Earnings Call Transcript
Hdfc Bank Ltd (HDB)
Earnings Call Transcript - HDB Q1 2026
Operator, Operator
Ladies and gentlemen, good day, and welcome to HDFC Bank Limited Q1 FY '26 Earnings Conference Call. 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 Mr. Vaidyanathan.
Srinivasan Vaidyanathan, CFO
Thank you, Nirav. Good evening, and welcome to all the participants today. We have Sashi Jagdishan, our CEO and MD, with us this evening. We'll hand it off to him for opening remarks, then we'll get back to you. Sashi, over to you for opening remarks, please.
Sashidhar Jagdishan, CEO
Thank you, Srini, and thank you all on the call to join us on a Saturday evening. Let me just start off with a little bit of what we see on the macro. You all know this much better, but let me summarize. The global situation remains pretty volatile with a weakening growth outlook amid tariff-related and geopolitical uncertainties. Within this context, India remains relatively better placed, supported by a stable macro environment. For this fiscal, we expect GDP growth to sustain, supported by pickup in improved performance of domestic factors. Normal monsoons, income tax cuts, which you saw in the last budget, and benign food inflation, as you have been recently seeing the prints on inflation, augur very well for domestic demand, especially during the festive season. Concerted policy impetus, which we have been seeing right from January, February of this year until recently, supports sustainable growth. Coming to our performance. Let me just recap how we traversed this over the last 12, 18 months. Last year, we grew our average deposits at a healthy pace of 16% year-on-year and continue to gain market share as we have done in the past. However, we slowed down our average advances or AUM assets under management growth to about 7% last year in alignment with our strategic objectives to bring down the credit deposit ratio from 110% at the time of the merger to about 95% as we speak today. This rate of growth on the assets under management has improved to 8% in the quarter just ended, which is the June quarter FY '26. Our growth engines are well geared to grow. As we move forward, we expect our loan growth to continue to improve from here and remain confident of growing our advances at the system growth rate in FY '26 and higher than the system in FY '27. The growth enablers apart from balance sheet growth remain customer centricity, technology, and our people. Some of these aspects, I think during the course of this quarter and probably the next half of the year, we shall be talking more about it as we unveil some of the initiatives that are underway in the bank. As mentioned in the previous earnings call, both the CFO and Bhavin did mention, and you can sort of recall some of the transcripts from the last earnings call, policy rate changes impact the loans tied to external benchmarks, while the deposit side takes longer to factor it in. As they probably would have mentioned, a large part of our asset side of the balance sheet is floating in nature. It's somewhere around 70%, and whilst the liability side is more or less fixed in nature. So this would be a headwind in terms of when the rate cycle is on a downward trend. This impact is dependent on the pace and depth of the rate cut. You are seeing that in the results just announced. Whilst we may see quarterly fluctuations in margins due to this lead lag impact, we expect it to stabilize over a period of time. Our asset quality, one of our main USPs, remains healthy, positioning us well for growth in both assets and deposits as liquidity and demand improve. During the quarter, we carried out the HDB Financial Services listing process, wherein the bank also diluted some stake and which eventually culminated in the stocks being listed on 2nd of July. We thank all the investors who participated in the said IPO. Earlier today, the Board also announced an interim dividend of INR 5 per share. They also recommended to shareholders the first-ever bonus share issue in a ratio of 1:1. Srini and team will probably give you more details as questions come about from all of you. Until then, I would like to express my gratitude to all our employees for their hard work and performance in a very challenging environment as we move from managing the slowing down of the engine last year to getting back into its momentum as we have laid out. I think they have done extremely well, and we are proud of them. And gratitude to our shareholders who have supported us in all our times and to the Board for their leadership support and their strategic guidance. So thank you all on the call for your support as well. Srini, over to you.
Srinivasan Vaidyanathan, CFO
Thank you, Sashi. We go straight to Q&A. We can open it up and proceed. Nirav, please open and get into the queue, please.
Operator, Operator
The first question is from the line of Mahrukh Adajania from Nuvama.
Mahrukh Adajania, Analyst
I have a couple of questions. First, regarding your margins, I'd like to clarify your method for repricing on EBLR. After a rate cut, how many months does it take for the full EBLR book or at least the repo book to reprice? Also, could you confirm that the EBLR linkage is around 65% to 67%? My second question is about growth. There's hope for recovery, but for now, it seems to be slowing. What factors do you see that will stimulate growth from the current levels? In the first quarter, HDFC Bank's growth was subdued, as was that of other banks. What do you think will trigger growth, considering it has been declining over the last two quarters in the sector?
