Can you quantify the investments next year as a % of APE and which areas?
Key focus areas: agency channel (branches, training, people, hierarchy, pay scales, technology), and Project INSPIRE technology transformation including AI integration. We will be range bound on margins; anything over and above we will invest. If product mix doesn't help due to elevated unit linked, we'll gun towards keeping it range bound. It will be fairly dynamic and iterative.
What other levers remain to improve inherent margins beyond HDFC Bank? On Project INSPIRE - quantify margin savings? On agency - impact of open architecture?
Many levers but topline, quality, margin trade-off matters. Pricing discipline is key (term, annuity), interest rate movements implementation rigor, cost control. Channel CEOs have topline, bottom-line and quality targets - third year of this. On INSPIRE: strategic moat with partners/agents, cost efficiencies, smart data decisions for cross-sell - difficult to quantify but multiple benefits. On open architecture: we expect to remain the most preferred company with every agent.
Are Click2Achieve PAR and SAGA margin accretive overall? Will they cannibalize ULIP or deferred annuity? ULIP rider attachment differential between company and HDFC Bank?
PAR margins might be slightly lower than non-PAR at base level but for longer-term products the delta is not as much. Delta between ULIP and PAR margins is coming down dramatically with higher sum assured and improving persistency. We are trying to be more product mix agnostic. SAGA: no cannibalization - opens up new segment (deferred annuity avg age 55-57; SAGA could be low 40s/early 50s). On rider attachment differential: not getting into that detail; endeavor applies across all channels and banking partners.
Tech transformation - is meaningful impact 12 months or 24 months away?
We approach this via cost benefit analysis - BAU tech expense vs incremental, plus benefits in cross-sell/risk management/margins. Nine streams identified about a couple of years back, all CBA positive. Difficult to take a one-year call but over 3-5 years all of them make sense from an investment perspective.
Can you quantify the range for margins?
We like to retain that flexibility. We don't have a target for where we want to land at year end. VNB growth is what we'll be looking for - that depends on topline and margins based on product mix. A narrow band is what we'd like to stay within. Focus is on driving VNB growth.
If margins expand by 200 bps from FY25 levels, would it entirely be consumed by investments or do you have a threshold?
Investments are upfront and we are committed to people, branches, technology. Hard to say how much margin uplift comes from product mix vs gets subsumed in investments. Aspirations remain to grow faster than sector, keep margins range bound. We don't want to be bound by basis points in near term. Aspirations on 4-5 year period - doubling or near doubling - is the frame of reference.
Timeline for VNB expanding faster than APE? On SAGA - how many customers choose variant 2 with higher guarantee, and are margins higher?
Nothing further to add on investments and impact on margins. Commitment is made; we'll navigate via product mix. On SAGA: early days, moving well. Both options are pretty much half and half so far. Monitoring various aspects - guaranteed annuity upfront, deferral period, coverage, single/joint. On variant 2 vs variant 1 margins: fairly similar - not dramatically different. Like protection ROP vs non-ROP, we price it accordingly.
In the EV walk, can you provide breakup of operating assumptions and variances and within that, key categories like expenses, persistency, and mortality?
Most of the operating variance is coming from persistency and expense, mortality is close to zero and we have a small non-material impact of the assumption changes based on the review of the experience during the year. Both variances and assumption changes are positive.
On growth - white space in product/distribution seems absent. What kind of growth do you see on the retail side, and what channel/product will support that growth? Any discussion on regulation/cap on banca?
Unit linked has continued to be elevated, but we continue to attach more levels of protection to that. Participating products have done extremely well in this quarter, grown upwards of 40% odd. We can see some sort of moderation on unit linked products in the next 12 months. Non-PAR has been steady in early 30s; conducive rate environment will help. Protection has grown ~25% and we expect it to continue growing faster than overall company growth.
Is there confidence of maintaining current FY25 retail growth levels for FY26?
Time and again we have demonstrated that every year we do grow faster than the sector. SAGA is a clear white space - no other product exists today in that avatar. On regulations - banca mis-sale is a shade better than other channels. On caps on bancassurance, the understanding is that bancassurance is extremely important to get to insurance for all by 2047; throwing the baby out with the bathwater is not the intention.
