Detailed Narrative
Q2 FY26 Performance Overview and Growth Drivers
HDB Financial Services reported a robust Q2 FY26, with its customer franchise growing to 21.0 million, marking a 19.6% YoY increase. The Gross Loan Book expanded by 13% YoY to ₹111,409 crores, driven by a 1.9% QoQ growth. Disbursements for the quarter stood at ₹15,599 crores, up 2.8% QoQ, indicating continued business activity. The company's branch network expanded to 1,749 across 1,157 cities and towns.
Net Interest Income and Margin Expansion
The company achieved a healthy Net Interest Income (NII) of ₹2,192 crores in Q2 FY26, representing a 19.6% YoY and 4.8% QoQ increase. This growth contributed to an expansion in Net Interest Margin (NIM), which improved to 7.9% in Q2 FY26, up from 7.7% in Q1 FY26 and 7.5% in Q2 FY25. Management indicated a 'sweet spot' for NIM between 7.9% and 8%, aiming to maintain this range despite market pressures🌐.
Asset Quality Challenges in Commercial Vehicle Segment
Asset quality remained a key concern, with Gross Stage 3 increasing to 2.81% as of September 30, 2025, from 2.56% in the prior quarter. This deterioration was primarily attributed to the Commercial Vehicle (CV) financing segment, which constitutes approximately 38% of the loan book. Factors cited included higher vehicle idling (30-35% in some markets vs historical 20%) due to heavy monsoon and flash floods, and demand deferment caused by anticipated GST rate rationalization. The provision coverage ratio on Stage 3 stood at 54.73%.
Credit Cost and Profitability Outlook
Credit costs for the quarter were ₹748 crores, an increase from ₹670 crores in the prior quarter, resulting in a Q2 FY26 credit cost of 2.7%. Management acknowledged this as an elevated level but expressed confidence that credit costs would normalize to a 2.2% +/- range over a 3-5 year period. Profit after tax (PAT) for the quarter was ₹581 crores, a modest increase from ₹568 crores QoQ. The annualized RoA for Q2 FY26 was 1.93%, or 2.02% when adjusted for opening assets of ₹9,000 crores.
Operational Efficiency and Cost Management
HDBFS demonstrated improved operational efficiency, with the cost-to-income ratio for its lending business declining to 40.7% in Q2 FY26, down from 42.7% in both Q1 FY26 and Q2 FY25. The cost-to-assets ratio also saw a reduction to 3.7% in Q2 FY26 from 3.8% in Q1 FY26. Management aims to maintain the cost-to-income ratio between 41.5% and 42% and the cost-to-assets ratio between 3.6% and 3.7% as part of its strategy to achieve RoA targets.
Segmental Performance and Future Growth Strategy
Enterprise Lending and Asset Finance each constitute approximately 38% of the loan book, while Consumer Finance makes up about 23%. Gold loans showed strong growth, increasing by 10% QoQ and 40% YoY, benefiting from regulatory changes. While Consumer Finance experienced moderate growth in Q2 due to demand deferment, management anticipates a significant pickup in H2 FY26, driven by the festive season, easing inflation, and improved rural consumption. The company targets an 18-20% CAGR for its overall book growth over the next 3-5 years, with the consumer business expected to grow faster and increase its share of the book.
Technology and Customer-Centric Approach
The company emphasized its continued investment in technology, highlighting its 'HDB on-the-go' initiatives to enhance customer experience. This includes ensuring seamless online journeys and providing pre-approved limits for various products like consumer durables, two-wheelers, and unsecured personal loans. Management views technology as critical for operational efficiency and for maintaining its competitive edge, enabling it to fine-tune credit policies and engage effectively with its 21 million customers.