Srinivasan Vaidyanathan, CFO
Okay. Thank you, Mahrukh. Let's talk about the margin and you asked about the EBLR and the pricing and so on. The February price change on EBLR and the April change, yes, both of that for most part would be fully in. The June change of 50 basis points will not be fully in, in fact, substantially will not be in because it takes 1 month to 3 months, right, at least 1 to 3 months for pricing in. Some are monthly resets, some are quarterly resets and so on. So we'll have to wait and get there. So 2 of those are done. The third one which happened in June, we'll have to wait for that balance of the part to play out. The change in the yield on assets is approximately 20 basis points, with a change of about 22 basis points this quarter. This has to be accounted for moving forward. Regarding growth, which was mentioned, we'll see more insight from Sashi. We've already discussed the impact of monetary policy support, specifically the rate reductions that provide certain consumers with additional funds, along with the decreasing yield. And also the fiscal policy, which also provided relief in terms of some tax benefits. The overall market inflation, both food inflation and the total inflation below that 4% target, it's 3.7% and some are even below. The food inflation is extremely low or nothing. All of that augurs well for consumption demand to pick up faster, both in the urban segment as well as in the rural segment. And with the onset of the festival season, we do expect that there will be a greater fill in that area. Our approach is not only one segment, while we typically tend to mirror the GDP spectrum, which is consumption being 60%, so retail predominant in that. We are present across all of these segments, and we would endeavor for balanced growth across all with a tilt towards the consumer.
Sashidhar Jagdishan, CEO
So we are seeing some amount of healthy demand from the rural side. I think the segment we are catering to is already factoring in better monsoon. So we are seeing some amount of positive inquiries coming in at our ground level there. So there is an opportunity on that front in terms of potential growth. In the recent past, in the urban consumption, obviously, the premium side, whilst is growing, there has been a little bit of fatigue, but we expect the festival season, which will start shortly, I mean, whether it is the Onam or the Ganesh Chaturthi, etc., a fair amount of festivals will start to kick in the country from August onwards, or even earlier. I think that mood will have a reasonable amount of impetus, and that could be a good trigger as well. As I mentioned, the fact that interest rates have come down, the fact that people would have now started to see savings arising out of the fiscal largesse that was given in the last budget, I think all that will play in with the convergence of sentiments and the moods, which normally the Indian festivities bring about. On the MSME side, I think the sectors that we normally cater to, despite the kind of uncertainties on the tariff front, I think we have seen a fair amount of upfronting of exports to sort of take advantage of this potential tariff rates. We do see a reasonable amount of buoyancy in some of the good customers in the MSME segment as well, which should continue even as we get into the second quarter or the second half of the year. Regarding corporates, I believe they have been benefiting from relatively low interest rates in recent months. Additionally, the financial system, which is currently flush with liquidity, is offering attractive rates to these AA and above corporates. We may engage with some of the strong corporates we are comfortable with to support their working capital needs. We're not noticing significant developments in private capital expenditures at this time, but we will definitely engage across all our segments, including rural, retail, MSME, and corporate. In terms of mortgages, there has been considerable competition from public sector enterprises. Nonetheless, considering our brand strength and efforts to improve our processing costs, we should be able to capture some volume even during this challenging period. So we have a clear-cut grounds-up strategy in terms of how we will achieve our momentum from now on. As Srini did mention, we are coming from a very low growth for the reasons that I just mentioned that we had a compulsion to bring down our credit deposit ratio rather quickly, which we did reasonably well last year. But now, from that low, we have already seen the momentum, although small in the first quarter, I think it's playing out well, and we should see this sequentially moving up over the next 3 quarters from now.
Operator, Operator
Next question is from the line of Rikin Shah from IIFL Capital.
Rikin K. Shah, Analyst
Just had a couple of questions. The first one, I noticed that the CRB loan classification has been regrouped. So how are the portfolios now allocated to different business heads? Has there been any rejig there as well? That's the first question. The second one is on the asset quality. Just wanted to clarify what is the NPA recognition policy for any one-time settlements offered to the standard customers? And thirdly, on the credit cost, while it's still very, very benign, it has moved up from 29 to 41 basis points on net credit cost basis. Where do you expect this to settle in the interim?
