HDFC Bank posted a 2.2% year-on-year rise in net profit to Rs 16,735.5 crore in the fiscal third quarter as the country’s largest private sector bank consciously slowed down loan growth to keep correcting its credit-to-deposit ratio. 

 The bank’s profitability was also impacted on account of higher slippages from agricultural loans.

Growth slower, focus on CD ratio improvement

The lender’s growth will be slower than the system this financial year but will fall in line with the industry in the next fiscal, said Srinivasan Vaidyanathan, chief financial officer at HDFC Bank.

Vaidyanathan expects the bank to regain market share and grow loans higher than the system in FY27, after lowering its CD ratio, which is at 98% as of 31 December 2024. For the industry, the CD ratio is hovering around the 80% mark.

Vaidyanathan said the aim is to bring down the CD ratio to the pre-merger levels of below 90%. The bank will under no circumstance relent on credit quality and pricing to increase market share.  

“Traditionally, the bank has operated between 85% and 90% (CD ratio). So, we want to get to that level. About a year ago, we thought we would get to that level in 4-5 years. But as we evolved, we found overall credit growth in the market was coming down.  So we took the opportunity to accelerate the reduction in loan growth,” Vaidyanathan said. 

While the bank will continue making efforts to mobilise deposits, the focus, Vaidyanathan said, will continue to be on modulating the rate of credit growth.

NII and NIM

Net interest income (NII), or the difference between interest earned and interest paid, rose 7.68% to Rs 30,650 crore for the December quarter, compared to Rs 28,470 crore a year ago. 

Net interest margin (NIM) was flat at 3.4% on-year basis, but lower than 3.5% for the preceding quarter.

The bank’s margins have not seen much improvement since the parent’s merger due to a change in the operating environment and tight liquidity in the banking system. 

Provisions

Provision and contingencies for the quarter ended December 2024 fell to Rs 3,150 crore compared to Rs 4,220 crore a year ago.

Asset quality

The bank’s asset quality slipped due to seasonality in the farm-loan book. The gross non-performing assets (NPA) ratio stood at 1.42% as on 31 December 2024, up from 1.36% in end-September and 1.26% a year ago.

Gross NPA excluding agri loans was 1.19%, same as what it was in the prior quarter, said Vaidyanathan in a post-earnings call.

Net NPA ratio rose to 0.46% from 0.41% in September-end and 0.31% in the year-ago period.

Loan growth, slowing down strategy

The bank’s loan book expanded 3% year-on-year to Rs 25.42 lakh crore as of 31 December 2024. Sequentially, the growth was just 0.9%. This low rate of growth was part of the bank’s strategy to slow down credit so as to focus on deposit accretion and improve the CD ratio.

Retail loans grew 10% to Rs 13.42 lakh crore while commercial and rural banking loans rose by 11.6% to Rs 8.6  lakh crore. Corporate and other wholesale loans contracted more than 10.4% to Rs 4.8 lakh crore. Overseas advances constituted 1.8% of total advances.

The bank’s retail loan book currently accounts for about 58% of total loans, whereas wholesale loans account for 42%. 

The bias towards retail loans continues, despite the bank becoming more cautious and “tighter” on retail loans in the past two years. Vaidyanathan said this is where the bank has invested, sees more growth opportunity, and has market leadership in those kinds of product lines. While wholesale loans continue to be important, especially as a “feeder” to the bank’s salary account relationships, it is extremely price sensitive and margins are “very tight”.

For moderating credit growth, HDFC Bank will continue to scale up loans sales over the next 2-3 years. The aim will be to cross-sell products  and “not necessarily keep it on the balance sheet”. The sales will largely be of mortgage and auto loans as they are seeing the most investor interest.

In the December quarter, HDFC Bank sold and securitised over Rs 14,000 crore worth of loans.

Deposits, CASA and branch expansion

The bank’s deposits were at Rs 25.6 lakh crore as of 31 December 2024, up 15.8% year-on-year and 2.5% on quarter. 

CASA (current account and savings account) deposits were up 4.4% on year at Rs 8.7 lakh crore, with savings account deposits at Rs 6.05 lakh crore and the rest from current account. Time deposits were at at Rs 16.9 lakh crore, up 22.7% on year.

CASA deposits comprised 34% of total deposits as of 31 December 2024, down from 38% a year ago.

For mobilising deposits, HDFC Bank added 405 branches in FY25 so far, of which 51 were opened in the December quarter. In FY24, the bank had added close to 1,000 branches.

The bank added 19 lakh customers in Q3 and 20 lakh in Q2. In FY24, it had added about 90 lakh new customers. 

Liquidity coverage ratio fell to 125% from 128% in the quarter-ago period.