.1%. This is indicative of good pricing for risk. On the ROA, the current quarter is 2.1%, aligning with the full year of approximately 2%, 17% ROE in prior years. So, while margins are vital metrics presenting the outlook, it’s essential to connect them with the underlying credit quality. Hope this addresses your query.

Mahrukh Adajania, Analyst

Sure. So is the focus henceforth on net margins excluding credit cost? Could you agree with that? If the macro remains volatile, might risk-off trends persist?

Srinivasan Vaidyanathan, Chief Financial Officer

Yes, if we consider retail growth at 5% sequentially, that figure is encouraging. Year-over-year, retail has grown by about 15%. This suggests that retail is lagging; the growth this quarter surpasses the year-over-year growth because bookings have exceeded paydowns. Sequentially, retail is trending upward. While the recovery looks promising, it comes with significant costs. Our full-year cost-to-income ratio is around 37%, with the quarterly figure at approximately 38.3%. Increased retail activities drive up costs, so if retail expands to 6% or 7%, you'll notice a rise in the cost-to-income ratio as well. Additionally, credit costs will rise since retail carries higher risks than wholesale. Ultimately, we are focused on the returns. I have provided metrics on asset growth and relationship growth to illustrate our targets.

Mahrukh Adajania, Analyst

Sir, could you give a rough range on the yield for commercial banking loans?

Srinivasan Vaidyanathan, Chief Financial Officer

Yield on commercial banking loans will be around 8%, and for agriculture, it would be approximately 9% to 10%.

Mahrukh Adajania, Analyst

Now, moving on to my next question, what is the accounting policy regarding RSUs in terms of upfront costs and amortization?

Srinivasan Vaidyanathan, Chief Financial Officer

Sure. To start with, see, an RSU can be thought of similarly to ESOPs but is at a deeper discount. The key is that the number of RSUs granted would yield no different impact compared to ESOPs. For instance, granting 3 ESOPs at a fair value yields 500 each would typically grant 1 RSU instead. So the compensation remains the same as a method to avoid shareholder dilution. This is intended for mid and junior management—primarily for personnel 10 levels below the CEO. Additionally, investors approved granting them across a 4-year period with a 5-year vesting thereafter. The cost incurred will be reflected in the P&L over that timeframe. The current approach mirrors that of ESOPs; however, for material risk-takers and executive directors, it must appear in the P&L. Rest assured, RSUs are relatively aligned with our compensation approach.

Operator, Operator

The next question is from the line of Rahul Jain from Goldman Sachs.

Rahul Jain, Analyst

I have two or three questions, Srini. Firstly, the liquidity coverage ratio dropped quite a bit this quarter, which seemed indicative of utilizing the excess liquidity previously held. How long do you foresee further rationalization in this, and how should I connect that with deposit mobilization in light of the merger strategies?

Srinivasan Vaidyanathan, Chief Financial Officer

Let’s delve into that. Firstly, yes, we have consistently optimized our liquidity usage. In this quarter, we had loan growth of ₹1,08,000 crores, while deposits also grew ₹1,13,000 crores. Thus, we consumed quite a bit. Yet, from an LCR value standpoint, it fell since there are certain parameters tied to liquidity assumptions. We have implemented some measures that align with customers' immediate needs. As for optimizing further, we don't expect to go below 110; instead, we aim to remain between 110 to 115. Moreover, we have a vintage branch model generating deposits, enhancing productivity over time and increasing our market share.

Rahul Jain, Analyst

Got it. Srini, one more question on retail: Various segments in retail have shown continued momentum. Can we assume that all credit facilities have normalized, and can this growth be sustained over the next few quarters or years?

Srinivasan Vaidyanathan, Chief Financial Officer

Yes, we believe so. In this quarter, retail grew sequentially by 5%. However, supply chain issues were affecting the vehicle segment. Growth should resume back soon as these constraints ease. Payments are also strong; credit card spend is currently up 28% year-on-year, while loan growth has improved by 14%. So we are seeing upward momentum. Overall retail demand is significantly exceeding supply, and our objective aligns with capturing that demand.

