HDFC Bank aims to further reduce credit-to-deposit ratio next 2-3 years, eyes faster growth by FY27

plan to reduce the credit-to-deposit ratio over the next two to three years

India's largest private lender, HDFC Bank, reported stable performance for the third quarter, which contributed to significant movements in the Indian markets on January 22. While other banks saw their margins shrink in Q3FY25, HDFC Bank reported stable net interest margins at 4.3 percent, thanks to its focus on time deposits (fixed-term accounts) rather than relying only on low-cost CASA accounts (current and savings accounts), as the management explained in its analyst conference call.

The management noted that margins stayed steady at 3.4 percent despite lower borrowing costs, as they prioritised customer relationships through time deposits, which grew by 22.7 percent, instead of solely focusing on cheaper CASA accounts.

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HDFC Bank's expenses compared to income remained stable at 40–41 percent, with costs increasing by 7.5 percent, aligning with the 5–6 percent inflation rate. The bank added 1,052 new branches over the past year and invested more in technology to support growth.

The net interest margin, which reflects the bank's profitability from lending versus its borrowing costs, was unchanged year-on-year at 4.3 percent in Q3 FY25, as there was no significant rise in funding costs.

After merging with the housing finance company HDFC Ltd in July 2023, the bank adjusted its strategy to lower its credit-to-deposit ratio and aimed for greater financial stability, the management said.

The management also explained that changes in liquidity, credit demand, and economic conditions have led them to focus on sustainable growth. They plan to reduce the credit-to-deposit ratio over the next two to three years, with slower growth in FY25, matching the industry pace by FY26, and outpacing it by FY27. Currently, HDFC Bank's credit-to-deposit ratio is at 98 percent.

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