Skip to content

    HDBFS

    HDBFS
    Financial Services·15 Jul 2025
    Management Summary

    HDB Financial Services reported a strong Q1 FY26 with 14.3% YoY loan growth and 18.3% YoY NII growth, coupled with NIM expansion to 7.7%. However, disbursements saw a sequential and YoY decline, and asset quality deteriorated with Gross Stage 3 increasing to 2.56% and higher credit costs, particularly in the Asset Finance and unsecured business loan segments. Management expects asset quality to stabilize and improve from Q2 onwards, with NIM benefits from rate reductions also kicking in.

    Highlights

    5

    • Total Gross Loans grew 14.3% YoY to ₹109,342 crores, demonstrating robust balance sheet expansion.

    • Net Interest Income increased by 18.3% YoY and 6.0% QoQ to ₹2,092 crores.

    • Net Interest Margin (NIM) expanded to 7.7% in Q1 FY26 from 7.6% in Q4 FY25, driven by higher yield.

    • Profit after tax for the quarter was ₹568 crores, an increase from ₹531 crores in the prior quarter.

    • Cost-to-income ratio for the lending business improved to 42.7% in Q1 FY26 from 42.9% in Q4 FY25.

    Concerns

    4

    • Disbursements for the quarter were ₹15,171 crores, down 14.0% sequentially and 8.1% YoY, indicating a muted quarter.

    • Gross Stage 3 (GNPA) increased to 2.56% as of June 30, 2025, from 2.26% as of March 31, 2025.

    • Credit cost for the quarter was ₹670 crores, up from ₹634 crores in the prior quarter, and 70 bps higher YoY on an annual basis.

    • Asset Finance disbursements were down almost 15% YoY, and the CV segment continues to show weakness and stress.

    What Changed2

    vs Q2 FY26

    Guidance items7 → 4 (-3)Risks discussed3 → 5 (+2)

    Key financials

    Single quarter

    11 metrics
    1. 01Total Gross Loans₹1.09L Cr+14.3%YoY
    2. 02Disbursements₹15,171 Cr-8.1%YoY
    3. 03Net Interest Income₹2,092 Cr+18.3%YoY
    4. 04NIM7.7%+0.1%YoY
    5. 05Cost-to-income ratio42.7%-0.5%YoY

    Capital allocation

    1
    high confidence
    CategoryHeadline
    Liquidity

    Liquidity disclosed

    The company remains well capitalized with a total CRAR of 20.18% as at June 30, 2025. Borrowing mix is diversified with 39% from NCDs, 39% from bank loans, and the rest from CPs, ECBs, Perp & Sub-debts. Over 90% of bank borrowings are EBLR-linked.

    Guidance & targets

    4
    CategoryTargetPriority
    Asset Quality
    Credit Cost
    Stabilize and improve
    		Medium
    Profitability
    NIM
    Expansion
    		Medium
    Profitability
    ROA
    Improvement
    		Medium
    General
    Guidance Policy
    No specific guidance
    		High

    Asset Quality Stabilization (Gross Stage 3)

    Q2 onwards
    Current2.56% as of June 30, 2025
    TargetStabilization and improvement

    Why it matters

    Monitoring the trend of Gross Stage 3 is crucial to assess the effectiveness of management's strategies to address asset quality concerns, particularly in CV and unsecured segments.

    We expect that to calibrate over the next, you know, few months in terms of just the seasonality and the way the business works.

    How to verify

    key_financials.metrics[label='Gross Stage 3']

    Risks & concerns

    5
    RiskSeverity

    Weakness in Asset Finance (Commercial Vehicles)

    Asset Finance disbursements were down 15% YoY, and the CV segment is experiencing stress and seasonally weak demand. Management is re-orienting product mix and focusing on used vehicles. — Management acknowledged

    medium

    Deteriorating Asset Quality (Gross Stage 3)

