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What the record says.
HDFC Bank reported Q2 FY25 PAT of INR 16,800 crore, up 5.3% YoY (adjusted ~17% excluding bond gains and tax adjustments). Net interest margin remained stable at 3.46%. The bank is accelerating its loan-to-deposit ratio normalization, targeting high-80s within 2-3 years, with FY25 credit growth below system, FY26 at system, and FY27 above system. Deposit growth was healthy at ~13% YoY, with retail branches contributing 84%. Asset quality remained stable with GNPA at 1.4% and gross slippages at 1.2%. Management emphasized calibrated growth in unsecured loans and a cautious stance on wholesale lending due to tight spreads. Key risk: potential margin pressure from elevated liquidity and LCR buildup amid regulatory uncertainty.
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Guidance to track
- Management outlined a three-year plan to normalize the loan-to-deposit ratio, with credit growth slower than system in FY25, matching system in FY26, and exceeding system in FY27.
- The bank aims to reduce its loan-to-deposit ratio from current ~110% to the high-80s over the next 2-3 years, faster than previously guided 4-5 years.
- Management expects net interest margins to stay within the current tight range, with potential improvement once LCR normalizes and regulatory clarity emerges.
Risks flagged
- Draft RBI circulars on LCR and AIF provisioning could impact liquidity requirements and capital adequacy; final guidelines are awaited.
- Higher LCR (128%) and excess liquidity may depress near-term margins, though management views this as temporary.
- Analysts raised concerns about potential asset quality deterioration in unsecured and priority sector lending; management downplayed risks citing calibrated growth.
- Deposit rates remain elevated due to credit growth outpacing deposit growth, pressuring margins; management noted limited pricing power in wholesale lending.
Key quotes
- We will bring down the CD ratio faster than what we had anticipated in the past.
- We want to be extremely well-positioned when the positive cycle probably changes in the next two to three years.
- The deposit momentum is not something that you can- it's an overnight plug-and-play.
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