Srinivasan Vaidyanathan, CFO
There are a few points to mention. First, regarding the portfolio restructuring, you can see on Page 11 that we've categorized small and mid-market separately, and emerging corporates fall under corporate. Additionally, there is another report that details product-wise advances, which is included in a separate financial metrics release. This report provides a similar breakdown for three time periods: last year, last quarter, and this quarter, reflecting the changes made.
Rikin K. Shah, Analyst
Sure, Srini, but has the business allocation to different heads also been rejigged along with this, if you could highlight that?
Sashidhar Jagdishan, CEO
So Rikin, respective product heads, right, like, for example, the SLI head is continuing to be the same. The SLI head is reporting into the retail franchise, which is being headed by Arvind. So the respective business heads have remained the same. They've been reporting into a different hierarchy who report into Sashi differently. That's the only change that has happened. No ground level staff has changed in this.
Srinivasan Vaidyanathan, CFO
And NPA recognition. The settlement, if you do a settlement, onetime settlement, similar part of the NPA. We follow the norms.
Sashidhar Jagdishan, CEO
Definitely. We will adhere to RBI regulations regarding this matter. There may be some exceptions, but generally, any changes will result in a classification downgrade. Whether this leads to an NPA will depend on the specifics of each case. However, typically, any change stemming from a one-time settlement will trigger NPA recognition.
Rikin K. Shah, Analyst
Got it. And lastly, on the credit cost, moved up slightly. So how does that kind of behave in the next 12 to 24 months?
Srinivasan Vaidyanathan, CFO
See, credit cost normally that the June and December quarters are slightly elevated, which is what you see because of the agri, largely driven through the agricultural portfolio based on the crop season, it moves up between June and December. While I won't venture to give you one particular number, but we have been trying to tell that over the last few quarters that the credit costs continue to be benign. And there will be some point in time, it will revert to mean. And what does that mean is a moot point, and how long it takes is also a moot point. But as of now, it continues to be benign and healthy.
Operator, Operator
Next question is from the line of Pranav from Bernstein.
Pranav Dheeraj Gundlapalle, Analyst
Two questions. One, on the CASA deposits. The bank hasn't really gained CASA market share or maybe even lost some share in the last 4 to 6 quarters after a stellar 3-year period from '22-'23. So what's really changed? And of course, more importantly, what would reverse the trend? The second question is on your lending franchise. Can you share what percent of your 100 million customers would be loan customers? And I ask this in the context of HDB, right, which claims almost a 20 million customer franchise and has growth ambitions. I was wondering if there's a chance of a future conflict where both entities are with the same customer.
Sashidhar Jagdishan, CEO
Pranav, let me respond to that, and then Srini can add to what I'm trying to convey. First, when we merged with HDFC Limited in July '23, there was an initial adjustment of about 3.5% to 4%. We settled at around 37.5% to 38%. From the beginning of the merger, we made significant efforts to lower the credit deposit ratio. This involved slowing down our loan activity and increasing deposits not only to meet the new reserve requirements from taking on liabilities from HDFC Limited's balance sheet but also to maintain the usual incremental reserve needs and ensure continued momentum in deposits. We faced a challenging environment with very tight liquidity since merging with HDFC Limited. In such situations, it's important to provide clear priorities. For our branches, we emphasized the need to focus on securing deposits to achieve our main goal of reducing the credit-deposit ratio. We didn't complicate the message by including additional goals like improving CASA, as that’s not something we could direct straightforwardly. CASA is a result of multiple ground level strategies in terms of how you engage with customers, how you fulfill the financial needs of a customer, how do you upsell multiple products, and when you upsell, there is a lot of historical evidence and empirical evidence to say that with more and more products that you upsell, you will get your CASA balances. We are very clear that the priority is to get deposits, and that is what the signal was given. So whilst it's reflected in the fact that we got in deposits. We got in a good amount of market share. We got in at the prices that the market is paying among the large peer group entities. They have done extremely well. At this point, considering the favorable liquidity environment, we now have some flexibility regarding the credit deposit ratio and overall liquidity in the bank. Moving forward, our guidance for the frontline team in fiscal year 2026 is to begin upselling more products to meet customer needs and enhance engagement, while also focusing on delivering an excellent customer experience. We will discuss our plans to foster customer satisfaction, which we believe will help us regain momentum in our low-cost deposit franchise. So this is part one, and you will start to see this. Of course, for a large balance sheet, this will take a little bit of time, but I think we will cover it up, and you will see the needle moving slowly but surely on this particular front.
