HDFC Bank’s FY26 growth to be slightly higher than market growth

Credit-deposit or CD ratio, a measure of how the bank’s deposits have been monetised to grow its loans, stood at 100% in Q2 FY5

HDFC Bank posted 17.4 percent year-on-year net profit growth in quarter ended September 30, 2024 of Rs 17,600 crore. This came on the back of a seven percent year-on-year growth in advances, which stood at Rs 24.95 lakh crore. In a call with media, HDFC Bank’s management represented by V Srinivasan, chief financial officer, said he would not want to give any forward looking guidance. However, on the trajectory of loan growth he indicated that FY25 loan growth for the bank would be lower than the market growth and in FY26, the bank should grow a bit faster than the market.

In the recent quarters, HDFC Bank has been growing in advances slightly lower than its deposits to ensure that the bank operates at an optimal credit deposit ratio. At Rs 25 lakh crore of deposits, the quarter’s deposit rose over 15 per cent year-on-year.

Credit-deposit or CD ratio, a measure of how the bank’s deposits have been monetised to grow its loans, stood at 100% in Q2 FY5. This is a reasonable improvement from 105% seen in March 2024. Historically, HDFC Bank has maintained its CD ratio at 86 – 87 per cent according to Srinivasan. We will fund our balance sheet more with deposits than with borrowings, he said in the media call. The bank aims to bring down its CD ratio to the pre-merger level in the next two years. According this might have an impact on the bank’s loan growth.

In FY25, for instance, the bank has indicated that its advances may grow at below market rate. “Next year loan growth may be slightly above the market growth,” Srinivasan said.

Elaborating further on loan growth, the CFO said HDFC Bank moderated its loan growth in unsecured segment from FY23. “We grew our unsecured loans by 19 percent, while the industry grew at 23 per cent (that year). In FY24 we slowed down to 10 per cent and it is in the similar 9 – 10 per cent growth in FY25,” he explained.
HDFC Limited announced its merger with HDFC Bank in April 2022 and the merger fructified from July 1, 2023.

Post the merger, the management initially guided that they would not lose sight of profitability or net interest margin which historically has been above 4 per cent for the bank and in every four years, the bank would grow fast enough to produce another HDFC Bank. Not only has HDFC Bank had not been able to expand its NIM beyond 3.4 – 3.5 per cent post-merger, thanks to the housing loan portfolio which accounts for 30 per cent of its loan book, loan growth has also been on the slow mode since December 2024 to recalibrate the bank’s CD ratio. When asked where the bank stands on these guidances, Srinivasan said it would take 4 – 5 years to do what we thought we could do in 2 – 3 years.