Why is there a slowdown in individual protection in Q4? Margins improved on similar product mix - is that fixed cost absorption? How to think about individual APE growth given choppy markets? Competitive intensity post-surrender value regulations?
For the year, retail protection grew at 25%; Q4 also grew at 19% which is fairly healthy. On margins for the quarter - negative 30 bps from surrender value regulations, 40 bps expansion from inherent product margin improvements (more protection in ULIP, better persistency, longer-term products). Y-o-Y margin moved from 26.1% to 26.5%. On surrender value - large listed players have been calibrated; some unlisted aggressive. We took 30 bps hit and adjusted distribution commercials. Customer proposition largely unchanged for us.
Sequential view on individual protection?
On individual protection in Q4, quarter-on-quarter, sequentially it has grown by 26%. So it's more a factor of what happened last year but sequentially it has grown very handsomely.
Share of HDFC Bank in overall APE and retail protection ticket size for FY25?
Retail protection ticket size is about INR 40,000. HDFC Bank in our APE will be about 47% (on APE basis); on NBP / individual premium basis it's about 40%.
On medium-term: APE/VNB doubling in 4.5 years implies ~16.5-17% growth - are there enough buffers? And directionally on margin at the end of fourth year?
Over a 4-4.5 year cohort we remain committed to chasing that doubling. 16-17% growth, yes absolutely. Quarter-to-quarter it's hard to pin a number amid volatility, but we will still grow faster than the sector. On margins, over a 4-year period, all things being equal on regulatory outlook, margins should start moving a little bit upward once tech transformation investments are out of the way.
On HDFC Bank product mix optimization strategies and VNB accretion. On agency growth - productivity vs new agents. On ULIP persistency improvement levers.
On HDFC Bank: improving mix of ULIP via more sum assured, more protection, longer term ULIP products to make ULIP more profitable even at elevated levels. On agency: growth largely from sustained agents and efficiencies; inorganic (new branches/FLS/new agents) ~5%. On ULIP persistency (Vibha): early warning indicators, SI/ECS mandate enablement, extra hand-holding during volatility, data analytics for surrender propensity, and avoiding unsuitable customer profiles.
Protection book stayed at ~17.6-17.7 Bn APE for past three years. Outlook on group protection for FY26?
MFI segment disbursement was impacted; we expect 1-2 quarters of muted MFI then pickup in second half. Retail protection grows via term products and via increasing sum assured/riders on investment plans. Group term: 12-month renewable contracts, calibrated approach, no specific targets. Other credit life segments (housing, other loans) doing well. Vibha added: agency variable channel protection mix touching ~14%; bancassurance ~4% with room to grow.
Reinsurance terms and conditions - any movement?
Not in the recent past, but as we get deeper into India, the experience will be different from how the protection journey started in the top 10 cities. So all of that will have to be factored in by the reinsurer as well. That will be a BAU activity that will happen from time-to-time, but nothing in the recent past.
What's behind the subdued outlook for first half of FY26?
It's not so much subdued as much as we are calling out the base effect. In H1 FY25, we had ~30% robust growth - that's the base. Plus macro volatility, possible consumption slowdown, and RBI's downward GDP estimate revision. Niraj added: APE growth likely more back-ended; VNB growth not as back-ended given base effect. Environment is volatile; we'll have to be dynamic.
Operating ROEV has been on downward trend - efforts to recover? On RBC - peer raised capital; do you still think RBC will lead to capital release?
EVOP has compounded at ~19% for last 5 years and 18% for last 9 years. EVOP has a denominator effect because EV has grown faster than EVOP. Absolute value generation in rupee terms compounding 18-19%. On sub-debt, retirement of one tranche in next couple of months - we'll look at replenishment. Eshwari: On RBC framework, calculation will be more objective, will reward companies managing risk well. We believe we will benefit. We don't expect any adverse impact from RBC; in fact, position to be much better.
Marginal increase in non-PAR sensitivity to interest rates - anything to read?
Interest rate sensitivity has been range bound - no material change. Margin will be better in lower interest rate scenario. Increase in interest rate gives negative impact; decline gives positive impact - that's our concern given guarantees on non-par savings. Sensitivity is range bound.