Srinivasan Vaidyanathan, CFO
The second part of this question was on the... Lending customers... HDB, we have maintained this. I think the segment that they catered to is about a notch or 2 below that of HDFC Bank. For the rates that they offer in the market for products, there is definitely why would a customer from HDFC Bank who has much lesser rack rates go to an HDB for their incremental requirements. Obviously, it has to be a notch below, and that is not a segment that we are catering to at this juncture. I think we have enough to penetrate our own existing customer base, and the kind of segment that we are comfortable with from a product-program basis. So even if one were to do a kind of deduplication between the customer sets, the overlaps would be extremely minimal. As we speak, and Srini, if you want to add something, the segmentation will continue to be distinct between the bank and HDB for a long period of time. There is 0 or very minimal overlap at this juncture, and that will continue to stay for a long period of time. So one other aspect of what you had asked also, Pranav, if I venture to say, in our customer base, cards is the maximum penetration from a customer base, almost, call it, 15% to 20% card. We have 24 million cards. It's one of the highest penetration of that. So every other product, call it, anywhere between 5% to 10% to 12% kind of. So it's a long runway in terms of penetrating into our own customer base for various cross-sell opportunities.
Pranav Dheeraj Gundlapalle, Analyst
Very clear on the HDB one. Just a quick follow-up on the CASA one. I was more wondering if any of your recent actions, I mean, it seems to have coincided with you slowing down corporate credit, for example. So I was just wondering if there's something even more immediate or a side effect of what you have done apart from all the other stuff that you talked about in terms of customer experience, etc., driving the longer-term CASA.
Sashidhar Jagdishan, CEO
No, I don't think, Pranav, if I've understood you right, are you saying that the slowdown in CASA is an impact of the slowdown in the corporate segment?
Pranav Dheeraj Gundlapalle, Analyst
Yes, I was referring to that.
Sashidhar Jagdishan, CEO
Not really. See, the thing is corporate contributes to just a very small segment of or a proportion of our CASA. Yes, it is volatile. It has significant gyrations in the fourth quarter of every fiscal, and hence, the outflows happen in the subsequent quarter. But is it something that has a significant impact because of that? I don't think so. Our CASA results come from the level of engagement we maintain with the retail segment. Additionally, the retail segment we serve focuses on the middle and upper middle-income groups, which is a position we have consistently upheld over time. I can see about 687 people on this call, and I have a few people in this room. If I were to consider this as a representation of how the retail middle and upper middle income segment will behave, we all want to maximize or optimize our returns. The likelihood of this segment to move and manage their funds is going to be much higher than that of the mid- to lower-income segments. This will have a slight impact in the near term for some institutions like ours. However, I remain very optimistic that in the medium to long term, if we effectively enhance our customer experience and upsell strategies at the ground level, we should be able to reclaim some of the gains we lost on low-cost deposits.
Operator, Operator
Next question is from the line of Kunal Shah from Citigroup.
Kunal Shah, Analyst
So in annual report also, you have indicated that you have been taking singles in FY '25 and now positioned to go for boundaries. So any particular segments, the priorities which have been set out apart from what you have indicated in general, the strategy, which has been there? Any key segments which you are looking at? And this quarter, when we look at the number of employees, they have gone up by almost 4,000. So is it like we have ramped up employee addition or is it due to the lower attrition rate in the first quarter? Otherwise, in the last full year, we have added hardly like 1,000-odd employees. And this quarter itself, we have added 4,000. So is it like front-loading, lower attrition? What is leading to that?
Sashidhar Jagdishan, CEO
No. See, on the employee front, while I think Srini and the team will give you greater color, but I think these are the impacts of the branches that we opened in the fourth quarter of last year. So that is coming about now, at least a larger portion of that incremental hiring is from there.
Srinivasan Vaidyanathan, CFO
A lot of people we have added in the sales force. That's part of the approach, both asset sales force as well as the brand sales force have added and getting those branches fully manned.
