HDFC Bank bets on govt reforms to boost loan growth, expects faster loan revival

With inflation cooling, GST cuts expected to boost disposable incomes and interest rate cuts expected to reduce borrowing costs, the country’s largest private lender expects loan demand to gain momentum in the second half of the financial year and beyond.

Jagdishan said in the bank’s September quarter earnings call on Saturday: “The trifecta of tax benefits, GST cuts and interest cuts appears to be working as we see ground-level economic activity improving visibly across customer and product segments. Against this backdrop, we have an opportunity to accelerate credit growth, which is what we have set out to do from this quarter onwards. We believe this will continue and continue, but “Of course we have to wait and watch.” said Jagdishan.

Finance chief Srinivasan Vaidyanathan said the bank is now compliant with the system in FY26 and expects to grow faster than the system and regain market share in FY27, after deliberately slowing down credit expansion following its merger with former parent Housing Development Finance Corporation Ltd to reduce the loan-to-deposit ratio from 110% to below 97%.

The bank’s gross advances rose nearly 10% year over year in the quarter ended September. ₹27.692 billion and deposits increased by over 15% on an annual basis ₹27.1 trillion. For the banking sector as a whole, non-food loans rose 10% year-on-year as of September 19, while deposit growth rose 9.5%, according to data from the Reserve Bank of India (RBI).

The bank continues to increase its deposits faster than the system to gain market share, Vaidyanathan said, adding that efficiency per branch increases sharply as new branches mature.

HDFC Bank is seeing a revival in corporate loan demand as well as retail loan growth; wholesale advances increased 4.7% sequentially in the quarter and 6.4% annually. ₹7.41 trillion. In the June quarter, this ledger shrank more than 1% from the previous quarter and was up 2% annually.

The bank said it selectively participated in working capital financing at “reasonable and good” spreads as corporate clients sought financing at a time when bond market activity was subdued as yields rose during the quarter.

When asked about the RBI’s move to allow acquisition financing by banks, the management said it sees an opportunity in this space. “It will definitely be a win-win in terms of providing our customers with another product offering in our bouquet of services. Secondly, even for the customers, I believe it should reduce the cost of the transaction,” Jagdishan said.

Basic measurements

In the September quarter, HDFC Bank’s standalone net profit grew by nearly 11% year-on-year. ₹ ₹18,640 crore, supported by healthy credit growth and stable asset quality. Net interest income increased by 5% annually ₹31,600 crore while core net interest margin fell to 3.27% from 3.35% a quarter ago.

The bank expects NIMs to remain flat or slightly higher over the next 12-24 months as deposit repricing benefits continue. According to Vaidyanathan, 70 per cent of loans have variable interest rates and the transition from the RBI’s 100 basis point rate cut has mostly occurred. “It’s mostly there until September. Regardless of the quarterly impact, some of it will continue until December,” he said.

“It takes approximately six quarters for deposit costs to fully reflect rate changes, and we are already seeing an 18 basis point reduction in the cost of funds,” he said.

The bank’s asset quality remained solid; While the gross non-performing assets ratio increased to 1.24% from 1.40% a quarter ago, the net NPA ratio increased to 0.42% from 0.5% a quarter ago. The lender maintained its loan cost ratio at 0.51% and its capital adequacy ratio at 20%, allowing it to pursue growth aggressively.

underlying technology

HDFC Bank continues to double down on technology and digital transformation, management said. Jagdishan said the bank is running “lighthouse experiments” using generative AI and automation to redesign processes, shorten 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.

Most importantly, the bank ignored the job losses resulting from the adoption of AI. “Artificial intelligence will not decrease [the number of] people. “It will shift talent from the backend to customer-facing and technology roles,” he said.