    Gross Stage 3 increased to 2.56% from 2.26% QoQ, with early stage delinquencies primarily in secured loans (CV) and unsecured business loans. Management expects stabilization from Q2. — Management acknowledged

    medium

    Higher Credit Costs

    Credit cost for the quarter was ₹670 crores, up from ₹634 crores in the prior quarter, and 70 bps higher YoY. Management expects credit costs to moderate as asset quality improves. — Management acknowledged

    medium

    Muted Disbursements

    Disbursements were down 14.0% sequentially and 8.1% YoY, indicating a relatively muted quarter compared to a year ago, with corresponding stress on asset quality. — Management acknowledged

    medium

    Lagging Vehicle Finance Asset Quality

    Analyst noted that Vehicle Finance NPA has seen sharper deterioration and lagged peers for 3-4 years. Management acknowledged weakness in the CV segment and ongoing work to improve performance. — Analyst acknowledged

    medium

    Q&A highlights

    7

    “So specifically in Commercial Vehicles, what we've seen is anyway it's a seasonally weak quarter. One of the things that we have done is really re-orient our strategy around the product mix, which started reflecting in some of our NIM numbers in terms of the mix between the various asset classes within the Commercial Vehicle business, right? So, this recalibration is something that we started about a year ago, something that has started showing results in terms of net interest margins that we are starting to see inching up in our book.”

    Analyst questioned the significant YoY decline in Asset Finance disbursements and the sequential increase in 30+ DPD, probing if it was seasonality or macro weakness. Management attributed it to seasonality, product mix re-orientation, and weakness in CV segment.

    asked by Abhijit Tibrewal

    2 min read6 chapters

    Detailed Narrative

    01

    Q1 FY26 Financial Performance Overview

    HDB Financial Services reported Total Gross Loans of ₹109,342 crores as of June 30, 2025, marking a 14.3% YoY and 2.3% QoQ growth. Net Interest Income (NII) for the quarter stood at ₹2,092 crores, an increase of 18.3% YoY and 6.0% QoQ. The Net Interest Margin (NIM) expanded to 7.7% from 7.6% in the previous quarter and the same quarter last year. Profit after tax for Q1 FY26 was ₹568 crores, compared to ₹531 crores in the prior quarter, with the Cost-to-income ratio improving to 42.7%.

    02

    Asset Quality Trends and Credit Costs

    Gross Stage 3 (GNPA) increased to 2.56% as of June 30, 2025, from 2.26% as of March 31, 2025. Credit cost for the quarter was ₹670 crores, up from ₹634 crores in the prior quarter. Management noted that early stage delinquencies were primarily in secured loans, particularly Commercial Vehicles, and unsecured business loans. They expect asset quality to stabilize and improve from Q2 onwards, leading to moderation in credit costs.

    03

    Business Verticals & Strategy

    The company operates in three verticals: Enterprise Lending (39% of loan book), Asset Finance (38%), and Consumer Finance (23%). Secured loans constitute 73% of the total loan book. Disbursements for the quarter were ₹15,171 crores, down 8.1% YoY and 14.0% QoQ, primarily due to a seasonally weak quarter for vehicle finance and a conscious slowdown in unsecured business loans. Management is re-orienting its strategy in Asset Finance, including a focus on used vehicles, and has tweaked product mix for yield expansion.

    04

    Sourcing, Distribution & Customer Base

    HDBFS serves 20.1 million customers, an increase of 5% QoQ and 20.4% YoY, with an average ticket size of ₹164,000. The company has a wide presence with 1,771 branches across 1,166 cities, with over 80% of branches in non-metro cities. Sourcing channels include branch network, tele-calling, OEM channels, dealer network, DSAs, and digital sourcing. The mobile app 'HDB OnTheGo' has crossed 10 million downloads, highlighting a 'phygital' approach.

    05

    Credit Underwriting and Collections

    The company employs a 360-degree credit assessment methodology, including a centralized automated system for smaller loans and branch-based credit managers for larger loans, aided by proprietary scorecards. Collections are handled by an in-house team of over 12,500 employees, with over 95% of collections through banking channels. The process is monitored via an in-house application with geo-tagging and e-receipt capabilities, supported by a Center of Excellence for training and quality checks.

    06

    Funding and Capital Adequacy

    HDBFS maintains a diversified funding mix from public, private, and foreign banks, mutual funds, and insurance companies, raising funds through NCDs, Term Loans, Commercial Papers, ECBs, Subordinate Debt, and Perpetual Debt. The company is well-capitalized with a total Capital to Risk-weighted Assets Ratio (CRAR) of 20.18% as of June 30, 2025. Over 90% of the company's bank borrowings are EBLR-linked, and benefits from rate reductions are expected from Q2 onwards.

    This is an AI-generated summary of a publicly available earnings call transcript. It is for informational purposes only and does not constitute investment advice, a recommendation, or an endorsement. inve.money is not a SEBI-registered investment advisor. Please consult a qualified financial advisor before making any investment decisions.