HDFC Bank sees stable margins ahead as rate cuts flow through gradually

HDFC Bank stays confident on margins as rate cuts trickle in

HDFC Bank expects its margins to hold steady in the coming quarters, even as the impact of recent rate cuts flows through gradually. According to the management, the repo rate cuts in February and April have already been largely reflected in the loan book, but the 50-basis-point cut in June will take longer to fully play out in earnings.

“It takes about one to three months for the EBLR-linked book — which accounts for around 65–67 percent of loans — to fully reprice. Some reset monthly, others quarterly,” the bank said on its post-results analyst call.

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This lag explains why the sequential increase in yield on assets was contained to roughly 20 basis points in Q1, after adjusting for a one-off in the previous quarter. Management reiterated that margins should continue to benefit as lower rates pass through the loan book and deposits reprice over the next few quarters, supported by a mid-term deposit duration of 12–18 months.

In Q1FY26, HDFC Bank’s core net interest margin (NIM) fell to 3.35 percent from 3.46 percent in the March quarter — an expected outcome given the central bank’s rate cuts earlier this year.

The private lender posted a consolidated net profit of Rs 16,258 crore in the June quarter, down from Rs 16,475 crore a year ago, despite booking a one-time pre-tax gain of Rs 9,128 crore from the IPO of its subsidiary, HDB Financial Services.

The subdued bottom line reflected higher provisions, which rose to Rs 14,442 crore for the quarter. These included Rs 9,000 crore in floating provisions and Rs 1,700 crore in contingent buffers, signaling a cautious stance on potential asset quality risks.

Following the HDB Financial Services IPO, HDFC Bank’s stake in the subsidiary dropped to 74.19 percent as of June 30, 2025, from 94.32 percent in the prior quarter.

Meanwhile, standalone net interest income (NII) grew 5.4 percent year-on-year to Rs 31,438 crore in Q1FY26.

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