Sashidhar Jagdishan, CEO
Yes, as I mentioned, I am not here to suggest that we want to lay off anyone. We are in a fortunate position, operating in a sector and a country where demand exceeds supply, and we have plenty of room to grow. In my talk about the annual report, I noted not only our progress in singles and boundaries but also mentioned some exciting technological initiatives that are in progress. I will provide more details at a later time, as I hinted in the annual report. In just a few months, we will share what we have been working on, which will impact our capacity, though that is not our main focus. Our primary goal is to enhance customer experience, and we are very enthusiastic about the direction we are taking. But even then, even at that point in time, what we foresee or what I foresee is that we will have employees, we will grow our resources, but it will be more and more in the front end, more probably in technology and less and less in the back-end operations or back-end enabling functions, whether it is operations, credit, or other enabling functions of the bank. So the way I see it is that we will have, going into the future, more and more people at the customer-facing and maybe revenue generating, and that is a vision that we have. Adding 4,000 employees in a quarter is a tactical move, as Srini mentioned. We've opened several branches in the fourth quarter, and we are now fully staffing them. These new hires are mainly entry-level employees essential for branch operations and sales. And what was the second question...
Srinivasan Vaidyanathan, CFO
I think you answered the segment of growth, if any specific segment...
Sashidhar Jagdishan, CEO
No, as I mentioned a few questions ago, there are opportunities in some rural segments and certain MSME areas, even within corporate sectors. Despite the rates being quite tight, now that we have liquidity, I believe we can start to unlock some of that potential. Even in retail and urban REIT consumption, I believe that with the festive season approaching, we should expect to see growth in the premium and unsecured segments as well. Mortgage pricing has been comparable to the corporate side, and while it's been reasonable, we still believe we can compete effectively. There are some areas of opportunity that we are currently evaluating.
Srinivasan Vaidyanathan, CFO
Even in this quarter, we did see approximately 1,000 people migration from back office to front office to augment more part of the process of the migration.
Kunal Shah, Analyst
Okay. Got it. And lastly, with respect to margins, so maybe what would be the average duration of the deposits, maybe in ALM, maybe because of the CASA classification doesn't make it very clear. But if we look at maybe the average duration of deposits, the way wholesale deposits proportion is also inching up. Now it's closer to almost 18-odd percent. When do we see NIMs of, say, Q4 level getting reached? Would it be by end of this fiscal? Or would it take time after the repricing is over and we see the benefit on deposits also flowing through, plus maybe the borrowings also getting repaid over a period?
Srinivasan Vaidyanathan, CFO
I'll start on the deposits as such, right. See, we have a significant portion of our deposits, which are, call it, 12 to 18 months, call it, mid 15, 18 months, thereabouts. So that's the kind of where you have it in the front and you have it in the back, but most of it is centered around that kind of a time period. So that's very important. For the entire cost of funds to play out, it takes a few quarters. That means on renewal, on rolls, that's where it plays out there. From an overall margin perspective, you asked if it will improve by the end of the year. Yes, it will take a few quarters. It depends on how quickly and significantly the rate changes. We'll have to wait and see, as there are always unexpected shifts, such as the 50 basis point change in June. These factors evolve over time. So I will urge you not to look at quarter-to-quarter at all because that is not how we can manage because one, there are certain things on the asset side that will automatically reprice. On the managed side, which is the deposits that we manage, there will be a lag effect, both from managing the pricing in of the policy change and the roles that happen, there is a time frame to it. Yes, as we exit the year, there should be more stability if there is no more rate change, but then we will have to go through that process as time goes by as to what is going to happen in the forthcoming policy meeting, 1 or 2 meetings what happens.
Operator, Operator
Next question is from the line of Rahul Jain from Goldman Sachs.
Rahul M. Jain, Analyst
The first question is on the loan growth. So can you give some qualitative color on how would have been the growth in disbursements and new loans that you would have underwritten in this quarter? How is the pace picking up there? And of course, there's always a time lag between the disbursement growth and the loan growth. So if you were to start looking out the next few quarters, how would that start looking out? Can you just share some color on that?