Rahul Jain, Analyst

Can I squeeze in a quick question on fee income? It has picked up nicely this quarter at 12% year-on-year. Could you break it down between payments and usual fee income, and how has momentum been in those segments?

Srinivasan Vaidyanathan, Chief Financial Officer

Certainly. The 12% growth was bolstered by payments performing a little better, though not at the business as usual levels. For the total 12%, payments comprise roughly 10% to 11%. Excluding payments brings us to around 14% to 15%. From a product mix perspective, about 40% of fees come from retail assets and liabilities, approximately 20% each from other services. Third-party products contribute to about a quarter of total fees, while card products account for roughly 30%. Wholesale fees are in the range of 5% to 7%. Such distributions help in managing overall feeds through various customer preferences.

Rahul Jain, Analyst

Got it—so payment fees increased by 10% to 11% year-on-year this quarter, correct?

Srinivasan Vaidyanathan, Chief Financial Officer

That is correct, yes. It still lags behind past growth figures.

Operator, Operator

The next question is from the line of Aditya Jain from Citigroup.

Aditya Jain, Analyst

On the branch slide you've provided previously and reiterated recently, could you share your thoughts on the relationship between historical deposit connectivity and branch footprints? Is there a marked difference now versus historical experience given that earlier branches were located in larger cities, while newer ones have moved into smaller locations for growth? What could the impact be?

Srinivasan Vaidyanathan, Chief Financial Officer

I can address that: Historical locations of branches compared to current locations matter more in terms of maturity and productivity relative to that context. We can indeed create optimal productivity monitoring aligned with branch growth initiatives. Our ongoing strategy leans heavily on productivity improvements based on historical success.

Aditya Jain, Analyst

From your experience with depositor behavior in previous rate cycles, as term deposit rates rise, could we see idle savings get deployed in term deposits, and would that be substantial? Secondly, how often do you observe term deposit investors breaking their fixed deposits prematurely to move into higher-rate options as rates ascend?

Srinivasan Vaidyanathan, Chief Financial Officer

As for depositor behavior amidst rising rates, our CASA ratio currently sits at 48%. We've seen variations; historically it's ranged from 40% to 42%. There are about 80% to 90% anticipated time deposit penetration opportunities among customers—much potential lies in that area. While customers are rational and will transition to term deposits if savings rates offer a better yield, we do not anticipate excessive turmoil. In terms of breaking fixed-rate deposits, execution highly varies. Each customer weighs the returns against potential penalties established for early termination.

Operator, Operator

The next question is from the line of Manish Shukla from Axis Capital.

Manish Shukla, Analyst

Srini, could you offer insight into wholesale growth, particularly in terms of PSU versus private sector mix, and how the incremental lending fared during the March quarter?

Srinivasan Vaidyanathan, Chief Financial Officer

Certainly! The sectors contributing to growth include telecoms and manufacturing, while PSUs have been involved where lending is concerned. Overall, prepayments earlier this year amounted to ₹60,000 crores but weren't as prevalent in this quarter. New credit demands paired up nicely, and we look pleased on our relationship with both corporate and retail sides.

Manish Shukla, Analyst

How has the overall wholesale mix of PSU changed compared to a year or two back? What share does PSU comprise of total wholesale now?

Srinivasan Vaidyanathan, Chief Financial Officer

We don't disclose PSU numbers, but the sectoral deployment details are typically published periodically.

Manish Shukla, Analyst

Understood. For your overall loan book, what proportion is floating rate, and among those, how much is linked to the repo?

Srinivasan Vaidyanathan, Chief Financial Officer

As of now, floating rate loans account for 54%, while fixed rates tally at about 46%. Repo-indexed loans will account for around 29% to 30%, aside from T-bill-linked loans, which comprise around 10%.

