With inflation cooling, GST cuts boosting disposable incomes, and anticipated interest rate cuts likely to reduce borrowing costs, the country’s largest private lender expects loan demand to gather momentum in the second half of the financial year and beyond.
“The triad of tax benefits, GST cuts and interest rate cuts seems to be working as we see the ground-level economic activity visibly improving across customer and product segments. Against this background, we have an opportunity to accelerate the loan growth, which is what we have started to do from this quarter. We believe that this will sustain and continue, but of course, we have to wait and watch,” Jagdishan said during the bank’s September-quarter earnings call on Saturday.
After deliberately slowing credit expansion after its merger with erstwhile parent firm Housing Development Finance Corporation Ltd to reduce its credit-deposit ratio from 110% to under 97%, the bank now expects to grow in line with the system in FY26 and faster than the system in FY27, regaining market share, chief financial officer Srinivasan Vaidyanathan said.
For the quarter ended September, the bank’s gross advances grew almost 10% on-year to ₹27,692 billion and deposits were up over 15% on-year to ₹27.1 trillion. For the banking sector as a whole, non-food credit grew 10% on-year as of 19 September and deposit growth was up 9.5%, according to data from the Reserve Bank of India (RBI).
The bank continues to grow deposits faster than the system to gain market share, Vaidyanathan said, adding that per-branch productivity has been improving sharply as new branches mature.
Apart from banking on retail credit growth, HDFC Bank is also seeing a revival in corporate loan demand, with wholesale advances rising sequentially by 4.7% during the quarter and 6.4% on year to ₹7.41 trillion. During the June quarter, this book shrunk by more than 1% on-quarter and grew by 2% on-year.
The bank said it participated selectively in working-capital financing at “reasonable and good” spreads, as corporate clients sought funding amid muted bond market activity as yields rose during the quarter.
Asked about the RBI’s move to allow acquisition financing by banks, management said it saw an opportunity in this space. “Definitely, it is going to be a win-win in terms of providing another product offering to our bouquet of services to our customers. And the second one is even for the customers, I believe that it should reduce the cost of the transaction itself,” Jagdishan said.
Key metrics
For the September quarter, HDFC Bank’s standalone net profit rose nearly 11% on-year to ₹ ₹18,640 crore, supported by healthy credit growth and stable asset quality. Net interest income increased by 5% on year to ₹31,600 crore, while the core net interest margin came in at 3.27%, down from 3.35% a quarter ago.
The bank expects NIMs to remain stable or slightly higher over the next 12-24 months as deposit repricing benefits flow through. According to Vaidyanathan, 70% of loans have floating interest rates and the passthrough from the RBI’s 100-basis-points rate cut has mostly been done. “For most part, it is there by September. Some more, whatever the full quarter impact is not there, will flow through in December or so,” he said.
“Deposit costs take about six quarters to fully reflect rate changes, and we’re already seeing an 18-basis point drop in the cost of funds,” he said.
Asset quality of the bank remained robust, with gross non-performing assets ratio improved to 1.24% from 1.40% a quarter ago, while net NPA ratio came in at 0.42% from 0.5% a quarter ago. The lender maintained a credit cost ratio of 0.51% and a capital adequacy ratio of 20%, giving it room to pursue growth aggressively.
Technology at the core
HDFC Bank continues to double down on technology and digital transformation, management said. Jagdishan said the bank was running “lighthouse experiments” using generative AI and automation to re-engineer processes, cut turnaround times, and improve customer experience. “We’re setting up our own factory for emerging technologies,” he said, adding that tangible benefits are expected in 18-24 months.
Crucially, the bank ruled out job losses from AI adoption. “AI is not going to reduce [the number of] people. It’s going to shift talent from back-end to customer-facing and technology roles,” he said.