Srinivasan Vaidyanathan, CFO
Yes. See, the disbursal growth in mortgages, if you see, is consciously down. The reason being that when there are certain institutions, particularly on the public sector side, which have a rate of anywhere 7.1%, 7.3% or thereabouts, we are not competing, right, at those kind of rates. We are more looking at rates which are 50, 80 basis points, more than that to provide where we provide better service and get a holistic relationship of the ability to have multiple products. We are okay to go slower there because that's what we want, the full relationship, not a product as such getting pushed at this kind of size. And as it relates to non-mortgages, the disbursals have been quite strong, and we are seeing that 9%-odd growth in the retail assets year-on-year. There are some seasonalities, agri season, and so on and so forth plays out. Overall, we have performed reasonably well. With a 9.6% growth rate, there is significant potential for improvement towards the standards we are accustomed to in loan growth.
Rahul M. Jain, Analyst
And so it's fair to assume that by the time we get into the second and third quarter, the stock of loans should also start closing the gap in disbursement growth? And the disbursal growth has been stronger in non-mortgages, shouldn't it also reflect in stronger fee income? But this quarter, we didn't see fee income being that strong for some reason.
Srinivasan Vaidyanathan, CFO
Yes. Fee income for this quarter has been lower due to third-party distribution fees. Typically, the June quarter sees lower figures compared to the March quarter. Additionally, when comparing June to June, third-party distribution fees remain subdued. We believe this is due to timing throughout the year; industry-wide, there hasn't been much activity in third-party distribution fees or distribution sales this quarter. But the overall outlook for the full year in terms of the distribution remains quite optimistic and quite strong.
Rahul M. Jain, Analyst
Okay. So disbursal growth and loan growth in the second and third quarter should start getting similar. Is that a fair assumption in non-mortgage retail?
Srinivasan Vaidyanathan, CFO
I don't want to provide a specific outlook, but it certainly depends. I think Sashi mentioned that at the beginning of the festival demand, we do expect a significant increase, and we are preparing ourselves to capitalize on that in the upcoming quarters.
Rahul M. Jain, Analyst
Got it. Just one last question and more a directional question on cost to income. Ex Treasury still, I think the math is 42% or thereabouts. Of course, it has improved versus last year despite the balance sheet reorg. But what's the sense we should get? Where would this number start to get towards in the next couple of quarters? Do we have visibility that goes down to below 40% because we are adding employees, we are adding branches, etc., and growth, of course, is a challenge? Or should there be a scope for it to improve and bring it down to below 40%? I'm putting a number there. I know you don't comment on the number, but still just to get some direction or that management would want to prioritize growth, so therefore, cost to income is not an immediate priority?
Srinivasan Vaidyanathan, CFO
See, cost to income is always a priority even at the rate of growth that we aspire to do. Even we are at a normalized rate of 39.6% or something. But having said that, I would say that quarter-to-quarter certainly is not something that we look to manage because there will be times where there will be spend required to be supported, that is let it be the card spend or let it be some of the festival spend and programs and marketing that needs to be supported. So we'll not be shy of that where we need to do. You should look at an annual where we do. But certainly, yes, we envisage to take it down and keep improving on that.
Operator, Operator
Next question is from the line of Abhishek Murarka from HSBC.
Abhishek Murarka, Analyst
So Sashi, you said that there's a bit of a breather in CD ratio in the system and liquidity in response to one of the questions earlier. I just wanted to check from a CD ratio perspective, now where would the comfort zone lie? Earlier, I believe it was somewhere between 85% and 90%. But now in the new scheme of things, better liquidity, and the system looking at growth revival. Would you be comfortable with a relatively higher CD ratio?
Srinivasan Vaidyanathan, CFO
See, I'm going to take that, Abhishek, from a CD ratio. We are at 95%, 96%, last quarter was 96%. We are at 95% thereabouts on CD ratio. While quarter-to-quarter, again, even for this year, it can be different. But in the medium term, we would envisage to get the CD ratio to be at the level we were prior to the merger, which was about 87%, 88%. So that is why between 85% and 90% is a range that in the medium term, we'll aspire to be there.
Sashidhar Jagdishan, CEO
Theoretically, I agree with you, Abhishek. However, there will be some variability in the approach we take. I believe we are aligned to that thinking, but we must also consider appropriate demand, pricing, and risk premiums. It's essential to manage these factors as we progress. We are prepared to seize opportunities as they arise. If we need to move in a downward direction, we will do so, but we do not want to be strictly confined to a specific CD ratio number. Clarity will likely emerge as we enter the second half of the year. Historically, a significant portion of growth occurs during this period, particularly in the fourth quarter. By then, there should be sufficient clarity for everyone. In the interim, we are preparing for a positive trajectory, as previously mentioned. This includes managing disbursements across various segments, reassessing market opportunities, and evaluating competitive pressures. Now that we have liquidity, we will focus on proactive strategies, which will become evident to the wider audience.
