HDFC Bank Ltd., an Indian banking and financial services company, in its Q3 earnings call discussed about a strategic approach to navigating challenging macro conditions through careful growth calibration. The company mentioned that it’s maintaining stable credit quality across segments while addressing priority sector lending requirements through organic growth and alternative instruments. Management emphasized its disciplined approach to cost management, with technology investments now comprising over 10% of costs. Management also plans a phased growth strategy, targeting system-level growth in FY26 and accelerated growth in FY27.
HDFC Bank showcased a complex performance with both growth and challenges. The bank reported a 2.2% year-on-year increase in standalone net profit to INR16,736 crore, slightly below the analyst estimate. Gross advances grew by 3% to INR25,42,600 crore, with notable expansion in retail and rural banking loans, while interest earned increased by 7.6% to INR76,007 crore. The bank demonstrated robust deposit growth, with average deposits rising nearly 16% to INR24,52,800 crore, and maintained a strong capital adequacy ratio of 20%. However, challenges included a 5.2% increase in gross non-performing assets to INR36,018 crore and a slight decline in net interest margins. Despite current margin pressures, the bank remains focused on building comprehensive customer relationships and maintaining operational flexibility.
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Financial/Operational Metrics:
- Total Sales: INR74,017 crore, up 9% YoY.
- Net Profit: INR16,821 crore, up 5% YoY.
- Diluted EPS: INR22.04, up 5% YoY.
- Net Interest Income: INR30,653 crore, up 8% YoY.
- Average Deposits: INR24,52,800 crore, up 16%.
Outlook:
- Deposit Growth Outpacing Loans: Progressing toward a normalized credit deposit ratio.
- Liquidity Position: Sufficient liquidity to grow and capture market share when macro conditions improve.
- Capital Adequacy: Ample capital to sustain growth and market share expansion.
Analyst Crossfire:
- Priority Sector Lending Costs, Provisions & Tax Refunds (Mahrukh Adajania – Nuvama Research): HDFC Bank met Priority Sector Lending (PSL) targets through a mix of strategies, including organic growth, IBPC purchases, and PSLC acquisitions. Costs related to PSL are embedded in the bank’s overall ROA structure. The Provision Coverage Ratio (PCR) excluding agriculture loans stood at 71%, consistent with the prior quarter. Tax refunds contributed INR2 billion to other income this quarter (Srinivasan Vaidyanathan – CFO).
- Liquidity Deployment & Borrowing Costs, Contingent Provisions Release (Chintan Joshi – Autonomous): Excess liquidity of INR1.2 trillion was invested at yields between 6.5-7%, while borrowing costs, including HDFC Ltd.’s loans, averaged 7.9-8%. Contingent provisions were reduced due to the recovery of a large wholesale account previously tagged for potential risk (Srinivasan Vaidyanathan – CFO).
- Cost-to-Income & Margins Post-Merger (Suresh Ganapathy – Macquarie Capital): Cost-to-income remains stable at 40.5%, with ongoing investments in branches and technology. Margin expansion has been limited due to high deposit growth, with CASA ratios expected to improve as rates normalize (Sashidhar Jagdishan – CEO; Srinivasan Vaidyanathan – CFO).
- Loan Yields & Risk Density, NPA Classifications & Provisioning (Pranav Gundlapalle – Sanford Bernstein, Ravi Purohit – SIMPL): Risk-adjusted yields remain competitive due to the bank’s lower-risk portfolio, with retail growth expected to drive higher yields over time. NPAs from the HDFC wholesale book include restructured accounts as per RBI guidelines, contributing 15 basis points to the bank’s GNPA ratio. Contingent provisions totaling INR30 billion were released during the quarter (Srinivasan Vaidyanathan – CFO).
- Employee Headcount & Deposit Growth, Cost Growth & Operational Efficiency (Rikin Shah – IIFL, Saurabh Kumar – JPMorgan): Employee count grew marginally, reflecting a focus on productivity and frontline hiring. Deposit growth at 16% YoY is aligned with system growth, supporting future credit expansion. Future cost growth will focus on productivity gains while continuing investments in branches, technology, and personnel. Cost efficiency remains a priority (Sashidhar Jagdishan – CEO, Srinivasan Vaidyanathan – CFO).
- Credit Environment & Slippage Management, CASA Ratio & Margin Protection (Nitin Aggarwal – Motilal Oswal, Rahul Jain – Goldman Sachs): The bank maintained a stable credit book with effective monitoring and analytics. Despite slower book growth, the credit quality remained robust across unsecured loans and commercial banking. CASA ratio pressures are cyclical and expected to improve as interest rates decline. Margins are supported by adding 1.9 million liability accounts during the quarter (Sashidhar Jagdishan – CEO , Srinivasan Vaidyanathan – CFO).
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