Operator, Operator

The next question is from the line of Sagar Doshi, an individual investor.

Unidentified Analyst, Analyst

Srini, could you share your insights regarding treasury income? Quarter-on-quarter and year-on-year, the treasury segment income has decreased. It’s understandable due to bond yields; however, could you provide clarity on its future outlook?

Srinivasan Vaidyanathan, Chief Financial Officer

Regarding trading income, as I mentioned previously, the same quarter last year was ₹655 crores, and last quarter was slightly above ₹1,000 crores, while this quarter is around negative ₹40 crores. These values include opportunistic gains harvested; the opportunity for achievement reduces when rates escalate. Therefore, it's logical to expect minimal treasury trading income over the foreseeable future.

Operator, Operator

The next question is from the line of Adarsh Parasrampuria from CLSA.

Adarsh Parasrampuria, Analyst

From a 12 to 18-month standpoint, how are you gearing your balance sheet? Given that you're ramping up branches and deposit mobilization, what liability implications do you foresee? Might there be a drag on P&L over the next 12 to 18 months while you ramp up distribution?

Srinivasan Vaidyanathan, Chief Financial Officer

Several good points raised. We must clarify that branch ramp-ups and mobilization are standard practices, independent of merger trajectories. We maintain our focus on establishing a strong liability base. Over the past few years, ratios of asset growth have been impressive, signaling our intent for continued growth aligned with potential teal asset targets. We have opened branches during COVID and will aggressively continue even during this upheaval. Generating deposits is paramount. Having excess liabilities might lead to temporary mismatches but is manageable through effective investment strategy. So while these represent deposit growth targets, profitability is key.

Adarsh Parasrampuria, Analyst

What about the anticipated spike in cost-to-income due to these upcoming changes and investments?

Srinivasan Vaidyanathan, Chief Financial Officer

Cost-to-income ratios will indeed rise as retail lending activity increases and we expect returns to justify the investment. We did indicate trends that we expect to revert back to the mid-30s within 3 to 5 years, aided by improvements through scale and digital advancements, even with current upward strains.

Adarsh Parasrampuria, Analyst

Lastly, relating to margins, given that the mix shifted recently, do you see this stabilizing or reversing, and how long might that process take?

Srinivasan Vaidyanathan, Chief Financial Officer

We cannot project strong trends into the future. Currently, retail is back, but our status depends on quality. Relationships shape profitability, so we monitor credit policy, which could impact margins in immediate terms but shall align with our long-term strategy.

Operator, Operator

The next question is from the line of Saurabh from JP Morgan.

Saurabh Kumar, Analyst

My question relates to credit cards. When do you anticipate your market share to return to previous 30% levels? Seven months have passed since the ban lifted—what's the outlook? Also, how are your current revolve rates in comparison with pre-pandemic?

Srinivasan Vaidyanathan, Chief Financial Officer

To clarify, spend market share isn't primarily our goal, as it doesn't correlate directly with profitability. Our focus remains retail-oriented even within mainstream solutions. Pursuing spend share per se doesn’t serve our bottom line. As for the revolve rates, we’re around 70% to 80% of pre-COVID revolve rates. There’s an improvement, but more customer involvement via ANR revolving needs to happen.

Saurabh Kumar, Analyst

Any updates on the PayZapp launch date?

Srinivasan Vaidyanathan, Chief Financial Officer

The PayZapp launch is likely a quarter away, as we have a few clients in our close-user groups before expanding it to a broader base.

Operator, Operator

Thank you. Ladies and gentlemen, this was the last question for today. I would now like to hand the conference over to Mr. Vaidyanathan for closing comments.

Srinivasan Vaidyanathan, Chief Financial Officer

Thank you. Thank you all for joining us today. We appreciate your time and had a great conversation. If you have further queries, connect with Ajit Shetty in the Investor Relations team. We are happy to engage with you. Thank you.

Operator, Operator

Thank you. On behalf of HDFC Bank Limited, that concludes this call.