Abhishek Murarka, Analyst
Sure, that sounds good, Sashi. The second question is about the contingent provision of INR 1,700 crores. This amount is in addition to whatever you are using the windfall gain for. Is this provision specific to a certain account, or is there a policy that necessitates this additional provision? What prompted the decision to create the extra INR 1,700 crore provision?
Srinivasan Vaidyanathan, CFO
Okay. Abhishek, you should look at what is the contingent provision, right? As the name suggests, it's contingent on occurrence or nonoccurrence of certain events. This does not represent any uniquely observed changes in the portfolio. These provisions run through models on various pools of assets under certain probability scenarios, stressing various factors. It is intended to provide resiliency and essentially strong reserving position now and for the future. We were at 51 basis points prior to this. Now the contingent provision is about 57 basis points of the loans portfolio. So it is done at kind of various levels, pools of assets runs through various probability models and then that's the reserving that we did.
Abhishek Murarka, Analyst
Perfect. And finally, can you give some color on asset quality and outlook on asset quality in PL, CC, unsecured retail? Just sort of an update compared to last quarter, now what you're seeing and how that has moved...
Sashidhar Jagdishan, CEO
Whilst Srini may probably give some numbers, if at all he does, but I can tell you that continues to be our greatest, what should I say, our USP. I reiterate that ex agri because agri is more cyclical in nature, which you see a little bit of a blip in the first quarter and the third quarter. It continues to be extremely benign, whether it's gross NPA levels or even in terms of the credit cost. I mean if you look at the credit cost ex agri also, sequentially, it's been pretty much stable. We are extremely happy. The outlook, as Srini just mentioned, is pretty much benign. Even the so-called countercyclical buffer or the contingent provisions has no correlation to any pain points that we are likely to have. Virtually, there's none. It is just building resilience into the future. And that's been a philosophy that we have been patronizing for a long period of time. I think this is something that we are proud of.
Srinivasan Vaidyanathan, CFO
On the particular number, if you look at the NPA on the retail segment, excluding agri, it's at about 82 basis points. Last year same time, it was 82 basis points. So it's been pretty steady at that level. So over a year, 82 basis points, that's the GNPA on the retail segment, which contains cards, personal loans, and all of those products other than agri.
Abhishek Murarka, Analyst
Right. So essentially, you're saying there's no real stress and it's stable, the asset quality there is stable?
Srinivasan Vaidyanathan, CFO
Exactly.
Operator, Operator
Next question is from the line of Chintan from Autonomous.
Chintan Joshi, Analyst
Can I ask you a couple of detailed questions from your 20-F? The first one is, last quarter, you had said that you have about INR 500 billion of expensive erstwhile limited debt that will mature in 2026. In your 20-F, your long-term debt maturity for 2026 is about INR 1.5 trillion. I wanted to understand what that other INR 1 trillion in terms of cost or duration and what the opportunity is there in that INR 1 trillion, so excluding the e-limited debt? So that's the first one. And within that, also how do hedges play a role in helping you offset the NIM pressures?
Unidentified Company Representative, Unidentified
So Chintan, the 20-F report consolidates all subsidiaries. Therefore, analyzing the numbers in isolation may not yield a clear understanding. I advise against searching for bank-related data within it, as it won't align and follows a different accounting framework. We can discuss this further to explore how we can address your questions.
Srinivasan Vaidyanathan, CFO
All the subsidiaries are added in that.
Chintan Joshi, Analyst
Color on kind of non-e-limited borrowings, any opportunities there to do any liability management exercises or something that can help you reduce your cost of funds there?
Unidentified Company Representative, Unidentified
If you see the borrowings that we do give a breakup, we constantly have something which comes up for maturity, which we have done. Last year, we did have some opportunity to prepay or try and advance some maturities, which we have taken through. We'll keep looking for this. As and when they are available, we'll do that. Given the rates where they are in the market, these opportunities may not necessarily be as much in this current year is the way we think about it.
