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HDFC Bank's Q3 FY26 results were in line with expectations, with management highlighting balanced credit growth and stable asset quality. Credit growth was aided by the easing rate cycle and CRR release, while deposit growth remained disciplined, with retail granular segments performing well but overall deposit growth falling short of ambitions. The LDR glide path remains a focus, with management targeting a range of 90-96% for FY26 and 85-90% for FY27, though they cautioned against quarter-to-quarter volatility. Cost of funds declined ~10-11 bps due to lagged repricing of time deposits. Asset quality remains pristine with slippages (ex-agri) at ~24 bps. Key risks include competitive intensity in mortgages and auto loans, and potential regulatory recalibration of agri portfolio provisions. Management expects system credit growth of 12-13% next year and aims to grow 200 bps above system.
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Guidance to track
- Management expects system credit growth of 12-13% in FY27 and aims to grow 200 bps above that, driven by retail, MSME, and wholesale segments.
- Management reiterated commitment to lowering LDR, targeting 90-96% by end-FY26 and 85-90% by FY27, though quarter-to-quarter variability is expected.
- Time deposit repricing (two-thirds of 125 bps policy cut passed on) will continue to lower cost of funds over next few quarters, with ~10-11 bps decline already seen in Q3.
- Management indicated branch additions will be lower than 500-700 per year, focusing on stabilizing the 4,800 branches added over last 5 years, which contribute ~20% of incremental deposits.
Risks flagged
- RBI may require additional provisions on agri loans due to scale of finance compliance; INR 5 bn already provided this quarter, but further recalibration could impact earnings.
- INR 8 bn provision for labor code changes is based on actuarial estimates with pending rulemaking; actual recurring impact could be higher or lower, affecting cost structure.
- PSU banks' aggressive pricing in home and auto loans could pressure margins, though management relies on relationship-based cross-sell to mitigate impact.
- Despite focus on granular deposits, overall deposit growth has been slower than desired, potentially constraining loan growth and LDR reduction if not accelerated.
Key quotes
- We did, however, fall short of our strong ambitions, but we are confident that continued focus on our strengths will bring the expected outcomes.
- We are addressing competition only through relationship and not through pricing.
- The credit card focus today is more not from a net receivable basis, but from a transactor basis.
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