HDB Financial Services Limited — Q1 FY27 earnings call

On the Asset Finance side, as we spoke during, you know, the previous quarter, there's something which we built up as a moat in terms of building the Used CV side and working carefully in terms of which products we focus on New CV. So, a large part of that work has been done. We are now at a juncture where you should start to see growth coming through. And let's wait for the next few quarters for the numbers to show up.

Analyst questioned the slow recovery in Asset Finance; management indicated strategic shifts and expected growth in upcoming quarters without giving specific numbers.

Asked by Renish

So, Renish, we don't go with guidance. I think we've stated it earlier that we look at credit cost overall to be in the range of 2.3%. Nothing's changed from there at this point in time. If economic circumstances are better, then obviously it will come through.

Analyst sought confirmation of lower credit cost guidance given Q1 performance; management reiterated 2.3% as a steady-state figure but avoided a specific full-year guidance.

Asked by Renish

So, thanks for that, Abhijit. The way I would put it is, you know, a lot of work which we do is very granular and a lot of actions we take provide us with desired results only in a few months after those actions are taken. So a lot of actions specifically taken on the ground in Asset Finance and we've been speaking about it for almost 3 to 4 quarters, we've been speaking about Unsecured Business Loans for almost a year, and we've been speaking about the rest of the business as well.

Analyst expressed surprise at strong asset quality; management explained it as a result of granular, long-term strategic initiatives and AI in collections, rather than just market conditions.

Asked by Abhijit Tibrewal

On MFI, as I had mentioned, you know, it's more of a small pilot kind of a thing which we run. I wouldn't read too much into it. That's how I would put it on MFI. Business loans obviously is a very critical deliverable for us and we have to grow that business. We have taken a lot of initiatives towards the end of March. Those initiatives as we spread across our entire network sometimes takes time in terms of picking up and going with the flow. We today believe that a lot of actions that we've taken are all embedded into our network and very hopeful that that book starts to turn positive from Q2 onwards and then shows growth.

Analyst questioned sequential decline in certain segments; management clarified MFI's pilot nature and expressed confidence in Business Loans growth from Q2 due to recent initiatives.

Asked by Viral Shah

So Viral, overall, two numbers, you know, which we've been discussing is 8%+ we hold on to it. The focus clearly is to be at 2.5% ROA. There will be some amount of mix change quarter on quarter that will might affect gross yield, but there will be other places where we have advantages even come through things like other income etc., which will net-set it off. So, at this point in time, we would like to make sure that we're able to deliver on the ROA front on a fairly consistent basis.

Analyst asked about the trajectory of yields and margins; management confirmed commitment to 8%+ NIM and 2.5% ROA, expecting mix changes to be offset.

Asked by Viral Shah

So, Shreepal, it's a combination. As Ramesh mentioned the focus is really risk-adjusted return. So, it's not looking at just the yield or just the competition. At the end of the day if we believe that we can make our RoA from a particular product, we will double down on it. If we believe at some points in time that these products won't fetch us the desired RoA over a period of time, then no point trying to put our energies more into it, right?

Analyst questioned the strategy behind reducing focus on certain segments; management clarified it's a strategic decision based on risk-adjusted returns, not solely yield or competition.

Asked by Shreepal Doshi

So I don't think at this point in time we'd want to even comment on it. Today it gives us a great moat in terms of understanding the rural market, right? And without really stressing out on P&L if somebody allows me through a couple of hundred branches to go into rural, understand the local markets, see how we can serve our customers better, I think it's a great thing and it also makes me positive P&L, then why worry too much, right?

Analyst asked about potential MFI shutdown; management avoided a direct answer, framing MFI as a strategic tool for market understanding rather than a standalone profit center.

Asked by Shreepal Doshi

So it's work in progress, Piran. You know, don't have a large number yet. So the real challenge is that the ECLGS is specifically around working capital. So we have to establish end use. So somebody can't use ECLGS just to, let's say buy a new commercial vehicle or to buy a new asset. It has to be - so that we have to be able to demonstrate that there is a working capital gap that needs to be filled in because of specific challenges that the borrower is facing around, let's say collections, because of his exports getting delayed and things like that. So that process is little more involved than what the previous ECLGS frameworks were. So we're making sure that we're working through that. It is coming through, but not in great numbers.

Analyst inquired about ECLGS uptake; management explained the complex, working-capital-specific nature of the scheme, leading to lower utilization despite ongoing efforts.

Asked by Piran Engineer