Sashidhar Jagdishan, CEO
Even if there are opportunities, you have to consider the fair value impact if there are any early redemptions of long-term debt. That's an important factor. However, as an investor, why would I want to do that if I'm already benefiting from a very attractive coupon? That's the reality many investors have expressed. Personally, I'm fine with not holding it until maturity. While it seems appealing on paper, in practice, there are very few investors interested in early redemptions.
Srinivasan Vaidyanathan, CFO
On the PSL, yes, it is an active management book. At the aggregate level, the target is 40, and if we exceed that, we look for ways to bring it back down to 40. There is always buying and selling happening for active management. Not every year offers the same opportunities, but it seems you are referring to the annual report or the PSL status for FY '25. There were also sales that surpassed the buys during the year as we managed the aggregate level.
Sashidhar Jagdishan, CEO
Even as we speak, I think we are reasonably comfortable with the overall price portfolio despite adding a portion of erstwhile HDFC Limited's balance sheet.
Srinivasan Vaidyanathan, CFO
The only thing we always focus on is the small and marginal farmer as well as the micro segment, which is significantly more challenging to access, and even its availability is limited in the market. However, we are not aware of any regulatory changes that create a real opportunity in this area. Those two segments consistently remain relevant. Even last year, as you mentioned, we were looking to capture about a percentage point or so.
Chintan Joshi, Analyst
Okay. And can I slip in one more? Will 2Q be the trough of NIMs for the bank, given that a lot of the asset repricing will come through by 2Q?
Unidentified Company Representative, Unidentified
Chintan, it will depend on if there's another rate cut coming or not this year, we have no idea...
Chintan Joshi, Analyst
Yes, assuming no more rate cuts.
Unidentified Company Representative, Unidentified
And you should expect that to happen subject to repricing on the liability side, which should come through. So logically, yes, but there are a lot of other people on the call, we don't want to give guidance of any form or manner because there have been a lot of moving parts in there.
Srinivasan Vaidyanathan, CFO
See, the deposit cost is a managed deposit cost. The deposit costs do not reflect yet fully pricing in of the policy rate change. The deposit pricing, particularly I'm talking about the time deposit, savings also the same. For a good amount, the time deposit pricing is more or less maintains parity across various peer players in the system. So it is not just about one moving. You'll have to see whether the cohorts are moving.
Sashidhar Jagdishan, CEO
I previously mentioned that liabilities tend to be more fixed. Even as we see incremental liabilities coming in at a lower cost than the stock, it takes time for the stock to adjust. The modified duration will be around a year or 1.3 years, which means you'll have to wait for that. This is the reason why you will have a bit of a trough in the coming months, assuming no additional changes, before it begins to improve and stabilize, allowing the liability benefits to catch up with the transmission that has already occurred on the asset side.
Srinivasan Vaidyanathan, CFO
Also to look at these things annually, not quarterly...
Sashidhar Jagdishan, CEO
Which is what you've been mentioning even in your last earnings call, yes.
Operator, Operator
Next question is from the line of Piran Engineer from CLSA India.
Piran Engineer, Analyst
Team, congrats on the strong results. Most of my questions are answered. Just a couple of follow-ups. Firstly, Srini, when you mentioned that credit costs will normalize, it's a matter of when and not if. I'm just thinking which segments will result in this normalization because corporate isn't likely to worsen, secured retail is fine and unsecured will only get better. So why should we assume that credit costs rise in the future?
Srinivasan Vaidyanathan, CFO
No. Again, it's a question of the overall credit cost in the industry out of the bank remains pretty low. When I say reversion to mean, it is simply a statistical model. That is why I do not know when I do not know how much. But if you ask our credit experts, like our Chief Credit Officer, he has mentioned in previous investor calls that, yes, across all the segments, it has been pretty good and benign. It started maybe a year ago in the lower segment like microfinance, referring to the industry; it began around that time. It did not find its way into the other segments like the retail segment, SME segment, wholesale segment, and so on. So again, that is a question of when, right? It's not something that just moved from one on a quarterly basis or a 2-quarter basis. It starts to move across. So it depends on when it does. But, across all segments, there will be some kind of a reversion to mean.
Piran Engineer, Analyst
But there's nothing on the horizon, at least in the foreseeable future that we see, right?
Srinivasan Vaidyanathan, CFO
No, no, no.
Operator, Operator
Okay. 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.