The Federal Bank vs HDFC Bank Q2 FY25

Federal Bank reported a record net profit of INR 1,057 crore (+10.79% YoY) and NII of INR 2,367 crore (+15.11% YoY) in Q2 FY25. Asset quality improved with GNPA at 2.09% and net NPA at 0.57%. Deposit growth lagged loan growth (1% QoQ vs 19.45% YoY advances), leading to a CD ratio above 85%. Management emphasized CASA growth and tactical term deposit pricing to close the gap. New MD KVS Manian is conducting a strategy review, with details expected in December. NIM was impacted by 7bps due to penal charge reclassification; underlying NIM improved to 3.19%. Risks include elevated competition for deposits, potential MFI stress, and margin pressure from rate cuts.

Guidance read

Loan growth guidance maintained at ~18%: Management reiterated loan growth guidance of around 18% for FY25, with focus on deposit mobilization rather than slowing advances. Credit cost guidance unchanged at 29-30bps: Full-year credit cost guidance remains at 29-30 basis points, supported by strong asset quality and conservative underwriting. ROA expected around 1.8% for FY25: ROA guided at ~1.8% for the full year, with potential slight improvement if rate cuts occur later. Infrastructure bond issuance of INR 1,500 crore: Bank plans to raise INR 1,500 crore via infrastructure bonds to fund infrastructure assets, a first for the bank.

Risk read

Key risks include Deposit growth lagging loan growth — Deposit growth was only 1% QoQ vs loan growth of 19.45% YoY, leading to a CD ratio above 85%. Management aims to close the gap but faces competitive pressure.; MFI portfolio stress — MFI slippages have increased, though management claims they are below industry levels due to conservative underwriting and geographic concentration in southern states.; NIM pressure from penal charge reclassification and rate cuts — NIM was impacted by 7bps due to penal charge reclassification. Potential rate cuts could further pressure margins, though management expects underlying NIM improvement.; Credit card embargo resolution timeline uncertain — RBI embargo on co-brand credit card reissuance remains unresolved. Management expects to approach RBI soon for one model, but other models may take longer..

Promise ledger

Of 2 tracked promises, management 0 met, 0 close, 2 missed.

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.

Guidance read

Credit growth glide path: FY25 below system, FY26 at system, FY27 above system: 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. Target LDR of high-80s within 2-3 years: 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. NIM to remain in 3.45%-3.5% range in near term: Management expects net interest margins to stay within the current tight range, with potential improvement once LCR normalizes and regulatory clarity emerges.

Risk read

Key risks include Regulatory uncertainty on LCR and AIF provisions — Draft RBI circulars on LCR and AIF provisioning could impact liquidity requirements and capital adequacy; final guidelines are awaited.; Margin pressure from elevated liquidity buildup — Higher LCR (128%) and excess liquidity may depress near-term margins, though management views this as temporary.; Credit risk in unsecured and priority sector loans — Analysts raised concerns about potential asset quality deterioration in unsecured and priority sector lending; management downplayed risks citing calibrated growth.; Sticky deposit rates and competitive pressure — Deposit rates remain elevated due to credit growth outpacing deposit growth, pressuring margins; management noted limited pricing power in wholesale lending..

Promise ledger

Of 2 tracked promises, management 0 met, 0 close, 2 missed.